Monday, September 10, 2007
Goldman Sachs and the Fed
With the 10-year Treasury trading at 4.29% this morning, and the fed funds rate at 5.25% the Treasury yield curve is telling us that the Fed, Chairman Bernanke, and the FOMC is WAY (!) behind the curve in terms of reacting to economic data.
However before you panic and conclude economic Armageddon is just around the corner, this is the modus operandi of the Fed, if you study historical monetary policy changes: Chairman Greenspan didn't move until January 2001, well after the economy had turned down and the Nasdaq bubble burst, and even back in 1990 - 1991 around the time of the first Gulf War, Chairman Greenspan waited unto employment caved (and caved badly) before cutting the short-term rate.
The Fed waits until the data looks dire, and then they cut aggressively.
Goldman Sachs trading action is much improved: Goldman will report earnings next week for the quarter ended August 31, and the stock hasn't made a new low since August 16th. GS's trading action is much better than Lehman or Bear Stearns right now.
Goldman's trading action is telling us that - relative to the other white-shoe firms - their quarter should be less painful, and that the Fed will likely cut rates aggressively over the next few months.
Goldman is the bellwether of the investment banking firms: it's trading action of late is definite positive and we are edging back into the stock after selling our last bit at $204.
position in GS, LEH, index funds, Treasury bond funds, etc. etc.
However before you panic and conclude economic Armageddon is just around the corner, this is the modus operandi of the Fed, if you study historical monetary policy changes: Chairman Greenspan didn't move until January 2001, well after the economy had turned down and the Nasdaq bubble burst, and even back in 1990 - 1991 around the time of the first Gulf War, Chairman Greenspan waited unto employment caved (and caved badly) before cutting the short-term rate.
The Fed waits until the data looks dire, and then they cut aggressively.
Goldman Sachs trading action is much improved: Goldman will report earnings next week for the quarter ended August 31, and the stock hasn't made a new low since August 16th. GS's trading action is much better than Lehman or Bear Stearns right now.
Goldman's trading action is telling us that - relative to the other white-shoe firms - their quarter should be less painful, and that the Fed will likely cut rates aggressively over the next few months.
Goldman is the bellwether of the investment banking firms: it's trading action of late is definite positive and we are edging back into the stock after selling our last bit at $204.
position in GS, LEH, index funds, Treasury bond funds, etc. etc.
Friday, September 7, 2007
Watching the equity market leadership groups
Each bull market has its own singular leadership stocks or sectors: in the 1980's and 1990's it was technology, financial services and healthcare for sure, particularly large-cap pharma within healthcare during the 1980's and 1990's, but since March of 2000, or rather since March, 2003, the energy, basic materials, telecom and utility sectors have been the market leadership groups, and of those 4 groups, energy, basic materials and utilities have led the way.
With this morning's weak August jobs report of 4,000 jobs being lost by the economy, and the sharp downward revisions to job growth in June and July, it is very clear that we will get a set of fed funds rate reductions as Chairman Bernanke and the Fed will prevent the economy from sinking deeper into a recession.
The market keys for us will be how the former leadership groups act: of the above-mentioned 4 groups, energy continues to look the best technically as the XLE (energy sector ETF), and XOM have consolidated 2007 gains and look to be on the verge of breaking out again, if the price of a barrel of crude oil can move above $78. As a percentage of the S&P 500, energy's earnings weight is 14% of the S&P 500, while the sector's price weight is about 10%.
Utilities, telecom and basic materials each represent about 3% - 4% of the S&P 500 by earnings weight and market cap, and of the 3 groups, basic materials looks to be in the best shape, since precious metals are about half the weighting within the sector, and gold has broken out above $700 on the prospects for easier Fed monetary policy.
Utility action will be contingent on what happens with the TXU deal: I do think a lot of these private equity deals will get done as we move into the fall '07 since an easier Fed will loosen credit spreads and give us a chance to have a normally-shaped yield curve, both of which will restore some stability and sanity to credit and fixed-income markets.
To conclude, watch the market leadership groups for changes therein: the laggards of the last three years have been technology, financials, and consumer staples (the mainstay's of consumer staples being housing and auto's, not exactly two growth groups), and these three sectors comprise about 50% of the S&P 500 by earnings weight and market cap.
