Rates Decision Point

By | July 9th, 2017|Economy|

Gundlach and Dalio were out last week saying that rates have more to climb.  I agree in the longer term (I think ten year yields are more likely to make new highs than new lows), but I’m not sure about direction in the short term.  Nothing in the past few weeks has really changed the “weakish US data and the Fed doesn’t have much to hike” narrative.  The only thing that happened was that some central bankers (especially Super Mario) sounded a little hawkish.  Sounded hawkish, but you know he’s going to act dovish for as long as he can.  [...]

Rates Blowout Potpurri

By | July 2nd, 2017|Economy|

I haven’t been very active the past few weeks – mostly because I have been trying to make sense of how the markets could possibly be flattening when all things have been pointing to a massive steepening: (1) The Fed and ECB Pillars of long rates cracking as they get closer to tapers later this year, combined with (2) higher longer term rates causing equities to correct on a valuation basis.  One would think this double tightening of financial conditions would extend out the Fed’s “gradual” hiking approach.  We did get a reasonable steepening last week, but we are far [...]

An Explanation for the Labor Force and Wages

By | June 25th, 2017|Economy|

One of the by-products of having so many economists (and central bankers) in ivory towers is that they operate under the implicit assumption that if it’s not measurable, it doesn’t exist.  The nice thing about living in middle America is that you get to see how “regular” people live.  One of the things that strike me from living in northern Texas is how many people have “jobs” that are far from mainstream - whether it’s engaging in some sort of part-time consulting (or part-timing in general), or multi-level marketing, or selling products and services online.  It got me to wondering [...]

Unstoppable Force vs Immovable Object

By | June 18th, 2017|Economy|

The next few weeks should be very interesting in fixed income.  On one side, we have the seemingly unstoppable force of the flattening yield curve.  On the other side, we have what looks like a Fed that wants to taper (despite the softer data).  The markets are pricing in almost a 50% chance of hiking later this year, which probably will have a hard time moving noticeably higher barring a turn in the data (so harder for a EDZ7 selloff to lead a flattening).  So we have a “supported” EDZ7, a EDZ7-Z9 that wants to flatten, and a EDZ9-Z2 that [...]

Know Your Enemy

By | June 11th, 2017|Economy|

“Know Your Enemy” - Sun Tzu & Green Day On Friday, we got a 2bp flattening in EDH8-H0.  As mentioned in a previous CA, there is a tendency for the curve to flatten a few days going into the Fed meeting.  Note that I didn’t mention EDZ8-Z0, which was unchanged on Friday.  The price action felt differently on the Zs last week, and may last going into this Fed meeting.  Unlike prior weeks, the Z algo seems to be offering the Z contracts more often than not.  Whether this is just a lightening-up before the FOMC (before further buying) remains to [...]

Conditional Curve Shape

By | June 4th, 2017|Basics|

I think of value on the curve in two ways: (1) bottom-up, and (2) top-down.  Bottom-up would be looking at a small piece of the curve and thinking about the value there, whether it’s a particular Fed meeting, or slope or curvature on a segment of the curve.  This is probably the most common way to come up with a trade idea.  Top-down would be looking at the overall level of rates and asking what implications makes sense for the shape of the curve. On Friday, ten year yields made new “post-election” lows (starting a few days after the election [...]


By | May 28th, 2017|Economy|

As I was watching equities make yet new highs last week despite lower stimulus prospects, increased Presidential turmoil, and weaker data (albeit still constructive), I thought about the ETF phenomenon.  I had mentioned ETFs casually in previous CAs as a source of equity support.  Consider all the 401(k)s, retirement funds, and personal investments that are tied up in passively managed funds.  A lot of that money is just automatically invested at regular intervals.  Workers generally only make allocation changes a “few” times a year.  Since the flow of funds into the ETFs are very regular, there are probably funds that [...]

Fed vs the Markets

By | May 21st, 2017|Economy|

Tens are back near the recent low yields, and Z8-Z0 spread is back near the recent lows.  This is a little surprising, but I suppose the bulls got an assist from Trumpidity.  All other things being equal (ex-Trump), I would have thought we sold off going into the Fed minutes, that may discuss tapering of the balance sheet.  Instead, with the announcement this weekend that Comey would testify after Memorial Day, the markets are going to be more focused on the headlines and less on the Fed. Let’s for a moment ignore Trump/Comey/Russia, take a step back and look at [...]

A Caveman’s View of Frexit

By | April 23rd, 2017|Economy|

I am not going to pretend to be any type of French political expert.  But sometimes, not being so immersed can give you a different perspective.  I put on my CArock, the Unfrozen Caveman Curve Advisor, hat on to give you some non-standard takes: The market reaction should be interesting on Sunday.  I discuss a few trade thoughts in the next section.According to the betting markets, the following are the odds of the various Final Two pairings.[1] Yes – I realize the bookies have had a terrible 12 months with political odds.  But, just because something is 10 to 1 [...]

Potpourri II

By | April 16th, 2017|Economy|

I’ve been a bit punch-drunk for most of this year by all the headline bombs we have been a little behind the markets on.  There are a lot of things we have no competitive advantage trying to guess (since others in the markets have some insider information or just better leading information sources).  I wasn’t sure why the Fed was in such a rush to hike in March, when they are gradual and data-dependent and there was no pressing data.  I wasn’t sure why the Fed is in a rush to normalize the balance sheet by “later this year”, when [...]