Daily Economic Update: November 13, 2023

Yields little changed to start the day, with the 2Y at 5.05% (up from 4.87% to start last week) and the 10Y at 4.64% (up from 4.60% to start last week).  

Last week ended with Moody's putting U.S. sovereign debt ratings watch negative, calling attention to the U.S. fiscal situation, and, separately, a UofM consumer sentiment report that showed inflation expectations rising.  The week ahead features CPI data, retail sales and industrial production.   The possibility of a government shutdown also comes back into focus as does U.S. - China relations with Biden and Xi meeting in San Francisco on Wednesday.

On the week ahead:

Monday: NY Fed Oct Inflation Expectations Survey

Tuesday: CPI, Fedspeak including Williams and Jefferson

Wednesday: Retail Sales, PPI

Thursday: Jobless Claims, Industrial Production, Fedspeak

Friday: Housing Starts, Building Permits and Fedspeak

XTOD:  Governments like to force bondholders to share part of the burden when they ramp up spending. See e.g. recent work by Hall and Sargent

XTOD: *US 5-10 YR INFL. EXPECTATIONS RISE TO 3.2%, HIGHEST SINCE 2011 

Highest since the Arab Spring ... partially a reaction to a spike in food prices -----

But don't worry, Powell said this at last week's presser  -- Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.  -- The Umich 5- to 10-year inflation expectation is considered the most important inflation expectation measure. This is why last year and into earlier this year, this measure was considered a market-moving event, while no other measure of inflation expectation was viewed as this important.  Again, now that it is at a 12-year year high, Powell wants to "just close the #^%$ door" on this measure, per his comments last week.   Just say "well anchored" despite a 12-year high, and you can also conclude there is no inflation problem anymore.

XTOD: Spitz: "We're likely now in a brief Goldilocks zone, and no one expects it - more squeeze-up and blow-off in risk assets, which l've been writing and saying for a year...Then Papa Bear shows up, and it will be too late to react."

XTOD: While "the media are screaming about the agony, there’s a huge population...that is quietly rejoicing in the higher interest rate environment. And it’s time we talked about them a little more"  "the rising cash rate is a huge lever driving their income, spending and confidence."

XTOD: That money is viewed as a tool or symbol of sovereignty today isn’t due to either its technical attributes or to the fact that nations can’t survive and prosper unless their governments control it.  Instead, the view persists simply because government control of money has been so common for so long. In ancient and medieval times, before the days of thick government bond markets, govt’s asserted this control so they could finance their activities by resorting to debasement.  Money was then and truly a pilar of “sovereignty” in the literal sense: a tool by control of which absolute monarchs supported themselves. The same monarchs often monopolized soap manufacture, candle making, salt and mineral mining, and all sorts of other enterprises, for the same reason, declaring these monopolies to be essential sovereign prerogatives.  W/ the advent of democracy those “prerogatives” went the way of absolute monarchy itself.   But the notion of “monetary sovereignty” managed to persist. It’s high time that we rid discussions of monetary and banking policy of this embarrassing vestige of medieval thinking.

XTOD: Lorie Logan's speeches are always so damn good. One q she tries to answer: Why even bother with QT, risking reserves falling too low?  She says 1) a big balance sheet makes monetary policy comms harder, & 2) ample reserves tilt liquidity in favor of banks, at a cost for nonbanks:

XTOD: Still staying far away from 2's. 100'28 seems interesting.  Druck Bro's betting big on CPI and PPI next week which I think everyone on the planet (including me) expects to be ice cold.  H4L Baby!

XTOD: "I always tell the kids, 'You know what's great about going the extra mile? There's very little traffic.'" ―Jim Larranaga 

XTOD: The power of compounding: Combs was not good at anything in particular, he was not a specialist, but rather a generalist who combined the different life experiences he had into a powerful force for investing.  He has compounded his knowledge, range, and relationships.

