We offer the following samples of our work. You can click on the links at right to view samples from a particular category.
- CNBC – David Tepper: ‘You bet your heinie’ I’m short bonds
Following a sharp run-up in bond yields since the summer, hedge fund manager David Tepper told CNBC he thinks prices still have room to drop. Asked whether he is short bonds, the Appaloosa Management founder replied: “You bet your heinie.” The benchmark U.S. 10-year Treasury note yield has risen sharply after hitting a 52-week low in July of 1.36 percent. It has since rebounded to trade above 2.55 percent amid stronger economy data and expectations of higher inflation and tighter U.S. monetary policy. Yields increase as bond prices fall. While yields have risen sharply, Tepper said Wednesday, “We’ve got a lot of room until we have to worry.”
- The Wall Street Journal – Selloff in U.S. Government Bonds Deepens
Over the past week or so, a series of jawboning from the Federal Reserve officials shifted the bond market’s focus toward the central bank’s tightening policy again. Investors repriced the interest rates by selling Treasurys. The 10-year yield has risen by nearly 0.2 percentage point this month after logging the first monthly decline in February since last July, when the yield closed at a record low of 1.366%. “Sentiment has been negative for the bond market” given the repricing of the Fed outlook, said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “It is just a question of when’’ for the 10-year yield to break above 2.6%, he said. Donald Ellenberger, money manager at Federated Investors, said he expects the Fed to raise rates three times this year and that the 10-year yield would rise to 3% by the end of December, a level the yield last traded in January 2014.
- The Financial Times – WTI oil prices fall below $50 for first time since December
Oil is slipping after data from the US revealed the country’s oil stockpiles hit an all-time record in February – rising for the ninth consecutive month and sparking fresh concerns about the extent of a global supply glut.The news sent prices slumping as much as 6 per cent on Wednesday with the sell-off extending into this morning.
- Bloomberg – Commodities Battered by Signs There’s Still Too Much Supply
Raw materials head for biggest weekly drop since November
Once again, the biggest problem in commodity markets is too much supply.After a big rally in the past year, prices are starting to falter. Copper, often referred to as having an economics Ph.D for its ability to track the economy’s health, slid as stockpiles tracked by the world’s biggest metals exchange jumped by two-thirds. Record U.S. crude inventories have pushed down oil prices, while gold’s taking a hit as the Federal Reserve looks certain to raise borrowing costs next week.
- Bloomberg.com – Shale Billionaire Hamm Says Industry Binge Can ‘Kill’ Oil Market
Harold Hamm, the billionaire shale oilman, said the U.S. industry could “kill” the oil market if it embarks into another spending binge, a rare warning in a business focused on fast growth to compete with OPEC. The statement, at an energy conference in Houston on Wednesday, comes as top shale companies announce large increases in spending for this year, and the U.S. government says domestic oil output next year will surpass the record high set in 1970. OPEC ministers have said they are keeping a close watch on shale production to decide in late May whether to extend their oil-supply cuts into the second half of the year…Shale producers are staging the biggest surge in drilling since 2012, with the number of oil rigs rising to more than 600 this month, nearly double the level of June. They are rushing to spend again after the Organization of Petroleum Exporting Countries and Russia agreed last year to cut its supplies, boosting oil above $50 a barrel after a two-year price rout…Saudi Arabia Energy Minister Khalid Al-Falih earlier this week warned CERAWeek attendees that what he called the green shoots emerging in the U.S. oil industry were perhaps growing “too fast.” ConocoPhillips CEO Ryan Lance quipped afterward that the green shoots looked more like “trees” to him. Al-Falih, in a clear message to the U.S. industry, said it would be “wishful thinking” to expect that Saudi Arabia and OPEC “will underwrite the investments of others at our own expense” through production cuts.
- Bloomberg View – Tim Duy: Fed Must Look at Soft Data to Justify a Rate Hike
Note that the divergence between markets and the Fed appears to have been more a matter of increasing confidence in the outlook than one of dramatic change in the outlook itself. The hard data was not sending a strong signal that the Fed should revise upward its forecast (although the February employment report may give such a signal). With the central bank’s basic forecast intact, it seemed reasonable that it could still afford patience. In recent weeks, however, we have seen an increasing gap between “hard” and “soft” survey data. For the Fed, however, the combination of the soft data, improving external conditions, the possibility of fiscal stimulus and buoyant financial markets is sufficient to pull forward the next rate hike in the absence of a marked change in the forecast. Everyone on the Open Market Committee can see a greater upside risk for their forecasts. And with the economy hovering near what officials believe to be full employment, a shift in even just the balance of risks is sufficient to pull forward the next rate hike. They fear that further delay will set the stage for a rapid increase in hikes later that ultimately ends in recession. What does a rate hike in March mean for the rest of the year? If the economic forecasts of FOMC participants remain little changed, then arguably we should expect that the median rate projection of three 25 basis-point rate hikes for 2017 also remains unchanged.
