Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. This is an article that expresses our personal opinions about comments made on Television and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Macro Viewpoints & its affiliates expressly disclaim all liability in respect to actions taken based on any or all of the information in this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerance.
1. “Yield Curve is the Game right now”
So said Rick Santelli on Thursday morning. He is absolutely correct. And bad things happen to markets when the yield curve flattens.
Virtually the entire world expected the yield curve to steepen this year, to steepen with 30-year yield rising faster than 5-year yield. Just the opposite has happened. And this week it looked as if the entire yield curve will “scale down” in the words of Rick Santelli.
Even if the economy slows down and yield curve scales down, the yield curve may continue to flatten thanks to Chair Yellen’s comments. After all, she told the markets that her Taper will continue and rates may rise in 6 months after taper completes. So the short yields will have a natural tendency to rise and long rates seem disinclined to go up.
This is awful for the stock market which went up all last year on steepening yield curve and its message that the economy is growing. Is the flattening sending us another message this year? We knows short yields shot up courtesy of Chair Yellen but what about the long end?
- Lawrence McDonald @Convertbond – US 10 Year Yield is Screaming; Either China is a on coming, bigger US GDP drag than previously thought Or US economy facing soft patch
- Lawrence McDonald @Convertbond – If the economy is meaningfully improving, US 10 years shouldn’t have such a persistent bid, 2.67% down from 2.79% last week, $TLT breakout
Is McDonald right? We may know better next Friday after the payroll number.
2. Donald Rumsfeld Unknown?
The past week & half has featured vicious rotation, rotation that causes severe damage to large positions that can’t be closed quickly. Rick Santelli said on Friday:
- “most traders believe that the discriminating investor is going to be much stingier with their unrealized gains this point in the maturity cycle of the bull market of equities and I think I would agree with that”. .
Just look at EM equities and EWZ in particular. The Brazilian ETF is up 10% since the Fed meeting while tech darlings have been sold hard. Not just recent IPOs, FaceBook, NetFlix, but even Google the stock with the best fundamentals in the world as Stan Druckenmiller told us last year. This week “it may be the single worst acting stock in the entire stock market” in the words of Jim Cramer on Thursday.
It seems that investors are taking down positions because of fear, uncertainty or as Cramer said on Thursday:
- “This market is so confusing with so many cross currents that its creating a real sense of foreboding – an unknown unknown.. a Donald Rumsfeld unknown… investors don’t like being in the dark…”
This is the stuff a flattening yield curve creates. Thank you Dr. Yellen.
Cramer also said what has puzzled us:
- “what is driving oils up here? is there an embargo somewhere? does that mean something is lurking that we don’t know? “
Nick Tiller, ex-SAC manager, feels similarly as he told CNBC’s Kate Kelly;
- “the oil market right now is probably as dicey as I have ever seen it in my career,,, the geopolitical situation almost going on right now not even just Russia & Ukraine, but when you look at Libya, its in chaos, Iraq – they have increased production but its by no means stable… Venezuela is a mess; there’s lot of reason to be worried about supply disruptions…”
But Tom McClellan differs in his Thursday’s article Crude Oil Commercial Traders Bet on Decline:
- “The most recent high was at +26%, well above everything else in recent years. And the fact that we saw such a rise in their net short position on hardly any change in prices is particularly compelling. It is a big statement by the commercial traders that they believe crude oil prices are headed lower. This group usually ends up being right, although they can often be early in getting to a skewed position.”
- “What that tells me is that we are seeing a much more significant long-term indication of oil price direction, and the message is that prices should come downward. “
4. U.S. Equities
Despite the damage done to momentum stocks and the vicious rotation, the S&P remains close to its all time high. So where do we go from here? Jeffrey Saut of Raymond James sort of answered in email alert on Friday:
that yesterday the SPX fell below a short-term rising trendline (see
chart) and that there is a full charge of energy built up in my internal
energy indicator. A breakout above 1860 would suggest the energy will
be released on the upside. Below 1835 – 1840
would imply the opposite.”
Lawrence McMillan essentially said the same in his weekly outlook:
- “In summary, there are still conflicting signals: volatility is bullish, put-call ratios and breadth are bearish, and $SPX is trapped in a trading range. The issue won’t be resolved until $SPX breaks out of that 1840-1880 trading range.”
Michael Pento was a bearish as they come on CNBC Closing Bell on Friday. No wonder they deleted his comments from the videoclip of his segment on CNBC.com. Pento said, as we recall:
- “most bearish I have been since 2007 – I have sold everything except some gold stocks; I am 75% in cash”
Below are some bearish & bullish tweets we found interesting:
- StockTrader’sAlmanac @AlmanacTrader – Blog Post: Down Friday/Down Monday, 3 Peaks Domed House & Secular Bears, Oh My! $DJIA $DIA $… http://goo.gl/fb/BypQ3
- Minyanville @Minyanville – Good News for Market Bulls From S&P Indicator http://www.minyanville.com/
special-features/from-the- buzz-banter/articles/… $INX #S&P500 #bulls pic.twitter.com/4wp1pqN6fH unlimited-market-commentary- technical-analysis/3/25/2014/ id/54321
Guy Adami of CNBC Fast Money usually says that gold rallies like an escalator but falls like an elevator, or something very similar. That seems as good a description as any for Gold’s action post-Yellen.
The tweet below gave a measure of this elevator fall:
Eric Pomboy @epomboy – GDX relative strength index drops 50% in 6 days from 76.4 to 38.3. Wow.
The comments below are from an Gold death cross & post-FOMC sell-off on CityIndex:
“There has been a high profile bearish technical development in the price of gold, namely, a “death cross” formation, as indicated by a decline in the 100-week moving average below the 200-week moving average—for the first time since 2002. Care must be paid when drawing conclusions from “death” and “golden crosses” due to the time lag involved. Just as gold broke above its 55-week moving average, it failed to add to its advances, falling well short of the next key resistance at $1,484—confluence of the 100 and 200-week moving averages. Gold’s near term prospects are seen revisiting $1,295, a break of which will risk a trigger of stops towards the $1,270-3.”
Then you have the following tweet about the two crosses:
And finally a tweet from one who said “buy buy” in December 2013 and tweeted “lighten up” on Friday, March 14:
Lawrence McDonald @Convertbond – Almost time to buy some Gold Miners back
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