Mastering the Fed

TheMancusoWatch Teaser (25)

What may be the best non-holiday week of the year, The Masters has officially kicked off in Augusta, albeit in a weather related start and stop fashion.  For those who haven’t been, what an amazing experience it is.  The majesty, the tradition.  The place where time stands still.  Where sandwiches and adult beverages can be had for what seems like 1955 prices.  More importantly, where you are still expected to say thank you and you’re welcome, although as a patron it’s almost exclusively THANK YOU.  

Just in time for the Par 3 contest to kick off today, the Fed minutes were just released and we’ve decidedly moved lower (higher yields).  Not in a big way, but given our recent trend to lower rates you get this sense that we hit a road block on the road to 2.0.  Here’s my take:  Near term, I don’t don’t love the implication.  We’re talking about balance sheets and reinvestments and these have been hot topics of late.  The Fed has been a huge buyer and that pretty heavy lifting has to be picked up by someone.  Pun intended.   If I push out a bit further however, I can find some things I like about these minutes. Firstly, the consensus was that fiscal stimulus wouldn’t hit until next year.  That doesn’t mean soon and could even mean not at all.  We also know about how well the Fed seems to predict these things.   ; )  

Perhaps more importantly there was a re-affirmation that hikes would be gradual, predictable and well telegraphed.  We’ve liked this in the past.   What do these two positives coupled with a balance sheet move versus a rate hike move tell me? #lower4longer  

We like that too.

So what does this mean?  The bottom line is we are at the lower end of our range.  If we clear Friday without any major events that would push rates lower, I’d expect the range to remain intact for a few weeks.  If you are a follower, you know what to do.  If not, subscribe AND read previous posts!!!  Watch out for a smattering of market movers in the interim, but bigger picture is Q1 GDP and PS, N-man ISM missed pretty good this morning.  In the end, if we were hoping to have real direction after getting through everything we needed to get through this week save NFP, the answer is sorry not sorry. Fore Left and we’ll wait on Friday.

#homeontherange #lower4longer #fore #tradition 

If I can get off topic a second.  My son’s HS baseball team is raising money for Pediatric Cancer.  I’d never use this forum to hawk fund raisers for the kids, but this is a different story and is a tremendous cause.  To be clear, my son has already hit his goal.  He did that on day one by donating his own money, so againI’m not reaching out for any personal gain.  It’s never the right time for someone to fall ill, but for a child, well I just couldn’t imagine it.  Please do what you can and while I’d say that myself or my son appreciate it, in reality, the families we are helping are the ones that really do.  

Here’s the link:

Thank you

-Philip Mancuso

ADP, as easy as 123, ECB, NFP, GDP baby you and me

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It’s a huge week for data, not the least of which is ADP tomorrow and NFP Wednesday.  

As you know I love the ISMs, which are noticeably absent from the title as they didn’t have the foresight to give them a name that rhymes.  Well, we’re getting those this week and in fact we’re through the first two rounds of of ISM somewhat unscathed.   We made our way down to the bottom of the range and have rejected a break below earlier today. It stands to reason that we wouldn’t break unless something big happened.  That ammo is certainly in the chamber this week, but I’m not sure we’ll get what we are looking for. We’re getting help from abroad as the ECB is starting to pull back on the hawkishness. I’m really looking forward to Q1 GDP later in the month.  Some of the early reporting strength will either be supported or debunked by this number and by the time the dust settles I believe the tone for early Summer rates will be set by Q1 GDP above the early March numbers.  

If I had to put a number on it I’d say 65-35 we test 2% sometime soon.  

