The Long Term Investor

Hi Dax.

Any SP500 Index fund or ETF. Whichever one is cheapest for you with your broker. They should ALL....in theory...produce the same basic result.

 

I posted about this Ten Year Treasury repo action a page or two ago. Here is some more information on this issue. In my opinion the BIG BOYS are manipulating this market with their short action. In my opinion they are also....at the same time.....manipulating the general stock markets and some specific stocks using this SAME stuff to drive the markets down on particular days and weeks and trade that volatility. What can be done? NOTHING. They are going to do what they do.

Treasury Short Sellers Face Rising Costs to Borrow 10-Year Notes

https://finance.yahoo.com/news/treasury-traders-look-auction-relief-144848871.html

(BOLD is my opinion OR what I consider important content)

"The cost of borrowing U.S. Treasury 10-year notes continues to spiral higher despite record-size auctions, fueled by a growing pool of investors who want to bet on higher yields.

The interest rate on overnight cash loans backed by the newest 10-year note -- repurchase agreements, or repos -- plummeted below minus 3% Wednesday for only the third time since the beginning of 2018, according to Scott Skrym of Curvature Securities LLC. That’s the threshold below which it’s cheaper to pay a regulatory fine than to complete the transaction, and it’s an indication of huge demand to be short the issue after last week’s selloff pushed its yield to a one-year high.

While next week’s auction of additional 10-year notes may alleviate the pressure on repo rates, Treasury yields resumed rising Thursday, suggesting that bearish bets have room to run. The move began when Federal Reserve Chairman Jerome Powell downplayed the increase in long-term borrowing costs. In unscripted comments on the economy and monetary policy, Powell waved off the idea that the central bank ought to extend the average maturity of its purchases of Treasury securities, as some Wall Street strategists have suggested.

Next week’s auction “should help, but we have a week to go,” John Davies, U.S. interest-rate strategist at Standard Chartered Plc, said of the March 10 auction. “The intervening period could still be very volatile for Treasuries and the pressure in the repo market could well remain in place.”

Liquidity Crunch

The past week’s turmoil in Treasuries has been marked by a drop in liquidity, which has prompted borrowers to opt for the more-liquid current 10-year Treasury over older notes in the sector that would be cheaper to borrow. The negative interest rate means the investor lending cash to borrow the note ends up having to pay, instead of getting compensated, and it suggests there’s a large short position in the security. The general collateral repo rate, by contrast, closed at 0.03% Wednesday.

Daily Treasury repo fails -- which become a cheaper option than covering a short position when the repo rate falls below negative 3% -- surged to $64 billion as of March 3, the highest in four months, according to DTCC. Meanwhile, the rate to borrow the 10-year security in the repo market reached a low of minus 4.25% on Thursday, according to Curvature’s Skrym.

Another illustration of high demand to borrow the newest 10-year note is that the Fed, which owns about $14.9 billion of the issue, has been lending it in large quantities to dealers. On Thursday, the size of the bid submissions to the bank dropped from previous sessions, and dealers were fully filled, New York Fed data show. Fails back to the central bank also declined, an indication that some short positions are being trimmed.

Treasuries suffered their biggest monthly loss in four years in February, as 10- and 30-year yields climbed to their highest levels in more than a year, pricing in an economic recovery as the U.S. virus infection rate eased amid the vaccine rollout. While next week’s 10-year auction may alleviate the current repo situation, the context of record-size auctions to finance pandemic relief, which Federal Reserve purchases have only partially offset, means that “investors are positioning appropriately for higher rates,” Bank of America strategist Meghan Swiber said in a note.

Adding to the crunch are yen-based investors. They have been liquidating older Treasury positions, according to traders in Asia, who asked not to be identified as they aren’t authorized to speak publicly. The impact in the repo market comes from how dealers absorbing the Japanese supply in old bonds -- those not used in benchmarks -- often sell current ones to hedge their positions.

Supply Announcement

The first of two reopenings of the current 10-year note could ease some of the Treasury market ructions. The issue debuted in February at $41 billion, and the Treasury Department has indicated that both reopenings will be $38 billion, resulting in a $117 billion issue by mid-April. However, the Federal Reserve is likely to absorb about $2.4 billion of next week’s offering, according to Wrightson ICAP economist Lou Crandall, which would curb some of the supply coming to market.

