Monday , September 16 2019
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Gregor Samsa

Gregor Samsa

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Articles by Gregor Samsa

Be Skeptics Of Macro Data In The Two-Speed Economy

2 days ago

Dig deeper, folks.
Our good friend, David Jones, sent the following IBD piece over this evening.

If you been following GMM over the past week, you know we are knee-deep in the Federal Reserve’s distribution of wealth data (see our last post here).
As the distribution of income, and especially wealth,  become so top-heavy and skewed toward the top few percent, the macroeconomic data are becoming more difficult to interpret to ascertain the true wealth and economic health of the nation. Diminishing and making the aggregate data increasingly meaningless for many.
Instead of looking at the aggregated macro data, it would be much more informative to breakdown all the data by household income percentiles to see where the economic gains and pains are accruing.
The data are just not

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“Deals Galore” Coming This Fall

2 days ago

Looks like the “Fab Four” – China, North Korea, Iran, and the Taliban — are queuing up just as we wrote about earlier this week,
Deals Galore? 
We also wonder if the Administration is on the verge of a “deals galore” flurry with, say, China, North Korea, Iran, and the Taliban (“the Fab Four”) before the election?  We are perplexed by, and the way John Bolton exited the White House yesterday,

And as impulsive and unpredictable as the president’s actions may be, firing Mr. Bolton reveals a certain consistency in Mr. Trump’s worldview: Though attracted to never-been-done theatrics like bringing the Taliban to Camp David or meeting with Mr. Kim, the president is also moored by suspicion of military adventures and has a huge appetite for deals.
What Mr. Trump really wants from his

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Fast And Furious In The Global Bond Market

3 days ago

Ugly price action in the global bond markets.  That was fast!
What the yield curve does signal, at least to us,  is that there is a massive global bond bubble and that central banks have lost control of their curves, which kind of scares the bejeesus out of us when we start to think about it. — GMM,  August 15th

For months, the world watched in stunned amazement as, alongside the relentless increase in global negative yielding debt which more than doubled in 2019 from $8 trillion to $17 trillion, the Austrian century bond due 2117 exploded higher and almost doubled in price from just above par to an all time high of 220 in late August.
What a different just a few weeks – and a smattering of good news – makes the euphoria is now officially over and as 10Y Treasury yields surge to

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Better Than Bitcoin

3 days ago

TMOAB = The Mother Of All Bubbles
– Rather than pay Germany to hold their money, some lenders have flocked to Austria’s “century bond”, which yields 0.9%
– If the ultra-long-term market rate fell by 1.1 percentage points, the bond’s value would double.
– If ultra-long rates rise to 2%, the bond would lose 40% of its value; at 5%, its price would fall by 75%. Lenders seeking safety may face a rude surprise. – Economist 
Here’s to hoping the Euro zone banks have not  loaded up on these “risk-free” beasts.

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Our Favorite Chart: Core CPI

4 days ago

“Inflation is taxation without legislation” – Milton Friedman

How’s that deflation meme working for you?
Core CPI’s Cup and Handle Pattern 

Back in the day, I would be buying that chart hand over fist if it were a stock, bond, or commodity.  That is a classic breakout to higher prices.
August Core CPI
August core CPI came in hot, hot, hot for the third straight month at 0.3 percent.  That’s 3.4 percent annualized for the past three months, folks.   Gotta love the 10-year yield at 1.78 percent, almost less than half core consumer price inflation even as it is breaking higher.
Wait.  Let’s use a different inflation measure.
How about the PCE deflator, which utilizes moving weights to allow for substitution.
You know, like if the rent on your apartment is spiking,  you, the

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Roll back: The Verb China Is Looking For

4 days ago

Roll back is the verb China is looking for.
Mr. Market is all lathered up this morning on the following report,

Source: @FerroTV
Not so fast.

