Nice illustration. The volume ticks between SPY and SPX are subtly different - some days more dramatic than others, but the OBV line is more dramatically different between the two.
It really helped to have those charts on top of one another.
I'd guess the less popular ETFs are prone to even more dramatic differences in volume vs their underlying index.
Seems like Vad's concept of an "engineering approximation" is probably ok for rough volume calculations, but there's no substitute for the real $SPX volume data for the volume-related studies. And even the real $SPX volume data (as he pointed out) changes year to year as trading patterns change: dark pools, high frequency trades, and probably lots more things I don't even know about, so the whole volume angle seems like it is a little suspect.
Perhaps you can really only look at the last 3-6 months for meaningful volume comparisons.
Do you think the ETF "SPY" volume is a good proxy for the overall market's volume? I've often wondered (but never did the work) to see if SPY's volume, the actual volume attached to $SPX, and the e-mini front month ES contract volume are really all interchangeable? I've kind of been using them that way and this discussion is making me wonder if maybe that's not a good idea.
In other words, even though SPY is an ETF, and has only been around for 10 years, do we think it can be used in roughly the same way for volume purposes as the actual $SPX? I'm thinking if we look back 8 years, SPY might have a relatively lighter trading volume compared with the $SPX than today, let's say, now that its a popular trading vehicle.
I don't have easy access to $SPX or front-month e-mini volume data or I might try my hand at coming up with an answer.
If there was ANY doubt the Greek bailouts were focused primarily on the euro banks, this new plan should remove it. Here, the EU outlines a new way of disbursing funds that ensures bondholders are paid back while money to fund government deficits could still be withheld to motivate reform efforts. They will no longer simply hand bailout money to Greece - they keep it in an escrow account and first claim on the escrow account is for the bondholders.
Basically, "bailout" money will go directly to Greek bondholders first, and then if Greece is a good little country, they get whatever is left to fund their deficit.
European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets.
Under a new Franco-German plan that senior European officials said is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past.
The new fund would then ensure bondholders are paid off, while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands.
A senior French official said the plan, which has backing from the European Commission in Brussels as well as several other eurozone countries, was a way of “removing the Damocles sword of default” while keeping pressure on Athens to reform.
I have to agree, Romney is likely unelectable. He won't motivate the religious base; the evengelical branch won't trust him since as a mormon they think he's a fringe element - a clear case of the pot and the kettle to me but that's because I'm on the outside looking in. The pro-business bunch will be on his side. He's moderate enough politically to attract the independents, but he's so dreadfully rich and so clearly a "job destroyer" - he's just such an easy target in that respect. He's a poster child for the financialisation of America. There must be thousands of people who were fired during one of the many Bain Capital takeovers. I can just see the TV commercials now interviewing his victims. His "business experience" might have played back in 2006, but it won't play today. "Load the takeover company with debt, fire a bunch of people, and extract huge fees for yourself." Good luck selling that as a national strategy to the moderates or the Tea Party.
Plus he's got all the passion of Al Gore, with the common touch of John Kerry. Watching him speak, he strikes me as a cardboard cutout of a person.
Gingrich on the other hand is clearly a real person. All too real. His history of marital flexibility gives him zero credibility with the family values crowd and his serious political hackery won't endear him to independents. The work he did for fannie wasn't so helpful either. He's smart, but very negative. Stack him up against Obama, he loses. "In my next 4 years as president, I will focus our resources here on earth, rather than the moon." Its just too easy.
I'd vote for Ron Paul. If he made it that far. Hard to know how he'd do. People in America are probably still too focused on wanting to restore business as usual to ask for real reform.
The funny thing is, I'd have said prior to the Republican Primary that Obama was a sure loser against "the Republican." Of course that was prior to seeing who the Republicans have actually selected. I think had they had put Chris Christie on a diet and got him backed with some money and spun him up, Obama would have been crushed.
Interesting gasoline data. Gasoline prices are up 0.40 since November, but were even higher earlier in 2011. It would be cool to seasonally adjust both gas prices, gas production AND gas trade net import/exports. I heard we're exporting finished petroleum products these days - something unusual - which might indicate the actual gasoline usage is even lower.
As for what it means - I've maintained for a while that US corporations have significantly decoupled from the US citizen. Even the government-manipulated figures that show "growth" does not paint a great picture of the overall environment, but US companies are actually well off.
