Tag: finance

Submitted by Patrick Buchanan via Buchanan.org,

Since World War II, the two men who have most terrified this city by winning the presidency are Ronald Reagan and Donald Trump.

And they have much in common.

Both came out of the popular culture, Reagan out of Hollywood, Trump out of a successful reality TV show. Both possessed the gifts of showmen — extraordinarily valuable political assets in a television age that deals cruelly with the uncharismatic.

Both became instruments of insurgencies out to overthrow the establishment of the party whose nomination they were seeking.

Reagan emerged as the champion of the postwar conservatism that had captured the Republican Party with Barry Goldwater’s nomination in 1964. His victory in 1980 came at the apogee of conservative power.

The populism that enabled Trump to crush 16 Republican rivals and put him over the top in Pennsylvania, Wisconsin and Michigan had also arisen a decade and a half before — in the 1990s.

A decisive advantage Reagan and Trump both enjoyed is that in their decisive years, the establishments of both parties were seen as having failed the nation.

Reagan was victorious after Russia invaded Afghanistan; Americans were taken hostage in Tehran; and the U.S. had endured 21 percent interest rates, 13 percent inflation, 7 percent unemployment and zero growth.

When Trump won, Americans had gone through years of wage stagnation. Our industrial base had been hollowed out. And we seemed unable to win or end a half-dozen Middle East wars in which we had become ensnared.

What is the common denominator of both the Reagan landslide of 1980 and Trump’s victory?

Both candidates appealed to American nationalism.

In the late 1970s, Reagan took the lead in the campaign to save the Panama Canal. “We bought it. We paid for it. It’s ours. And we’re going to keep it,” thundered the Gipper.

While he lost the fight for the Canal when the GOP establishment in the Senate lined up behind Jimmy Carter, the battle established Reagan as a leader who put his country first.

Trump unapologetically seized upon the nationalist slogan that was most detested by our globalist elites, “America first!”

He would build a wall, secure the border, stop the invasion. He would trash the rotten trade treaties negotiated by transnational elites who had sold out our sovereignty and sent our jobs to China.

He would demand that freeloading allies in Europe, the Far East and the Persian Gulf pay their fair share of the cost of their defense.

In the rhetoric of Reagan and Trump there is a simplicity and a directness that is familiar to, and appeals to, the men and women out in Middle America, to whom both directed their campaigns.

In his first press conference in January of 1981, Reagan said of the Kremlin, “They reserve unto themselves the right to commit any crime, to lie, to cheat. … We operate on a different set of standards.”

He called the Soviet Union an “evil empire” and the “focus of evil in the modern world.”

The State Department was as wary of what Reagan might say or do then as they are of what Trump might tweet now.

But while there are similarities between these outsiders who captured their nominations and won the presidency by defying and then defeating the establishments of both political parties, the situations they confront are dissimilar.

Reagan took office in a time of Cold War clarity.

Though there was sharp disagreement over how tough the United States should be and what was needed for national defense, there was no real question as to who our adversaries were.

As had been true since the time of Harry Truman, the world struggle was between communism and freedom, the USSR and the West, the Warsaw Pact and the NATO alliance.

There was a moral clarity then that no longer exists now.

Today, the Soviet Empire is gone, the Warsaw Pact is gone, the Soviet Union is gone, and the Communist movement is moribund.

NATO embraces three former republics of the USSR, and we confront Moscow in places like Crimea and the Donbass that no American of the Reagan era would have regarded as a national interest of the United States.

We no longer agree on who our greatest enemies are, or what the greatest threats are.

Is it Vladimir Putin’s Russia? Is it Iran? Is it China, which Secretary of State-designate Rex Tillerson says must be made to vacate the air, missile and naval bases it has built on rocks and reefs in a South China Sea that Beijing claims as its national territory?

Is it North Korea, now testing nuclear weapons and ballistic missiles?

