Good stuff!
Remember the dot.com Super Bowl ads during the 1990’s Nasdaq bubble? Dot.coms with no earnings and big burn rates would spend 70 percent (+/-) of their V.C. funding on Super Bowl ads to generate “eyeballs”? Moreover, their stock price would double the next Monday.
Hey, it was a “new economy” back then. Beware of delusionary market narratives to justify extreme valuations.
More importantly, today, how can you bet against Tom Brady? Pats by 11.
Love Jeffrey Gundlach. As with everyone, not always right as nobody knows the future, but his analytical roadmap to decision making is rigorous, and he has the big ‘nads to pound the contrarian table. That earns him much respect, in our book.
Here is his latest tweet on the Dow’s 666 (rounded up) point fall on Friday and the 666 S&P bottom in March 2009 on S&P500. We gave it to you first with some context in our, Another Streak Snappled, post just after the market close on Friday.
The number 666 is the Mark of the Beast in the Book of Revelations.
It also forced all people, great and small, rich and poor, free and slave, to receive a mark on their right hands or on their foreheads, so that they could not buy or sell unless they had the mark, which is the name of the beast or the number of its name.
This calls for wisdom. Let the person who has insight calculate the number of the beast, for it is the number of a man. That number is 666. – Revelation 13: 16-18
So, if Gundlach is correct, and 666 bookends the latest bull market, the number 666 will be indelibly stamped on the forehead of investors and traders.
Satire, folks, market satire!
https://twitter.com/TruthGundlach/status/959913388724965381
Whoa!
Dow down 666 to close a week in which we saw a rare Super Blue Blood Moon. Sure to bring out the false “profits” [sic], now watching for an earthquake and great fire to turn the sun black. Start prepping.
Not to worry, comrades, the S&P500 bottomed on March 6, 2009 at, you guessed it, 666.
Tom Brady may need a few more quarters to rally this market to victory, however.
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Hat Tip: @charliebilello
We began the week with our Watch This Space post:
Because the eurozone is where the big bond bubble lives.
Though the euro periphery is now in Convergence 2.0 mode on hopes of eMac’s vision of a more integrated ‘zone, the German 10-year is at a critical level, and yields only 63 basis points in an economy that is probably growing close to 5 percent on a nominal annual basis. It reflects a stunningly loose monetary policy and a central bank way behind the curve.
The repressed yield is technical as the German government’s new bond issuance is virtually nil as it runs a budget surplus and the dearth of bunds is exasperated by the ECB’s quantitative easing. We have referenced this as a major factor of the “steel bubble” in asset prices, the bursting of which is very stubborn.
A spike in bund yields could put further pressure on U.S. bond yields and may be the trigger for the long-awaited and ever fleeting equity market correction. Maybe.
Stay tuned.
Full stop.
Bund yields have broke higher this week, up 10 basis points.
Greenspan Speaks
Former Fed Chairman, Alan Greenspan, weighed in yesterday talking bubbles.
Let me put it to you this way. I think there are two bubbles. We have a stock market bubble, and we have a bond market bubble. I think at the end of the day the bond market bubble will be the critical issue……we are working our way to a major increase in long-term interest rates. – Alan Greenspan
Global Bond Yields Spiking In New Year
Bond markets of the advanced economies are having a rough start to the year as the global economy gathers steam and inflation expectations pick up.
More importantly, the markets are beginning to discount the supply distorting effects of quantitative easing coming to an end.
The U.S. budget deficit is set to accelerate, which will increase supply, coupled with the confluence of potential negative demand factors: 1) the Fed bid is gone and are now running off their Treasury book; 2) Bund yields are finally moving higher, reducing potential portfolio substitution; and 3) the direction of the dollar is dubious, which may spook off foreign buyers. In addition, a new and untested Federal Reserve Chairman.
Moves Off Low Base
The table illustrates the carnage in 10-year local currency sovereign bonds.
The absolute basis point moves mask the pain as the increase in yields started from such a low base. Focus on the relative moves in percentage terms.
The German bund yield has moved up almost 70 percent since the beginning of the year, and the Japanese JGB yield has more than doubled.
The U.S. 10-year is up nearly 40 bps, though smaller in percentage terms, but still substantial relative to the annual moves over the past three calendar years: 2015 – +9.9 bps; 2016 – +17.5 bps; and 2017 – -3.9 bps.
