Nueva Democracia: AUG 10 20 ND SIT EC y POL

All of which sparked a major divergence between Small Caps (and The Dow) and the Nasdaq on the day (though BTFDers diod not allow that to stand for long)...

See Chart:

https://www.zerohedge.com/s3/files/inline-images/2020-08-10_13-00-03.jpg?itok=LOFF36vx

Treasuries rollercoastered in a narrow range today, bid during the EU session overnight and sold during the US session...

See Chart:

https://www.zerohedge.com/s3/files/inline-images/bfm56CB.jpg?itok=6hwmOlCj

Elsewhere in crazy land, the Junk bond market set a record-low coupon today with a Ball Corp deal. The aluminum packaging company, is selling 10-year notes at a 2.875% yield. As Bloomberg notes, about 40% of high-yield deals sold last week priced at a yield of less than 4%.

See Chart:

https://www.zerohedge.com/s3/files/inline-images/bfmDAD9.jpg?itok=_emAjb4b

The B-dollar Index chopped around all day in a tight range and ended marginally higher

See Chart:

https://www.zerohedge.com/s3/files/inline-images/bfm77DC_0.jpg?itok=CwtA5ChG

Bitcoin topped $12k before being flash-crashed once again... but staged a valiant recovery

Ether also plunged but managed to make it back into the green

While gold ended modestly lower after a morning surge above $2060 (futs), silver, copperm and crude all managed solid gains...

See Chart:

https://www.zerohedge.com/s3/files/inline-images/bfmE04C_0.jpg?itok=APlGV4Bs

While gold ended modestly lower after a morning surge above $2060 (futs), silver, copperm and crude all managed solid gains...

See Chart:

https://www.zerohedge.com/s3/files/inline-images/bfmE04C_0.jpg?itok=APlGV4Bs

Silver and gold decoupled for a few hours today (between 11amET and 2pmET)...

Silver's outperformance sent the ratio to gold back below 70 once again...

And finally, as one wit quipped, Tech is eating the world: The recent surge in Apple shares is pushing the value of the world’s largest company toward that of the entire Russell 2000 Index. The iPhone maker is worth $1.93tn, almost 90% of combined mkt cap of 2,000 US small-cap stocks listed in Russell...

“This is astounding - in the past 40 years, no single stock has come close to dwarfing the value of so many other companies,” wrote Sundial Capital Research Inc.

See Chart:

Russell 2000 Index Market Cap vs Apple market Cap

https://www.zerohedge.com/s3/files/inline-images/bfm5F57.jpg?itok=QZz0iNzy

And then there is this...The market value of the world’s equities has risen above the dollar value of the global economy, which some investors say is a sign of overheated markets. As Bloomberg notes, total stock-market capitalization reached $87.83 trillion on Sunday, compared with the 2019 gross domestic product of all countries at $87.75 trillion. With this, stock values have returned to where they were earlier this year, even though the Covid-19 pandemic has dragged many countries into recession.

See Chart:

World GDP ($Tn) vs World Stock Market Capitalization ($tn)

IT'S A MAD WORLD ALRIGHT!

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SOURCE: https://www.zerohedge.com/markets/silver-soars-tech-tanks-apple-now-big-entire-russell-2000

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WHAT'S BEHIND THE BIZZARE BREAK BETWEEN BREAKEVENS AND CRASHING REAL RATES

Unlike nominal rates, real yields are not subject to YCC constraints and have greater freedom to reflect deteriorating macroeconomic fundamentals. What this implies is a (growing) level of decoupling between breakevens and inflation fundamentals

One of the core identities in finance is also the most fundamental one: Nominal Rates = Real Rates (inflation adjusted interest rates, typically reflected by TIPS) + Breakevens (or inflation expectations). In theory, this identity looks as follows:

SEE CHART:

10Y Real, 10Y breakeven & 10Y Nominal Yield

https://www.zerohedge.com/s3/files/inline-images/10Y%20yield%20nominal.jpg?itok=sZrc5adr

In practice, however, the decoupling between Real Rates (red line) and Breakevens (green line) should not look anywhere remotely close to what the chart above is depicting. And yet, over the past 5 months, a dramatic "break" has emerged in the bond market, where an unprecedented decoupling between current deflation conditions and future reflation expectations is now the norm and is sparking countless questions what's behind it.

