Wednesday, February 4, 2009

Some Pretty Smart Intermarket Analysis

It's all about money flows. (and information asymmetries)
Some years ago I knew a retired analyst who had been able to make a meagre living by tracking the flow of funds in smaller western U.S. equity markets, Spokane, Salt Lake City, Denver, etc.
He was insane by the time I met him.

He'd made up his own language to describe what he was doing, the gist being that it is the marginal dollar going into (or coming out of) a market that makes the move.
His problem, well two actually, was that:
a) no one knew what the heck he was talking about and
b) there wasn't enough data to really capitalize on what he had been trying to do.

The short below post suffers from neither flaw and is probably the smartest piece I saw yesterday. From MarketBeat:

The recent rise in yields on long-dated Treasurys would appear to be related to the expectations for big supply announcements Wednesday, when the Treasury releases details of the quarterly refunding auctions of 10-year notes and 30-year bonds. However, the sell-off is too sharp for the cause to be limited to the auction announcement. Strategists point to expectations for more long-dated Treasurys issuance in the future...

...“If you run a conservative scenario for the earnings capability of S&P 500 and put a conservative multiple on that you get to a return more attractive than the 2 3/4% in the 10-year right now,” says Art Hogan, market strategist at Jefferies & Co. “We’ve had 70 basis points in movement in the 10-year and a lot of that is a reflection of fund flows coming out of Treasurys as that flight to safety comes back to moving to more risk.”....MORE