while we slept; economic hurricanes; WARSH > hobbit + Dimon (IMO); investing / trading is hard
Good morning … and Thanks, Jamie. ZH in case you missed,
Stocks & Bonds Slammed As Dimon Warns "Brace For Economic Hurricane"
Not sure WHY we hold everything this man says in such high esteem although he does run on of the worlds top banks and one might think he sees things rest of us are not privy to.
That said, while Yellen’s concession speech on CNN was all well and good … it would be fine in and of itself but if you don’t take a few minutes and listen TO what Kevin Warsh said on CNBC IF you missed it live yesterday, well, you are doing yourself a disservice (in my humble opinion)
And for somewhat MORE on stagflation, there’s always ZeroHedge recap of data,
Stagflation Threat Soars As Manufacturing Surveys Show Soaring Costs, Weaker Jobs …
… here is a snapshot OF USTs as of 720a:
… here’s an HOURLY VISUAL of 30yy from tradingview.com
… HERE is what another shop says be behind the price action, you know,
Treasuries are mixed and the curve has pivoted flatter overnight after a quiet overnight Asian session and a UK holiday too. What news we found is linked above. DXY is lower (-0.3%) while front WTI futures are too (-2.6%) after today's FT piece saying that the Saudis may be willing to make up for Russia's shortfall in oil production. Asian stocks were mixed, EU share markets are all higher (0.3% to 1.1%) while ES futures are showing +0.5% here at 7am. Again, quiet rates flows were seen during Asian hours with the highlight being in futures were there were multiple clips of 8k vs 5k FV-TY block flatterers posted. Overnight Treasury volume was ~60% of average overall with London out…
… US news: CBO's latest budget forecast a head-scratcher as "Individual income tax collections for the fiscal year ending Sept. 30 are projected to land at their highest level as a share of the U.S. economy since the advent of the income tax in 1913" RollCall Airlines sounding bullish on post-pandemic consumer spending RTRS New York suspends gas tax ($0.16) for six months BBG The vexing issues with forced sovereign defaults FT
… and for some MORE of the news you can use » IGMs Press Picks for today (1 June) to help weed thru the noise (some of which can be found over here at Finviz).
Now we all know investing and trading sure is hard. Said another way, if the majority were right, the majority would be rich.
Take for example, some of the data yesterday — construction spending which is used to help formulate GDP figures, there’s such a different SPIN ‘out there’ on Global Wall St.
Spending is rising and slowing. Softening driven by non-resi … Yep. All. Bases. Covered…No matter WHAT happens, someone — likely all the above — will get to say, TOLD YA SO.
Best I reckon, folks I covered didn’t ever care for the taking of a victory lap (unless, of course, it were their own).
Speaking of investing and trading, here are a few more things / links to consider which you may / may NOT find funTERtaining
First, some FI TECHS where 1stBOS who turned tactically bearish bonds and are looking for trade up TO 3.425 / 46% (or would get stopped out below 2.92%) and would turn tactically bearish 10s vs 2.84% … stay tuned and see which ever comes first!
… Short-term Strategy: We turn tactically bearish, with scope for a move to support at 3.425/46%, where we would turn tactically neutral. Resistance is seen at 2.92%, below which we would also turn tactically neutral…
Technicals schmecnicals, you say … Thats fine. Lets put them aside and look to / through some other items which may / may not be of interest.
GMOs latest insights: No Stone Unturned
With U.S. interest rates rising and the U.S. dollar continuing to pose challenges to holding long-only EMFX exposure, now could be the appropriate time to consider a new approach to emerging debt investment. A total return solution can eliminate systemic exposure to U.S. duration and EMFX, while a blended solution can be tailored to capture only the amount of those beta exposures that is considered desirable. In terms of expected return, a typical target would be 150-200 bps of net alpha relative to standard benchmarks, including blended ones, or cash + 7-9% for total return solutions.
LPL says MUNIS > credit: Munis Offer Compelling Relative Value Over Corporate Credit
… Over the past decade, the tax-exempt structure of the municipal market has provided around 50 basis points (0.50%) of incremental after-tax yield versus the respective Bloomberg corporate index. Now, as shown in the LPL Chart of the Day, the muni market is out-yielding (on a tax equivalent basis) the corporate market by nearly 100 basis points which is above the longer term average. And while the positive yield differential has retraced somewhat this month, we think the potential for further convergence to historical levels is possible, particularly over the summer months due to the positive summer seasonal found in the muni market.
