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).

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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.

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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.


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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

What Did I Learn at PDAC?

By Rob Bruggeman

The annual Prospectors & Developers Association of Canada, or PDAC, convention in Toronto has ended.  I was there, as were 25,000 other people.  While I actually didn’t attend the convention much, here are a few things I learned and observed at this PDAC:

1. Some people can never have enough free pens or squishy toys.  I’d like to see a concerted effort by the mining industry to eliminate all the free junk that is given away at conferences like PDAC.  When you feed a pigeon, you’ll get more and more pigeons that suddenly show up.  Ask yourself if you really want to attract pigeons pen collectors.  People who covet free trinkets are not who we want to attract to an investment conference.  On a side note, thanks to Lundin Mining (LUN.TO) for providing small chocolate bars that I gave to my kids so they would still love me after PDAC.

2. Copper exploration is hot.  There are a lot of big mining companies looking for large scale copper projects. Since there are not a lot of those for sale due to the lack of exploration in the past 5-10 years, producers are now funding juniors to go out and drill.  This is good for copper explorers, since there isn’t much new institutional or retail money flowing into the mining sector right now.  We should all pool our money and hire the Angry Geologist to go out there and find the next behemoth copper deposit for us.

Continue reading What Did I Learn at PDAC?

Sentiment Snapshot: Fundamentally Sound

By Callum Thomas

Price by itself can very quickly change the tone in markets, and we saw a very clear example of that in the latest weekly sentiment survey on Twitter.  With the S&P500 closing above its 50-day moving average on Friday and apparently completing a so-called “W-shaped recovery”, technicals-sentiment rebounded sharply on the week.  Fundamentals sentiment also rebounded, and is part of a wider and critical set of data points which help shed light on the outlook for markets.

Indeed, equity fundamentals sentiment is running at very optimistic levels, and while it seems short-term at odds with what we are seeing in the bond survey there are a couple of key supporting points.  For one, economic data has been surprising to the upside, and earnings revisions momentum has been heating up.  Pair this with the backdrop of booming economic confidence, and it certainly paints a picture of supportive fundamentals.

While some of these indicators may be close to mean reverting, and the business cycle is steadily maturing, it’s a backdrop that in the near term that provides some justification for optimism in markets. And for now, as the technical analysts might say, the trend is your friend.

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Japanese Bubble Bursting Playbook

By Kevin Muir

Every now and then I stumble across a new source of information that I can’t wait to share with my readers. Today is one of those days. If you have even the tiniest shred of interest in commodities, then head over to the Goerhring & Rozencwajg website immediately. It’s just terrific stuff.

I must admit to being partial to their bullish commodity story, but in a recent RealVision TV interview, Leigh Goehring solved a problem that I have wrestled with for some time.

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Jim Grant On The Bond Bear Market, Jerome Powell And Much More

By Heisenberg

Well, everyone wants to talk about rates these days and it’s no mystery why.

The Fed is under new leadership at a pivotal juncture. Balance sheet rundown has commenced and the Trump administration has embarked on what multiple sellside desks (see here, here, and here for a few takes) have described as an ill-advised quest to try and supercharge an already hot economy with late-cycle expansionary fiscal policy.

And so, the supply/demand dynamic in the Treasury market has shifted. Financing the tax cuts and increased spending means more supply and with the Fed out of the market, it’s left to price sensitive private investors to provide the bid. This comes as the global reserve diversification debate heats up and as second-order effects of increased bill supply could further sap foreign demand for U.S. debt (see here). To be sure, the market will clear – the question is, at what price?

That gets to the heart of the debate about where yields go from here and the concern is that between everything said above and the suspicion that between fiscal stimulus and now tariffs, price pressures could build quickly, the Fed will be forced to take a hawkish turn that’s not yet priced in by markets. All of these concerns helped fuel the bond rout that conspired with the February 5 vol. shock to send global equities careening into correction territory last month.

Well, one person you might be interested in hearing from on all of this is Jim Grant, and  happily, Erik Townsend welcomed him to the MacroVoices podcast this week.

You can listen to the interview in full below, but here are a couple of excerpts that touch on the questions everyone wants answered.

Continue reading Jim Grant On The Bond Bear Market, Jerome Powell And Much More

Inflation, Deflation and Bond Market Returns

By Charlie Bilello

Inflation. Deflation.

Two words often heard in conversations about the bond market.


Because bond investors tend to demand higher yields in periods of higher inflation and lower yields in periods of lower inflation or deflation.

Looking at a long-term chart of yields and inflation, the relationship is clear.

Data Source: Federal Reserve Economic Data (FRED).

Not as clear from this chart is how bonds have actually performed during various levels of inflation. What has been the best environment for bond investors historically: high inflation, low inflation, or something in between? To answer that question, we need to take a closer look at the data.

Continue reading Inflation, Deflation and Bond Market Returns