Home > Jan 2018 > Jan 25, 2018 Us Bears Continue to Hide

Jan 25, 2018 Us Bears Continue to Hide

January 25th, 2018

Weaker Dollar across the board after Draghi came out not so dovish on the euro. CAT beat big time on earnings  up 3.60% premarket and Home Depot joins the ranks of giving bonuses. All the Bulls in the world are saying the “Central Bank Science Project” (a term I caught being used on Davos Tom Keene Interview), is Working. Futures are up BIG before the start of the US Session, .40%. Markets continue to hit highs with everyone bringing in their 401’s to invest at market highs. Larry Fink and Ray Dalio are saying that more have to take money from the bond market and invest in stocks. Ahhhhhh, ok, if investors sell bonds, China and Japan have decreased US Bond buying, Central Banks are moving away from bond buying….Question…..Who is going to buy this MASSIVE amount of debt that we have Created? Isn’t this all a perfect set up for a Debt Crisis around the world? Shanghai Futures had Copper Buyers in strong after weakness the entire week. Draghi left rates the same, but Eur/USD is up bigtime from his Press Conference sitting at 1.2515 a .81% pop. Will be interesting how we close..they say that the masses are normally buying at the top while the pros sell it to them. Also, I apologize…I had a computer crash. All Fixed Now…just like the Central Bankers did for the Global Markets.  Btw. the Treasury Department will be selling $28 billion of 7-year notes at 1 p.m. est, if there is a debt crisis forming, there might be clouds forming there?

Jan 2018

  • Trading_Nymph

    So using this logic, if Stocks go higher..pension plans have to buy more Bonds and support the bond market. Yet? If Stocks drop, then Pension Plans will be out selling Bonds???….From Reuters…LONDON, Jan 24 (Reuters) – The death of the bond market bull run has been greatly exaggerated.

    The life-savers are pension funds, whose demand for long-term fixed income assets could reach record levels this year – and, counterintuitively, it’s the surge in world equity markets that will play a large part in fuelling this appetite.

    That’s because pension funds tend to maintain a balance in their portfolios that might typically be split 60 percent equities and 40 percent bonds.

    World stocks rose 20 percent last year, significantly outpacing the average on bond markets, meaning the relative value of funds’ equity holdings has increased without a single new share being bought.

    To maintain the balance of their portfolios, pension fund managers have been selling equities and buying more bonds, and their notable demand for the latter counters the popular narrative that the 35-year rally in fixed income is over.

    It’s a similar dynamic to the way central banks and reserve managers act when the dollar, the world’s main reserve currency, weakens. To keep the currency weightings of their reserves steady, their demand for dollars naturally increases the more the greenback weakens.

    According to the Global Market Strategy team at JP Morgan, pension funds and insurance companies in the G4 – United States, euro zone, Japan and Britain – will buy at least $640 billion of bonds this year.

    That’s $200 billion more than last year and would match 2016’s total, one of the highest in the last decade.

    The signs are that this year’s figure might end up being a record amount and eclipsing the $700 billion bought in 2012, especially if stocks continue to push higher.

    “The stronger the equity market, the stronger these rebalancing flows,” said Nikolaos Panigirtzoglou, Managing Director at JP Morgan’s Global Markets Strategy team in London.

    Panigirtzoglou and his colleagues calculate that every one percent rise in stock markets will require around $25 billion of bond purchases from U.S. defined benefit pension funds alone. With Wall Street up over 5 percent already this year, that’s more than $125 billion of pending demand for bonds right away before the UK, euro zone and Japan are factored in.

    Pension funds’ portfolio rebalancing can be achieved by selling equities as well as buying bonds. And they are doing that too.

    Panigirtzoglou estimates that pension funds sold around $350 billion of equities last year and will sell an additional $200 billion this year. This isn’t a problem for stocks, as the relentless rally to new highs shows. The supply of fresh equity on the market is low and demand from buyers like retail investors is very strong.

    Pension funds’ bond market footprint is larger. Assuming they and insurance companies buy as much as JP Morgan and others estimate, long-term yields may not rise at all this year and yield curves will remain flat.

    Pension funds are in bonds for the long haul, and aren’t swayed by weekly or monthly price fluctuations. The higher bond yields go, the more pension funds will buy as they look to lock in long-term income streams to meet their liabilities.

    A survey last year by Mercer, a retirement and investment group, revealed that European pension funds would be inclined to raise their bond holdings when average long-term sovereign bond yields reached 2.8 percent. The 30-year U.S. Treasury yield has mostly been above that level since late 2016, and is currently above 2.9 percent.

    The world economy is booming. The IMF said this week it expects global growth of 3.9 percent this year. That’s an extra $3 trillion of wealth, much of which will find its way into financial assets, including bonds.

    Billionaire bond veteran Bill Gross of Janus Henderson is a vocal bond bear, saying this month that “bonds, like men, are in a bear market.” Strategists at most big investment bank are advising extreme caution on buying bonds too.

