Tuesday, August 13, 2013

Dancing Numbers

So that’s our holidays done for a bit. It’s a shame really as time spent dozing in far off climes, or time spent with people from other professions followed by the return to a room full of screens covered in dancing numbers from which one has to decide which ones are going to get bigger and which ones smaller really does make us go soft in the head and question exactly what we do. Yes, sorry folks, however fantastically clever you think the world of finance is, all that complex method, all those Nobel prizes, stats, PhDs, papers, research, central bank watching and even lunches, dinners, seminars in Bali all just boil down to guessing which numbers will get bigger and which ones smaller.

But hey ho, such is life and while there are still queues of brainwashed interns willing to work for nothing at financial institutions (that are ironically based in countries that pride themselves on abolishing slave labour over a hundred years ago) for the shot of maybe making it big time, it will probably go on. Huge quotients of intellect still willing to go through an X-factor ordeal (Do you really want it? Will you give your all for the chance to attain your dream? Or rather OUR dream). There will only be one winner and chances are it will be your employer rather than you.

Right, now with that dose of reality out of the way, lets crack on. What’s going on with these dancing numbers?

Well, to use the vernacular, bugger all by the look of it. Have we returned only to find that all other human market participants are left on the beach?

UK - Carney has managed to give the newspapers reason to think he will stay “low for longer” and reignite a buy to let property bubble and yet convince the market he is going to stay “low for shorter” kicking GBP higher. At which point TMM will congratulate their flawless TMM Holiday FX indicator as it once again managed to pick the top in EUR/GBP the moment we boarded the plane back from Europe to the UK. Carney appears to be able to speak “Parseltongue” which is a clever trick making their goal of achieving economic escape velocity whilst holding longer term rates down possible. TMM still like the UK prospects and though may cite “we have seen 3 recoveries fail so far so this one is likely to as well” as pretty much denial.

TMM had a bit of a debate today about the targeting of unemployment rates as far as CB guidance goes and note that despite the different mandates, most CB's do target it some way. As we have said many times it all comes down to wage inflation and though employment levels are a laggard they are not as much as a laggard as inflationary pressures caused by wage inflation. Wage inflation also being the component of overall inflation that has to be targeted rather than reacting to exogenous inputs.

But it does all depend on the assumption of a reliable relationship between unemployment levels and wage growth. Should we see that break down then we could see inflation pick up without the CB’s employment targets ever being hit.
how could that be?

Well some things to consider.

- Spain – what’s their employment rate been at and for how long? Targetting a 7% unemployment level would be a Utopian dream for them.
- In the UK there may be a bolstering of unemployment claims as disallowed disability claimants shift to “unemployed”.
- Continued widening income disparity. i.e. a shortage of highly paid engineers vs a surplus of low-skilled service workers. (Also the increasing dominance of global industries by the mega players and rising barriers to entry for the small fry)

The last of these points is a concern and TMM can't see a short term end to continuing wealth disparity trends, which means London, and Manhattan real estate prices will continue outperforming and the disconnect between stocks and the real economy could continue also, as more of the savings go to the wealthy, who put it into finance instruments, a form of saving which contrary to popular press who assume that all savers have their money in cash at 0.0001% at the post office, has seen savers rewarded with stellar returns. And with respect to inflation, while income disparity may not have a large impact on an aggregate level, these trends do suggest the increased likelihood of sticker prices (oligopolies aren't likely to cut prices!) and increased dispersion of the various components of inflation baskets. But we have digressed enough.

US – zzzzzzzzzz Really is there any major development to factor in over the last 2 weeks? The blogosphere appears to be rummaging in dustbins for old bits of bad news to cite ( trailering “The Cliff 3” – with all your favorite stars) but lets stick to the big stuff, not much other than the US bonds to stocks flow story seems to have got ahead of itself just on price action as bonds are doing ok and stocks are having a hard time rallying even though data has been ideal with strong ISM globally, while employment growth (and hence the timetable for CB tightening) remains slow. Maybe that just means they need to consolidate some. Clearly people do not hate bonds as much as maybe one would expect.

But the killer has probably been the mighty USD which, judging by the performance of FX dedicated funds, has taken many to the cleaners.

Europe – The data is getting incrementally better and monetary trends suggests growth through year end. The picture is less clear after that, but it appears to be the consensus view that Europe is economically on the mend, but we think it’s a begrudging consensus with positioning lagging belief. People still don’t appear to want to see Europe as a success and still seem to trade it as a “less short to flat” rather than an outright long. But its holiday time in Europe and the small Mediterranean island TMM were holidaying on, despite reported lower visitor numbers this year, was by no means dead. Unlike the markets.

