Warning: The bubble in Treasurys could be about to get even bigger

There are lots of investments that are undeserving of investors’ money, and T-Bonds are at the top of the list. Even though the principal is guaranteed by Uncle Sam’s (or Uncle Ben’s) ability to print new money, the current yield on even the longest duration bonds is still at roughly the same level as the inflation rate. So any interest you earn on your money gets eaten up by the loss in value of that money due to the Fed’s unwillingness to do its job and achieve price stability.

But in the financial markets, whether or not an investment is “deserving” often bears very little on whether people will invest in it. Logic is not mandatory.

This week’s chart makes the statement that T-Bond prices are headed higher, and it does so in a roundabout sort of way. In the upper portion of the chart is the price plot of T-Bonds (continuous near month contract). The lower plot shows an indicator derived from data in the CFTC’s weekly Commitment Of Traders (COT) Report. But rather than look at the data on T-Bonds themselves, which can sometimes give wishy-washy information, here we are looking at the commercial traders’ net position in the Japanese yen.

Commercial traders are the “big money” traders who hold large positions. How large is “large” differs among the various futures contracts, and the CFTC sets out the rules for those determinations. Because the commercial traders are the big money, the presumption is that they are also the “smart money”.

Right now, commercial traders of Japanese yen futures are holding a really big net long position. That means they think that the yen will go up in value versus the dollar, and so they have positioned themselves to profit from that expected move.

The whole reason why this is relevant for T-Bond prices is that there is a really strong positive correlation between T-Bond prices and the Japanese yen. But this has not always been so. The chart below shows that relationship, and you can see that before about mid-2001, it used to be an inverse relationship. Somebody flipped a switch in 2001, and now it is a strong positive correlation.

So because the yen does pretty much what T-Bond prices do, at least in terms of the direction of travel, we can make reasonable inferences about what lies ahead for bond prices by looking at what lies ahead for the yen. When the commercial traders are holding their biggest net long position in Japanese yen futures in several years, the implication is pretty strong that the yen should head higher in the coming weeks. And as the yen heads higher, T-Bonds ought to tag along, whether they deserve to go up or not.

Given what we have learned from another borrowed COT Report relationship, that positive period for T-Bonds is not likely to last beyond early June. The inverse relationship between T-Bond price and stock prices is still working very well, so the opportunity for T-Bond prices to advance should only last as long as stocks are in a corrective mode, and that corrective mode is scheduled to be finished by early June.

Jay Taylor: Turning Hard Times Into Good Times

4/10/2012: Investing in Africa? Investing in Commodities?

Bob Janjuah: S&P At 800, Dow/Gold Ratio Will Hit 1 Before Next Real Bull Cycle

from Zero Hedge :

Bob Janjuah, who has been quiet lately (recall his last piece in which we quite frankly told everyone that “Markets Are So Rigged By Policy Makers That I Have No Meaningful Insights To Offer“), is out with his latest, in which he gives us not only his long-term preview, “ultimately I still fear and expect the S&P500 – as the global risk-on/risk-off proxy – to trade at 800, and the Dow/Gold ratio to hit parity (currently at 8, down from an all-time high of 45 in late 1999) before we can begin the next multi-decade bull cycle“, but also his checklist of 8 things to look forward to in the short-term centrally-planned future.

Read More @ ZeroHedge.com

A Chart That Should Give Chills To US Housing Bulls

Ben Bernanke is speaking later at an Atlanta Fed Conference, so in the meantime we were checking out some of the presentations that have already been giving, including this one A Bird's Eye View of OECD Housing Markets by economist Christophe André.

Anyway, a pair of charts in the paper should scare the US housing bulls, who have been increasingly making an argument about the price of housing reaching cheap levels relative to US rents/incomes.

In each chart, the dotted line is the price to income ratio and the solid line is the price-to-rent ratio. 100 is the sample average.

Anyway, here's the United States, which has seen a nice decline from recent highs in both price to income and price to rent.

OECD

Great, we've improved.

Now check out Japan.

OECD

No doubt, people have been screaming about "affordability" all the way down.

A High-Yielding Fund for a Low-rate Environment JTP offers investors a combination of growth and income

Nuveen Quality Preferred Income Fund (NYSE:JTP) — This closed-end managed investment fund invests 80% of its assets in preferred stocks from insurance companies, banks, and media firms, and 20% is invested in assets of debt securities including convertible bonds and preferred stocks.