    It’s advice that pension funds will ignore.

  • Trading_Nymph

    Draghi: Based on today’s data I can see very few chances that interest rates could be raised at all this year

  • Trading_Nymph

    China is really going to be stressing Renting by increasing rental units out of old office buildings to put pressure on Housing Bubble. So they have Property taxes, limits on multiple homes owned and tightening on loans….will it do it?

  • Trading_Nymph

    China SCMP piece on why China can’t stop buying bonds…THE ONLY GAME IN TOWN? WHY CHINA WILL KEEP BUYING US TREASURY DEBT
    Media reports suggesting Beijing might slow down or halt its purchases of US bonds created a flurry of market activity, but in fact China has little choice in the matter

    BY TOM HOLLAND

    15 JAN 2018

    There is an old saying in finance that if you owe the bank US$100, you have a problem. But if you owe the bank US$1 million, then it is the bank that has the problem.

    Well, the US government owes China US$1.2 trillion (and probably a lot more). Even adjusting for inflation, that means it is China that has the problem, not the US.

    It seems financial markets forgot this saying this week. A report on the Bloomberg news service that Beijing is looking to scale back, or even halt, its purchases of US Treasury debt triggered a flurry of additional unease in markets that were already feeling jittery.

    In response US Treasury debt sold off, pushing the yield on 10-year bonds to a 10-month high and prompting some watchers to declare the end of the long 35-year bull market in bonds.

    A report that Beijing is looking to scale back its purchases of US Treasury debt triggered a flurry of unease in markets. Photo: AFP
    A report that Beijing is looking to scale back its purchases of US Treasury debt triggered a flurry of unease in markets. Photo: AFP

    Now to be fair, there are some good reasons why Chinese officials might want to trim their purchases of US government debt. There are signs that inflationary forces are emerging in the US economy, which will tend to push US Treasury yields up, and bond prices down.

    At the same time, the Federal Reserve is reducing its own holdings of Treasury debt, even as the government is set to increase issuance to plug the budget gap created by December’s tax cuts. Over time, the net result is likely to be significant downward pressure on US Treasury bond prices.

    But even though Beijing might like to stop buying US Treasuries, that does not mean it can. And even if it could stop, that would not mean other investors would be right to take fright at the prospect.

    China buys US Treasury debt – lending money to the US government – because its export industries earn enormous sums of foreign currency. Over the 12 months to November, China ran a trade surplus of US$416 billion. And despite Beijing’s efforts to denominate more of China’s international trade in yuan, the bulk of those earnings came in the form of US dollars.

    People line up at a local bank in Beijing to buy treasury bonds. Photo: AFP
    People line up at a local bank in Beijing to buy treasury bonds. Photo: AFP

    Over the years, such enormous trade surpluses have driven Beijing’s accumulation of US$3.14 trillion in foreign currency reserves. Most of those reserves – probably US$2 trillion – are held in US dollars. And most of that amount – at least US$1.2 trillion and very likely more – is invested in US Treasury debt.

    Quite simply, China’s reserve managers don’t have much choice in the matter. The US$14.7 billion tradeable US Treasury market is about the only relatively low risk market out there large and liquid enough to provide China with investible assets for its foreign reserve stockpile.

    What could sneak up and derail the global bull market in 2018?
    Sure, both the euro zone and Japan also issue vast amounts of government debt. But in both economies the local central banks have embarked on major programmes of quantitative easing that have seen central bank purchases of bonds fully absorb net new government issuance. In other words, as far as China is concerned, when it comes to buying government bonds, the US Treasury is the only big issuer in town.

    In theory, China’s reserve managers could look beyond government debt, and chose to buy corporate debt or stocks instead. But such diversification is difficult. Corporate bonds are less liquid than government debt, and holding them means running additional credit risks that can be tricky to assess. And the risks of holding equities are even greater and harder to fathom.

    Despite evidence of inflation pressure in the United States, China is likely to keep buying US Treasury bonds. Photo: AP
    Despite evidence of inflation pressure in the United States, China is likely to keep buying US Treasury bonds. Photo: AP

    So it is no surprise that China continues to buy US Treasuries. In spite of all the reasons China’s reserve managers might have to reduce their holdings, data from the US government shows that between November 2016 and October 2017 China’s official holdings of US Treasury debt grew, not shrank, expanding by US$140 billion.

    China’s reserve managers didn’t have much choice. But imagine that they did. Imagine that Beijing did attempt meaningfully to diversify its reserves away from US Treasuries, perhaps by buying European government debt or US corporate bonds. It does not follow that the market would be right to be spooked by the move.

    For one thing, Beijing would manage the shift very carefully, lest the change in flows should trigger a sell-off that would undermine the market-to-market value of its stock of Treasury holdings. That’s the sort of slip-up that can end careers.

