Your Daily Profit
May 18,
2009
*****Bond Yields and Buybacks
*****TradeMaster 60% Gains
*****Graham’s Gap
Fellow investor,
Fed Chief Ben Bernanke has his hands full. He’s got
enough balls in the air to keep an octopus busy. Consider his prime directives:
raise money and keep interest rates low. These are diametrically opposed goals.
If you’re selling Treasury bonds, the yield is your
bribe. The Fed has to offer buyers an incentive to buy the bonds, thereby
lending the government money. So, the Fed pays interest to the bondholder.
In good times, when the economy is strong and
riskier assets like stocks are appreciating, the Fed has to pay a higher
interest rate to entice investors to buy bonds. Conversely, in bad times,
investors don’t give a darn about the yield; they want their money to be safe.
As I’ve said, the recent rally can be described as a
“risk” rally. As the economy stabilizes, investors realize that they can take on
more risk in their investments. In other words, they can sell their bonds and
buy stocks with a reasonable expectation of making more off their investment.
In this environment, the Fed is compelled to offer
higher interest rates on bonds to stay competitive.
*****Unfortunately, higher interest rates are not
good for a weak economy. To stimulate spending and growth, the Fed wants
interest rates (the cost of borrowing money) to be low. That’s especially true
in regard to the housing market. Homes—and the rates on loans to finance their
purchase—need to be as attractively priced as possible to encourage buyers so we
can work off the bloated housing inventory.
To accomplish this, the Fed is buying back Treasury
bonds. This action is intended to keep prices for bonds high and interest rates
low.
*****So far, bonds have lost 3% in 2009, according
to Merrill Lynch. That’s because borrowing last years drove bond prices higher.
But investors understand the economy is still
struggling and continue to want to own bonds. And so the Fed is keeping a tight
leash on supply to boost prices and lower yields. The next bond sales come on
May 26th, but will be buying bonds on the 20th and the 21st.
*****Jason Cimpl, the technical wizard at
TradeMaster Daily Stock Alerts is at it again. After taking 12% on the
US Oil Fund (USO) and 17% on Chinese hog farm and feed company AgFeed
(Nasdaq:FEED) last Wednesday, he followed up with a 16% one-day gain on
Dry Ships (Nasdaq:DRYS). TradeMaster Daily Stock Alerts bought
on Thursday and took their gains on Friday.
Member Mark G. said: "Thanks for the lead on the
DRYS play. I worked an option and logged a 60% gain in a few days. Like those
fast moving large volume stocks...more of those!"
For more on TradeMaster Daily Stock Alerts,
and to see a video chart analysis of a compelling Chinese infrastructure trade,
click
HERE.
*****Finally, Graham Corp. (AMEX:GHM)
is on the upswing today, as are many of the oil plays we’re keeping an eye on in
our various services. There’s resistance at $15, but after that, there should be
some good upside. I’m looking at the gap between $21 and $17 that was
established on November 4th. As you may know, gaps tend to get
filled. And it will be worth sticking around if this one gets filled.
If you’re interested in finding out more about the
oil sector and some of the oil sector stocks we’re following in my
SmallCapInvestor PRO service, just go
HERE.
That’s it for today; I’ll talk to you tomorrow. Feel
free to send in your questions, comments, rants, jokes, observations or just a
plain old hello to
editorial@247investor.com.
My email inbox is always open to you.
Ian Wyatt
Editor
Daily
Profit
P.S. I'm
still getting questions from readers about best stocks for retirement purposes.
I've recently finished up some research on dividend stocks paying out very well
right now and with massive upside when the economy turns around. You can find
out more at the Top Stock Insights home page
HERE.
Posted
05-18-2009 12:54 PM
by
Ian Wyatt
Filed under: Ian Wyatt, TradeMaster, oil stocks, SmallCapInvestor PRO, GHM, Federal Reserve, USO, Bernanke, homebuilders, Treasury, Treasury Bonds