Interesting TACs of the Week (September 23 – September 29, 2017)

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.Back to the election?

Clearly the markets want to believe. We saw that this week when the outline of the tax reform proposal came out. That day in itself was a repeat of the post-election action. Add to that the stimulus coming from rebuilding post Harvey, post-Irma, & now post-Maria.

Market & political pandits kept warning that the proposed tax reform has no chance of passing. But markets did not care. Perhaps they are right. The congressional Republicans have their backs against the wall. They get the message of the victory of Roy Moore in Alabama and the support President Trump has gained by attacking the NFL for disrespecting the National Anthem & the Flag. That has aroused the base just in time for President Trump to begin selling the tax plan.

So some form of a tax cut will pass, we think. The markets are signaling so with rates going up, Dollar rising some & US small caps breaking out. That brings us to the posture that has proved successful all year, the posture expressed weekly by Lawrence McMillan of Option Strategist:

• “In summary, all of our intermediate-term indicators are bullish and thus so is our outlook. We will remain bullish as long as the indicators do, preferring to follow the trend. Having said that, we also view the potential for a sharp, but short-lived correction as being significant right now, and even a slight increase in volatility could trigger it.”

 2. Good Overbought or Bad?

First the who cares wing!

• “Finally the Russell Micro-cap Index. Same story: Major base and fresh breakout after not doing anything this year”.

And the conclusion:

• “I don’t see the point in getting cute and buying garbage like Bonds and Precious Metals. They’re losers. Other than maybe a quick mean reversion trade for a few days, if you’re into that sort of thing, there is no reason to buy those other assets. We need to be buying stocks. Period”.

Now the watch out side:

And,

Harking back to our old friend Dr. Pangloss, wouldn’t it be great to have a swift, sharp correction to resolve the overbought condition and then run again?

3. Interest Rates

The curve steepened some this week with the 30-10 year part going up more than the short end. The German 10-yr knocked again on the 50 bps door this week but didn’t break it down. The momentum is clearly to the upside & Draghi is next to speak. But the momentum of inflation in Europe is still going the wrong way: