It’s another example of the difficulties in trying to evaluate and analyze non-economic factors. China’s virus outbreak is a nightmare for those unfortunately living through it, and Chinese officials aren’t doing themselves any favors. Trust is a sketchy enough concept. The WHO today says there is no pandemic, which, as Erik Townsend of MacroVoices points out, immediately puts this announcement [...]
The investment industry is always focused on the short-term, an attempt I think to justify fees through activity. A recent example is the breathless reporting about a short term shift toward value stocks. Value has underperformed for so long that everyone is hyper-focused on finding the inflection point so every wiggle in that direction is hailed as the turning point. [...]
It isn’t inflation which is driving gold higher, at least not the current levels of inflation. According to the latest update from the Bureau of Economic Analysis, the Federal Reserve’s preferred inflation calculation, the PCE Deflator, continues to significantly undershoot. Monetary policy explicitly calls for that rate to be consistent around 2%, an outcome policymakers keep saying they expect but [...]
This is a companion piece to last week's Monthly Macro report found here. The Treasury market continues to price in lower nominal and real growth. The stress, the urgency, I see in some of these markets is certainly concerning and consistent with what we have seen in the past at the onset of recession. The move in Treasuries is by [...]
Gold is the ultimate hedge, but it is far from perfect. Unlike, say, sovereign bonds there should be no expectation for a negatively correlated price. You can buy a UST or German bund even at negative yields and at least expect the price to rise when things are at their worst. Flight to safety or flight to liquidity. You can’t [...]
The markets we use to monitor the economy (and those that influence it, which amounts to the same thing) have been tracking an economic slowdown since the 4th quarter of last year. That's when interest rates, real and nominal, long term and short term, started to decline, credit spreads started to widen and the copper to gold ratio started to [...]
The Trump administration raised tariffs last week from 10% to 25% on $200 billion worth of Chinese goods and are considering tariffs on another $300 billion of Chinese goods. The Chinese retaliated this morning, raising tariffs to 25% from 5% and 10% on various goods totaling $60 billion. Obviously, the trade negotiations are not going well. Stock markets around the [...]
When all this federal funds business started, the effective federal funds (EFF) rate was pretty well established at 16 bps above the RRP “floor.” It had been that way, consistently, all throughout Reflation #3, all throughout 2017. So consistent, that dependable spread was a very solid indication of reflation. As of yesterday, EFF was…16 bps above RRP. It’s not at [...]
Gold, in my worldview, can be a “heads I win, tails you lose” proposition. If it goes up, that’s fear. Nothing good. If it goes down, that’s collateral. In many ways, worse. Either way, it is only bad, right? Not always. There are times when rising gold signals inflation, more properly reflation perceptions. Determining which is which is the real [...]
Don't waste your time worrying about things that are well worried. Well worried. One of the best turns of phrase I've ever heard in this business that has more than its fair share of adages and idioms. It is also one of the first - and best - lessons I learned from my original mentor in this business. The things [...]
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