China – Data continuing to improve, a turn around in all things China linked has lifted the foot off the Asian brake on global confidence but we do still wonder about what is really behind those figures (more soon on that).

That will do for now, the fractal component of markets means that there will always be some microcosm to break into even smaller discussion points but for now let's just accept that things are pretty quiet and there isn’t that much point in yelling about the next great move because most of the arguments behind each view really haven’t changed that much over the past 2 weeks.

Let the numbers dance and while they do
We’ll take a seat on the side for two
More weeks to pass, as data yields
Passage to Elyssian fields


Hotairmail said...

Not staking out Malta again?

abee crombie said...

plus ca change...

1) EM vs DM. The divergence is starting to become noticable. Either EM is gonna bounce hard (which it is perhaps starting to) or DM will catch up

2) Summers vs Yellen. I dont think there is enough priced in for a summers fed.

Anonymous said...

TLT looks to have broken the support that Leftback flagged recently. Wondering what LB is thinking now re Treasuries? I was starting to fill my boots......

Leftback said...

Just going to watch bonds today and tomorrow and see where this move in yields winds up. Absence of a REIT massacre today suggests that a new yield spike is not in the cards.

USTs, gilts and bunds are all getting hammered today in unison, is it possible this just a bit more of last year's panic safe haven buying trade in reverse? Yet another set of European banks rotating into peripheral debt?

The US data doesn't seem to be the trigger, so maybe it is the better European numbers after all.

US retail sales data has become almost locked on to the gasoline price. Retail ex-gasoline almost flat. Whatever that is, it isn't growthy.

Another great day to do nothing.

Anonymous said...


Sorry a little OT but remembered that there was previously some discussion about how to get leverage in the PIIGS countries in prospect of the EZ possibly hitting the ocean floor in terms of production, unemployment, GDP etc. SAN was mentioned but concluded quite heavily weighted on LatAm and thus the upside from Europe might be somewhat limited.

Just wanted to mention another small cap bank stock if you like LatAm... BLX. I like it a lot. No dealing with consumers or retail stuff but only corporates and has a nice divy riding along. And it isn't being stock diluted like SAN.

Ok back to the usual stuff.

abee crombie said...

Fan of BLX, have heard good things of thier mgmt, but I'm cautious on LatAm banks. Not the sector to be in now, me thinks.

Nows the time to ride the trash right before the crash

Polemic said...

We speak enough blx here anyway.. going to trade some just for the code!

Anonymous said...

C Says
Well I still believe in good old fashioned coupling excluding relative performance. So simply looking at technicals the US equity market peaked this year in Feb/Mar and even thought it recovered nominally into May it did not actually recover it's former mom. Finally after the most recent sell off only the Nas (growth) got the breadth of support. I interpret that to mean both earnings and Fed issues reduced the sectors and individual picks still getting the bid.So we are still up here within touching distance of highs in what is now a thinner market that probably lacks the insider support that exited earlier in the year. I'll stick with my topping thesis ,but at this point keep the short bias light enough to sleep on.
I note the recovery in equity did not catch fire in equivalent bond spreads so we're already seeing supportive signs of risk off, and I suspect the yield change in this case won't be helping the banking sector much next time around.

abee crombie said...

agreed C.. nice insights. But sellers have not been forceful and even on the tapering June dip, they were quick to cover (cant blame em). Need to see some strong selling before I jump in..more likely rotation out of USA and into EU, EM.

XLF weak here but I am sure the monkeys will come out at some point. They couldnt sell enough in 2011 and now cant buy enough but the trend, so far, hasnt changed

Anonymous said...

C Says
LOL Abee
Sellers have not been forceful because they have been rotating hence the Index treading water effectively. Dow Utilities looks unhappy as do one or two of our own Utilities which had formerly been leaders for yield chasers.
Meanwhile f..me if the miners etc have not been found to be "value".
Give me a break someone.
The fundies are this irrespective of some idiots ability to see what the fundies don't support. That is, the US 10's were about 3.5% prior to the European debacle giving them a gift. They are now back upwards 2.7 ish. Meanwhile US equity 10's P/e are thought to be 2.8% ish. Any further move up in rate ,or any diminution of very high profitability and we will have a crossover on our hands which makes a nonsense of risk reward and very much so given the recent retail moneyflows. I would normally assign that a high probability for a market clearance event.
Unfortunately, I would not usually take the view with my money that any equity market would decouple from such a event and not if it is a market based upon more retail participation.
We shall have to wait and see.

Anonymous said...

