The Tasgall Group

We spend a good amount of time discussing interest rates, but there are a few different ways to look at them…

One way is the yeild curve. It looks at the current rates across many maturities right now, and many people are watching it to see if/how much it becomes inverted. There is even a web page that will calculate the probability of a recession based on the Federal Reserve’s research. (Current answer: 35%) And, of course, there’s the animated version of the yield curve.

We can also look at the yield spread ($TYX:$IRX) which compares the 30 year rate treasury bond rate and the 3 month treasury bill rate over time. (You can use the 1 month yeild ($UST1M), 1 year ($UST1Y) 5 year ($FVX), 10 year ($TNX), 30 year ($TYX), or any other yield you might want.)

As long as the line is dropping, liquidity is contracting. The line should start to rise when the FOMC starts trying to ease again, or if 30 year rates were to shoot up (bond prices would fall). This would indicate that liquidity was expanding.

We can attach a simple moving average to the chart (which StockCharts does automatically) to try and identify when a trend change is underway. This is one of the charts I regularly review to keep the concept in my mind that we haven’t seen the spreads start to widen yet.

For those who enjoy learning tips about squeezing every last drop out of your net worth growth, this blog, My 1st Million At?33,?is dedicated to that very goal.? Lots of excellent tips and argument/counter-argument dicussions about matters that affect the bottom line.? I like the analytical approach to “gaming” the system of personal finance.? It just so happens that he just posted a summary of his site for newcomers.? Of particular interest was the link on housing but it’s all good stuff.

You’ve probably heard something like this floating around before,

Fed Funds Futures are currently pricing in about a 36% chance for a 25 basis point Fed Funds rate hike next week to 5.5%.

Ever wondered what they mean by that and how they get that number?? Well here is an explanation by the Fed themselves.

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Decision Point.com has a good serivce and provides a perspective on the implications of retail money flowing into and out of mutual funds.

The idea is that the people who move money into and out of mutual funds frequently are doing so due to emotional reasons. Specifically, when a market is doing well, they chase the market and the buying climaxes as the price action is nearing a peak… and when prices are going down, sellers panic and sell en masse as the price action is nearing a trough.

They have some free commentary that is worth reading and reviewing… the good stuff requires a $19.95 monthly subscription.

It looks like White Mountains (WTM) is shaking off some of the cobwebs… with today’s high, WTM was up about 12% in the last two days. It’s been a value stock that I’ve watched off and on (and owned briefly), and it looks like it might just have the energy to buck the gruelling 2 year downtrend it has been in. The 12% run is a good start…

White Mountains is an insurance company that took a bit of a hit last year with Hurricanes Katrina and Rita. They paid out about $200 million for claims. Despite the fact that they had (and have) a huge cash position that more than covered the claims ($900m then, $1.1b now), their stock price was hammered. In theory, they survived the claims and should have been able to raise insurance rates, thus making this year more profitable.

The current strength is based on their recent earnings release so it could lose momentum quickly. I’ll be watching to see if a new uptrend starts to form and thinking about buying again.

Check out the latest price performance of Natural Gas. It’s at $8, up almost 33% since the mid-July low around $5.50. It’s still well off its 52 week high of $15 last December. (An end-of-day continuous contract chart is here.)

Goodness, I knew natural gas was a bargain at $5.50, but damn, that’s a bit of a price spike. You can see the payoff in natural gas stocks like Chesapeake Energy and Encana.

I’ve devised a new test for traders to weed out the losers before even seeing an account statement.? It’s kind of a taste test, so to speak.? Show them two equity curves for a couple of trading systems and have them pick the one they want to trade.? One has a steep upward slope and the other a milder, upward slope.? Otherwise they look the same with about equal volatility etc.? It’s a simple choice between more profit and less.? The secret is that the system with more profit is actually the result of a random buy-sell rule that was selected for its pretty chart.? The other, less fruitful?curve?is the result of a planned system that attempts to index to a benchmark and was successful in doing so.? In other words, one curve was most certainly luck and the other was most likely not.

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Here is one of the best breakdowns of our current situation that I’ve read.? It is very “Kessler” in style, linking seemingly separate areas of the?world in a tangled web.? I’m particularly struck by the mention of buybacks (time to dust off that research again) and the possible leading strength of multinationals who can gain profits from a weak dollar.? Hmmm.? How to get a list of those companies?

It seems that the picture both of his models paint is one of swift movements both down and back up in a relatively short period of time.? I see the scenario of both playing out in sequence as being perfectly plausible given the sense of spring-loading that I get from the markets now.? It’s getting tighter and tighter.? I wouldn’t be surprised if the net outcome for the next two years is breakeven for “buy and hold”-ers of equities.? But with some timing, there could be great inflection points for positioning a portfolio.

Entertaining?article from the editor of Maxim about becoming rich.??

Most memorable quote from the article:

If it flies, floats or fornicates, always rent it ? it?s cheaper in the long run.

I wonder if that applies to the billionaire heiresses?? Surely they do a lot of…flying.? Also, 1-2 million?GBP is considered “the comfortable poor” on his scale of wealth.? Ah, perspective.

Some clever guys (NowAndFutures.com) figured out how to reproduce the M3 statistics using public data sources. (Not a big surprise: it’s still going up.)

They also have what look to be good articles on CPI, commonly held false data, some forecasts, a good definition for bubble, plenty on real estate, a short note on the Amero (a common currency for Canada, the US, and Mexico), and even causes of death. They also have a couple of pages that aggregate charts and quotes from other sites that look to be quite handy.

On a personal note, I’m surprised that CPI doesn’t include taxes… it’s currently my largest expense.

They also have a very amusing off-topic flash bubblewrap and smack the penguin… as well asthe disclaimer, “Do your own research and make up your own mind, as usual. If you think we’re conspiracy nuts, that’s fine too.”