"A speculator must always be on the job, or soon he won't have won't have a job to be out of" or thereabouts says Edwin Lefevre in his classic "Reminiscences of a Stock Operator". And as a speculator we have to have to keep an eye on the mega-trends. I'm talking about the trends that are so obvious, but they play themselves out so many times for days on end, you tend to over look them. Yet the mega-trends are the most important because they lead to big moves, and the big money is in the big move of course- another Livermore gem.
In this case I'm talking about Interest rates aka the cost of money. This past week the US 10-year Government Bond yield reached a new all-time low at about 1.59%. This appears to be a trend that's likely to continue since the Fed should not be raising rates any time soon, or at least until the end of 2014 according to the recent Fed Statement. This week China joined the cheap money party with a surprise rate cut and the first rate cut in two years.
There's nothing like an emergency rate cut from a central bank to get the equity markets rallying. And rally they did with the US Stock Market having its biggest weekly gain of the year. But let's get back to my core statement here. What can we do to position ourselves in favor of lower interest rates ahead?
1) Get out of cash an into more risk assets. The Dow Jones Industrial Average yields 4.2%, a whole 2.6% or 260 basis points higher than the 10-year government bond.
2) Buy bonds. The chart above is BLV - The Vanguard Long Term Bond Fund which is just shy of a new all time high, and finding support at the 20-day moving average and well above a rising 50 day average. Plus its approaching 100 or "par" as they say in the bond business, and that's significant in and of itself in the world of stock trading. As rates go lower, already issued bonds become more attractive. So this fund shows a good chance of moving to new all-time highs. Plus you get a 4% yield while you wait.
3) Don't be in a hurry to re-finance your fixed rate debt. When I bought my current house back in 1998, my original mortgage was at 6.875%. About 4 years later, I refinanced to 5.875%. Then just last year, I refinanced again to 5.125% which is what I'm paying now which is an entire point higher than the going rate now. Mortgage rates could be going much lower, and given the cost of a refinance, it could pay to wait.
As for Automated Forex Trading, the draw down continues with nearly every system taking a loss for the week. The biggest loss came from Atipaq Full Portfolio which lost about 4% for the week. The only gain came from Atinalla #3 which took a profitable buy signal on EUR/USD via Teyacanani.
That's all for now. Go forth and position yourself to take advantage of the spigot of free money being pumped out by the worlds central banks.
And enjoy your weekend.
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