The market exhibited signs of life on Thursday, but the patient will remain in intensive care for another week or so. Which is to say that after the thrashing of the last week merely trading sideways is about as bullish as you can get which, in turn, takes us into the decision moment of next Friday’s triple of NFP, PCE, and ISM.

For now, we are following stocks all too closely and while our technical read is  that stocks face some trouble (bearish divergences, for instance) we are not confident to make a call on a Friday with an early close. Further, the bond market is still dealing with a structural long. That will be a smaller long post  next week’s big month-end extension, but we don’t envision anyone choosing to get much longer at this juncture. Indeed, a small uptick will likely see some further long liquidation.

We are not bearish at these levels and, indeed, if flat we’d take a stab at the long side. Some of the key elements behind the recent pressure (like about $35 bn in corporate issuance this week, and a record issuance month in general) are slipping away. Further, we’ve encountered savvy accounts doing some bottom fishing. Again this is more of an endorsement for a hold than a rally.

It was ‘interesting’ to see the market hold up after yesterday’s New Home Sls gain (well offset by the record YoY price drop and gain in the duration of homes  on the market), but this puts today’s Existing Home Sls in a brighter spotlight  as we think this is a more reliable read. To wit, if this is not firmer and/or prices are soft then it should be the source of a bond bounce. The converse holds, naturally. The consensus looks for flat sales and a small price drop.

TACTICAL BIAS: We are a small bit long off of today’s lows to express that view.
A trade we are looking at is the mirror opposite of our long strangle — booked  with a small profit this week — and that is selling a strangle. We are selling  a 1m10yr strangle. What this translates to is playing for 10-yr swap rates to hold to 5.565% to 5.285% range, with a strike at 5.425% — break even covers us from 5.605% to 5.245%.

Another idea we’re trying to invigorate is US vs. Bunds. This spread has held to  a downward sloping channel and we book profits in the 40s vs. putting it on near 100 bp. The channel top comes in around 58 bp and we’d be looking to get long US vs. Bunds from 55-58 bp. The idea is that 1) US 10s are oversold, 2) the  ECB won’t shift it’s tune at the next meeting (the market has some talk they may remove the ‘rates are accommodative’ idea), 3) and the channel holds.

Our reluctance to jump on the downtrade has been made to look like a smart(ish) decision due to no grand prescience on our part, but to equity weakness. We are not calling the stock market(s) per se but we are watching bearish chart elements develop — and so what’s bad for stocks is good for bonds.

To wit, momentum divergences we noted in yesterday’s Closing Notes’ chart package have extended and stochastics, especially, have taken a dip down. Should  S&Ps close under 1502 then they are working an outside week down and we’ll be looking at the 200 day MA at 1488 to a broken channel projection at 1450. Such action should support curve steepening — our bias is to see 2s/10s edge up to
4-6 bp into next week’s data. Better placement is -3 bp, but we’re not sure you’ll see that.

OVERNIGHT EVENTS:
* Fed’s Custody data shows Treasury holdings declined by -2.996 bn vs. -3.299 bn  the prior week, while Agencies increased by 7.762 bn vs. 12,137 mn prior.
* Fed’s Primary Dealer Position data shows net long positions reduced slightly to 162.23 bn vs. 166.08 bn prior. 6.21 bn increase in Treasury shorts <6 year.
Corporate long reduced by $4.6 bn to $201 bn.
* Japan CPI, April — 0% YoY, -0.1% YoY “core”, Tokyo CPI YoY 0.0%. Boosts JPY and take Nikkei down 215 pts. Pace of CPI decline slowed is the excuse.
* North Korea fires short range missiles towards Sea of Japan.
* German, Consumer Confidence, June — 7.3 vs. 5.5 prior. Firm.

IMPENDING EVENTS:
* Existing Home Sls, April — forecasted at 6.12 mn, down 0.1% MoM.
* Early Close for Monday Holiday.

NOTE: The views expressed are not of Bonds Financial but of the unaffiliated author. Bonds Financial Inc. makes no claim to and regarding the accuracy, correctness or completeness of the views expressed.

Posted by bondsblog as Morning Call at 6:34 AM EDT

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The market has done nothing right in a week that has seen either second tier data or no data at all. The price action itself is raising significant questions as to the underlying cause(s) of the weakness and leading not a few people to read into the price action a deeper strategic event — China is diversifying, global money supply is soaring, stocks are the rage, global liquidity is booming, housing is bottoming etc etc.

Each of these is a legitimate concern, but it seems a leap to put the current price action in a broader context at the moment. This may be wrong thinking on our part, and time will prove us right or wrong. If wrong, then the forces of nature suggest a much bigger pullback and adjustment, of course. This is a structural “thing” and, in the event, we’ll have time to get on board.