With the Fed still emphasizing a low-rate environment, JTP offers quite a contrast with a dividend yield of 7.44% (5 cents per share per month). We’ve discussed the advantages of preferred stocks previously in the form of exchange-traded funds (ETFs). But JTP is a managed fund, and because it also invests in convertible securities, offers an opportunity for growth.

In a period of uncertainty, JTP is a fund that should be bought now by investors seeking a combination of growth and income.

60 Minutes Reviews the European Debt Crisis

60 Min­utes did a piece on the sit­u­a­tion in Europe, and for a not finan­cial ori­ented TV show, it did a pretty fine job of describ­ing the sit­u­a­tion for a mass audi­ence. They key line I wish they had expanded upon was along the lines of "in the past, if Greece found its accounts over­drawn the coun­try sim­ply printed more money, or deval­ued its cur­rency…" – which are paths the U.S., U.K. and Japan now fol­low. Fur­ther they should have explained how these finan­cial injec­tions are back­door bailouts for the finan­cial élite, namely Ger­man and French banks, among others.

How­ever, it was inter­est­ing to see the dynamic between Greece and Ger­many in far greater detail than the num­bers we are numb to – the long and vio­lent his­tory of this con­ti­nent makes for inter­est­ing relationships.

Forget the U.S., Invest in THIS Country's Housing Recovery Instead

While investors have begun to prep for a rebound in the U.S. housing market [1] -- the PHLX Housing Sector Index [2] has risen 50% in the past six months -- they may be early to the party. So many homes still in the process of foreclosure [3] have yet to hit the market, and this "shadow inventory [4]" could impede any rebound in home prices for quite some time to come.

Meanwhile, far to our south in Brazil, a more moderate housing downturn has played out. A crucial distinction: Brazil doesn't need to work through the same foreclosure process because mortgage-lending standards were stricter while a bubble was underway.

And Brazilian housing surely had a bubble. Homebuilders constructed too many homes while the economy [6] was strong, but didn't see a slowdown coming. The Brazilian economy grew 7.5% in 2010, but just 2.7% in 2011, leading to a glut of unsold homes. The International Monetary Fund (IMF) [7] expects the Brazilian economy to grow just 3% this year, which should still be strong enough to absorb many of the unsold homes. And the IMF [7] expects Brazil's economy to expand at a slightly better 4% pace in 2013.

This should set the backdrop for a Brazilian housing rebound well before the U.S. experiences its own rebound.

Meanwhile, even as U.S. homebuilders have rallied sharply from their lows of last summer, a leading Brazilian homebuilder has been steadily falling in value. Gafisa (NYSE: GFA [8]), one of Brazil's largest homebuilders, has seen its stock fall more than 75% since late 2010. At current levels, the stock possesses both strong downside support and some potentially robust upside.

Said another way, this homebuilder was worth more than $4 billion on the stock market in late 2010, but is worth less than $1 billion today. Considering the fact that the company has $1.5 billion in shareholder's equity on the balance sheet [9], I'd say this looks like a pretty compelling value so far.

The fact that Gafisa lost $600 million in 2011 helps explain the big investor exodus. Yet dig into that $600 million loss, and you'll find a different story. Embedded in that loss is a series of one-time charges to reflect a wide-range of projects that went over budget and are likely to sell for less than what it cost to build them. In effect, management chose to clear the decks when 2011 results were released a few weeks ago, and the results for the periods ahead should be a lot cleaner.

Based on current projects underway, Gafisa expects to generate roughly $300 million in operating cash flow [10]. Add in the fact that Gafisa has roughly $500 million in cash, and concerns that the company's debt load [11] is too large to handle appear off the mark. The company must cover roughly $100 million in annual interest expense, and has less than $200 million in bonds [12] coming due this year. Looked at another way, this is a company valued at little more than three times projected 2012 cash flow, and 2012 is likely to be a sub-par year.

Yet this isn't a stock that should be measured by 2012 results. Instead, you need to look ahead. Brazilian demographics are still extremely favorable. The country's population, which is larger than Spain, Italy and the U.K. combined, is relatively young -- two-thirds of all Brazilians are under 35. Millions are being swept up in a rising economy that has lifted many out of poverty. About 1.7 million new households are being formed each year.

Just as important, there are several catalysts in place that should help housing in coming years. First, there is expected to be an upturn in housing demand and construction ahead of the 2014 World Cup and the 2016 Olympics. The government is looking to provide ample homebuilder incentives to build more solid rental housing so the shantytowns in major cities can be steadily reduced.

