The Year Of The Flipper

Posted on August 27, 2018 by macromon

Wow.  This could be big or maybe not.

We have seen more flippers this year than in an old Goldman led EM bond offering.

Flipper was my favorite show growing up.

 

 

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The United States-Mexico Trade Agreement

Posted on August 27, 2018 by macromon

Another “Potemkin trade deal.”

Potemkin Mexico Deal

Nothing there and will not move the needle in bringing back jobs to the U.S., in our analysis.

That is why, we believe,  the markets like it — little impact on profit margins and the prospect for the removal of tariffs.

Capital por encima del trabajo

Back of the envelope analysis, the administration got only about one of the six objectives it was seeking.   Still working on the analysis.

The new agreement makes it so most parts of an automobile traded without tariffs — taxes imposed on a particular set of items — must be made in factories that pay their workers higher wages.  – VOX

 

Motor Vehicles and Parts

O Canada

Can they now cram it down Justin’s throat and bring in Canada?

Canada has purposefully stayed out of talks for weeks because it wanted the US and Mexico to resolve some of their trade problems. “Once the bilateral issues get resolved, Canada will be joining the talks to work on both bilateral issues and our trilateral issues,” Chrystia Freeland, Canada’s foreign minister, told reporters on Friday.  – VOX

It’s now up to “the True North strong and free.”

Band-Aid Is Better Than A Major Trade Disruption

If it fits the Trump administration’s political needs,  we will take it.

Could have been worse but we do worry the final chapter in this NAFTA book has yet to be written.

Need For a Proactive Government Trade Policy

Now, maybe, we can start retraining the American workforce for the 21st century global economy instead of the fantasy of #Making America The 1960’s Again.

It peeves us  governments almost always are reactionary and never proactive.

The U.S. spends about $600 million per year on Trade Adjustment Assistance  (TAA) to help American workers hurt by free-trade.  Pittance.

Then it offers farmers $12 billion to cushion the blow of tariffs.   Reductio ad absurdum!

If the U.S.G. had budgeted more for TAA, or some similar program, in the first place,  the rust belt would have transformed itself years ago.   Goods and services would be flowing more freely, markets for U.S businesses growing,, and real wages skyrocketing.

Wouldn’t that make America Great?

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Climate Change? Check The Data

Posted on August 26, 2018 by macromon

A must view.

Seems to be a structural change or tipping point took place in the 1990’s.  Getting hot outside, folks.

What changed?  The rise of China and the massive increase in coal fired power plants.

We have crossed the Rubicon on the environment.  Pulling for Elon Musk and a technological breakthrough lest we are cooked.

Posted in Climate Change, Uncategorized | Tagged | 1 Comment

Week In Review – August 24

Posted on August 25, 2018 by macromon

Summary

  • Brazil 10-year blows out 21 bps and currency flops 5 percent on political concerns. The former president, Luiz Inácio Lula da Silva, is surging in the polls, even from his jail cell.  While the other top presidential candidate, Jair Bolsonaro, a conservative populist defended the dark days of the military dictatorship that ruled Brazil from 1964-1985
  • Argentina peso weakens to all-time low on economic and political uncertainty but South Africa a bit stronger, even after Trump misinformed tweet, in sympathy with temporary rebound in Turkish lira, due primarily to closed markets
  • Most global equity markets higher led by Asia
  • Vix below 12, barely
  • Nice bounce in metals
  • Gold up 1.8 percent on the week

Commentary:  Low volume and we expect the same next week as the entire world is still at the beach.  Mr. Market perceived Fed Chairman Powell’s Jackson Hole speech as dovish.  WTF?   Was Mr. Market ever worried interest rates would rise at an accelerated pace?  Mr. Market took a wrong turn on Highway 420 on Friday.  Has weed been legalized in Wyoming yet?

Dollar chart looks weak after the blow off gravestone Doji candlestick on August 15, which took the index to 96.984. Nevertheless, we expect 95 to hold and the Dixie to trade in a 95-97 range unless U.S. politics gets real fugly.  Not unrealistic, by the way.

Everyone is looking to buy the emerging market sell-off (the chart).   As we have posted, EM is oversold and ripe for a decent technical bounce.  A fundamental buy is a long way off,  however, and the probability of a major market disruption is higher than being discounted.  The Fed is still tightening the vice and global liquidity is drying up.   The Street needs an EM rally here, or they are looking at year-end bare-bones (as in bonuses).

No handshake with Mexico on NAFTA deal.  Maybe next week, maybe not.  Can they then cram it down on Canada?   Not likely.

Laying low until after Labor Day.

Would you load up on risk after examining the first two charts?

Just askin’.

Week_Chart_1

Hat Tip: @MehulD108

https://twitter.com/OccupyWisdom/status/1033220222499598336

 

Week_Chart_2

 

Global Liquidity Is Drying Up – FT Alphaville

Week_Chart_3

 

Week_Chart_4

 

Week_Chart_5

Chart Source:  FT Alphaville

 

Week_2018_ETFs

 

Week_Table.png

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R.I.P., Maverick

Posted on August 25, 2018 by macromon

You were truly a great American and a super hero.

One of his finest moments – 2008 Presidential Campaign

A class act.

 

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Sector ETF Performance – August 24

Posted on August 25, 2018 by macromon

ETF_D

ETF_W

ETF_M

ETF_Q

ETF_YTD

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Global Risk Monitor – August 24

Posted on August 25, 2018 by macromon

RiskMon_1

RiskMon_2

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No Nobel In North Korea

Posted on August 24, 2018 by macromon

Nobel Prize

At least, not yet.

