Interesting TACs of the Week (September 4 – September 10, 2021)

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 Signal

This year, it has usually come down to one signal for stocks. And look what how it acted on Friday afternoon:

It wasn’t the Apple news that led to the 16% up move in VIX from 18 to 20.95 on Friday. The steep fall in Apple ended at noon while the VIX explosion began around 12:20 pm. 

  • From The Market Ear – VIXplosion on a Fridayhaven’t seen this in a while
    VIX has traded “stressed” and well bid during the entire week. Even when market was doing very little, the bid in VIX remained solid. Here we are with market down 0.6%, and VIX exploding. Last time VIX was here Spoos was some 60-70 handles lower. The entire term structure is shifting higher, especially the short end, which is where the biggest “panic” is traded 

Frankly, we don’t like ugly Friday afternoons with VIX bursts. We do recall dismissing such actions when the stock market took a downturn after labor day in September 1987. On the other hand, it could simply be a meeting of two related levels:

  • Bob Lang@aztecs99vix rallied up sharply to come up and meet the sep vx future, which expires on the open 9/15

If this is all, then this action should stabilize by next Wednesday. Especially when the hedging in S&P is at an “extreme level”, according to

  • Fear protection. A trader in S&P 500 options would have to go 40% out of the money to buy a put with the proceeds of selling a call that is only 10% out of the money. This is a sign of extreme hedging demand, the highest in several years.”

Normally, we would welcome such “extreme” hedging because it in itself is a signal for a reversal. But we do recall what happens when such conditions don’t reverse quickly, especially in September. 

On the other hand, recall what Tom McClellan wrote last Thursday, September 2:

  • “September has a bad reputation as a awful month for the stock market. This year, that bad stuff is likely to wrap itself up early in the month, and then surprise a bunch of analysts by bringing a rising stock market for the rest of the month of September“.

By definition “early in the month” ends on September 15, the middle of the month. And  September 15 is the expiry of VIX futures as Bob Lang pointed out in his tweet above. And look what Tom McClellan wrote this past Thursday (9/9) in his article High Yield Bond A-D Line Resolves Divergence:

  • “Just a few weeks ago, there developed a troubling divergence between the HY Bond A-D Line and the SP500. these divergences can be a big deal.”
  • “It is also a big deal when an apparent divergence gets rehabilitated, which can happen, and which has happened in this current case.  The HY Bond A-D data were looking bad, but suddenly started improving.  This A-D Line has now resolved its divergence, and moved ahead to a higher high.”
  • “The message is that whatever liquidity problem was happening before has now been resolved, and liquidity is restored.  For how long is a separate question.  It is possible that another divergence could develop and point to a major top in the weeks ahead, and if that happens I will be calling attention to it in The McClellan Market Report and The Daily Edition.  It is worth noting that the NYSE’s Daily A-D Line has still not made a higher high.”

Since everyone tells us that the Bond market is smarter than the Stock market, this has to be good news, right?

Wrong, if the True Seasonal Pattern of Larry Williams proves to be correct per Jim Cramer  

  • “Williams points out that the optimal seasonal sell point continues to be the same — around September 17th. … This is when prices tend to experience a precipitous drop,” Cramer said. “If history’s any guide, there’s a high probability this market will get hit with a meaningful decline at the end of this month, which is one reason, I think, it’s been so soggy for the last week.”
  • “when factoring in the Covid delta variant leading to an economic slowdown, “fear of the Federal Reserve and the possibility of a debt ceiling debacle in Washington, the September sell-off … can easily become what I call a self-fulfilling prophecy,” Cramer said.”


2.Looking Ahead

Being simple and of a simple mind, our base case is for a rally into year-end 2021. But we have been worried about what early 2022 brings, worried about a violent correction in January 2022. Some are worried about something worse. wrote this week that the probability of a new bear market is rising. We hope they are wrong but think the article is a good read. Couple of excerpts below:

  • To differentiate temporary slowdowns from real problems, we look for significant macro deterioration. The Macro Index Model combines 11 diverse indicators to determine the state of the U.S. economy. Once the final reports were in for August, the model plunged below 46%, the 2nd-lowest reading of the past decade.
  • “At the same time, the Bear Market Probability Model has jumped again. … The higher the score, the higher the probability of a bear market in the months aheadLast May, the model was in the bottom 10% of all months since 1950. This month, it jumped into the top 10% of all months.”

What happens when both of the above models are at such extremes at the same time?

  • When we combined the two models, the current conditions are the most extreme since 2007. Going back more than 50 years, forward stock returns under similar conditions were horrid.

30-year Treasury Bonds anyone? But wait. Instead of waiting for the above to unfold, there was a virtual stampede to buy 30-Year Treasuries at this past Thursday’s auction. But despite that, the 30-year yield rose 4 bps on the week with the 10-year yield rising 2 bps. 


3. Commodities


  • Lawrence McDonald@ConvertbondUranium equities in $URNM ETF are up 7-16% today. It’s a beautiful thing coming out of a 12 year bear market- the unloved have become loved. Reddit, $GME $AMC capital is joining the party. After the Silver debacle, they finally found a market they can move. Utilities are short.

On the other hand, a note of caution from J.C. Parets on Friday:

  • “And, of course, we continue to see plenty of strength from base metals. But some of the more recent data suggest we should approach these contracts with more cautionNotice how one of these doesn’t quite look like the others:”

  • Iron Ore futures have dramatically rolled over in recent weeks, falling by nearly $100 even while most of its peers remain resilient.”
  • “Could this be an indication of coming weakness for base metals more broadly? Or, is Iron Ore just an anomaly and eventually catches higher along with the likes of Steel and Tin?”
  • “In our opinion, considering the slingshot rallies higher that many of these contracts have enjoyed since last year, some digestion here would be healthy.”
  • At the same time, it’s hard to be too bearish as Iron Ore is only one data point. Strong uptrends and big base breakouts continue to be the norm throughout the industrial and base metals group.


4. A 9/11 to forget or to remember?

To us, 9/11 is a hallowed figure, a symbol of enormous harm as well as a symbol of just punishment for the evildoers. Since then, every 9/11 we remember our own oath to never forget. 

But today 9/11/21 is a day of enormous pain, far greater than the pain on the real 9/11. Because it is a pain out of shame, out of something we saw America do that we never thought we would see. A day when the Taliban hoisted their flag on the U.S. Embassy in Kabul, a symbol that will haunt us for a long time. 

We would like to forget this 9/11 but we don’t think we would be able to. Unless …. 


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