C says
My final thoughts for today start with the Uk economy might do ok. It's clearly on a relectioneering platform. My caveat for that is the UK ftse 100 is not the UK economy as we are forever being reminded on the way up of course.
My next thought is the mid and small caps that are more reflective of the UK economy have been tearing it for ages as per my 'small' theme.BUT ,just how much of the good economy news is already now in the price? Who knows ,but we're quite some ways above any last support buying levels with a real directional amount of profit still on the table. As that old veteran Clint would say "do you feel lucky?"

Anonymous said...

Reaction to CSCO's earnings today certainly not rose-colored.

Anonymous said...

Metals look a little horny...nice BV jump in $EARN, another one thrown out with the bathwater. Pine River killing it with their recent adds in this and MTGE.

Anonymous said...

er, by "jump" I mean the BV was relatively sticky. BV of $18.57 vs closing price of $15.75. BV declined only 5%. So price "jumps" in response. :)

amplitudeinthehouse said...

Up around here I'm inclined to trade SINGLE NAMES only...hear that NY Merc ...SINGLES ONLY.
I don't know what it is with Qe , maybe it's not suited in this generational epoch or it's too hard to find a stock with any amount of intelligence within the company structure.
But one good thing has come out of all this Qe stupidity....the trendfollowing machines are in for a good suntan laying around those Goa beaches ..Trend follow your way to being a FREE MAN :)

Anonymous said...

10y basically saying there absolutely no chance we don't get Tapered in September? WTF?

Anonymous said...

C Says
The key here is if we get a US equity market clearance going does US govt get the rebalancing safe haven vote that really proves the QE has never been more than a sentiment shaper. That indeed we are always going to come back to fundamentals by which I mean the spread !!
If as I suspect the retail money just jumped ship big time this year on risk I would probably expect to find them onboard the wrong ship. That's just the way they are. It's always been important not just to follow the money trail ,but to know whose it is.

Anonymous said...

C says
Yes, these markets certainly know how to decouple ;)

Anonymous said...

At this rate Gundlach and Gross might have to trade in their joints for something a bit harder...

amplitudeinthehouse said...

ps...Guys, I forgot, please don't bring back any Qe..please . I am tinkle pink to be trading SINGLE names once again...I don't need anymore grief ,for fuck sake.

Leftback said...

Thin August markets do a lot of irrational things. This one has produced 8-9% yields on REIT preferred shares. So if you believe the moon is made of cheese and the US is headed for 4% growth, go ahead, sell bonds and preferreds to buy some more TSLA stock.

When we look back at this we will say, the US jobs numbers are a lagging indicator, Philly Fed numbers and WMT sales a coincident indicator (weak) and the order books at CSCO (bloody awful) are a leading indicator. It's worth remembering what the data refer to and when the events took place that they are reflecting.

Anonymous said...

C Says
To finish the week I quote a chap on FTAlpha suggesting "I don't think the fundamentals count for much anymore".
Depending on what you think is fundamental of course I choose to disagree. For me it is fundamental that there is a rebalancing of trade/deficits/surpluses with a concurrent change in Western debt levels and Eastern saving and consumption behaviours.
The long run trend had become unsustainable and change it must.

That also means we are likely to mean revert on global growth ,because it is highly unlikely that credit expansion ,or rising incomes in one part of the global economy is going to offset the deleveraging and stagnant incomes in the other part the globally economy we know generally has the Developed West.

All of this is fundamental and all that is up for real differences of opinion are whether ,or not fiscal and monetary policies will find a smooth goldilocks path to create this rebalancing ,or whether it will lead to rocky recessions in hitherto unexpected places.

In either case with employment gaps such as we face globally it is unlikely that expanding incomes ,or credit creation is going to create an immediate upward path for global growth. If you believe that to be fundamental then in my view it dictates the tactics with which you approach your portfolio allocation and trading in general.

abee crombie said...

1) Markets are thin. Crazy moves in Shanghai this morning and PM &FX at lunch time yesterday. Homebuilders up massive as well yesterday

2) Europe is strong. Yes the trade seems consensus but so what. I do worry about Germany election risk though.

3) Prem Watsa "Everyone's worried about inflation and have been
worried for five years. Remember, two things and we've said that in our annual meeting, one, it took five years for
deflation to set, to come in, in Japan. After the bubble broke in 1989, it was 1995 that deflation set up, began, and then
for the next 17 years out of 18 years, you had deflation in Japan."

Like C says, lets keep it in perspective.

So what does that mean for portfolio allocation? Dip into fixed income, take off some in US Equities and keep your eye on the cyclical PMI's bc they will come back down again at some point. Though its a tough call.

I like C's insights but cant really figure out what to do with them.

Leftback said...

Thin trade and people liquidating in the face of yield spikes can create some outstanding opportunities. Today is another babies and bathwater day.