Beyond issues of war and peace, there are issues at home — race, crime, policing, abortion, LGBT rights, immigration (legal and illegal) and countless others on which this multicultural, multiracial and multiethnic nation is split two, three, many ways.

The existential question of the Trump era might be framed thus: How long will this divided democracy endure as one nation and one people?

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With just days to go until Donald Trump is inaugurated as the 45th president of the United States, speculators have almost never been so sure that markets will remain calm – despite record-breaking uncertainty.

Economic uncertainty is at record highs but market uncertainty nears record lows…

 

and speculators have almost never been so sure that this suppression of reality will continue through the inauguration…

 

Having tested and bounced off a 10-handle last week, we note that the last two times VIX speculative shorts were this high, Spot VIX spiked soon after to at least 22.

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Submitted by Kevin Muir via The Macro Tourist,

They’re at it again. It isn’t enough that the Federal Reserve’s tighter monetary policies are hamstringing global economic growth, but over the past week a few different Fed officials floated the idea of reducing the size of the Fed’s balance sheet. They seem intent on tightening until something breaks.

I have long argued Janet Yellen’s Fed is way more hawkish than most pundits believe (Janet’s Bullshit). Ever since assuming the role of Chairperson on February 3rd, 2014, Yellen has presided over a policy of tightening monetary policy through tapering of quantitative easing, then fully stopping Fed balance sheet expansion, and finally raising rates. The net effect of this tighter policy is a rip roaring US dollar, along with higher short rates and a flattening yield curve.

Not content to merely raise rates, Fed officials appear to be preparing the market for actual balance sheet reductions in the coming months. Last week several different Fed officials took the opportunity to highlight the possibility of the Fed abandoning their policy of reinvesting proceeds.

From Marketwatch:

The Federal Reserve “may be in a better position” to reduce the size of its balance sheet now that it has raised interest rates twice in the past year, St. Louis Fed President James Bullard said Thursday.

 

In a speech to the Forecasters Club of New York, Bullard said the Fed may be able to use its balance sheet as a way to tighten monetary policy without putting exclusive emphasis on higher interest rates.

From the FT:

The Federal Reserve should be ready to consider reducing the size of its balance sheet as part of its efforts to prevent overheating in the US, a senior policymaker said as he noted the pick-up in wage inflation and predicted a return of inflation to target by the end of the year.

 

Eric Rosengren, the president of the Federal Reserve Bank of Boston, said that if the Fed is in a position to lift rates with “more alacrity” than the one-a-year pace of rate rises seen in the past two years, then officials should be willing to debate reductions in the size of its huge asset portfolio.

 

“We should be considering it now, and at what point the committee actually decides to take action we will have to see,” he said in a telephone interview with the Financial Times. “But my own criteria would be if we think the economy is strong enough that we are going to need to do multiple tightenings . . . at that time we should be seriously thinking about reducing the balance sheet.”

From Reuters:

The Federal Reserve can consider shrinking its massive trove of bonds once the interest rate on overnight lending between banks rises to 1 percent, Philadelphia Fed President Patrick Harker said on Thursday.

 

“When we are at or above 100 basis points – and we are moving toward that – I think it is time to start serious consideration of first stopping reinvestment and then over a period of time unwinding the balance sheet,” Harker, who has a vote on monetary policy this year, told reporters. He was referring to the fed funds rate for interbank lending which the central bank tries to guide.

You would need the intelligence and myopicness of a reality TV star to miss the signal the Fed is sending. There is no doubt the Federal Reserve is preparing the market for an unwinding of their balance sheet.

Most likely the Fed will not outright sell bonds, but stopping the re-investing of maturing issues will have the same effect.

So far the market reaction to the news has been fairly subdued. Stocks have for all intents and purposes ignored it, and US bonds had a bad couple of days before stabilizing.

I think this is a big mistake. The Fed is already too tight, and this potential unwinding of the balance sheet is a much more significant development than most market pundits realize.

