"What the Fed taketh away, the BoE and ECB giveth back".
We were not disappointed by Dr Aghi as he did indeed swing dovish to balance out last months Tourettish Hawk outburst. "TMM think that the usual oscillation in expectation and outcome for ECB meetings will result in a swing at the next event with Draghi producing a "more Dovish than expected". So, thank you sir.
The forward guidance bit was a bonus and reminds TMM of Daft Punk's "harder better faster stronger" but more along the lines "lower longer later slower". But then Daft Punk are French aren't they.
However, back to the QE relay race analogy. The baton left lying on the ground by Ben, appears to have been picked up by "Team Carnaghi". Carney came straight out of the blocks leaving little doubt as to his intentions, leaving us in turn wondering if "long FTSE short GBP" is to become the new "long Nikkei short Yen" in five minute macro fashion land.
The process of wealth adjustment in the UK has so far been pretty smooth with the smarter of the population realising that it is a path that has to be endured despite the cries of closet isolationists who believe that local politics and command economy can preserve us in the face of globalisation (This issue makes the Trade Union/ Labour party associations appear all the more archaic. How UKIP can be accused of jingoism whilst those ancient bonds exist is beyond us). But having accepted our fate of diminishing relative wealth, the least unacceptable route remains one of creeping local inflation with flat wage growth. So TMM feel that continuing Carneyage makes sense.
Draghi is a different matter, the ECB reminds us of the steering on a 1975 Holden (an Australian vehicle that TMM once had the pleasure of driving around Sydney city centre in the wee hours as its owner was too intoxicated to know his own name). This vehicle's unique feature was that the steering wheel was only loosely communicating with the front wheels with any form of instruction between "hard left" and "hard right" being left to the interpretation of the road surface, resulting in a wildly oscillating ride. Similarly the slack between ECB rhetoric and action is huge. We have had a 25bp cut from them but other than that and huge amounts of rhetoric/announced intentions/guidance/ noise/ speak they have actually DONE very little. Cue the Monty Python " What did the Romans ever do for us" scene, only end it with the crowd going "errrrrrr..."
But that doesn't matter. The fact that the Mark "n" Mario show has shown a distancing from US policy, both having identified the steepening of yield curves as undesirable, the markets have kindly adjusted, doing their work for them.
Oh and NFPs? DILLIGAF
We were not disappointed by Dr Aghi as he did indeed swing dovish to balance out last months Tourettish Hawk outburst. "TMM think that the usual oscillation in expectation and outcome for ECB meetings will result in a swing at the next event with Draghi producing a "more Dovish than expected". So, thank you sir.
The forward guidance bit was a bonus and reminds TMM of Daft Punk's "harder better faster stronger" but more along the lines "lower longer later slower". But then Daft Punk are French aren't they.
However, back to the QE relay race analogy. The baton left lying on the ground by Ben, appears to have been picked up by "Team Carnaghi". Carney came straight out of the blocks leaving little doubt as to his intentions, leaving us in turn wondering if "long FTSE short GBP" is to become the new "long Nikkei short Yen" in five minute macro fashion land.
The process of wealth adjustment in the UK has so far been pretty smooth with the smarter of the population realising that it is a path that has to be endured despite the cries of closet isolationists who believe that local politics and command economy can preserve us in the face of globalisation (This issue makes the Trade Union/ Labour party associations appear all the more archaic. How UKIP can be accused of jingoism whilst those ancient bonds exist is beyond us). But having accepted our fate of diminishing relative wealth, the least unacceptable route remains one of creeping local inflation with flat wage growth. So TMM feel that continuing Carneyage makes sense.
Draghi is a different matter, the ECB reminds us of the steering on a 1975 Holden (an Australian vehicle that TMM once had the pleasure of driving around Sydney city centre in the wee hours as its owner was too intoxicated to know his own name). This vehicle's unique feature was that the steering wheel was only loosely communicating with the front wheels with any form of instruction between "hard left" and "hard right" being left to the interpretation of the road surface, resulting in a wildly oscillating ride. Similarly the slack between ECB rhetoric and action is huge. We have had a 25bp cut from them but other than that and huge amounts of rhetoric/announced intentions/guidance/ noise/ speak they have actually DONE very little. Cue the Monty Python " What did the Romans ever do for us" scene, only end it with the crowd going "errrrrrr..."
But that doesn't matter. The fact that the Mark "n" Mario show has shown a distancing from US policy, both having identified the steepening of yield curves as undesirable, the markets have kindly adjusted, doing their work for them.