Thus, the sector leadership within the S&P 500 is coming from the smallest sectors within the index, which isn't a bad thing, it is just unusual. Financials represent almost 27% of the S&P 500 by earnings weight in and of itself. An easier Fed with a yield curve that is normally sloped can be earnings nirvana for the financial sector.
position in most/all sectors mentioned above
With this morning's weak August jobs report of 4,000 jobs being lost by the economy, and the sharp downward revisions to job growth in June and July, it is very clear that we will get a set of fed funds rate reductions as Chairman Bernanke and the Fed will prevent the economy from sinking deeper into a recession.
The market keys for us will be how the former leadership groups act: of the above-mentioned 4 groups, energy continues to look the best technically as the XLE (energy sector ETF), and XOM have consolidated 2007 gains and look to be on the verge of breaking out again, if the price of a barrel of crude oil can move above $78. As a percentage of the S&P 500, energy's earnings weight is 14% of the S&P 500, while the sector's price weight is about 10%.
Utilities, telecom and basic materials each represent about 3% - 4% of the S&P 500 by earnings weight and market cap, and of the 3 groups, basic materials looks to be in the best shape, since precious metals are about half the weighting within the sector, and gold has broken out above $700 on the prospects for easier Fed monetary policy.
Utility action will be contingent on what happens with the TXU deal: I do think a lot of these private equity deals will get done as we move into the fall '07 since an easier Fed will loosen credit spreads and give us a chance to have a normally-shaped yield curve, both of which will restore some stability and sanity to credit and fixed-income markets.
To conclude, watch the market leadership groups for changes therein: the laggards of the last three years have been technology, financials, and consumer staples (the mainstay's of consumer staples being housing and auto's, not exactly two growth groups), and these three sectors comprise about 50% of the S&P 500 by earnings weight and market cap.
Thus, the sector leadership within the S&P 500 is coming from the smallest sectors within the index, which isn't a bad thing, it is just unusual. Financials represent almost 27% of the S&P 500 by earnings weight in and of itself. An easier Fed with a yield curve that is normally sloped can be earnings nirvana for the financial sector.
position in most/all sectors mentioned above
Thursday, August 23, 2007
Fixed-income strategy: two interesting closed-end funds
With the discount rate reduction announced late last week, we are slowly changing our fixed-income or balanced accounts to take more interest rate and credit risk, after keeping all of our fixed-income money in a higher-yielding Schwab money market the last year. Thanks to the inverted yield curve, there was little incentive to take either interest rate or credit risk, a strategy that has paid off handsomely the last eight weeks.
However, with the discount rate announcement, the unlocking of the credit spreads and the expected new liquidity from coming fed funds rate reductions should have a beneficial effect on credit instruments, so here are two closed-end funds we have been buying for client accounts:
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The DUC or the Duff & Phelp's Utility and Corporate Bond Trust is a closed-end utility and corporate bond fund that is currently trading at a 7% discount to NAV (as of this posting) and is yielding north of 7%. The chart is WAY interesting (to paraphrase a West Coast Valley girl): on a monthly chart (attached and compliments of http://www.wordencom/) DUC has historically bottomed with the end of Fed tightenings: in November and December, 1994 DUC bottomed at $10.25 and $10.50 per share which marked the end of the 1994 round of tightenings by then-Chairman Alan Greenspan, and then again in March and June of 2000, DUC bottomed at $10.69 and $10.56, and on both occasions, DUC - over the next two years - traded from these fed-induced lows to a high of $15 per share as the Fed reversed course and provided for an easier monetary policy. (See attached monthly chart above, and note the low coincident with Fed tightening cycles.)
Fundamentally, DUC's holdings consist of a 10 3/8th's Treasury maturing on 11/15/12 (essentially a 5-year Treasury) which is 8% of the closed-end fund, with 33% of the corporate's being utility credits and 28% financial credits. From a rating perspective, 18% of the funds credits are AAA/AA, and 48% are BBB+ or below. (Statistics compliments of etfconnect.com).
The monthly distribution is $0.065 per share (six and a half cents).
Our target price is between $14 - $15 per share, which given historical technical patterns, DUC should make easily. The DUC fund is WAY (!) oversold on the daily, weekly and monthly charts, so the technicals and fundamentals are lining up nicely.
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The second interesting closed-end fund we have been buying is the JRO, or John Nuveen closed-end leveraged loan fund. The JRO is trading between a 3% - 4% discount to NAV, and its current distribution rate is close to 10% (again, the current stats courtesy of ETFconnect.com).