As a follow up; that Mall strength I noted a few posts back, not so much the last two trips. I’m still watching though…

-Philip Mancuso

Shoulda, Coulda, Woulda

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Well it looks like the Spring bounce is running out of steam and pretty much at the levels I previously suggested.  Personally I’d attribute it to stocks unwillingness to tank.  Once they bounced, bonds seemed doomed in terms of breaking 2.3.  I wouldn’t start cliff diving here, but it’s a sign the range is still firmly intact and I don’t see how we could challenge a break lower until NFP or GDP, so there’s some real risk in floating now.  I wouldn’t chase losers here.  You should have locked already and if you haven’t I’d say take your lumps.  I’d be surprised if we bounce tomorrow without some data help.  I like locking here, but worst case I’d hold for a bounce tomorrow and if we don’t get it, cut your losses.  

Bulls and bears…

#justmissed #shouldacouldawoulda #stillbetterthan2weeksago

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I’d rather be lucky than good

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Happy St. Patty’s Day!!!  Nothing but green on our screen and in our pockets as the we continue to bask in the afterglow of the most dovish rate hike in history.  We broke 2.5 this morning and are at 2.499 as I write.  I don’t know if we channeled the luck of the Irish or just knew what we were talking about, but the late Feb swoon is turning into the mid-March bounce as called for in my post on 2/15.  It’s early and by no means am I calling for a new/lower range, but we’re certainly in a better spot than we were 48 hours ago.  

The last 2 March bounces gave us 45-64 ticks (ex-brexit), so if we were to see a sustained bounce, that’s what I’d suggest for this year.  We’re already at 32 FYI.  I think anything more than 64 ticks (200bps) is a big ask and while I wouldn’t rule it out, I also wouldn’t bet on it.  Should we see that though, my guess it would be on a weak q1 GDP and would likely be worth another 100 or so bps getting us in the 2.00 neighborhood on 10’s.  

Coming back to present day reality, it just so happens that another 100 from right here gets us around 2.30 on the 10 year, so I think you see where I’m going with it.  If you are closing in March I’d either lock here or not chase a loser next week hoping to ride the wave and risking a little of the bounce you’ve enjoyed.  Beyond that I like locking on the way down to 2.30 and a full on assault at that level (if it comes and you have the time to wait it out).   


-Philip Mancuso

Not so fast…

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So the Fed pulled a fast one on us today.  They were more hawkish on the surface, but then again maybe they were more dovish.  I think it’s really up to interpretation.

Here’s my read:  The Fed was more short term hawkish, long term dovish and for the most part didn’t change economic expectations.  Therefore all the shorts that were pricing in doomsday are running for the hills right now and we’re testing 2.50.  I’d add they tabled balance sheet speak and Yellen defined measured pace in the presser by making it clear the new measured pace is much slower than the old measured pace, which may be considered fast.

The long and short is that if you weren’t so fast to lock based on my 3/9 blog you’re as much as 100 basis points better in fee (you’re welcome) and the pace with which you were going to jump off a cliff just got a lot slower.   While we’d like to rally into the close and open positive tomorrow, I’m not sure this would confirm anything beyond hikes were overpriced and the range in intact.   If you’ve been following you know what to do, if not go back and read!!! ; )

PS Keep in mind the magical date of mid-March.  If you go back a few more posts we talked about rates worsening from late February until around St. Patty’s every year.  Perhaps more confirmation that 2.62 is strong like bull.

#notsofast #measuredpace #slowisthenewfast #thisiswhatitsoundslikewhendovescry

Here’s a chart, fast and free.  

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-Philip Mancuso

Times they are A-changin’

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Hopefully everyone has recovered from the lost hour of sleep.   I’m trying to jump ahead through this blizzard they say is coming.  Anyway, I happened to venture out twice this weekend and what I experienced was unexpected.  Something weird happened.  Something that I haven’t experience in a long time.  In fact three curious things happened. 

As someone who buys just about everything on the internet at this point, I found myself in the unfamiliar position of being a mall rat this weekend.  First on Saturday, we went to the Garden State Plaza with some friends check out a few new stores and grab a quick bite to eat.   The mall was packed.  Busier than it’s been recent holiday seasons, including the last one.  I can’t say how much business was being done.  Indeed there were a lot of empty hands as I’ve noticed on even the busiest Christmas shopping days of late, but this seemed different.  It wasn’t Christmas, so I wonder what compelled so many people to be there on Saturday night in March.  I shrugged it off.