Oh and NFPs? DILLIGAF
37 comments
Click here for commentsRampagingruss says:
ReplyMy first car was 1969 Holden EK - known by all and sundry as "the boat" as you could easily fit three on the front seat, 4 on the back seat and steering was much like driving a boat with a lot of "play" in the steering wheel.
As for markets I am somewhat surprised that there was such are reaction to Draghi and Carney - we know rates in Europe are going to stay at zero forever - so why react to that confirmation? A rally to sell in my view.
C Says
Reply"the steepening of yield curves as undesirable".
Very nice ,but in that case they better dig down and find the coin to stop it ,because I doubt talk is actually going to do it for them. Particularly UK yields I think ,because I suspect the UK economy is no where near as weak as these yields would imply. Take it I don't hold this shit.
C Says
ReplyI saw yesterday as one of those sandpit moments when the kids are out to play whilst the adults are on hols. No check in other words.
Menwhile what really matters are earnings and they are on the way shortly.
Ramp ... I adjusted my hedge to pocket some FTSE bounce this AM which is as close to selling the rally as I get.
When the word "tapering" broke out of a 5 year consolidation on Google Trends, you knew it was a fade. The breakout coincided with a WSJ article entitled "Why the Fed Hates the Word Tapering". Perfect. TMM is my goto for policy/shenanigans in non-American parts of the world. Best, Paul Pertusi thethoughtfulbull.blogspot.com
ReplyHard to see what all the fuss is about over today's US number. As far as one can make out, most of the jobs created were part-time, and this number is all "seasonally adjusted" of course. Hours worked hasn't budged, the U3 number hasn't budged and U6 remains very high. There's nothing in it, innit?
ReplyAgreed with C, let's move on to consider earnings. Europhobes should bear in mind that most EU corporations are taking full advantage of much lower borrowing costs, and the fruits of that will soon be apparent in profits, now that most businesses in most EU countries have done their "kitchen sink" quarter some time ago. Punters who shorted the US earnings in 2009-2010 had a thin time of it.
On the other hand, in the US, the stronger dollar is likely to hurt exporters, and the consumer isn't likely to bail out the retail sector any time soon.
LB, time to reach for some mREIT?
ReplyI'd like to see where the bonds close before jumping in but I'm feeling a little capitualation today
LB feels this is beyond capitulation at this point.
ReplyHave been mainly buying preferred shares during June, yielding 8%, but the common shares are getting ridiculously cheap now: NLY 11.39 and AGNC 20.48, yielding 14% and 20%.
Feral hogs out in force, heaven knows what would actually happen if the economy were to grow. You know, really get stronger.
Homebuilder ETF looks to be a great short, for any number of reasons.
C says
ReplyLB, one aspect of todays' report that gave me pause was the hourly earnings.
Hourly earnings up 0.4%, C. A statistical blip - or a sign of something more ominous in terms of wage inflation? We vote blip for the time being. That number, if real, would translate to an annual rate of 4.8%, which seems to us frankly not at all credible.
ReplyOver the years, hours worked seems to be a much more reliable measure, with lower noise and it is intrinsically harder to "game/tweak/fix" than any other component of the report.
Perfectly normal jobs report, nothing unusual, except this huge disparity between full-time and part-time jobs:
ReplyFull Time v Part Time Jobs
C Says
ReplyLB, you are possibly right about the "blip" ,but I'm watching that now very closely indeed. Anything like that repeats and I'll be loath to accept "blip". I am surprised by it though as my first thought with unemployment still at these levels would not to be looking for a rise in incomes of that sort of order unless you also consider that a great deal of the unemployed are basically not possessed of the necessary skillset to match to todays' employment needs. Before I accept that I'll keep watching that income data.
C Says
ReplyI have to say the FTSE is jolly good fun at the moment. You have all the bottom feeders trying to get onto miners because it's got to be great book values/laggers etc. Then along comes a bit of half decent US data and the dollar eats them for brunch. I wonder when they'll get the message.
will Gross, Gundlach and the other income PMs step in here and buy MBS and TSYs, that is the Q.
ReplyWe should know in the next few days.
FNCL 3.5 not looking hot today though and i get the feeling we are gonna drift lower in the afternoon
Abee,
ReplyI think the traditional players you mention are already long that space (MBS + TSYs), and not selling (Note: this includes the Fed), so the only way they could get longer would be via leverage, which would be unusual.
