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The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields

Takeaway: A look at the pancaking of yield curves around the globe.

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - bond yields

 

Below are sovereign bond yields for select countries with negative interest rate policies. The graphs show the yield curves for those sovereign bonds today (green line) versus where they were last year (yellow line).  

 

German 10yr:

 

6/9/15: 0.949% 

Today: 0.037%

 

Click images to enlarge.

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - german yield curve

 

Japanese 10yr:

 

6/9/15: 0.448%

Today: -0.131%

 

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - japan yield curve

 

Swiss 10yr:

 

6/9/15: 0.211%

Today: -0.48%

 

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - switzerland yield curve

 

How This Whole thing Shakes Out is anyone's guess.


The Great Debate: Reflation Versus Deflation

The Great Debate: Reflation Versus Deflation - reflation cartoon 10.13.2015

 

Good thing the jobs number was a bomb.

 

Heading into today SPY was up for 5 of the last 6 days on a massive reflation move that squashed the dollar as investors bet Dovish Fed = Down Dollar = Stocks Up. The U.S. Dollar index is down -1.7% since then.

 

The Great Debate: Reflation Versus Deflation - dxy index 6 9

 

But with the dollar up today, the reflation trade has been unravelling a bit. 

 

 

Where do we go from here?

 

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning.

 

"With USD signaling immediate-term TRADE oversold this wk, did we see the final push/capitulation/chase in all things Down Dollar Dovish Fed, or is reflating the former bubble just getting started? Sounds like a Q3 Hedgeye Macro Theme in the works… Oil +41% in the last 3 months but Copper -6.4% - demand?"


A Closer Look At Consensus Positioning (& Why We Completely Disagree)

Takeaway: Consensus is overwhelmingly long the S&P 500 and short 10yr Treasuries. Don't do that!

A Closer Look At Consensus Positioning (& Why We Completely Disagree) - consensus positioning

 

Consensus is overwhelmingly long the S&P 500 and short 10yr Treasuries. 

 

Before you dogpile in on that. Consider where we're at...

 

In her most recent speech, Fed head Janet Yellen expressed concern about the jobs market, while reiterating that the Fed is data dependent. In the past six months, the Fed pivoted from Hawkish (in December) to Dovish (March/April) to Hawkish (May). Market consensus now perceives Yellen and the Fed as flipping back to Dovish in June.

 

Meanwhile, Yellen’s favorite economic indicator (the “Labor Market Conditions Index”) just hit a 7-year low and credit growth had its biggest deceleration since 2010.

 

In other words, U.S. #GrowthSlowing.

 

So, what’s an investor to do?

 

The Fed is perpetuating volatility in macro markets, so stick with what’s worked all year, Long Bonds (TLT). Stating the obvious, that is the exact opposite of how Macro consensus is positioned. TLT has been our most vocal macro call for a while now and has served us well. It is up around 11% YTD versus 3% for the S&P 500.


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  • Bullish Trend
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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.78 1.64 1.71
SPX
S&P 500
2,082 2,121 2,119
RUT
Russell 2000
1,139 1,195 1,188
COMPQ
NASDAQ Composite
4,872 4,995 4,974
NIKK
Nikkei 225 Index
16,303 16,972 16,830
DAX
German DAX Composite
10,015 10,368 10,217
VIX
Volatility Index
13.02 16.75 14.08
USD
U.S. Dollar Index
93.15 94.87 93.60
EURUSD
Euro
1.10 1.14 1.13
USDJPY
Japanese Yen
105.53 108.77 107.00
WTIC
Light Crude Oil Spot Price
47.78 51.37 51.53
NATGAS
Natural Gas Spot Price
2.12 2.60 2.46
GOLD
Gold Spot Price
1,240 1,270 1,265
COPPER
Copper Spot Price
2.02 2.11 2.06
AAPL
Apple Inc.
96.73 100.99 98.94
AMZN
Amazon.com Inc.
697 734 726
MCD
McDonald's Inc.
120 124 122
NFLX
Netflix Inc.
96 102 97
GOOGL
Alphabet Inc.
716 751 742
GIS
General Mills Inc.
63.00 64.75 64.42



A Brief History Of The #CreditCycle via Hedgeye's Darius Dale

Takeaway: "We are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated..."

A Brief History Of The #CreditCycle via Hedgeye's Darius Dale - Fed cartoon 10.24.2014 large

 

Below is an essential risk management chart via Hedgeye Senior Macro analyst Darius Dale. Here's the key callout on the #CreditCycle from our quarterly Macro Themes deck:

 

"We are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated in the form of continued recessionary earnings growth as the business cycle gets dangerously long in the tooth."

 

Click image to enlarge. 

A Brief History Of The #CreditCycle via Hedgeye's Darius Dale - delinquencies rising


Dispelling Another Wall Street Fairy Tale: "Global Demand Has Bottomed"

Takeaway: Evidence of #GrowthSlowing? Japanese and German equity markets are tumbling and the 10yr/2yr Treasury yield spread is pancaking.

Dispelling Another Wall Street Fairy Tale: "Global Demand Has Bottomed" - growth escalator cartoon 04.29.2016

 

We've been hearing for a while now, from various pundits and prognosticators, that "global demand has bottomed." The problem with that argument is that it just isn't born out by the facts. 

 

Setting aside that economic indicators around the world are rolling over, simply looking at the massive drawdowns in global equity markets could satisfy even a casual observer's curiousity that all is not well.

 

Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"I know. When trying weave the “global demand has bottomed” narrative about US stocks, you have to ex-out things like Japanese and German Equities (and their bond yields hitting all time lows) – small details I’m sure, but both Nikkei and DAX down another -1% today and down -20% and -19%, respectively, from last year’s highs."

 

Take a look at the Nikkei...

 

 

And Germany's DAX...

 

 

Clearly, global demand has not bottomed...

 

Here's the most obvious #GrowthSlowing indicator. The 10yr to 2yr Treasury yield spread is pancaking, with the yield on the 10yr at 1.669% this morning.

 

Dispelling Another Wall Street Fairy Tale: "Global Demand Has Bottomed" - yield spread 6 9 16

 

More to be revealed.

 

(FYI: Our biggest Macro call, Long Bonds (TLT) is breaking out to new highs today.)


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