But we rather think the action is about range-bottom nervousness exacerbated by positions and an immense amount of supply. Global liquidity? Wasn’t that the excuse for rates being low? China diversifying? Well, sure, and with 1.1 trillion in reserve growing at 200 bn plus per year there’s ample resources to diversify and keep buying of, say, Treasuries, pretty high. Stocks? Is it about earnings or M&A? Mortgage originator selling? ARMs moving into fixed sounds like someone’s mortgage payment is going up. Gas an all time high doesn’t seem to matter.

And so we err, for now, on some further technical weakness to test the yield highs of 2007. We’re inclined to buy, not be short, into those very close regions, but concede that into NFP there’s won’t be a lot to generate more than the market merely consolidating. Today has no key data, a few deals (less than yesterday’s $14 bn) that may generate some swap need, and market players climbing a wall of worry. We do get SMR and suspect it will show a reduction in the long base and, sentiment-wise, a willingness to get less long into brisk month-end extensions (0.21 yrs in Tsy space).

TACTICAL BIAS:
Bruxism gives way to nausea. The market simply cannot find a solid footing and we have to err on the search for better levels — with 10s near the 4.90% 2007 low, 30s up vs. 5% we are inclined to WAIT with other potential buyers for those critical levels.

And it may be a DEEPER waiting game ahead. While Durable Goods on Thursday is seen flat, housing data is seen firmer. In advance of next week’s super Friday of NFP/ISM/PCE we can only expect minor bounces at best and the reasonable expectation that current market longs will use month end’s robust extensions
(0.21 yrs in Tsy space!) to get closer to neutral duration-wise. And, perhaps, we need to sit out the discussions taking place in Washington with Tsy Secretary Paulson to instill some confidence in overseas buyers of this market. It adds up to another reason of expect current pressure to stick around for a few days.

In yield terms, we have interest in 4.85/9%, 30s just behind 5%. 2s are getting attractive, too, trading near their average spread to Fed funds and the market largely pricing out odds of an ease. Again, the price action seems to us a story of positions, of issuance, and, if anything, a lack of data. We have to weather the storm a bit longer.

We have one good note — our strangle put on 4/27 (looking for a +/- 10 bp move off 10yr rates) is now in-the-money.

OVERNIGHT EVENTS:
* ABC consumer confidence, -9 vs. -7 prior.
* MBA weekly data, purchases up 1.3%, apps up 1.6%, refis up 1.9%.
* ECB’s Weber, policy is not where it needs to be, inflation risks have increased.
* BoE minutes, seen a bit hawkish, unanimous vote for hike, rates could be raised further, discussed 50 bp hike, inflation pressures more than expected.

IMPENDING EVENTS:
* SMR investor survey — was 101.7 last
* Fed’s Kroszner, voting moderate, speaks on lending rules, mortgage policy.
* European supply, EUR7 bn 10s in Germany.
* KFW 3 bn 3s, Freddie 4 bn 2s, Italy 1 bn 5s or 10s, BoA 4 bn CMBS (this week)

OVERNIGHT FLOWS: The market is off and the curve more inverted on robust trading
volumes: TY came to 121% of average and cash amounted to 165% of the norm. 3s and 5s are the under performers, with 10s the best and taking the bulk of market share. Stocks are firmer (Shanghai up 1.5%) and JGBs were pummeled. Fed’s Lacker (non voting hawk, 4x dissenter) said it’s a mistake to rely on slowing growth to stem inflation.

We had Asian real money buying 2s, Japanese bank buying 5s, HF buying 10s (small), mortgage buying in 10s, options buying in 10s. Away hearing of real money buying bills, selling in 5s vs. 10s, Europe buying 10-yr agencies, Japanese buying 5-yr agencies, swap selling belly, specs selling 10s, c/b buying 10s.

NOTE: The views expressed are not of Bonds Financial but of the unaffiliated author. Bonds Financial Inc. makes no claim to and regarding the accuracy, correctness or completeness of the views expressed.

Posted by bondsblog as Morning Call at 7:55 AM EDT

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Wisdom on a coffee cup! I keep seeing pearls of pansophy on Starbucks’ cups, such as “The Way I See It #204″ an erudition by novelist Paul Coelho. Said he: “Remember your dreams and fight for them. You must know what you want from life. There is just one thing that makes your dream become impossible: the fear of failure. Never forget your Personal Legend. Never forget your dreams. Your silent heart will guide you. Be silent now. It is the possibility of a dream that makes life interesting. . . You can choose between being a victim of destiny or an adventurer who is fighting for something important.

At a recent Atlanta conference on issues of aging and family caregiving, a woman sat at my table, along with her mother. Wisely attending as daughter and parent, they were there to learn more about the problems of old age impairments and available resources. Planning ahead is critical to controlling your own future.”

The daughter is an avid reader of these columns and she asked two interesting questions. She wondered, “What and when is ‘old age’? How does this impact financial planning?”

My best answer was another question, attributed to Satchel Paige: “How old would you be if you didn’t know how old you are?”