20% of JRO's credits are from the media sector, with the 2nd largest holding at 3% of the fund being a Chicago Tribune credit, which saw its acquisition by Sam Zell close yesterday.
Consider this closed-end ETF to be a spicier credit play on the CLO/CDO, leveraged-loan lock-up frenzy, thus be more careful with JRO and buy in over time as we are doing. ETFconnect.com did NOT provide a ratings distribution on JRO as of this posting so assume that all credits are below investment grade.
Last week, just prior to the Fed's discount rate announcement, JRO fell below the late 2005 lows of $12.15 - $12.17 per share and gapped down to as low as $10.74 on the illiquidity issues surrounding high yield paper. The fund has subsequently bounced and will benefit handsomely from the slow unlocking and re-pricing of credit spreads over the next 6 months.
Our price target is alos $14 - $15 per share. The JRO fund is now very oversold on a weekly chart and can bounce nicely with further fed rate cuts in our opinion.
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To conclude, I think these closed-end funds provide a diversified vehicle to add credit risk to client accounts and yet remain diversified and liquid. Right now, the two aforementioned funds are a couple of our favorites, but we're always looking for more.
We'll try and keep readers updated on our thoughts on these funds but we may sell out entirely or even add more to the positions without updating the blog. However, we'll do our level best to keep readers updated. I think these two funds are better longer-term plays on what we hope will be improving liquidity and credit spreads in the corporate bond markets.
position in DUC, JRO
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager
Tuesday, August 14, 2007
Trinity's fixed-income strategy
With Walmart's (WMT) earnings this morning, it is clear that the consumer is slowing. (We owe readers an apology: I thought WMT would report earnings last Thursday, August 8th, but instead WMT reported this morning.)
With WMT lowering guidance thanks to a weakened consumer, and WMT accounting for 10% of all retail sales, and consumption 2/3rd's of GDP, it doesn't take a genius to figure out that GDP could suffer in coming months.
With a Fed that could start cutting rates before we see the end of August or September, here is how we are positioning our fixed-income accounts regarding interest rate risk, and credit risk:
If and when the Fed cuts rates, I think the yield curve will in fact steepen, and I would expect the 10-year to trade above 5% and begin returning to more normal slope. Ex fed funds, the 2 - 10 year spread is now back to a positive +35 bp's thus the steepening is beginning already.
We are positioning muni portfolios in the 5 - 7 year maturity range (non-callable), in high quality insured or AA notes, with no credit risk being taken. I think the 5-7 year maturities will outperform in an environment where the Fed is friendlier and where we are moving from an inverted to a normally-sloped curve. The 2-year Treasury is currently yielding 4.44%, thus it has discounted three Fed easings already, which is why we are positioning within 5 - 7 year maturity. We would buy 10-year paper if we get over 5.25%.
In terms of credit risk, I think it is is still too early as credit spreads could continue to widen through September - October, '07. Corporate high yield is getting more interesting, but we have not put any money back into high yield (after selling all of our exposure in early 2005).
All of our taxable bond accounts have been 100% money market the last two years, which didn't look so hot when high yield was trading at +150 Treasuries, but it looks much better now.
Given the currency risk, we have never been international fixed-income investors, preferring to take interest rate and credit risk, and leaving currency risk for others.
I think over the next year we will see some great opportunities to put money to work in high yield, corporate high grade,mortgage-backed (MBS) and asset-backed (ABS), but now is not yet the time.
position in WMT
With WMT lowering guidance thanks to a weakened consumer, and WMT accounting for 10% of all retail sales, and consumption 2/3rd's of GDP, it doesn't take a genius to figure out that GDP could suffer in coming months.
With a Fed that could start cutting rates before we see the end of August or September, here is how we are positioning our fixed-income accounts regarding interest rate risk, and credit risk:
If and when the Fed cuts rates, I think the yield curve will in fact steepen, and I would expect the 10-year to trade above 5% and begin returning to more normal slope. Ex fed funds, the 2 - 10 year spread is now back to a positive +35 bp's thus the steepening is beginning already.