Daily Economic Update: November 10, 2023

The win streak is over for stocks as bond yields rose double digit basis points yesterday as investors suddenly remember supply with a poor 30Y auction. Powell saying he won’t hesitate to raise rates again if needed (and cursing as he's annoyed at climate activist), along with Billionaire Ken Griffin talking up structurally higher inflation that could last decades didn't help markets.  Bond trading was also possibly impacted by a cyber attack against the U.S. arm of Chinese bank ICBC.

This morning yields are on the rise, with the 2Y back over 5%, trading at 5.03% and the 10Y is at 4.64%.  On the day ahead it's UofM Consumer Survey and Fedspeak.

XTOD: WATCH: Federal Reserve Chair Powell caught on film saying "Just close the F--ing door" to climate protesters who interrupted his speech  https://twitter.com/i/status/1722705164719570973

XTOD: "Mitigating risk really isn't about where we think the world is going to be," Spitznagel said. "Mitigating risk is about what that path is going to look like, and the opportunities that you have along that path, right? The dry powder that you create."  https://t.co/1KKxfMySRz

XTOD: The older you get the more you realize how precious life is. You have no desire for drama, conflict or stress. You just want good friends, a cozy home, food on the table, and people who make you happy.

XTOD: Starwood Property Trust Income Down 75%, Barry Sternlicht Says Fed Is 'Crushing' Industries Like CRE  https://pbs.twimg.com/card_img/1722687872195514368/XDJ3StXL?format=jpg&name=900x900

XTOD: These pauses will help get civilians to safer areas away from active fighting.  They are a step in the right direction.  You have my word: I will continue to advocate for civilian safety and focus on increasing aid to alleviate the suffering of the people of Gaza.

XTOD: When you find a great idea, buy enough of it to make a meaningful difference to your life. 

- The Joys of Compounding

XTOD: I remain astonished at how much people ignore solid yet unflashy insights into making money over the long run in markets. https://t.co/3v4qQNNVPT

Daily Economic Update: November 9, 2023

With Cleveland Fed's Loretta Mester reaching retirement age and the Cleveland Fed launching a formal search for a replacement, I think my time has come.  S&P winning streak up to 8 days (highly correlated with the 76ers current 6 game winning streak) and the actors strike is over.

After the curve flattened yesterday with long end yields falling, this morning yields are up 4bps on the front end with 2Y at 4.94%, the 10Y is 4.53%.  On the day ahead it's jobless claims, Powell and 30Y auction.  

GS Research (Mericle): To summarize, we think the impact of rate hikes is mostly behind us and see rate cuts next year as optional. We expect the FOMC to conclude that while neutral might not be as low as the 2.5% median longer run dot, it probably is not 5.25-5.5%, so some amount of normalization makes sense as inflation falls. We think this rationale is enough to cut to 3.5-3.75% but probably not further, though the policy rate could end up lower if a growth risk emerges and the FOMC pushes back with insurance cuts. We expect the equilibrium rate to be higher than last cycle because the post-financial crisis headwinds are behind us, large fiscal deficits are likely to persist, the funds rate is approaching equilibrium from above, and the r* narrative is changing

XTOD: PSA: guys, I know how to calculate the Sahm rule.

XTOD: Turning Empty Offices Into Apartments Is Getting Even Harder https://www.wsj.com/real-estate/commercial/turning-empty-offices-into-apartments-is-getting-even-harder-b6659020?reflink=integratedwebview_share

XTOD: “When you take out a mortgage in America, immediately after closing, they sell your loan—all your personal information—to a random lender unknown to you”  TRUTH.    “Cyber attack” on 900 billion dollars of loans   Mr. Coopers vibes are off.  Way off.  I’m not hanging with him

XTOD: “You’ve got 375 Principles. Those aren’t principles. Toyota has 14 principles. Amazon has 14 principles. The Bible has ten. Three hundred and seventy-five can’t possibly be principles. They are an instruction manual.” https://t.co/wa0jxi9e74

XTOD: Incredible display of Ray Dalio's PRINCIPLES:

1.) Ray Dalio builds app for ranking employee believability at Bridgewater

2.) Other employees rank as more believable than him

3.) Forces devs to auto-rank him as most believable

XTOD: We are getting a recession. Oil is the tell

XTOD: How about: build something good for humanity—because people don’t necessarily know what they want, and sometimes their death instinct is strong

XTOD: The last 8 times this happened, 100% of the time the weekend started on a Friday night with a glass of Barolo and a shaving of tartufo!

