MAD Macro - Merry Christmas and 75 Basis Points to All
See I’m No Grinch
Ok Tin Man, We Got Your List, Lower Rates
Jay Powell pivots, so it’s a Merry Christmas and 75 basis points to all. Nick Timiraos has a front page WSJ article, linked here. It’s titled “Fed Begins Pivot Toward Lowering Rates as Inflation Declines”. Nick focuses on the following Powell quote “We’re aware of the risk that we would hang on too long, we’re very focused on not making that mistake”. Translation, it’s a pivot. Greg Ip also has an article in today’s WSJ, linked here. His is titled “The Fed Underwrites the Recovery”. Greg focuses on the following Powell quote, “You’re getting now back to the point where both mandates are important. We’ll be very much keeping that in mind as we make policy going forward.” Translation, it’s a pivot. Janet Yellen was interviewed yesterday morning and foreshadowed Jay’s pivot. She said that the economy was back in balance, with inflation expectations well anchored and returning to target, there was no reason not to lower rates. The Tin Man gets an early Christmas present -lower interest rates. Let’s hope the ghost of Christmas past is not Arthur Burns.
In Washington it was a busy day. First, Hunter Biden gave a press conference after refusing to testify in front of Congress. He gave what might become known as the “it depends on what the meaning of the word is, is” speech. Hunter told us that the Tin Man was not “financially” involved in his businesses and is a lousy artist. So Hunter’s speech yesterday will be known as the “It depends on what the meaning of what the word financially is, was or could be”. Later yesterday, the Republicans in Congress rallied the troops to formally start looking for the blue dress. They needed to make the impeachment investigation an official probe so they could probe for the blue dress. Let’s hope they don’t probe Hunter because he has a closet full of blue dresses and they are crusty.
The markets went pivot crazy yesterday. It was an everything rally. It’s definitely an early Christmas. Jeffery Gundlach was interviewed on CNBC after Jay’s press conference. Jeffery is a little strange and might be upset that Bill Ackman is the new bond king, but he had an extreme view on where bond yields are headed next year. He thinks the economy will crash and the Fed will ease by more than 200 basis points. He also thinks the stock market will crash and you need to own bonds, obviously. I guess that’s understandable, he is a bond manager. Maybe that’s why I am always bullish gold and commodities. Let’s hope the economy does not crash, because at the moment it’s thinking soft landing, Goldilocks. Either way with the pivot it looks like the U.S. dollar is headed lower and that should be good for gold and commodities.
I updated the U.S. Dollar Index, U.S. Dollar Index weekly, U.S. 2yr yield, U.S. 10yr yield, U.S. 10yr-2yr yield spread, WTII crude oil, spot gold, bitcoin, S&P cash, NASDAQ 100 cash and DOW cash charts below.
The dollar and rates across the curve are sharply lower again after falling sharply yesterday. It’s been an amazing move. The curve is a little steeper today.
Crude oil, gold and bitcoin are all a little higher.
The DOW made new all-time highs yesterday, all three indexes are due a little higher this morning. Both the S&P and NASDAQ 100 could challenge their all-time highs before Christmas.
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S&P 500 futures are a type of derivative contract that provides a buyer with an investment priced based on the expectation of the S&P 500 Index’s future value. Nasdaq 100 futures are commodities futures products traded within the equity futures sector. West Texas Intermediate (WTI) oil is a benchmark used by oil markets, representing oil produced in the U.S. Brent Crude Oil is a blend of crude oil recovered from the North Sea in the early 1960s, whose price is used as a benchmark for the commodity's prices. The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. UBS Bloomberg Constant Maturity Commodity Index is a total return rules-based composite benchmark index diversified across commodity components from within specific sectors.
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