Faber News Flow

The breatheless rally in the 10Y Breakeven rate since the March lockdown lows has continued, and on Tuesday morning   it hit a high of 2.03%, the highest level since December 2018.  This even as real rates - which are determined by TIPS - have cratered to -1.09%, the lowest level this century. Validating expectations for higher inflation in the near-term is the concurrent levitation in 5Y-5Y forwards which are similarly trading at 2.25%, well above the Fed's target, and refuting skepticism that prices will rise above the Fed's (increasingly soft) 2% inflation target. We won't go to in depth into the reasons behind the ongoing surge - we covered them yesterday when discussing the implications of a potential Georgia sweep - suffice to note that rates traders are now clearly equating a blue sweep later today with much higher yields. Bloomberg explains: The outcome of the vote, results of which will likely be known Wednesday morning, is seen as having huge implications for Trea...

Last Monday, we published the first weekly warm up note from Morgan Stanley equity strategist Michael Wilson who in addition to warning that the "market is ripe for a drawdown" as the "risk/reward has deteriorated materially", ( a prediction which has yet to pass) laid out his most contrarian view about 2021, namely that "the big surprise of 2021 could be higher inflation than many, including the Fed, expect. Currently, the consensus is expecting a gradual and orderly increase in prices as the economy continues to recover. However, the move in asset prices like Bitcoin suggest markets are starting to think this adjustment may not be so gradual or orderly." Fast forward to today, when in Morgan Stanley's Sunday Start periodical, the bank's global head of economics, Chetan Ahya, doubles down on this topic and in "Five Reasons why we are inflation bulls" lists all the reasons why not only are 10Y yields set to rise (perhaps violently), but w...

Louis-Vincent Gave, CEO and co-founder of Gavekal Research, sees a dramatic paradigm shift playing out in the world economy. In this in-depth conversation, he explains how investors should position themselves for the future. Louis-Vincent Gave is a master of the big picture. The co-founder of Hong Kong-based research boutique Gavekal is one of the most esteemed writers about geopolitical and macroeconomic developments and their impact on financial markets. In this in-depth conversation with The Market NZZ, Mr. Gave shares his views on the Dollar, stock markets, oil and gold prices – and he explains why the United States are starting to act like a «sick emerging market». Mr Gave, 2020 has been a catalyst for some big shifts in the global investment environment. Looking into the future, what are the biggest topics for you? I've spent most of my career in Asia, so my lens is fundamentally biased towards Asia. With that disclaimer, I would say this: When the Covid crisis started, the v...

Now that the deflation narrative which marked most of 2020 is dead and buried, and instead traders are focusing not only on breaking out 10Y nominal yields... ... as well as the highest 5Y5Y fwd swaps and breakevens in years... ... prompting Morgan Stanley to list  five reasons why  even higher inflation is coming in the next few months, attention has turned to the only key variable that matters:  what yield on the 10Y Treasury will be the catalyst that send stocks plunging? We touched briefly on this point  last Wednesday  when we said that just a 1% increase in 10Y yields would slash P/E multiples by 18%. Of course, if this multiple contraction is accompanied by an offsetting increase in corporate profits (which one would expect in a reflating world), all shall be well and stocks would be flat, all else equal. Of course, all else is never equal, and a question that is perhaps even more important than "what rate" will break stocks is how fast we get there. Recall what Morgan...

In December 2017 I wrote a paper titled "What causes asset bubbles" featuring the chart below. A few days later, Bitcoin prices peaked and fell 85% within a year. It seems Bitcoin is back. I believe we are in the midst of another bubble, but this time I am not confident in calling its top. My updated chart and thoughts are below1. First, let's not kid ourselves. Bitcoin in its current form is  not  a viable candidate as a currency replacement. If we measured the US annual inflation in Bitcoin instead of dollars, you'd have seen 275% inflation in 2018, -50% deflation in 2019, -75% deflation in 2020. A healthy society cannot function with that kind of price volatility. The currency must be stable enough that if you get paid on Friday you know what kind of dinner you can buy on Sunday. While it may mature in the future, Bitcoin as it exists is largely a speculative asset. Recommended Videos Cuts likely as Fiat Chrysler-PSA tie-up nears approval, and other top stories in ...

As Bloomberg macro technician William Maloney writes this morning, after a lengthy period of meandering, the yield on 10-year U.S. Treasuries spiked above 1.0% and hit 1.052% amid an ascending triangle breakout, signalling a further rise could be on the way. According to Maloney, the breakout could set up a run to 1.09%, which is 76.4% Fibonacci of the March 19 peak to August low. The reason for the breakout, as discussed earlier, is simple: the Docratic blue sweep which now appears likely paves the way for more spending, much more stimulus and a gaping budget deficit, pushing inflation expectations and nominal yields sharply higher. Indeed, long-bond rates were on track for their biggest one-day jump since March's pandemic-related turmoil and investors have already started to dust off reflation trades in anticipation of a so-called Blue Sweep. "The result will certainly be seen as a driver of higher Treasury yields," said James Athey, a mo...