Although Trumphoria continues to cloud the bulls’ minds with psychedelic hallucinations of unrealistic economic outcomes, there will reach a point when the drug wears off, and market participations will once again be forced to deal with the cold economic reality of the current situation.

And at that point, the Fed’s hawkishness will become fully apparent.

Many economists believed the Fed would never be able to wind down their balance sheet. Many assumed the expansion of the past eight years was permanent.

Now the Fed is telling us this is not the case, and they will give winding it down a whirl.

Yet the stock market is forgetting how we got here.

In the days following the Fed’s 2008 announcement of the first quantitative easing program the stock market did not initially jump higher. Stocks kept declining as the market did not fully understand the scope of the Fed’s program.

Even in the following years as the Fed kept expanding their balance sheet, and the relationship between the stock market rise and the QE programs was becoming more obvious, most market participants kept assuming the stock market would resume its decline.

The size of the Fed’s balance sheet was probably the most important determinant of the stock market level during this period.

At the time most hedge funds managers were hyperventilating about the ultimate decline when the Fed stopped expanding their balance sheet. But here we are with the Fed contemplating actually reducing it, yet most hedge funds are all bulled up on stocks and ignoring the Fed’s rhetoric.

Well, I am not ignoring it. And I don’t buy that the relationship between the Fed’s balance sheet and the stock market level should be tossed out the window.

The Fed reducing the size of their balance sheet is a big deal. Ignore it at your peril.

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Following a disappointing year for Bill Ackman, in which his Pershing Square returned -13.5% (although it has at least started off 2017 on the right foot, up 1.9% YTD), moments ago Ackman got some bad and some good news. The bad news is the Pershing Square was among 10 investment advisory firms who were busted by the SEC for engaging in pay-to-play schemes, or accepting pension fund fees within two years of making donations. The good news: the penalty is a whopping $75,000.

The details:

The Securities and Exchange Commission today announced that 10 investment advisory firms have agreed to pay penalties ranging from $35,000 to $100,000 to settle charges that they violated the SEC’s investment adviser pay-to-play rule by receiving compensation from public pension funds within two years after campaign contributions made by the firms’ associates.

 

According to the SEC’s orders, investment advisers are subject to a two-year timeout from providing compensatory advisory services either directly to a government client or through a pooled investment vehicle after political contributions were made to a candidate who could influence the investment adviser selection process for a public pension fund or appoint someone with such influence.  The SEC’s orders find that these 10 firms violated the two-year timeout by accepting fees from city or state pension funds after their associates made campaign contributions to elected officials or political candidates with the potential to wield influence over those pension funds.

 

“The two-year timeout is intended to discourage pay-to-play practices in the investment of public money, including public pension funds,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit.  “Advisory firms must be mindful of the restrictions that can arise from campaign contributions made by their associates.”

But why focus only on the investment advisor: aren’t the pension funds just as culpable for allocating cash to funds they received money from? Well, in the case of Pershing Square, perhaps the thinking goes that giving Ackman money to money was punishment enough.

Amusingly, the complaing filed against Pershing Square, the SEC notes the following:

Pershing Square Capital Management, L.P. is a limited partnership located in New York, New York. Pershing Square is registered with the Commission as an investment adviser. In its Form ADV dated March 30, 2016, Pershing Square reported regulatory assets under management of approximately $15 billion

In light of recent events, the SEC may want to get an updated AUM.

The full complaint is below (link)

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Just yesterday we noted the latest undercover video from Project Veritas which revealed anarchist groups plotting to disrupt the Trump inauguration by dumping butyric acid into the heating and ventilation systems of buildings expected to be used for this weekend’s festivities.  Add to that, the fact that ~750,000 protesters are expected to descend upon Washington D.C. with a stated intent to “paralyze the city” and Obama’s “extremely unusual” move to fire the D.C. National Guard Chief just days before the inauguration ceremonies and you have a recipe for disaster.

