Summary – A top-down review of interesting calls and comments made last week in Treasuries, monetary policy, economics, stocks, bonds & commodities. TAC is our acronym for Tweets, Articles, & Clips – our basic inputs for this article.
Editor’s Note: In this series of articles, we include important or interesting Tweets, Articles, Video Clips with our comments. This is an article that expresses our personal opinions about comments made on Television, Tweeter, 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.Credibility & Pivot
The big news of this weekend is President Trump’s strike on Syria. Three targets all struck simultaneously in or near Damascus. This was twice as big as last year’s attack on one Syrian airbase. It was dangerous & done in an in-your-face manner to Russians. No wonder the body language of Secretary Mattis in his briefing at the Pentagon on Friday night was tightly controlled.
The biggest result of this attack is reaffirmation that President Trump keeps his commitments. He did to China last week and he did it to Russia this week. Most importantly, he reaffirmed it to Turkey which seems to be becoming a thorn in America’s side in Syria.
The equally important reaffirmation could be to American voters. He was elected in a large part because he was deemed “authentic”. Now everybody knows he is actually “authentic”.
This also shows the reality of President Trump’s pivot. Laura Ingraham expressed serious worries on her show on Friday night; Ann Coulter has already called him awful names. Conversely Ian Bremmer tweeted his first positive comment about President Trump:
- ian bremmerVerified account @ianbremmer Mission Accomplished irony notwithstanding, Syria strikes 2.0 (w France and UK) will go down as one of Trump’s most internationally popular foreign policy decisions.
Counter intuitively, this strike may enable President Trump to remove many if not all of US troops out of Syria. But more on Syria and the real war inside Syria next week.
2. Belly of the Curve
Everyone has been bullish or at least semi-bullish on the short end of the curve & its belly. Rick Rieder of BlackRock has been its most vocal proponent. This week, Mihir Vora of Pimco said 5-7 years of the Treasury curve seems attractive to him.
But the 2-5 year sector doesn’t seem to care what they think. It keeps going up in yield, fueled somewhat by hawkish Fed minutes & by hawkish comments by other Fed heads. The 3-year yield rose by a whopping 10 bps this week and the 2-year yield rose by 9 bps.Yes, the curve flattened even more this week but that topic is getting to be a bore.
The one exception is the article from Tom McClellan titled Fed is Behind, But Still Screwing Up. Apart from his cute idea of outsourcing the Fed Funds rate to the 2-year yield, his prediction is interesting & actionable:
- “My expectation is that by sometime later this summer, the FOMC is going to realize that its reduction of holdings of Treasuries and MBS is creating a big liquidity problem, and they will abandon or curtail those plans. But it is going to require a lot of damage to the stock market to get them to realize what they need to do. I expect that realization to hit them sometime around August 2018, and it should lead to a huge stock market rebound into year-end. But it will be a rebound from a big selloff.”
The other interesting action has been the 1% rise in High Yield ETFs.
As far as the rest, we really don’t know how the Syria strike will affect U.S. Dollar, Oil and Gold. And we see equally smart people voice opposite opinions on US equities. Banks reacted badly to their good earnings. But is that a buying opportunity because of the run into earnings? The rally this week was driven by a lack of bad news, by high put-call ratios and a reversal of a bad week before. Frankly, we have more questions than answers. So we will punt this week.
Another big reason to punt this week is the increasing probability of Deputy AG Rosenstein getting fired. Will the successful strike in Syria create a favorable risk profile for firing him or was that irrelevant?As we said, too many questions.
Before leaving, a really interesting tweet:
- Lawrence McDonald @Convertbond – Days of a Trader’s Heaven, Reminded me a lot of the Summer of 2007
Two ways to interpret this because the August-October 2007 period was very different from the post October 2007 period. So what exactly does Mr. McDonald mean? Will somebody ask him?
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