By Kevin Muir
First of all, sorry for the lack of posts lately. Long story, but rest assured, I am back on track and the old ‘tourist regular postings have resumed.
Next up, today I will write about Canadian real estate. I know, many of you find that about as exciting as watching Winter Olympic curling, but give me a chance – after all, we Canadians have a way to make even curling entertaining.
The Canadian real estate bubble
As most everyone knows, over the past decade, Canada has experienced a massive real estate boom.
Continue reading The Pricking of the Canadian Real Estate Bubble?
By Callum Thomas
Since the September low point last year US 10-Year bond yields have risen 90bps, this compares to 125bps from the low point in July 2016 through to March 2017, or if you count it as one big move they’ve gone up 158bps. What ever way you put it the move in bonds has been substantial, so a logical question to ask is “have bond yields gone too far too fast?”
I talked about the tactical outlook bond yields a couple of weeks ago in the Weekly Macro Themes report, and a key chart from that was the one below – bond market sentiment.
The chart shows our composite treasuries sentiment index. The index derives signals from bond market implied volatility, bond fund flows, speculative futures positioning, and sovereign bond market breadth. The combined signal has provided some truly insightful leads on the market, particularly when it reaches an extreme. I have lined it up with the US 10 year bond yield to give an intuitive display of the swings in investor sentiment.
When it comes to sentiment indicators and incorporating them into a broader process, my view is that sentiment indicators typically contain ‘momentum information’ through the range, and ‘contrarian information’ at extremes. Thus I would say at this point we are swiftly transitioning from momentum to contrarian information, and the risk of a stabilization or pullback in yields is elevated at this point.
My medium term view remains that bond yields go higher. This view is informed by bond valuations still being at expensive levels, a positive growth/inflation outlook (strong cyclical picture), and a turning of the tides in monetary policy (specifically, with quantitative easing being gradually phased out globally and the Fed starting QT). Short-term, seasonality is also consistent with higher bond yields (through until about May-June).
So if I had to guess, I would say there is a decent risk of a short-term pull back in bond yields (i.e. rebound in bond prices), but that this will be a brief interlude as the medium-term trend will likely resume shortly thereafter.
By Anthony B. Sanders
Federal Reserve Chair Jay (Thurston) Powell (III) essentially said today that the economy is back to normal and The Fed has to get policy back to normal. That is, he hinted at 4 rate hikes this year.
The odds are now at 50-50 of a Q4 rate hike.
On that speech, the Treasury 30y-5y curve flattened to near 50 bps.
Here is Thurston Powell III conferring with Janet Yellen (aka, “Lovey”) about monetary policy.
By Michael Ashton
[biiwii comment: trying to ignore the imagery conjured up by the title, Mike… :-( ]
I feel like I am falling behind in my articles and commenting on other articles that people have recently written about inflation. After years – literally, years – in which almost no one wrote anything about inflation, suddenly everyone wants to opine on the new shiny object they just found. At the same time, interest in the solutions that we offer – investment strategies, consulting, bespoke inflation hedges, etc – has abruptly picked up, so it feels like the demand for these articles is rising at the same time that my time to write them is shrinking…
But I try.
I want to quickly respond to an article that came out over the weekend, by widely-read author John Mauldin. I’ve corresponded over the years from time to time about inflation, especially when he got way out on the crazy-person “CPI is made up” conspiracy theory limb. To be fair, I think he considers me the crazy person, which is why he’s never referred to me as the inflation expert in his articles. C’est la vie.
Continue reading John Mauldin and Long Soapy Showers
By Jeffrey Snider
In October 2006, the Communist Party of China unveiled a landmark new policy aimed at easing social and societal unrest in the country. The Chinese leadership would strive for a “harmonious society”, reaching this goal no later than 2020. As one of the final works for 16th Party Congress convened in 2002, it would stand as the template for how the 17th Party Congress would attempt to rule.
A year later, in October 2007, Communist Party leader Hu Jintao built further upon that foundation, stressing harmony if in the background of all the Party’s major initiatives. In many ways, he said, the Chinese were fortunate in being given the opportunity to address any issues from the position “of this new historical point.” Rapid economic expansion had radically transformed the country.
Economic strength increased substantially. The economy sustained steady and rapid growth. The GDP expanded by an annual average of over 10%. Economic performance improved significantly, national revenue rose markedly year by year, and prices were basically stable. Efforts to build a new socialist countryside yielded solid results, and development among regions became more balanced.
The key pieces of the harmonious society were to be democracy, rule of law, equality, and environmental stewardship.
Continue reading Yeah, About This Boom
Ok, here come Powell’s prepared remarks.
If you need to know what to look for here, you can peruse some of the color on today’s closely-watched hearing here, but basically, it’s the same old thing.
People want clues about the outlook and about how fiscal stimulus plays into the committee’s decision calculus and about inflation and, ultimately, about whether we’re likely to get four rate hikes this year.
Powell needs to learn the art of obfuscation and fine-tune his skills at employing euphemisms in the service of not sounding too dovish or too hawkish. Basically, he needs to master the art of using a whole bunch of words to say nothing.