Describing the situation to Washington Top News, Secret Service Director Joseph Clancy acknowledged that the threat level at this ingratiation is “different” from previous ones saying that, after a contentious 2016 campaign cycle, people “are willing to do things they may not have been willing to do in the past.”

“I think people today are willing to do things they may not have been willing to do in the past,” Clancy said.

 

He cited several episodes that took place during the campaign, “where people jumped over those bike racks or security zones into our buffer. In the past, it was very rare for somebody to do that. Today, in this past campaign, people were willing to do it.”

 

Maness says, however, “From what we have seen the security measures and first-responder preparations have been excellent for the event.”

In addition to D.C. being a perpetual high-profile target for terrorist attacks, Clancy notes that, as confirmed by the latest Project Veritas video, the bigger threat is likely coming from anarchist groups who will stop at nothing to disrupt the inauguration ceremonies in some way. 

“We know that this (Washington region) is a high-profile [terror] target. It’s been attacked in the past, historically,” said Paul Abbate, the FBI’s executive assistant director for the Criminal, Cyber, Response and Services Branch.

 

“The bigger threat is probably coming from anti-government/anarchist
groups who are likely to try and disrupt the inauguration, and may engage in violence to do so,” said Mike Maness, director of Trapwire.

 

Other FBI officials have confirmed that Washington is mentioned on a daily basis as a potential target in intercepted terrorist chatter and communications. “We, from the FBI standpoint, are ready to counter terrorist attacks and are working with our partners in building out the intelligence picture,” Abbate said.

 

On Friday, Secretary of Homeland Security Jeh Johnson spoke to reporters about preparations for the inauguration.

 

“We know of no specific credible threat directed toward the inauguration,” he said.  But in the same statement, he acknowledged, “that is only part of the story.”

 

Other parts of that story include the unknown, according to Clancy, and that is causing him to lose sleep.

 

“Every night I wake up and I wonder do we have some issue covered,” Clancy said.

 

Of course, extraordinary threats call for extraordinary preparations and countermeasures as this year’s inauguration will include large perimeters that will be heavily fortified with “trucks, dumpsters, buses and the like” to defend against terrorist attacks similar to those that struck Nice, France and Berlin, Germany in 2016 as rogue trucks plowed through masses of people.

Soft perimeters will permit access to only those vehicles belonging to people who live or work in the area. Hard vehicle perimeters will be off limits to all but official vehicles.

 

This year in particular, Johnson said, “The hard vehicle perimeter will be heavily fortified by trucks, dumpsters, buses and the like, given the current threat environment.”

 

That environment he spoke of is created by terror groups’ constant online prodding of sympathizers to conduct not just spectacular attacks like those in Paris, Brussels, Turkey, Germany and Orlando in the past year, but single-casualty attacks as well.

 

Another key part of Secret Service attack prevention planning started months ago, and is designed to cover large and small incidents.

And, if all else fails, we’re sure the “Bikers For Trump” will be available on short order to form a “wall of meat” to protect the President-elect.

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In David Einhorn’s fourth quarter letter to investors (which reveals a respectable net return of 4.5% for Q4 and 8.4% for 2016), reveals himself as yet another closet supporter of Trump policies, stating that he expects the economy to “accelerate” once Trump’s still undetermined policies are implemented.

Looking back, Einhorn writes that “since Election Day, the market appears to have changed its macroeconomic outlook and is reevaluating the prospects for many companies accordingly.” This, of course, is the so-called Trumpflation rally, which however may have fizzled overnight with Trump’s stated opinion that the USD is now overvalued. Nonetheless, Einhorn points out that “this change in tone has been favorable to our style, and we generated a good result in the quarter despite our low net exposure and a decline in gold.”

But, as he then breaks, “rather than look backward, we’d like to share our views of what a Trump Presidency (TP) might look like and why we believe we are well-positioned for 2017. In short, we believe that the post-Great Recession easy money policies have been good for Wall Street but bad for Main Street. It’s possible that the TP reverses these policies, which would be good for Main Street but rough on Wall Street.”

