The Two Janets and the Perfect Storm Ahead

By David Stockman

The Bloomberg news crawler this morning is heralding the heart of our thesis: Namely, that “flush with cash from the tax cut”, US companies are heading for a “stock buyback binge of historic proportions”.

This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.

And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.

So what could be more timely and efficacious than an enhanced, government debt-financed wave of stock buybacks to rejuvenate the speculative juices on Wall Street and embolden the robo-machines and punters for another round of buy-the-dip?

Continue reading The Two Janets and the Perfect Storm Ahead


By Doug Noland

After posting an intra-week high of 25,800 on Tuesday, the DJIA then dropped 1,583 points (6.1%) at the week’s Friday morning low (24,217) – before closing the session at 24,538 (down 3.0% for the week). The VIX traded as low as 15.29 Tuesday. It then closed Wednesday at 19.85, jumped as high as 25.30 on Thursday and then rose to 26.22 in wild Friday trading, before reversing sharply to close the week out at 19.59.

Friday’s session was another wild one. The Nasdaq Composite rallied 2.6% off early-session lows to finish the day up 1.1%. The small caps were as volatile, with an almost 1% decline turning into a 1.7% gain. The Banks had a 2.8% intraday swing and the Broker/Dealers 2.4%. The Biotechs had a 3.7% swing, ending the session up 3.2%. The Semiconductors swung 3.3%, gaining 1.8% on the day.

Friday morning trading was of the ominous ilk. Stocks, Treasuries, commodities and dollar/yen were all sinking in tandem. The VIX was surging. Japan’s Nikkei dropped 2.5% in Friday trading, with Germany’s DAX down 2.3% and France’s CAC losing 2.4%. The emerging markets (EEM) were down as much as 1.7%. For the week, the DAX sank 4.6% and the Nikkei fell 3.2%. Curiously, bank stocks outside of the U.S. came under notable pressure. European banks (STOXX) dropped 3.5%, Hong Kong’s Hang Seng Financial Index 4.5% and Japan’s TOPIX Bank index 3.4%.

Continue reading Cracks

The Return of Volatility, Part 2

By Callum Thomas

A few weeks ago I wrote an article called “The Return of Volatility” in the midst of the February stock market correction. I highlighted the prospects of a change in market regime from one of ultra low volatility to a period of higher volatility.  My view remains that we will likely see a sustained period of higher volatility for stocks, but due to a number of positive dynamics it may well be more similar to the late 1990’s than the pre-financial crisis period.  In other words, rising volatility with rising stocks.

Now that’s just looking at one asset class – stocks, or specifically the S&P500.  But what about other asset classes?  Curiously, this period of ultra low volatility for equities has been mirrored across the major asset classes. The second chart in this report shows how realized volatility for the US dollar (the DXY), Commodities (GSCI Commodities Index), and the US 10-Year Government Bond Yield has dropped to very low levels. In fact there seems to have been a synchronization in volatility across asset classes.

But as I outlined in the presentation “Monetary Policy and Asset Allocation” as the global economic cycle matures, the tides are turning for global monetary policy.  This is going to be a key driver of higher volatility across asset classes in the months and years to come.  Monetary policy (traditional and extraordinary policy tools) was a force for volatility suppression over the past 10 years, and now that is changing.

The key points on the transition to a higher volatility regime are:

Continue reading The Return of Volatility, Part 2

‘Unglued’ Trump Was ‘Looking For A Fight’, Was Goaded Into Tariff Decision By Ross, Navarro: NBC

By Heisenberg

Well it turns out that no one knew what Trump was going to do on Thursday when he rattled global markets and infuriated America’s trade partners by announcing tariffs on steel and aluminum imports.

Of course all you really needed to do to understand that this was yet another example of Trump flying off the handle was look at the sequence of headlines. Recall how this played out yesterday:


Clearly, Trump simply went rogue as he’s prone to do and just like all the other times he’s come unglued and made a rash decision with global implications without coordinating with his aides, lawyers, and cabinet, he doubled down on Twitter the next morning in an effort to try and make it seem as though he hadn’t made a mistake.

