Faber News Flow

SPX - time to chill? SPX has squeezed from the low of the range straight up to the high of the range. People still try to push the break out momentum, but there is no trend in SPX to be pushed. Let's see where we go from here, but we are rather overbought; 4500/4520 is a big "congestion" area and short gamma is gone (dealers are sellers of deltas on upticks). Time for SPX to chill for a few days? Source: Refinitiv Who is buying this tape right now? Answer: CTAs ($20b S&P this week), Retail (High Retail Sentiment Basket +578bps...GME +30% and TSLA + 8%), HFs Covers (GS Most Short Basket +376bps) and L/Os back nibbling in China ADRs on heels of BABA $25b buyback (China ADR Basket +823bps) (GS trading desk) ~7% stocks account for over 90% of all gains Even in the public markets power law dynamics play out. In between 1980 to 2014….~40% of stocks lost money, 64% of stocks underperformed benchmark and ~7% stocks account for over 90% of all gains (Bobby Molavi) Time to hedg...

It's not just Wall Street's increasingly less shrill army of legacy permabulls that has dismissed the collapsing 2s10s yield curve in favor of other, less relevant alternatives when it comes to timing the next recession: during Monday's speech by Jerome Powell, the Fed chair did so too, because as DB's Jim Reid explains, the Fed has "long preferred measures like the spread between the 18m forward 3m yield and the 3m yield which as our CoTD shows is now the steepest since on record with data going back to 1996." This has profound implications, the biggest one being that  the Fed won't see a 2s10s inversion as a reason to slow down rate hikes and that on their measure they have a record level of steepness in their curve to play with before the curve gets to a flat enough level to worry them.  In other words, the Fed won't realize that the US is in a full-blown until as much as 9-12 months  after  the fact. For his part, Jim Reid writes that "I can...

In recent weeks we have repeatedly directed attention to the woeful liquidity in the e-mini S&P future, arguably the most important contract behind the broader US equity market, where book depth has collapsed to levels last seen during the March 2020 crash when just an order size of just 4 million could move the contract by 1 tick. This has translated into violent and often painful swings in the S&P, leading to a surge in intraday volatility which has reflexively reinforced the market's sharp downdraft in the past month, which in turn has led to even less liquidity, and so on. Yet while stocks have seen a surge in volatility in the past month coupled with a collapse in liquidity, bond markets have remained relatively resilient despite the Fed's upcoming quantitative tightening. That's about to change. As Bloomberg's Edward Bolingbroke  writes , liquidity in the world's (normally) deepest and most liquid market, that of U.S. Treasuries,  is eroding again, as ...

See TME's daily newsletter email below. Even Worried Wilson seems to think that we are "almost there"... At least judging from this quote: ..."From our standpoint, the set-up is becoming more clear. Stocks have been de-rating for almost a year now as investors began to anticipate the inevitable tightening from the Fed given the robustness of the recovery and building imbalances...we think this de-rating is about 80% done at the stock level with the S&P 500 P/E still about 10% too high (19.5x versus our 18x target). In other words, the de-rating is more complete at the stock level than at the index level, at least for the high quality S&P 500." Never a good idea to hold on for that last 10% on the downside...(Wilson, Morgan Stanley Equity Strategy) "Hedges only cost money bro" Well, if you buy puts at local market lows, hedges tend to lose value quickly, especially as the crowd tends to overpay for protection in terms of volatility (and get the ...

There are no two ways about it: the first full year of the year was a lousy one for stocks, with the S&P falling by 1.9% and the Nasdaq tumbling 3.5%, its biggest drop since the year 2000 - the year the dot com bubble popped. The culprit for the plunge, of course, was the Fed, with the mid-week pivot coinciding with the release of the hawkish December FOMC minutes that hinted at not just a faster liftoff, but an even faster balance sheet drawdown. As a result, banks expect the Fed to hike either three or four times, with some expecting the Fed to announce QT in early H2, and Friday's dismal jobs report which showed just 199K gains (vs. consensus of 450K) did not deter hawkish expectations as the unemployment rate - just a few years ago viewed as a completely meaningless statistic - fell to 3.9%, down 0.3% from 4.2% in November. Looking at the price action, Goldman's David Kostin - who is of course, head of research and not an actual trader - points to the rapid move higher ...

Back in 2018 leading up to Christmas the Federal Reserve began publicly flirting with the notion of ending asset purchases, reducing their balance sheet and committing to an all around taper of stimulus.  I wrote about it extensively at the time along with my position that the Fed could and would taper, at least for a short period, which would lead to an accelerated crash of stocks. This did in fact happen, but  as we all know the Fed reversed course not long after. This reversal was seen by many as proof that the Fed would "never" actually pursue a full blown taper and that stimulus measures would go on forever. I believed it could be a dry run for a more aggressive taper event down the road. I argued that the fed would continue stimulus until stagflation became evident to the public, and then a careful game of scapegoating would have to be played and another taper would commence. It is also important to understand that there were many in the economic media that also argued ...

The economist consensus is optimistic about economic growth in 2022.  Financial conditions will remain broadly accommodative despite monetary policy tightening. With a faster vaccine rollout and new Covid antibody cocktails, the pandemic will be under control, at least in the developed world. The direct inflationary effect of bottlenecks will progressively vanish. On the production side, supply will increase and will reduce the risk of shortage.  But what if the consensus is wrong?  Our proprietary leading indicator for growth, the global credit impulse, flashes a warning to major economies. It tracks the flow of new credit issued by the private sector as a percentage of GDP. In our sample, we have the eighteenth largest economies which represent 69.4 % of global GDP share.  The global credit impulse is now in contraction territory, running at minus 1.3 % of global growth, according to our preliminary estimates.  What is Saxo Credit Impulse ? The notion of Credi...

As DB's Jim Reid writes in his always entertaining weekly preview this morning, " If you'd have told anyone at the start of the year that annual US CPI would be 5.9% in the penultimate print of the year (as consensus expects on Wednesday) after already spending five months already above 5% then I don't think you'd have got many predicting that there would be utter calm and buoyancy in the market."   That's certainly the case, because while Goldman was - and still is - predicting buoyancy in the market, the bank's inflation forecast has been a total disaster as the following monthly forecast revisions so clearly show - in April, the bank saw year-end headline CPI at 2,77%; it is now 6.31%. In any case, at the start of the year the forecast for the full year was 2%. That said, it is a quieter week ahead after all the fun and games of central banks and payrolls Friday last week.  The peak of earnings season is well behind us now, especially in the US with...