XTOD (good post on market timing, which I talked about here): Why market timing doesn't work: S&P 500 is up 14% this year, but just 8 days explain most of the gains.   Bottom line: no one knows when the best or worst days will come, so timing markets not a sound investing strategy. https://cnb.cx/47kzGqs  @DataTrekMB  @CNBC

Daily Economic Update: November 8, 2023

Stocks keep wining streak alive, reaching 7 days. I'm sure hoping stocks keep winning, I'd certainly hate to see bonds or commodities make it to the super bowl this year.  All the talk of the stock winning streak just feels like such a sports headline, but I guess that makes sense given gambling on the stock market is up there as one of America's pastimes. 

Yields higher by 3-4bps to start the day, the 2Y is 4.95% and the 10Y is 4.59%.   Across the pond, Eurozone inflation expectations rose to 4%, up from 3.5% in August, perhaps inflation is a tricky puzzle. Oil continues to confuse investors, as crude trades around $76 down ~15% over the last couple weeks as markets seemingly discount risk to oil from the war in the middle east.

On the day we get Powell at 915 (he's just opening speaker at a Fed conference), tons of Fedspeak including Vice Chair Jefferson and the 10Y Note auction.  

XTOD: There have been two times in the past 40 years when the S&P 500 rose for 7 straight days following a 100-day low.  The first was on March 20, 2003. It marked the end of that bear market.  The other was today.

XTOD: Nintendo shares jump in Tokyo, rising the most since December 2020 after the firm announced it's making a live-action Zelda movie

XTOD: Syphilis cases in US newborns rise 10-fold over a decade http://reut.rs/3SwJWYv

XTOD: More people are failing to make on-time auto loan and credit card payments. “Despite sub-4% unemployment, delinquencies on auto loans and credit cards continue to rise sharply:” 

@Lavorgnanomics  writes, citing Q3 data just released by the NY Fed

XTOD: 'Net interest costs have surpassed 14% of revenues, historically the inflection point for a shift from fiscal accommodation to fiscal austerity. Essentially, tension is building up over how the federal gov. will pay for all the things that it's doing.'

XTOD: The significant November move down in both yields and oil prices, which is continuing today, is helpful for both the economy and most financial asset classes …with an important cause/effect qualification: that their impact is not overwhelmed by them ending up as an accurate forecast for significant economic softness.

XTOD: NY Mets owner Steve Cohen unveils $8 billion, 50-acre investment around CitiField.  

Will include a Hard Rock Hotel & Casino + sportsbook, restaurants, bars and a live music venue. Also 20 acres of public park space.

XTOD: Come on, Charles Schwab! 😡 You jammed 20 different ETFs in a $50k taxable robo account?! That is just irresponsible.   This is perfect example of complexity for job security. In Schwab’s case, high fees on the 10% in cash at Schwab Bank, and 11 of 20 investments are Schwab ETFs.

XTOD:  Oil prices dying by death of a thousand cuts.  Goldman's latest Oil tracker also supports the view that the "cuts haven't been cuts of late" as oil supply increases collides with lower oil demand (refinery turnaround season).

XTOD: This is going to be an interesting story once all of the details come out. The gossip is that a couple offices got raided, but who knows. I also imagine if you're getting blacklisted by Freddie, then you're probably also not doing deals with Fannie anymore. 

Link in the comments.   Here's a link to the article:  

https://therealdeal.com/new-york/2023/11/07/meridian-capital-under-investigation-by-freddie-mac/

XTOD: They’re blaming Mr. Beast for giving 500,000 people clean drinking water because it correctly showed how easy it could be done and how useless, wasteful and corrupt government can be.