A good chunk of business is overseas, wages in the US are "under control" because of high structural unemployment, and the extremely low interest rate environment allows companies to roll their debt very cheaply. At the same time, the US government is borrowing gobs of money and spending it into the economy, sustaining consumption. This is all great for margins. It is a perfect (happy) storm for US corporations. Executives get big bonuses for being clever and doing a fantastic job - well all except for poor Lloyd. Only $9 million this year. Perhaps the reduction was because GS stock has gone from 170 to 117. But this happy storm is not as helpful for the regular US citizen though.
Evidence: corporate profits as a share of the economy are at all time highs. This article is 6 months old.
I have to say I missed out on the whole last few years bond rally because I wondered - how could interest rates possibly go lower? Of course they went lower.
PTTRX average maturity 9 duration 7.1 yield 4%. That says for every 1% rise in the 10 year note, your capital drops by 7%. Ouch. Of course it goes the other way too. 10 year note is currently yielding 1.97%. I suppose it could drop to 1%, which gives you a 7% capital gain + 4% yield. 11% total return!
From a chart perspective, does the PTTRX weekly chart look like a good entry point?
Of course the right move in this market has been to buy every bond breakout. Overbought has done nothing but get overboughter during this whole last 3 year bond move. I think we can thank the Fed for part of this, and people being terrified of a deflationary depression for the other part.
It sounds like BillySundance made some pretty good calls this past few years - perhaps he has the right moves here too. Sitting in cash waiting for the 30 year bond market rally to end hasn't been very rewarding for me so far. :)
My only goal is to point out the downside risks to increasing your maturity because of a zero money market return. I suspect you aren't the only one looking at doing this. But I'm betting most of them just look at yield and not at risk. And once everyone is in the trade, what will happen then?
If it sounds like I'm conflicted, its only because I am. :)
One of the reasons VFIIX has had so few negative years is because if you look at a yearly chart, the bond market has pretty much gone up for most of the past 30 years - which means rates have fallen most of the time. I guess 1994 was an exception. Yet as with all bull markets, at some point, this massive 30 year bull market will end. I keep thinking "this year for sure - how can rates get lower than 4%?" And then they get lower. Vad's rule. Overbought gets overboughter. In this case, for 30 years!
My equation did assume a constant yield of 2.87%. I'm not sure rising rates would end up helping much over the 1 year period. WIth a 6 year duration, only 16% of the bonds mature every year.
Your 6.82% 5-year average return is about half capital gains - gains from declining interest rates. If rates remain flat, you'll get 2.87%. Its still better than 0%, but 7 years is a long duration.
Last point. Look at the weekly $UST7Y chart on stockcharts. You're buying the (yield) at an all-time low in the 7Y treasury yield. Of course, it could break down and go even lower still, which would be good for VFIIX. But just realize when you are buying - the all time low in rates (translating into the all time high for the 7 year treasury).
Of course, overbought can get overboughter. So who really knows how it will turn out.
Jim Sinclair took a while getting to the point (the interview was unedited - which was fascinating to listen to for that reason) but he got there eventually. My feeling is, it was oversold as to timing (the world isn't coming to an end in the next few days) but it was quite interesting from a longer term perspective.
Here's my summary of what he said.
The ISDA will shortly be determining whether or not the 70% loss to bondholders in the Greek Default is actually a default. In a defeat for common sense but a victory for can-kicking, he thinks ISDA will rule it is NOT a default, mainly because the CDS shorts run the ISDA.
He also said that MF Global was taken out the last time ISDA said the previous 50% Greek default was ruled not a default, and the implication is that now, at a 70% loss, more organizations may also get hit in the same way. Some organizations that hold Greek debt, and depend on swaps to protect their downside will be seriously hurt by this decision, and may go under. It might also cascade to other companies who are long other PIGS debt (Portugal?) and have used CDS to hedge.
He links Bernanke's recent announcement of "bad economic performance for years to come" and hints of future money printing to the ECB's 3 year LTRO/money-printing, and says that the EU printing operation was required to cushion the upcoming damage from the ISDA decision/Greek default.
He feels that the effects of this decision may affect some organizations, but overall the equity market and PM will move substantially higher with the printing from the ECB. He said equity markets depend on liquidity more than anything else.