- The Financial Times – Capital controls the talk of China parliamentarians
“The biggest bottleneck enterprises encounter is the strict controls on foreign exchange,” Fu Jun, chairman of conglomerate Macrolink, told state media. “After a difficult negotiation to win a high-quality investment project, enterprises are unable to pay due to foreign exchange control payments and ultimately lose out on opportunities for international mergers and acquisitions.” Zhang Yichen, head of one of China’s largest investment groups, was quoted by Bloomberg as saying that “it’s a lie” to claim, as many government officials had done, that capital controls had not had any impact on legitimate overseas investments. “It’s not too surprising that the premier’s report to the National People’s Congress would skip this topic,” says Chen Zhiwu, director of the Asia Global Institute at the University of Hong Kong, “given that the overall theme of national policy in China is to remain open to the outside world. There would be a lot of self-contradiction.”
- Of Dollars And Data (Blog) – The Fees Are Too Damn High: How Active Funds Have Cost Investors Over $250 Billion
You read that right: The fees are too damn high and they have cost investors over $250 billion since the year 2000. I am talking about fees charged by actively managed mutual funds in comparison to their passive fund counterparts…The idea to test this is simple: Look at the amount of additional fees that active funds charge as compared to index funds/ETFs and multiply this by the amount of money that could have been in index funds/ETFs over this time period. From the year 2000 to 2015 you can see that active equity funds have charged between 70-80 basis points more than equity index funds/ETFs…the total overcharge by active funds (70-80 basis points * amount of capital in active funds that could be in passive funds) from 2000-2015 is roughly $280 billion.
- MarketWatch.com – Bull market’s 8-year anniversary reminds us that the Dow rewards the bold
Apple has gained nearly 1,000% since 2009
If investors took a leap of faith when the bottom fell out of the market eight years ago and invested heavily in Dow stocks, most would be sitting on a fairly sizeable nest egg today. The Dow Jones Industrial Average DJIA, -0.21% is a benchmark of 30 large U.S. companies and generally serves as a barometer of broader market conditions; among investors here and abroad, the blue-chip average is synonymous with the U.S. stock market, period. Since the dark days of March 2009 when the Dow was barely holding onto 6,500 points, the index has soared roughly 200%, mostly on the back of loose monetary policy from the Federal Reserve and other foreign central banks in the wake of the 2008-2009 financial crisis. During the same period, gold only rose 30.8%, while crude oil gained 17.5%.
- Bloomberg Business – A Freakish Calm Surrounds the Eight-Year Bull Market
If the bull market is worried about dying, it’s not letting on. Eight years along and no existential crisis plagues this advance, whose unbroken march from the depths of the Great Recession is the second longest ever. Valuations are stretched and going by its age the rally is in rarefied air. But volatility, the ticker tape of investor anxiety, is nowhere to be found. .. “Investors should now be on the lookout for a fear-of-missing-out mindset that could signal overconfidence and sound the final lap,” said Sam Stovall, chief investment strategist at CFRA in New York. “Volatility will remain a potential challenge to the intestinal fortitude of many investors and cause their emotions to become their portfolio’s worst enemy.” At 250 percent, the advance in the S&P 500 Index since 2009 has surpassed any bull market at the eight-year mark, plus all those that ended earlier, according to data compiled by CFRA that goes back to World War II. While history shows stocks tend to get more volatile as rallies drag on, it’s not the case now. In the past 12 months, the S&P 500 has spent only 23 days rising or falling 1 percent, compared with 85 days during the eighth year of the 1990-2000 run.
- Bloomberg View – Barry Ritholtz: Obama’s “Radicalism” Didn’t Quite Kill the Dow . . .
We celebrate several market-related anniversaries this week. Perhaps the best known is the market low during the financial crisis, which occurred eight years ago tomorrow. Remember the despair on that day, March 9, 2009, when the Standard & Poor’s 500 Index hit 667 (it’s at about 2,368 now)? Think hard, too, about whether you scoffed when newly elected President Barack Obama just a few days earlier urged investors to buy stocks. Or has your hindsight bias already replaced that week with the memory of a more comforting and self-congratulatory narrative? Maybe you were one of those who nodded in agreement with a Wall Street Journal op-ed by Republican economist Michael Boskin, which also is celebrating an eight-year anniversary this week. The headline, which couldn’t have been more off-base, said it all: “Obama’s Radicalism Is Killing the Dow.” In the meantime, the S&P 500 increased 232 percent from the time Boskin’s op-ed appeared to the day Obama left office.
