Posted in Charts of the Week, Samples

Merger Arbitrage (Human) vs Algo Hedge Fund Returns: The two charts below show the ends of the spectrum. The first chart shows the “algo and bot” driven hedge funds are doing poorly relative to the S&P 500 (blue). The second chart shows arguably a human-based activity, merger arbitrage. Of the more than 30 categories HFR tracks, this is the best performing category over the last three years, beating the global bond market (orange) and the MSCI world index (light green), but lagging the S&P 500 (blue). 




Apple, Disney and Berkshire Hathaway are regarded as three most highly thought of stocks to hold for the long-term. The charts below show a ratio of the stock price to the S&P 500 on a total return basis. All three have peaked years ago against the S&P 500 and collectively have been in-line to under-performing the S&P 500 for many years. Is this yet another reason to give up on stock picking and buy a passive index fund?





Heavy Long Positioning In EM Currencies Finally Losing Ground To Developed Currencies? 



China Increased Its US Treasury Holdings To $1.09 trillion in March. 




Posted in Charts of the Week, Samples

A look at S&P 500 Fundamentals.







Selling volatility through leveraged ETFs has fallen out of favor this month. The past 20 days have seen $218 million flow out of short volatility ETFs and $241 million flow into leveraged long volatility ETFs.



The short volatility trade has performed well even as ETF flows turned against the short volatility trade. Leveraged short volatility ETFs are +33% since mid-April. Leveraged long volatility ETFs are -22% over that same period.



Long And Short Crude ETF Assets And Flows.




Long Energy ETF flows continue to increase …



… As cumulative flows in long crude oil ETFs have dipped since February 2016.



A Look at Credit Spreads.




Gas Prices Remain Stable.



Interest Rates: In past weeks we looked at the long and short ends of the yield curve. This week we highlight Moody’s Aaa yields since 1913. Also of note on these charts are the recessions shown in gray.

Posted in Charts of the Week, Samples

President’s Approval Comparision: The black line on the bottom is of this interactive chat is Trump’s approval rating. While he has the worst approval rating for the first 115 days, he has been trending sideways since the week after he took office. So, nothing has changed. Is this about to change?

Posted in Charts of the Week, Samples

The probability of a Fed hike in June falls to 83%.



Will The Fed Respond To economic data missing expectations Since Mid-April?




Posted in Charts of the Week, Samples

S&P 500 Better Follows Soft Data than Hard Data.



Industrial Production jumps In April.



Citi vs Bloomberg U.S. Economic Surprise indexes:





Posted in Charts of the Week, Samples


China has begun to loosen its grip on capital flows, but the measures the PBOC put in place to limit trading in Bitcoin are as potent as ever. Bitcoin volume was decimated after the Chinese government began to tighten regulations on exchanges. It has not recovered.
The Chinese yuan’s share of Bitcoin volume crashed as well. Once dominant with 99% of trading volume, the yuan’s share of the vastly diminished volume is under 20%.
Posted in Charts of the Week, Samples

  • S&P Global Platts – US shale oil rebound shakes OPEC
    Even with oil prices hovering around the $50/b mark, the US rig count has increased rapidly while E&P companies continue to record substantial reductions in well drilling costs. The increase in new well oil production per rig demonstrates the extraordinary gains the shale drillers have made. In April 2014, new well oil production per rig on the Bakken was recorded at 492 barrels and on the Eagle Ford at 463 barrels. In April this year, the figures are 1,067 barrels and 1,448 barrels, respectively. Moreover, US E&P companies remain confident they can continue to eke further efficiencies out of their seemingly ever-evolving factory-mode production processes.
  • ETF.COM (April 24 2017) – Energy ETFs A Bargain If Citi’s $60 Oil Call Is Right
    The cartel meets on May 25 to discuss whether to extend the temporary production curbs put in place at the start of the year. Those curbs―a six-month output reduction of 1.2 million barrels per day from OPEC countries and 558,000 barrels per day from a group of non-OPEC countries―were aimed at reducing the enormous glut of inventories that had accumulated during the oil bust of the last couple of years. Key OPEC sources recently suggested that the cuts are likely to be extended. Kuwait’s oil minister, who expects the supply agreement to be renewed for another six months, said that he is satisfied with the compliance from OPEC and non-OPEC countries.
  • Mainstay Investments – High-Yield Default Rates Drop
    High-yield default rates are moving lower, according to Moody’s. A growing economy, a recovery in profits, and oil prices well above winter 2016 levels have supported a spread environment, somewhat reminiscent of the growing economies of the mid-1990s and mid-2000s, although spreads were tighter then. Moody’s trailing 12-month global speculative-grade default rate fell to 3.8% in March, down from its recent peak, and is projected to average 2.5% in the fourth quarter by the research and ratings firm. The trailing 12-month U.S. speculative-grade default rate fell to 4.7% in March and is projected to average 3.1%.


