tag:blogger.com,1999:blog-34323687.post2591706046915999152..comments2024-03-28T00:23:22.838+00:00Comments on Macro Man: Trump's Fed Macro Manhttp://www.blogger.com/profile/12324967552369915949noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-34323687.post-10555890777995378952017-06-16T18:13:52.199+01:002017-06-16T18:13:52.199+01:00Returning to the Fed, the following commentary fro...Returning to the Fed, the following commentary from Neel Kashkari is an eloquent statement of the unease felt by many in the markets about the contemporary Phillips curve, inflation targeting approach currently espoused by Dame Janet & co.<br /><br />https://medium.com/@neelkashkari/why-i-dissented-again-b8579ab664b7<br /><br />I can summarize this beautifully written piece here in my own way: The Phillips curve is bollocks, and half of the FOMC are out to lunch, can't think their way out of a paper bag etc....<br /><br />Here are a few highlights:<br /><br />"if inflation expectations drop, as we’ve seen in some other countries (and there are signs it might be happening here in the United States), it can be very challenging to bring them back up" Indeed.<br /><br />"The growth rate of hourly earnings has fallen since the March meeting — from 2.8 percent to 2.5 percent — and remains low relative to the precrisis period. In short, the cost of labor isn’t showing signs of building inflationary pressures that are ready to take off and push inflation above the Fed’s target." Quite.<br /><br />"In short, while some asset prices appear elevated, I don’t see a correction as being likely to trigger financial instability. Investors would face losses from a stock market correction, but it’s not the Fed’s job to protect investors from losses." Hmm..<br /><br />"The views I express here are my own and not necessarily those of the Federal Open Market Committee." Apparently!!<br /><br />It's well written and an absorbing read. NK skewers the Taylor Rule and its adherents several times, while largely side-stepping Washington other than to note that he is not expecting any fiscal magic.....Leftbackhttps://www.blogger.com/profile/07728096415928915882noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-84619050621155379352017-06-16T02:42:45.337+01:002017-06-16T02:42:45.337+01:00China credit crunch is real, which means Canada ho...China credit crunch is real, which means Canada housing bubble has already popped, but we haven't seen all the mess yet. China yield curve inversion means the same as it does anywhere else. Yeah, that's right, growth is slower than "the official 8% GDP"…. Chinese defaults will cascade to other lenders in other countries, keep an eye on the yen as the safety valve in Asia.<br /><br />Oil isn't going away. Not for the rest of the century, but it will. I imagine the whale oil investors had a few difficult years, eh?<br /><br />https://en.wikipedia.org/wiki/Whale_oil#/media/File:US_Whale_Oil_and_Sperm_Oil_Imports_(1805-1905).jpg<br />https://link.springer.com/article/10.1007/BF02257579Leftbackhttps://www.blogger.com/profile/07728096415928915882noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-47955262406719516752017-06-15T15:57:22.520+01:002017-06-15T15:57:22.520+01:00US tech carnage not over...meanwhile Philly and Em...US tech carnage not over...meanwhile Philly and Empire surprised to upside..<br /><br />Dollar rallying (which should put a bid in the Stoxx sell off). But get short CAD eventually... we going back to 1.30 sometime soon. abee crombiehttps://www.blogger.com/profile/13320039155613443039noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-26535871672924241112017-06-15T14:05:37.419+01:002017-06-15T14:05:37.419+01:00@LB what are your thoughts on Oil long term? Do yo...@LB what are your thoughts on Oil long term? Do you think electric cars are a real deal? What will happen to ME and Canada if oil remains in the ground forever?River OCeanhttps://www.blogger.com/profile/07319218448695216267noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-27203469959888441452017-06-15T12:46:43.035+01:002017-06-15T12:46:43.035+01:00Volatility tourists may be a little nervous this m...Volatility tourists may be a little nervous this morning, just a little. VIX is up 11% at 7am. One of these days it simply isn't going to decline again into the close, and another generation of punters will learn a lesson in reflexivity. One day we will be reading their sob stories.<br /><br />If we ever see another 1987-type event (c-word), it will be because of ETFs, algorithmic trading machines and a profusion of strange volatility derivatives. Recently it was reported that 95% of shares of VXX were "borrowed", raising the spectre of a painful squeeze and the mother of all volatility spikes. There is also a popular product called SVXY that is marketed as "an inverse volatility vehicle". It is made up of the first and second month VIX futures, June and July. We think this represents an interesting opportunity for contrarian traders. Imagine if the managers of that had to roll to the August contracts, and that happened during a massive (or even modest) volatility spike…. interesting scenario, eh? One day this is going to happen.Leftbackhttps://www.blogger.com/profile/07728096415928915882noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-76914073934361753522017-06-15T07:30:05.075+01:002017-06-15T07:30:05.075+01:00Fed speak translated... We do not give a hoot abou...Fed speak translated... We do not give a hoot about the price of oil any more. <br />Skrhttps://www.blogger.com/profile/15637819137472818789noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-1832309334667047842017-06-15T02:47:05.830+01:002017-06-15T02:47:05.830+01:00So in the aftermath, looking at the SEP, we know t...So in the aftermath, looking at the SEP, we know that the lone dissenter and the one dot predicting no more hikes into 2019 is Neel Kashkari. Whatever you think of him and his role in TARP, he is manifestly not a stupid guy, and probably much more intelligent than the average Fed apparatchik, and he was very close to Bernanke. The other Fed member who has a brain is Brainard. Most of the rest are cerebral midgets, and Yellen knows this, so these two dots "weigh" more than the others.