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Category: Macro-Economics and Patterns

Mr Toad sliding down the ride (again)

Mr Toad sliding down the ride (again)

This visualization does not do justice to YTD rates … a table

EOY 20191/23/2020
30 yr2.3902.140
10 yr1.9201.700
2 yr1.5801.490

If there is a correlation between long bond yields and anticipated inflation … inflation expectations were just lowered by ~25 basis points in 16 days. Maybe this is just a confluence of terrible geopolitical events and happy days are right around the corner … we’ll see.

Place your bets!

Place your bets!

Heisenberg posted a great table today showing all the major broker houses and their 2020 crystal balls – quote below. The cynical side of me says anything that ends in ‘0’ or ‘5’ is a best guess and rounded up; the only non 0 or 5 is 3388 from Wells Fargo. (i had an old boss who would jump down any clearly round number – they just don’t really occur that often)

Quote – “Below is the full breakdown of house calls organized by bank, strategist, target and EPS forecast:

  • Bank of America; Savita Subramanian; 3,300; $177
  • Bank of Montreal; Brian Belski; 3,400; $176
  • Barclays; Maneesh Deshpande; 3,300; $166
  • BTIG; Julian Emanuel; 3,450; $175
  • Canaccord; Tony Dwyer; 3,440; $172
  • Citigroup; Tobias Levkovich; 3,375; $174.25
  • Cornerstone Macro; Michael Kantrowitz; 3,400; $172
  • Credit Suisse; Jonathan Golub; 3,600; $175
  • Deutsche Bank; Binky Chadha; 3,250; $175
  • Evercore ISI; Dennis Debusschere; 3,400; $178
  • Fundstrat Global Advisors; Tom Lee; 3,450; $178
  • Goldman Sachs; David Kostin; 3,400; $174
  • Jefferies; Sean Darby; 3,300; $176
  • JPMorgan; Dubravko Lakos-Bujas; 3,400; $180
  • Morgan Stanley; Mike Wilson; 3,000; $165
  • Ned Davis Research; Ed Clissold; 3,425; $168
  • Oppenheimer; John Stoltzfus; 3,500; $175
  • RBC Capital Markets; Lori Calvasina; 3,460; $174
  • Scotiabank; Hugo Ste-Marie; 3,350; $167
  • Societe Generale; Sophie Huynh; 3,050; $164
  • Stifel Nicolaus; Barry Bannister; 3,265; $167
  • UBS; Francois Trahan; 3,250; $170
  • Wells Fargo; Chris Harvey; 3,388; $166
Confounding economic variables … normal or a new norm?

Confounding economic variables … normal or a new norm?

Just read thru the data and the post’s comments … typical 3-option take-away: a) economy growing, b) economy slowing down, or c) unclear direction with conflicting indicators … subjective response.

Should we start to question our standard forward looking (predictive) indicators given the irrational exuberance of central banks’ actions over last 10 years? Don’t have an answer, but ecourage folks to struggle with the question.

Employment data diving

Employment data diving

This author typically does a great job putting a data story together – i’m not sure they’re intended to be actionable, but they surely help me think. One caveat here is that my own observations often align – bias caution

Here are the editor’s summary bullets – quote:

  • US employment growth continues to decline toward population growth, increasing the probability of a rise in the unemployment rate.
  • Aggregate earnings growth continues to decline, putting a lid on aggregate consumption growth.
  • Leading indicators of employment do not suggest a sustained increase in cyclical employment growth is around the corner yet.
  • As long as employment growth continues to decline, we cannot remove the risk of a recession in 2020.
  • If GDP growth does not increase and recession risk remains on the table, interest rates will not be able to rise, keeping the bond bears at bay for another year.
Climate financial impact just keeps adding up … action when?

Climate financial impact just keeps adding up … action when?

Quote below -> I saw it on Seeking Alpha

Moody’s report on global sea level rise says Vietnam, Egypt, Suriname and some small island sovereigns face material credit risk

The document has been translated in other languages 16 Jan 2020

Singapore, January 16, 2020 —

— Sovereign credit profiles are mainly affected through economic and fiscal strength

— Credit assessments factor in the likely impact of plausible shocks related to sea level rise

Moody’s Investors Service says in a newly published report that Vietnam (Ba3 negative), the Bahamas (Baa3 stable), Egypt (B2 stable), Suriname (B2 stable) and other small island sovereigns are among the most exposed to a global rise in sea levels according to a range of studies.

Climate science shows that sea levels will most likely continue to rise for decades. Although this will happen gradually, higher sea levels contribute to increasingly frequent and severe natural disasters such as storm surges, floods or cyclones.

