Global Government Bond Yields Are Plummeting

The latest movements in markets are starting to be in sync with a slow growth economy. This makes sense as the blue-chip GDP forecast has been decelerating quickly. The global trend in declining bond yields can be see below. The range the U.S. ten-year bond was in for the beginning of the year has been…

Millennials Can’t Catch A Break

The previous discussion about the labor market showed how it’s tough to quantify the slack in the labor market. The Fed has been relatively dovish at the end of this cycle even though the unemployment rate suggests the labor market is near full employment. Another reason why the Fed hasn’t been hawkish has been the…

Is Passive Investing Toxic?

I can analyze the economy in specific detail for endless articles, but the health of the economy has had declining relation to the stock market returns lately. I calculated the correlation between quarterly GDP and the S&P 500 from 2008 to 2016. The correlation coefficient is 0.973 which signals there’s very high correlation between the…

How Much Slack Is In The Labor Market?

There is an interesting bifurcation in the economic data and the earnings data which I will discuss in this article. The reason I say it’s interesting is because it’s unexpected and unsustainable. It’s simply impossible to have a long period where earnings are growing above their trend and GDP is growing below its trend because…

Charge-Offs Increase As The Debt Bubble Comes Close To Bursting

Debt Bubble As a clarification to a previous article, I showed a chart which had an elevated level of equity financing as a percentage of U.S. M&A. It’s worth emphasizing that while equity issuances have been funding M&A at a high level, net equity issuance is the lowest since 2007. As you can see from…

Does Trump Want A Dovish Fed Chairperson?

The biggest news in the financial world on Wednesday was the President’s interview with the Wall Street Journal which I briefly touched on in my last article. Trump mentioned that the dollar is too strong for American exports to compete. This sent the dollar lower. A weak dollar would help exports, multinationals’ profits, and tourism.…

Long Bond, VIX, & Commodities Show Reflation Trade Is Over

The stock market had another small drawdown on Wednesday as it is down about 2.5% from its all-time high. The last 5% decline was in June 2016 which is about ten months ago. The minimal size of the stock market correction is remarkable when you look at in the context of other markets. As I…

Atlanta Fed Forecast Uses More Hard Data

Before I get into a discussion of the latest market action, I will make a clarification of an aspect which I wasn’t aware of. As I have mentioned a few times in the past few weeks, the NY Fed’s Nowcast Q1 GDP growth estimate and the Atlanta Fed’s Q1 GDP Now growth estimate are far…

Are Small Businesses Overly Optimistic?

There has been an increase in stock prices since the election based on optimism about the Trump administration. Investors focused on the potential tax cuts, regulatory reform, healthcare reform, and infrastructure stimulus. The fact that investors were swooning over a politician’s rhetoric showed how far the hope trade had gotten in this cycle. The chart…

Reflation Trade #3 Is Putrid

Monday’s trading was yet another example of a day where the market went up and the VIX went up. There seems to be quite a few of these occurrences happening as the market hasn’t fallen much, but the VIX occasionally catches a bid because of various potential worries such as geopolitical or monetary policy concerns.…