I’ve taken the liberty to COBBLE TOGETHER a few thoughts and Sellside observations from global Wall Street’s inbox after another eventful week that was (hawkish pivot, surprise hike, OpX). Consider it my holiday gift to YOU given the week ahead is …
a three and a half day trading week that for all intents and purposes represents the final opportunity for positions to be aligned as books are closed on what has unquestionably been a tumultuous year in the US rates market. Despite the rollout of vaccines and 6.1 million jobs added to the economy versus December 2020, the pandemic has once again emerged as the most defining theme as another winter of the coronavirus looms… -Track Record Dismal, Outlook Hazy, BMO (12/17/21)
These observations are offered in addition TO that which was advanced last week including a few 2022 outlooks — for those links, notes see LAST WEEKS OBSERVATIONS.
They are in the usual format and the highlights as far as I’m concerned are any and everything Ian Lyngen of BMO says (OUT of 2s5s steepener — no satisfaction — and sticking with 5s30s flattener with levels to ADD).
… The hawkishness on display over the past week still leaves us comfortable in our core 5s/30s flattener as a moderating growth and inflation outlook derived from monetary policy or the resurging pandemic will reinforce the long-end’s outperformance. If anything, we view the backup in 5s/30s in the wake of the Fed as a compelling opportunity to scale into what we anticipate will be one of the defining trends of the year ahead. Given the neutral momentum backdrop, 71.1 bp followed by the 50-day moving average at 76.3 bp are both logical entry points to add if we see them tested over what we expect will be a thinner liquidity trading environment in the next few weeks…
I’d ALSO note MSs top 10 surprises for 2022 (I’m partial to #s 1, 2, 5 and 9) as well as a 2022 outlook from Gerard Minak — NOT something I’ve seen before BUT something I think worth your time. Especially as his perspective is to ask,
… would the 10-year Treasury note be trading at 1.4% if bond investors truly believed inflation was destined to stay in the 6% range? Of course, this ignores the Fed’s influence on keeping rates down through its multi-trillion buying spree, all financed with the magical pseudo-money it simply wills into existence. Despite that influence, current long-term yields appear way out of synch with the facts on the ground—and the prices in the supermarket.
Back TO speaking of anything BMO says, have you checked out latest podcast as an audio cliff notes version?
Shortest Day, Longest Year...
Tuesday is the winter solstice in the northern hemisphere; the shortest day of the year as the Earth's north pole tilts to its furthest point from the sun. This follows intuitively given the orbit-distorting weight of all Santa's holiday gifts amassing in preparation for shipment in the archetype of overnight delivery. Alas, this is clearly a glib fairytale, because as adults we all know that there is no such thing as reliable on time overnight shipping. With this thought and just 9 hours and 15 minutes of daylight on December 21st, we're reminded of the truism that it's always darkest before the light goes completely out.
Episode 151: "Low Light, Low Liquidity", is now available. This week's discussion centers on the hawkishness revealed in the week just passed and the team evaluates what the somewhat counter-intuitive price response implies about rates over the balance of 2021. Given the time of year, a focus on the belly seems appropriate -- along with a profound thanks for elastic... It's fantastic!
If you haven't listened or subscribed yet, please do so at the links below or search for "Macro Horizons" on your favorite podcast app.
HERE is a link thru to GOOGLE podcast as it’s one I’ve been using in many settings and situations...Driving up TO MA earlier on Saturday morning to grab ‘Thing 1’ from university for the XMAS break.
Another PODCAST which may / may not be of interest is this, from Peter Hooper of DB. HIS is better as it’s not just a podcast but rather a PODZEPT podcast.
Matthew Barnard, Head of Company Research, US speaks with Peter Hooper, Global Head of Economic Research and Matthew Luzzetti, Chief Economist discussing economic predictions over the next two years. They base their ominous predictions on several factors: Inflation is pushing 6% or more in Europe and the US while central banks continue quantitative easing. A new and more infectious strain of Covid is spreading rapidly as vaccination rates lag. Supply chains remain clogged with delivery times and transport costs near all-time highs. Potential populist-driven political turmoil, climactic tempests, and geopolitical storms loom.
It puts some audio to the world outlook (which is summarized in PDF above. I hope it clicked UP if you were trying …
I’ll leave you with a couple more (Google)Podcast LINKS and hopefully something here for everyone. Both of these from MacroVoices
MacroVoices Erik Townsend and Patrick Ceresna welcome MI2 Partners founder Julian Brigden to the show. Julian explains in great detail why he disagrees with the transitory inflation argument posed by David Rosenberg last week.
HERE is MI2s presentation referred to in the podcast and his barbell /// hedge to a risk OFF move would be SHORT HY because, you know, in a risk off move, spreads are gonna blow out…
MacroVoices Erik Townsend and Patrick Ceresna welcome David Rosenberg to the show. David describes the reasons the inflation we’ve already seen has occurred, and why he doesn’t think it will last. They also discuss stock prices, bond yields, precious metals, and much more.
(HEREis the Breakfast With Dave provided for reference) where you’ll scratch surface of Rosie’s 30yy call (1.30/1.35%).
I’ll CHALLENGE one and all to show me exactly HOW different the two views espoused really are … Said another way, both are billed as polar opposites BUT when it comes down TO it, INFLATION here / now but overall, the secular trends aren’t YET really meaningfully impacted. De/disinflation, then, over the long run. It’s all in how one defines the long run and the INflation’ista view offered above from MI2 makes absolute common sense. A GREAT listen (although a touch late on my part)!
The problem IS, IMO, so, too does the view from Rosie. For the tiebreak, I’d kindly urge one / all to check out EPBs latest
The 2008 crisis was characterized by excessive debt in the single-family home market and the financial sector.
Since the last major crisis, the single-family home market and the financial sector have deleveraged.
The total public and private debt burden have accumulated in the government sector and several other segments of the economy.
Aggregate debt levels are beyond well-documented thresholds and will drain economic growth in the years ahead.
Which concludes that
…This increasingly large debt burden will continue to act as a draining force on real economic growth and will only be supported by a continued reduction in benchmark Treasury rates.