On Friday afternoon, NBC is out reporting that according to an internal White House document, “Trump’s policy maneuver was announced without any review by government lawyers or his own staff.” To wit:

Continue reading ‘Unglued’ Trump Was ‘Looking For A Fight’, Was Goaded Into Tariff Decision By Ross, Navarro: NBC

It’s the Fed, Yanking The Punchbowl

By Tom McClellan

Federal reserve holdings of Treasury and MBS debt
March 02, 2018

We were having a perfectly nice low-volatility uptrend until Jan. 26, and everyone was happy.  Since then, the inverse VIX ETN known as XIV has blown up (a great case of a “burning LOH” marker), and traders are starting to remember that stock prices actually can go down.  So why now?

As with most bear markets and recessions, the blame goes to the Federal Reserve, which decided last year that it would start unwinding all of the QE buying of T-Bonds and Mortgage Backed Securities (MBS) that it had bought up from 2009-14.  Last year, the Federal Reserve under Janet Yellen announced plans to start liquidating those bond and MBS holdings, starting at a rate of $10 billion per month in Q4 of 2017, and ramping up that rate by an additional $10 billion in every quarter to follow.  So the target rate of sales for Q1 2018 is $20 billion per month, and it is supposed to ramp up to $30 billion per month in Q2, then $40 billion per month in Q3, eventually peaking at a $50 billion per month rate in Q4 and beyond.

Continue reading It’s the Fed, Yanking The Punchbowl

End Times at the OD Corral

By James Howard Kunstler

Personally, I believe that the plodding, implacable Robert Mueller, white knight of the Deep State, will flush the Golden Golem of Greatness out of office, probably on some sort of money-laundering rap having nothing to do with “Russian meddling.” Anderson Cooper will have a multiple orgasm. Rachel Maddow will don a yellow hard-hat and chain-saw a scale model of Mar-a-Lago to the glee of her worshippers. The #Resistance will dance in the streets. And then what?

I doubt that Mr. Trump will go gracefully. Rather he’ll dig in and fight even if it means fomenting a constitutional crisis. He’ll challenge Mr. Mueller on veering into matters unrelated to alleged Russian pranks in the 2016 election. He may well attempt the self-pardoning gambit. He will have a lot of support out in the Deplorable gloaming. But, at some point, I expect a bipartisan consensus to emerge in congress that the guy has got to go. He’s making it impossible to conduct even the routines of bribery and domestic collusion that Washington exists for. Nobody is getting paid — at least not the bonuses they’re accustomed to seeing.

Continue reading End Times at the OD Corral

Fed Decreases Balance Sheet By $17 Billion (Half T-Notes, Half Agency MBS, Adds $1.8 Billion In Inflation Protection)

By Anthony B. Sanders

Fed Chair Jay Powell said he was going to pursue rate normalization (aka, letting rates rise). And he seems to be a man of his word: The Fed today deccreased their balance sheet by $17+ billion.

$9.6 billion was due to maturing Treasury notes and $9.3 billion was due to agency mortgage=backed securities (Agency MBS)/


On the other hand,  The Fed once again bought $1.8 billion of TIPs.

Here is a chart showing the SOM Holdings:


Here is Fed Chair Jerome “Jay” Powell reciting Shakespeare’s Hamlet: “I must be cruel only to be kind; Thus bad begins, and worse remains behind.” 


The Albatross Of Debt: Why The Fed’s Wall Street Based Steering Gear No Longer Drives The Main Street Jalopy, Part 6

By David Stockman

The heart of the Fed’s monetary central planning regime is the falsification of financial asset prices. At the end of the day, however, that extracts a huge price in terms of diminished main street prosperity and dangerous financial system instability.

Of course, they are pleased to describe this in more antiseptic terms such as financial accommodation or shifting risk and term premia. For example, when they employ QE to suppress the yield on the 10-year UST (i.e. reduce the term premium), the aim is to lower mortgage rates and thereby stimulate higher levels of housing construction.

