This long term chart compares the SPX (orange), US10Y (white) and the Fed's National Activity Index (blue).
Note the extended periods of the NAI which remain below 0 marking recession.
The 10 year yield tends to peak well in advance of the next recession. On a daily basis we see ongoing concern about the 10y-3mo inverted yield curve as an indication of...
This long term weekly chart compares the relationship between:
1) economic fundamentals
2) fears of falling equity prices
3) expected default rates in credit markets
The top half of the chart overlays the long term correlation between the VIX (in orange) to speculative corporate bond yields (blue). The bottom half of this chart shows the Fed's National...
I heard some interesting commentary this week from the pros about watching for signs in the cyclical:defensive sector ratio.
I put together this chart using (XLK+XLI+XLB)/(XLP+XLU+XLV).
It is a composite of tech, industrials and materials indexes as a ratio to staples, utils and health sector indexes.
The chart ratio is about 1:1 right now.
In a late stage...
This weekly chart shows the long term correlation between the VIX (in orange) to the corporate bond yield spreads.
The light blue line shows the BAML investment grade bond index yields a spread of 3.9% above the 10 year treasury.
The white line shows the yield spread between investment grade BBB bonds and BB speculative grade.
At over 19x forward earnings it would appear BRK.b stock isn't exactly cheap right now. In fact, a fair valuation model (DCF) suggests it could be valued at this price by year end 2020 based on long term earnings growth estimates of 7%.
Looking at earnings estimates for 2019 gives projections for 10.40 EPS. A long term average market multiple of 17x suggests ...
Which SPX target will you bank on for 2019? Comment below!
Each of these year end scenarios are based on a DCF valuation model:
A) 2700 fair value, 170 EPS 2019 estimate, 15.88 PE (20 year average forward PE)
4% EPS growth for next 5 years, shrinking to 2% after
B) 2500 fair value, 170 EPS 2019 estimate, 14.7 PE
2% perpetual EPS growth, 9% discount...
This chart shows the ratio of XAUUSD vs BKX bank index
Gold is typically considered a secure investment in times of economic uncertainty
The KBW Bank Index (ticker BKX) tracks the stocks of 24 major banking companies since the early 90s.
This index serves as a benchmark of the banking sector.
During the Great Financial Crisis of 2007–08 questions regarding...
This chart compares the real yield of 10 year Treasuries (bottom red) to XAUUSD (top). The real yield is the yield that a treasury buyer can expect to earn after inflation (nominal interest rate minus the inflation rate). At a glance there's visibly a strong negative correlation between real rates and the price of gold over time. Research by _Erb and Harvey...
During several previous liquidity crisis in 2001,2008,2012, 2016 the investment grade corporate yields spread over treasuries hit 200+ bps ... right now at an average spread of 150 basis points, may suggest more pain ahead before capitulation is reached. In other words investment grade corporate bond yields may be still too low. Based on what we've seen during...
The latest GDP number suggests inflation-adjusted annual growth of 4.2%.
However, gross domestic income (GDI) (produced by the Bureau of Economic Analysis )
Both the GDP and GDI are estimates of economic growth (with one focused on expenditure and the other on income).
The GDP-GDI average suggest economic growth rate to be in the 3% range.
This average may...
Contracting USD liquidity supports a bullish US Dollar view and a risk-off positioning.
If the global Dollar liquidity fails to improve and continues to contract a deflationary environment may be ahead.
Certainly the USD indebted EM countries & corporations have already been heavily impacted by the rapid rise in the dollar.
Commodity indexes have shown this...
The 30 year treasury yield has traded under 3.25% for almost 4 years now.
The Fed continues to hike rates on a quarterly basis and Trump is unhappy about rising rates.
Every day we hear how the economy is 'in great shape', and jobs data is 'as good as it gets'.
More significantly what is pushing up rates are increased treasury issuance and the Fed's...
A couple weeks ago I bought a bearish 'poor man's covered put' on IWM :
Long the 177 put in Dec, and short the 164 in Aug for a net debt of 8.45
Breakeven @ expiry $170
approx: -40 delta, 1.44 theta
Max Loss : 845
Max Profit : 455
8.45 debt to 13 wide for ratio of 65%.
I'd look to close for profit early with a +20-25% profit target selling...
BOT +1 DIAGONAL XLK 100 21 SEP 18/17 AUG 18 76/72 PUT @2.75
Paid 2.75 (debt is 69% of the width )
Breakeven @ expiry $73.58
-39 delta, .96 theta
Max Loss : $275
Max Profit : $126
Opened a bearish trade here fade the recent rally and add some negative deltas to balance the portfolio.
Following another great trade idea from NaughtyPines! (link...
What earnings multiple or P/E do you expect the SPX to reach by year end 2018 or 2019?
It's like a game of guess the jellybeans in the jar, so have some fun and play along!
Share your estimate in the comments!
The SPX will finish the year at a price and will report earnings when the year is out. What do you expect that will be?
( Whether you agree or disagree...
I've a bearish bias on the EURUSD based on capital outflow due to the low yield on Bunds vs much more attractive US treasury yield.
In a nutshell I've short straddled FXE at 111 until Aug expiry and longed a 104/122 strangle until year end.
Back in June 26 When EURUSD @ 1.165 I sold the FXE AUG 111 straddle for @2.70 with IV at 7.98. This gave me breakevens at...
This chart compares the real yield of long term Treasuries (top) to gold in USD (bottom). The real yield is the investor in long term Tresuries expects to receive after allowing for inflation (nominal interest rate minus the inflation rate). At a glance there's visibly a strong negative correlation betweeen real rates and the price of gold over time. Research...
Opened a 'poor mans covered call' on GLD.
Going long on this alternative asset class to diversify the portfolio. My overall bias is higher gold based on the technical price trend since 2016 and expect we'll soon see a reversion towards the mean/median price range.
Bought the OCT 112 CALL at 86 deltas, 105 days to expiration as a stock replacement for 8.12