Earlier this year I used the positioning in the 10-year bond to predict a rally which lasted for over 3 months. It ended recently as yields have risen about 35 basis points in the past few weeks. Now we’re at a similar point with the 2-year bond. As you can see from the chart below, the positioning is more negative than the 10-year bond was in March. The long positioning in the ten-year hasn’t abated despite the recent sell-off in the fast few weeks. This might mean the ten-year has further room to sell-off. A rally in the 2-year would cause its yield to fall and a sell-off in the 10-year would cause its yield to increase. This would mean...
It is hypocritical, I suppose, to claim that Janet Yellen is irrelevant while at the same time constantly writing about the oblivious things she says. The Fed doesn’t matter but we need to obsessively focus on monetary policy anyway. Often the reasoning is upside down. By that I mean, we hope that by highlighting how little authorities know that someone somewhere will finally run with it. Step 1 on the road to recovery is changing the very idea of a central bank, and so obsessing about its missteps is part of the package. There are other considerations, too. Though while QE, for example, achieved nothing of monetary value, it was not itself...
Central Banks are slowly waking up to the fact that they cannot fix structural economic issues. In fact, evidence from the great monetary experiment of the last decade, indicates that they probably enhance them. The real economic problem is growing income inequality. Real economic growth is dependent on middle class consumption, and absent real wage growth, this consumption becomes ever more dependent on debt financing. While aggregated debt metrics for the U.S. consumer don’t seem to be overly-inflated, when you consider the burgeoning federal debt load issued for bloated entitlement spending, and the leverage of lower income families, a d...
USD/CAD dropped through 3 big figures as the Canadian dollar rose to its strongest in nearly a year versus the U.S. dollar. As expected the Bank of Canada raised interest rates by 25bp and upgraded their 2017 and 2018 GDP forecasts. They attributed the slowdown In inflation to temporary factors and while Governor Poloz said they need to carefully gauge the impact of higher rates, he also there is “no doubt interest rates will be higher over time.” With the recent improvements in data, the “economy no longer needs as much stimulus” and the upward revisions in GDP showed the output gap closing sooner than they previously anticipated acc...
In a research note this morning, Jefferies analyst James Kisner cut his price target for IBM (IBM) saying that while the company may offer one of the more mature cognitive computing platforms today, the “hefty services” component of many Artificial Intelligence deployments will be a hindrance to adoption. TOUGH FIGHT IN AI: Jefferies’ Kisner lowered his price target for IBM to $125 from $135, while reiterating an Underperform rating on the shares. The analyst told investors that his channel checks indicate IBM’s Watson platform remains one of the most complete cognitive platforms available in the marketplace today, but...
Key bank earnings are scheduled for release this Friday which are likely to provide a better understanding of the sector’s prospects in the near future. Banking stocks were buoyed by their success in the recently conducted stress tests. Moreover, the Federal Reserve has allowed all sector heavyweights to go ahead with their capital spending plans. But stocks from the industry have failed to replicate the gains they accrued in the immediate aftermath of the presidential elections. The absence of policy related stimulus means that they will have to rely on company specific factors in order to impress investors. In this context, key bank earni...
The utilities sector is well-known for housing conservative, high yield dividend investments. Like many industries, it is most well-known for its largest constituents. Names like Southern Company (SO), Duke Energy (DUK), and Consolidated Edison (ED) are generally familiar names among dividend growth investors. However, the utility industry also harbors many smaller, less familiar companies. Because they are less well-followed, they may create asset mispricings – or buying opportunities for opportunistic investors. South Jersey Industries (SJI) could be an example of a smaller utility with investment appeal. With a market capitalization...
BTC/USD Daily Technical Outlook: Bitcoin responded to a key support confluence this week at 2258 where the 61.8% extension of the decline off the record highs converges on basic median-line support. This threshold may continue to offer a near-term reprieve but the medium-term outlook remains tilted to the downside after Sunday’s breakdown. Interim resistance stands with the monthly open 2465 with a breach / close above the 2017 high-day close at 2667 needed to mark resumption of the broader uptrend. BTC/USD 240min Notes: A closer look at the 240min chart sees bullish divergence into these recent lows, further highlighting the risk ...
It’s important to recognize that there are many people in the financial industry who will never change their minds regardless of the facts. When you realize that, you become more skeptical of every opinion, which is a great skill to hone. For example, mutual fund managers are always optimistic about the long term because they want investors’ money. It’s possible to be optimistic about your own performance and pessimistic about the market, but the industry likes to keep it simple by remaining optimistic to avoid scaring people out of the market. If many managers were warning of a crash, some investors would pull out of everything instead...
The Bank of Canada has joined the Fed in embarking on the road to monetary policy normalization, hiking the benchmark monetary policy rate +25bps to 0.75%. This comes at a time as Canada’s property market is being increasingly labelled a bubble. Indeed the second chart shows a stark acceleration in property price gains and an increasingly overvalued property market (looking at the OECD housing market valuation indicators). Thus it makes sense that the central bank would reduce monetary policy stimulus in this backdrop. The risk in this sort of situation is always going to be that the central bank could end up bursting the bubb...