XTOD: Morgan Housel: "I’m not interested in anything that’s not sustainable. Friendships, investing, careers, podcasts, reading habits, exercise habits. If I can’t keep it going, I’m not interested in it.  

I think the only way to do that is if you are going out of your way to live life at 80-90% potential. If you’re always trying to squeeze out 100%, almost certainly it’s going to lead to burnout, whether it’s a friendship or a relationship or an investing strategy. If you’re a type A person, it’s almost impossible to do. But going out of your way to live life at 80% has always been a strategy that I want to do just because I want to keep it going for a long time." ....

"It’s super dangerous to attach your identity to something that’s unsustainable, whether it’s being a model or having a certain career, having an investing strategy. If you attach your identity to something that you cannot sustain when it ends, you’re going to be morally crushed. It’s just going to destroy you.

Back to investing, the variable that I want to maximize for is how long can I do this for? It’s not, can I earn the highest returns? It’s, can I maintain this investing strategy for another 50 years? And I know that I could earn a higher return this year and over the next five years if I did something different, but I’m way less confident that I could keep it going and sustain it. And I think it’s the same for relationships."

@morganhousel   via  @tferriss

Daily Economic Update: November 7, 2023

What WeWork filed for bankruptcy?  I'm shocked...I mean I'm not shocked that they filed for BKO, but shocked that it took this long to get to an actual bankruptcy filing. Yields rose yesterday but have reversed course early this morning and are down ~5bps to start the day.  The 2Y is 4.90% and the 10Y is 4.61%.  Overnight the RBA raised their policy rate by 25bp to 4.35%, their first hike since June as inflation remains stubbornly above target.  

Markets continue to try to ascertain what the most recent loosening of financial conditions might mean for Fed policy.  On the day ahead we'll get a ton of Fedspeak and the first of this week's Treasury auctions with $48bln of 3Y notes.

XTOD (side note, I wrote about Schrager's book here):  “I recall in 2008ish, there was lots of handwringing that finance sucked up all the talent who could be doing bigger and better things. But in retrospect, the problem was really an industry that attracted and overpaid mediocre talent.” https://allisonschrager.substack.com/p/longer-means-longer?r=9w60&utm_medium=ios&utm_campaign=post

 

XTOD: COOK: AMERICANS MAY BE PESSIMISTIC BECAUSE THEY ARE NOT JUST LOOKING FOR SLOWER INFLATION, BUT FOR PRICES TO RETURN TO WHERE THEY WERE BEFORE THE PANDEMIC

XTOD: "the economy sucks because, where workers gained leverage, their employers tended to push the cost of that leverage onto customers, which intensified a vicious cycle of service workers and customers getting mad at each other"  

is my most compact explanation of any "bad vibes"

XTOD (FYI - someone needs to tell Blanchard what it means to post a short summary): 1. My views on the implications of higher long rates for fiscal policy and debt trajectories. https://shorturl.at/gntAF  Here is a short summary.   2. Interest rates at the long end have increased by more than can be explained by the fight against inflation. (I shall freely admit that I did not expect it).  It is hard to think that, for example, the 5year/5year rate should be very much affected by the current Fed tightening.   3. Bond investors may well be wrong. Long real rates may decrease; we saw a hint of this last week. But for ministers of finance needing to finance their current borrowing, the rates are what they are, and they have clear implications for fiscal policy and the evolution of debt.  4. With (r-g) close to zero, what happens to debt GDP ratio depends on the sign of the primary balance. So long as the government runs a primary deficit, the debt ratio increases. Only by returning to primary balance does the debt ratio stabilize, although at a higher level.  5. Today, most advanced countries are running primary deficits. Eliminating them cold turkey would likely be catastrophic, as it would lead to serious recessions, and likely lead to the rise of populist parties. Thus, the plan must be to do it slowly, but steadily and credibly.  6. The implication is that, even with the most responsible policies in play, debt ratios will increase for some time. This is not catastrophic. The evidence suggests that countries and markets can live with higher, but stable, debt.  7. What would be catastrophic however would be to let debt ratios explode, i.e. to let primary deficits continue forever (If (r-g) becomes substantially negative again, then the constraint will be less tight, and the plan can be adjusted).  8.  I worry that the new European fiscal rules, focused on debt reductions, may be too tight. Leading some countries to breach them and destroying the rules' credibility, or to satisfy them at the cost of reduced activity and insufficient defense and green investment  9. I worry that the US, which has a more substantial challenge, with large primary deficits, a higher (r-g) than most others, and a dysfunctional budget process, may not be prepared to do what is needed.