What we are seeing recently in bonds is probably three things: 1) the effects of non-traditional players (fast money) using leverage, 2) delayed exits by European players who had entered during the previous summer's crisis, and 3) some rotation by US Real Money managers, driven primarily by fear, and late as usual. The first of these tends to be brief and self-limiting, and the third would be expected to follow the first. What this move in yields patently is NOT, is "data-driven".
This summer has been a mess because of a total "failure to communicate" by The Chairman. What he REALLY wanted to say and SHOULD have said, was "stop buying silly-a** growth stocks like it was 1999 and flipping sh*tty houses under the freeway overpass in East LA like it was 2005, you f**kwits. Sell mindless trash stocks and buy some income-paying vehicles, you complete morons."
ReplyInstead of which, there was jawboning, which was interpreted as "taper talk", thus arousing the "feral hogs" to sell and short Treasurys, stoking the flames in the media with fears of "inflation", driven by "economic growth" and "job creation".
Failure To Communicate
Now if you want to see a Master at work, I refer you to Dr Aghi's "bazooka" (which has never been used, or even seen, except by Mangler on her idyllic Alpine vacation in Sudtirol, but is rumoured to be "big enough" to satisfy anyone in Europe), and then again to yesterday's "low rates as far as the eye can see" comments. How much clarity do you need?
As the Depression grinds on, the U.S. is actually in danger of a 1937 now, thanks to the hog-induced rate hike. All in all, this has been an own goal by the Fed, or a "safety", for those who enjoy the other version of football. [A safety is when the QB or the punter falls over and downs the ball in his own end zone or does something equally stupid].
Given that Dr Aghi has now made his plans for the ECB liquidity spigot completely transparent, and the tepid US jobs recovery has now become wildly and widely overbought, can there really be any possible realistic downside left to EURUSD? We suggest not.
ReplyBucky resembling Icarus in his summer ascent here, and in imminent danger of scorching his wings.
In fact we'd have to say the US jobs number (rather like all official Chinese government statistics) is:
ReplyUnbelievable
Hunt: "80% of the job increases are in the 4 lowest paying categories w salaries in the $25 to $40k range, well below the median of $52k"
ReplyGood points LB, but the tape for bonds doesnt corroborate. And for now, price wins.
ReplyThe other interest rate 'reachers' are not having as bad day. Property REITs, HY and EM debt doing ok and not back at lows (yet)
Here you go lads!....knock yourselfs out, I'll be down the track.
Replyhttp://www.youtube.com/watch?v=WNESPJthc6o&list=PL1EFA39119CB4335C
Tappering based on U3 is dumb, since U3 moved down mostly due to drop in participation (so, we can move U3 down more by making the economy even worse).
ReplyIncidentally, strong USD is not so much a problem for exporters (with a bit of exaggeration US is a closet autarky, with only about 14% of GDP being exports, being 9th lowest in the world sandwiched between such powerhouses as Haiti and Pakistan, only slightly behind Afghanistan (ex poppies) or Rwanda) as for investment position (=multinational earnings).
LB 6.17, I think this can be read as the Chairman actually aiming for the mindless buying of "income-paying vehicles". At least in part.
ReplyWe didn't think this would go that far (as our poorly-timed attempt at donning the kevlar on some of these vehicles will demonstrate) but alas, I am not sure shaking the tree off a bit is that big of a policy mistake.
We sure wish we didnt buy the likes of CYS at 10 (can't go much lower, right??), but better sounding the leveraged FI alarm sooner than let the yield chase go unchecked until catastrophic imbalances build up.
Now, what this bit of market tightening does to housing and the eco data in the months ahead, I am not sure. Still think yields come back down as hawks have gone a bit ahead of themselves (5y5y at close to 4%? Yours). But perhaps investor psychology is broken more deeply, and the rallies are sold.
DD
DD
ReplyCYS is the best one IMO along with TWO (but CYS has cheaper fees) but I think they got ahead of themselves buying some 30yr in early May.
I think we are gonna bounce here. DXY as well. But I think the long term trend might have changed and we are headed for 3.5% in 10yr
In the end this debate comes down to whether you think that it is possible for the Fed to exit ZIRP under conditions in which the US economy is experiencing the effects of long-term structural impediments.
ReplyIf you think this is a cyclical slowdown resulting in a "normal" employment recovery with tight labour markets and improvements in real wages, then you would sell US Treasuries and buy real estate and gold. Many were ready for that trade in 2010, but it didn't work out that way.
