What can we say? The GDP data was terrible and the Fed clearly acknowledged the slowdown in US economic momentum. The euro clearly broke the level cited yesterday, and if it didn't hold its highs after the Fed, well one and a half big figures is still a very decent rally- particularly when USD/JPY is going nowhere.
That fixed income could not meaningfully sell off is possibly telling. The relative reactions of US rates and the euro surely say something (quite a bit, actually) about relative positioning in the two markets, though the former was no doubt moving at least in token sympathy with Bunds. That market traded down to its lowest prices in six weeks yesterday...man, when was the last time you could say that?
Tempting as it is to suggest that non-Buba holders of Bunds collectively woke up yesterday and exclaimed "what the hell was I thinking??!?", chances are that recent weakness is little more than noise and profit-taking after an extended bull run.
At the same time, markets do seem to have taken on a distinctly less favourable tone over the past few weeks, with a lot more back'n'fill/corrective price action. Several major themes are not in force at the moment- in other words, the macro trading environment has turned distinctly south. No doubt some punters are nursing uncharitable feelings of hopeful schadenfreude that naive/cynical (depending on how charitable you want to be) buyers of equities/credit receive their comeuppance- they will no doubt wish to point out that Friday marks the beginning of May.
Whether that represents a turn north in the fortunes of macro, south in the fortunes of risky assets, or simply the start of another spring weekend remains to be seen. What Macro Man can say with clarity is that the environment for his views and methods is not a particularly good one, so he is running very very small positions at the moment til either his vision or the trading environment improve.
That fixed income could not meaningfully sell off is possibly telling. The relative reactions of US rates and the euro surely say something (quite a bit, actually) about relative positioning in the two markets, though the former was no doubt moving at least in token sympathy with Bunds. That market traded down to its lowest prices in six weeks yesterday...man, when was the last time you could say that?
Tempting as it is to suggest that non-Buba holders of Bunds collectively woke up yesterday and exclaimed "what the hell was I thinking??!?", chances are that recent weakness is little more than noise and profit-taking after an extended bull run.
At the same time, markets do seem to have taken on a distinctly less favourable tone over the past few weeks, with a lot more back'n'fill/corrective price action. Several major themes are not in force at the moment- in other words, the macro trading environment has turned distinctly south. No doubt some punters are nursing uncharitable feelings of hopeful schadenfreude that naive/cynical (depending on how charitable you want to be) buyers of equities/credit receive their comeuppance- they will no doubt wish to point out that Friday marks the beginning of May.
Whether that represents a turn north in the fortunes of macro, south in the fortunes of risky assets, or simply the start of another spring weekend remains to be seen. What Macro Man can say with clarity is that the environment for his views and methods is not a particularly good one, so he is running very very small positions at the moment til either his vision or the trading environment improve.
29 comments
Click here for comments"http://macro-man.blogspot.com.au/2015/04/building-better-moustrap.html"
ReplyGood assessment , Macro Man, but if you won't I will...that is, I'll ask one last question..
To the asshole that represents " US Exceptionalism", who's the pimp on wall street that Julian Assange crossed...
Should be interesting to see how the trend followers / CTAs did this month, as Im sure quite a few got burned these past few days.
ReplyNikkei had a big sell off as well, but the more I read about the corporate governance reform going on there, the more bullish I am longer term. Yes the economy stinks in Japan but a change in the perspective of how shareholders should be treated could be a game changer in itself
Amp. Lets see, assange crossed everyone in the CIA, NSA, MI6 etc. I think that is enough to get you on the blacklist
Interesting watching the big box cheap labor employers voluntarily raise their hourly wage floor and now the Feds trying to almost triple the legal floor.
ReplyThis will crush small businesses who compete for WMT/MCD for cheap hourly laborers while really smoking the cheap laborer through rent competition and rent inflation. At the same time, this is really going to fuel the black-market for labor and really make a mess of things.