So looking forward, Einhorn is, for now at least, that the fiscal stimulus emerging from the Trump presidency will be favorable both for the economy…

While it’s hard to know exactly where President-elect Donald Trump stands from day to day, his main economic policy objective appears to be employment. To that end, he has proposed corporate tax cuts, infrastructure investment, and military build-up, combined with antiimmigration policies and trade protectionism. To the extent that he can implement these policies, the economy should accelerate, and given that we are starting with less than 5% unemployment, a labor shortage could develop.

… and consumer spending:

In response, monetary policy is poised to tighten. Conventional wisdom says this will slow growth, but we continue to disagree. Our Jelly Donut thesis on monetary policy contends that ultra-low interest rates deprive households (savers) of income to the point that the harm overwhelms any of the limited benefits. We believe that raising rates from, say, 0.5% to 2% would give needed income to savers without significantly impacting corporate investment decisions.

While we don’t disagree, we have yet to see a single bank hiking the rate on its deposit accounts, which with the exclusion of a handful of dedicated “high yield” banks, remains largely at zero. One wonder, at what interest rate will banks finally “trickle down” this more expensive dollar to the depositor. So far it has not happened. According to Einhorn, one places where the public will benefit, is in higher yields on Treasuries. Our response, however, is that for the average American, will an increase in yields from 2% to 3% on the 10 Year really make much of a difference, especially in a nation where two thirds of Americans barely have any savings?  This is how Einhorn see this particular transition:

Further, rates rising from ultra-low to merely low would add a fiscal stimulus because the higher interest payments to holders of newly issued Treasuries and on overnight liabilities at the Fed will add to the deficit. In the near term, this stimulus combined with the benefit to savers will add fuel to an accelerating economy and a tightening job market.

Ironically, the one place where rising rates would truly boost consumer spending, higher wages, is also what may bring the entire house of cards down.

Ultimately, wage inflation could become a drag on corporate profitability and higher inflation may force the Fed to raise rates substantially, potentially causing the next recession.

In any case, with this optimistic macro framework in mind, here are Greenlight’s thoughts on its current positioning for a Trump Presidency:

• Long a variety of low-multiple, tax-paying, U.S. value stocks. Corporate tax cuts provide the most benefit to companies that have profits on which to pay taxes. AMERCO, CC, Dillard’s, and DSW are all generally full federal tax-payers with healthy profits.
• Long AAPL. AAPL stands to benefit from repatriation of foreign cash and tax reform. The company has over $200 billion in offshore cash it could bring back to the U.S. AAPL also derives a majority of its earnings from foreign sources but still accrues GAAP taxes at a 25% rate, which is higher than many other large tech companies. The lower corporate tax rates proposed as part of repatriation and tax reform could therefore lead AAPL toward a structurally lower GAAP tax rate going forward.
• Long GM. More jobs, higher income for savers, and higher wages should drive demand for consumer durables, and there is no better consumer durable than an automobile. GM also falls under the low-multiple, tax-paying U.S. value stock category. For these and other reasons (upon which we elaborate later), we have dramatically increased our GM position.
• Short “bubble basket.” Bubble basket stocks mostly don’t have profits, which makes them unlikely to benefit from corporate tax cuts. Further, an accelerating economy should allow investors to find growth without needing to pay nosebleed prices for a narrow group of profitless top-line growth stocks. We think the basket is poised to further underperform with one caveat: There is a risk that Disney decides to star in the Internet Bubble 2.0 remake of the TWX/AOL deal by acquiring a profitless Netflix (NFLX) at the top. We suspect Disney won’t. Accordingly, NFLX merits a spot in the basket because its domestic market has matured; it risks an unfavorable change in net neutrality rules; and it has not demonstrated that its huge investment in original content has a positive return. We believe it doesn’t. NFLX is able to report that its U.S. streaming segment is highly profitable only by allocating a disproportionate amount of content amortization to its smaller and unprofitable international streaming segment.
• Short oil frackers. Despite repeated claims in their slick presentations, the economics still don’t work when all investment and corporate costs are taken into account. We thought the well of investors willing to sink cash into money-losing holes would begin to run dry, but the “drill-baby-drill” attitude of a TP is likely to lead to additional malinvestment. This will lead to lower commodity prices and still deeper losses. Further, due to various existing subsidies, oil frackers are generally not cash tax payers. The proposed corporate tax cuts don’t help much when you don’t pay taxes in the first place.
• Short CAT (and a few other similar industrial cyclicals that have moved much higher post-election). Every time someone says “infrastructure investment,” investors reflexively buy certain stocks including CAT. Yes, CAT sells machines that are used in infrastructure, but this represents only a small part of its business. CAT’s biggest segments are mining and energy. We just completed a once-in-a-generation boom in iron ore mine development, and horizontal drilling means we can produce more oil with fewer rigs. Even in a U.S. infrastructure boom, CAT is overpriced. CAT closed the year at $92.74 or 33x forward earnings.