If you think that the US economy has long-term structural problems, and that the US (and EU) will become mired in a Japanese-style slow growth environment, then you look at the employment data and ask "where's the beef?".
Part of the reason for the US weakness is that the Fed's monetary stimulus is enriching the wrong sector of the economy, i.e. the wealthy, who don't spend much of the money. In contrast, a fiscal stimulus such as infrastructure renewal programs would drive the economy in a more productive manner. However, since in the present climate this is politically impossible, we have the desperate measures embodied by QE (infinity).
Replybut but ... LB, trickle down economics!!
Reply-DD
LB's new performance yardstick for those bad days:
ReplyPaulson’s PFR Gold Fund Fell 23% in June to Make Year’s Loss 65%
Of late, this market has been so utterly nonsensical that you feel like doing absolutely nothing sensible in case something even more ridiculous happens tomorrow.
ReplyLB,
ReplyThe US isnt Japan and I think even Rosie is prediction wage inflation going forward (tight job market for those who have skills)
No crystal ball here, just betting on a short term interest rate bounce for a couple of weeks/months. The big bond inflows are done for a while IMHO.
- Well guys thats it for me...I quit trading, to many Chiefs not enough Indians..
ReplyI have not interest in trading news media stocks or casino stocks, I've grown old of it, just like loyalties grown old.
I'm returning to the racetrack , that's where the heart is .
This person is happy to stay broke and stay isolated than instead of being sold to the highest LA bidder and immersed in a community that's as reliable as not being thrown under a bus by those that think they own you.
ps...Goodluck
Looks like the China 2nd derivatives starting to feel the pain . The NAB business survey from down under ...
Reply"Business conditions and capacity utilisation slump to a four year low. Confidence a little better but still below trend. Conditions very bad in retail, mining and manufacturing, despite low interest rates and falling AUD, though signs a little better for exports. Plenty of spare capacity with little indication of being utilised in the near term; forward orders and employment still very poor."
ooh - err. Starting to feel a little chill wind blowing through the long only equity punters buying the dips ??
wtf ! the ASX was up 1.5%
ReplyHas the Holden blown a head gasket?
I found this (long!) FT Martin Wolf / Mervyn King interview transcript interesting. Quite a bit of macro policy discussion: http://www.ft.com/intl/cms/s/2/35844ddc-e57f-11e2-ad1a-00144feabdc0.html
ReplyC Says
ReplyIf the earnings spike last week was not enough then we had the credit jump on Monday this week in the US.
Meanwhile the Uk appears to be loosely following the US with a 12 month lag.
Picking the shots,but I don't want o get caught on the wrong side of this data.
Alcoa earnings report is now so irrelevant that I do not bother to look at the report, nor do I follow the market's reaction to it. The same is true for most of the initial week of Q2 reports, the real action begins next week, although bank earnings on Friday will reflect how much pain the rate spike has caused in the fixed income portfolios of the financial behemoths.
ReplyIt's quite possible that the spike occurred too late in Q2 to make an impact, although we know that the MBS portfolios would have been affected. But do they have to use MtM accounting or can they fudge it? It's all so opaque these days. One thing is for sure, when they want to they will eventually make the earnings reports smell like a pig sty, but until then the banks will continue to apply lipstick to the porker in an attempt to make her pretty.
There is a degree of irrationality in this market that might lend itself to a bit of a Silly Season rally here in July. It will, of course, end in tears. Lots of them.
We expect the XHB and its components to be the epicenter of the Crash of 2013, when it arrives:
ReplyHousing Recovery Faces Threat
The Japanese recoveries of the 90s and 00s (there I go again!) all failed because the property market rallies were short-lived and prices eventually reversed to lower levels. The demographics remain very unfavourable for US housing as was the case for Tokyo RE. Boomers will not live for ever, despite their best efforts and protestations. The smaller generations that follow are saddled with enormous student loan debts and unwilling to immerse themselves into additional mortgage debt. All such rallies in the US housing market are doomed, unless Bernanke puts the houses on the Fed's balance sheet..... (oh God, don't read this, Ben!)
Re MtM:
ReplyIf we talk about legacy MBS portfolios those are not under MtM accounting. The bonds have a certain book value and are either repaid in full (giving you a nice profit if the book value is sufficiently low) or impaired if it is more likely than not that the assumed value will not be recovered in full (read: put a gun to the accountants head and ask whether he thinks book value is ok or not...). Not sure how things work for new deals, but afaik those are not under MtM either.
Cheers,
Eddie