A senior White House official said the U.S. is “absolutely not” considering an interim trade deal with China.
Bloomberg News reported earlier Thursday the Trump administration discussed putting together a limited trade deal that would delay and remove some China tariffs, citing five people familiar with the matter. The news had driven stocks to session highs. — CNBC
Major Cave 
From our cheap seats in the peanut gallery, we can’t help but notice for the past month the Chinese have been sending signals and tossing the Trump negotiating team a few bones to walk back the new tariffs that went into effect on September 1st with more to come.   No

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My 9/11 Story — The Day History Changed

5 days ago

Repost
Posted on September 11, 2018
It was early August 2001 when I asked my wife if we should fly into Washington, D.C. a few days early before my best friend’s wedding.  He was planning to marry his sweetheart on September 16, 2001, at St. John’s Episcopal Church.  My 6 and 3-year old daughters and myself were in the wedding party.
I wanted some extra time for the girls to see the great sites of the Capitol City, where I had attended graduate school and began my career several years earlier.
I secured some VIP passes from our congressman for tours of the White House and the U.S. Capitol.   The passes came in the mail around mid-August with the date for the Capitol tour scheduled at 8:30 am, September 11, 2001.
Just another day.  It was before history changed.

We also planned a

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Household Leverage Ratios By Wealth Distribution

6 days ago

We are just starting play with the wealth distribution data and will have much more coming your way.  What we have seen so far is shocking.
The distribution of wealth has deteriorated significantly over the past 20 years and is now so skewed toward the top that average U.S. household wealth is close to $1 million, though the median household wealth is only around $70k.
In fact, the aggregate level of wealth of the bottom 50 percent peaked in Q1 2000, the height of the dot.com bubble, and is down almost 10 percent in nominal terms.  Whereas, the aggregate wealth level of the top 1 percent is up almost 120 percent over the same period.
If  I brought a number of a forecast like that to my manager when I was a very young economist working on the World Bank’s capital flows model back in

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Tariff Nation

6 days ago

“I hereby order Fed Chairman Jerome Powell to cut interest rates to fix this chart, which is responsible for tanking the global economy”  — Tariff Boy

Source:  Stratfor
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The internet’s second revolution | The Economist

7 days ago

The second half of humanity is joining the internet. People in countries like India will change the internet, and it will change them.
Read more from The Economist here: https://econ.st/2zVWeQQ
Click here to subscribe to The Economist on YouTube: https://econ.st/2xvTKdy
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QOTD: The IHOP POTUS

7 days ago

QOTD = Quote of the Day

For better and for worse, Mr. Trump is a chronic waffler. As such, the American public would do well to stay vigilant about what his administration is up to — and not be shy about applying pressure.
It has long been clear that Mr. Trump is not the decisive, resolute leader he imagines himself to be. His presidency is littered with plans and pronouncements that were walked back or abandoned — some good, some not so good. – NY Times

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Gotta Love David Tepper!

8 days ago

Just your average, normal, billionaire Master of the Universe hedge fund manager, and owner of the Carolina Panthers on opening day Sunday.
He hasn’t changed one bit since the days when we first met him and has never forgotten his roots.  Not a pretentious or snobby bone in him.
“What is the yield-to-death?”
Those words spoken by the legendary hedge fund king, and new owner of the Carolina Panthers, David Tepper, to my salesperson in 1993 when we were trying to convince him to buy a chunk of Peruvian busted bank loans at around 8 cents on the dollar.
Due Diligence
Tepper was half joking of course but he was covering all the bases as his fledgling hedge fund, Appaloosa Management, began to venture into the new emerging asset class of LDC debt.
He was, as any good trader and investor,

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Promises Made, Promises Kept?

11 days ago

Hearing rumors out of Mexico — and we reiterate rumors — that President  Andrés Manuel López Obrador (AMLO) has made a small purchase on Amazon this morning to help President Trump keep his campaign promise that “Mexico will pay for The Wall.”
Click here if you too want to pay for The Wall.

Semantic fascism lives!

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QOTD: No Mojo For BoJo

11 days ago

QOTD = Quote of the Day
No prime minister has lost their first vote in office since 1783 — let alone their first 3. – Axios

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Modern Monetary Theory (MMT) Has An Argentina Problem

13 days ago

Proponents of Modern Monetary Theory emphasize that a country that controls its own currency and borrows in its own currency, like the United States, cannot default on its debt. This is because the central bank can, if necessary, “print” the money needed to pay the government’s creditors…  —  Econofact
The MMT crowd has some ‘splaining to do after Argentina’s default on local currency Treasury Bills (Lecaps) last week.
We have argued for years with our MMT friends about the dubious assumptions and logic that Modern Monetary Theory is built, most importantly, that a sovereign borrower with an independent central bank and currency, by definition, cannot default.  Though the debate has evolved over the years to now what is the true definition of “full monetary sovereignty,” a free

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Does This Look Like Risk Aversion?