We sold some Spanish and Italian equities today, they have had a really great run since we bought them in the depths of despondency, and spreads are probably as tight for peripheral bonds as can be reasonably expected. Hard to see how the picture can improve there. That money can instead find a home in unloved US preferred stocks, which are being monkey hammered yet again today, with PFF at its lowest in at least a year.

Lots of things looking much more attractive in the fixed income space as well, the yield spike and Detroit have combined to make for some nice entry points in munis. These can be useful days to grab income producing vehicles, if one can only keep one's wits about one.

When yields finally turn down again on the inevitable slower US data, all of these rate-sensitive sectors of the equity market will be bid once again. Talk about mis-pricing of risk, today's trading landscape is an absolute classic, with munis, Treasuries, preferreds and REITs all being dumped while Spanish govies and TSLA are all bid to the moon...

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amplitudeinthehouse said...

LB..sitting in single names only from this point to when the concurrent variables of Qe and intuition say otherwise.
If the Hedgies and other players think their gaining advantage playing the market while I just sit in no-mans-land their sadly mistaken..
When the Qe cycle is over the future path of ones plan has already been established...there's lots to look forward too, EMM and it's sisters stocks in London FTSE and much more . No, we have no problem sitting here like a flowerchild watching the market players show us their "style"...
ps...For every day the market prevents me from entering is another day they prevent me from making a mistake..that's the price of real freedom ;)

Anonymous said...

C says
Interesting how the rebalancing is currently playing out. Moreover if you don't believe in decoupling per se then you take the more extreme stress conditions being exhibited to be a relative negative for the so called stronger developed markets because this is a GLOBAL economy where export growth in one place depends on imports and consumtion strength in others. Even if it takes a little lag time to make it's presence felt.

abee crombie said...

hammering INR and BRL. Everyone hates them but I am getting interested. Odd how its just those 2 (ok and maybe Jakarta, peso and Zar ) that are taking the brunt of it

Longer term, currency pressure is needed to force those govt to reform and reduce bureaucracy but on a PPP basis I think both currencies might still be overvalued

skippy said...

Abe, ZAR is probably cheap and INR, but BRL and IDR still look very overvalued and terms of trade for both is deteriorating sharply. Perhaps the better trade in Indonesia and India is short equities given the valuation multiples (at the aggregate level) are still punchy by global standards?

However, they are clearly correlated trades.

South African equities also look pricey given what the ZAR may be implying about the macro fundamentals. Like many other EMs the domestic stocks appear expensive in my humble opinion.

abee crombie said...

interesting thoughts skippy. I find most EM equity markets are heavily bifurcated with consumer plays expensive (or at least not cheap) and cyclical very cheap. INR and Indonesia, from my vantage seem to fit that mold. And I have seen more than a few IDR stock charts that make me wonder.

But is the INR cheap? any thoughts? I have just heard stories of how expensive mumbai is and was going off that, but clearly on a PPP terms it is low

mREIT pref's on sale again. oh bo

Anonymous said...

FOMC meeting on wednesday. One could think the REITS/TLT a nice trade opportunity if thinking that taper market got a bit ahead of itself? FED saying 7% unemployment as the "threshold" so still a bit to get there (7.4 last).

Or on the other hand are these things meant to be taken so literally?

Anonymous said...

C Says
Breath continued to deteriorate in recent days so more short weight applied. At ,or around technical xover on the breadth now which generally implies a marked move downwards in equities when it happens as it offers a sell the rally to add further weight.
In the past the Fed jawboned this xover point and it didn't happen.

Read the Fed wants the bigger banks to hold more capital. By any chance do Treasuries constitute more capital?

Polemic said...


how very sad

Anonymous said...

C Says
Yes, extremely sad.
I go to lengths to get the message home to my teenage daughter, "Keep a sense of perspective and balance". Unfortunately, I get the sense that some parents and their young adult offspring have no fundamental grasp of what 'quality of life' actually means. They interpret it to be a 'race to the top' when the top as in the case becomes the end. Sad.

Skippy said...

Abee, sorry for the late reply. INR is cheap at these levels. About 15-20% if you use an REER type measure. However, for some perspective look at the USDINR chart on Bloomberg back to 1980, it has moved from under 10 to 64. As an aside, it has moved from 1 to the dollar since India gained independence. The INR is clearly not a store of value. The macro problems (triple deficits - fiscal 9%, current account 3%, infrastructure deficit - and high inflation) are well known, but persistent. For me, the risk is still in the equity market where the aggregate valuation is still above global peers in an environment of deteriorating trend profitability, rising leverage and a high cost of capital. The INR is probably interesting at these levels, however.

