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Global ‘Game Of Chicken’ Continues – MOAB >> NFP
Global ‘Game Of Chicken’ Continues – MOAB >> NFP
Today we will hit two topics, NPF and MOAB.
Let’s Start with NFP
About as good as it gets for the economy, not so good for Fed cuts.
Not only were the headline jobs better than the top estimates on Bloomberg (303k jobs). We also revised prior job reports up by 22k.
Wages are doing reasonably, with monthly wages coming in 0.3%.
What is most impressive to me is the unemployment rate coming down to 3.8%. That occurred while participation rate increased nicely. At 62.7%, it is just a smidge below the post covid high of 62.8%. The Household Survey (which is used for unemployment) added 498k jobs!
Definitely not “goldilocks” for the Fed, but good for the economy.
- Yields should rise a bit and curves should be less inverted.
- Stocks should probably react slightly negatively to the report as yields rise. But offsetting that yield rise is the sheer strength of the economy and the fact that the consumer should be in good shape.
What Does MOAB Have to do with Anything?
Nothing and everything. MOAB or Mother Of All Bombs isn’t front and center but Escalation and Expansion is. Thursday’s big drop in stocks was precipitated by fears that Iran was preparing to attack Israel. Part of why stocks were higher overnight and are still strong post NFP is because nothing happened overnight in terms of escalation and expansion (you can see that in oil too, which is hovering around unchanged).
We dealt with our thoughts on Hedging Geopolitical Risk at the start of the year and remain convinced of two things:
- Long energy and energy stocks is the best hedge, since we like that sector already for a variety of reasons, and the next potential shoe to drop, would be cracking down on Iran’s 3.5 million barrels of oil being sold daily.
…click on the above link to read the rest of the article…
Garbage-In, Garbage-Out – Uncertainty Goes Viral As Baltic Dry Crashes Near All-Time Low
Garbage-In, Garbage-Out – Uncertainty Goes Viral As Baltic Dry Crashes Near All-Time Low
Uncertainty
Let’s revisit the chart from Friday’s T-Report where we examine stocks, bonds, and oil.
Oil Didn’t Buy into the Bounce
At the start of the week, stocks retraced all of their coronavirus losses, but treasuries only retraced a portion and commodities in general (oil specifically), barely budged.
With high levels of uncertainty and stocks near all time highs, the risk/reward seems skewed in favor of being prudent. There is nothing to stop stocks from making new, even greater highs but as the official death toll of the coronavirus surpasses SARS and much of China is in lockdown while the virus continues to spread globally, it is difficult to be risk-on at the moment.
On a subjective basis, it seems like Wall Street was fixated on coronavirus long before it gained mainstream attention, which might mean we haven’t started to see retail’s reaction to increasing media coverage of coronavirus.
Garbage In, Garbage Out – The Problem with Existing Data
Garbage In, Garbage Out (or GIGO) is an important concept that warns against taking too seriously the results of any calculation or thesis based on low quality data.
As of Sunday morning, the Johns Hopkins dashboard that I’ve been using states that there have been 37,592 confirmed cases with 814 deaths and 2,920 recoveries.
It is tempting to use this data as being highly accurate. 37,592 confirmed cases seems pretty accurate, as opposed to giving a range of 35,000 to 40,000 but do they really have such precise information? I suspect that the “precision” of the counts implies a much higher degree of certainty around the numbers than there actually is. Rather than trying to work with the data today, I’ll highlight what I think the biggest risks are to using this data.
…click on the above link to read the rest of the article…
Powell’s Verschlimmbessern Fed
Powell’s Verschlimmbessern Fed
According to wiki, verschlimmbessern is to make something worse in an honest but failed attempt to make it better.
Other working titles for today’s T-Report included
- So Much Communication, So Little Information
- The Over-Engineered and Micro-Managed Market
- The Catch-22 of Fed Policy
- Why do Today what you Can do Next Meeting?
- I’ll Gladly Cut Next Meeting for a Market Move Today
The titles all convey the same sentiment – that the Fed has gone overboard in terms of trying to manage expectations and is distorting markets and creating confusion.
If You Are Going to Buy Insurance, Why Not Buy it Now?
If the Fed’s rate cut is supposed to be an “insurance cut”, why not do that back in June?
What was the thought process? Yeah, I live in a flood plain, yeah, it’s the rainy season, yeah, the river is running high, but I was kind of hoping to lie on the couch and watch the game. Maybe I’ll buy that flood insurance next month?
If we ‘needed’ an insurance cut, why didn’t we get it? Because it wasn’t needed? But if it wasn’t needed in June, why after some good data, is it needed in July?
After a Decade of Failing on Inflation, Let’s Wait 1 Month and then Panic
Let’s ignore for a moment that many people question how relevant the common inflation measures are to today’s economy.
Let’s ignore for a moment the fact that the Fed’s favorite measure of inflation barely beats the alleged 2% target. The PCE didn’t even average 2% during the 8 years before the financial crisis, let after the financial crisis.
Let’s ignore for a moment how we came up with 2% as being some optimal level of inflation.
Let’s ignore for a moment the chart Academy sent around yesterday, highlighting that for all the academic/wonkish discussions on inflation expectations, they are pretty much just correlated to the price of oil.
…click on the above link to read the rest of the article…