He opines that at some point, the ISDA will be unable to credibly decide that the massive losses are not defaults - say when losses from Greek debt hit 90%. Or 100%. At that point, the 5 major US banks that have written the majority of these instruments will go under when they have to pay up, and then all hell will break loose. But for now, since the 5 TBTFs essentially control the ISDA, it's not gonna happen this time around.
My sense:
ISDA is picking the next group of winners and losers by its upcoming decision. With each decision that a default isn't really a default, ISDA is killing off various companies whose balance sheets depend on the CDS performing as insurance. The banks who have big short CDS positions (the 5 big US TBTFs) end up winners. This will go on as long as enough small fig leaves can be found to cover the massive hypocrisy.
Each finding by ISDA that a big Greek haircut isn't a default is actually supporting fraud - the selling of worthless insurance. If the insurance company doesn't pay when normal people have losses, who will depend on insurance going forward? And that has ripple effects throughout the system. MF Global was the first such "ripple." What others lie out there?
The ECB printing operation was an attempt to provide some help in advance to the system as a whole. Another printing operation (estimates of 1 trillion, dated for Feb 29) may give us a sense as to the seriousness and the timeframe. Is it an accident that the Greek refunding is scheduled for mid-March, and the LTRO happens on Feb 29th? I've said before that for the low price of 13B they can kick the Greek Default can once more, but this analysis suggests a different outcome.
To me this means inflation now, deflation later. This assumes the powers in charge can see the deflation coming, like they can with the Greek defaults. If there is a surprise of some sort, however, things could deviate from this nice predictable path pretty rapidly.
Summary: good for PM and equities, bad for the dollar.
ISDA version of the golden rule: He who interprets the rules, gets the gold.
Accumulation Zone: Monthly 4, Weekly 0, Daily 2
Distribution Zone: Monthly 11, Weekly 32, Daily 42
Quasi -
Nice illustration. The volume ticks between SPY and SPX are subtly different - some days more dramatic than others, but the OBV line is more dramatically different between the two.
It really helped to have those charts on top of one another.
I'd guess the less popular ETFs are prone to even more dramatic differences in volume vs their underlying index.
Seems like Vad's concept of an "engineering approximation" is probably ok for rough volume calculations, but there's no substitute for the real $SPX volume data for the volume-related studies. And even the real $SPX volume data (as he pointed out) changes year to year as trading patterns change: dark pools, high frequency trades, and probably lots more things I don't even know about, so the whole volume angle seems like it is a little suspect.
Perhaps you can really only look at the last 3-6 months for meaningful volume comparisons.
Hey Vad, something just occurred to me.
Do you think the ETF "SPY" volume is a good proxy for the overall market's volume? I've often wondered (but never did the work) to see if SPY's volume, the actual volume attached to $SPX, and the e-mini front month ES contract volume are really all interchangeable? I've kind of been using them that way and this discussion is making me wonder if maybe that's not a good idea.
In other words, even though SPY is an ETF, and has only been around for 10 years, do we think it can be used in roughly the same way for volume purposes as the actual $SPX? I'm thinking if we look back 8 years, SPY might have a relatively lighter trading volume compared with the $SPX than today, let's say, now that its a popular trading vehicle.
I don't have easy access to $SPX or front-month e-mini volume data or I might try my hand at coming up with an answer.
Accumulation Zone: Monthly 4, Weekly 0, Daily 4
Distribution Zone: Monthly 12, Weekly 27, Daily 42
If there was ANY doubt the Greek bailouts were focused primarily on the euro banks, this new plan should remove it. Here, the EU outlines a new way of disbursing funds that ensures bondholders are paid back while money to fund government deficits could still be withheld to motivate reform efforts. They will no longer simply hand bailout money to Greece - they keep it in an escrow account and first claim on the escrow account is for the bondholders.
Basically, "bailout" money will go directly to Greek bondholders first, and then if Greece is a good little country, they get whatever is left to fund their deficit.
http://www.ft.com/intl/cms/s/0/35bd53aa-50ef-11e1-...
Greece bail-out funds could be split
European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets.
Under a new Franco-German plan that senior European officials said is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past.
The new fund would then ensure bondholders are paid off, while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands.
A senior French official said the plan, which has backing from the European Commission in Brussels as well as several other eurozone countries, was a way of “removing the Damocles sword of default” while keeping pressure on Athens to reform.
