By Notes From the Rabbit Hole
The following is an excerpt from this week’s edition of Notes From the Rabbit Hole, NFTRH 488. For NFTRH bonds are not just an asset class ‘throw-in’ but instead are a key indicator set to the entire modern macro. Insofar as it may be time to use them for portfolio balance (I am currently long SHV, SHY, IEI & IEF), so much the better. Many could not wait to buy bonds during US ZIRP global NIRP operations, but today they pay better interest and have a contrarian edge with the entire herd bracing for a bear market.
We claimed appropriately bearish on bonds on December 4th, so you know this is not perma-book talking when we go the other way as yields hit our targets.
Bonds and Related Market Indicators
A subscriber asks for comment on sentiment in 1-3 year bonds and what it would take for me to “issue an all out buy signal” on them. He is a new subscriber and has not been through the agony and torment of my frequent disclaimers on the subject of how I am just a lowly participant who would not issue all out buys, sells or anything else for others. :-(
What I would do however, is tell you what I am doing and last week to my recent buys in IEF (7-10yr) and IEI (3-7yr) I added SHY (1-3yr). The old saying goes “real men trade the long bond” and I guess I am not a real man because I don’t want to touch that far end (20+ years) of the curve at this time.
Continue reading Bonds and Related Market Indicators
By Rob Hanna
I mentioned in a Tweet on Friday that the low volume on Friday’s rally was a bit concerning. The study below is one I featured in the subscriber letter this weekend. It examined other times substantial rallies occurred during uptrends on very light volume.
Stats here suggest a downside edge. Perhaps not a huge edge, but in my view one that appears strong enough to warrant some consideration when establishing my short-term bias. So traders may want to keep this in mind as we begin a new week. I will also note that I ran the same test, but switched the volume requirement to “NOT the lightest in 20 days”. Of course there were many more instances. With volume not coming in extremely low, the average trade flipped to moderately positive across the board. This suggests the low volume is a factor.
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By Keith Weiner
We have been promising to get back to the topic of capital destruction, which we put on hiatus for the last several weeks to make our case that the interest rate remains in a falling trend. Today, we have a different way of looking at capital destruction.
Socialism is the system of seeking out and destroying capital. Redistribution means taking someone’s capital and handing it over as income to someone else. The rightful owner would steward and compound it, not consume it. But the recipient of unearned free goodies happily and uncaringly eats it up. Socialism is not sustainable. It inherits seed corn from a prior, happier system, and it lasts only as long as the seed corn.
There are different flavors of socialism. The 20th century witnessed an aggressive totalitarian form. Both communism and Naziism feature military occupation of domestic territory and conquest of foreign lands. Few people willingly feed whatever they have into the sausage grinder of State sacrificial collectivism. And so totalitarian socialism has armed thugs all over the streets, both open military and secret police. There are frequent killings, of those suspected of disloyalty or holding back small scraps. In their constant fear of uprising, they use disappearances, interrogations, and torture to root out the names of traitors to their bloody revolution.
Continue reading Gold is a Giant Ouija Board
By Doug Noland
The Shanghai Composite traded as high as 3,587 intraday on Monday, January 29th, a more than two-year high. This followed the S&P500’s all-time closing high (2,873) on the previous Friday. On February 9th, the Shanghai Composite traded as low as 3,063, a 14.6% decline from trading highs just nine sessions earlier. In U.S. trading on February 9th, the S&P500 posted an intraday low of 2,533, a 10.7% drop from January 26th highs. Based on Friday’s closing prices, the Shanghai Composite had recovered 43% of recent declines and the S&P500 70%.
Global equities markets demonstrated notably strong correlations during the recent selloff. Few markets, however, tracked U.S. trading closer than Chinese shares. From the Bubble analysis perspective, tight market correlations provide confirmation of the global Bubble thesis. It’s also not surprising that Chinese markets were keenly sensitive to the abrupt drop in U.S. stocks. The U.S. and China are dual linchpins to increasingly vulnerable global Bubble Dynamics. Moreover, intensifying fragilities in Chinese Credit – and finance more generally – ensure China is keenly sensitive to any indication of a faltering U.S. Bubble.
Continue reading Anbang and China’s Mortgage Bubble
By Anthony B. Sanders
My Kuroda! 10Y T-Note Yield Declines After Approaching 3% Barrier (Same For Germany And Japan)
The US Treasury 10Y yield appears to have bounced off a reflecting barrier — the 3% yield barrier.
For the German Bund, it is reflecting off of the 75 basis point barrier.