Then we sat down to eat and my friend, who has been a recruiter for a long time said he was the busiest he has been in recent memory.  You may be noticing a trend.

Sunday found us at the Dick’s location in the Willowbrook Mall.  My older son Nick needed some warm gear to get through this unusually cold start to the baseball season.  As we approach the mall the line of cars is out onto the highway.  Not a totally unusual situation, but at 11AM on a Sunday in March???  We proceed to walk in the store and the first thing we noticed was the line was longer than we’ve ever seen it.  

Now I’ve heard that once is a fluke, twice is a coincidence, but three times is a trend.  Is this just an isolated observation?  Folks preparing for the blizzard by getting out the weekend prior?  In fact, this holiday season was the slowest I’ve ever observed at the Willowbrook Mall.  Given this, how is what I observed this weekend possible and is it real?  Is it the manifestation of cabin fever or has there been a turn in confidence? 

As I said, it was just a weekend and it’s not like I saw everyone’s arms filled with bags and boxes, but it makes me wonder if our clocks weren’t the only things that changed this past weekend.

PS We opened marginally positive, have since turned negative.  It’s a big week.  2.62 still holding for now. 

-Philip Mancuso

Things aren’t broken, they are just different

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Before I hop on my soapbox let me just say that it looks like today’s NFP isn’t enough to lock up 3-4 2017 hikes by itself.  Therefore, it seems that those who were pricing in armageddon are covering some shorts here.  Fannie 3’s are up 9 ticks and the 10 year held the pivotal 2.62 level.  My sense is while I didn’t love the number, the range seems to be intact, until next Wednesday at least.

On to the business at hand. 

Anyone that has read my rants for the last few years knows that I’ve been a huge bond bull.  Since 2002.  Said on CNBC in August 2005 that the Fed was killing the economy with unjustified rate hikes.  You know what happened shortly thereafter.   If you’ve missed my thesis, here’s the readers digest:  The economy is not broken, it’s evolved.  I argue that you can clearly trace the “new normal” back to the release of the web browser and the information and automation boom of the boom and bust.  Margins have been crushed by information, competition and automation and historical growth and inflation assumptions simply do not apply to the new economy.  That’s why the Fed can’t get it right.   

There’s something else.  We have now been conditions to almost NEVER pay full price.  That is unless you are buying an iPhone.  Why?  Well Macy’s one day sale is now every day.  Nordstrom’s semi-annual sale seems to be bi-daily at this point.  If I need a gallon of milk I don’t have to pay a 300% markup like my grandmother did, a drone flies it in from Amazon at a cut rate price.  Etc, etc, etc.  

I’d also argue that the concept of the so-called American dream has changed and our ego’s, priorities and spending habits have changed with it.  I argue that it’s chic to be cheap.  In 1985 you’d say “Guess how much I paid for my widget?”  Today, you might say, “You can’t believe the deal I got on my widget!”  Folks celebrate shopping at Target, building tiny homes, going off the grid.  In a nutshell, we are just less interested in keeping up with the Joneses than we used to be.  

Wait for it.  So combine changing behaviors, technology, information distribution, product and service delivery and add a sprinkle of being haunted by 2008 and everything that has come with that and you get?  Sub 3% GDP since what seems like forever.  AND the Fed mindlessly chasing 4%.  

I’ll ask this question to the Fed chasing 4% and for those of you worried rates are about to go through the absolute roof:  If we’ve been unable to reach our economic goals in the early stages of this new industrial revolution, is it going to get easier as the revolution gets better?

Then I stumble across this article last night.  You heard it here first, like 10 years ago.  It’s not broken, it’s just different.  Enjoy…

-Philip Mancuso

Not for the Faint Hearted

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We are basically staring 2.62 dead in the face as we approach NFP.  What do you do?  Well, I’m never one to encourage floating during times like these, but if you haven’t locked by now I don’t see a ton of reason to lock here.  That said, you can’t chase losers, therefore if things go the wrong way tomorrow you should take your lumps.  