It helps that Brazil's interest rates are starting to come down, which helps Gafisa's financing costs and consumers' ability to qualify for mortgages.

The final catalyst: major investors are circling. This stock has fallen so far that takeover chatter has bubbled up. Real estate [13] investor Sam Zell may lead the charge. His firm, Equity International, reportedly made a bid for Gafisa in February at an undisclosed price. Shares [14] moved above $6 on that speculation [15], but traded lower after Gafisa said that "After an analysis by the company's board, we concluded the offer undervalued significantly the company's assets." Presumably, with shares now close to $4, Zell's offer [16] looks a bit more enticing.

Risks to Consider: Falling inflation [17] is a key catalyst [18] for this stock, so if inflation bubbled up anew in coming quarters, leading to higher interest rates, it could snuff out a housing recovery before it starts.

Action to Take --> This is a tricky stock for investors, as it's hard to determine a specific target price, and few near-term catalysts exist. Still, it's quite undervalued in the context Brazil's powerful long-term demographic trends. Why bother now? Because Sam Zell's clear interest in Gafisa means shareholder value may get unlocked before the industry fundamentals turn back up.

Markets at the Start of a More Significant Downturn: Marc Faber

U.S. stocks are at the start of a more meaningful correction and possibly even a bear market, Marc Faber, the editor and publisher of the Gloom, Boom and Doom report told CNBC in Singapore on Saturday, though he added that further money printing would likely limit the decline in the S&P 500.

“The technical underpinnings of the market have been a disaster in the last couple of weeks,” Faber said on the sidelines of the Maybank Invest Asia conference. “The number of new highs have declined, the volume has been poor, insider sales just hit a record.”

Faber said the weakness in economically sensitive stocks such as mining and industrial goods was particularly “disturbing.”

Known as a contrarian, Faber's views are at odds with those of Byron Wien who told CNBC last week the bull market in stocks would continue throughout the year.

According to Faber, Friday's jobs report is another sign the economic recovery remains subpar and he believes the S&P 500 [.SPX 1382.20 -15.88 (-1.14%) ] chart pattern is also signalling worrying signs.

The index made a head-and-shoulder pattern last year, then dropped to its October low before rebounding through the necklines to a new high, he said.

“I’m not saying that I would rely in my life only on technical analysis, but in the text books of technical analysis… (this pattern) is actually viewed as a very negative development."

Faber warned of a bear market in stocks on August 3 last year, when the S&P 500 was at 1254. While the market didn’t enter bear territory (defined as a 20 percent drop over a couple of months), Faber’s warning seemed prescient. The S&P 500 declined around 14 percent in the weeks after he spoke to an intra-day low of 1074 in October.

This time Faber is much more cautious about calling a bear market, pointing out merely that it could happen. He says he isn’t short the S&P 500 currently because he’s convinced there will be another round of quantitative easing by the Federal Reserve, which could mitigate the declines. Still, he said he was holding a bit more cash and less in terms of equities.

Gold Correction

Faber, who's been a gold [XAU= 1643.29 2.66 (+0.16%) ] bull for much of the last decade and keeps around a quarter of his assets in precious metals has been bearish on bullion since September last year after it “overshot” and hit a record high of $1921.

On Saturday, he told CNBC, gold prices could fall further after they declined 1.8 percent last week.

“I still feel we are in a correction period and again like in equities, it’s a correction that is somewhat more serious."

Chart of the Day - Las Vegas Sands (LVS)

The "Chart of the Day" is Las Vegas Sands (LVS), which showed up on Monday's Barchart "52-Week High" list. LVS on Monday posted a new 3-2/3 year high of $60.85 and closed up 3.17%. TrendSpotter has been Long since March 13 at $56.16. In recent news on the stock, Bloomberg reported on March 29 that Sands China will open its fourth Macao casino next month. Lazard on March 27 reiterated its Buy rating on Las Vegas Sands and raised its target to $70 from $58. Las Vegas Sands (LVS), with a market cap of $42 billion, is a hotel, gaming, and retail mall company headquartered in Las Vegas, Nevada. The company owns The Venetian Resort Hotel Casino, the Sands Expo and Convention Center, Venetian Interactive, an internet based venture, and Venetian Macao Limited, a developer of multiple casino hotel resort properties in The People's Republic of China's Special Administrative Region of Macao.