The central planners are praying 24/7 for inflation and scratching themselves, ahem, trying to recreate Weimar.
Now how can one invest in buy-here, pay-here car dealerships? aka auto loan-sharking. No wonder Soros and Chuckles from Omaha are trying to buy large dealership groups!
Agree Dan its pure comedy - eventually we will get to the point where we realize just 1.5% GDP growth is enough for inflation because the so called 'slack' in the labor market is about skills and not quantity, as the few remaining unskilled jobs pay more because of govt.mandates - can't even say I disagree - Never been sure of the moral underpinning of why corporate and pvt equity chieftains should be the only ones allowed to share in fed largesse.
ReplyPeople who think the US is Japan in the making are only half right.
Perspective on credit: Mar/Apr corp bond issuance = $365B, or 22% of all of 2014 size
Reply30 day TBills now NEGATIVE 4bps .
ReplyBOJ selling Yen and buying equities (again):
Replyhttp://www.zerohedge.com/news/2015-04-30/did-japanese-just-save-world-again
SNB has 15% of Swiss GDP invested long equities:
http://www.zerohedge.com/news/2015-04-30/swiss-national-bank-long-100-billion-stocks-reports-record-loss
Central Banks are actively manipulating equities markets (having destroyed FI via QE). As their policies fail, expect them to just double-down and do more QE:
http://www.zerohedge.com/news/2015-04-30/albert-edwards-what-happens-next-more-qe-everywhere
@many anons - whats the point of posting every link to zerohedge? Is this supposed to be some clever find?
ReplyA link, followed by your unique interpretation, might be more interesting.
I see the read through on GDP as being stronger than the headline sounds, mainly because this was the qtr when we saw a big decline in oil capex, but I don't think the decline is going to continue. Consumption appears to be ticking along. Move in rates today seems to agree.
I think the Euro is on borrowed time here.
To the haters of QE (anon ZH linker), why dont you just adapt to the current situation bc CB's are not going to stop doing it. If only ZH would have gone with the flow instead of against it, lots of readers would have made money and been happy instead of being cynical of everything. Yes Japan will monetize a great portion of their debt. And guess what, the Yen may not go to 200 or 300 like the genius Kyle Bass assumes. Then what will you say when the debt is essentially cancelled and their debt / GDP ratio looks normal at 150% or so? As for the CB's owning equities, do you really think they are going to sell it anytime soon??
ReplyWe are in a world of deflationary forces because there is too much money and not enough assets. When CB's tell you they want assets to go up, LISTEN!
Does it end badly at some point, for sure I have no doubt buy you can go back and listen to many smart macro guys talking about the buildup in debt from the mid 1980's onward and nothing major happened until 2008 (ahem robert prector). Currencies will be the ones who tell you when the current QE system stops working, the problem is that no one wants a strong currency and its a zero sum game so i am not really sure what happens.
@ Mr T
ReplyAgree with you on Euro, Eco momentum there has had a good run, prob about to take a pause, think it was telling that despite such positivity U-rate still pretty dire. As for US, looking for q2 bounce back is still the way to play, just because it is consensus doesnt mean it isnt right. At a very high level view, with WTI @ 60 I think shale makes a come back in next few months also US house prices yoy look to be turning up and as you note consumption is ticking along. May could be volatile esp for equities but big picture, reasonable growth, low inflation and plenty of liquidity means don't panic, save that for later in the year (like Sep/Dec) when Fed hikes.
CTA definitely get burned in April. But they have made so much money in the past 12m or so. 1M down looks trivial. The question is will they get hit continuously going forward? I doubt the major macro trend will change.
ReplyThis reminds me of October, 10s go from 2.53 to 1.86 in 2 weeks after Gross is forced out. And pple think its macro factors, not positioning. Now we have what appears to be a few funds hammering euro and swiss bonds (bidding up eur and chf) and people are searching for some incremental eco data explanation.
