There’s been an awakening… Have you felt it?

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As I touched on earlier in the week, I have this sense the market is coming around to the fact that #lowerforlonger is not #deadandburied.  From a trading standpoint we rejected 2.17, but perhaps more importantly have held support at 2.24.  This would indicate to me that we are consolidating ahead of next Friday’s Q1 GDP read.  Look, it makes sense.  Not two months ago the suggestion was that 3% on 10s was a fait accompli.  A dash of geopolitical noise, some ISM misses, a stunning NFP, weak sales and a sense that the Trump tidal wave may be more of a ripple and now 2.62 seems like a distant memory.   More importantly, if you’ve been following my posts, I don’t see how any of this was a huge surprise.  It seems to have happened every year for at least the last decade.  It seems our economic reality wasn’t altered, it was just hibernating for the winer.  Well there’s been #anawakening and perhaps next Friday we will feel it.  

I found this article the other day on yahoo that suggests I may not be the only one who has:

I’ll go back to my 1/27 post calling for this move:

From my vantage point, if growth slowed to 1.6% in 2016 and we start 2017 with a clunker, how can the Fed continue to justify 3-4 hikes?  So how do we play it?  If you want to play the micro range it’s 2.17-2.24.  A wider range is 2-2.28.  I still think it would be tough to challenge 2 prior to next Friday, but we may seem some betting ahead of the number so I couldn’t rule it out.   Here’s a bonus chart of Fannie 3’s.

-Philip Mancuso

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Something funny happened on the way to 3%

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If you’re a follower of my posts you understand that I’m clearly on the winning side of this call, but even I’m surprised we’re approaching 2 on the 10s ahead of GDP.  

Sure there is always that buy the rumor sell the fact thing, but my guess was they’d want to actually see the bad number first this time given the headwinds lower rates faced. That said, some things have changed and I sense a palpable shift in the consensus view on rates right now.  Enter geo-political noise, a bad NFP out of nowhere (or was it), ISM misses for what seems like the first time in about 7 months, the sense that Trump isn’t the cure all for fiscal stimulus and what you get is perhaps a mini-capitulation that 3.0 isn’t coming any sooner than it didn’t come in 2014.  

As I’ve addressed in previous posts, this post March rally is pretty typical.  I called for a 2 point rally in Fannie Mae’s 3s with a top side of 3 points.  Well we are 1 tick shy of 3 points right here.  Which brings us to a pretty big pivot, and I’m not convinced we are going to break through here.  On 4/7 I wrote  “If I had to put a number on it I’d say 65-35 we test 2% sometime soon”.  I’d likely up that to 75% today.  

#lowerforlonger #notsofast #measuredpace #slowisthenewfast #thisiswhatitsoundslikewhendovescry #75% #throwbacktuesday

PS For throwback Tuesday I’m including a few links to some oldie but goodies to get any newbies caught up.  I’d also recommend going back through the last 3 or 4 blog posts as well.   


-Philip Mancuso

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98 is the new 200

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So much for a blockbuster NFP.

98k, negative revisions and a miss in hours set us up for an interesting April.  Combined with some weakness in the other data points from last week, and I think we’re set up for an interesting Q1 GDP read.  I surely like the #lower4longer play here, notwithstanding Friday afternoon’s sell off.  As I mentioned Thursday, the range is likely to remain intact through the NFP, and despite a really good attempt to break through on a terrible number, we closed above 2.30, 2.38 in fact.  The approach here should be to continue to lock/float the range, with perhaps a bit less caution.

If we chart this year’s March bounce (see below), you’ll notice we got back just a bit over the 200 I suggested was there, if just for a moment early Friday morning.  We’ve obviously faded since.  I can’t stress enough that up around that high in price there are some significant technical implications, so I wouldn’t read too much into finishing in the red other than 2.0 just wasn’t meant to be on Friday.   At the moment we’re set to open flatfish, so while I’m disappointed we’re not poised to rally, we also aren’t auto-tanking.  So we got that going for us, which is nice (congrats Sergio).  It is a fairly slow week for data, but we begin to heat up at the end of the week.     

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PS  I want thank my fellow Primer’s for supporting the Pediatric Cancer cause I posted Thursday.   As I mentioned, my son had already hit his goal by donating his own money, but our efforts pushed the entire team beyond their goal!  While there have been some tremendously generous contributions, even just $1 could change the lives of those battling this horrible disease.  Please join our fight and please share the link with others so we can really make a difference!  Here’s the link for those who missed it.

-Philip Mancuso

Mastering the Fed

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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