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.”a timing issue or a paradigm issue“?
When BTV’s Lisa Abramowicz (LA) asked this question on January 3, was she thinking about Tom Brady rainbowing 3 touchdown passes to Mike Evans? The Brady-Evans issue about not connecting on passes was discussed as an issue of both time & timing. For those of us who have followed Brady since his Michigan days, the answer was always clear.
But, to be honest, we don’t think Ms. LA was referring to Brady-Evans. How could we? It is clear to most that BTV surveillance means soccer when they say football & we do wonder if Ms. LA even knows of Mike Evans.
Our hurt feelings (& of all NFL/Brady fans) aside, the same question seemed smart when posed to Kathryn Kaminski of AlphaSimplex. The markets have come through an emotionally difficult time & a horribly destructive period of massive tax loss selling. But is that sell-off & the obvious macro reasons behind it mainly a timing issue or a paradigm issue? That is THE question in 2023.
Of course, Ms. Kaminski was too smart to answer the question, evidently schooled in what the Prime Minister said to his secretary Bernard in the fantabulous series Yes Prime Minister (minute 2:05):
- “pay no attention to the question, just make your own statement“
Ms. Kaminski said in response to Ms. LA’s question:
- ” … what we have seen is a massive consolidation and risk constriction; … what we are seeing now is the market has not really decided what next trends are going to be … “
Then she added:
- ” … we need to navigate the difference between the longer-term narrative of how do we get over the inflation numbers vs. things are looking better … “
What a masterly response! She simply restated the question in a seemingly affirmative manner! Cabinet Secretary Humphrey would have been proud of Ms. Kaminski!
But then Ms Kaminski yielded to temptation and added “with the exception of short bond signals still being relatively strong.. ” That was a couple of days before the waterfall decline in Bond yields thanks to Friday’s quasi-recessionary ISM services number & also due to Friday’s less than strong payroll number. How did Treasury yields perform this week?
- 30-yr yld down 29 bps; 20-yr yld down 30 bps; 10-yr yld down 32 bps; 7-yr down 33 bps; 5-yr down 30 bps; 3-yr down 24 bps; 2-yr down 17 bps; TLT up 5.6% on the week; EDV up 7.4% & ZROZ up 8.3%
For those who may not know, the 2022 performance of AlphaSimplex & Ms. Kaminksi was stellar. And Ms. Kaminski can quickly see her short bond signals moderate & act accordingly if they do. Especially if we see a state of “Nirvaan” in Fixed Income.
2. “Nirvaan” in Fixed Income!
That is a big statement and it comes from a mega-big fixed income guy, a man who manages some $2.5 trillion of assets. Look what Rick Rieder of BlackRock said on Bloomberg Open after the NFP number and before the 10:00 am ISM services number. Why the focus on ISM services? Look at Friday’s chart below to see the explosion in Treasury bond prices (& associated fall in Treasury yields) after the 10:00 am ISM number:
So what Rieder said at about 9:06 am on Friday is even more true after the ISM number:
- “ … You clearly see an economy that is moderating; … inflation coming down; we are going to see that next week … pretty good data if you are the Federal Reserve … volatility of the risk-free rate is coming down quite a bit; fixed income is going to do well ; … you can buy quality assets & get yourself 6% … in terms of your income … & not stretching to do high yield, not stretching to do emerging markets; that is Nirvaan* for fixed income; ”
*Rieder misprounounced the Sanskrut term Nirvaan as nirvanaa, as many Brit-trained speakers do. So we corrected the mispronunciation
Now read what the Bond King tweeted on Friday:
Do note that yields in the German Bund market were down harder than the Treasury market:
- “German 30-yr yielddown 39.6 bps; German 10-yr yielddown 37.5 bps; German 2-yr down 21 bps“
Let us be clear. Quite possibly inflation figures might surprise next week by being higher than what Rieder suggested above. And the FOMC might stick to a highly hawkish posture when they meet on February 1. But if the CPI & PPI do surprise negatively as ISM services did, then the FOMC might have to acknowledge that even as they remain hawkish.
By the way, if you need visibly stronger evidence how the weak ISM services number shocked global markets, look at Friday’s chart of DXY below:
Watch & listen to Rick Rieder’s comments in the clip below (beginning at minute 4:10):
3. Stocks – timing issue and paradigm issue?
We don’t need to discuss the paradigm issue for stocks at length. Everyone has heard the story about change in leadership following a nasty earnings correction that precedes/creates a big correction in the stock market.
Mike Wilson came in on BTV and repeated his “its all about profitability” assertion. He added that, “either way we are going to get a nasty earnings recession .. ” and “expecting a pretty sharp downturn in consumption over the 1st 6 months of the year” . So “inflation will come down pretty sharply” and “3,000 is a very achievable number ; our bear case is we avoid a recession but the not the slowdown (in earnings) … 3,000 target on $180 in earnings” .