ReplyConfusion = hit bids in stocks. Misplaced confusion = scoop the dips.
great thoughts Bryan. I read something fro Zervos yesterday implying it was the Bridgewaters of the world doing a little profit taking on their +15% YTD performance
ReplyWhen you manage $100B, you cant get out in one clip
spoos declines:
Replyoct - 9.6%
dec - 5%
mar - 3.3%
april - 2.2%
Sure seems to me like we are setting up for a nice summer rally backed by the old standby's of dot-plots-lower driven by goldilocks data and dollar strength keeping rates lower for longer and adjusted estimates climbing back up based on a willingness to adjust ex-fx and generally strong enough economic conditions.
Geopolitical is as calm as its been in years.
OK...who keeps selling US treasuries? What's the story?
ReplyAll eyes on ADP on Wednesday. Of course there's the euro manufacturing PMI's on Monday first but I think they really won't matter that much (unless they suck really bad, which they probably won't). The current bias seems stacked against the US, so the burden of proof is on them this time. Was manufacturing PMI a bad omen?
ReplyStill not convinced that the major dollar trend has reversed for good, the counter bounce might just extend a bit depending on data. If fixed income continues its bizarre behavior on possible bad data (aka foreign selling along with dollar), it might be time to dip a toe in soon.
Otherwise just sitting on hands with GDX and energy risk, for now. Oil might stabilize a bit here, but don't expect to be too much more room to climb. The more volatile drilling industry has had relief (following ESV earnings) and big oil seems to be doing more or less fine (e.g RDS, although it should be specifically noted that FCF isn't covering their divvy yet they decide to sustain it, but the time for nasty surprises isn't apparently just yet).
M2 money velocity...how low can it go?
ReplyIs this a problem or does it mean nothing?
https://research.stlouisfed.org/fred2/graph/?graph_id=236919
It's starting to crack and bonds are the San Andreas fault.
ReplyGermany had a double dump in bunds and dax which showed the first break in leverage trades. Other positional faves have cracked too. USD, biotech and I am sure you can all add to the list.
Throughout oil continues creeping up and commodity stuff is pushing higher. Iron has turned back a bit but its moving higher.
I would love to think this is the start of the reflation trade I am positioned for but that doesn't make equity indices an easy call. Back to sectors. I would suggest a small down bias in the indices but a continued sector switch with commodity/energy remaining strong and the leverage tech taking a hit. Of course you get to a point where heavy selling in one are becomes contagious and we hit a tipping point and everything tips. But for now I m looking for seismic oscillations to continue until we get the landslide (unfortunate Nepal analogies).
I can't actually see this change coming from watching CB policy which is becoming a bit futile. But playing the inflation trades probably the way forward.
Have a very good week end all.
Pol
Pol - first off, glad to see your short bunds idea beginning to find traction, I know its been a frustrating experience. I would like Bill Gross to come talk my book occasionally too, please!
ReplyObviously, there has been a self reinforcing re-flation theme at work in the last 2-3 weeks (really April 12 if you want to put a date to it) - crude has rallied because of hedge fund buying (brent length now at 265k lots and climbing, same as the highs from June last yr), which has convinced punters that 'rely' on crude as a signal that all is well with global aggregate demand - the idea, naturally, has been to sell bunds, the dollar (inverse correlation between euro and bunds is close to perfect last 90 days) and US equities and bonds, and buy EM and european stocks. Frankly, given that the entire US equity complex currently rests on a low rates forever backdrop, its tough for me to see its strength continue if rates march higher (I define it as say 2.40-50 for the 10 Yr). I hasten to add that it MAY not be a problem for european and japanese equities because it is likely to be seen as a side effect of QE a la US circa 2013, but I have my doubts simply because, well, is it really ever that simple?
Clearly, spoos find it hard to sell off if their global cousins are rallying daily. but I think risk/reward on at least oil and US equities favors the bears currently, even if for a retracement and not meaningful lows.
