While searching the market for a few ideas today an idea hit me like a lead balloon....
This market is almost a perfect hedge!
Take a look at TLT... it is an ETF for the 20+ year treasury index. The strength of this stock does not surprise all that much because it moves up when the bad news hits; and in this market there is plenty of bad news. Now, if I am not mistaken, out of all of the members of the S&P 500 that have reported earnings for the second quarter of 2010 65 to 70% have surpassed analyst's estimates. (Outside of Mondays rally the S&P just kind of sits there.) Now I know those earnings look good because of cost cutting and analyst's expectations that have been turned down; but still some of these companies look pretty good overall, i.e.low PE's, decent revenue growth, dividends.
Now go to BigCharts.com and use the interactive chart option and punch in TLT and compare it to the S&P...you will see that they are mirror opposites of one another. But if TLT is a reflection of what market participants are thinking then I say that a 3.70% yield for 20+ years of maturity is a "big ouch" if we ever get any hint of inflation or job recovery stats.
(A little education: Historically speaking the rate of return on long term treasuries has been around 150-200 bps above the rate of inflation. So if inflation ever rears its ugly head again the price of TLT will be going down.)
TLT and the bond market are saying: Obama wins which equals the Dems stay in. The stock market is saying the opposite: Come November things are going to look a whole lot different.
Think about it.