Overall, Einhorn’s portfolio rejiggering does not seem like much of a change from his existing holdings; if anything, it may simply be a way to justify to LPs that his holdings are appropriate under a shift from Obama to Trump.

Einhorn also explains why, unlike Druckenmiller, he remains long gold despite his newly-found economic optimism:

Lastly, we continue to own gold. Our sense is that Mr. Trump doesn’t hold any core policy beliefs and is apt to change his mind as he sees fit. This will lead to more political and economic uncertainty and less stability. There has been a knee-jerk decline in gold since the election, as investors presume that higher short-term rates are good for the dollar and bad for gold. Ultimately, we believe the case for gold is broader: greater economic, geopolitical and policy uncertainties, much wider budget deficits, and the possibility of an inflation problem all support gold (to say nothing of what might be required to redecorate the White House to Mr. Trump’s tastes).

Finally, in terms of actual new positions, Einhorn says he established one new position and increased two others during the quarter.

We made a mid-sized investment in a European financial company. As per our policy regarding EU MAR, we won’t identify the company or discuss the thesis at this time.

He also elaborates on why he is long Bayer, why he is adding to GM shares, and why he exited positions in ACM, KORS, TTWO, FLS, MJN and RAI.

Much more in the full letter below.

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Roughly two weeks ago, when writing about the cash ban in India, I stated:

 If you think the Elites aren’t watching this unfold with sheer delight you’re mistaken. Globally a war on cash has been declared. And India has now proved that it can be done with little consequence. The fact it INCREASE tax hauls (something every Government on the planet wants) is just icing on the cake.

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Fast forward to this week at the Davos Economic Forum in Davos Switzerland, and Nobel Prize winning economist Joseph Stiglitz all but said the exact same thing.

Indian Prime Minister Narendra Modi has already removed 86% of his country's currency from circulation in an attempt to curb tax evasion, tackle corruption and shut down the shadow economy.

Should the US follow suit?

Joseph Stiglitz, Nobel Prize-winning economist, thinks so. Phasing out currency and moving towards a digital economy would, over the long term, have “benefits that outweigh the cost,” the Columbia University professor said on day one of the World Economic Forum's Annual Meeting in Davos…

“I believe very strongly that countries like the United States could and should move to a digital currency,” he said, “so that you would have the ability to trace this kind of corruption. There are important issues of privacy, cyber-security, but it would certainly have big advantages.”

http://ift.tt/2jGAdMd

Again… the War on Cash is not slowing down. India effectively removed 86% of the physical cash in circulation and no one was forced to resign.

Put simply, India signaled to the global elites that you can implement a near complete ban on physical cash, and there are no real consequences as far as political aspirations.

