Officially the last Friday of summer. Yields in the U.S. are down slightly after rising solidly all week, the 2Y is down a bp to 5.14% and the 10Y is relatively unchanged at 4.48% (after touching 4.50%). Overnight, the BoJ held their benchmark rate at -0.10%, leaving their 10Y yield band unchanged at 0.0% with a cap of 1.0%. The Yen is weaker, with USD-JPY at 148.20, near one year weakness for the Yen. Yesterday the BoE paused in a split vote and UK yields have trended lower across their curve as investors bet they've seen a peak in UK rates. The dollar continues to be king, especially against the Euro where data has skewed weaker than expected. Overall yields continued to march higher, hitting new cycle highs and weighing on stocks, especially the Nasdaq. I guess market participants realized you do have to discount future cash flows (even if some of those cash flows might be make believe) back to present value at higher rates. When I see rates hitting the highest since 2007, I can't help but think of the events that transpired that year and into 2008 as the GFC took hold. It's light on the data front with only S&P PMI's today and of course the slew of Fed speak will begin. We also have a noon deadline for the UAW to expand their strikes.
JPM research note by Joyce Chang had some interesting bullet points in their update to their 10 strategic investment themes, here are a few highlights:
- The 10Y real UST yield just crossed 2%, moving rapidly to our medium-term target of 2.5%, but can easily overshoot as markets are becoming quite worried about an inappropriately large US deficit. The US is starting to lose its exceptional funding ability as it is now having to pay a significant term premium. The fixed income asset class has in turn again become competitive versus stocks, with the US Agg indicating a 5%+ return this coming decade, against 7.0% on US equities.
- The Great Moderation is no longer. We retain the view that central banks will not change their official inflation targets but will over time be challenged by competing demands to keep economies at full employment and protect their governments from the growing power of bond vigilantes.
- There will be no abrupt de-globalization, de-dollarization, or US-China rupture, but instead there will be a slow diversification of financial and economic exposures, particularly in sectors crucial to national security. This is currently showing up most vividly in foreign outflows from China, helped by growing pessimism about long-term growth in China.
XTOD: Kendall Roy to take over News Corp
XTOD: The revival of the multibillion-dollar spy network, known as the Integrated Undersea Surveillance System, includes upgrading and expanding a network of underwater acoustic spy cables which are hidden in secret locations on the ocean floor
XTOD: To say that wages can't go up because productivity isn't rising may have the causality backwards. Productivity rose most quickly in the US when its wages were the highest in the world and its manufacturers were protected, either by very high tariffs (before WW2) or by the need of the world to import US capital (between WW2 and the 1970s). That is why American businesses during this time benefitted from surging domestic demand and invested so heavily in improving productivity. Wages during this time surged. Since the 1970s, however, rather than lower unit labor costs by investing in productivity-enhancing technology, US businesses could do so much more easily and effectively by relocating production into a country that wanted to turbocharge growth by subsidizing manufacturing and logistics at the expense of households. This might have been acceptable had It just been small developing countries that did so, but with the participation of countries like Japan, South Korea, China, Germany and other Europeans, the cost has become too high.
XTOD: #Bonds are getting killed and the bloodbath is just getting started. The 10-year Treasury yield is 4.48%, the highest since Oct. of 2007. The 30-year, fixed-rate #mortgage should hit 8% next week. Next year the 10-year Treasury should yield over 6%, with mortgage rates near 10%.
XTOD: too long to repost, but feel free to read Bill Ackman's views on why yields should be higher here https://x.com/BillAckman/status/1705056634072863102?s=20
XTOD: By giving up industrial production, the West has given up industrial innovation.
XTOD: The first human patient will soon receive a Neuralink device. This ultimately has the potential to restore full body movement. In the long term, Neuralink hopes to play a role in AI risk civilizational risk reduction by improving human to AI (and human to human) bandwidth by several orders of magnitude. Imagine if Stephen Hawking had had this.
XTOD: Hundreds of humans who identify as dogs gather at a Berlin train station to advocate for the rights of people who identify as dogs. The event was organized by a group called "Canine Beings."
https://x.com/JoeReuters/status/1704818839077441641?s=20
https://x.com/michaelxpettis/status/1704789534372692271?s=20
https://x.com/PeterSchiff/status/1704839125788996055?s=20
https://x.com/BillAckman/status/1705056634072863102?s=20
https://x.com/nntaleb/status/1704851494648816052?s=20
https://x.com/elonmusk/status/1704541473830572515?s=20
https://x.com/KanekoaTheGreat/status/1704728437620199928?s=20
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