Here’s why I have a hard time accepting a 3% 10 year:

1.  We resisted it in Jan 2014 coming off 2 straight years of 2.2+% GDP yet we like it here at 1.6%?  On what, the hope things are better?  After a terrible Q4 and Xmas season?  I don’t see it.  

2.  The consumer isn’t booming right now, so the heat we’ve seen some recent inflation gauges isn’t sustainable if demand is tepid.

3.  Despite the Fed’s readiness to move, they have reiterated continually that they would rather overshoot.  Again, the data doesn’t warrant the 4 hikes some are starting to price in if the Fed is still resolute in maintaining a shallow glide path.

As it does with these things, the edges get very rough.  Everyone is pricing in worst case right now.  A lot has to happen to blow through the worst case scenario.  I will just reiterate what I have shared with some of you privately which is I’m more concerned about breaking these levels than I have in a long time, but I just can’t fit the puzzle pieces together to justify it.

It’s a tough call either way for sure.

-Philip Mancuso

Baby it’s cold outside?


Low rates really can’t stay (but baby, it’s not cold outside)

They’ve got to go away (but baby, it’s not cold outside)

This boom has been (been hoping that rates drop in)

So very nice (i’ll refi your loan, it’ll be so nice)

Really one of my favorite Christmas songs and possibly telling of the current rate situation in a few ways. 

So are super-low rates going to be left out in the cold?  Maybe.  I’ll throw this out there; it’s been a fairly warm winter (save the expected cold spell this weekend – ironic timing).  How much is that warming these numbers?  Well, I’ve never been one to hang my hat on seasonality and how it impacts spending habits, but how it impacts the adjusters is possibly another thing.  We are looking at the best quarter 1 in forever and I’m just not ready to believe that.  We had a weak Christmas and that weakness in sales and consumption has carried over into q1.  Yet we are building a case for a strong quarter 1 and thus higher rates?  The flip side is that as you know I’ve been concerned about the ISM since September, so maybe a better economy isn’t just us Christmas dreaming a little early this year.  

The bottom line is that I’d be on high protect mode in terms of locks even though we are at the upper end of the current range and approaching 12/16/16 levels in terms of high yields.  That said, pushing out to a more macro view,  I wouldn’t mail it in quite yet.  We discussed in an earlier posts that we generally see weakness until roughly week 3 in March, so this move continues to fit that narrative.  The next week is clearly important with NFP and the Fed decision on tap.  Whether we continue in this range or set a new higher one will certainly be answered by next Wednesday.

Stay warm my friends.  

-Philip Mancuso

Are they going to take their ball and go home?


So the Fed is really prepping us for go time in March and maybe even signaled 2 hikes this year.  

The data didn’t help our cause this week, but I’m not sure it hurt us either.  Headline beats in ISM’s were’t what the doctor ordered, but there was some weakness in key components and some other data points.  All eye’s are on the jobs numbers next week.   At these levels it’s either a bounce or a new range.    

If you are rooting for a bounce, you are feeling good about us rallying into the close right now.  We are well off the lows of the day (which were nearly the lows of the year) and even positive on a few coupons.  I’d also suggest that early month isn’t always so kind and we sometimes rally into ADP after a sell off.  So a strong argument can be made for some strength into the numbers and therefore I would still assume the range is intact until it isn’t.  

My caution meter is pretty high though as anything can happen next week.  If I tie in my chart assumptions from a few posts ago, we usually don’t see any relief for another couple weeks if this March is going to follow the historic quarter 1 rate pattern.  I’d move my lock bias at current levels a bit higher than it’s been inboxed the past and reiterate full on lock mode sub 2.40 if we are lucky enough to get there before Wednesday or Friday.  Here’s a current YTD chart for good measure.  

-Philip Mancuso