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Profentia: February 17th, 2015

Today’s data: Ya gotta be kidding me!

There is a long list of pundits who were busy writing at the end of last week, over the weekend and now today about the peace treaty in the Ukraine and the successful Greek/EU negotiations. As of right now, mid-morning Tuesday the 17th, the fighting around a key Ukrainian railroad/transportation hub continues to rage on and any suggestion that peace is at hand is pure fantasy. Then as to the Greek’s mess and where that stands; the EU has finally reached a point where it is very tired of being lectured to by a group of “theorists” with their own ideas and who have a huge mandate from the voters and neither is a foundation upon which to craft the financial well-being of this nation of tax-evading citizenry. Of course they want things to be very different, but as kids learn with the passage of time — gotta grow up sometime and live responsibly. Tax revenues since the latest elections have evaporated — who in their right mind would lend these people more money so they can continue to do what got them here in the first place? Neither of these European situations seems to carry anything but the capacity to end badly.

The Big Picture: Complacency abounds around the problems too.

The mistaken belief that resolution is soon to be found is surrounded by a remarkable belief that the Greek mess, one that ends with Grexit, will come at a marginal cost. Commentators are looking at the bond markets within the EU and holding them up as proof positive that the country and its bonds have been ‘ring-fenced’, and as such, they carry very little risk to anyone outside the country. Why does this sound so much like Bernanke’s promise (2007) that the sub-prime mortgage mess was not of concern and it would be ‘contained’? I will say it again, we are at an extreme moment in our financial systems/conditions and we are in the midst of a grand experiment in central bank intervention and totally unprecedented policies of intrusion into the markets. Yes, it is familiar thanks to its existence since 2007/2008 but that does not mean it does not still carry huge risks. To be complacent about anything right now is asking for a rebuke that will be nasty, costly and potentially long lasting in its own right.

Investment Portfolio: Corporate bond yields in the EU markets are sub-zero too!

So, as if we needed a point to prove the comments just above we can easily offer up this remarkable fact. Bloomberg carried several articles discussing US based issuers that have brought bonds backed in Euro’s rather than USD’s and in the EU region markets the bonds are trading at negative yields. So, I buy it, I hold it to maturity and when I get my principal back and I add in all my interest payments I have less than I paid at the time I purchased the bonds! If all was well with the world would I do such a thing? If things were normal would anyone even consider much less do such a thing? The list of questions could be endless and the answers all point to the same thing. A new buyer is about to enter the marketplace and market participants are thinking that the new buyer will pay an even more insane prices to purchase these and other bonds like them than the current holders did. This is investing? Methinks not. Is there a message here we need to recognize? Yes, more extreme and unprecedented and completely unproven market intrusion is about to occur and there is zero guarantee that this will prove to be effective policy.

Weekly Market Data

  • Tuesday
  • Friday
  • Thursday
  • Wednesday
  • Tuesday

Current Market Levels from Bloomberg daily

  • Monday: 2/16
    No data
  • Tuesday: 2/17
    No data
  • Wednesday: 2/18
    No data
  • Thursday: 2/19
    Weekly Claims expected at 288k >>
    Jan. Housing Starts expected at 1.070mm >>
    Jan. Bridling Permits expected at 1.069mm >>
    Jan. PPI expected at -0.4% >> Jan. Cap U expected at 79.9% >>
  • Friday: 2/20
    No data

Data is taken from sources considered to be accurate, most often that of an agent of the US Government; no guarantee of accuracy is suggested.

Past performance is not a guarantee or a reliable indicator of possible future results. Investing in the bond markets is subject to certain risks including credit (worthiness of the issuer), market (interest rate changes), inflation uncertainties over time and the possibility that investments may be worth more or less than the purchase cost when they are redeemed. U.S. Treasury Bills, Notes and Bonds are backed by the full faith and credit of the Government, certain U.S Agencies are also backed in a similar manner and certain other Agency Issuers are backed solely by the Issuing Agency itself. Portfolios that invest in those securities are not guaranteed and they will fluctuate in value with time. High-yield low rated securities involve greater risks than higher-rated securities and portfolios that invest in lower-rated issues will incur more risks than portfolios of higher-rated only securities.

This article contains the current opinions of the author, but not necessarily that of Alfstad Capital, LLC, and a branch office of Commonwealth Financial Network. The opinions of the author are subject to change without notice. This article is distributed for informational purposes only. Here-in contained forecasts, opinions and estimates are based upon proprietary research or from publicly published sources and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

Information contained here-in has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form or referred to in any other publication without written express permission of Alfstad Capital, LLC and Commonwealth Financial Network.

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