genie

investors Finally Get What They Wished For Are Rubbing Their Lamps Again

Government bonds are continuing to sell off today: “the US 10-year Treasury yield rose to 2.36 per cent in early New York trading, its highest level since November…Euphoria over the [ECB’s] €60bn-a-month monetary stimulus that pulled the German 10-year bond yield down towards zero per cent last month has faded on improving growth prospects and climbing inflation expectations…’[the sell-off] is starting to stretch the boundaries of what you could call a technical correction.  A lot of strategists are getting nervous,’” says a strategist.   John Williams, however, thinks nervous is healthy: “my personal preference is that we don’t have the most telegraphed policy decisions in history, as we did in 2004…In a normal economy there is some volatility in markets, that is just a healthy functioning of markets trying to understand and filter what the data means for policy.”  Meanwhile, German Bund investors may need to up their intake of aspirin: “It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th.  It took just 15 days after that to jump back to 68bp again.”  Furthermore, “in the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly.  Higher yields means fewer negative yields…But even €1 trillion down..negative yielding Eurozone government debt remains greater than the size of positive yielding Euro credit.”  Reuters thinks this could be “a shot in the arm” for the ECB:  “this has broadened the pool of bonds the ECB can buy under its quantitative easing (QE) purchase programme, which excludes all paper yielding below the minus 20 basis points that corresponds to the bank’s deposit rate.”  Meanwhile, “if bond yields are going up because investors demand a higher premium for holding risk, then the losses on riskier assets like equities ought to be bigger still.  But that doesn’t appear to be the case.  Government bond yields seem to have ticked higher because inflation expectations have been rising…If bond yields are going up because growth expectations are picking up, this should ultimately be favorable for equity markets, albeit after a round of near-term volatility.”  Also, the main argument for why this is a “technical” correction has been the surprise announcement by Treasury to issue $64 billion in treasuries this week.  However, “demand for the U.S. government securities sold at auction has declined in each of the past three months, after also slumping in the August-through-October 2014 period…the Treasury is also competing with more than $20 billion of debt slated to be sold by companies.”  We should get a preview of the “technical” correction thesis today as $24 billion three-year notes go up for auction.  Stay tuned.

 

Mo’ Money, Mo’ Problems

“While [Apple] may well become the first $1 trillion market cap company (Carl Icahn’s recently top-ticking tweets notwithstanding), did you know that AAPL is now bigger than the entire market cap of all Spanish stocks combined?  Or that Austria’s $99 billion gross market cap is the size of Mastercard.  Or that Finland’s entire stock market is about the size of Verizon?”  Speaking of which, Finland Verizon has no idea what to do with all their money is buying AOL.  Also, mutual funds have no idea what to do with all their money are hunting unicorns.  Also, sovereign wealth funds have no idea what to do with all their money are “[harnessing] the premium associated with more illiquid assets.

 

USA: Retail Sales Indicate Divergence Between East And West Coasts

 

Tech: Google Is Currently Putting 10,000 Miles A Week On Their Self-Driving Cars

 

USA: Why Do You Think Disney’s Rags-To-Riches Love Stories Are So Popular?

