Enzio's Clock

Background

1. Three more ides

To call these Shakespeare's "ides of March" would be silly, as not all of these bricks will fall in March. But here are some further signs of gloom ahead:

• New issue premiums & better covenants. For some time we - along with many others - have warned of an over-supply of new bonds being issued.  That rush to issue bonds now is going to force companies to make their offerings more attractive by increasing the yield on new offerings, i.e. giving people more for their money when buying bonds by issuing them at a lower price. Another gimmick will be to create better covenants, clauses that protect bond holders even more than at present;
• Mortgage-backed securities. As part of its exit strategy, the U.S. Federal Reserve will stop buying mortgage-backed securities as of March. This means that the Fed will stop pumping as much liquidity into the system as before.  This, in turn, will prod that excess demand for money which we referred to yesterday. The result will be that mortgage rates will rise between 10 - 50 basis points.  In itself, that is not much of a hike; however, as a "signal", this move by the Fed has deep ramifications, and
  
• Homebuyer tax credit.  This $8,000 deduction for the purchase of a new home expires in April. Again, in itself the measure is minuscule. But within the bigger picture of faltering housing starts,, that withdrawal exerts another "signal" effect. 

2. How to Make Money Off This Idea

1. Always consult your financial adviser first.
2. Short the market by going into an ETF such as one that I own, SDS:US