Inflation Around The Corner? February Inflation Muted (Core 1.8% YoY)

By Anthony B. Sanders

Janet Yellen kept saying that inflation was just around the corner, but apparently she meant one of those long New York City blocks.

The February inflation numbers are in almost exactly as forecast:  According to the BLS, CPI MoM declined to 0.2% MoM while CPI YoY rose slightly to 2.2%. CORE CPI MoM fell to 0.2% while CORE CPI YoY remained level at 1.8%.


Meanwhile, The Federal Reserve is merrily raising its target rate and letting its T-note portfolio mature in the face of whimpering inflation.

Continue reading Inflation Around The Corner? February Inflation Muted (Core 1.8% YoY)

Post-CPI Summary

By Michael Ashton

Below is a summary of my post-CPI tweets.

  • OK, 15 minutes out from CPI. Exciting one after last month’s WTF print.
  • Last month remember core CPI was +0.349% m/m, highest m/m in 12 years. 1.846% on y/y, so almost printing 0.4% and 1.9% which would have been emotionally challenging for the markets and Fed.
  • For this month, 0.17% is rough consensus on core. For the economists. The Street is leaning short of that number. The story is that last month’s CPI was pulled higher by one-offs.
  • But some of those things they think are one-offs, like Apparel, weren’t. They were reversing previous one-offs.
  • Maybe some of them were, but I don’t see many. I think another 0.3% is unlikely but the market – both bonds and stocks – would react extremely poorly if we got it, even if it was just rounded up to 0.3%.
  • Anything 0.18% and higher will cause y/y core to tick up to 1.9%. To go to 1.7% you’d need 0.07%. So bigger risk of an uptick.
  • At some level this isn’t really a risk…it’s going to happen over next few months anyway. Mar-July 2017 was 0.9% annualized on core CPI.
  • This month we’re watching apparel of course (+1.66% m/m last month). Also used cars & trucks, which everyone thinks is going down but I think is still going up.
  • And medical care, which looks a little like it might be hooking higher but has a long way to go. Hospital services is one place we could see mean reversion. If I made point forecasts, I’d probably be roughly on consensus. But I don’t. I spend my time thinking about risks.
  • …and while some of the risks to the consensus are lower, they’re already incorporating some mean reversion. Underlying pace of inflation is ~2.4% ex- the one-offs, so 0.17% is a bit below the ‘natural’ current run rate. And as I said the Street is leaning shorter than that.
  • Anyway, we’ll find out in 10 minutes. Either way, I’m on the TD Ameritrade Network at 3:05 to talk about CPI. Also, if you missed it check out the Odd Lots podcast I’m featured on this week:
  • Going into the number, 10y Treasury yields are -1bp, Breakevens +0.25bp roughly, S&P futures +4.6.
  • Well 0.18% on core m/m, and 1.857% on y/y. Those economists are goooood. But that’s above where traders were looking.
  • Last 12 months. This does make the slope look less scary.

Continue reading Post-CPI Summary

AIG Breakdown

By Tim Knight

Remember American International Group? They’re the good people that got massively rich, blew up, demanded almost $200 million in retention bonuses from taxpayers (and got them) and went on their merry way. They’ve been chugging along ever since the long-forgotten financial crisis, but it seems to me the ol’ chart is starting to break down.


Continue reading AIG Breakdown

Energy Stocks

By Callum Thomas

This week the “Chart of the Week” looks at the energy sector of the S&P500 and specifically how it fits in in terms of market capitalization weight and share of total earnings across the index.  Simply put, energy stocks have fallen to the lowest market cap weighting since late 2003 (and again at the height of the dot com boom).  Part of this is down to the disastrous few years the energy sector has been through following the commodity crunch of 2014-16, and part of it is crowding-out from the super heavyweight sectors of Tech, Financials, and Healthcare.

The chart comes from a broader discussion in a report on the outlook for energy stocks and oil price.  With a number of short-term and medium-term factors lining up to at least support if not push oil prices higher from here, it raises the question as to whether this chart represents a long-cycle low point for the energy sector.

Continue reading Energy Stocks

There’s Nowhere to Hide

By Heisenberg

One of the questions that was front and center headed into 2018 was whether diversification was going to be harder to come by in an environment where bonds, stocks and credit were the most simultaneously expensive they’ve been in damn near 100 years.

While the stock-bond return correlation has been reliably negative for some two decades, it’s becoming harder to see how that can continue given stretched valuations in equities and the fact that the narrative around rising yields is changing. For most of the post-crisis period, rising yields were seen as a barometer of the robustness of the recovery. As long as that narrative stuck, stocks could not only digest rising yields, but could theoretically rally on the excuse that rate rise was down to optimism on the growth front (everyone clap for the reflation story).