President Trump did the right thing by canceling the SecState’s visit.   He signals that the U.S. can’t be played, and he won’t be duped into diminishing the U.S. role in the region while the Chinese grow stronger.   Don’t get us wrong, we would love to see a good deal with Korea.

Our Base Case Playing Out

We took much grief for our skepticism on a quick de-nuke deal with North Korea.

In fact, it looks like our base case scenario is playing out.   From our post,  Trump Says Unified Korea Could Happen, 

Do you think President Trump has consulted with President Xi about a unified Korea?

It is highly doubtful China will allow a unified Korea, one under Western influence.

Different Scenarios

Our best case scenario is the South and North move closer together, but also closer to China.  China’s influence and power in the region is on the rise while the U.S. is in decline.

Our base case is no “complete denuclearization”,  lots of happy talk,  some arms control and integration, including cross-border labor and travel between the North and South, and a slow positive trend moving away from the status quo.

Our low case (which has a much higher probability than the best case, in our opinion)  see here and scroll down to  Segue To Korea.   The upshot is the Trump-Kim summit ends in a complete debacle.

Why is Kim at the table?  Because he now has the nukes and delivery system.

Time to curb your enthusiasm for a Trump Nobel Peace Prize. – GMM, April 28th

Some of our other comments on North Korea,

Trump Plays Checkers, Xi And Kim Play 3-D Chess

President Trump may have finally had an epiphany that China’s President Xi and Kim Jong Un are engaged in three-dimensional diplomacy and may be playing him.   After today’s press conference it sure sounds like it.

We have been pounding the table about this in several posts over the past few months.  See here, here, here, and here.

President Trump is learning by doing, Lord Palmerston’s dictum, “in international relations, there are no permanent friends or permanent enemies, only permanent interests.”  – GMM,  May 22nd

 

“Déjà vu All Over Again” In Korea

Curb Your Enthusiasm 

George W. doesn’t have a Nobel Peace Prize that we know of.

We also hope it is not an all or nothing negotiation with Trump and Kim.  The environment seems ripe  to make the world safer and the lives better for the Koreans even if it just incremental and without achieving total victory as the administration sees it.  –  GMM, April 29th

 

QOTD: North Korea Deal Or China Deal?

Kim Jong-un was in Beijing Tuesday talking strategy with Xi; there frankly won’t be a deal between North Korea and the U.S. without the Chinese leader’s blessing. So what does Trump want more: a “deal” with Kim Jong-un, or a fight with China?   – GMM,  June 19th

China In Charge

Let’ face it, folks. China is pulling the strings behind the curtain.

No coincidence, at least in our minds,  that Pompeo’s visit is canceled the day after the lower level trade talks with China ended with no progress and Xi’s retaliation tariffs kicked in.

 

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Will The Real Bond King Stand Up?

Posted on August 22, 2018 by macromon

We get it.

Jeff Gundlach (we are some of his biggest fans) is a trader at heart, as are we, and is very cognizant of short-term market technicals.

He recently tweeted,

However, it was only June he stated

So it’s eye-catching, then, that Gundlach reiterated in a webcast on Tuesday his call that the 10-year Treasury yield would rise to 6 percent by 2020 or 2021. “We’re right on track” for that, he said. As a reminder, that would be the highest yield since 2000.

His reasoning is fairly straightforward. The combination of rising U.S. interest rates and fiscal deficits is like a “suicide mission,” he said in the webcast, escalating the intensity from last month when he referred to the trend as a “pretty dangerous cocktail.” Ultimately, the debt burden will rise to such a level that borrowing costs will surge, in his estimation. That hasn’t happened yet because ultra-low German yields are capping how much Treasuries can sell off.   – Bloomberg

Wow,  6 frickin’ percent!

Two Views Are Consistent

We are with Jeff.

In the near term, the bond shorts may be scorched (or may not) with their record off-side position but given time long-term interest rates are going much higher than the markets believe.  Deteriorating flow technicals will bring term premia back with a vengeance.

European Bond Bubble

The trigger will most likely be the bursting of the European bond bubble.

The Portuguese 10-year trading at 100 bps through the 10-year U.S. Treasury?   Come on, man,   Are you serious?

When Super Mario takes his foot off the pedal, turn out the lights on those holding the Spanish 2-year at -0.327 percent, or the 10-year bund at 0.34 percent.

Dr. Ed recently wrote,

The Bond Vigilante Model suggests that the 10-year Treasury bond yield tends to trade around the growth rate in nominal GDP on a y/y basis (Fig. 1). It has been trading consistently below nominal GDP growth since mid-2010. The current spread is among the widest since then, with nominal GDP growing 5.4% while the bond yield is around 3.00% (Fig. 2). – Ed Yardeni

German nominal GDP is also running around 5 percent, and the 10-year bund is trading at 34 bps.  Totally absurd.  Kafkaesque.

But, hey, that is the market we are dealt, no?

QE Distortions To Work Off Slowly

The markets are so distorted by QE it is going to take some time to normalize interest rates and asset prices.  The consequence may be some inflation headaches for the central banks over the next few years.

We are holding off on our piece on interest rates until everyone returns from the beach.  Don’t want to waste our fastballs.

Stay tuned.

 

Posted in Bonds, Interest Rates, Uncategorized | Tagged , | 12 Comments

Fun Times With POTUS & The Russian Prez

Posted on August 22, 2018 by macromon

Ah, the good ol’ daze.  This is hilarious.

President Clinton and President Yeltsin on the steps of  Franklin Roosevelt’s home in Hyde Park.   Go visit if you haven’t been there.

Like President Trump, they both seemed peeved at the press, but had a little more respect and didn’t weaponize their resentment.

Take the few minutes to watch.  Yeltsin’s comments will crack you up as it did President Clinton.

 

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