A Sheep’s View of Fiscal Stimulus Effects

December 31st, 2017|Economy|

I (re)heard a good trading quote the other day… “Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep -- and the sheep get slaughtered.”  The line is by Gordon Gekko, from the movie Wall Street.  I didn’t realize when I first saw the movie decades ago that sheep are followers.  I just thought Gekko was saying other fund managers were meek.  And now you know why I was not a literature major (or a farmer).  In any event, it’s perfectly fine to be a sheep – you just need to know when to get out.  It [...]

Many Traders have Never Seen…

December 24th, 2017|Economy, Featured|

Have you ever heard that phrase “Many traders have never seen___”?  For example: Many traders have never seen a real vol spike. You’ve probably heard ad nauseum about how short vol (VIX) sellers will get crushed one day. Many traders have never seen a real equity correction. For almost eight years, buying on dips has been a good strategy. Many traders have never seen buying fixed income against the bond (or tens) yield downtrend line in the US not work. There are many old traders who’ve made a career on having the 30+ year downtrend line in the bonds hold. [...]

Bungee Cord Drivers: Retirement and Inflation Part 1

December 17th, 2017|Economy|

I’ve talked a lot about the bungee cord in the past few months, that is holding the US longer end from taking off.  But the bungee is more than just the ECB and BOJ QE.  Implicit in the QE policies (aside from manipulating the FX in those economies’ favor, eh hem) are the inflation and demographic structural forces that cause the QE to be implemented in the first place.  So to figure out when the bungee cord will break could amount to getting a better idea of when we could see some signs of inflation or a change in the [...]

Too Much Energy in the Bungee Cord

December 3rd, 2017|Economy|

The “common sense” narrative is that the economic data has been good and we just got tax reform.  A $1.5trillion deficit means that much more debt that needs to be issued and a boost to the economy.  3.0% tens, here we go!  I mean the Fed’s long run FF projection is 2.75%, and most of them don’t assume any kind of substantial fiscal stimulus.  Add some increased term premium on the curve and we could be off to the races.  This would make complete sense if the US was not so linked to the policies of other major economies.  But [...]

Current Events

November 12th, 2017|Economy|

It was a quiet data week, but we had a very interesting news week, that had some interesting implications for the curve.  It seemed for most of the year that everyone was expecting oil to go back down.  That has not materialized.  Higher oil prices are generally inflationary (even for core inflation).  Depending on whether the Fed is seen as being vigilant or patient, the front or back of the curve could lead a selloff.  It is unclear how much escalation we could see in the Middle East and how long this could last.  You would think that oil could [...]

The Big Data Week

October 29th, 2017|Economy|

I’m getting the feeling that if we don’t break the downtrend line next week, it could be at least another month (until the next PCE and Employment report) before we test it again.  We have a TON of data and news next week, and potentially a ton of good trading opportunities. Powell, Taylor and Yellen. We should find out who the new Fed Chair will be, before Trump leaves for his Asia trip at the end of the week.  There were rumors on Friday that Powell is going to get the nod.  Powell should be 80+% priced into the markets, [...]

Fundamentals vs Downtrend Line

October 22nd, 2017|Economy|

Now that the ten year yield is back near the recent highs, I’m a little uncertain as to how far this goes.  If it wasn’t for the downtrend that everyone seems to be looking at, I would probably say we could sell off a lot more.  As previously mentioned, it’s just a question of when the downtrend breaks – not if it breaks.  But when something has held this long, people have made careers just being long fixed income, and net central bank buying is still positive, it’s going to take a strong confluence of factors.  I thought I would [...]

Where’s Inflation?

October 15th, 2017|Economy|

I haven’t looked at the inflation breakdown in a while, so I thought I would dust off my old economics degree and take a look.  I’m really no economist.  But as Richard Thaler showed, the most important thing is some common sense.  I had written for a while that you should not expect too much goods inflation (price discovery, technology, free trade, demographics, etc).  But I was curious if there were any new developments, since inflation seems to consistently disappoint. Below is a table of the inflation breakdown of the categories I thought were interesting.  Rather than reproduce the entire [...]

The 30 Year Downtrend Line

October 8th, 2017|Economy|

I was listening to Bill Gross on Friday and he mentioned that we will be hitting the 30 year downtrend line in ten year Treasuries between 2.4 and 2.45% (currently 2.37%).  Gundlach made fun of Gross’s line-drawing skills last year.  My line drawing skills are just as bad.  I have no idea what people look at – cash, futures, constant maturity, daily/weekly/monthly, high/close, etc.  It’s like asking the proper way to stick the pins on a voodoo doll, when you don’t believe in voodoo.  I look at it occasionally only because others in the market look at it.  If the [...]

Short End Shenanigans

September 10th, 2017|Economy|

Since the macro rates picture has been hard to decipher, I think this is a good time to look at the micro.  There are a lot of interesting things going on in the very short end of the curve right now: I. An ease is more likely than a hike. As I mentioned earlier in the week, FFV7 and FFX7 are starting to price in an ease.  FFX7 should settle at 98.843 on a typical non-event month.  Not only did 98.845 trade, it went bid late Friday and some 98.85s traded.  That’s a little crazy, considering we’ve had no new [...]