Tuesday, February 5, 2013

In the news 2/5/2013

Deficits to shrink through 2015, but debt to deepen: CBO

So, am I to assume that the person that wrote this headline actually thinks that most readers don't understand that any deficit, even if it's shrinking, still results in more debt?
CBO forecast that the deficit for fiscal 2013, which ends September 30, will shrink slightly to $845 billion after four straight years above $1 trillion. The reason is an improving economy and higher taxes paid by wealthy Americans.
But what if it turns out that the economy doesn't keep improving?  I'm really not interested in what the CBO, or anyone else, thinks might happen if everything goes according to plan.  If things could be counted on to go according to plan, we wouldn't be in the mess we're in now.

Each day that goes by leads me further to believe that we are heading into another recession soon, if we're not already in one.  Which gave me an idea: Bond yields have been rising as investors are moving out of bonds and into riskier assets, presumably in part because all the economic news seems to be positive, or at least not terribly negative.  But most of that news has been stuff from December, before the tax increases took effect, or news that was related to things that aren't directly affected by the tax increases.  Once the economic figures start coming out showing the full effect of those tax increases, I think we'll be seeing a different picture of the economy; not sluggish growth, and perhaps even shrinkage.  Bonds will be the place to be when we start seeing that news, since there will likely be a mass move back to bonds.  And with yields as low as they are, small changes in yield signify big changes in capital.  Of course, higher volatility like that is, well, risky, even though treasuries are supposed to be riskless, or nearly so.  It's that supposed "risklessness" that will draw investors back to bonds when the bad news comes out.  I'm not a bond trader, so I won't be jumping in there; I'm not that familiar with bond markets.  I'm just pointing out the potential for some large, short-term trading gains.

Speaking of bad news, I was actually surprised to see what looked like a lot of negative sounding headlines on Yahoo Finance:

'Severe' Danger Looming In Corporate Bonds: BofA
Apparently, BofA thinks there's a chance of a disorderly exodus from bonds to equity.  So long as economic news is relatively good, I might expect that too.  I just don't expect to keep seeing that much good news for too much longer.

Sucker Alert? Insider Selling Surges After Dow 14,000
"Insiders (are) showing a remarkable ability of late to identify both market peaks and troughs," states the Vickers report.
 Um, they are insiders... they should have that ability.  Then again, it doesn't take much ability to identify the fact that stocks in general are somewhat overvalued.  I just wonder if they have some kind of inside information about what the Fed is going to do, since I really think it's the Fed that is fueling the bulk of this stock rally.

Housing Already Shows Signs of a New Bubble

Already?  I thought there were signs about six months ago, when home prices were rising at about 6% annually, and at least some homeowners were complaining that it wasn't enough.  This time could be different, but only time will tell for sure.  I still think there's significant downside risk in real estate, but I also think there's a chance that people will not remember what a "normal" home price is, in which case, current prices will become the new normal.

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