- The Financial Times – Goldman Sachs’ lessons from the ‘quant quake’
Nearly 10 years after its nadir, quantitative investing is again the hot trend in finance
What became known as the “quant quake” subsided in a week and was largely contained within the computer-powered investment industry. It was soon overshadowed by the global financial crisis. But it scarred a generation of financial scientists on Wall Street. Even Renaissance Technologies, the legendary hedge fund co-founded by cold war codebreaker James Simons, suffered painful losses, and it nearly obliterated Goldman’s QIS. Nearly a decade later, quantitative investing is once again the hottest trend in finance. Computer-driven hedge funds have just notched up their eighth straight year of client inflows, doubling their assets from 2009 to $918bn, according to Hedge Fund Research. Even this understates the interest, as many traditional hedge funds and big mutual fund managers are all trying to blend more quantitative techniques with their traditional approaches. QIS is emblematic of the quant renaissance. In 2011 Goldman Sachs put its top computer wizard, Armen Avanessians, in charge of the division. He has helped turn round its fortunes. The arm’s assets under management reached a nadir of $38bn in 2012, but it now manages $91.8bn — still below the unit’s pre-crisis peak. “The first thing I did was to fly to our biggest clients and apologise,” he says. “All bad things involve crowding and leverage, and the quant crisis was no different. But the core idea that computers can do a lot of this better than humans was right?.?.?.?I feel that we’re just at the early stages of this quant revolution, and that gets me excited.”
- The Wall Street Journal – Corporate Insiders Haven’t Been This Uninterested in Buying Stocks Since Ronald Reagan Was President
Corporate executives are buying their own firms’ shares at the slowest pace in at least 29 years, the latest sign of uncertainty as the booming U.S. stock bull market this week enters its ninth year. Share purchases and sales by executives are parsed by investors searching for signals about what insiders expect from the market. Sales can show wariness about valuations, while purchases can signal confidence that more gains lie ahead. Insider buyers have been scant. There were a total of 279 insider buyers in January, the lowest in records of publicly traded companies that are required to disclose going back to 1988, according to the Washington Service, a provider of insider-trading data and analytics. Meanwhile, the number of sellers has been above average, pushing a ratio of buyers to sellers in February to its lowest since 1988.
Topics Covered This Week Include:
- Commitments of Traders Update – New Format Now Available!
- Time To Start Watching ADP?
- Time To Start Watching ADP? – 2
- A Look At The Upcoming FOMC Meeting
- Equities Pricing In Strong Consumer And Govt Spending
- A Final Look At Q4 2016 Earnings Growth
- A Final Look At Q4 2016 Revenue Growth
- Company Guidance Is Now Negative
- S&P 500 P/E Ratios
- Stocks Are No Longer Correlated To One Another
- Crude Oil And Energy ETF Flows Diverge
- Betting On Commodities
- U.S. Interest Rates – Uncertainty & Ultra-tight Trading Ranges
- Central Bank Balance Sheets
- Bond Market Sentiment Update
- Bond Market Sentiment Update – 2
- An Updated Look At Credit Spreads
- An Updated Look At Gas Prices
LT Outlook: ” The “Inflation Adjusted” DJIA Back to 1800
- The Financial Times – OECD warns of need to escape global ‘low-growth trap’
Static forecasts signal disconnect between business upswing and real economy outlook
A strong upswing in business and consumer confidence and buoyant financial markets are not enough to pull the world out of a “low-growth trap”, the OECD said on Tuesday as it released its latest forecasts.The Paris-based club of mostly rich nations noted that it had not revised up its growth forecasts from those in November so there was now a troubling disconnect between buoyant financial market valuations and real economy prospects.
- CBS News – 60 Minutes: France’s Marine Le Pen says she’s not waging a religious war
“Everyone has the right to practice their religion, to worship as they choose,” the French presidential candidate says. “My war is against Islamic fundamentalism.”
We begin tonight with a story about a populist politician who rails against free trade, wants to get tougher on immigration, is skeptical of NATO and sympathetic to Russia. We’re talking about a woman named Marine Le Pen, the candidate in France’s upcoming presidential election who’s shocked the political establishment with her meteoric rise, shocked because the name Le Pen has long been associated with anti-Semitism and racism in Europe. Her party, the National Front, used to be on the fringes of French politics, but in recent years Marine Le Pen has given it a makeover and she’s now riding a wave of populist anger sweeping the West with Britain’s vote to leave the European Union and the election of President Trump. And just like Mr. Trump’s rise, the rise of Marine Le Pen is turning conventional political wisdom on its head.
- The Wall Street Journal – Short-Dated U.S. Bond Yields Hit Post-Crisis High on Fed Anxiety
Fed Chairwoman Yellen is scheduled to speak Friday
The bond market is finally getting real to the possibility of a Federal Reserve interest rate increase in two weeks.Investors this week have been selling Treasurys that tend to lose value when the central bank tightens monetary policy. On Thursday, the selling pressure sent some short-term bond yields that are highly sensitive to the Fed’s outlook to post-crisis highs.