Ultimately, I see this entire reflation pricing as counter-trend, simply because even if US macro data is taken at face value, global growth is tepid but OK (my base case), and if US data hooks up the dollar will soon run out of sellers - I think we all know the best cure for asset reflation is actual reflation!
Wages are another story - I firmly believe we are about to experience the phenomenon described in the article below, namely a practical manifestation of a mean reversion in Rich's ratio:
http://www.pimco.com/EN/Insights/Pages/Principled-Populism.aspx
I think it is quite possible the long running secular trends on wage deflation and productivity growth are close to over in the US because of skills mismatches, not to mention a minimum wage agenda in advance of everyone's jobs being replaced by robots, that will only grow into the election cycle. In so far as headwinds go, this is a far more serious problem for US equities than whether or not the fed hikes will happen in sep, dec, or never at all.
Have a good weekend.
Washedup - great comment and thank you the depth. Bunds - -yes getting there but no significant P yet. and knowing my luck it will tease then kick me in the face again
ReplyOil as an indicator of general global demand? Hmm.. I m not one of those but more see commodities price collapses as a major cause of top line deflation. With a turn up the reverse will occur. If the likes of ECB are true to their mandates and are following inflation not growth then it will feed through to policy.
Oil may well be being hoovered by funds but oil is a huge speculative trade in general. We managed to hang above over $90 for years on the specs filling the tanks and holding. The puke has been the reverse.
Like your point that the cure for asset reflation is real reflation.
re comments further up about CBs buying equities. I like the idea that they do. It's the socialisation of big corp, a sort of partial nationalisation. Lets the State benefit from the success of private business and dilutes the sic-fi scenario of a few huge corps controlling the wealth of the world. Especially pertinent re mega-tech.
@abee crombie 8:34pm
Reply" only ZH would have gone with the flow instead of against it, lots of readers would have made money and been happy instead of being cynical of everything."
This remark is on par with Marie-Antoinette's "Let them eat cake".
To go with the flow, you first need a boat. I am prepared to bet that most of ZH readership doesn't have assets to play with, nor access to cheap credit through a prime broker. They are more likely to be young people who had the choice between not having an University education or borrowing to the hilt to grossly overpay it. Being readers of ZH, they don't even have the consolation of not understanding how they are being f...ed.
The rest of my answer would be addressing the ZH readership who you are thinking about.
"Then what will you say when the debt is essentially cancelled and their debt / GDP ratio looks normal at 150% or so? "
In such circumstances, it will be the M1/GDP ratio that will grow to huge proportion, so the "new new normal" will not really be a return to "normal"... yet !
I note that Debt Jubilee through massive monetisation is actually quite a popular endgame scenario in ZH readership, so the answer to your rhetorical question will probably be : "Hurrah, hurrah, hurrah !".Your remark confirms my opinion that the difference between ZH readership and MM readership is not really where they see the game going (a turbulent and scary place), but how continuous the path from here to there is going to be. MM readership believes that they can dance while the music is playing because they are nimble enough to find quickly a chair when it stops, whereas ZH readership believes that one has to sit on the chair now to have a good chance of having a chair. An additional complexity to this is to define what constitutes a chair : a bunch of greenbacks, a pile of gold, a farm in new zealand, or a "moat" non leveraged business ?
I wished it was easy...
A most secret plan...so secret, in fact, that in Europe only EU authorized persons have go to a U.S. embassy to read what is in it...
Replyhttp://www.euractiv.com/sections/trade-society/us-open-ttip-reading-rooms-across-eu-314175
Bonds up
ReplyMetals up
Dollar up
Stocks up
Central Banks rock!
is the oil reflation, China is going to boom bc of SHCOMP, sell 10 year trade over, or is it just the start of a trend. As Drukenmiller recently stated, that whenever he sees a stock market move like the one we had in Shanghai, it is almost always followed by an economic boom.
