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Thursday, April 9, 2015

Some morning news, including pictures for the more clueless out there


I'm not just saying this cos BNN reads my blog, but dammit BNN is so much better a station to watch than CNBC. Holy crap.

One the one station you've got a guy giving you business news. On the other station you've got that clown Joe Kernen blathering on, with special guests usually consisting of ignorant traders spouting off useless opinion.

Anyway, here's some morning reading:


Brett Steenbarger - new tools for a new week. He gives us a chart of SPY flows:

This time is different? Money flow into the SPY index ETF has notably dwindled during 2015 after having tracked price pretty well for most of 2014. Money flow reflects price times the number of ETF shares outstanding. My figures show significant flow differences from sector to sector; I will be posting those numbers this week. In general I've found money flows to be a good (contrary) sentiment measure that is independent of options-related sentiment indicators.
I think it might have been him who identified the super huge year-end SPY flows as possibly indicative of a near-term top in the S&P. Well, it's not a top cos it hasn't gone down, but the SPY definitely did stall. Question is, do flows have to go down from here and make a top before they can fully correct sentiment, or are we okay where we are right now? I think the latter, but I'm also the guy who says the easiest call in the world is go double-long S&P and then do nothing for the next 5 years.

In any case, the chart above shows that even the falloff from end-year SPY flows has still maintained an upward trend in price.


Macro etc. Musings - it's already priced into the market. This is that Beckworth guy who's made a splash by saying (pdf) that there's no such thing as secular stagnation: rather, risk premia have fallen secularly. Which is interesting, and from a philosophical point of view something rather significant if true. Quote:
If we take the New York Fed's estimate of the 10-year treasury term premium and risk-neutral nominal rate as given, then the market is already pricing in a non-secular stagnation future as seen in the 10-year real risk-free treasury yield below:



The red line is a risk-adjusted measure of the expected average real short-term interest rate over the next ten years. Put differently, this measure reveals the expected path of real short-term interest rates and it is pointing up. Since it is risk free, it should only be reflecting the expected fundamentals of the real economy over the next 10 years (see here for further explanation). It started rising in early 2014 and now has been positive for about five months. That bodes well for the economy.
If his argument is "reality has been changing while your mathematical model has stayed the same: your problem is your model, not reality", then that's an argument that Bernanke and Summers really need to take seriously.


FT Alphaville - on Beckworth. An explanation and investigation of the above, with skeptical commentary from Citi's Andrew Haldane. Frankly I would take Beckworth instead of Haldane, because while Haldane trots out the "oogity boogity complex systems" argument, he ignores Systems Theory 101 - the more complex a system is, the more stable it is - so if today we have a "hyperconnective" system, it's much more stable than the one that existed in 1929. But also, more importantly, Beckworth gives us empirical data while Haldane gives us "oogity boogity". Thirdly, Izzy Kamizzy delivers a gotcha from a political perspective on system stability:
From a secular stagnation point of view, one way perhaps to think of it is that if you’re the too big to fail system core holding the rest of the economy hostage — because without you untold chaos would ensue, so we must keep you around even if you stifle the wider system — you benefit from a type of Stockholm syndrome. What’s the risk for the captor if their hostage thinks they can’t survive without them?
Which, funny nuff, sounds very much like the gotcha of a Hegelian Marxist: ha ha, you capitalists thought you were so smart in taking over government, but this means that now you can't make money clipping coupon! You've sown the seeds of your own downfall! Ha ha!

And in any case, if Haldane is right and the fat tail risk of a now-more-unstable system has increased without being recognized, then shouldn't he be... y'know... buying some sort of hedge against fat tail risk? Like... y'know... some sort of yellow metal?

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