Thursday, February 12, 2009

Treasuries Remain The Only Option In A Perilous World

No, I am not abandoning stocks in favor of U.S. Treasuries. The title for this post came from an article in the Financial Times, where a Chinese official was quoted as saying that China will continue to buy Treasuries since such investments are the "only option" in a perilous world.

There has been much concern that at some point, China would stop buying our bonds, and interest rates would rise. But given the state of the global economy, U.S. bonds still offer the best relative safety in the world, especially at the size of China's reserves.

As for the stock market, it is under heavy selling pressure this morning despite some positive news. January retail sales rose a much better than expected +1.0%, versus expectations for a decline of -0.8%. Maybe consumers are starting to come out of their bunker shelters after all.

There continues to be considerable angst over the economic stimulus plan. I almost get the feeling that investors don't even want the plan to pass. Every time it gets closer to a vote, the market sells off. I am not particularly enamored of this plan, as I think it is too full of pork, and too thin on real stimulus, but I would still take it over no stimulus plan at all. I think a year from now investors will be happier, as all this stimulus starts to produce results.

Asian markets were lower overnight. The dollar is higher, which is weighing on commodities. Oil is lower again, near $35, and just can't seem to rally as concerns over global demand persist. Gold is higher, nearing the $950 level.

The 10-year yield is slightly higher to 2.78%. And the VIX is just below its 50-day average at 44.50. I think the fact that it again turned lower after hitting its overhead 50-day is a small positive.

Trading comment: I am taking partial profits on my short hedges (inverse etfs), and thinking about adding back some long exposure if the market holds in. I have been watching the SPX 815-820 level for support. So far today, those levels are holding, but it is the market close that counts.

The biotech etf (XBI) continues to exhibit strong relative strength, and that is one place I am looking to add. The other would be the tech sector, which also continues to hold up better than the overall market.

long XBI; less long QID, SRS


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