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God's Bunds?

This note was originally published at 8am on May 07, 2015 for Hedgeye subscribers.

“God understands more about financial markets than many who write about them.”

-Jean-Claude Juncker, May 6th, 2014

 

Now that German Bund Yields have quintupled, in 8 trading days, I’m thinking God understands more about financial markets and economic cycles than many who try to centrally plan and smooth them.

 

For those of you who don’t know who Jean-Claude Juncker is, he’s the former Prime Minister of Luxembourg (1995-2013) and residing President of the European Commission. This guy is a hard-core Eurocrat.

 

It might just be me, but I was under the impression that these dudes in Europe thought they had this all under control. Didn’t Draghi promise investors “whatever it takes”? If this bond market move is God’s work, Europeans better pray for it to stop.

God's Bunds? - Draghi cartoon 03.05.2015

 

Back to the Global Macro Grind

 

That wasn’t a typo – at one point this morning German Bund Yields flash-crashed, or something like that, to 0.76% on the 10 year. Only last week it was trading at 0.14%. That’s a five bagger!

 

Since I’m bullish on US Treasuries, that’s not good. Despite weakening US economic data (see the rate of change in the ADP jobs report in today’s Chart of The Day), Treasuries have been down for 7 straight days. #EuropeanYieldRamp is the main reason why.

 

To be fair to the revisionist historians, they think this is all supply and demand and/or “fundamentally” driven by things like “higher inflation expectations.” I don’t. This is an outright panic-shift in market expectations.

 

To review where some big market expectations were 10-30 trading days ago:

  1. Draghi was going to keep rates low (in some cases negative), for as long as it takes
  2. European growth was being engineered by this lower-for-longer rate policy
  3. Down Euro was damn good for German, Dutch, etc. “exporters”… and their “stocks”

 

Then, z-z-z-ooom! (or ka-boom, depending on what you’re long)

  1. Euro stopped going down (USD stopped going up) as both US jobs and GDP reports slowed
  2. Oil started to rip on Down Dollar (and a circular supply narrative)
  3. And out of nowhere, despite Down Dollar, European rates started to rip higher

 

This morning alone:

  1. German 10yr Yield = +15 bps to 0.75%
  2. France 10yr Yield = +14 bps to 1.05%
  3. *Japanese 10yr Yield = +8 bps to 0.43% (one of the biggest daily % moves in a decade)

 

And US centric navel gazers are freaking out because US 10yr Treasuries moved 2 basis points off a base of 2.26%. If I’ve said this to investors who have emailed/called me in the last 48 hours 100 times, I’ve said it 1,000 times - #EuropeanYields!

 

If central planners didn’t give markets the “all-clear” expectation, absolutists who say “well, this isn’t much of a move from such low levels” might have a reasonable point. But that’s not how macro market risks evolve.

 

There is a massive amount of leverage that is betting on #LowerForLonger in Europe/Japan, and risk models move in percentage terms, not “valuation” opinions. Forget the +25% move in 30 minutes in German Bund Yields, they’re +514% in eight days. #Again!

 

So what is a man or woman to do when neither stocks nor bonds work?

  1. Raise Cash – we’ve been moving towards our highest Cash position (57%) of the year in the Asset Allocation Model
  2. Wish that you’d raised more Cash… and
  3. Call yourself as dumb as I feel for not selling US Bonds when the #process said buy more

 

To review the #process. We believe that you:

 

A)     Buy long-term Treasury bonds when growth is slowing

B)      Sell them when growth, in rate of change terms, is accelerating

 

And since I personally didn’t get the memo from God on the Euro Bond Yield move, I am going to evolve the #process and implement prayer this morning. Because, to be honest with you, other than raising cash, I don’t know what else to do.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.86-2.29%

SPX 2063-2096
RUT 1201-1230
DAX 11101-11304
VIX 13.32-16.51
EUR/USD 1.06-1.14
Oil (WTI) 54.13-61.92

Gold 1169-1203

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

God's Bunds? - z 05.07.15 chart


May 21, 2015

May 21, 2015 - Slide1

 

BULLISH TRENDS

May 21, 2015 - Slide2

May 21, 2015 - Slide3

May 21, 2015 - Slide4

May 21, 2015 - Slide5

May 21, 2015 - Slide6

May 21, 2015 - Slide7

May 21, 2015 - Slide8

 

BEARISH TRENDS

 

May 21, 2015 - Slide9


The Macro Show Replay | May 21, 2015

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%

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We Invite You To Watch The Macro Show - Macro Show cartoon

 

Since Hedgeye's inception, CEO Keith McCullough has hosted a morning global macro conference call before market open. In our ongoing efforts to be pioneers in financial media, we are now offering this call as a live-streaming video program that we call The Macro Show. 

 

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Cartoon of the Day: Twisted

Cartoon of the Day: Twisted - Oil cartoon 05.20.2015

Dollar down, oil up ... Dollar up, oil down ... Rinse, twist and repeat.


GLD: Adding Gold to Investing Ideas

Takeaway: We are adding Gold to Investing Ideas today.

Please note that we are adding Gold (GLD) to Investing Ideas today. Below is a brief note from CEO Keith McCullough. We'll have an additional update in this weekend's edition.

 

GLD: Adding Gold to Investing Ideas - z g

 

I've been waiting, patiently, on this one - and here it is - a buy signal on Gold. 

 

To review what will really make Gold rip:

 

1. Down Dollar 

2. Down Rates

 

With the 10yr UST (and German 10yr) making lower-long-term highs here, the catalyst for Gold to go up is clear. 

 

We'll see if I was patient enough.

KM


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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