Interesting TACs of the Week (February 15 – February 21, 2020)

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.”Viral” just got scary!

Should we stop using the term “viral” or “went viral” casually in everyday conversation? The term suddenly got serious in markets during the last day & half. When coronavirus cases jumped in South Korea, when Iran got affected in a viral way & when WHO/CDC began talking about United States being unprepared, all of a sudden the stock market hit an air-pocket. Then, with US Markit PMI coming in weak, Thursday’s airpocket in the stock market became a turbulence on Friday. And low rates became a problem instead of support for stocks.

The sight of the 30-year Treasury yield breaking below 2% was even unnerving to Jim Cramer as he said on his Mad Money show on Friday evening. And the 10-year yield closed at 1.47% below 1.50% which was deemed strong support.

Priya Misra of TD Securities said on Friday afternoon on Bloomberg Real Yield that Treasury yields have lot more downside. She said the 10-year yield could get down to 1.25% and she also felt that the 30-year yield could see 1.60% before seeing 2.20%. While she thought that the rate move is getting a bit ahead of itself, she pointed out that the Treasury market is the most liquid market in the world & Treasuries have the highest yields in the developed world. Her more interesting point was that Bunds are now more attractive than Treasuries & a Bund rally could be the trigger to drive Treasury yields lower.

And David Rosenberg sort of took a victory lap:

  • David Rosenberg@EconguyRosieI find it necessary to remind the critics out there who label me a “perma bear” that I’m actually a “perma bull” on the long bond — oh, which only has delivered a +30% total return in the past year!

A lot of people made fun of the stupid cover graphic of the Economist:

J.C.Parets wrote:

  • “Hey guys, economists finally the memo about the uptrend in tech. Classic behavior for the end of cycles. We’re out of tech. You and the economists can have them if you’d like.”
  • This cover of stampeding robot bulls makes me want to stampede in the complete opposite direction and really reiterates why we’ve preferred being in bonds than stocks. We want to stick with that heavy cash, heavy bonds and little or no stocks. We’re not buying Tech. The Economists can have it.”

Look what happened to Emerging markets this week. EEM was down 2% but Brazil was down over 3% and South Korea was down 6%.

  • Mark Newton@MarkNewtonCMTBrazilian Real breakdown (Dollar breakout -$USDBRL ) from multi-year Cup and Handle pattern looks important technically

By the way, remember when “junk bond” was deemed to be a misnomer & replaced by “high yield”. Is it now time to replace “high yield” by something else?

Despite all the above about Bonds, the best performing asset class was one that doesn’t even have a positive carry. Gold exploded up by 3.8%, while Gold miner ETFs, GDX and GDXJ rocketed up by 8% and 9.5% resp. But do rockets keep going up? Not really said, Mark Newton:

  • Mark Newton@MarkNewtonCMTGold positioning, meanwhile showing Net longs above 350k, very extreme, & seems like this trade has nearly worn out its welcome as EVERYONE in Gold -Technically appealing while Fundamental rationalizations on #COVID19 Safe haven- Keeping close eye on the Exits over next 2 wks

Is there anything positive we can quote about US stocks?

  • Helene Meisler@hmeislerHoly Put/Call Ratio Batman. It’s 103% which if it closes over 100 would be highest since 1/31.

Next something not very negative? From Lawrence McMillan of Option Strategist:

  • A decoupling of sorts has appeared in the market this past week. It’s a bit reminiscent of the “Nifty 50” group back in the 1970’s, but if today’s version of those high-flyers really does have a serious correction, it will drag everything down with it, just like it did in 1973-74. …. In summary, the bears surprisingly have something to work with. A sell signal in $VIX is nothing to scoff at, and if it were accompanied by a breakdown below $SPX support at 3330, that would be a potentially powerful bearish combination. For now, though, the bulls can still rescue things, but they are running out of room.

Now a clear negative:

What about the intermediate term, you ask? Who can say without understanding how & for how long will the CoronaVirus impact the global economy? For example, earlier in the week we read about simple drugs & tablets getting very expensive or simply becoming unavailable in India because raw materials for Indian drug manufacturers come from China. Then, on Friday, Jim Cramer expressed the same concern about US Drug companies seeing their raw material imports from China either stopping or becoming very expensive.

 

 

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