Financial markets are sending investors an explicit signal. If you haven’t been paying close attention, the U.S. economy is slowing. How else would you explain the following?
In the past year:
- Long-Term Bonds (TLT) are up 18% versus the S&P 500 up just 2%
- The Russell 2000 is down -14% from its late August peak
And yet, alongside this massive rally in long-term bonds, Wall Street remains stubbornly net short Treasury bonds. According to the CFTC's positioning data, Wall Street consensus is short -374,101 contracts in the 10-year Treasury and -329,268 contracts in the 2-year Treasury.
For the record, we've been bullish on Treasury bonds across the curve for well over a year now.
Investors still aren't prepared for our #Quad4 outlook for the U.S. economy (i.e. an environment of U.S. Growth and Inflation slowing) alongside a probable #EarningsRecession. Both of these catalysts are set to hit in the third quarter of 2019 (i.e. right now, but reported in the weeks to come). We would like you to be prepared.
Meanwhile, most investors are holding out hope that central bankers will save the day at this week's Jackson Hole Symposium.
Reminder: "Hope" is not a risk management process.
Our Senior Macro analyst Darius Dale explains in the clip below that the global economic data continues to slow – at a faster rate – and it’s beginning to “seep over into the U.S.”
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“We’re going to get the worst data since the cycle started slowing last year in the next three months,” Dale explained recently on The Macro Show. “Investors haven’t had to deal with that yet. What’s now happening to bond yields is they’re saying, ‘Oh no, the data is getting worse at its fastest pace and the Fed hasn’t done enough to ease. The ECB hasn’t done enough to ease. The PBOC is moving in the wrong freaking direction! They’re tightening.’ This could get hairy in a hurry. This is the black hole of market risk we’ve been talking about for months now. Pay attention.” |