XTOD: Miss having baseball to watch?  Do yourself a favor and catch the fabulous Yogi Berra doc, “It Ain’t Over,” now that it’s on Netflix   It’s funny, heartwarming and real. But it’s also an important reminder of what a great player Yogi was.

XTOD: Apes, we are aware of the eye-related issues that affected some of the attendees of ApeFest and have been proactively reaching out to individuals since yesterday to try and find the potential root causes. Based on our estimates, we believe that much less than 1% of those attending and working the event had these symptoms.   While nearly everyone has indicated their symptoms have improved, we encourage anybody who feels them to seek medical attention just in case.

XTOD: Defined-maturity bond funds are surging in popularity as investors seek to lock in higher yields

XTOD: Heard through the grapevine  One of the largest commercial mortgage brokers in the country was raided over the weekend  Fraud was found in loans they'd sent to Fannie Mae 

This could now trigger a chain reaction of buybacks and  less liquidity among Fannie lenders

XTOD: Aswath Damodaran: "I have often said, we read too much and think too little. I don't have that problem. I have lots of time. ... an idle mind is often where you get your best connections of ideas. Your best thinking is done when you have nothing in your mind per se that you have to get done. The advantage of not having a to-do list on most days is I get more done when I have not to-do list than when I do."

Daily Economic Update: November 6, 2023

The 2Y yield is up ~4bps to start the day at 4.87%, the 10Y is up ~4bps to ~4.60%.  Will the post-QRA, post-FOMC, and post-Jobs report, bond and stock market rallies continue?  

The week ahead features plenty of Fedspeak, actual Treasury auctions and limited data.  If part of the narrative around the Fed not needing to hike again was predicated on higher long-term bond yields, how does the recent 30+ basis point move lower in those yields potentially impact that narrative? If Powell or other Fed officials are going to talk up potential hikes they'll have plenty of opportunities to do so this week.

Today: Fed gov. Cook, SLOOS

Tue: Trade balance, tons of Fedspeak with Williams and Waller in the mix, 3Y Note Auction

Wed: Powell speaks, Wholesale Inventories, Vice Chair Jefferson, 10Y Note Auction

Thur:  Jobless claims, Bostic, Barkin and moar Powell, 30Y Bond Auction

Fri: UofM survey about gas prices and more Fedspeak

XTOD: interest rates at zero = good for the wealthy   interest rates at 5% = Universal Basic Income via 5% yields on risk-free US govt bonds for the wealthy   interest rates fall from 5% and bonds jump in price = good for the wealthy   if i were you in the economy, i would simply be rich.

XTOD: It’s amazing how many texts, DMs, @, etc. I get when it looks like Sahm rule triggered. (It didn’t.)  Y’all really want that recession …

XTOD: The S&P 500 could soar another 18% by year-end, as the economy is strong and the Fed is likely to end its rate hike cycle, according to Oppenheimer.

XTOD: I have now had SEVERAL close friends confide in me that they are surviving on debt that are dual income households earning 250-400k per year. Keeping up with the Jones’s is a major priority to that subset of earners, and they’re all in trouble because of it. They will spend until they can’t, but I assure you they are rapidly nearing the point where they can’t. Everything I see with my own eyes in my own life and community are now screaming recession. Wasn’t the case a year ago, I see it now.

XTOD: It's a parable, where every time a scorpion stings someone the victim gets a lecture on how to treat scorpion stings and how not to provoke scorpions. No one lectures the scorpions, and they don't listen anyway.