We’ve highlighted the rising correlations between risk markets and crude oil since early March, most recently on April 11. The chart below shows rolling 45-day correlations between spot crude oil and the S&P 500 (blue line) and high yield ETF HYG (orange line). Correlations have eased a bit since our last update, but high yield markets continue to monitor energy markets closely.

Even with oil unable to hold above $50, U.S. energy firms’ cost reduction efforts mean sustained prices above $40 can be profitable. Energy firms are sitting on thousands of drilled but uncompleted wells in shale oil regions. With average breakeven rates for existing wells in the $20s in key regions like the Permian basin, current prices provide enough incentive for producers to bring these wells online and begin pumping oil. The longer prices stay above breakeven rates, the more production U.S. tight oil producers can hedge.

The result is a more secure environment for high yield energy borrowers, and investors who took more risk in U.S. energy debt have been rewarded since Trump took office. The next chart shows cumulative total returns for Bloomberg’s U.S. high yield and investment grade energy indices. High yield has outperformed investment grade by 6% in the first 100 days of Trump’s administration.

ETF investors have taken note. Despite seeing a surge of outflows in March as rising U.S. production caught markets off guard, U.S. high yield ETFs have seen renewed interest from investors. Net inflows for the past 20 days have exceeded $2 billion. Investment grade fixed income ETFs were preferred by investors during high yield’s drawdown, but interest has waned in the last month. Net 20-day flows are just $614 million. Meanwhile high yield ETFs have, on average, outperformed investment grade ETFs by 2.8% since November 8 2016.


U.S. tight oil producers are taking advantage of idle, drilled wells ready to begin production with breakeven rates well below current prices. The ability to hedge production through the end of 2017 and even into 2018 will further solidify many high yield borrowers in the energy sector. It will also serve to reduce OPEC’s leverage as they meet next month to decide on an extension of production cuts.

With potential declines in oil prices less likely to dent high yield borrowers in the energy sector, any pullbacks on OPEC supply news in the next few months may be a buying opportunity. The real risk is the longer term question of whether U.S. shale oil producers have the discipline to ramp up production without sending prices below breakeven levels.

Posted in Charts of the Week, Samples
Forecasts for PCE core YoY inflation rising over the next 12 months are 97%. Upside growth in excess of 50 bps stand at 70% using realized economic growth through March 2017. All in all, we are very likely in a rising inflation cycle.
The chart below shows median monthly returns and percentage positive for the S&P 500, U.S. 10-year note, commodities, and U.S. 10-year TIPS for rising and falling inflation cycles. Not surprisingly, TIPS and commodities are star performers during rising inflation cycles.
Total return expectations for 2017 are offered below by multiplying the probability of various YoY core PCE inflation changes versus accompanying historical returns by each asset class.
According to this measure, the S&P 500 and U.S. 10-year note are already near expected returns for 2017. Conversely, commodities and TIPS show further return potential, reaching 6.77% and 5.50%, respectively.
A continued rise in inflation will likely produce greater volatility in nominal and real Treasury interest rates. The chart below offers perspective on movement of U.S. 10-year TIPS breakevens back to 1969. We simulate breakevens using gold, silver, 10-year yields, the 5y10y spread, and 10-year term premiums.
Posted in Charts of the Week, Samples


A client recently asked us to break down public and private pension funds’ holdings of debt versus equities. The first chart below shows the nominal holdings through the Fed’s latest Flow of Funds release as of Q4 2016.
The next chart shows the same data as a percentage of all pension fund holdings. The remainder of pension holdings are in cash or miscellaneous assets.
Posted in Charts of the Week, Samples


The chart below shows the complete history of Gallup’s presidential approval rating back to 1938. The first tab (Presidents’ Rating Comparison) shows the first 100 days of all presidents’ approval ratings since the Great Depression.

The middle tab (Presidents’ Ratings Over Time) shows all the Presidents back to 1938. Note you can pick a particular President, a range of dates or even the disapproval rating.

The right tab (How Trump Compares to Past Approval Ratings) show the range of all the previous Presidents in blue and Trump in Orange.


Posted in Charts of the Week, Samples

  • CNBC – The industry that opposed Trump the most has performed best in his first 100 days
    Despite loud opposition from tech firms to many of Trump’s policies, investors have hoisted many tech stocks to all-time highs since the election. Shares of Amazon, Apple, Facebook, Microsoft and Alphabet have hit one all-time high after another in 2017. The Nasdaq 100 has hit higher levels than ever, and the IPO market hit a seven-quarter high in terms of capital raised, according to Renaissance Capital.