We are positioning muni portfolios in the 5 - 7 year maturity range (non-callable), in high quality insured or AA notes, with no credit risk being taken. I think the 5-7 year maturities will outperform in an environment where the Fed is friendlier and where we are moving from an inverted to a normally-sloped curve. The 2-year Treasury is currently yielding 4.44%, thus it has discounted three Fed easings already, which is why we are positioning within 5 - 7 year maturity. We would buy 10-year paper if we get over 5.25%.
In terms of credit risk, I think it is is still too early as credit spreads could continue to widen through September - October, '07. Corporate high yield is getting more interesting, but we have not put any money back into high yield (after selling all of our exposure in early 2005).
All of our taxable bond accounts have been 100% money market the last two years, which didn't look so hot when high yield was trading at +150 Treasuries, but it looks much better now.
Given the currency risk, we have never been international fixed-income investors, preferring to take interest rate and credit risk, and leaving currency risk for others.
I think over the next year we will see some great opportunities to put money to work in high yield, corporate high grade,mortgage-backed (MBS) and asset-backed (ABS), but now is not yet the time.
position in WMT
Monday, August 6, 2007
Walmart reports earnings this week - critical read of consumer
WalMart (WMT) reports earnings later this week, and unlike Exxon-Mobil which some people think is the key stock for this market given that XOM is the largest market cap name in the best performing sector of the past three years, I think WalMart is the key "tell" for this market, given its importance in deciphering the behavior of the US consumer.
Most people failed to notice that on the day that the Dow closed above 14,000 and the S&P 500 closed at 1,555, was the same day that WalMart announced June comp's that were 2% - 3% versus the less than 1% expected, which was a pleasant upside surprise that Thursday morning, July 14th (I think that was the date of the most recent highs.)
The point is that consumption is 2/3rd's of GDP, and WalMart accounts for 10% of all retail sales in a year, thus if mortgage worries and higher gas prices and consumer confidence were to impair the consumer to any great degree than the equity market is currently discounting, it would likely show up in WalMart's revenues, earnings, comp's and guidance.
My own personal opinion is that WalMart is a cheap stock: trading at 9(x) earnings for a mid-single-digit earnings grower, and just .5(x) 4q trailing sales (yes, WMT is trading at a market cap that is close to half of its 4q trailing sales) and just 11(x) cash flow from operations, with a AA-credit rating indicative of a solid balance sheet , I consider the stock to be a safe haven not only within retail but within the large-cap sector in general.
WMT as an investment is now the antithesis of what it was in the late 1990's: it is unloved, with few advocates on Wall Street pushing the stock, and it gets bashed with unrelenting frequency (and rather unjustifiably in my opinion) when the press needs a capitalist fall-guy to pick on for a story.
After reaching a high of $70 per share in late 1999, early 2000, the stock has traded as low as $40, but it has essentially been trapped in a 7 - 8 year trading range. Although we are currently long the stock and consider WMT a core position in our client portfolios, I am waiting for the stock to take out $50 per share on heavy volume, before we add to the name.
Current analyst consensus for this coming week's earnings report is $0.77 per share and $92.7 bl in revenues for year-over-year growth of 7% and 8.5% respectively, thus coming into this week's results, expectations are tempered.
One interesting aspect of WMT's fundamental story is the growing importance of the international operations to the core business: once just a single-digit percentage of revenues and operating income, WMT International is now higher than 20% of total revenues while international operating income as a percentage of WMT's total operating income gravitates above and below the 20% figure. (Frankly given that investors and strategists are falling all over themselves to have international in their portfolios, I thought WMT would have been afforded a higher multiple for its international growth, which has averaged between 10% and 30% the last five years (i.e. WMT's international operating income has varied between those two figures since the early 2000's.)
To conclude, WMT is a company that generates $350 bl in annual revenues, which is a truly remarkable figure when you come to think of it, and they have achieved this success by having one single mantra: be the low-price retailer to their customers, and they have managed to accomplish this by assembling a coordinating a logistics and distribution network that would put the US Army and National Guard to shame. (Rumor has it that just after Hurricane Katrina devastated New Orleans, WMT's trucks were the first to penetrate the devastation and get to their stores. Joe Nocera, who writes the main column for the New York Times business section Saturday edition once wrote that WMT could be the single biggest reason inflation remained contained during the 1990's.)