We believe that the Elites will be pushing for this policy to hit the US. If you think this is impossible consider that Stiglitz openly called for the US to ban cash in the article above.

Indeed, we've uncovered a secret document outlining how the Fed plans to ban physical cash and incinerate savings in the coming months.

We detail this paper and outline three investment strategies you can implement

right now to protect your capital from the Fed's sinister plan in our Special Report

Survive the Fed's War on Cash.

We are making 1,000 copies available for FREE the general public.

To pick up yours, swing by….

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

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By EconMatters

We discuss the Financial Markets from Equities, VIX, Gold, Copper to Bonds, Currencies and Oil in this General Market Commentary video. Watch the Front Month VIX Futures Contract for your sign to ‘Get Out Of Dodge’!

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle   

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Analyzing intraday time series in various markets is a familiar strategy, and has usually been applied to markets which have liquidity 24 hours of the day, such as FX. A good recent example was Deutsche’s report on “How To Make Money Trading FX? Just Wake Up At 3AM.” And while such regional time-series comps have been mostly conducted with currencies, over the weekend Morgan Stanley’s Matthew Hornbach did a similar analysis with rates.

What he found was startling.

As Hornbach explains, a key feature of his team’s work over the years has been to what extent and when have investors in Japan placed downward pressure on Treasury yields. This led him to consider whether or not the effect occurred during the Tokyo trading day or outside of the Tokyo trading day. Morgan Stanley then created 4 indexes to track the changes in 10y rates during 4 sessions of the global trading day: (1) the Tokyo session, (2) the London session, (3) the NY morning session, and (4) the NY afternoon session.

The exchibit below shows the cumulative change in 10y swap rates during each session since November 2012, while the exhibit on the right combines the morning and afternoon NY sessions. To avoid calendar effects on yields, MS excluded any day that includes a holiday in one of the three regions. The bank also used swap rates due to the availability of historical intraday data on Bloomberg, however Hornbach urges those with access to a fuller set of data to use Treasury futures prices: the outcome should not be different.

And now his finding: what both charts suggest is that the entirety of the decline in 10y rates in 2015 and 2016 occurred during the Tokyo trading session. In fact, since October 8, 2014, 10y rates have fallen by 141bp cumulatively during the Tokyo trading session (Tokyo open until 2:00 AM ET). During the same period, 10y rates rose by 109bp cumulatively during the London session (2:00 AM ET to 8:00 AM ET), and rose by 37bp cumulatively during the NY session (8:00 AM to 5:00 PM ET).

Narrowing down the time series to just since the US presidential election, reveals that 10y rates have risen by 35bp during the London session, risen by 37bp during the NY afternoon session (1:00 PM ET to 5:00 PM ET), fallen by 18bp during the Tokyo session, and fallen by 1bp during the NY morning session (8:00 AM ET to 1:00 PM ET).

The implication of these findings, simplistic as they may be, is that the buying pressure on Treasurys is entirely the result of Japanese action, while the “rest of the world” has been a net seller. While the MS analysis does not definitively confirm that the buyer is an actual Japanese organization, it suggests that the buying entity does operate mostly during Japanese trading hours, for whatever reason.

But while it remains to be proven that the buyer is indeed Japanese, or operating out of Japan, it suggests that anyone wishing to trade bonds – at least as long as this pattern holds – should buy Treasuries during Japanese trading, and sell them mostly during London trading hours. Of course, now that the pattern has been exposed, it is unlikely that it will persist but it never hurts to try.

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US financials stocks are down 3% from Friday’s exuberant post-earnings opening highs. That is the biggest drawdown since the election with BofA, JPMorgan, and Goldman leading the downturn (down almost 5% from Friday’s opening highs)…

Sell-the-earnings-news…

 

As suddenly investors realize there was no curve steepening and there was no NIM surge…

 

And credit markets might be right after all..

 

The question is – has BofA (JPM, GS, WFC) gotten ahead of itself? Well, readers can decide on their own…

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