Tag Archive: Yield Curve

COT Blue: Distinct Lack of Green But A Lot That’s Gold

Gold, in my worldview, can be a “heads I win, tails you lose” proposition. If it goes up, that’s fear. Nothing good. If it goes down, that’s collateral. In many ways, worse. Either way, it is only bad, right? Not always. There are times when rising gold signals inflation, more properly reflation perceptions. Determining which is which is the real challenge.

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Monthly Macro Monitor: Well Worried

Don’t waste your time worrying about things that are well worried. Well worried. One of the best turns of phrase I’ve ever heard in this business that has more than its fair share of adages and idioms. It is also one of the first – and best – lessons I learned from my original mentor in this business. The things you see in the headlines, the things everyone is already worried about, aren’t usually worth fretting over.

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The Real End of the Bond Market

These things are actually quite related, though I understand how it might not appear to be that way at first. As noted earlier today, the Fed (yet again) proves it has no idea how global money markets work. They can’t even get federal funds right after two technical adjustments to IOER (the joke).

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Chart(s) of the Week: Reviewing Curve Warnings

Quick review: stocks hit a bit of a rough patch right during the height of inflation hysteria. At the end of January 2018, just as the US unemployment rate had finally achieved the very center of attention, global markets were rocked by instability. Unexpectedly, of course.

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Not Buying The New Stimulus

What just happened in Europe? The short answer is T-LTRO. The ECB is getting back to being “accommodative” again. This isn’t what was supposed to be happening at this point in time. Quite the contrary, Europe’s central bank had been expecting to end all its programs and begin normalizing interest rates.

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Lost In Translation

Since I don’t speak Japanese, I’m left to wonder if there is an intent to embellish the translation. Whoever is responsible for writing in English what is written by the Bank of Japan in Japanese, they are at times surely seeking out attention. However its monetary policy may be described in the original language, for us it has become so very clownish.

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Bond Curves Right All Along, But It Won’t Matter (Yet)

Men have long dreamed of optimal outcomes. There has to be a better way, a person will say every generation. Freedom is far too messy and unpredictable. Everybody hates the fat tails, unless and until they realize it is outlier outcomes that actually mark progress. The idea was born in the eighties that Economics had become sufficiently advanced that the business cycle was no longer a valid assumption.

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Monthly Macro Monitor – January 2019

A Return To Normalcy. In the first two years after a newly elected President takes office he enacts a major tax cut that primarily benefits the wealthy and significantly raises tariffs on imports. His foreign policy is erratic but generally pulls the country back from foreign commitments. He also works to reduce immigration and roll back regulations enacted by his predecessor.

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Hall of Mirrors, Where’d The Labor Shortage Go?

Today was supposed to see the release of the Census Bureau’s retail trade report, a key data set pertaining to the (alarming) state of American consumers, therefore workers by extension (income). With the federal government in partial shutdown, those numbers will be delayed until further notice. In their place we will have to manage with something like the Federal Reserves’ Beige Book.

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Living In The Present

It’s that time of year again, time to cast the runes, consult the iChing, shake the Magic Eight Ball and read the tea leaves. What will happen in 2019? Will it be as bad as 2018 when positive returns were hard to come by, as rare as affordable health care or Miami Dolphin playoff games? Will China’s economy succumb to the pressure of US tariffs and make a deal?

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Monthly Macro Monitor – November 2018

Is the Fed’s monetary tightening about over? Maybe, maybe not but there does seem to be some disagreement between Jerome Powell and his Vice Chair, Richard Clarida. Powell said just a little over a month ago that the Fed Funds rate was still “a long way from neutral” and that the Fed may ultimately need to go past neutral.

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Monthly Macro Monitor – September

This has already been one of the longest economic expansions on record for the US and there is little in the data or markets to indicate that is about to come to an end. Current levels of the yield curve are comparable to late 2005 in the last cycle. It was almost two years later before we even had an inkling of a problem and even in the summer of 2008 – nearly three years later – there was still a robust debate about whether the US could avoid...

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‘Mispriced’ Bonds Are Everywhere

The US yield curve isn’t the only one on the precipice. There are any number of them that are getting attention for all the wrong reasons. At least those rationalizations provided by mainstream Economists and the central bankers they parrot. As noted yesterday, the UST 2s10s is now the most requested data out of FRED. It’s not just that the UST curve is askew, it’s more important given how many of them are.

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Monthly Macro Monitor – August 2018

The Q2 GDP report (+4.1% from the previous quarter, annualized) was heralded by the administration as a great achievement and certainly putting a 4 handle on quarter to quarter growth has been rare this cycle, if not unheard of (Q4 ’09, Q4 ’11, Q2 & Q3 ’14). But looking at the GDP change year over year shows a little different picture (2.8%).

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Global Asset Allocation Update

The risk budget is unchanged again this month. For the moderate risk investor, the allocation between bonds and risk assets is evenly split. The only change to the portfolio is the one I wrote about last week, an exchange of TIP for SHY.

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Bi-Weekly Economic Review

This will be a fairly quick update as I just posted a Mid-Year Review yesterday that covers a lot of the same ground. There were, as you’ll see below, some fairly positive reports since the last update but the markets are not responding to the better data. Markets seem to be more focused on the trade wars and the potential fallout. I would also note that at least some of the recent strength in the data is related to the tariffs.

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Bi-Weekly Economic Review

Is the rate hiking cycle almost done? Not the question on everyone’s minds right now so a good time to ask it, I think. A couple of items caught my attention recently that made me at least think about the possibility.  There has been for some time now a large short position held by speculators in the futures market for Treasuries.

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Global Asset Allocation Update

The risk budget is unchanged this month. For the moderate risk investor the allocation to bonds and risk assets is evenly split. There are changes this month within the asset classes. How far are we from the end of this cycle? When will the next recession arrive and more importantly when will stocks and other markets start to anticipate a slowdown?

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Bi-Weekly Economic Review: As Good As It Gets?

In the last update I wondered if growth expectations – and growth – were breaking out to the upside. 10 year Treasury yields were well over the 3% threshold that seemed so ominous and TIPS yields were nearing 1%, a level not seen since early 2011. It looked like we might finally move to a new higher level of growth. Or maybe not.

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Bi-Weekly Economic Review: Growth Expectations Break Out?

There are a lot of reasons why interest rates may have risen recently. The federal government is expected to post a larger deficit this year – and in future years – due to the tax cuts. Further exacerbating those concerns is the ongoing shrinkage of the Fed’s balance sheet. Increased supply and potentially decreased demand is not a recipe for higher prices. In addition, there is some fear that the ongoing trade disputes may impact foreign demand...

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