Very interesting different perspective
http://www.businessinsider.com/david-bianco-high-profit-margins-sustainable-2012-5
http://www.businessinsider.com/david-bianco-high-profit-margins-sustainable-2012-5
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Global Macro Trading Journal
- Thread starter Daal
- Start date
Cheap? The front end of TIPS is a punt on oil/gasoline and who knows what happens there. I daresay that 2y TIPS at -1.5% real yield isn't really that cheap, unless you think oil's gonna roof it. The only thing that's cheap in TIPS is the 30y area, but that's on a relative basis.Quote from Daal:
If you are talking about USD investment only. I'd say TIPS are quite cheap
Quote from Martinghoul:
Cheap? The front end of TIPS is a punt on oil/gasoline and who knows what happens there. I daresay that 2y TIPS at -1.5% real yield isn't really that cheap, unless you think oil's gonna roof it. The only thing that's cheap in TIPS is the 30y area, but that's on a relative basis.
Well, in a fixed income portfolio its all about relative basis isn't it. I'm referring more to 5-10y tips
"Assuming the Fed is successful in its targeting efforts and the CPI averages 2.35% over the next five years, a buy-and-hold position purchased at par and held to maturity in five-year notes (using a nominal yield of 0.85%) would return 4.25% in nominal terms and -7.5% in real terms. Tii Apr 17 would return 6.25% in nominal terms if purchased at market price and held to maturity. Therefore, despite having a negative real yield, Tii Apr 17 would outperform nominal Treasuries by 2%. The actual rate of inflation will vary, which will impact the real return of a security. "
http://www.pimco.com/EN/Insights/Pages/TIPS-for-Value-Investors-Whos-Afraid-of-Negative-Yields.aspx
Yeah, Ole Bill's story is, basically, about going long the line in the attachment (I used a const maturity 7y breakevens). Problem, for me, is still the fact that it is mostly a long oil/gasoline trade (and becomes increasingly more so with time). Furthermore, also due to the funding component, it's really much too volatile for my taste and isn't really at any particularly compelling levels. Again, the really absurd thing in TIPS is that the equivalent number for the 30y maturity is only arnd 15bps higher. Simplistically, that's 20+ years worth of extra inflation risk premium for free.Quote from Daal:
Well, in a fixed income portfolio its all about relative basis isn't it. I'm referring more to 5-10y tips
"Assuming the Fed is successful in its targeting efforts and the CPI averages 2.35% over the next five years, a buy-and-hold position purchased at par and held to maturity in five-year notes (using a nominal yield of 0.85%) would return 4.25% in nominal terms and -7.5% in real terms. Tii Apr 17 would return 6.25% in nominal terms if purchased at market price and held to maturity. Therefore, despite having a negative real yield, Tii Apr 17 would outperform nominal Treasuries by 2%. The actual rate of inflation will vary, which will impact the real return of a security. "
http://www.pimco.com/EN/Insights/Pages/TIPS-for-Value-Investors-Whos-Afraid-of-Negative-Yields.aspx
Incidentally, Ole Bill's PIMCO is the 800lb gorilla in the TIPS mkt. Things get very dysfunctional when the Total Return fund is in the mkt with some ginormous flow.
Attachments
Quote from Martinghoul:
Yeah, Ole Bill's story is, basically, about going long the line in the attachment (I used a const maturity 7y breakevens). Problem, for me, is still the fact that it is mostly a long oil/gasoline trade (and becomes increasingly more so with time). Furthermore, also due to the funding component, it's really much too volatile for my taste and isn't really at any particularly compelling levels. Again, the really absurd thing in TIPS is that the equivalent number for the 30y maturity is only arnd 15bps higher. Simplistically, that's 20+ years worth of extra inflation risk premium for free.
Incidentally, Ole Bill's PIMCO is the 800lb gorilla in the TIPS mkt. Things get very dysfunctional when the Total Return fund is in the mkt with some ginormous flow.
What you mean its a energy trade?If the Fed hits their target of 2% PCE, based on historical relationships to the CPI, TIPS will provide an additional return. For USTs to be a better value one must think the Fed will fail Japan style
Loew's Tisch picking up a theory that Hugh Hendry made earlier: He thinks the US will see an economic revival in a few years time based on the fracking boom and the resulting cheap natural gas. Utility companies are mass-migrating plants to use nag gas instead of coal. As a result coal prices are in free-fall, so are coal stocks.
Next up in line to use natural gas would be the trucking & commercial transportation industry.
http://www.bloomberg.com/video/92004021/
Next up in line to use natural gas would be the trucking & commercial transportation industry.
http://www.bloomberg.com/video/92004021/
Anybody playing the elections in Europe this weekend. I think Sarkozy is finished in France, but Greek could hold a surprise.
Everyone reads and hears the horrid economic numbers out of Greece, but may not realize how bad things really are on the ground there. The reports I'm reading from Athens are heartbreaking. I think there's a good chance for an even worse-than-expected showing by the 2 parties in the hip pocket of Brussels, which means the required austerity isn't coming, which leaves the IMF and EU with no choice but to cut off funding to the country, which means a Grexit.
Everyone reads and hears the horrid economic numbers out of Greece, but may not realize how bad things really are on the ground there. The reports I'm reading from Athens are heartbreaking. I think there's a good chance for an even worse-than-expected showing by the 2 parties in the hip pocket of Brussels, which means the required austerity isn't coming, which leaves the IMF and EU with no choice but to cut off funding to the country, which means a Grexit.
Quote from darkhorse:
Be afraid...
http://ftalphaville.ft.com/blog/2012/05/03/986401/greek-elections-be-afraid-be-very-afraid/
Yep, the Nazis may take 5-10% of the vote (last election was something like 0.25%).
"Two very mean-looking but polite boys came with me at the ATM to pick up my pension and then they brought me back home carrying the groceries to my apartment," said 72-year-old Anastasia Petikari, a retired teacher in Athens. "I felt very sorry about this, but to tell you the truth I also felt secure. This country is in a pitiful state."
"I'm no fascist, but this time I'll vote for Golden Dawn just to shake up the dirty political system," said Kostas Kalatzakos, owner of a small store in Athens. "Robbers have broken into my shop three times in the past two years, and the last time around the police sounded annoyed when I called them to come and investigate. Of course nobody is ever caught."
Society breaking down there.
Sire, firstly, what does PCE have to do with TIPS? TIPS cashflows are based on the headline CPI-U, rather than anything else. If you look at the realized CPI-U fixings, you will perforce conclude that they are, first and foremost, about oil/gasoline. That's reality, regardless of the various theoretical notions, such as the Fed target etc. For UST to be better value than TIPS, you don't need anything like Japan. Roughly, you just need CPI-U to realize less than 2.15% over 7 years, for whatever reason, using the 7y example from above.Quote from Daal:
What you mean its a energy trade?If the Fed hits their target of 2% PCE, based on historical relationships to the CPI, TIPS will provide an additional return. For USTs to be a better value one must think the Fed will fail Japan style