In the 1960s, age was defined as “not trusting anyone over age 30.” The Weatherman radical-chic types finally figured out what was “blowin’ in the wind” and age is being redefined once again. Trend spotter and futurist Faith Popcorn predicts: “Today’s Baby Boomers define ‘old age’ as starting at 80―three years after the average person is dead. Tomorrow, Boomers won’t acknowledge ‘old’ at all. Terms like ‘elderly’ and ‘mature’ will become insults, tantamount to harassment. Boomers will demand recognition of their special needs but not to be treated like ‘special people;’ imagine large, stylishly iconic but easy-to-read buttons gracing luxury cars like the Infinity and BMW. Even death will get a make-over: The generation that shuns pity will transform hospices into hot-spots as funerals become ‘going-away parties’ worthy of a lasting legacy.” (Arizona Reporter, 2006).

Financially, we mark age in different ways. At age 40 you are protected against age discrimination under federal law. At age 59½, you may spend IRA money with no penalty; starting at age 70½ you have to take at least minimum distributions. At 62, you may take “early retirement” benefits from Social Security. Full retirement phases in as late as 67 depending on your birth year. Medicare coverage kicks in at 65. Golden wedding anniversaries generally are celebrated between ages 70 – 80. But when is old?

Researchers at Ohio State University note that gerontologists lean toward distinctions such as “young-old” (ages 55-74), and “old-old” (age 75+). Some prefer to insert a “middle- old” category to push “old-old” further out.
“Aging is not a disease,” Aging is a series of processes that begin at conception and carry through birth to the end of the life cycle. Age-related changes vary greatly between individuals. Show up at a 30th, 40th, or 50th high school reunion and you will see stark differences, plastic surgery not withstanding! All five key senses―hearing, vision, touch, taste, and smell―can undergo alterations as early as the mid-40s and early 50s.

Early in my business career I worked for a man who said, “Attitude is more important than facts!” Chronological age may differ substantially from functional age and mental age. Ohio State researchers note that “place of birth, place of residence, marital status, diet, education, heredity, physical fitness and mental health, family size and composition” have significant impact on aging. Healthy living (increased exercise, not smoking, preventative medicine) is a carryover from the boomer youth culture.

The effusive Mr. Paige has said, “Age is a question of mind over matter. If you don’t mind, it doesn’t matter.” Stress is a killer. Exercise, more sleep, and a sense of “acceptance” are antidotes. That’s where money comes in.

Start early to build a well-financed retirement. Shoot to replace 100% of pre-retirement cash flow so you can enjoy the “young-old phase” (travel, grandchildren, spiritual pursuits, even work that you enjoy) and pay for the “old-old phase” (long term care, caregiving, hired help, last expenses). Understand the importance of insurance planning (life, health, disability, long-term care, liability coverage) in creating security for yourself and survivors. People with “money worries” age quickly.

We need to retire the word “re-tired” as an age marker. “Re-tired” means “the act of being ‘tired’ over and over again.” On 1/13/07, the AJC quoted Atlanta real estate guru Jenny Pruitt on her “retirement.” Ms. Pruitt, who gives her age as “mid-60s,” said, “I don’t want to use the word retired!” She is leaving the real estate firm she founded to focus on a book she is writing, making speeches, and civic work. “I’m just going to get fired up again,” she proclaims.

As Paul Coelho opines, we should never forget our Personal Legend . . . our dreams. We can choose to be a “victim of destiny.” Or like Jenny Pruitt we can be “re-fired” instead of re-tired, electing to be “an adventurer who is fighting for something important.” Coelho is talking about “purpose,” the wellspring of a youthful outlook.

As Rick Warren aptly put it, a “purpose-driven-life” grounded in spirituality is the “fountainhead of youth,” powering successful life transitions as we progress in our earthly journey.

I have traveled to Asia a number of times, most recently to China in 2005. It was a long journey, but a fabulous trip. The distance from Atlanta to Shanghai, via Los Angeles and Seoul, South Korea, is 7906 air miles. Going out, one is excited about the upcoming vacation. Anticipation makes the trip seem relatively short. The return flight covers the same distance, but seems far longer. But one is always glad to reach home.

Life’s journey is like that. If your future is always bigger than your past, anticipation, hope, and a sense of adventure will sustain each trek. End of journey issues can be a bit rough. But I want to say to God on some glorious day, “Thanks for the trip. The end might not have been easy, but, Lord, I am glad to be home.” That is the Ultimate Homecoming and the secret to life. Accept that concept, and you never will be old!

Lewis Walker, CFP®, CIMC®, CRC®, is a financial planner and investment consultant with offices in the Forum on Peachtree Parkway in Peachtree Corners; 770/441-2603, lewisw@theinvestmentcoach.com. Lewis has been granted the Parent Care Specialist (PCS®) designation by The Parent Care Solution, LLC, Charlotte, NC.

Posted by bondsblog as Financial Planning with Lewis Walker, Trader News at 7:14 AM EDT

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