Accumulation Zone: Monthly 4, Weekly 0, Daily 2
Distribution Zone: Monthly 13, Weekly 37, Daily 51
Ilya -
I have to agree, Romney is likely unelectable. He won't motivate the religious base; the evengelical branch won't trust him since as a mormon they think he's a fringe element - a clear case of the pot and the kettle to me but that's because I'm on the outside looking in. The pro-business bunch will be on his side. He's moderate enough politically to attract the independents, but he's so dreadfully rich and so clearly a "job destroyer" - he's just such an easy target in that respect. He's a poster child for the financialisation of America. There must be thousands of people who were fired during one of the many Bain Capital takeovers. I can just see the TV commercials now interviewing his victims. His "business experience" might have played back in 2006, but it won't play today. "Load the takeover company with debt, fire a bunch of people, and extract huge fees for yourself." Good luck selling that as a national strategy to the moderates or the Tea Party.
Plus he's got all the passion of Al Gore, with the common touch of John Kerry. Watching him speak, he strikes me as a cardboard cutout of a person.
Gingrich on the other hand is clearly a real person. All too real. His history of marital flexibility gives him zero credibility with the family values crowd and his serious political hackery won't endear him to independents. The work he did for fannie wasn't so helpful either. He's smart, but very negative. Stack him up against Obama, he loses. "In my next 4 years as president, I will focus our resources here on earth, rather than the moon." Its just too easy.
I'd vote for Ron Paul. If he made it that far. Hard to know how he'd do. People in America are probably still too focused on wanting to restore business as usual to ask for real reform.
The funny thing is, I'd have said prior to the Republican Primary that Obama was a sure loser against "the Republican." Of course that was prior to seeing who the Republicans have actually selected. I think had they had put Chris Christie on a diet and got him backed with some money and spun him up, Obama would have been crushed.
Jack -
Interesting gasoline data. Gasoline prices are up 0.40 since November, but were even higher earlier in 2011. It would be cool to seasonally adjust both gas prices, gas production AND gas trade net import/exports. I heard we're exporting finished petroleum products these days - something unusual - which might indicate the actual gasoline usage is even lower.
As for what it means - I've maintained for a while that US corporations have significantly decoupled from the US citizen. Even the government-manipulated figures that show "growth" does not paint a great picture of the overall environment, but US companies are actually well off.
A good chunk of business is overseas, wages in the US are "under control" because of high structural unemployment, and the extremely low interest rate environment allows companies to roll their debt very cheaply. At the same time, the US government is borrowing gobs of money and spending it into the economy, sustaining consumption. This is all great for margins. It is a perfect (happy) storm for US corporations. Executives get big bonuses for being clever and doing a fantastic job - well all except for poor Lloyd. Only $9 million this year. Perhaps the reduction was because GS stock has gone from 170 to 117. But this happy storm is not as helpful for the regular US citizen though.
Evidence: corporate profits as a share of the economy are at all time highs. This article is 6 months old.
http://www.marketwatch.com/story/corporate-profits...
dnfrm -
I have to say I missed out on the whole last few years bond rally because I wondered - how could interest rates possibly go lower? Of course they went lower.
PTTRX average maturity 9 duration 7.1 yield 4%. That says for every 1% rise in the 10 year note, your capital drops by 7%. Ouch. Of course it goes the other way too. 10 year note is currently yielding 1.97%. I suppose it could drop to 1%, which gives you a 7% capital gain + 4% yield. 11% total return!
From a chart perspective, does the PTTRX weekly chart look like a good entry point?
Of course the right move in this market has been to buy every bond breakout. Overbought has done nothing but get overboughter during this whole last 3 year bond move. I think we can thank the Fed for part of this, and people being terrified of a deflationary depression for the other part.
It sounds like BillySundance made some pretty good calls this past few years - perhaps he has the right moves here too. Sitting in cash waiting for the 30 year bond market rally to end hasn't been very rewarding for me so far. :)
My only goal is to point out the downside risks to increasing your maturity because of a zero money market return. I suspect you aren't the only one looking at doing this. But I'm betting most of them just look at yield and not at risk. And once everyone is in the trade, what will happen then?
If it sounds like I'm conflicted, its only because I am. :)
Accumulation Zone: Monthly 4, Weekly 0, Daily 4
Distribution Zone: Monthly 13, Weekly 23, Daily 36
Accumulation Zone: Monthly 5, Weekly 0, Daily 7
Distribution Zone: Monthly 12, Weekly 20, Daily 37
dnfrm - you're welcome.