  • The Financial Times – Nasdaq Composite breaches 6,000 for the first time
    Fang stocks — Facebook, Amazon, Netflix and Google — lead the charge
    The Nasdaq Composite breached the 6,000 level for the first time on Tuesday and extended its double -digit gain for the year as investors focus on owning companies with strong growth prospects. The tech-heavy benchmark climbed as much as 0.7 per cent to 6,022 early in the day after closing at a record high in the previous session. Renewed appetite for technology stocks and a rally in the so-called Fang stocks — Facebook, Amazon, Netflix and Google — has spurred a near 12 per cent gain for the Nasdaq in 2017, well ahead of the S&P 500’s rise of 6.5 per cent. Within the main S&P 500 sectors, technology has gained nearly 14 per cent in 2017, well ahead of other big industry groups. Tech has prospered as investors have sought fast-growing companies against the backdrop of questions over the outlook for the US economy and whether the Trump administration can push fiscal stimulus measures through Congress.


The first chart below shows YTD market capitalization gains through April 24. The green line shows the S&P 500’s market cap grew by $1.19 trillion, the orange line shows FAANG stocks grew by $392 billion and the blue line shows Apple grew by $140 billion.

The next chart shows Apple’s weight in the S&P 500 in orange and its contribution to the S&P 500’s returns in blue.

Apple alone has accounted for 11.71% of the S&P 500’s year-to-date return. Put another way, Apple returned 0.79% of the S&P 500’s 6.72% return for the quarter.


The chart below shows the same measures for FAANG stocks. They accounted for 32.76% the of the S&P 500’s year-to-date return. Put another way, FAANG stocks returned 2.20% of the S&P 500’s 6.72% year-to-date return.

Posted in Charts of the Week, Samples
  • ETF Trends – Oil ETFs Drubbed, But Some Argue for Upside
    For example, USO, one of the most heavily traded commodities exchange traded products of any stripe, slid more than 5%, but some market observers believe oil’s most recent plunge is not justified by poor fundamentals. In fact, Goldman Sachs opines that oil fundamentals are actually decent. “Goldman is reiterating its confidence in oil at a time when investors are fretting over whether U.S. production, which has climbed to the highest since August 2015, will undermine curbs by the Organization of Petroleum Exporting Countries and its allies,” reports Serene Cheong for Bloomberg. “After posting three straight weekly gains on expectations OPEC will extend its supply cuts, crude is now set for a drop this week following a decline of more than 3.5 percent on Wednesday.” Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices. Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.

Posted in Charts of the Week, Samples


The chart below provides a historical look at the yields of various Treasury instruments as well as Moody’s yields. Some of the data dates back to 1790.

In the case of the 10-year note, the following data sets have been spliced together:

  • 1790 to 1831: 3% British Consols
  • 1831 to 1919: High Grade Long-Term Railroad Bonds
  • 1919 to date: Federal Reserve 10-Year Constant Maturity

Also of note on these charts are the recessions shown in gray. While the National Bureau of Economic Research dates recessions back to 1854, various unofficial sources such as the Cleveland Trust Company Index were used prior to that.

When shown visually in this manner, it is interesting to see how much rarer and shorter recessions have become since the Great Depression. Perhaps the abandonment of the gold standard in 1933 allowed the Federal Reserve more flexibility in managing the economy.

Posted in Charts of the Week, Client Conference Calls, Samples

Handout, mp3 replay and webcast replay for our conference call titled The Growing Divide Between Survey-Based Data And Realized Data on April 20, 2017.

The handout can be found here (starts with the second post).  Q&A from this conference call can be found here.

Mp3 replay can be heard below:

Webcast replay below:

Posted in Charts of the Week, Samples

Open Charts of the Week

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


Posted in Charts of the Week, Samples

Open Charts of the Week

Topics Covered This Week Include:

  • Why Is The Market Rallying?
  • Why Is The Market Rallying? – 2
  • Did The G-7 Panic About The Carry Trade?
  • Which Measure Do You Prefer: Core vs. Headline
  • The Treasury Will Sell Its MBS Holdings
  • Japan’s CDS Soars
  • The PIIGS
  • The Federal Reserve’s Balance Sheet
  • Money Market Mutual Funds
  • Measures Of Debt
  • Retail Gas Prices
  • Federal Funds Futures: Large Speculators Liquidating Longs

Long Term Outlook

  • The Cumulative Total Return Of U.S. Equities From 1802 to 2011