Wednesday, May 16, 2018

Exceptional Hubris. All That's Left...

In Greek tragedy, hubris means one who defies the Gods. I think we all see where I'm going with this...

The big news yesterday was the long-awaited close above 3% for the U.S. ten year, amid record bets on higher bond yields. In other words yet another massively crowded momentum trade. 

Aided and abetted by monumental hubris. Because what else is there?

"The gap between the yields on 10-year U.S. Treasury notes and German government bonds reached its widest in almost three decades, a sign of investor confidence that growth remains steadier in the U.S. than Europe."

This signal contrasts with others in the bond market, such as the narrowing gap between short- and long-term Treasury yields, known as a flattening yield curve, which investors often see as a warning of economic slowdown."

Europe and the U.S. yield curve are warning of slowdown, whereas record-leveraged bond gamblers believe otherwise. 

All while, Emerging Markets get pole axed by higher U.S. rates. Gamblers are essentially making record bets that Emerging Markets implode. At which point bond gamblers will get wiped out on their bets for higher U.S. bond yields. 

Have I mentioned lately, these are not bright people. 

Meanwhile, in the casino, the only major index near its all time highs - in the entire world - is the small cap Russell 2000:

It's all short-covering mind you. As Wall Street gets forced in to to the fake reflation trade

Housing permits are falling sharply, but don't worry, it's not due to higher interest rates. We've run out of land:

"WASHINGTON (Reuters) - U.S. homebuilding tumbled in April and permits fell, suggesting the housing market continued to tread water amid shortages of land and skilled labor."

This is not 2015 deja vu

And it certainly can't be this again

Nice headfake

Consumer Staples:

Without even reading the article, we know with absolute certainty, it can't mean that it's 2008.

Some people are trying to get it, kind of. Note, I crossed out the obligatory denialistic takeaway:

"investors may not only need to find a new place to ride out market storms, but also a new weather vane to predict when they are coming"

In summary, exceptional hubris is exceptionally painful

Two bubbles will implode at the same time - Tech overweight, and Treasury bond short.

Prepare for the third and last island reversal of fortune

There's no easy way out for those who defy the Gods