17 days ago

What Is Risk Averse?
The term risk-averse refers to investors who, when faced with two investments with a similar expected return, prefer the lower-risk option. Risk-averse can be contrasted with risk seeking.  – Investopedia

The price has risen 30% since June alone, when Austria reopened the bond to new buyers.  – Bloomberg, Aug 18th
Risk aversion?  Seriously?
That is how most of the market talking heads are explaining the behavior of global bond markets.   Piling into these bonds here is certainly not the land of the risk-free nor the home of the brave.  Unless buyers are certain the ECB will take them out at 225 in the next round of QE.

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Rent Control Issues Hit 7-year Bond Auction

18 days ago

At least, that is our view.
We have worried out loud how global interest rate repression may cause ugly bond auctions. A problem that similarly arises in the rent-controlled housing market.
…we are watching the Treasury auctions closely and suspect they could get sloppy and ugly down at these yields.
With repressed yields a sort of “rent control” problem arises, where there is a shortage of funds at the given fake or below market yield.   Just as the case with a shortage of housing when rents are held below their market rates.
This is just a thought and first cut and needs to be further fleshed out.  — GMM, August 6th
Today’s 7-year auction was ugly.  Zero Hedge describes it as “deplorable,”
The demand was, in a word, deplorable: the bid to cover slumped from an already low 2.274 to

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The People’s Republic of The Future

19 days ago

Great watch…
When it comes to technology, Shenzhen may well be the most fascinating city in the world. It makes the majority of our electronics. It clones the best technology Silicon Valley has to offer with ease. And, these days, Shenzhen buzzes with new ideas and an unrivaled energy that ensure it will play a major role in shaping our collective futures. In this episode of Hello World, journalist Ashlee Vance heads to the spectacle that is Shenzhen to experience it firsthand. The results are equal parts inspiring and disconcerting as tech-fueled entrepreneurs try to navigate an authoritarian regime.
https://www.bloomberg.com/hello-world

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Are Central Banks Ready To Break Their Codependency?

20 days ago

Breaking our radio silence as we couldn’t help ourselves after reading former NY Fed President William Dudley’s piece imploring the Fed to stop enabling Trump’s  trade war.
It sounds like central bankers are starting to realize they are, and have been, enabling the bad behavior of the politicos, who do not have the backbone to make the politically tough choices to fix their economies through the difficult but necessary structural reforms.  The central banks have been the only game in town.   Maybe not so much anymore.
Nevertheless,  it was “spooky at a distance”  reading Dudley’s piece this morning (thanks to CK for forwarding) as it seemed he was channeling our July 16th, Codependent Central Bankers, reposted below, or, if you like, we were channeling Dudley’s future post a month

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Moving Into Resistance

28 days ago

We see a lot of bears wearing the above Tee these days.
This post will be short and sweet as we are getting ready to board a long flight and will be radio silent until next month.
As we expected last Thursday,
It wouldn’t surprise us if the market begins to internalize our analysis about the yield curve and then deludes itself into thinking it can have relatively strong growth with long-term interest rates heading toward zero.  A nutcracking short-covering rally would ensue.  – GMM, Aug 15th
The nutcracker has taken us back into that 5 percent four top trading range, which began in January 2018 and peaked on July 26th (see chart) and right into some major resistance.

Key Levels
The S&P couldn’t hold and closed today just below the key .50 Fibo retracement for this correction at

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Now For Some Good News On Trade

28 days ago

WASHINGTON — Amid President Donald Trump’s trade war with China, nearly two-thirds of Americans say they support free trade with foreign countries, according to the latest national poll from NBC News and the Wall Street Journal.
That represents a new high in the NBC/WSJ survey on this question, and it’s a 7-point increase from the last time it was asked in 2017.  – NBC News, Aug 18th

Make Love, Not Trade Wars
Ever since Trump was elected we have railed on his trade policies and warned how it would send the global economy into a tailspin.
We do hope they strike a deal before July 6th, the date U.S. tariffs on Chinese imports take effect, and same-day China’s retaliatory tariffs are expected to launch.  We are not optimistic, however,  unless the financial markets crater on trade

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Walmart Nation: Visual Capitalist

28 days ago

Some more context to our last post, Trouble Coming To Walmart Nation?
Man, the content at the Visual Capitalist is good!
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Trouble Coming To Walmart Nation?