Mumbai property is indeed some of the most expensive in the world at the high end (similar to NYC) often surrounded by extreme poverty.

I agree with your point on the sector valuation divergence.

Anonymous said...

C says
Game of two halfs today. One determined overnight and then a second half closing up for the FOMC I think.

Leftback said...

It's all been a bit overdone this old rising rates scare, hasn't it? The punters are playing this like we have some 1994-style rapidly growing economy. Between January and September 1994, the U.S. 30-year long bond’s yield jumped more than 150 basis points to 7.75%, the "bond market massacre", but rates have declined for almost 20 years afterwards.

But look, this summer of 2013 is not 1994, this is all a bit fake. We are not in a normal economy and this is not a normal recovery. We are in ZIRP. This is a temporary yield curve steepener, not a prelude to higher short rates. In ZIRP these steepeners simply reverse (e.g. 2010), and all the associated trades reverse with it.

There's no wage inflation, very little growth, and all it would take in Europe would be a "petit problème" in Le Marché and everyone would run screaming out of the periphery and back into bunds, gilts and Treasuries again.

Not quite sure how much longer the helium-filled sector of the market (US growth stocks, tech, social media) can continue to glide upwards on the weakest of economic thermals. Even the smallest leak in this balloon might lead to rapid deflation.

It seems as though the opportunities for investors to rotate into income are overwhelmingly good here (Treasuries, IG, munis, REITs, preferreds, telecoms). Eventually such opportunities will be taken, and the intrepid balloon enthusiasts will be in for a very bumpy ride. Once the market finds something else to game other than QE tapering, the dynamics will change very quickly.

Anonymous said...

C says
"Oh Nick ; seeking, a little wistfully, for the dramatic turbulence of some irrecoverable football game".
Ok, I'm bored so guess the connection.

Anonymous said...

oh, and yes all overcooked as usual ,but really we like that about markets don't we.

F Scott Fitzgerald said...

The Great Gatsby.
(Nick Carraway).

Anonymous said...

Ah, but that's just the source. The connection is "Nick" is a Bond salesman and the quote is was therefore alluding to LB 'yearning' for a resurgent bond market.

Anonymous said...

C Says
One can sympathise watching the UK equities struggle. On the onehand the media is almost daily full of feelgood news ;lending increasing, house prices supportive and so forth. Therefore the more closely the Index and sector is aligned to that the more willing is it to try and be The Dip when the action elsewhere is negative. Each iteration it takes the knock and then stumbles to it's feet gainfully willing to soldier on.
I am still of the view though that much of this 'good' news is already in the price and so would not wish to own it until others had also taken their profits from it to a rather more significant degree than hitherto seen.

Anonymous said...

C Says
Still flying solo here I have to say I am a bit surprised. There are a number of big names in UK equity that will be effected by deteriorating trading conditions in emerging markets and at this point they have not really registered price knocks. I guess they will play catchup sooner than later.

Anonymous said...

C Says
ah the bush telegraph must be working as tat last message appears to have arrived.

abee crombie said...

INR is starting to turn into crisis mode

They better be praying the Fed Mins are tepid on tapering

I wonder if this is how 98 felt

Leftback said...

Stop running fest either side of the FOMC minutes release. I am sure that was fun for someone.

We spent some time and energy loading up on some REIT call options, a strategy we have never used before but that reflects our feeling that we have reached maximal despondency in these names amid a near certainty that a massive tapir is going to use its extended nose to eat up all of us like busy little investing ants.

Now what if that big old tapir didn't arrive in September due to some pisshole US jobs numbers, or maybe it was just a baby tapir that Ben was nurturing, or maybe the big f***ing tapir arrives on time as predicted and DOESN'T EAT THE WHOLE ANTHILL, BECAUSE THE TAPIR IS ALREADY PRICED IN. Then all of the investing ants could get back to buying income investments and all the crazy fear-mongers and momo chasers could go and scare the growth stock investors instead?

The Dreaded Tapir

Anonymous said...

C Says
Well after the stops we'll see ,but I would think if it was going down it will keep going and vice versa.

Anonymous said...

C Says
That also looks suspiciously like a breakout on the GBP/CAD.

Anonymous said...

C says
I read Wells Fargo to cut over 2000 mortgage related jobs. Don't know about you but I always cut staffing when I anticipate business is picking up. One might say they have a view.

abee crombie said...

LB, I hear ya, but with spoo's not in panic mode just yet, i wonder what will happen after a few more market down days.

BRL, MXN, ZAR joining in on the party.

Common Vix, spike up and let me buy something.

Anonymous said...

C Says
With a uk bank hol coming up and the rest of the week going into month end away I will take the opportunity this morning to put it in the bank this week and go flat for a rest.

