After being stuck in a textbook triangle pattern for almost six months, XLF finally broke out last week. We noted its having reached overhead resistance a few weeks ago [see: Yield Curve Model – Correction Imminent.] At the time, the 2s10s was threatening a breakout which, per our model, suggested a downturn for equities in … continue reading →
Tag Archives: debt
In May 2014 many of us were shocked by a report that Ben Bernanke, who had recently departed the Fed, told a group of wealthy investors that he did “not expect the federal funds rate…to rise back to its long-term average of around 4%” in his lifetime. I remember feeling Bernanke’s statement represented both extraordinary … continue reading →
The 10Y yield has clearly broken trend as expected, with a couple of Fib tests the only things standing between it and our downside targets. Our 28.56 upside target from Jan 10 [see: China – It’s Not Me, It’s You] has officially yielded. This is what stocks were waiting for — a sign that interest … continue reading →
A sharp drop in interest rates has traditionally been a negative for stocks. The chart below shows that most significant declines in 10-year yields over the years were associated with steep drops in the S&P 500. Usually, equity losses precipitated the drops in yield. As stock declines accelerate, money flows into bonds — raising prices … continue reading →
When it comes to trade, there is no free lunch. A lower US dollar helps US exporters. But, for the US – a net importer by a huge margin – it raises the price of imports. So, it was really interesting to watch Treasury Secretary Mnuchin step in it explain that a lower USD would … continue reading →
I’ve been harping on the incredible threat represented by the $250 trillion in almost entirely off-the-books, unregulated derivatives market — 95% of which is should be but isn’t on the books of the top five US banks [see: The Wipeout Ratio.] It’s an astonishing 550 times the tier 1 capital on the books of these … continue reading →
A simple calculation comparing major banks’ derivatives positions to their assets and capital shows how little it would take to wipe out either. The first ratio is the multiple that derivatives represent of Tier 1 capital. The second shows the miniscule percentage decline in the value of derivatives portfolio it would take to completely wipe … continue reading →