ReplyI have to say I am firmly in the opposing side, but will give it some possibility. But it seems more to me the markets are just being unfriendly. Taking out all the lazy longs (or shorts in oil, EUR) etc and going to do a nice rinse and spin for the summer. The internals of the US stock market arent so hot with the number of new highs dwindling and still a high number of stocks down 20%.
Charles, good points, the big thing I want to stress about investing in the stock market is that its now become the only game in town. The Fed isnt going to let it drop 50% and stay there for a long time. (Can you imagine the havoc on pensions, 0% interest and no money to be made on equity capital). So my point is join the party. can it go down one quarter by 20%. For sure. But over the long term we have entered into this new era of asset priced based monetary policy. And as long as valuation are reasonable, dont be a sore loser like ZH.
just on the last point. Equity investing is pretty much the default option for long-term wealth accumulation in the US and has been for over 30 years. Why change now (unless we are on the verge of an inflationary collapse?)
Reply"just on the last point. Equity investing is pretty much the default option for long-term wealth accumulation in the US and has been for over 30 years. Why change now (unless we are on the verge of an inflationary collapse?)"
ReplyAbee - can't really disagree, but would point out the benefits seem to accrue to fewer and fewer people every cycle, which creates lessened political support over time (citizens united notwithstanding!).
I don't think you need a full on 'inflationary collapse' to take equities down materially - if inflation breakevens and rates pick up appreciably and sustainably at some point, CBs still sitting at ZIRP will be increasingly seen as cornered - positioning would take care of the rest - I find it ironic that people forecast 1% 10 yr rates and equity crashes as if somehow that would be concurrent, using previous playbooks, when the highest probability outcome for the global economy is a grinding normalization, small wage pickups, and declining output per worker - the market bull cycle would then end with a whimper, not a bang.
http://imgur.com/1w23mTo
ReplyNYSE #new 52 week highs (Blue)
S&P 500 Yellow
Agreed washedup, rate raise are a big issue and in that scenario, no one is going to ring a bell at the top (ala Nasdaq 2000 or Japan 1990). However the fall out is likely to be much less as well (20 -30% decline, is my guess)
The long bond is still trading weak as the rush into US$ denominated assets has taken a breather for a few weeks now. The 200 day average was broken and TLT pierced the Bolly bands. Perhaps we will see one more wave of climactic selling this week before US fixed income is a buy again.
ReplyMr Market seems to have come around to the Good News is Bad News model again. Risk once again seems to be embodied by the possibility of stronger US jobs data this week.
Washed, I actually like the mini-stagflation idea. There is a whiff of reflation in the air and as usual the US bond market is ahead of the game. 5y5y break-evens have picked up a bit off their lows in the last few weeks.
I think I just saw Polemic's yacht go by - as bund yields begin to creep up after bottoming close to zero. Silly safety trades will hurt desperate punters every time.
We are still sitting long Europe and EMs for now, but the trigger finger is getting a bit itchy. This isn't going to be an easy year like last year.
Washedup: Uncle Warren, what do you think we should do here?
ReplyBuffett: Is that even a question? Buy US stocks, as many as you can, twice on the the days when the market is closed.
Washedup: Really? Is that a slam dunk?
Buffett: Of course it is - has been for 40 years, will be for the next 40 - own a slice of corporate america and shut it, man.
Washedup: And valuations?
Buffett: Are you listening? look at rates - all about rates young jedi - with rates this low you would be nuts not to own equities - seriously you are beginning to bore me
Washedup: Nice - I am getting pumped up with bull juice just listening to you - what about bonds?
Buffett: Sell 'em - sell 'em till your head caves in - short of the millennium - if i could find a way to do it efficiently I would too
Washedup: Awesome, will get on it right away - what happens to rates when everyone sells bonds, by the way?
Buffett: Dunno - go up a bunch I suppose - its fish in a barrel, really - Bill Gross agrees
Washedup: But isn't that bad for equities, Uncle Warren?
Buffett: You are f@3ng ugly - where is Becky Quick? who let you in here anyway? Security, security....