Anonymous said...

Skimming through the FOMC papers which basically tell the following: inflation well below 2% target, still elevated unemployment despite new job creation, worries about higher mortgage rates on housing giving me the impression that before you know it we will be well into 2014 with still QE going on.

That combined with todays positive data in Europe? Could we be expecting something between neutral-positive for US and even more positive for EZ equities through year end? Combined with Merkel giving bizarre statements about EZ integrity through economy and currency:


Could we draw the conclusion that a European version of QE is looming ahead with the goal to pump up the periphery with loans to prop up the German industrial machine?

This possibility will certainly increase its chance in correlation with German external export (China) slowdown, me thinks. Started increasing weight in some of the European steel industry today with the current sight till the rest of the year...

Leftback said...

GS and MS to be downgraded by Moodys? Credit spreads about to widen, might be time to review the "sell all bonds, especially Treasuries" trade, guys?

long time lurker said...

Totally agree that all things yield related have been chucked for the hope trade that cyclical growth is making a come back. Ex financials S&P earnings were - 3%, wheres the growth there?

Aussie 10 years look particularly appealing at 4% , as does the 3s 10s flattener.

Their economy is looking decidedly ordinary and despite the hope eternal of local equity owners the data gets worse, the earnings get worse.

Anonymous said...

This analyst, I have found, is often right and he believes "financial stress has yet to appear" in this little downturn:



Leftback said...

New Home Sales down below 400k in July, June numbers revised down. Shocker.... (yawn)

Completely predictable. Take the most aggressive tapering scenarios off the table.

Buy bonds, MBS, REITs and preferreds. Sell the XHB and other US growth plays. Buy emerging markets.

Neither Santa Claus or The Tooth Fairy are likely to deliver 3% US growth. Fuhgeddabouddit.

The Stupid Trade is over.

Leftback said...

Convexity works both ways, so don't be surprised if we see a few -12bp days in the 10y next week.

REITs and preferreds can rally 5-10% in a couple of days here, b/c they are being traded as a leveraged play on rates in both directions. Whether the trend can continue is going to be "data-dependent".

Anyone who thought housing and the US economy was going to reach "escape velocity" and not be adversely affected by an almost vertical 100 bps move in rates has obviously been smoking some impressive weed.....

Anonymous said...

C Says
Congrats on the US home sales number. Certainly appears like builders are caught in a trap of price pass through determined by rate level which I don't think suprises you anymore than it does me. People thinking rising rates is a positive have not thought this through. It isn't a positive unless incomes are also rising at a similar rate ;) Without the latter the ceiling for pass price through is low and let's face it how many of these builders are really going to ramp up volumes based upon dropping their prices? I don't think so ,not of volition.

So ,suppose we are going for a bit of mean reversion again.

Leftback said...

Big day for CYS which has been battered. MTGE, AGNC, ARR and NLY all doing well. Perhaps a reprieve is in sight? I always wonder how the last of the sellers feel, when the stock bottoms out and they realize they just sold something yielding 16-22% and took a loss at the same time. Like the guys who bought pets.com at the top, I suppose, except in this case it's probably professionals.

What's very interesting about the last few weeks is how weak the USD has traded given all the bullish noise about the US and the incessant jabbering about the Tapir. That doesn't augur well for Bucky into the end of the year. If I had to guess I would venture that we just switched from yen carry to good old USD carry, so we might see signs of life in things that have been beaten with a stick, even INRUSD and AUDUSD. The ritual burning of INR in the financial media in recent days is invariably a sign that the bottom is nigh.

Munis, preferreds and even the much maligned emerging market utilities are all up today, as we had suggested. Look for more catch up buying on Monday when the lower half of the buy side class manages to engage both synapses......

abee crombie said...

Going long LEN now. 30% pull back. Lets see LB

Leftback said...

A long discussion of where we are, and the process of entry and exit into the Zero Lower Bound, which is especially interesting for those who are students of the Japanese lost decade.

Entry and Exit Into the Zero Lower Bound

The thing that is usually lost on many commenters on the US economy is discussed at length and can be succinctly stated as: "it's the demand (or lack of it), stupid".

Leftback said...

Can see LEN as a trade, Abee, but don't hang around. Once the fast money decides it's game over, those housing stocks are all going in the (crapper, wood chipper, incinerator, etc..).

Imagine some HF has been long USD short JPY, or long XHB short XLU or EEM, for example. It's goodnight, Charlie, for all that lot.

Leftback said...

Happiness was a big pile of AGNC calls today. Mean reversion is always fun.

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Leftback said...