Aloe

Data Dependency Feels Bad, And Then It Feels Good, And Then It Feels Bad, And…

“This week’s sell off might have been because too many investors believed bond yields would only go down; crowded positioning left the market vulnerable to small shifts in sentiment.”  Interesting to consider that “when fears about a eurozone break-up rise, German yields generally fall;” therefore, higher yields = less worry about Greece?  Maybe not: “right now (read: Thursday) the market is in a state of shock…A lot of people are staying clear, and that makes the market less liquid, which is helping to exaggerate market moves…the moves have reversed so sharply that [European yields] are back where they were before the stimulus was announced…’In one week we had a total unwinding of all QE-related trades.’”  Speaking of liquidity, Mohamed El-Erian says “tighter regulations and less patient shareholders have restricted the ability of broker-dealers to deploy their balance sheets counter-cyclically.  As such, they have limited appetite when it comes to accumulating inventory in the event that a large chunk of the investor base decides to go the other way.  The result has been a series of sudden out-sized price moves in quite a range of markets, from sovereign bonds to foreign exchange, emerging markets, and high-yield corporates.”  So as you can probably tell, things got a bit panicky this week; we even had a moment with Janet Yellen calling stocks overvalued and prices stretched and all that (very déjà vu).  To be fair, the panic was coming from bond markets, which have this strange ability to convince people of more things than the stock market.  But all of that is going away fast: the April jobs report came out this morning and investors are all like, “oohh…reassuring.”  🙂  “Payrolls rose 223,000 in April, following a 85,000 gain in March…The unemployment rate slid further to 5.4 per cent…more Americans entered the labour force, pushing up the participation rate to 62.8 per cent from 62.7 per cent the previous month.”  “The standard story that economists have been telling is that this is just another messy winter with worse-than-usual weather…But there’s a ‘show me’ dimension to that conclusion…So what the new jobs numbers offer is relief that the crummy first-quarter data was indeed an aberration, not a new trend.  At the same time, they are soft enough that they include no real evidence of an acceleration into a new, stepped-up rate of growth” (read: acceleration into Fed tightening).  Here are the charts.  Also, German bund yields have dropped back down to 0.53bps, and you shouldn’t feel bad if you missed out on the Gross Short of a Lifetime because apparently Bill Gross missed it as well.

 

China: Pinky Swears No QE

 

WM: Risk ≠ Volatility, Maybe

 

WM: Case For Indexing In Bonds Is Far Less Clear Than It Is For Stocks

 

What: The “Cylon Detection” System Finds 10 To 20 Spoofers A Day, On Average

 

WaitWhat: You Know That All Startup Founders Dropped Out Of College And Hate English, Right?

 

pigs diving

Just Some Pre-Slaughter Fun

“In the land of negative yields, even the most conservative firms…are planning to invest in sub-investment grade debt for the first time.  One of the bond market’s brightest luminaries, Jeffrey Gundlach, says you’re better off in front of one steamroller than another in junk because the only money to be made on German bunds is from betting against them.”  Speaking of which, the Gross short appears to be working: “European government bond yields, which have been on a steady downward trend for years, are suddenly trading at their highest levels in more than two months…The yield on Germany’s 10-year Bund, the benchmark in Europe, was trading at 0.43 percent on Monday (currently 0.53%).  It has soared from a record low of 0.05 percent just last month, as investors reassess bullish bets on government bonds in Europe and the U.S., where debt yields have also risen sharply.”  Indeed, “one key reason for the recent increase in US long term interest rates has been surging German rates — basically unwinding a big source of downward pressure on US yields…Unfortunately, a lot of people may soon find out the harsh truth about overpaying for the perceived safety of US Treasurys and German Bunds.”  Meanwhile, something I’ve been curious about recently has been the bond market’s idiosyncratic pricing of Greek debt vs the rest of the piggies.  Greek 10 year debt is currently yielding roughly 900bps more than Italian 10 year debt, and over 800bps above Portuguese debt.  Here’s why that may be the case: “First of all, it’s a lot smaller.  Around €34 billion of Greek government bonds trade on the open market…the Italian government bond market is around 54 times bigger, clocking in at over €1.8 trillion..Traders reckon Greek bonds change hands 20 to 30 times a day across the whole market versus thousands of trades per day in Italian debt.”  Fair enough; but if Greek yields are higher because the market believes the risk of default is higher, than what is the probability of a nice, neat implosion along the Mediterranean with little impact rippling through the debt markets of other highly indebted suinae?  Meanwhile, “a proliferation of images on the Internet and reports in newspapers suggests that creating a leaping, amphibious pig is another realm where China can claim global preeminence.”  

 

USA: The Curious Incident Of Current Account Deficits And Weaker Net Investment Position

“The U.S. net international investment position — the difference between US assets abroad and foreign claims on the US — has moved substantially deeper into the red in recent years.  But why?  You might be tempted to say that it’s obvious: we’ve been running big budget deficits, borrowing the money from foreigners…But that story implicitly requires a surge in the trade deficit (or more precisely the current account deficit, which includes investment income), which hasn’t happened…The answer, I believe, is that we’re looking at the differential performance of stock markets…The value of foreign holdings of US equities…has surged along with the Obama stock market, while US holdings abroad have seen no comparable boost.”  Meanwhile, here’s the investment thesis behind European equities that no one really wants to admit (it isn’t, y’know, fundamental).