Likewise, the Fed heads also claim that another reason for suppressing the risk free rate on US Treasuries via QE was to induce investors to move further out the risk curve into corporates and even junk, thereby purportedly boosting availability and reducing the carry cost of debt financed corporate investments in plant, equipment and technology.

Continue reading The Albatross Of Debt: Why The Fed’s Wall Street Based Steering Gear No Longer Drives The Main Street Jalopy, Part 6

Should You “Fret” Over the New Fed Chair’s Possible Actions?

By Elliott Wave International

Learn what really governs the trend of interest rates

Is new Fed Chair Jerome Powell a hawk — meaning, will he aggressively raise rates to curb inflation?

That’s what investors are asking as Powell makes his first appearance before Congress in his new role. The belief that Powell will be hawkish has already rattled markets, according to some observers (Reuters, Feb. 23):

Markets fret over Federal Reserve’s approach under new chair Powell

Investors are starting to doubt whether they can count on the protective embrace of an accommodative U.S. central bank when markets go haywire.

Of course, “accommodative” means leaving interest rates low, or raising them slowly and a little at a time. This is “accommodative” to the stock market because low rates are supposed to motivate investors to seek higher returns in the stock market. On the other hand, higher rates would provide competition for stocks.

Here’s something to keep in mind, before we go on: EWI’s studies show no consistent relationship between the trend in rates and the stock market. Even so, this belief remains widespread.

Continue reading Should You “Fret” Over the New Fed Chair’s Possible Actions?

Embarrassing Ag Problem

By Kevin Muir

Stock markets up on a stick. Valuations stretched. Bond yields near sixty year lows. Real returns basically zilch.

A decade of global financial repression has forced investors everywhere out the risk curve. Nothing is cheap. There is a reason that top quantitative research shops like GMO have forecasted future returns that look like this:

Cries of that awful acronym TINA ring through the halls of investment houses as clients take a big gulp and write blue tickets – despite the lofty prices. After all, everything is dear and their retirement still needs to funded.

Continue reading Embarrassing Ag Problem

Mirage? Inflation Still MIA as Number of Options Betting on Rise in Short Volatility ETF Surges

By Anthony B. Sanders

Like a mirage in the desert sand, inflation is still missing in action (MIA).

Core Personal Consumption Expenditures (PCE) growth YoY remains at 1.5% for January. The PCE deflator YoY remained the same at 1.7%.


But the number of options betting on a rise in short-volatility ETF is surging.


Yes, inflation is still a mirage (at least to The Fed). That should put a lid on further rate hike/unwinding activity. Or not!


Here’s Who Will Buy All That Treasury Supply

By Heisenberg

Now if we only knew the price…

10Y yields are back near their lowest levels since last month’s CPI beat, having given back Tuesday’s Jerome Powell-inspired spike that derailed equities.

They’ll be no shortage of narrative fodder on Thursday with Powell’s second act (this time in testimony to the Senate) and PCE on the docket, but panning out, the question still lingers: how high will yields go? And of course the follow-up that no one can answer: what is the magic number on 10s beyond which equities can no longer pretend not to care?

Here are the monthly yield changes for UST benchmarks from February:

  • 2Y +10.9bp
  • 5Y +12.6bp
  • 10Y +15.6bp
  • 30Y +18.9bp

As a reminder, the two-month rise in real yields (i.e. January plus February) was the largest since the election:


Just to be clear, folks are getting pretty deep into the weeds here when it comes to forecasting yield levels given a set of assumptions. And by “deep in the weeds” I just mean that people are bending over backwards to find a reliable framework for forecasting. It’s not so much that the methodologies being employed are particularly innovative (this isn’t exactly rocket science), it’s just that the amount of time being spent on it is probably some semblance of absurd considering the inherent futility of trying to accurately forecast this. Here’s BofAML’s latest:

Continue reading Here’s Who Will Buy All That Treasury Supply