XTOD: Zuckerberg is way richer than me, but I'm pretty sure that if I blew out my knee, I would have the same surgery as him. This simple truth, about how technological advances diffuse through a population, escapes critics of techno-capitalism.

XTOD: He's right. 👇The Fed added a huge fixed-for-floating $8 trillion interest rate swap to the consolidated government's balance sheet; the Fed is paying floating and receiving fixed.

XTOD: Just released Grok

XTOD: Jason Cummins at Brevan Howard:   The “new normal” looks like a unique period of historically depressed interest rates.  The “new abnormal” will be characterised by higher and more volatile inflation and a return to structurally higher interest rates.

XTOD: “The buildings don’t go away,” - Warren Buffett  

“But the owners do… I think that the hollowing out of the downtowns, in the United States and elsewhere in the world, is going to be significant and quite unpleasant,” -Charlie Munger

https://x.com/talmonsmith/status/1720502589169537453?s=20

https://x.com/Claudia_Sahm/status/1720450694170230832?s=20

https://x.com/unusual_whales/status/1720460071048806878?s=20

https://x.com/SandLot84/status/1720552710506721564?s=20

https://x.com/Kasparov63/status/1720519002869407848?s=20

https://x.com/JimPethokoukis/status/1720825461322690925?s=20

https://x.com/HannoLustig/status/1720945974544355406?s=20

https://x.com/elonmusk/status/1721027243571380324?s=20

https://x.com/NickTimiraos/status/1721240327564960053?s=20

https://x.com/ShlomoChopp/status/1720998660236865961?s=20

Daily Economic Update: November 3, 2023

We'll see what another Jobs Day in 'merica has in store for markets (market expects +180K headline). Stocks higher, yields lower, dollar weaker, since the Treasury announcement and FOMC. Yesterday's strong productivity number and a Bank of England on hold helped add fuel to the "everything" rally, but Apple's sales forecast came in below estimates putting a little pressure on equity futures this morning.  This morning, the 2Y is up slightly but still under 5 with a 4.99% and the 10Y is 4.66%.  On the day it's Jobs and ISM Services. 

If you're a CFA Charterholder, good news, as Matt Levine wrote yesterday,   "A team of JPMorgan Chase & Co. researchers and university academics tested whether OpenAI’s ChatGPT and GPT-4 chatbots would have a chance at passing the first two levels of the exam. It typically takes humans four years to complete all three levels of the test, which can lead to higher salaries and better job opportunities.   “Based on estimated pass rates and average self-reported scores, we concluded that ChatGPT would likely not be able to pass the CFA Level I and Level II under all tested settings,” the researchers wrote in an 11-page report. “GPT-4 would have a decent chance of passing the CFA Level I and Level II if prompted.”  Levine also added: "ChatGPT could never pass the strong moral compass requirement! Or at least it could never pass the hands-on practical skills modules. No hands."

XTOD: BANKMAN FRIED GUILTY ON ALL 7 COUNTS

XTOD: Will Biden ever return the $5m donation from FTX?

XTOD: This sort of yield volatility is not normal for a security — the US 10 year government bond — that serves as an important benchmark for the financial system, domestically and beyond. 

It is also not desirable as it undermines constructive financial intermediation, harms the global financial standing of the US, and risks breaking something.

XTOD: Labor productivity is the silver bullet that would allow GDP and real wages to rise while inflation continues to fall. It is the secret not just to a soft landing, but to an economic boom. In Q3, it rose 4.7%, and unit labor costs *fell* 0.8% as a result.

XTOD: Test your knowledge with our November Investing Quiz: https://investor.gov/additional-resources/spotlight/investing-quizzes

XTOD: Peloton revenue -3.4%    Novo Nordisk revenue +38%   fat pills made superglued ipad exercise bikes obsolete

XTOD: Word is that the editors of the world’s leading publications are clocking the real risk of WWIII - finally. Here’s a piece I wrote in October 2021 arguing we were already in it then: https://lnkd.in/eMyWhxtz.   Here’s the irony. Those who are independent can see the signs and say something early because they are independent of any institution. But that independence is hard for media to comprehend. They feel safer quoting those associated with a known and respected institution. “She works for a bank so she must be ok” is the logic. But that means they get the same old group think. That’s why it takes them so long to register that WWIII is in motion. 