Then we have Dan Niles who published his bear case as “2,400 is our downside case” while “3,000 is our single point estimate in this scenario“. That scenario is a “bear market that is accompanied by a recession typically results in an S&P decline of over 40%, indicating that we have not seen the lows for this downturn yet.” Sadly he adds “we do think we will get a recession and it is likely to be closer to severe given there are 4M “excess” job opening that will need to be destroyed to get wage gains under control.”
What if “… in 2023, we do not get a recession or it is mild“? Dan Niles wrote “we may have seen the lows already for this downturn“. We urge all to read his relatively short article titled Top 5 picks for 2023 not just for his top picks but for his reasoning of what 2023 might bring. We are thankful to Mr. Niles for helping us simple folks while his videoclip is hidden behind the CNBC Pro paywall.
We heard Eric Johnston of Cantor on CNBC Overtime on January 5 and couldn’t tell if his views were more about a timing issue or about a paradigm change. He does say we are in a different world right now but he said he may become a buyer at 3,500 (less than 10% away from the close of January 5). His basic call is “owning stocks is like playing with fire .. being short here is extremely attractive … — I think there is very little upside to this market even if everything goes perfectly“.
Unfortunately for his case, Friday January 6 was a spectacularly up day in both S&P stocks & US bonds:
- Dow up 700.53 or up 2.13%; S&P up 86.98 or up 2.28%; NDX up 299.14 or up 2.78%; RUT up 39.61 or up 2.26%; SOX up 117.58 or up 4.67%; DJT up 453.69 or up 3.38%; EEM up 2.09%; TLT up 1,84%; EDV up 2.36%; ZROZ up 2.58%.
In contrast, it seems the “timing” guru Tom McClellan made a fantastic call on December 29. He spoke convincingly about the decline in M2 and then addressed seasonality, a word that was held in contempt last week by the Fin TV anchors. He also made a great timing call that is in direct conflict with Eric Johnston’s call above:
- “(minute 4:17) you have got a perfect storm & seasonality is going to try to fight against that and it is probably going to win for awhile; I am looking for an important bottom next week, the first week of January; a little more bottoming action next week & the rest of January should be great; let everybody excited about the January barometer – we are going to have a bullish year – and once the market succeeds in getting everybody shifted over to the bullish side of the boat then we start selling again .. (minute 4:47)“
After a brief discussion with Mike Santoli about M2 & GDP, Mr. McClellan spoke about 2023:
- “(minute 6:59) 2023 is going to be more of a sideways year; so its going to be a great time if you are a short term trader – buy low, sell high & repeat a bunch of times; January should be great month; … February should be an awful month; .. I watch the SOFR futures (Secured Overnight Financing Rate Futures) … we are getting a big heads up … that is saying big month in January up & it all pays back in February & March … the time to buy & hold is not coming up … ”
Also bullish was Ben Laidler, ETORO Global Strategist on BTV Suveillance on January 4 who gave 3 reasons to be bullish:
- “inflation & rates shock of 2022 is sort of breaking… getting visibility on top of the interest rates cycle… sooner that comes gives a little bit of relief to recessionary expectations & valuations”
- “China is going for growth … if they can stabilize growth over the next quarter that goes a long way to reducing global recessionary risks; …”
- “global equities can’t do well this year unless tech does less badly; its 1/3rd of global equities; do think earnings will be under pressure – tech stocks are cyclical but remember valuations have been crushed … when sentiment is as depressed & as bearish as it is now, all you need is a little bit of less bad news to take markets higher … I think bond yields stay at these levels or come down from here – that’s key support”
The above stuff is complex. What we really like is something simple. Something like the potential for a snapback from the crushing damage inflicted on stocks & securities that have been sold & sold for tax loss in December 2022. For these you don’t even need less bad news. Mere top of bad news sometimes does the trick. Witness this week’s Tesla chart:
First the bad news on Tuesday and then the more awful news on Friday. Then we saw the vicious rally in TSLA on Friday. Is that also why the Semis were up almost twice as much the NDX. Speaking of how stocks can act if the news is bad but not horribly bad, look at the Micron chart below:
What if rates stay around these levels or lower & earnings come in bad but not much worse than expected? How will the sold, over sold & mega sold for tax losses stocks perform?
All this is not a paradigm change but we do recall that every time series is a sequence of daily changes. So a series of timing-based changes can create a paradigm change at times. And while timing issues are looked down by the cognoscenti, they can do quite a bit for making money. Finally thanks to BTV’s Lisa Abramowicz for giving us a good & succinct title for our musings.
What worked on Friday were commodity related stocks, something predicted earlier by by Carley Garner as relayed by Jim Cramer:
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