 

Oil: The Cap Is Now $70, And That Is FINAL

 

ICYMI: Rapid Communication Is Changing The World: Short Tweets Edition

 

What: Cryptocurrency Backed By Gold

Interstellar BuzzFeed

Those Aren’t Mountains…

The “esoteric concern on almost everybody’s lips” these days is bond market liquidity: “while banks have cut their inventories of bonds, asset managers have recently been gobbling them up…But the catch is that many asset managers rely on potentially flighty forms of funding (ETFs anyone?)…If US rates suddenly rise, retail investors might flood out of bond funds…If that happens, those funds might discover the bonds are completely illiquid, or untradeable except at rock bottom prices…Thankfully, nobody expects the test to come quite yet.”  Whew!  Nice.  So, what might be driving that expectation?  “The sole bright spot is the eurozone”–this is where your lower jaw falls slightly and you start questioning the decision to keep reading this “connect the dots” nonsense — “The gap between US and eurozone growth has, for now, disappeared completely.  Overall, the growth rate of the global economy has therefore slowed further…Activity growth needs to recover markedly in the next few weeks if a generalised downgrade to global growth forecasts for the 2015 calendar year is to be avoided.”  “Like a pilot spotting a smoking engine at take-off, the US Federal Reserve is having second thoughts about when to raise interest rates…[A delay] may change the shape of the global recovery, crushing hopes for a sharp rebound in the eurozone (On the back of Wednesday’s Fed statement, the euro soared to $1.125), while removing some of the gloom from the outlook for emerging markets…The longer [the Fed] waits before cutting interest rates, the further they can go with loosening monetary policy.”  Furthermore, “emerging markets may find a surprise ally in Europe.  A stronger euro would make it harder for the ECB to meet its inflation target, [leaving them with] little option but to continue with their QE programme…But they should not take too much comfort.  Fed increases are powerful tsunamis — within hours, their effects are felt even on the furthest shores.”  Meanwhile, Vanguard says that “while you might expect the prospect of the Federal Reserve raising interest rates to put the brakes on capital inflows into emerging markets, thereby worsening their financing problems, our research suggests that doesn’t have to be the case…While financial crises have coincided with a drying up of capital inflows to emerging markets, that’s been less true of monetary tightening by the Fed.”  Getting back to the US for a minute, Gavyn Davies says the “persistent tendency for US growth to disappoint” is due to one or both of the following: “weak aggregate demand, owing to a demand-side form of ‘secular stagnation’; or a permanent slowdown in productivity growth…Ultimately, the behaviour of US inflation will distinguish between the two competing hypotheses, and the Federal Reserve will have to set policy accordingly.”  Meanwhile, “if these interest rates were to continue for 10 years, stocks would be extremely cheap now,” says Warren Buffett.  Meanwhile, John Hussman understands that using the Greek alphabet is a quick way to a financier’s heart.

 

The Latest Buzz

“The word ‘wrong’ is really good,” says a senior BuzzFeed video producer.  “Started in 2006 as a lab for experimental web content, BuzzFeed has attracted an audience of 200 million monthly unique visitors, making it the sixth-largest site in the U.S. — bigger than eBay, Yahoo, and Wikipedia…It’s known for its viral hits — jokey lists about cute animals — and increasingly, its investments into journalism.  But now, like its digital pers, BuzzFeed has aggressively expanded into video…Ideas for new ‘wrong’ videos get thrown around: Snacks you’re eating wrong.  Maybe you’re running wrong, or putting your pants on wrong…When Frank asks his team what they’re working on, they rarely tell him the individual piece they’re shooting, but rather the problem they’re trying to solve.”  Meanwhile, Twitter’s live-streaming app Periscope has taken pay-per-view piracy to a whole nother level: “Soon, viewers started to notice a trend.  If a Periscope session [got] too many ‘hearts (Periscope lingo for favorites), a stream would get shut down…This wasn’t really a problem, however, because like a hydra, we could just go to another Periscope stream somewhere else in the world to watch the fight on someone else’s TV.”