Durables down 7.3%. How about that rambunctious US economy? Looking for another big day today or tomorrow for bonds and all of the battered rate-sensitive sectors.

Bloombags was wallying on this morningabout DMs over EMs and EM FX being hammered, surely last month's story and a sign that the bottom is in for INR, BRL etc.

Leftback said...

As data emerge and drive trading, a narrative is often developed by the media to match the action. Some market participants become very enamoured of these narratives, and during slow August weeks of trading, the narrative can become one with the market. In recent weeks market action has been dominated by a persistent narrative about the stronger US economy and Fed tapering. Bonds and EMs have been sold, and the cyclicals have been bid up in anticipation of the recovery outlined in the narrative. There are now signs this has turned.

My question today is: how many data points does it take for the media to change the narrative, or will the market have to drive the media to do so? We all know that employment data is a lagging indicator, so we would expect the equity market to weaken long before the jobs picture deteriorates, which we think is not unlikely, depending on US fiscal policy.

Leftback said...

Something to keep an eye on here via Bespoke, who remind us that we know that the Fed like data and FOMC are probably well aware of the myriad limitations of the BLS data, which in any case has essentially been reading 0 ± x for years now. The Gallup employment data has been deteriorating slightly of late:

Gallup US employment data

Apart from a few growth oases, the US is an economic desert.

abee crombie said...

IBEX, CAC and SX5E all setting up for a nice break, IMO

CB intervention probably will stem the flow out of the INR and BRL for the week. The test will be if we see another jump in rates.

LB, an interesting presentation at Jackson Hole made by some eco's in favor of keeping agency purchases and slowing Tresuries. Makes sense to me if FED is really worried about main steet, not wall. Would be great for mREITs

Anonymous said...

link to the agency purchase thing?

Leftback said...

Several people have suggested a modest taper, in Tsys only and none at all in MBS. Here is one perspective:

Is It A Bluff?

Anonymous said...

Lb: The "comments section" to that article are priceless.

Nico G said...

be careful about Europe abee, it is getting late and Europe has gone up on massive portfolio reallocation rather than on (awful) fondamentals - this can't go on for ever, imho we'll have a 10-15% correction in the next 4 weeks after which you could get a real back-to-school bargain

abee crombie said...

Nico G, I am usually not a fan of buying breakouts as they fail all to often, but to me the set up in Europe is looking positive. EU equities have had some real buying power in recent sessions, strong divergence vs US over past 3 weeks.

Is it consensus, yes, is it at the highs, yes, but so was SPX at the end of Jan and you had another 4 good months to run with it.

I am not sure the re-allocation is done. So much real money wanted nothing to do with EU for the past 2 years I think it takes more than 1 or 2 quarters of out performance for them to jump back in

Lets see

LNKD, FB, TSLA, IBB all jumping. MoMo monkeys to the rescue

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Anonymous said...

Lets make a quick recap of what happened in EM world since May when the yields started spiking...

EPHE (Philippines) down 26% , aggregate TTM P/E 20
EIDO (Indonesia) down 36%, 16
EWM (Malaysia) down 14%, 16
VNM (Vietnam) down 16%, 11
BRF (Brasil) down 25%, 14
TUR (Turkey) down 4%, 11
FXI (China) down 7%, 9

What do you guys think? If the yield spike really was such a big deal for EM's and it starts to revert back to the long term average, shouldn't there be value in some of these?

As LB noted the relevant US data (durable goods, new home sales) is just plainly bad and it shouldn't be that way in a real recovery.

Mark T said...

someone needs to point out to Mark Carney that the (already dubious) science of measuring inflationary pressure and hence designing monetary policy based on an output gap - in effect an employment gap - runs into a major problem courtesy of the EU. The UK 30m job market is effectively open to all 220m workers in the EU. 'Foreigners' could take every available job, causing inflationary pressure while the official UK unemployment level sat at 15% as 15% of the eligible workforce sat at home on benfits and the BoE kept rates at close to zero. Equally a shift to employ 'british workers' could bring the UK unemployment rate down to 6% but with massive excess capacity still in the economy and the BoE raising rates.

Leftback said...

"Put that light out".
"Don't you know there's a war on?"

Watch out for a bit of convexity in the other direction in fixed income. When US equity market bounces from this, expect value to be bid ahead of the usual momo. Still fancy EMs as well, but it's woodshed day today.

Observe the first rule of Sabre Rattling: Do NOT be caught short energy during fleet exercises.

Leftback said...

MORT already outperforming and several REITs are in the green on the day. That didn't take long.

Leftback said...

Astonishing to hear anyone blathering on about the Case-Shiller home price data today. I mean, those numbers are for June, for Heaven's sake, and by next week, by my reckoning, it is going to be September.