- The Wall Street Journal – Futures Traders Not Looking Far Ahead of Fed’s Possible March Rate Rise
A surge in bets on an increase soon hasn’t come with a discernible shift in expectations of further moves
Investors may be increasingly sure the Federal Reserve will raise interest rates this month, but they haven’t yet reconsidered what happens next.That, at least, is the message coming through from the futures market. There, the sudden surge this week in bets that the Fed will lift rates by a quarter percentage point on March 15 hasn’t come with any notable shift in expectations for how many further increases there will be in the next couple of years.
- Financial Times – Surging exports propel US to bigger impact on global oil market
Outbound shipments of more than 1.2m barrels a day present challenge to Opec nations
Outbound shipments of crude have surpassed 1.2m barrels a day, more than last month’s daily production of Algeria, Ecuador or Qatar — each a member of Opec. The foreign sales underscore how the US has become more integrated into the world oil market since Washington lifted 40-year-old constraints on crude exports at the end of 2015. The US continues to import much more than it exports but its oil companies now have the freedom to market barrels abroad when it makes economic sense. The situation presents a further challenge to Saudi Arabia and other Opec members, which historically held the power to turn supplies on and off when needed.
- Bloomberg – U.S. Shale Surge Threatens OPEC Strategy
OPEC’s output agreement may have put a floor under prices, but it has also prompted the return of U.S. shale.OPEC’s Nov. 30 output agreement to cut production by 1.2 million barrels a day may have put a floor under the oil price, but has also awakened U.S. shale. Exploration and production companies have added 77 rigs this year to Feb. 24, according to the latest figures from Baker Hughes, while U.S shale production is forecast to reach about 4.87 million barrels a day in March, according to the Energy Information Administration’s latest Drilling Productivity Report. That’s the highest since May 2016.
- Bloomberg Brief – Investors Betting Oil Will Break Out of Narrow Range (PDF)
Oil has traded above $50 a barrel since OPEC and 11 other countries started trimming supply on Jan. 1, which has in turn helped fuel a revival in U.S. shale drilling. American explorers have almost doubled the number of rigs targeting oil since May, according to Baker Hughes. The mixed signals have locked WTI in its narrowest range since 2003 this month.
- Bloomberg – Bizarre oil trades pose menace for OPEC in its prized market
“Asian refiners have the choice to buy crudes from North America, the North Sea, the Caspian as well as North and West Africa,” said Ehsan Ul-Haq, an analyst at KBC Advanced Technologies. “Refiners will certainly look at arbitrage economics but with all key benchmarks showing a narrow spread with each other, there are numerous possibilities to meet their requirements.”
- The Wall Street Journal – Surprise: Earnings Actually Drive Stocks
One of the reasons behind the market’s big rally is a surprisingly good earnings season
U.S. stocks have been on an absolute tear. Among the reasons: a surprisingly good earnings season. Lost in the speculation about the Trump administration’s expected business-friendly policies were better-than-expected corporate earnings. With most S&P 500 companies having posted results for the final three months of 2016, it is confirmed that the biggest U.S. companies have started a new growth streak. More good news is expected in coming quarters, too. Fourth-quarter earnings are expected to log an increase of 4.6% from the same period a year ago, according to FactSet. That would mark the second consecutive quarter of year-over-year growth. And it would put the prior earnings recession of five consecutive quarterly contractions further in the rearview mirror. The last time the market had back-to-back quarters of earnings growth was in the fourth quarter of 2014 and the first quarter of 2015.
- The New York Times – Binyamin Appelbaum: Some Fed Members Back Quicker Move on Rates
The Fed also announced a few housekeeping changes, primarily of interest to close watchers of the central bank. Fed officials are now prohibited from speaking about monetary policy for 10 days before a policy-making meeting, rather than one week. The Fed also said it would expand the information provided with its quarterly economic forecasts to include an illustration of the uncertainty surrounding the projections.
Inside Baseball: The Fed is adding three days to its pre-meeting blackout period, and introducing fan charts on its forecasts in March.
— Binyamin Appelbaum (@BCAppelbaum) February 22, 2017
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- The Washington Post – The United States of oil and gas
Since 2010, the United States has been in an oil-and-gas boom. In 2015, domestic production was at near-record levels, and we now produce more petroleum products than any other country in the world. President Trump said he plans to double down on the oil and gas industry, lifting regulations and drilling on federal land. Here is the state of the petroleum extraction industry that the new administration will inherit.There are more than 900,000 active oil and gas wells in the United States, and more than 130,000 have been drilled since 2010, according to Drillinginfo, a company that provides data and analysis to the drilling industry.We’re familiar with oil-rich regions of Texas, but technological advances and new pipeline infrastructure have brought the ability to extract these resources to new parts of the country, injecting billions of dollars into local economies and spurring a modern-day gold rush.