 

Global: Moody’s Has Become So Senile

 

USA: “No One Is Spared Their Side-Eyed Looks”

 

USA: The Bernanke Cat Fights Of 2015: John Taylor’s Contribution

 

What: Turns Out Goldman’s Coal Mines Weren’t A Passion Project

pocket protector

Cautious Conversations

John Williams: “I think the data show that U.S. inflation can be easily modeled in the following way: It runs about 2 percent, and then there is some fluctuation from commodity/import prices and the amount of slack in the labor market…to me it’s not that much of a puzzle that underlying inflation is running about half a percentage point below our 2 percent goal.”  Furthermore, “I don’t think [low inflation abroad] speaks in any way to whether the U.S. can hit its 2 percent goal.  We know from history that we are able to control our own inflation rate through monetary policy despite other countries having rates that are higher or lower than ours is.”  Ben Bernanke: “I don’t see anything magical about targeting two percent inflation.  My advocacy of inflation targets as an academic and Fed governor was based much more on transparency and communication advantages of the approach and not as much on the specific choice of target.”  In regards to the future of monetary policy, Ben likes a big balance sheet: “monetary control might be more, rather than less, effective if the Fed [managed interest rates] by its settings of the interest rate paid on excess reserves and the overnight reverse repo rate.”  Also, a large balance sheet “facilitates the creation of an elastically supplied, safe, short-term asset for the private sector, in a world in which such assets seem to be in short supply.”  John seems to agree: “This is a typical Fed belts-and-suspenders approach.  We’re not exactly sure how interest rates will behave and so we want to make sure that we have the full set of tools and programs…it’s a lot of contingency planning.”

 

Millennials Trust Each Other And Basically No One Else

“Nearly one in three Americans who are now having to pay down their student debt…are at least a month behind on their payments,” says the St Louis Fed.  “Delinquencies on student debt are far higher than those for other forms of consumer credit, including credit cards, mortgages and auto loans…Delinquencies are no longer rising.  But they’re not going down, either.”  Meanwhile, PricewaterhouseCoopers sees a trend in the renting “sharing” economy: “We’re witnessing the rise of companies predicated on trust among strangers at the same time as general trust in society is actually falling…Why are hundreds of thousands of people letting strangers rent their bedrooms or drive their cars if society is growing more cynical?”  The answer: while trust in individuals and institutions is deteriorating, faith in the crowd is growing.  “In other words, I don’t trust you, Random Guy Giving Me A Ride Home, but I do trust the 4.9-star average rating of all the people who’ve been in your car before.”  Meanwhile, “if you think Chris Christie’s Social Security plan is bold, you should see Team 109’s.

 

ECB: Draghi Isn’t Worried About Scarcity Of QE Eligible Bonds

 

USA: As Long As He Keeps Blogging More Power To Him

 

ICYMI: Bonds Beware As Money Catches Fire In The US And Europe

That whole velocity of money thing isn’t really playing out the way some thought…here’s another go at it.

insider tweeting

Thinking Outside Of The Box Border

Russ Koesterich thinks “the good news/bad news dynamics will get worse as the Fed rate hike draws closer.  Watch out for greater amplification of this volatility…markets will probably see more peaks and valleys this year, but for investors with a long time horizon, remaining invested pays off.”  Meanwhile, “the US, the UK and Japan all witnessed sharp equity market rallies when they launched quantitative easing (QE) programs.  The exact same thing has happened in the euro area…equities may no longer be cheap.  But we believe they still look relatively attractive when compared with regional sovereign bonds, which increasingly offer zero or negative yields.”  Also, “the ECB’s elephantine sovereign bond-buying scheme is happening at a time when the big euro area countries have negligible borrowing needs.  But euro area investors that need to own a lot of bonds — banks, insurers, and pension funds, to name a few — have to park their money somewhere.  Nowadays, ‘somewhere’ increasingly means America, in the form of US corporates taking advantage of European desperation for yield…Whether any of this will actually boost investment in the single currency bloc is anyone’s guess, but at least US companies hurting from the stronger dollar can console themselves with the easier financing conditions.”  Meanwhile, Ben Bernanke thinks “the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home.  The foreign exchange value of the dollar is one channel through which this could work: if US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports…Increased exports would raise production and employment at home, helping the economy reach full employment.  In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy.”  Meanwhile, “as developing countries grow more quickly, they will also have to grow more sustainably, [so] leaders in Portland are targeting rapidly expanding cities for exports of sustainable services.  This brought them to Changsha…mayors of the two cities signed a trade partnership that will provide access to ‘green’ services for Changsha, while giving Portland firms a foothold in the challenging Chinese market.”