Moody’s explains that the sovereign credit implications of sea level rise and the related natural disasters are wide-ranging. The economic and social repercussions of lost income, damage to assets, a loss of life, health issues and forced migration from the sudden events related to sea level rise are immediate. The main credit channels for sovereigns are through their economic and fiscal strength.

Vulnerability to extreme events related to sea level rise can also undermine investment and heighten susceptibility to event risk, by hindering the ability of governments to borrow to rebuild, increasing financial risks, raising external pressures, and/or amplifying political risk as populations come under stress and institutional capacities are tested.

The extent of risk will be determined by the pace of increase in the frequency and severity of natural disasters related to sea level rise, which is currently highly uncertain, and by the effectiveness of adaptation measures, so far largely untested.

While some high income economies, such as Japan (A1 stable) and the Netherlands (Aaa stable) are also exposed, many of them have countermeasures in place, and their credit strengths mean they are unlikely to suffer a material credit impact.

Autonomous Driving – A good update

Autonomous Driving – A good update

This may be a heavy hand to INTC (it was afterall a piece on INTC), but the overall picture on ADS was pretty good.

This is a pretty standard pic on the ADS levels

To get beyond today’s current best in class Level 3, many pieces need to fall together – some technical and some government approvals. The author states, quote:

“Intel will not be able to do this, as the roadshow presentation from CES 2020 also shows (see above). But this is not necessarily due to Intel. The competition is not ahead of Intel either. It is more that there is a need for multiple approvals and the infrastructure for enabling autonomous driving does not even exist yet. To make all this possible, a decisive development is needed and this development is 5G. 5G is generally considered to be decisive in this respect. However, this will change this year. With the coming rollout of 5G right ahead, I don’t think that the years 2024 and 2025, which Intel is aiming for, are unrealistic.”

Regardless of the hype, this is a long road (pun intended) … there are two things that will matter more than others: a) who has the largest and most ‘learnable’ dataset for AI / ML, and b) where will 5G infrastructure be reliable to send around the datasets required. (my opinion) … that completely skirts the government approvals (policy, etc).

*** exuberance from credit investors?

*** exuberance from credit investors?

Heisenberg posted on a BoA survey of credit investors this morning … wow. Such shifts make me nervous and I wonder if irrational exuberance is entering this space …

For example, quote: “For high yield investors, holding above normal cash levels is increasingly out of style. At the same time, it’s getting more fashionable to hold less cash than usual.’

If that does not grab your attention, then what about this … quote:

“In another sign of rapidly improving sentiment, 32% now see CCCs outperforming all other buckets across both IG and HY. That’s up from 17% in November and more than triple the 10% who expressed the same optimism around the junkiest junk in September.”

CFO Survey

CFO Survey

Recession talk disappeared with the holidays and new year and the geopolitical crazies … and the interest rate inversion corrected. Nothing to worry about, right?

Based on my experience in corporate world, good CFOs have a pretty accurate pulse on revenue growth (and costs required for that growth). I am not positioning this as a ‘be-all’ insight into 2020, but for me, a data point that weighs a bit heavier than predictions from talking head type pundits.

Quote below

2020 Recession

More than half (52%) of U.S. CFOs believe the U.S. will be in an economic recession by the end of 2020, and 76% predict a recession by mid-2021. 

“Business leaders continue to expect an economic slowdown in the U.S. before or concurrent with the presidential election,” said John Graham, a finance professor at Duke University’s Fuqua School of Business and director of the survey. “I’d expect uncertainty about the election itself to cause firms to slow expansion in the summer and fall of 2020.”

Seventy-nine percent of CFOs in Asia believe their countries will be in recession by the fourth quarter of 2020, as do the majority of CFOs in Africa (77%), Canada (67%) and Latin America (55%). Forty-nine percent of CFOs in Europe expect a recession by the end of 2020.

Mr Duy and an easy explanation

Mr Duy and an easy explanation

The title of Mr Duy’s post is a bit misleading or a teaser, but the content is worth the read. While the easiest explanation is often close to accurate, continued FED theories of economic and market manipulation stretches the imagination. Duy makes it simple rather than conspiratorial.

Cell Wireless Backhaul – more picks and shovels

Cell Wireless Backhaul – more picks and shovels

In further digging around 5G picks and shovels, I stumbled into a very non-glam space: Backhaul

Here’s a pretty good snapshot from earlier in 2019.

This is part of the investigation into: NOK, ERIC, CRNT and AVNW.

I am long ERIC and CRNT (but am investigating to swap CRNT for AVNW). I get that wireless backhaul solutions are not optimal, but there’s going to so many places that will need backhaul where fiber just will not be dug – think India, SE Asia, Africa and even rural N. America.

This seems like a decent pick / shovel to own acknowledging that wireless backhaul is not going to be get rick quick scheme. The other side of this play would be CCI w/ their small towers and miles of fiber.