“There are lots of specials in the Treasury market, so that will be alleviated,” said Peter Chatwell, head of multi-asset strategy at Mizuho International Plc, referring to bonds that are in particularly high demand in the repo market. But “more Treasury supply certainly won’t make investors want to buy duration.”

The past week has seen tepid demand for sovereign debt offerings from Indonesia to Japan and Germany. With bond markets sitting on a “powder keg,” ING analysts see U.S. 10-year yields eventually soaring to 2%.

While Japanese investors, the largest foreign holders of U.S. government bonds, tend to be attracted to higher yields following any selloff, some don’t see demand roaring back.

The selling from Japanese funds is “likely to continue” as long as there is no warning from U.S. officials about the recent rapid pace of increase in yields, said Shinji Kunibe, head of global fixed-income group at Sumitomo Mitsui DS Asset."

MY COMMENT

In my opinion....this is what is going on and driving the yields and prices of the Ten Year Treasury now.....the BIG BOYS are using it as a trading tool.....with massive shorts. As an ADDED BONUS to themselves ......in my opinion.....at the same time it gives them a way to manipulate the general stock averages.....day to day........ and cause big drops and erratic volatility....which the BIG traders love.

As a little guy....what can I do? NOTHING....other than to be a LONG TERM INVESTOR where this sort of.......my opinion.....short term manipulation and trading......is irrelevant.

 

Good comment and some great funds in those two posts...oldmanram. I used to ALSO prefer Vanguard SP500 Index fund. BUT Schwab was charging me a fee to buy it so I switched to the Schwab product. Vanguard is a great company.

 

Great post above Zukodany. How true.

HERE is the economic news of the day. Yet again the markets are in hand to hand combat for direction. BUT....as usual the vast majority of the general economic news, earnings, etc, etc......is STRONGLY positive for the future.
February jobs report: Economy adds 379,000 payrolls, unemployment rate falls to 6.2%

https://finance.yahoo.com/news/febr...partment-unemployment-pandemic-192526748.html

(BOLD is my opinion OR what I consider important content)

"The U.S. economy added back the most jobs in four months in February, as easing COVID-19 case counts and a ramping vaccine rollout allowed distancing restrictions to begin to moderate. The unemployment rate also unexpectedly improved during the month.

The U.S. Labor Department released its February jobs report Friday morning at 8:30 a.m. ET. Here were the main metrics from the report, compared to consensus estimates compiled by Bloomberg:

• Non-farm payrolls: +379,000 vs. +200,000 expected and a revised +166,000 in January
  
• Unemployment rate: 6.2% vs. 6.3% expected and 6.3% in January
  
• Average hourly earnings, month-over-month: 0.2% vs. 0.2% expected and a revised 0.1% in January
  
• Average hourly earnings, year-over-year: 5.3% vs. 5.3% expected and a revised 5.3% in January
  

The February jobs report also included a notable upward revision to payrolls gains in January, but a downward revision to losses in December. January's payroll gain was revised to 166,000, up from the tepid rise of 49,000 previously reported. However, December's payroll losses – the first since April — were revised to 306,000, from the drop of 227,000 reported earlier. Altogether, the U.S. economy remains about 9.5 million payrolls short of its pre-pandemic levels.

But last month, job growth accelerated as declining new COVID-19 cases and broadening vaccine-conferred immunity helped more businesses reopen with greater capacity. The unemployment rate unexpectedly improved to 6.2%, improving significantly from the pandemic-era high of 14.8%, but holding still well above the 50-year-low of 3.5% from February 2020. And the tick lower in the unemployment rate came even as the labor force participation rate held steady at 61.4%.

"Today’s employment report smashed expectations as 379K jobs returned to the economy during the month of February. This was a welcomed change of events for a suppressed labor market as we begin to turn the helm on a restrained economy and open back up," Charlie Ripley, senior investment strategist for Allianz Investment Management, said in an email Friday morning. "Looking ahead, it appears the ship is pointed in the right direction and the additional stimulus coming from Congress should be the wind in the sails to get the economy back on track."

Still, however, some economists warned against getting too excited about the recovery too quickly, given the ground the economy still needs to recuperate to return to pre-pandemic levels.

"Now in the second year of the pandemic, the labor market has 9.5 million fewer jobs than it did before the coronavirus arrived in the U.S. That gap rises to 11.5 million once you consider the jobs gains we would have seen absent the crisis," Nick Bunker, Indeed economic research director, wrote in an email. "At this pace, it will take about four and a half years to get back to where the labor market would have been without the pandemic. Millions of Americans out of work do not have that time."

