Monday, May 24, 2010

Check out the chart that accompanies todays bond tout if you don't believe that rates on the 10-Year Note are headed down to 2.86%.  This will be punitive for savers and pensioners, but we doubt that foreign lenders will balk if the alternative is still euros.  Shouldn't someone tell them about gold?

Pretty amusing, what passes for "safety" these days, eh? It looks like the bullish frenzy will continue, since Friday's surge speared what had appeared to be a daunting midpoint resistance on the daily chart at 124^31. The 'D' sibling target of that number lies  at 130^04, and although it's difficult to imagine what manner of deranged thinking could conceivably push bonds, even in a Great Recession, to that level, the charts are telling us we should not be surprised if it happens.  For your information, the rally equates to an interest rate of about 2.86% on the 10-Year Note (see inset).

It's Sunday night, and the futures are gently wafting above a 17.785 midpoint resistance associated with a 'D' target at 18.015 (A=17.410 on the hourly chart).  We'll use the latter price as a minimum upside objective over the near term, noting at the same time that additional resistance may be encountered at 17.905.  This is all pretty innocuous stuff, but if bulls were to rev things up a bit and surpass  18.725 today or tomorrow, that would put the fear of the Lord in bears' cold, tiny hearts.

Friday's rally in gold was as unimpressive as the one that occurred in stocks, having failed to exceed two prior peaks on the hourly chart. Still, the futures remained moderately buoyant Sunday night and appeared bound for an unambitious Hidden Pivot resistance at 1192.00 that lies just $4.20 above Friday's peak. It would refresh the bull trend on the lesser charts if the target were to be achieved; if not, the futures would be vulnerable to a downdraft to 1159.00 over the near term.

If the bearish target at 1022.75 is reached as predicted, a 500-point plunge lies just ahead for the Dow Industrials. Friday's feeble rally did little to change the outlook, since it surpassed only a single prior peak on the hourly chart, not the two that we require. Even so, we should be on our guard against a short-squeeze, since it would only require a print today at 1094.00 -- 5.25 points above Friday's peak -- to turn the odds against bears for the short-term.  The 1022.75 target would nonetheless remain valid in theory as long as 1174.75 (aka point 'C') has not been breached to the upside, but for all practical purposes it would take only a print at 1123.00 to all but guarantee significantly higher prices thereafter.

Colorado ski properties are enjoying a dead-cat bounce, although readers of a recent article in the Denver Post might infer there is something more to it than that.  The article noted that in Eagle County, which includes tony Vail, residential transactions were up 190% year-over-year for the first quarter.  That represents 276 properties changing hands, compared with 145 during the same period a year ago. However, as the article acknowledged, the surge was from very depressed levels, and it still fell 27 percent shy of the total for 2008 and 58 percent shy of the figure for 2007.  Nowhere was there any mention of price trends or rental costs. If these factors had been taken into account, it would have made clear that valuations will have to fall much further before ski homes and condos could conceivably experience a sustainable bounce. We recently sat down with a Vail property owner who worked the numbers for us. He said that even after collapsing from a peak price of $1.3 million to around $800,000, a two-bedroom luxury condo in Vail is still a lousy investment. Assuming the unit is rented 130 nights at $350 per night – a fairly optimistic assumption, according to our source – annual gross income would be $45,500. Half of that would go to the leasing agent, leaving $22,750. Subtracting a further $15,000 for taxes, maintenance and homeowner association fees would leave $7,750.  Then there are mortgage costs of about $30,000 per year. This is based on a 6.5% loan on 60% of the property’s value.  You should add a 6% opportunity cost, or  $19,200, on the 40% not financed, since that’s what you could earn – without all the hassles – in a closed-end muni-bond fund. Thus, the investor who scooped up a $1.3 million property for