I don't know, nor want to speculate that this week's earnings report will push the stock higher, and above key technical levels, but WalMart will give us some good clues to the state of the US consumer, and how this mortgage crisis is impacting mainstream America.
position in WMT, XOM
Most people failed to notice that on the day that the Dow closed above 14,000 and the S&P 500 closed at 1,555, was the same day that WalMart announced June comp's that were 2% - 3% versus the less than 1% expected, which was a pleasant upside surprise that Thursday morning, July 14th (I think that was the date of the most recent highs.)
The point is that consumption is 2/3rd's of GDP, and WalMart accounts for 10% of all retail sales in a year, thus if mortgage worries and higher gas prices and consumer confidence were to impair the consumer to any great degree than the equity market is currently discounting, it would likely show up in WalMart's revenues, earnings, comp's and guidance.
My own personal opinion is that WalMart is a cheap stock: trading at 9(x) earnings for a mid-single-digit earnings grower, and just .5(x) 4q trailing sales (yes, WMT is trading at a market cap that is close to half of its 4q trailing sales) and just 11(x) cash flow from operations, with a AA-credit rating indicative of a solid balance sheet , I consider the stock to be a safe haven not only within retail but within the large-cap sector in general.
WMT as an investment is now the antithesis of what it was in the late 1990's: it is unloved, with few advocates on Wall Street pushing the stock, and it gets bashed with unrelenting frequency (and rather unjustifiably in my opinion) when the press needs a capitalist fall-guy to pick on for a story.
After reaching a high of $70 per share in late 1999, early 2000, the stock has traded as low as $40, but it has essentially been trapped in a 7 - 8 year trading range. Although we are currently long the stock and consider WMT a core position in our client portfolios, I am waiting for the stock to take out $50 per share on heavy volume, before we add to the name.
Current analyst consensus for this coming week's earnings report is $0.77 per share and $92.7 bl in revenues for year-over-year growth of 7% and 8.5% respectively, thus coming into this week's results, expectations are tempered.
One interesting aspect of WMT's fundamental story is the growing importance of the international operations to the core business: once just a single-digit percentage of revenues and operating income, WMT International is now higher than 20% of total revenues while international operating income as a percentage of WMT's total operating income gravitates above and below the 20% figure. (Frankly given that investors and strategists are falling all over themselves to have international in their portfolios, I thought WMT would have been afforded a higher multiple for its international growth, which has averaged between 10% and 30% the last five years (i.e. WMT's international operating income has varied between those two figures since the early 2000's.)
To conclude, WMT is a company that generates $350 bl in annual revenues, which is a truly remarkable figure when you come to think of it, and they have achieved this success by having one single mantra: be the low-price retailer to their customers, and they have managed to accomplish this by assembling a coordinating a logistics and distribution network that would put the US Army and National Guard to shame. (Rumor has it that just after Hurricane Katrina devastated New Orleans, WMT's trucks were the first to penetrate the devastation and get to their stores. Joe Nocera, who writes the main column for the New York Times business section Saturday edition once wrote that WMT could be the single biggest reason inflation remained contained during the 1990's.)
I don't know, nor want to speculate that this week's earnings report will push the stock higher, and above key technical levels, but WalMart will give us some good clues to the state of the US consumer, and how this mortgage crisis is impacting mainstream America.
position in WMT, XOM
Monday, July 30, 2007
Subprime mess: what the financial press might have missed
What has struck me about the recent decline in the financials relative to the subprime mess, and the comparisons to both the 1990 commercial real estate crunch and the October, 1998 Long-Term Capital mess is that credit cycle is different, and could very well be worse.
In the late 1980's and early 1990's our banking system was choked with bad commercial real estate loans sitting on bank and insurance company balance sheets as a result of the passive income tax loss deduction that was eliminated by then President Reagan in the 1986 Omnibus Budget Reconciliation Bill. Banks, insurance companies, brokerage houses and other financial intermediaries bought these illiquid commercial real estate mortgages and then watched as they went belly up, and put banks in particular in a bad capital position. (10% of all banks and S&L's were declared insolvent in 1988.)
However in the early 1990's, the RTC bailed out the banking system as did the new financial engineering tool known as securitization. Securitization was in its infancy in the late 1980's and the subsequent explosion of credit-cards, auto loans, home mortgages and any other asset that could be wrapped into a pool and dropped into a trust allowed financial institutions to rebuild capital. The positively sloped yield curve, the easing of monetary policy by then Chairman Greenspan from 1990 - 1993 and the rebuilding of consumer balance sheets all contributed to the regeneration of the banking and financial system, all of which helped as we moved therough the 1990's...
