Macro, and Market, Update (video)

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Quote of the Day: What Makes Balloons Pop?

While today's selloff may indeed turn out to be yet another buying opportunity during what is, in my view, likely the latter stage of the longest bull market ever, consider the following from James Wetherall's excellent book The Physics of Wall Street:  

Brief Note On Today's Action

To quote from our Monday blog post (when the Dow was trading lower by 400+ points):

Quick Note On This Morning's GDP Report

While I honestly expected this morning's Q4 GDP number (the first of three estimates; so revisions may follow) to come in below the consensus estimate of 2.1% (it came in at 2.1%), the internals resoundingly confirm our present assessment of general conditions (consumers stable, businesses not).

This Week's Message: Deer In The Headlights

I listened intently to Fed Chair Jerome Powell's post-policy meeting press conference this morning, and, after, say, a half-dozen questions, and after parsing the good chairman's answers, I found myself imagining being there and posing a question of my own.

NYC's 'Economic' Blunder

Looking at a little demography this morning, with regard to New York, I couldn't help but recall what I, frankly, viewed as a major economic (politically-motivated) blunder on the part of certain politicians who railroaded Amazon's plans to place an HQ in NYC right out of town. 

Q4 Results Making Sense So Far

With roughly 13% of U.S. companies having reported Q4 numbers, the results (so far) jibe with our present macro analysis.

Chart of the Day: Dr. Copper Looks Worried

Copper -- the ubiquitous industrial metal -- is often referred to as “Dr. Copper” for what its price movements suggest about the state of the global economy.

Quote of the Day: An Expensive Error

Emphasis mine...

"...the loss was not bad luck; it was bad analysis.

Let's Forget About The Market On This One!!

So check out S&P 500 futures' action after hours this evening. The red arrows point to the reaction to news that the U.S. government was about to ask airlines to suspend flights between China and the U.S.. The green point to a followup comment from Washington that no such request would be made:

Unappetizing Risk/Reward Setup

A common theme coming from yours truly in client review meetings (and herein, as you've noticed) is that while I can't tell when the next meaningful downturn will hit, in my humble view it'll be another doozy (that's a technical term for really bad one) when it does.

Quote of the Day: Fed Facilitation

We've been expressing a lot herein lately our concerns over conditions across the corporate debt space. Below is from macro strategist Julien Brigden's latest note:

This Morning's Brief Log Entry

1/27/2000

While I’ve noted one credible strategist who attributes the past two-day selloff to deteriorating economic forces and threatening technicals, while I sympathize, I completely disagree. I’m with the overwhelming consensus that says the catalyst was the coronavirus, with the technicals playing a role in terms of the speed of yesterday’s decline in particular.

Bonus Quote of the Day: The Human Side of Investing

Another I think timely quote from Howard Marks's The Most Important Thing Illuminated:

Emphasis mine...

"“The human side of investing” is the critical side. It’s certainly an area in which superior investors must excel, since financial analysis won’t guarantee superior performance if your reactions to developments are skewed by psychology just like those of others. Thus my third key theme relates to control over emotion and ego. Accomplishing this is quite difficult, since everything in the investing environment conspires to make investors do the wrong thing at the wrong time."

Quote of the Day: The Risk Disciplined Investors Willingly Accept

Was reading Howard Marks's excellent, and accessible (I recommend it) book The Most Important Thing Illuminated over the weekend, and I'm thinking the quote below is timely:

Brief Note On This Morning's Action

Of course much remains to be discovered with regard to the coronavirus itself, and, thus, its impact on the global economy.

The Fed-Put Narrative, And My Problem With It

The overwhelming thesis among credible market actors is that the rally in stocks from September of last year to now is entirely about Fed liquidity and global central banks’ risk-aversion. And that there remains a very solid central bank put (with a strike price just a hair below current levels) that essentially pushes the next bear market past the foreseeable future, and that every dip remains a buying opportunity.

Macro Update

Just finished our weekly macro scoring session. Here's a recap:

More On The Corporate Debt Mess

Here are some snips from a Bloomberg article this morning titled CLOs Are Packed With Loopholes that screams the risk we've been identifying herein for months in the corporate debt space.

Hard to fathom that a mere 12 years after the bursting of the greatest credit bubble in modern history we're seeing similar shenanigans playing out once again:

Risky Private Equity/Lending Setup (1-minute video clip)

We've been illustrating herein ad nauseam the risks we're seeing throughout the corporate debt space. 

A dive into the private equity universe is telling!

Here are the highlights from a January 16 interview with Dan Rasmussen, hedge fund manager specializing in levered small companies and high yield bonds.

This Week's Message: Simply Not Willing!

Getting a lot of feedback lately from clients who have taken note of what they view as a decidedly bearish shift on my part over the past several months.