We are in a Hot War in Cold Places: Space and the High North

We are in a Cold War in Hot Places: Africa and The Pacific

And now we are in a Hot War in a Hot Place: The Middle East.

Now the task is to win the peace: 

XTOD: +287,000 #NFPGuesses

XTOD: Let’s talk about US consumers for a bit, shall we? How fucked are they? Pretty fucked. Certainly more fucked than what Q3 data led everyone to believe.  

1) > $ 2 T of fiscal transfers and relief programs would have vanished by YE 

2) 80% of consumers have as much or less savings than pre-COVID. Give it a few more months and literally all US consumers will be in that case, on an inflation adjusted basis.  

3) 9% of consumer debt is students loans, that’s $ 1.6 t, and repayment would be in full effect in q4, a $ 65 b drag 

4) UR is about to take-off and will lead savings rate to follow 

5) Loss of income will be compounded by years of above average inflation

6) Consumers did soldier through up until q3, but at what cost? CC balances have topped the $ 1 t for the first time ever (previous peak was some 85% of that in q3 2007). More alarming, revolving credit exploded by over $ 300 b to $ 1.3 t since q2 21. Why does this matter? CC APRs are at 50 years high 

7) Signs of stress are showing everywhere, from autos to revolving and especially Retail ABS delinquencies.

Daily Economic Update: November 2, 2023

This morning yields are down again, with the 2Y at 4.96% (down ~10bps from yesterday morning) and the 10Y at 4.72% (down almost 20bps from yesterday morning). Equities have also rejoiced. The Treasury Refunding Announcement and FOMC/Powell lead to a big move lower in yields yesterday. Fixed income investors responded to smaller than anticipated sales of 10Y, 20Y and 30Y auction sizes as well as the Treasury indicating that increased auction sizes are likely not going to be persist past another quarter.  As it relates to the FOMC, the release and press conference were generally viewed as "dovish" in the sense that there was no clear commitment to further hikes as the tightening of financial conditions may be doing the job of rate hikes.  Otherwise on the day, data was generally ok, with JOLTS data showing continued tightness in the labor market.    The Atlanta Fed GDPNow is estimating 1.2% growth for 4Q, a pretty sharp drop from 3Q, and traders are estimating a very low probability that the Fed hikes again this December.

On the day ahead we get the Bank of England, jobless claims and Apple earnings.

XTOD: QRA synthesis BUY ALL ASSETs.  Janet saved Christmas.   Letsssssss gooooooo $TLT $SPY

I am not being sarcastic.  I am bullish bonds and stocks and covered all my shorts and am buying dips

XTOD:  US Treasury officials may not be gaming the market, but they are listening to it. That's one of the biggest takeaways from today's refunding announcement, in which the Treasury refrained from boosting long-term bond sales as much as markets expected.

XTOD: Launching on Nov 6th, a listed investment "strategy" that owns only newly issued MBS  https://convexitymaven.com/wp-content/uploads/2023/10/Convexity-Maven-The-Center-Cut.pdf  

As chatted with: @EconguyRosie @ErikTownsend   @GrantsPub  @profplum99 @biancoresearch

Yields ~100bps over similar duration Corporate (IG) bonds with NO CREDIT RISK

XTOD: I think the key to this Powell presser is that he has done little to reset market expectations towards a greater chance of a rate hike. He's not taking it off the table, and he's confirming there is a bias to hike, but Powell seems very comfortable with the market pricing in that it's unlikely.

XTOD: He means "higher forever." he just needs "traders" to swallow it in bite sized pieces.

XTOD: With Bob Knight passing away it’s almost a must to watch his speech where he talks about trying get on Michael Jordan’s ass in the locker room. An absolute classic! RIP https://x.com/SportsGuyLance/status/1719854705008939351?s=20