    After all those ‘hard landing’ warnings, do you still want to bet against China?
    And for another, consider the consequences of the shift. Beijing’s reserve managers are such big investors, that if they were to switch a sizeable portion of their purchases out of US Treasuries and into European debt, they would drive down the yields on European debt relative to the yields on Treasuries. Similarly a switch into corporate debt would narrow corporate spreads to Treasuries.

    For other big players in the market – pension funds, insurance companies, commercial banks and other central banks – the shift would increase the attractiveness of the risk-adjusted return on Treasuries relative to other assets, and they would increase their allocations to US Treasury debt accordingly.

    In short, as long as China is forced to buy some liquid foreign currency assets somewhere, the US Treasury market will not suffer greatly, because if China turns away from US Treasuries, it will simply displace other investors, driving them into the market.

    The investors who got spooked this week might not understand all this, but China’s reserve managers certainly do, which is why the following day the State Administration of Foreign Exchange, the body responsible for overseeing Beijing’s reserve pile, dismissed the report that China was planning to halt its purchases of US Treasury debt as “fake news”. It was right.

    RELATED ARTICLES
    Beijing will find it hard to maintain double-digit foreign trade growth this year, customs agency spokesman says
    China’s trade surplus with US hits record high in 2017 amid rising tensions
    The China Banking Regulatory Commission said its priorities included increasing supervision over shadow banking and interbank activities. Photo: Reuters
    China’s banking regulator steps up fight against financial risk amid threat of ‘chaos’ in sector
    China’s trade surplus rose 8.6 per cent year on year to US$275.8 billion – or about 65 per cent of China’s total global trade surplus. Photo: AP
    Why China’s record trade surplus with US could be a headache for Beijing
    Chinese regulators have taken a number of steps to force financial institutions to deleverage. Photo: Reuters
    China’s new loans halved in December after record year
    Beijing will find it hard to maintain double-digit foreign trade growth this year, customs agency spokesman says
    China’s trade surplus with US hits record high in 2017 amid rising tensions
    The China Banking Regulatory Commission said its priorities included increasing supervision over shadow banking and interbank activities. Photo: Reuters
    China’s banking regulator steps up fight against financial risk amid threat of ‘chaos’ in sector
    1
    2
    3
    4
    Tom Holland is a former SCMP staffer, who has been writing about Asian affairs for more than 20 years

  • Trading_Nymph

    They forget that China is using belt/road lending as a way to steer cash away.

  • Trading_Nymph

    Took me forever to fix my computer…still can’t find the source that prevented me in logging in…but I killed it somehow, lol.

  • Trading_Nymph

    Panther how is the home selling going?

  • Trading_Nymph

    CAT selling off today after being up over 3% in pre market

  • panther341

    Euro and dollar alot of the story today. Then there is oil which is up on down dollar and less on oil fundamentals.

  • panther341

    glad you got it working again.

  • panther341

    WYNN up to $200 today. alot of stuff is really amazing AMZN up on NFLX earnings since AMZN is also in the streaming biz. AMZN is in alot of biz

  • panther341

    I am stuck arguing with insurance over roof replacement …. planning to go today to see upholstery peeps to get a couple of things re-upholstered. Been getting rid of books and ….. am preparing a stack of stuff to send to auction. OMG

  • panther341

    just talked with roofer again over insurance. we might end up in arbitration. omg

  • panther341

    Merger Monday: Keurig and Dr Pepper Snapple. https://www.marketwatch.com/story/dr-pepper-snapple-and-keurig-green-mountain-to-merge-creating-keurig-dr-pepper-2018-01-29 DPS up like 35% pre-market.

    Last night when I looked futures were green – like +7 on SPX and now they are -8.00 I haven’t looked to see what happened in between

  • panther341

    WYNN last week I posted it was 200. Today it is 169, down 10. last week one day it was down 10% after reports of sexual misconduct by Steve Wynn. https://www.marketwatch.com/story/wynn-resorts-shares-slide-6-on-report-of-sexual-misconduct-by-owner-steve-wynn-2018-01-26

  • panther341

    Supermoon Full moon Blue Moon and total eclipse Wednesday Jan 31 early in the morning. https://www.marketwatch.com/story/wynn-resorts-shares-slide-6-on-report-of-sexual-misconduct-by-owner-steve-wynn-2018-01-26 These are pretty rare and the total eclipse will be visible here in Central Texas. The last time this happened and was visible here was in the 1880s.

  • Trading_Nymph

    I am staying up until 5:30 am to watch it!!

  • Trading_Nymph

    It was already getting nasty even though they said they could be friends. But notice the dip buyers trying to support it yesterday. It was up 4% on a down day.

  • Trading_Nymph

    Corporate Tax Breaks having ripples, lol.

  • Trading_Nymph

    Ugggg…is it getting better?

  • panther341

    nothing has happened in last few days.