The vast majority of industries registered net payroll gains in February, including some of the most badly beaten-down pockets of the service economy. Leisure and hospitality payrolls rose by 355,000 in February after declining by more than half a million between December and January, as a resurgence in new COVID-19 cases around the holidays led to renewed social distancing restrictions. Gains in this industry were followed by a wide margin by a rise in temporary help services positions, which rose by nearly 53,000 in February for a third straight monthly gain. Retail trade and education and health services payrolls also each rose by more than 40,000, respectively.

"The core story here is that the re-opening of services will be the dominant factor in the payroll numbers over the next few months," Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in an email Friday morning. "The monthly gains are likely to rise sharply unless a renewed surge in COVID cases, due to the B117 variant, forces states to delay their re-openings until vaccination finally squashes it."

The goods-producing sector, however, posted a back-to-back month of net payroll declines in February, with harsh winter weather weighing on many of these industries. Construction payrolls fell by 61,000 during the month, though manufacturing payrolls rose by 21,000 to more than reverse a drop in January. Consensus economists had been looking for manufacturing payrolls to rise by 15,000.

Other reports on the U.S. labor market have come in mixed recently. ADP reported Wednesday that private payrolls increased by just 117,000 in February, sharply missing estimates for a rise of 205,000 payrolls. But elsewhere, weekly jobless claims trended lower in February versus January, suggesting a moderation in the number of newly unemployed. Plus, the Conference Board's labor differential — measuring the percentage of those saying jobs are "plentiful" subtracted by those claiming jobs are "hard to get" — turned positive for the first time since November in February."

MY COMMENT

A very nice report....but....keep in mind, just a snapshot of a very short time period. BUT.....good is good....as we move forward.

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WOW.....poor TESLA....now down about 40% from their recent high. OK....I am calling it.....regardless of the averages....we are in a GENERAL CORRECTION.

In spite of ALL the positive news and the bright future over the next year or two.....in my opinion there is a danger to the markets over the next year or two. This time period reminds me of the dot com era and day trading MANIA of the 1990's. We ended up with the DOT-COM collapse as that EXCESS needed to be driven out of the markets.

We are seeing that type of short term MANIA over the past year. All the day trading, Reddit trading, speculative gambling on stocks and options, etc, etc. This sort of behavior WILL COLLAPSE. The bad thing is.....it will drag the markets down with it when it happens. SO.....I would not be surprised to see a nasty prolonged correction. I would not be surprised to see this.....stuff....trigger a bear market. With what we are seeing at the moment....I would not be surprised to see this year end up negative. The type of market action and environment that we are seeing now has a nasty habit of snowballing on itself as panic and fear start to take hold.

BUT.....like everyone else.....with no crystal ball.....i will just have to wait and see what happens as it happens.

The more things change the more they stay the same.....there is NO new normal. Investor behavior is rational....on a certain level. PAIN causes humans to take action to lessen and avoid the pain. SO......as the heat and pain increases more and more people WILL be tempted to BAIL....go to cash or sell certain holdings.....avoid the pain. AND that creates a snowball affect......waves of selling lead to more selling. Of course....the media with their relentless DOOM&GLOOM driving their theme of FEAR&PANIC....will not help the situation.

We have seen this sort of thing over and over many times in the past. It is just the STARK REALITY of investing. It is something that we ALL have to just deal with. I deal with it by just ignoring what is going on and taking some consolation that my dividends and capital gains are being reinvested at great levels. I also deal with it with the knowledge that my stock market money is NOT needed for day to day life.......and......by being a LONG TERM INVESTOR. I deal with by understanding and appreciating......HISTORY. I deal with it by having a lifetime of investing experience and having gone through some very dark market times in the past...... and......ALWAYS ending up ahead of those that BAIL out of fear and than MISS OUT on the huge explosive gains when the markets turn and recover and move on to new highs.

So take heart......we are in a return to a NORMAL economy and markets. We are ALL in the same boat......and....we will ALL be just fine if we are investing RATIONALLY and REALISTICALLY with reasonable expectations.

I remain fully invested for the long term as usual.

 

WELL....the old mid day turn-around. Costco is DOWN as usual after earnings. I am just about flat for the day....as of now.....TGIF......and TSLA has recovered a bit. A very mixed day for my portfolio so far. ONWARD.....to the close.