No sugar coating, folks. It’s been fast and furious.
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We believe the bond market reaction to tomorrow’s employment numbers will be a huge tell. Bonds seem to be oversold and the fast money may be a bit offside going into the number (see the Quandl CFTC chart below). If a repricing is taking place and a bubble is indeed bursting, however, no need to be a hero by stepping in to catch a falling knife.
The New Narrative
We now hear that bond yields are just in the process of moving back to normal in an global economy that has healed thyself. Don’t worry.
We are always worried! Will markets be internally consistent here and also normalize asset values with the interest rate move, which are currently at rare historic extremes?
Probably not overnight, we suspect.
The rise in rates have landed a body blow to equity markets over the past few days, however, just like a Joe Frazier left hook. Stumbling, temporary down, but no knockout punch.
Warning Signal
Rising interest rates coupled with a falling currency, the ugly cocktail currently be mixed in the U.S., is never a good signal and always a red flag, in our book. Ask any veteran of emerging markets.
Moreover, ignore the large increase in public (and private) debt in many of the advanced economies over the past ten years at your peril. Rising interest rates will feedback into budget deficits, which will feedback into bond markets. Not exactly the loops we prefer.
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Even global macro jockeys must monitor the world’s largest company.
Amazing that an $850 billion market cap company can still grow y/y revenues at 13 percent. Just for some scale perspective, Apple’s quarterly revenues exceed the GDP of almost 70 percent of world’s country GDPs. Hackneyed analysis, but stunning, nonetheless.
Earnings
Apple comes in a little light on iPhone sales, unit sales down 1 percent (ditto for Macs), but revenues made up by higher prices. It looks like the price point on the new iPhone is becoming prohibitively expensive. Can’t raise prices to the sky.
The iPhone X starts at $999 for a 64GB model, but survey data indicated that most early adopters willing to pay big bucks for the latest iPhone were springing for the $1,149 model that has four times the storage. As such, analysts predict that the average price of phones sold during the quarter rose to a record of $752, up more than $50 from a year ago, according to FactSet. – Market Watch
Services continue robust growth, up 18 percent, and comes in at 10 percent of total revenues versus 16 percent last quarter. The iPhone was 70 percent of revenues for the quarter. We continue to monitor service revenues to see if the company can transform itself from hardware to a software and services company.
China came in about 20 percent of revenues versus 40 percent for the Americas.
Net cash now around $180 billion ($284 b less $103 b debt).
Stock Price
The stock is whipping around in AH, falling a couple of bucks after release and now up $6 as of 6:00 pm eastern. The stock is down 3 percent from its January 18th all-time high versus about a 1 percent rise in the S&P500.
No clue where the stock price is headed.
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” ― George Soros
(QOTD = Quote of the Day)
We suspect the duration and resolution of the twin bubbles will be a bit more complicated than the dot.com and credit/housing bubble — i.e., a swift waterfall collapse followed by a sharp rebound driven by the Federal Reserve to even higher ground. The nature of the leverage and type of “money” driving assets are “different this time.”
Furthermore, if you listen carefully to Greenspan and read between the lines, it sounds like the rise of inflation, possibly via a collapsing dollar, will burst the bubbles. That could hamstring monetary policy and force the U.S., now much more vulnerable to higher interest rates due to our a relatively larger and growing debt stock, into an emerging market-like stabilization program to arrest the market turmoil and assure our foreign creditors. That is tight monetary and fiscal policy.
The potential downside of withdrawing, or being to be perceived to, from the global community when at the mercy of global creditors. Isn’t it starting to feel like China is about three to five moves closer to checkmate?
Let me put it to you this way. I think there are two bubbles. We have a stock market bubble, and we have a bond market bubble. I think at the end of the day the bond market bubble will be the critical issue……we are working our way to a major increase in long-term interest rates. – Alan Greenspan, January 31, Bloomberg TV
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Click here for Greenspan’s full interview. His comments on twin bubbles begin at 6:14 minutes in. We recommend listening to the entire interview.
Wow!
Back-to-back more than 1/2 percent down days for the S&P500 ending a streak going way back to January 2016.
Feels like we just landed on Mars or in the Bronx after Joe DiMaggio’s 56-game hitting streak was snapped, no?
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