Well speaking of a whole bunch of words, his testimony is out. Here are some (seemingly hawkish) bullet points :
- POWELL: SOME HEADWINDS FACING U.S. ECONOMY ARE NOW TAILWINDS
- POWELL SEES FURTHER GRADUAL RATE HIKES, OUTLOOK REMAINS STRONG
- POWELL: U.S. ECONOMIC OUTLOOK STRONG, INFLATION TO RISE TO 2%
- POWELL: FOMC SEES RISKS ROUGHLY BALANCED, MONITORING INFLATION
And here are some excerpts from the testimony:
Continue reading Jerome Powell ‘Is Pleased’ To Offer You This Half-Assed Janet Yellen Impression
By Callum Thomas
With the rather volatile action in global equities over the past few weeks, it’s worth checking in on where market breadth is tracking. We take a unique approach in breadth analysis for global equities in that we look across a country-level rather than individual stock level. The benefit of this is that you can pickup early warning signs e.g. as certain groups of countries start to come under pressure e.g. as a result of some underlying macro issues. Aside from warning signs and risk management, it can also be useful in identifying opportunities, and this is well highlighted in today’s blog.
The key conclusions and observations are:
-50DMA country breadth looks to be giving an oversold signal.
-On the “Death Watch” the proportion of countries with ‘death cross’ has tapered off after a previous steady increase.
-On the bear market monitor, of the 70 countries we track, none have entered into a bear market’.
-The lack of red flags lines up with our constructive macro/earnings outlook, so the oversold signal looks like a buying opportunity.
1. 50-day Moving Average Breadth: 50DMA breadth for global equities (across 70 countries) collapsed to oversold levels in the wake of the stockmarket correction (which sent the MSCI All Countries World Index in local currency terms down just over -8% top to bottom), and has since rebounded – usually a bullish signal. Interestingly this comes off the back of a classic bearish divergence which was initially resolved through a blow-off top.
Continue reading Global Equities Breadth Check
By Chris Ciovacco
GROWTH IN ISOLATION
A July 2013 See-It-Market post outlined the three steps required for a trend change. The S&P 500 recently broke the downward-sloping trendline below (step 1), made a higher low relative to the previous low (step 2), and went on to print a higher high (step 3). The completion of these three steps tells us the odds of the correction low being in place have improved.
Continue reading Short-Term Breakouts Confirm Market’s Growth Over Income Bias
By David Stockman
Here’s why our mountainous $67 trillion of public and private debt matters. To wit, it has caused the historic relationship between trends on main street and Wall Street to go absolutely haywire.
A week or so back, they reported January industrial production at 107.24, which was only a tad higher than it had been three years earlier in November 2014 (106.61), and just 1.8% above where it had been at the pre-crisis peak way back in November 2007 (105.33). If you cotton to CAGRs, that’s a microscopic 0.18% per annum growth rate over the course of a full decade, and during the third longest business cycle expansion in history, to boot.
By contrast, the S&P 500 at the January 26th peak (2873) was up by 84% from its November 2007 level (1560). And let us make haste to squeeze out the inflation component so as to conform on an apples-to-apples basis that sizzling gain with the volume-driven industrial production index. As it happened, the GDP deflator rose by 17% over the same period, so in real terms the S&P 500 is up by 58%.
And that’s not from the horrid March 2009 bottom, but from the tippy-top of the “goldilocks” stock market fantasy a year before the roof fell in. Accordingly, the question at hand already has the benefit of the doubt factored in: Namely, how can the stock market rise by 58% from the dubious pre-crisis high, while the industrial economy has only expanded by 1.8%?
Continue reading The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 3
By Anthony B. Sanders
Despite America’s growing population, new home sales are only back to levels seen in 1995 when the Clinton push for homeownership began. It was called “The National Homeownership Strategy: Partners in the American Dream.”
They should have called it “Partners in the American Scream” since the house price bubble burst in spectacular fashion.
After the house price bubble burst starting in Q4 2007, median prices for new homes and existing homes diverged.
Continue reading New Home Sales Decline 7.8% In January (Back To 1995 Sales Level) – Did Mortgage Rate Increases Lower NHS?
By Otto Rock
Yes indeed ladies and gentlemen, it’s that wonderful time of the year again and in time-honoured style IKN offers up its traditional turkey and stuffing PDAC Bingo Card for your edification and enjoyment at the big Toronto bash next week. As always, instructions are simplicity incarnate:
1) Print off your copy
2) Walk around PDAC next week and when you overhear one of the phrases, cross it off.
3) As soon as you fill your card, send it in to IKN Nerve Centre for your fabulous prize*.
So without further ado, here’s the 2018 edition of PDAC Bingo:
Vote early and often!
*A chance to kiss Tim Oliver’s asses
By Charlie Bilello
Everyone is Bullish. Everyone is Bearish.
Two phrases often heard in markets, and often accompanied by following quote, courtesy of Warren Buffett:
Be fearful when others are greedy and greedy when others are fearful.
Great saying, but what exactly does it mean? How do you know when “others are greedy or fearful”? And how do you turn “being fearful or greedy” into an investment strategy?
As is turns out, it’s a bit more challenging than you might think.
First, you need to define fear and greed. There are a number of different ways to do so, including:
Continue reading Sentiment is Not a Strategy (Part 1)