Now fast-forward to 1998: LongTerm Capital blows sky highs thanks to leverage and bad risk arb bets, and our capital markets seize up, as evidenced by Chairman Greenspan noting the difference in spread between on the run and off-the-run Treasuries that occurred in August and September, 1998. Chairman Greenspan reduced the fed funds rate in October, 1998 to take pressure off of the capital markets as he arranged a bailout by the then very healthy and well capitalized banking system. What exacerbated this seizing of the capital markets was that many brokerage firms had emulated or replicated the LongTerm Capital positions on their own balance sheets, thus you had many major Wall Street players leaning the same way as a global run on credit started.
The point being that in the early 1990's, the capital markets were the relief valve to rebuild and recapitalize the banking system, and the banking system was the relief valve or safety net for the capital markets during the 1998 LongTerm Capital crisis.
Today, with high yield spreads so tight and the private equity market choking, and now the banks hindered by rising single-family mortgage delinquencies both the capital markets and the banking system are hindered.
Even the consumer is feeling the pinch as mortgage refi's from the earlier part of this decade have flowed through spending already.
Still, our Thomson Financial market timing model (see earlier posts to this blog) rose to over 9% this past weekend thanks to the lower 10-year bond yield and the fact that forward 4-quarter earnings continue to rise. At just over 9%, the equity market timing model, particularly the S&P 500 looks very attractive relative to bond yields and earnings. The Thomson market timing model hit a high of 9.8% in October, 2005, and a low of 4% in the spring of 2000.
This credit cycle might not end until we get a bankruptcy or financial failure of enough size for the market and the Fed to take notice.
position in spy, S&P 500 index funds
In the late 1980's and early 1990's our banking system was choked with bad commercial real estate loans sitting on bank and insurance company balance sheets as a result of the passive income tax loss deduction that was eliminated by then President Reagan in the 1986 Omnibus Budget Reconciliation Bill. Banks, insurance companies, brokerage houses and other financial intermediaries bought these illiquid commercial real estate mortgages and then watched as they went belly up, and put banks in particular in a bad capital position. (10% of all banks and S&L's were declared insolvent in 1988.)
However in the early 1990's, the RTC bailed out the banking system as did the new financial engineering tool known as securitization. Securitization was in its infancy in the late 1980's and the subsequent explosion of credit-cards, auto loans, home mortgages and any other asset that could be wrapped into a pool and dropped into a trust allowed financial institutions to rebuild capital. The positively sloped yield curve, the easing of monetary policy by then Chairman Greenspan from 1990 - 1993 and the rebuilding of consumer balance sheets all contributed to the regeneration of the banking and financial system, all of which helped as we moved therough the 1990's...
Now fast-forward to 1998: LongTerm Capital blows sky highs thanks to leverage and bad risk arb bets, and our capital markets seize up, as evidenced by Chairman Greenspan noting the difference in spread between on the run and off-the-run Treasuries that occurred in August and September, 1998. Chairman Greenspan reduced the fed funds rate in October, 1998 to take pressure off of the capital markets as he arranged a bailout by the then very healthy and well capitalized banking system. What exacerbated this seizing of the capital markets was that many brokerage firms had emulated or replicated the LongTerm Capital positions on their own balance sheets, thus you had many major Wall Street players leaning the same way as a global run on credit started.
The point being that in the early 1990's, the capital markets were the relief valve to rebuild and recapitalize the banking system, and the banking system was the relief valve or safety net for the capital markets during the 1998 LongTerm Capital crisis.
Today, with high yield spreads so tight and the private equity market choking, and now the banks hindered by rising single-family mortgage delinquencies both the capital markets and the banking system are hindered.
Even the consumer is feeling the pinch as mortgage refi's from the earlier part of this decade have flowed through spending already.
Still, our Thomson Financial market timing model (see earlier posts to this blog) rose to over 9% this past weekend thanks to the lower 10-year bond yield and the fact that forward 4-quarter earnings continue to rise. At just over 9%, the equity market timing model, particularly the S&P 500 looks very attractive relative to bond yields and earnings. The Thomson market timing model hit a high of 9.8% in October, 2005, and a low of 4% in the spring of 2000.
This credit cycle might not end until we get a bankruptcy or financial failure of enough size for the market and the Fed to take notice.
position in spy, S&P 500 index funds
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