29 days ago

Not so much for Walmart shareholders after the company beat estimates late in the week helping the stock (WMT) to close on Friday 7.7 percent off its low for the week.  MarketWatch notes the big-box retailer was helped by automation.

Walmart talked about the significance of automation in an April post on its corporate site.
“Smart assistants have huge potential to make busy stores run more smoothly, so Walmart has been pioneering new technologies to minimize the time an associate spends on the more mundane and repetitive tasks like cleaning floors or checking inventory on a shelf,” said Elizabeth Walker, from Walmart corporate affairs.  – MarketWatch, Aug 17th
Walmart Nation
We don’t know how this helps Walmart nation, however.  The company is the largest employer in many states

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“Fake Economic Data”: We Did Warn You

August 16, 2019

It was so predictable.
Furthermore, it’s only a matter of time before our national economic data is labeled fake news and the product of manipulation by the “deep state.”
Dig deeper and sharpen your pencils, folks.  – GMM, May 7th
This just in,
Though he [Trump] has expressed private worries about Wall Street, he is also skeptical about some of the weaker economic indicators, wondering if the media and establishment figures are manipulating the data to make him look bad, according to two Republicans close to the White House, not authorized to discuss private conversations.
His skepticism has been reinforced by White House officials who have long been inclined to only show Trump rosier economic assessments. – ABC News, Aug 16th
Coming to a presidential election near you: deep fakes,

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The Short-Term Heavy Treasury Curve

August 15, 2019

Before reading further we suggest you look at our latest post, The Perversion Of The Yield Curve Inversion, for some context.

Gravitational Pull Toward Curve Flattening And Inversions
Note the structure of the Treasury curve in terms of the amount of debt outstanding  (black line) for the given years of maturity.   The bias, gravitational force, and natural motion are toward flattening or to invert by the very fact that more than 50  percent of the coupon debt has a maturity of 1-4 years and only 5 percent in 9-12 years notes and 5 percent in 27-30 year bonds (see table).
Top-heavy and front-loaded at the short-end.   That is a relative shortage of long-dated notes and bonds to short notes is built-in into the structure of the Treasury curve.

The efficient market people won’t

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The Perversion Of The Yield Curve Inversion

August 15, 2019

We should be on vacation but it never fails that volatility spikes as soon as we leave our desk.   It must be the Ides Of August.
Wait, it is.  Et tu Brutal!

Nevertheless, we can’t help ourselves and have to throw in our two cents on the yield curve noise whipping around the market today.
I had a conversation with a friend this afternoon that went something like this:
Friend:   What is the yield curve telling us? 
Me:  The Patriots and the Rams are going back to the Super Bowl for a rematch, punto!
Central bank quantitative easing has distorted and drowned out the bond market economic signals along with creating huge mispricings and bubbles in many markets.
It’s even more acute in the U.S. as foreign central banks recycle their reserves into U.S. Treasuries and are not and have

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More Monetary Insanity & The Negative Yielding Bond Bubble

August 13, 2019

Had to get this last one in before we hit the surf.
We like to look at the Cleveland Fed’s Median CPI calculation as it removes monthly outliers that can pull the averages up or down.  It hit a 10-year high in July and is pushing up close to 3 percent.
Of course, we are in deflation and U.S. bonds yields are going negative.  Doesn’t the Median CPI inflation trend confirm it?

Now tell us again how many times does the Fed need to cut?   Where have they failed in meeting their dual mandate of stable prices and full employment?   Dow 50K?
Let’s [Reverse] Twist Again!
So, why in the hell is the Fed not doing a reverse Operation Twist — swapping their long Treasuries in the SOMA portfolio for very short maturities  — if they are worried about and need to steepen the yield curve, which

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