Continue reading There’s Nowhere to Hide

The Return of The Perfect Payrolls

By Jeffrey Snider

Over the past two days, Chinese exports exploded, US payrolls bested 300k, and China’s CPI recorded the hottest inflation in 5 years. Globally synchronized growth? It’s times like these where remembering how nothing goes in a straight line helps settle and ground interpretations. In thinking that way already, you are never surprised when there are good even perfect data reports on occasion the way policymakers are always surprised with “unexpected” bad ones. We are in a global upturn, after all.

The question, as always, is whether these things represent a meaningful shift. The inflation/boom scenario is one where the economy doesn’t just meander at low level positives but accelerates forcefully into an inarguable growth period – something we haven’t seen anywhere for more than a decade.

It might be tempting to view this recent positive report cluster in that way, but, again, we’ve seen these before. It’s not just one month that is required to suggest what everyone is looking for. These have been over the past few years rather easily explained by outliers (China exports), noise (payrolls), and statistical difficulties (China CPI). We will know things are truly picking up when the bad months are what become attention grabbing for their infrequency.

Continue reading The Return of The Perfect Payrolls

Markets Look To Complete Important Bullish Step

By Chris Ciovacco


A February 26 post outlined the longer-term risk-on implications of trend flips in the stock (SPY) vs. bond (TLT) ratio and the tech (VGT) vs. bond (TLT) ratio.  Rather than having growth-oriented stocks making a new high relative to defensive-oriented bonds, we would expect bonds to be leading in a “fear of a recession and bear market” scenario as shown on February 5.  The chart below favors bullish probabilities.


Continue reading Markets Look To Complete Important Bullish Step

Brookings Institute Claims That Ginnie Mae Purchases Mortgages (Psst: They Don’t!)

By Anthony B. Sanders

Brookings Institute is an economic policy think tank in Washington DC. Brennan Hoban of Brookings has a proposal to redesign the mortgage market. 

But it is hard to take this proposal seriously since … Ginnie Mae INSURES mortgages, they do not purchase them from lenders.


True, non-bank lenders like Quicken Loans (and now Amazon is jumping into the mortgage lending arena) are originating more loans than traditional bank lenders.

The author points out that 1) non-bank lenders like Quicken Loans are more vulnerable to liquidity problems if problems arise and 2) analysis should be performed at a local level, not just the national level.

Continue reading Brookings Institute Claims That Ginnie Mae Purchases Mortgages (Psst: They Don’t!)


By Tim Knight

Welcome to a new week, everyone. First off, unrelated to anything, I’ve just got to see that this story about how California’s high-speed rail is going way over budget (tens of billions) and is going to be many years late is the least-surprising thing I’ve ever witnessed. California came up with this thing in the throes of the financial crisis, I guess as a changey-hopey way to convince citizens they were forward-thinking, but I immediately concluded it would be an utter debacle.

For those unfamiliar with it, the idea is basically to retrofit existing tracks, as well as build new ones, to create a sorta-kinda “high” speed train between San Francisco and, frankly, Disneyland (portrayed as “Anaheim”). This is not going to be anything like those amazing multi-hundred MPH beauties from Japan or China. No, in the end, it’s going to be an incredibly expensive, incredibly late, slightly-modernized train which they’ll probably wind up driving at 80 mph or so. My dire prediction seems to be right on target so far.


I just wanted to point out, away from the din of soaring equity prices, that oil seems to be rolling over (again). Please take note of the interesting pattern I’ve tinted in green. My view is that it’s going to be a repeat of the prior top, shown in grey.


Continue reading Crude

Super-Duper-Irrational Exuberance, Report

By Keith Weiner

Think back to the halcyon days of the dot com boom. This was a time after Greenspan declared “irrational exuberance”. Long Term Capital Management collapsed in 1998, and Greenspan decided to risk propelling exuberance to a level beyond irrational. Super-duper-irrational exuberance?

Anyway, Greenspan cut interest rates a few times in late 1998. Technology companies were able to raise $5 million or more with just a sketch on a napkin (“serviette” for those outside the US). Companies at a “later stage”, though without revenues, could raise $30 million. A company called “Webvan” was able to raise nearly a billion dollars without ever becoming profitable.

These companies should not have been able to raise so much capital. At any given point in the development of a company, there are only so many things that need spending. Not to mention can be justified to investors.

It is obvious in retrospect that those particular companies wasted investor money (if not the broader principles), after investors booked the losses, but it was anything but clear at the time. Keith recalls debating the so called hypothesis of efficient markets with some people who believed that all market prices are correct. That all changes in price are random, unpredictable.

We have written a lot about how falling interest rates cause capital consumption. It drives speculation, which is a process of conversion of one speculator’s wealth into another’s income. No one wants to spend his wealth, but people are happy to spend their income.

Continue reading Super-Duper-Irrational Exuberance, Report