 

USA: Larry Summers On Ben Bernanke On Larry Summers

Also, John Hussman on eating our seed corn.

Also, Bill Gross on layups and fed funds.

 

USA: Inside Traders Are Using Inside Tweeters As Cover

 

WM: Vanguard’s New DIY Service Targets “Investors Who Don’t Need Or Want” An Adviser

 

USA: Poor Households Spend More On Prom Than Wealthy Households

 

Greece: “Q: Does The Government Have Any Rainy-Day Funds Left?  A: Not A Lot.”

 

What: HFT Firms Are Trading With Themselves To Spoof Markets

dollar vs S&P

 

What Did You Guys Think About European QE?

Assuming the EUR/USD settles at parity, the ECB staff projection for inflation would increase by three tenths this year and next, to 0.3%oya and 1.8% respectively, and by two tenths in 2017 to 2.0%.  And so the question appears to be becoming (and yes, it’s funny/absurd how quickly it has become the question), is there any chance of the currency weakening to such an extent that the ECB starts thinking about an early tapering?”  Meanwhile, “Everyone Hates U.S. Stocks” is the headline at Bloomberg: “The U.S. stock market was an island of opportunity for a number of years…It has lost its status, not because it’s negative, but because other places around the world have started becoming more attractive.”  Meanwhile, the Bank for International Settlements says “deflation has been given a bad name because of the link between falling prices and the Great Depression.  Besides that episode, however, the economists say the links between deflation and economic catastrophe are weak.”  Furthermore, “deflation per se is not necessarily a problem — it’s what causes it that counts.”  Meanwhile, LPL Financial thinks that “although the strength of the dollar has important implications, it is more of a symptom of economic and market forces rather than a cause of them.  Although some sector relationships are interesting, the dollar is not very useful as a predictor of stock market performance and we do not expect it to derail this bull market.”  Meanwhile, “the biggest obstacle I see standing in the way of most new stock market enthusiasts is this immense reluctance to personally accept the fact that their own mind games can kill them as investors…The brain’s natural default mechanism is to run with its intuition — that is precisely why you must understand this tendency, lasso that trading brain of yours, and pull it back to the rational-analysis corral.”  Meanwhile, “the Riksbank is leading the currency war, but the losses in the krona will be short lived.”

 

Fed: Press Conference At 11:30 PST

 

WM: The Median Investor Is Significantly Underperforming A 60/40 Portfolio

 

Oil: The Oil Conversation Has Shifted Its Focus To Storage

 

USA: Some People Think Private Valuations Are Like, Totally Fuzzy And Insane

running of the bulls

The Trick Is To Stay Ahead Of The Bulls

“Entering its seventh year, the ageing US equity bull market looks vulnerable (alt)…Uncertainty over how asset prices will react once borrowing costs rise for the first time since 2006, looms large over Wall Street.”  People are pretty worried about the rising dollar, buybacks fueling the bull, lower energy earnings, etc.  All that being said, a “modest tightening from the Fed [may] sustain the appeal of owning equities even with the S&P trading at 17 times future earnings.”  Meanwhile, it’s been four days since the ECB began purchasing bonds and guess what?  The ECB’s QE Is Working Well!  “The ECB has finally broken the QE taboo and has become a normal central bank…The lack of contagion from the recent Greek turmoil is a good example of this confidence effect.  Euro area bonds have again become risk-free assets, hopefully putting to rest the mistaken view that euro area countries ‘don’t have a central bank’…Quantitative easing has erased most of the near term deflationary risks and has restored the ECB’s long-term price stability credibility…and markets are now moving in the right direction.”  Meanwhile, the grass is greener in currency hedged European equity ETF funds: “These funds have become multibillion-dollar blockbusters because of alpha seekers.  But they could be in for a surprise once the trend ends or even if the movement goes into hibernation for a while as the foreign exchange market consolidates.  The takeaway is this: It’s probably fair to expect parity between the euro and the dollar.  But once parity is reached, it might make sense to think through this currency-hedging decision again and carefully.”  Meanwhile, Ray Dalio explains the power of not knowing: “You can’t make money agreeing with the consensus view, which is already embedded in the price.  Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble…We all make better decisions by maintaining an independent view and the conflicting possibilities in our minds simultaneously, and then trying to resolve the differences.  We’re always in the place of holding an opinion and simultaneously stress-testing the hell out of it.”

