Powell, Rates, Curves and More
Jordan Peterson and Jim Jordan hmm must be fate
Ok with Powell’s Humphrey Hawkins testimony out of the way and the obvious higher terminal rate and hawkish for longer mantra, the markets seemingly took all this in stride. Yes we have seen the US yield curves dump with quite vigor yet something tells us that trouble will beckon quicker than even the FOMC believes. If we do start to see trouble, it will show up in the economic numbers here over the next few months and history tells us, things go south and they go south much faster than anyone can imagine and certainly quicker than the time things took to reach certain plateaus. Much like most things in nature, that take time and effort to build, the destruction of such entities generally occurs right away, economic turnarounds are no different, lets call it market entropy if you will.
As such with the higher terminal rate, we can now see that the CME WatchTool post Powell is clearly signaling for a 50bp move in 2 weeks and you can see the one month turnaround from 25bp to 50bp expected now as a month ago the 25bp hike came with a 91% confidence level and now 50bp is posting the 78% confidence level:
So with expectations for higher terminal rates and the fact that the US yield curve has taken a continued beating, we wanted to look at the MOVE Index, which is the proxy for bond market volatility to see if we can get any glimpse of any patterns. US Govt 10yr rates have risen some 60bp off the lows while the MOVE has also rallied, are we getting close to an inflection point? We think so…
Speaking of the US Govt 10Y, we also had a 10Y reopening auction today which did not go well as it tailed by 2.7bp double the 6 month average with a high yield of 3.985%, this sent 10Y yields back up to their highs of the day.
When we look at the US Yield curve from the 5s30 sector or the FOB, which we covered in a post last week, we can see that on the weekly, we are back to 1999 levels. Have we seen enough bailers yet? Perhaps and we also suspect some larger balance sheet types we will start to dip their toes back into the front end here to support these bailing weaker hands:
We also wanted to note that we post on LinkedIn quite a bit and that we often find ourselves educating people when they make false claims or assumptions as to any data we present. We also will acknowledge if our data is wrong and immediately correct it. (hubris not, humbleness yes) However in this case we had someone question the fact that the US Govt interest payments will rise to $1 Trillion dollars given the rise in short term funding rates. They said no, that is not the case, that the Federal Reserve takes in nearly half that interest and remits it back to the US Treasury…to which we aptly responded with a graphic, which we show here:
As well as this graphic here from FRED:
They responded with the latest CBO budget report which showed a NET interest cost of $640B which actually proved his initial insight wrong that half the interest goes back to the US Treasury. Then I also had to point out that he must not have read the full report because it uses assumptions and estimations for tax receipts etc. as well as a 2.8% 10Y yield equivalent with a prevailing 3.8% rate assumption as well. Furthermore that is 10Y equivalents and we know the maturity spectrum is more aligned to a 7Y duration anyway and an inverted curve will exacerbate interest costs as well and are currently 4% plus.
We don’t mind educating, as it is our job!
We also wanted to share this chart of the DAX futures. We have been watching this chart for a few years and we can’t help but notice this current zone seems very, very important. We feel the next leg down will begin with a break of this zone and we feel the markets continue to show resiliency but the bond yields may prove to be too much and this may be a good spot to gain some alpha:
Basically what this chart values is the net Euro P+L of being long a single DAX future since 12/31/2018. A Break of €116k would confirm a bearish reversal from this consolidation. Also as long as we are above there the market can continue higher.
We will leave you with the Nasdaq futures chart this is the March contract and 12280 is the hurdle on the upside and 12110 on the downside, but it is interesting to note we are currently in a 5-week down trend and only a close above 12350 consecutively would change our minds.
It is also interesting to note that Gold has also peaked on the same day as the SP500 and has been in a downtrend since Feb 1 also:
Finally, in other news, this is a must read and watch. This really is a very big deal and yet like must things that are done at the highest levels, we hear a bit of clamoring on Capitol Hill and then crickets. However given the far reaching implications and over reach during Covid and the well known fact that the so called “conspiracy theorists” were right as they are most of the time now, well this should be front page news globally. Anyway here is the link to Jim Jordan today, Jim Jordan / Fauci cover up
The thing is about today’s world and access to information, it is becoming increasingly more difficult to hide the truth when it comes to these corrupt people in power, that have been in power for a very long time. Look it is no secret that money corrupts, that power corrupts and that the interest of a very few is always at the risk of the many.
Yes we know power prays on the weak and the subservient, the uneducated, or should we say poorly educated and it is because of this that we must always look to be on the side of the light, the good, and we must be the arbiter of the truth. We know that Covid was a very big deal, we know that the people in power positions that were suppose to protect us, did in fact hide the truth and it is finally coming to light. This is something that Jordan Peterson talks about all the time. In fact we had the pleasure of seeing him live tonight! He says you know what separates tyrannical regimes from Republic Democracy? Its that one system is built upon lies the whole system in fact, and the other is built upon trust and truth! We must never lose sight of this reality and it is why we are so vocal about it. We will never relent, we will never let down the generations that came before us to fight for freedom and individual rights and neither should you.
Jordan Peterson’s work must watches and must reads, his books Maps of Meaning, The 12 Rules of Life, Maps of Meaning, Beyond Order and all of his work on YouTube he puts out for free. His work has guided us for years, his advice transcends through to anyone who is going through anything that is difficult. One of the best videos on his advice can be viewed here in this link, in particular pay close attention to the time frame from 1:07 to 1:13. We linked the video to start at this time, this should resonate with you, if it doesn’t than you miss the meaning as to why we do all that we do, Jordan Peterson Via Success Chasers
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