What If Stocks Are Right?

Ok, so Wednesday’s column from Cameron Crise is good.

One of the things Cameron is particularly adept at is pissing off Jeff Gundlach. But another thing he’s good at is taking a simple, readily observable dynamic, breaking it down, looking more closely at the numbers, and just generally fleshing it out.

Here’s the readily observable dynamic:

Spot the odd one out since the election.

Again, that’s as 30,000-foot–ish as possible on purpose. That is, it’s just the simplest way of visually communicating the fact that equities (at least at the benchmark level, although if you look under the hood the picture isn’t as pretty) are still ebullient even as yields and the dollar are clearly priced to reflect the reality of the situation: namely that Trump’s growth-friendly agenda is D.O.A. and the incoming data has been lackluster, especially on the inflation front.

That obviously raises questions about the extent to which fiscal policy is prepared to take the baton from monetary policy or, translated, it suggests Janet Yellen can’t be too aggressive.

Positioning reflects this. TY longs are now at 2+ standard deviations (going back 5 years):

And you already know the story on positioning in the dollar (black line is agg.): 

So that’s the setup for Crise’s latest and his point is that although there are plenty of reasons why yields and the dollar look like they do, at a certain point “bad news gets more than fully priced in.” And indeed that’s why extreme positioning can be a contrarian indicator.

Read below, and do note that what Cameron wanted to do was channel Team America, only he couldn’t use the word “fuck.”

Via Bloomberg

Tuesday’s edition of this column suggested that asset markets might need to price in an element of “Team America” style geopolitical risk. The reference, of course, was to risky assets like equities and credit where volatility is low and there seems to be lots of good news in the price. Fixed income markets, on the other hand, arguably skew too far the other way — pricing a litany of bad news that will prevent monetary authorities from tightening or otherwise normalizing policy. For bond traders, problems could arise if markets take a look at the U.S. and say “America! Heck yeah!” .