Anonymous said...

Yup LB. What makes EM specially interesting now is that it is the one element of the yield reverting trades that hasn't even showed a hint of reversing (compared to what the mREIT/TSYs doing now)... The last of the Mohicans.

With this rate they become interesting very soon. Probably wednesday and thursday will remain war mongering scare days for the market and after things calm, EM could have a fair chance of a nice rebound, one might think?

Nico G said...

I see you on the dark side of the... 200dma

Leftback said...

If one had to pick a level to punt from it would likely be down at SPX 1597-1600. Sorry Nico, even my darkest and gloomiest fantasies don't reach the 200 dma yet.

In other news, a lot of my longs are up. One feels significantly less tool-like this week than say, 2-3 weeks ago. Everyone gets to be a tool eventually...

Bill Ackman for example. I challenge readers of MM to form a sentence using the words "Bill" and "Ackman" that does not involve the word "douche".

Leftback said...

This reversal in yields is the dog's bollocks, innit?

Leftback said...

Today's bounce in US equities and 10y yield is pants and will fail at 1650 or below. Weak bounces like this usually give way to further selling until the stronger support levels are tagged. (SPX 1590-1600?).

Officially, according to the media, the proximate cause of selling is Syria, or perhaps the Tapir. We think the real reason is the weakness of the US economy and the sheer unfeasibility of the US growing at rates that had been priced into earnings forecasts for the second half of 2013.

Syria is not going to help, or to be more accurate, the gasoline price spike resulting from the recent run-up in Brent isn't going to do the US consumer, and hence US corporate earnings, any favours. RBOB is now approaching $3. Demand destruction and a slowing economy are on the way.

Anonymous said...

That's easy.

Bill Ackman is such a, such a, such a...damnit, you're right!

abee crombie said...

EM is getting interesting from a valuation standpoint, IMO but with the INR and more recently IDR and TUR having joined the party I think it keeps real money on the sidelines.

China is creeping up, SHCOMP near 200 day, SHPROP looking ok as well, on a relative basis. The liquidity spigots about to open or valuations finally cheap enough? And dont look but US listed, Carson Block hated Chinese co's are doing just fine.

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Leftback said...

A modest (fibonacci?) wave of enthusiasm in US equities today after the backward-looking Q2 GDP revision. More selling ahead, one feels. when we see some of the more contemporary economic data that lie ahead. PCE numbers tomorrow. PMI and ISM next Tuesday, ADP Thursday and the BLS number next Friday.

Throw in the 3 day Labor Day weekend ahead, "fleet exercises" in the Med, and we think punters will be heading for the exits later today or in the morning. Might get a push to 1650 but that's yer lot, squire.

Nico G said...

everyone can see spx 1600. Market is never that cute, it'll go deeper to make them watchers of the skies sweat a bit

Leftback said...

3Q growth forecasts just now being cut back in the wake of the personal income and spending data which was total shit. Of course, you read it all here first a while back....

3Q Growth Forecasts Trimmed

More data ahead of us on Tuesday. PMI and ISM. Remember TMM's Law of ISMs, when it comes to Fed tightening this isn't just any old statistic.

Bucky and Treasuries catching a bid together today, and EM equities trading better. Haven't seen that confluence of events very often. Perhaps today is just an artifact of one of the ultimate low volume summer Fridays?

Anonymous said...

APPL, IBM, and now VZ all doing huge bond deals. The APPL 30yr's are trading at 86, 4 months after issuance. The equity markets keep drifting up, but it sure seems to this piker that the well-counseled issuers are hitting the bid like mad in the debt markets. Part of me thinks the VZ issuance is not going to price all that well - yields on their ~10yr has gained 160bp since May already, and with total debt outstanding set to more then double you have to be nuts to take 100bp over govvy. I think it will be a very good litmus test for how FI risk appetite.

Whammer said...

Where the heck is everybody? Or is everything in the "moderation bin"?

Anonymous said...

Has everyone left the planet? Or is comment moderation causing all the trouble?

Anonymous said...

I think your blog is broken. There are no new posts?! Is everything ok? Did you pull an amps and decide to go off the grid? Even LB hasn't commented in a while.

VandalsStoleMyHandle said...

Tumbleweed in the comments section...what does that tell you (besides that there hasn't been a post for a while...)?

JohnL said...

Hey were'd everyone go?
Wow didn't see yields flattening like they have, 10yr looks like it should stop for a breather around here.

Anonymous said...

TMM can you please change the time format in comments to include the date? In comments spanning several days if not weeks, like in this post, it's hard to read comments referring to "today's" action, if you come late to the discussion.