IF munis are NOT your game perhaps MBS are? Latest from Harley Bassman (inventor of the MOVE index and ultimate resource on all things MBGS),
"The Water is Warm in the MBS Pool"
Today's Commentary, “The Water is Warm in the MBS Pool”, offers a basic primer on the Mortgage-backed Security (MBS) and opines that vanilla MBS may well be a terrific alternative to US Treasuries (UST) and Investment-grade (IG) Corporate bonds …
… Not to bury the lead, let me state clearly that vanilla MBS are crazy cheap (on both a historical and analytical basis), and I would encourage financial professionals to carefully consider them for client portfolios.
And speaking of burying the lead, John Authers morning comment
Bond Yields Are Signaling an Infeasible Compromise
… As is more or less always true, nothing matters more than the 10-year Treasury yield, which sets the “risk-free” rate for transactions around the world. That yield is formed by innumerable transactions by people consciously or unconsciously expressing their view on the long-term direction of the economy. The final number represents a compromise between the views of buyers and sellers. And it ultimately represents a scenario that few believe can occur.
The analogy is with the statistical concept of “expected value.” That takes each possible outcome multiplied by its probability, and adds them together to find an expected outcome. For example, if you have to draw one of two cards, numbered 1 and 2, then the expected value of the card you draw is 1.5 ((0.5 *1) + (0.5*2)), even though there is zero chance that this number will show up.
Similarly, there are two dominant narratives for the bond market at present. One is that inflation continues to mount, without bringing economic disaster in its wake, and so the Federal Reserve and other central banks have no choice but to keep hiking rates. The other is that the Fed swiftly realizes it has “broken something,” growth slows sharply, and monetary policy goes into reverse. The former implies bond yields will need to rise significantly from here, while the latter implies that they must fall. As investors wrestle with the evidence, we are left with rates that are very unlikely to be suitable for the outcome that results.
As this was the first day of the month, it brought the standard download of monthly data. Mostly, it was consistent with an economy still in decent health with persistent inflation, so bond yields rose again. But they remain distinctly too low if inflation is really going to be as bad as many now fear…
… How does this translate into markets? The two-year yield and the fed funds rate implied by the futures market for next February both saw a dramatic surge, or “tantrum,” in the first three months of this year, and have since wobbled downward. The market currently expects a fed funds rate of just under 3% after the central bank’s meeting early next year, while the two-year is a little lower. That implies tightening, and then rate cuts within two years. This is possible, but most would think rates should be much higher or much lower than that 24 months from now:
As for the 10-year yield, which has also retraced some of its advance in the last few weeks, it remains below 3%, after a sharp rise in response to the latest data. The turn down last month awakened hopes that the yield was now going into reverse — but that looks somewhat hopeful. Here is the famous downward trend going back four decades, with its 200-day moving average. The yield has never in all those decades been as far above the 200-day average as it is now.
This looks much more of an interruption to the long-term trend than perhaps the most similar incident, the “taper tantrum” of 2013, when a sharp rise in yields tailed off as the Fed retreated by tapering its asset purchases much more gently than had been expected. If the Fed is to retreat again, history suggests it will need to do so soon. Otherwise, it looks as though decades of a steadily declining cost of money might actually be over. It’s hard to imagine the 10-year yield moving calmly in a horizontal line from here; the current price is a compromise between those who believe that a new inflationary era has begun, and those who expect the Fed to respond to gravity any day now…
Finally a couple from DBs Jim Reid & Co with a look at S&P YTD performance …
… Finally as it's now June, Henry Allen has published our latest performance review covering May and YTD (link here). May was a slightly better month but the S&P 500 has still seen the worst start to the year since 1970, underscoring the difficult environment for risk.
… AND a reminder of how BAD a start its been for 10yr USTs,
… Indeed as we showed in an previous CoTD here, 10yr Treasuries have had their worst start since 1788, and that's still the case after May as well.
Finally, in closing and honor of Friday’s NFP data point of light, a couple specific links thru to professional dart throwers.
Econoday: May payrolls likely to be near expectations
GrantThornton’s SWONK: Job Gains Moderate in May,
Payroll employment is expected to rise by 330,000 in May, a moderation from the 428,000 pace of April. That is still nearly double the subdued pace of monthly job gains of the 2010s. Private payrolls are expected to account for 315,000 of those gains…
… Labor supply has picked up significantly since the fall of 2021. Part of that reflects the move up in wages. A less favorable reason is the rise in inflation which has made it more difficult for low-wage workers and households on fixed incomes to make ends meet. Multiple job holders are up significantly since the fall of 2021; a surge in women taking on more than one job is driving those gains. A swath of those over 65 who had retired are also coming back.
And just because … it made me laugh (and perhaps I can relate — still waiting for my call back from my doc’s grandma)
… THAT is all for now. Off to the day job…