Monthly Archives: March 2014

Yellen Speaks

...and its refreshing.

Madame Chair spoke in Chicago today (the text is on the FRB website as usual). The insta-pundit take away was extreme dovishness. Jefferies economist, Zervos, invoked Batman and deep dish pizza in an odd metaphor mix. The stock market was higher and the curve steepened back some. Of course, the neo-inflationists were appalled.

Greenspan loved dropping obscure anecdotal data into talks that would spur several months of cult following. Corrugated box prices, scrap metal and men's under wear all had spot light moments during Greenpan's long tenure. Bernanke faced a harsher reality. His timid, halting delivery did not exude confidence in listeners. Bernanke spent most of his time trying to explain a policy  they were clearly making up as they went. Lost among the critics outrage was that the flexibility was the policy's strongest pillar.

Enter Yellen, labeled a "Dove" throughout her long career. In Chicago, she tried to put a human face on the statistics. I did not hear a new easier tilt to her views. I was reminded of the old Fed policy of stating a bias. The bias, despite changing data, remains toward accommodation. A participant is free to take issue with that stance in the market, and good luck, but the tilt is openly expressed.  Tapering, Forward Guidance and Pressers are all just attempts - weak in my opinion - to clarify that stance.

The delicate switch that the Yellen Fed is undertaking behind that tilt is to return to a Rates Regime. Some recent "confusion" (as market movements are now called) comes from equating Regime change to policy bias change. That is incorrect. As we suggested in 2008, a CB should embrace "quantitative regimes" at inflationary/deflationary extremes and "rates" in the middle. The regime defines the methodology of policy execution, not the bias. So far, I think Yellen (the POTUS' 2nd choice btw) has proved the right choice.

 

Classical Monday

30 minute atr

daily pivots

weekly pivots

upside retracements

downside retracements

regression channels

price support and resistance
On the economic calendar:-
 
09:45 Chicago PMI (Consensus 59.0 v Prior 59.8)
10:30 Dallas Fed Manufacturing Survey (Consensus 3.0 v Prior 0.3)
11:00 4 Week Bill Announcement
11:30 3 Month Bill Auction
          6 Month Bill Auction
POMO:-
 
None today
Speaking today:-
 
09:55 Janet Yellen

 

Q1- Blink and You Missed It

2014s first reporting period is already upon us. The quarter is remarkable only for the failure to deliver what most of us, on both sides of the spectrum, predicted. We felt the year ended with enough forward momentum to focus on an attenuated "Exit" that would put the 5 year Note around 2%. Bears threw darts at anything that crossed the tape shy of expectations as proof a market collapse was imminent. Neither scenario panned out.

The Olympic closing ceremony turned out to be Neo-Soviet aggression. Mother Nature tormented much of the nation with snow and bitter cold. The noble intention of national health insurance slowly collided with the reality of business management and retooling 17% of the economy. New issues came to market, some up-some down. Corporations tapped into the debt markets and junk, cov-lite and PIk instruments found their way back onto the field.

We noticed the 2 main beneficiaries of crisis policy that has Structurally Impaired (trapped) the economy still haunt us. The "Banks" moved ever more securities into the "Held to Maturity" bucket as IOR and regulatory reform continue to chill behavior. Citi (and Zions) proves an opportunity to bust up and reduce capacity was missed. The same could be said for the Autos. GMs recall-a-palooza, after massive government help, must make Ford wonder why they strive to do better.

The fine line between stability and quagmire is getting muddier. Still, tax numbers indicate that the budget situation continues to improve and employment should grow a tad quicker. C&I data are popping as Greenspan said of the 1993 credit crunch, "Eventually bankers act like bankers." "Things" in the commodity world are percolating. We are holding on to our general view: Rates- a tad higher. Equities - up (its a bubble) and down (its a crisis) with a ton of hype and not much actual significance. The economy does a bit better than 2.5%. The Fed keeps inching toward the door. As always, Hooper drives the boat, I throw chum off the stern.

Classical Friday

30 minute atr

daily pivots

weekly pivots

upside retracements
downside retracements

regression channels

price support and resistance levels
On the economic calendar:-
 
08:30 Personal Income (Consensus 0.2% v prior 0.3%)
          Consumer Spending (Consensus 0.3% v Prior 0.4%)
09:55 Consumer Sentiment (Consensus 80.5 v Prior 79.9)
15:00 Farm Prices
POMO:-
 
10:15 - 11:00 Outright Treasury Coupon Purchases between $1.00 - $1.25 billion
 
Speaking today:-
 
13:15 Esther George

Contrarian Corner’s Eyes Results of 7-Year Note Sales (Audio) 27 Mar

Kevin Ferry, founder of The Contrarian Corner and the Hooper Quant Model, weighs in on the Treasury’s sale of $29 billion of 7-year notes and what the results reveal about investor appetite for U.S. government debt. Ferry speaks with Bloomberg’s Kathleen Hays and Vonnie Quinn on Bloomberg Radio’s "The Hays Advantage”.

Audio

What’s That Again?

The SP (Dow too) has really showed some back bone during the recent rout in the Nasdaq. Trading the relative performance is very popular in futures circles. This type of "leadership" carries a rolling directional bearishness. Also, the Aussie dollar has put in another solid month after turning up in Feb. The commodity hot potato has lost some breadth even as the currency has gained. ("Stuff" remains popular and should through Summer. pork today)

Then there's the yield curve. Last week at this time, as the belly fell hard, we were regaled with stories of Hawkish Feds and confused bond rates market participants. This week the direction turned back up and the curve continued to shrink. The media narrative switched to just confused rates markets participants. The reality is, as with the equity markets mentioned above, the environment promotes a relative performance approach. The general dynamic of the curve makes shorting difficult - hence the preponderance of futures based tactics. As noted prior to the Fed, longer dated securities are being held by both bulls and bears.

Over my experience I have seen several periods where the directional call on rates has been wrong but the curve positioning has worked out. The reality is moves in the shape of the curve do not tell you much about direction. The ZLB enhances the swings out in the unknown land of the Ultra. Finally, the Fed's push for openness has germinated the unintended consequence of extreme repricing around their statement. FG has morphed small adjustments over time into violent headline risk. We are skeptical of the notion that rates participants are slow or easily duped.