Well, I definitely get that, however, when we look at our target core mix of assets, while indeed it has a more defensive tilt than we've maintained over the past 10 years, it's clearly not outright bearish.

Quote of the Day -- Possibly Of The Year!

If Guggenheim's Scott Minerd is anything, he's objective. He's never one to sensationalize or to wed his ego to his thesis. While he and I haven't always been on the same page over the years, I've always viewed him as being thorough and thoughtful in his approach to markets, and, therefore, credible.

Eerie Calm Currency Markets

During Doubleline Capital's recent "Round Table Prime" session -- which brings together a tight group of credible market actors to discuss the state of the global economy and markets -- the firm's founder, and largest bond manager in the world, Jeffrey Gundlach made a point that jibes with my Sunday morning commentary:

This Morning's Log Entry: No Skinny-Dipping!

1/20/2020

UK employment data surprised bigtime to the upside this morning, boosting the pound, while emerging markets are tanking on a Hong Kong downgrade by Moody’s and, more so, on fear over the possibility of a virus epidemic breaking out in Asia. The German Zew Economic confidence index blew away expectations to the upside (supports our Eurozone thesis, and our EWG position). U.S. equities traded lower early on, but have bounced back to even as I type (9am).

What Causes Inflation?

So, this morning's blog post sparked the curiosity of yet another dear friend, who also reached out to me via email with an excellent question that I believe will also be instructive to the rest of our readers. 

Here you go:

What Is Repo?

This evening, a friend, via email, asked me to clarify a few points/terms made in my "Bonus Quote of the Day" post from this morning. I'm thinking many of our readers would appreciate some clarity as well.

The question was, what is "repo liquidity play" and what does "facilities" refer to?

Here was my response:

Bonus Quote of the Day: Has The Fed Put The Cherry On The Bubble?

Julian Brigden is in my view one of the few macro strategists worth listening to. 

Quotes of the Day: Corporate Debt Is A Problem!

Grant Thornton's chief economist and I are on exactly the same page on this one:

The Mastery Of Investing -- And -- Is This The Last Leg Of The Bull Market?

Is mastery possible when it comes to investing?

Well, I suppose it depends on whom you ask, and on their definition of mastery.

Macro Highlights

Just finished the weekly scoring of our macro data, no video this week, just the highlights.

This Morning's Log Entry: FOMO Alive And Well

1/17/2020

Clearly, the bull market stays alive largely, if not entirely, on central bank stimulus. Should the Fed get repo under control and curtail the nightly purchases, the market will likely be tested.

Data of the Day: The Good, The Bad, And The Ugly

The morning's releases picked up where yesterday's sunnier than expected data left off. In a big way in terms of housing starts:

This Week's Message: Positives In Context

We're finally seeing some of the good data that were widely expected for the December releases. I was beginning to wonder; given the worse than expected ISM print last week and a few other not so rosy data points.

Problem? What problem?

All the fanfare and market-pumping aside, to the extent that tariffs are the problem, phase one barely scratches the surface.

Precarious Risk/Reward Setup In Debt Markets -- Not To Mention In Stocks As Well

Stocks (large cap) continue their ascent into all time high territory, smack in the face of somewhat sketchy fundamentals and what I fear is becoming a corporate debt bubble for the ages.

Bubbles Can Be Great, and a quick Q and A

Here's Hedgeye Risk Management's tech analyst Ami Joseph on the present setup:

Bonus Quote of the Day: Speaking of dotcom-esque

Speaking of dotcom-esque:

Quote of the Day: Dotcom-esque Losses Can't Break This Bullish Fever

As I suggested last week, it makes obvious sense to expect the market to continue to trade higher in the near-term (except for the fact that such sentiment leads to lopsided setups, which, in and of themselves are cause for concern). 

Macro Update (Video)

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This Week's Message: Spot-On Macro Assessment, Fundamentals vs Trade Talk, And Sorry Sentiment Among Execs

December jobs numbers missed expectations, which to us comes as no surprise given our overall macro assessment. What was particularly unsurprising was the 12k decline in manufacturing jobs. 

This Morning's Log Entry

1/9/2020 7:45am

SPX continues to march higher, up 61bps today; the headline excuse this morning (at least pre-market) was that China confirmed that negotiators are coming 1/15 to sign phase-one. Of course we knew that, but in a classic FOMO (fear of missing out) setup, any reason’s a good reason to buy.

Charts of the Day: A Look At Delinquency Rates

Thought I'd share some of the data I'm gathering for an upcoming presentation.

You've heard herein that the consumer remains in pretty good shape; virtually everywhere else you're hearing that he/she's in great shape.

Quote of the Year: The Secret To "Beating The Market"

So, Ray Dalio, who is arguably one of the very best investors of all time, manages a hedge fund that up until last year had enjoyed an 18-year run without a single negative calendar-year return print. Remarkable!!