<br /><br />What is interesting is that three other voting members of the FOMC have now joined Kashkari - at least in opining that the Fed is now done for 2017 - and that's a significant change that we should all pay attention to. WONDER WHO THEY ARE?<br /><br />The Balance Sheet reduction program… LOL. At this rate it will likely take 20-30 years to bring back to pre-crisis lows. Big Ben told us it would be allowed to run off naturally by holding bonds to maturity, in other words there will be no hurry….<br /><br />I am quite surprised that so many posters/commenters here have drunk the reflationary normalizing Kool-Aid to the extent that they have, especially when all here are well aware of the Fed's record with respect to GDP and inflation predictions.<br /><br />Students of the Japanese experience are prepared to play the long game here, in the expectation that the US economy will remain stagnant for longer than most American brains can comprehend. It's the demographics, guv'nor, innit?<br /><br />The Fed is irrelevant now - they are simply playing a few card tricks inside the tent while the carneys are out front on the TV trying to reel in a few more punters. The real circus is going to return though once the lions (and bears) get loose again.<br /><br />I have seen the next low for US10s called anywhere between 1.50 and 2.00%, with a few at 1.0% from the deflationary fringe. Anyone got a number of their own? Here, we like the number immediately prior to the election of Trump, or about 1.85%. It's almost as though TRUMPFLATION NEVER ACTUALLY HAPPENED. Those of you out there who called US 10y at 3.00% and above in '17, you are already disqualified and lost your punters a load of wonga, so you can just shut up and sit this one out. Those plonkas who have been wrong about rates every year for the last decade can STFU.Leftbackhttps://www.blogger.com/profile/07728096415928915882noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-87200562859262262472017-06-14T16:58:31.370+01:002017-06-14T16:58:31.370+01:00Theory, shmeory….
The Fed doesn't control th...Theory, shmeory…. <br /><br />The Fed doesn't control the bond market, whatever they may think. All they can do is try to pin the short end, and if the economy slows enough, they will lose control of that. Look at the markets today, US 10y are heading for the 2% level. We will be back at the weekend to chart all this after the FOMC show. For now, the latest Doubleline presentation is a good start.<br /><br />Another excruciating morning for Mr Bond Shorty, after the CPI and retail sales data. Summer soft patch is coming for the US economy, at the very least, the economy is probably already at stall speed, around 1% growth.<br /><br />Crude is going to probably flirt with $40 in the latest price range, if not actually break below it. Until oil finds a bottom, inflation expectations will remain anchored, as in attached to the bottom of the ocean. At some point we are going to see another round of credit stress in energy, and then watch that get transmitted to the small caps.<br /><br />Btw, even if the Fed statement is dovish, it is by no means a given that equity markets will rally on FOMC adjustments to the SEP, once the concept of a slower economy sinks in there is still a really large reflation trade that will have to unwind.<br /><br />The next modest correction in equities, when it arrives, may become amplified into something much more serious by market forces created by the recent trend in volatility tourism.<br /><br />Bring on the clowns, I mean the Chair...<br />Leftbackhttps://www.blogger.com/profile/07728096415928915882noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-42082500322722969462017-06-14T02:21:21.959+01:002017-06-14T02:21:21.959+01:00Yellen's term as Fed chair is up in Feb, but s...Yellen's term as Fed chair is up in Feb, but she could in theory stay on as a Governor. Same story with Fischer, he could in theory stay on as Governor.<br /><br />If Trump wants to replace Yellen, it has to come from one of the three new nominees (note that Robert Jones is rumored to fill the community bank governor position). Therefore the most likely replacement is Marvin Goodfriend.<br />Cam Hui, CFAhttps://www.blogger.com/profile/09672203690656029787noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-16825497499506813832017-06-14T02:05:05.719+01:002017-06-14T02:05:05.719+01:00Very good piece--I like the "let your imagina...Very good piece--I like the "let your imagination run wild" speculation about the next chair. Taylor himself, maybe! <br /><br />Given the data and our previously discussed anticipation of a China slowdown, I'm not convinced the market has it wrong. But it is worth noting the market has been conditioned to be complacent about inflation and a real fed hiking cycle. A couple of trade ideas come to mind: 1) Dec 2018 eurodollar puts, 2) edm8/z9 steepener, 3) 6mo fwd -2x10 conditional steepeners, 4) Long USD vs. pretty much anything. take with a grain of salt, just threw those out there without looking at any prices...EM Inflationistahttps://www.blogger.com/profile/13376753485910252234noreply@blogger.com