 

Homeownership By Age

Michelle Meyer, an economist at Merrill Lynch, has some numbers on homeownership rates by age: “The biggest decline in the past ten years has been among the 30-34 year olds, followed closely by the 35-44 year old cohort….There was a similar story for the 25-29 year olds, but not quite as extreme.  In contrast, the homeownership rate for 65+ has been little changed.”  Meanwhile, “the National Association of Realtors said millennials, or those between 18 and 34 years old, accounted for the largest share of home buyers last year at 32%…The median age of millennial homebuyers was 29, their median income was $76,900 and they typically bought a 1,720-square foot home costing $189,900.”

 

What’s Oil Doing?

UBS economists say that “if oil prices were to remain close to current levels over the remainder of 2015, it would be unusual.  There have only been 8 occasions in the last 150 years, for example, when the cumulative 2-year change in oil prices has been more than 50%, which is what it would be if oil prices remained close to $60/bbl from here.  Putting that another way, there is at present a 25% chance that oil prices climb to $80 or higher by the end of 2015 based on the pure statistical properties of oil price swings in the past as well as relative to what is discounted in the forward curve.”  Meanwhile, some large oil companies may enjoy trading the fruits of production more than others: “In the first quarter of 2009 (the last bear market for oil), BP said it made $500 million above its normal level of profits from trading.  That means that trading accounted for, at the very least, 20 percent of BP’s adjusted income of $2.38 billion that quarter…oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own production, but largely eschew pure trading as a means of generating profits…Although extra profits from trading won’t offset the much larger loss of revenue from lower oil prices, it could help the three companies to weather the crisis and, perhaps more importantly, beat analysts’ estimates.”

 

AAPL: Apple’s Moat: Mall Rats Edition

 

What: Mountain View Resident Suspects He May Live To See 500

Sand Hill Exchange

Power To The Venture Capitalist People

The Financial Times says there “is a sense among many in the industry that private equity is no longer at the leading edge of investment, with that mantle having moved on to the venture capital world (alt)…Quietly, firms including Blackstone, Carlyle and KKR have looked at acquiring venture capital firms…several of the private equity firms are shifting their pitch to investors.  Rather than emphasising the big (and often disastrous) buyouts of the last cycle, they refer to their interest in providing growth equity to much younger companies.  Being masters of smaller alternative universes has suddenly become the new, new thing.”  Meanwhile, Sand Hill exchange “is offering anyone who wants to deposit money with the firm the chance to buy and sell synthetic derivatives linked to unlisted tech companies…The ‘contracts’ that make this possible are British-style contracts for difference — Cfds.  Rather than owning the asset outright, you enter into a contract with a counterparty to cash settle any subsequent moves in the price of that asset… But Cfds specifically are illegal in the US…What Sand Hill appears to have done is to simply sidestep the entire 40-year old edifice of the CFTC by using the blockchain, that bit of the Bitcoin infrastructure that acts as a distributed public ledger, for transactions.”  Meanwhile, according to the city of Orlando, “nerds love Orlando.

 