This Morning's Log Entries

1/8/2020 7am

Overnight S&P futures plunged 1.7ish% on the Iranian missile attacks of US bases in Iraq. After the dust settled it was clear that Iran strategically struck in a way that would yield no US casualties and that they felt they could herald at home as a strong response to the killing of their military leader. Consequently the S&P has rebounded back into the green to the tune of 31bps this morning.

Quick Technical Chart Check (video)

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Bonus Quote of the Day: "Mind boggling spectrum of scenarios"

Economist Diane Swonk speaks to her profession's challenges in "modeling" the escalation with Iran: 

Quotes of the Day: "Not A Steady-State Market" -- And -- Whom To Listen To

Here's Hedgeye Risk Management's blunt CEO Keith McCullough (tops my very short list of analysts worth listening to) responding to a viewer on his morning macro show.

Some Decent Economic News

We actually have some positive, well, decent economic news to report this morning. The Institute For Supply Management Non-Manufacturing (services) Survey came out this morning with a score of 55 (above 50 denotes expansion).

It's Risk-On For Risky Deals -- Again :(

Perhaps we're overdoing the quotes from Mastering Market Cycles (almost done), but, my!, the book absolutely speaks to what we're seeing in current general conditions, in investor psychology and, most concerning, in the debt markets.

Quote of the Day: Remarkable, and, alas, typical...

If you've been with me the past few months you've been introduced to the current state of the corporate debt market, and the kind of unbridled risk-taking that characterizes bubbly credit markets in general.

The following from Bloomberg today is remarkable, and, alas, typical:

"The Most Important Thing To Note"

This market is the definition of resilient! Under normal conditions -- when stocks are reasonably valued, when general conditions are good, when company balance sheets are healthy, when credit spreads make sense, when corporate bond issuance is measured and covenants and rates make sense, when the Fed isn’t aggressively adding liquidity ($70 billion in repo last night!), when investors are acting rationally, etc. -- you’d expect events such as those occurring today to bring the market notably and sustainably (for a bit) lower, while it consolidates gains, while investors reassess risk, and so on.

Quote of the Day: Overlooking Cyclical History

Here's Howard Marks quoting John Kenneth Galbraith.

This I suspect is timely!

Way Too Soon To Tell

As you've noticed, and I suspect expected, weekend events (Iraq voting to expel all foreign troops, Iran's abandoning what was left of the nuclear accord, numerous back and forth threats, and more) have piled more uncertainty onto the state of markets and the global economy. I'm seeing it in currency futures this afternoon -- stronger yen, for example -- although not yet to the degree I was expecting.

Quote of the Day: Excessive debt issuance is ultimately ruinous...

For an understanding of how a 2008-style mess comes to pass, and of some of the reasons why we're shifting to an asset mix less correlated to a roaring bull market, I highly recommend Howard Marks's book Mastering the Market Cycle.

Here's a snippet:

Some Comforting And Some Not-So-Comforting Data

Schwab's Jeffrey Kleintop shared some stats this morning on past market reactions to U.S. airstrikes. He prefaced them with:

This Week's Message: What Interest Rates Say -- And -- Why I Sleep Well At Night

Just listened to an interview with Jim Grant, editor of Grant's Interest Rate Observer, I've been a fan of Jim's my entire career. He's quite the historian, and an utterly brilliant thinker.

Risk On For Sure, Right?

Only because it's the first day of the new year am I pointing herein to the oddness of a particular single-day's trading action.

What a way to start the new year! With the Dow (30 stocks) up 330 points (1.1%), the S&P 500 up 0.8% and the Nasdaq Composite ahead by 1.3%!

Quote of the Day: The Investor's Greatest Enemy

Currently reading Howard Marks's insightful book, Mastering the Market Cycle. While I could literally pull dozens of quotes that jibe with yesterday's post on market sentiment, I'll share just this one for now:

Repo Crisis Averted, Maybe...

We've scratched the surface a bit herein the past few weeks on what can only be termed as a serious liquidity issue in the overnight funding (repo) market. While some suggest that it's not serious, that it's purely technical, and so on, well, when a technical glitch requires half a trillion in fresh bucks to simply keep liquidity flowing (as opposed to actually fixing the problem) I think we can get away with calling it serious.

Quote of the Day: China's Wasting No Time!

As I suggested in a recent (client-only) post, stimulus from China in 2020 could bode well for a couple of our core positions.

Well, they're wasting no time:

Investors Expecting A Most Happy New Year!

We recently developed our own sentiment indicator -- we call it the PWA Fear And Greed Barometer -- as a way to keep constant track of how the passengers are distributed among the investment cruise ship, so to speak.