One of the reasons VFIIX has had so few negative years is because if you look at a yearly chart, the bond market has pretty much gone up for most of the past 30 years - which means rates have fallen most of the time. I guess 1994 was an exception. Yet as with all bull markets, at some point, this massive 30 year bull market will end. I keep thinking "this year for sure - how can rates get lower than 4%?" And then they get lower. Vad's rule. Overbought gets overboughter. In this case, for 30 years!
My equation did assume a constant yield of 2.87%. I'm not sure rising rates would end up helping much over the 1 year period. WIth a 6 year duration, only 16% of the bonds mature every year.
Your 6.82% 5-year average return is about half capital gains - gains from declining interest rates. If rates remain flat, you'll get 2.87%. Its still better than 0%, but 7 years is a long duration.
Last point. Look at the weekly $UST7Y chart on stockcharts. You're buying the (yield) at an all-time low in the 7Y treasury yield. Of course, it could break down and go even lower still, which would be good for VFIIX. But just realize when you are buying - the all time low in rates (translating into the all time high for the 7 year treasury).
Of course, overbought can get overboughter. So who really knows how it will turn out.
Accumulation Zone: Monthly 5, Weekly 0, Daily 7
Distribution Zone: Monthly 10, Weekly 19, Daily 21
http://www.youtube.com/watch?v=9802NwSSS6U
Jim Sinclair took a while getting to the point (the interview was unedited - which was fascinating to listen to for that reason) but he got there eventually. My feeling is, it was oversold as to timing (the world isn't coming to an end in the next few days) but it was quite interesting from a longer term perspective.
Here's my summary of what he said.
The ISDA will shortly be determining whether or not the 70% loss to bondholders in the Greek Default is actually a default. In a defeat for common sense but a victory for can-kicking, he thinks ISDA will rule it is NOT a default, mainly because the CDS shorts run the ISDA.
He also said that MF Global was taken out the last time ISDA said the previous 50% Greek default was ruled not a default, and the implication is that now, at a 70% loss, more organizations may also get hit in the same way. Some organizations that hold Greek debt, and depend on swaps to protect their downside will be seriously hurt by this decision, and may go under. It might also cascade to other companies who are long other PIGS debt (Portugal?) and have used CDS to hedge.
He links Bernanke's recent announcement of "bad economic performance for years to come" and hints of future money printing to the ECB's 3 year LTRO/money-printing, and says that the EU printing operation was required to cushion the upcoming damage from the ISDA decision/Greek default.
He feels that the effects of this decision may affect some organizations, but overall the equity market and PM will move substantially higher with the printing from the ECB. He said equity markets depend on liquidity more than anything else.
He opines that at some point, the ISDA will be unable to credibly decide that the massive losses are not defaults - say when losses from Greek debt hit 90%. Or 100%. At that point, the 5 major US banks that have written the majority of these instruments will go under when they have to pay up, and then all hell will break loose. But for now, since the 5 TBTFs essentially control the ISDA, it's not gonna happen this time around.
My sense:
ISDA is picking the next group of winners and losers by its upcoming decision. With each decision that a default isn't really a default, ISDA is killing off various companies whose balance sheets depend on the CDS performing as insurance. The banks who have big short CDS positions (the 5 big US TBTFs) end up winners. This will go on as long as enough small fig leaves can be found to cover the massive hypocrisy.
Each finding by ISDA that a big Greek haircut isn't a default is actually supporting fraud - the selling of worthless insurance. If the insurance company doesn't pay when normal people have losses, who will depend on insurance going forward? And that has ripple effects throughout the system. MF Global was the first such "ripple." What others lie out there?
The ECB printing operation was an attempt to provide some help in advance to the system as a whole. Another printing operation (estimates of 1 trillion, dated for Feb 29) may give us a sense as to the seriousness and the timeframe. Is it an accident that the Greek refunding is scheduled for mid-March, and the LTRO happens on Feb 29th? I've said before that for the low price of 13B they can kick the Greek Default can once more, but this analysis suggests a different outcome.
To me this means inflation now, deflation later. This assumes the powers in charge can see the deflation coming, like they can with the Greek defaults. If there is a surprise of some sort, however, things could deviate from this nice predictable path pretty rapidly.
Summary: good for PM and equities, bad for the dollar.
ISDA version of the golden rule: He who interprets the rules, gets the gold.