Investable Asset Classes

“If U.S. investors have learned one thing since the bull market started six years ago, it is don’t bet against central banks’ easy-money policies…According to Lipper, U.S. stock funds have seen $5 billion in outflows so far this year, while European equity funds have collected $4 billion in assets and those in Japan have gathered a little over $1 billion in 2015.  Returns in 2015 have already paid off for those invested in foreign markets.  Across the pond, Europe is higher by 15%, while Japan has risen 8%.  At home though, the S&P 500 is up only 1% this year even as the U.S. economy improves and jobs growth is the strongest it’s been in over a decade.”  Meanwhile, “euro-denominated corporate bonds have gained 1.4 percent this year,” unless your passport has an eagle on it, in which case euro-denominated corporate bonds have lost 9 percent this year.  “With yields at record lows, that means this trade is as much a bet on the euro as anything else.  And that’s a huge problem given the euro’s 10 percent drop against the greenback this year.  The average yield of less than 1 percent on European investment-grade corporate bonds isn’t enough to offset that currency move.”  “Although ECB QE is expected to boost demand for euro-area assets, that may not buoy the currency…Many of the bonds the ECB buys are likely to come from foreign investors, according to David Woo, a strategist at [Merrill Lynch].  That could lead to as much as €10 billion worth of euro selling against other currencies every month, he said.  QE has already drawn overseas investors to eurozone equity markets.  But most foreign buyers are hedging their currency exposure, negating any upward pressure on the euro.”  Meanwhile, here’s what “don’t bet against central banks’ easy-money policies” looks like.  Also, Europe’s central banks are still playing hot potato with the expected losses from negative yields.

 

USA: CBO Projects Even Lower Deficit

 

Global: Female Managers Are Negatively Correlated With Fraud, Scandal (Alt)

 

What: Apple Watch Won’t Rescue Gold Bugs

 

WaitWhat: Is Cash An Investable Asset Class Or Not?

Also, is art an asset class?

QE supply ECB vs Fed March 2015

Buy It All Back

Dr. Ed says that since 2009, the S&P 500 has been “highly correlated with the sum” of share buybacks and dividends.  “Buyback authorization for February 2015 — of $118.32 billion — were the strongest for [any month ever], in dollar terms.  While analysts expect H1-2015 earnings growth to be negative y/y for the S&P 500, I think buybacks could help to turn S&P 500 earnings growth positive.”  Also, the last time buybacks reached a monthly record (July 2006), “the S&P 500 advanced 23 percent in the next 14 months before hitting an all-time high.”  More: “Repurchases set an annual record of $589 billion in 2007…[Companies] were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed…S&P 500 companies hold $1.75 trillion in cash and marketable securities.”

 

Unprecedented Distortion

“European shares rose close to seven-year highs on Tuesday as better than expected German retail sales further buoyed investors days before the [ECB] kicks off a trillion-euro bond buying programme…German retail sales rose 2.9 percent month-on-month and 5.3 percent year-on-year in January, more than economists had forecast…’Euro zone economic surprises have veered from extremely negative to extremely positive in very short order.’”  A reuters columnist thinks “investors would be wise to prepare for a more optimistic outcome.  Folk wisdom holds that in strong economies stocks do well and bonds do poorly.  But years of ultra-easy monetary policy may have complicated the relationship.  Indeed, if strong growth reduces the need for new government borrowing and even a brief QE programme reduces supply, market prices might keep rising.  So negative yields may last a while longer.”  Meanwhile, a Citi strategist says that “the unprecedented distortion that ECB QE is about to introduce to € fixed income at a time of ultra-low yields has still not quite dawned on European credit.”  Meanwhile, ultra-low yields have dawned on Buffett.

 

AAPL: Notes On Cars

“Many people can find $400 for a better phone or, this year, a smart watch, if they’re persuaded that they really want one, but rather fewer can find an extra $40,000 for a better car, or to replace their car every two years instead of every 4 or 8.  If you’re in the market for a $20,000 car, there is very little that anyone can do to a car that will put you in the market for a $60,000 car.  Cars do not come out of discretionary spending.”  Meanwhile, the Wall Street Journal reports that several insurance companies and an auto parts maker have included warnings about the risks of driverless cars in their official corporate filings.  

 

USA: Does The Fed Have A Currency Problem?

You’ve probably heard the argument that steady core inflation could prevent the Fed from abandoning a rate increase this year.  Tim Duy isn’t buying it: “On a 3-month basis, core inflation is at its lowest since the plunge in 2008.  Year-over-year inflation has been held up by a basis effect from a jump in early 2014.”  And why is core-inflation drifting lower?  “The rising dollar may be causing the Fed more headaches than they like to admit.”

 

USA: Wall Street Has Its Eyes On Millennials’ $30 Trillion Inheritance

 

WM: Royal Bank Of Scotland To Investment Banking Employees: We’re Done Here


EM:
The Raghuram Rajan Effect Is Playing Out Nicely