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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…
“It’s Nuts” – The Fed Has Created A “Monstrous Beast Of Over-Inflated Valuation”
“It’s Nuts” – The Fed Has Created A “Monstrous Beast Of Over-Inflated Valuation”
“Own risk assets…everywhere… everywhere” says Embark Group’s CIO Peter Toogood, exclaiming that “this is nothing to do with fundamentals anymore, fill your boots, why not?”
After The Fed entirely flip-flopped from last year, the clearly frustrated manager notes the facts behind the so-called market, “flooding the repo market with $400, $500 billion from The Fed to stop it collapsing after it reversed course massively from last year…”
“..we’ll just keep pumping… and we’ll just keep pumping… and it’s not QE they tell us, definitely not QE… and its worked for the last 8 years so we’ll just keep pumping more…”
It’s quit simple, Toogood notes, “all CTAs have gone long, most macro funds are long, the biggest engines in London are as long as they can be… and vol is on the floor…”
“Just keep going…” he chides sarcastically:
“…until you don’t, until the music stops… I’m being incredibly flippant but for a very good reason… there is no logic to [buying risk assets like equities] other than to chase the gilded lily… it’s nuts!”
The anchor attempted to get the conversation back on track, by mentioning earnings, to which Toogood scoffed –
“Earnings! Earnings? Are they relevant?”
As the chart below shows, no!
Everything has changed, “we’ve gone from tightening mode to loosening mode, extremely loose… The Fed says ‘rates are on hold’ but we’ll just keep this ‘little’ repo thing going a little while longer…“
Toogood then took aim at the farcical “phase one” trade deal with China that “doesn’t actually mean anything” and warned that the next year will be full of “phase two talks are going well” jawboning.
This is not reality, “the world was slowing down long before this trade deal became the biggest issue.”
…click on the above link to read the rest of the article…
Central Banks have created the single most dangerous environment possible…
Central Banks have created the single most dangerous environment possible…
Central Banks have created the single most dangerous environment possible…
That is the environment in which the economy is weakening, but investors are pouring into risk assets based on hopes that Central Banks will engage in more stimulus.
This is precisely what happened in the late ‘90s as well as in late 2007-early 2008.
Will the outcome be different this time?
In the near-term, traders will gun the market to new all-time highs. We’re too close for them not to. And until institutions start selling in droves again, we’re in a “trader’s games” market.
This means north of 3,000 on the S&P 500.
This doesn’t make sense… but markets never make sense during bubbles.
The bigger issue is what comes after that breakout to new all-time highs.
And THAT is where you need to be worried.
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The bond market typically predicts disaster long before stocks “get it.” We saw this in 2008 where bond yields rolled over to new lows while stocks continued to rally… right up until the CRASH…
…And they are doing it now too.
So enjoy the rally while it lasts, but don’t be fooled. What’s coming won’t be pretty. And if you’re interested in profiting from it, the time to prepare is now.
…click on the above link to read the rest of the article…
Gold Now?
Gold never changes; it’s the world around it that does. Why is it that we see a renewed interest in gold now? And more importantly, should investors buy this precious metal?
Key attributes in a ‘changing world’ that may be relevant to the price of gold are fear and interest rates. Let’s examine these:
Gold & Fear
When referencing ‘fear’ driving the markets, most think of a terrorist attack, political uncertainty or some other crisis that impacts investor sentiment, and sure enough, at times, the price of gold moves higher when this type of fear is observed. While that may be correct, I don’t like an investment case based on such flare-ups of fear, as I see such events as intrinsically temporary in nature. We tend to get used to crises, even a prolonged terror campaign or the Eurozone debt crisis; whateveras the ‘novelty’ of any shock recedes, markets tend to move on.
Having said that, I believe fear is under-appreciated – quite literally, although in a different sense. Fear is the plain English word for risk aversion. When fear is low, investors may embrace “risk assets,” including stocks and junk bonds. A lack of fear suggests volatility is low; as such, investors with a given level of risk tolerance may understandably re-allocate their portfolios so that the overall perceived riskiness of their portfolio stays the same. While retail investors might do this intuitively, professional investors may also do the same, but use fancy terminology, notably that they may target a specific “value at risk,” abbreviated as VaR. Conversely, our analysis shows that when fear comes back to the market – for whatever reason – ‘risk assets’ tend to under-perform as investors reduce their exposure.
Assuming you agree, this doesn’t explain yet why gold is often considered a ‘safe haven’ asset when the price of gold is clearly volatile.
…click on the above link to read the rest of the article…
Continuing With The Insanity | Humanity’s Test
Continuing With The Insanity | Humanity’s Test.
During the peak of the financial crisis during 2008 and 2009, there was a window of opportunity for a fundamental remaking and realignment of the massively over-sized and dysfunctional global financial system. Perhaps, also a questioning of the consensus that supports general deregulation and globalization. This opportunity was not taken, and instead the status quo was supported. Now, five years later, the insanity continues. Just a few stories from a single issue of the Financial Times (October 28th, 2014) pay testament to this ….
Rebound in sales of risky assets raises fears over quantitative easing’s legacy
In the financial crisis the risky assets were subprime housing loans (retail loans to borrowers with very low credit scores) bundled together and securitized (turned into bonds and other financial instruments that could be sold to investors). The new risky assets of choice are subprime car loans, and junk-rated corporate (companies with low credit ratings) bonds. In the United States, the issuance of sub-prime car loan securitizations has grown rapidly from its nadir during the crisis, and may surpass its pre-crisis peak this year. Investors are taking on more risks to gain what they see as an acceptable return, in a low interest rate environment, just as they did pre-crisis. The overall issuance of securitized assets is still significantly below pre-crisis levels, but its current rapid growth shows how little the crisis changed things.
…click on the above link to read the rest of the article…