Continue reading My Kuroda! 10Y T-Note Yield Declines After Approaching 3% Barrier…
By Callum Thomas
A few data points have come out on global trade over the past week so it’s worth taking a look at what has been a really key theme for the global economic recovery and acceleration that we have been seeing. Indeed, the global trade slowdown (basically a near-miss global recession) in 2015/16 was a key driver behind the route in commodities and global market turmoil that culminated in 2 stock market corrections and a drive lower in bond yields. It also helped spur on the ECB, BOJ, and China to undertake further stimulus, which has been key in driving the improvement that we have seen in global trade.
Anyway, as for the data, at a high level, the CPB Global Trade Monitor data showed global trade growth running at the strongest pace since the 2010 bounce back from the global financial crisis. This improvement has been matched in the industrial production growth stats. It’s also verified with the RWI/ISL global container throughput data, which shows volumes running above trend. Shipping cost indexes, while somewhat volatile, have also recovered notably, and are something we are watching closely for clues on the next steps.
Continue reading Global Trade Update
By David Stockman
In Part 1 we postulated that the chart below embodies nothing less than the nightmare that will be coming to Wall Street right soon. It means, in effect, that you can climb the financial tiger’s back for an extended time, but when you reach the mane its generally impossible to get off alive.
Needless to say, we have reached the mane. What drove the US economy for the past three decades was debt expansion—-private and public— at rates far faster than GDP growth. But that entailed a steady ratcheting up of the national leverage ratio until we hit what amounts to the top of the tiger’s back—that is, Peak Debt at 3.5X national income.
Continue reading The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 2
By Anthony B. Sanders
The Under-utilization of Housing Wealth In Retirement (Is Credit Too Tight and Shared Appreciation Mortgages As A Solution?)
There is an interesting event coming to Washington DC — the 2018 Housing Wealth in Retirement Symposium brought to you by The Funding Longevity Task Force at The American College of Financial Services and the Bipartisan Policy Center (BPC).
The goal? The goal for the Symposium is to facilitate collaboration among stakeholders – including regulatory agencies, NGOs, and the financial services community – to address the under-utilization of housing wealth in retirement.
The speaker list is excellent. The Urban Institute’s Laurie Goodman is the apparent headliner.
Here are my two cents (which has been devalued to less than a cent).
The American population is aging and many are entering retirement. But are they prepared?
First, The Federal government and its stakeholders have already tried to get more households to be stakeholders (that is, homeowners). And this happened.
Yes, the great leap forward in home ownership ultimately failed after almost reaching 70% before subsiding back to around 64%. That is, trying to get marginal households to switch from renting to owning. (By lowering credit standards and down payment requirements).
Continue reading The Under-utilization of Housing Wealth In Retirement…
By Jeffrey Snider
As my colleague Joe Calhoun likes to point out, nothing is new, everything has happened before. We like to think that’s not the case, as the saying goes every generation thinks it has invented sex. What changes is the form, the format largely remains the same. Human beings in 2018 are the same as they were in 1918.
Quite recently, the stock market suffered a bout of liquidation. Whether or not that has concluded isn’t yet determined. The reasons for it, at least those given in the mainstream, tend to be related to how things are so good. Inflation is about to breakout, the economy booming with it, and so the Federal Reserve will be forced to move faster than its otherwise snail’s pace. This is bad for stocks apparently.
So, we get headlines like this – Inflation Fears Rattle Stocks.
Continue reading Is it Ever Different This Time?
By Anthony B. Sanders
Both Larry the Cable Guy and Treasury Secretary Steve Mnuchin would be proud of this week’s Treasury auctions. The “Git-R-Done! Auctions
(Bloomberg) — The U.S. Treasury’s $29 billion auction of seven-year notes drew the highest yield for securities at that tenor since 2011, capping a $258 billion flood of debt sales over three days.
Continue reading Treasury Seven-Year Sale Caps $258 Billion Week of Higher Yields (Git-R-Done!)
By David Stockman
This is getting pretty ridiculous. For old times sake, we recently checked on the Federal debt level during the month we arrived in the Imperial City as a 24-year old eager beaver. That was June 1970 and the Federal debt held by the public was $275 billion.
Mind you, while that number wasn’t exactly diminutive, it had taken all of 188 years to accumulate. That is to say, Uncle Sam had borrowed an average of $28,000 per week during the 9,776 weeks since George Washington was sworn in as the nation’s first president.
Continue reading The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 1
By Tim Knight
Strengthening bond prices. Surging oil. Strong equities. Grumble. Today is one of those “days to endure” for me. Ah, well. Here’s one idea to share: fallen angel Chipotle, which even with the recent bounce is still 60% off its peak. What we have here is a consistent series of lower lows and lower highs: the very definition of a downtrend.
Continue reading Holy Guacamole