Bill Blain: “I Can Detect A Shift In The Market”

Submitted by Bill Blain of Mint Partners

Bond Yields Rising, Stock Market hesitant? Its fine.. And Groundhog Day for Deutsche

In Bonds there is Truth: the US 30-yr bond is over 3% – while the 10-yr bellweather hovers round 2.80%, looking likely to test the next big number. Yet, the bond market continues to pump out new supply… What will today’s US payrolls tell us? It’s just one number among billions of pieces of information floating out there… but, hey, its something we can worry about this morning.

Meanwhile, there are plenty of talking heads warning us the outlook for stocks is mixed. This morning’s Big Miss from Deutsche Bank (wow.. what a surprise.. (US readers sarcasm alert)) caps what’s looking the worst week for European stocks since the summer – although they are not even down 3%, to put it in perspective!

Meanwhile, its all about the big names in the US. Alphabet slipped – looking like investors aren’t convinced by its mix of brands from Google to YouTube. Bloomberg says its costs that disappoint; but did you know that it authorised a $8,589,869,056 stock buyback – its a “perfect number” – equal to the sum of all its divisors. Fascinating. Apple posts record numbers, and despite some complex management explanations sales have slipped, revenues are lower, while there is the implied promise of stock buybacks and acquisitions. Facebook admitted its News Flow is putting customers off – NSS Sherlock award (and no one under 50 apparently uses it anymore) – but the stock is up.  

It’s no wonder stock pickers are getting antsy.

They look at stretched valuations, signs the market is overbought, and fret about signals the market has topped. Sitting here watching, it does feels like sentiment is changing. Investors are getting selective. The last few months have felt like they have been chasing the market – buying at whatever level they can in pursuit of a runaway market. This week I can detect a shift – folk are looking to pick the winners and losers again. The return of some rationality, combined with a complacency check, might just see this market pause – but that’s not a bad thing.

Rising bond yields should be a bigger threat?

Being somewhat confused by it all I asked my Macro Guru, Martin Malone, what’s going on and why rising bond yields aren’t causing much more concern.

He explained it all in terms of market structure. Over the past 10-years the bond market has doubled in size to $20 trillion. However, the risk assets economy – think “stuff”, property and stocks – have risen to $80 trillion – 4x the size of the bond market. Therefore, a 5% gain in risk assets adds 4 trillion to risk asserts, while a 5% loss in bonds is only $1 trillion. In fact its even more complex than the simple math.

A good number of clients have told me recently they are increasingly concerned this US growth phase is running out of steam and we will be into economic slowdown as early as Q4 this year, triggering the end of this frothy global alignment of growth drivers.

Martin’s watching macro like a hawk – and he’s happy yield curves, Domar spreads (NGDP-10-yr), real rates, employment, Central Bank balance sheets, and the alignment of positive global macro remains very much on track. He says: “The Bear Bond moves is a GOOD RATE RISE – supporting macro economic conditions as well as wider financial markets.”

Martin’s got the benefit of his Alphabook Macro Machine. He and his chums have built a deep delving AI, learning from over 5 million Macro factors – using the numbers to illustrate what’s going on in surprising ways and informative ways. To get his Alphabook research – it’s a cost… but absolutely worth every penny. Happy to send him your way if you want to understand why your fears might be unjustified. 

Today, I am told is Groundhog day. The classic film where Bill Murray is caught in a timeloop. Bit like Deutsche Bank. Reporting another annual loss, crashing revenue, and a CEO finding crumbs to tell us how much better its all getting. “We believe we are firmly on the path to producing growth and higher returns……..” If I had more time, I’d deep dive the numbers, read all the reports, and come to some sage conclusions, but since I don’t I’ll just pose the question about the definition of lunacy.

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