So what's going on?

AS BofA's chief rates strategist Mark Cabana explains, at the July FOMC, the Fed delivered a dovish message (Powell is "not even thinking about thinking about thinking about raising rates") that clearly linked the economic outlook to the fate of the virus. The Fed seems confident that the markets understand its reaction function and that rates will be low for a very long time. In short, Powell has been very clear that the Fed is not thinking about raising rates... and the first full hike is only priced in 2025.

So what is behind the breakeven decoupling?

According to BofA, as long as market participants believe the Fed is very resistant to take rates negative it should provide more resistance to declines for longer-dated nominal vs real rates. Nominal yields have been relatively range bound in the 50-80bp range that is consistent with a Fed at the ZLB and neutral rate expectations anchored around 0% real.

In this context, it becomes increasingly difficult for nominal rates to reflect deteriorating macroeconomic fundamentals which would be a waning support for USTs as a hedge.

However, unlike nominal rates, real yields are not subject to these constraints and have a higher degree of freedom to reflect deteriorating macroeconomic fundamentals. What this implies is a (growing) level of decoupling between breakevens and inflation fundamentals.

See Chart:

10 Y Breakeven as explained by Nominals, oil and liquidity

https://www.zerohedge.com/s3/files/inline-images/BE%20vs%20model.jpg?itok=jO0ZKcUA

That said, while recent BE widening reflects some level of decoupling from inflation fundamentals driven by the zero rate floor and ultra-easy monetary policy, the depreciating dollar and some pricing of stagflation scenarios may have also contributed to the move.

STAGFLATION?

A far more ominous scenario is that, as Cabana notes, some investors may be pricing the risk of a stagflation scenario, as reflected by the growing inflows into inflation protected funds.

See Chart:

https://www.zerohedge.com/s3/files/inline-images/inflation%20fund%20flows%202020-08-10_14-42-46.jpg?itok=-U98kZzv

Some may also expect higher inflation supported by ongoing QE and/or higher import prices supported by the depreciating dollar.

See Chart:

Dollar Index vs Import Prices

https://www.zerohedge.com/s3/files/inline-images/dollar%20vs%20import%20prices.jpg?itok=xP5c_wip

That said, fund flows have slowed substantially after making up for March outflows likely due to the recent moderation of overall economic activity. Overall, the nominal/real rate and dollar dynamics are likely better suited to explain the recent rise in breakevens.

WHAT ABOUT THE DOLLAR?

As BofA notes, the recent bearish dollar move has been driven by expectations of deterioration in US data relative to external data. A bearish USD trend should support reserve manager accumulation of US Treasuries as a bi-product of currency management practices (i.e. USD weakens and local CCY strengthens, reserve manager needs to sell local CCY to buy USD; USD then gets invested in USTs). This should help ease some of the 2H UST supply/demand imbalance especially in the front-end to belly of the curve which is where reserve holdings are concentrated.

See Chart:

Foreign Official UST holding tend to increase as DXY declines

https://www.zerohedge.com/s3/files/inline-images/UST%20holdings%20tend%20to%20increase.jpg?itok=DnVYPggv

Increased UST buying from the reserve manager community would compete with deposit rich banks that have recently stepped up their buying of front end and belly USTs. As a result, a dynamic of increased reserve manager & bank buying with a likely sharp wave of Fed reserve growth stemming from a decrease in the UST cash balance should serve to richen front end & belly USTs vs OIS. Confusingly, it would also be expected to place further downward pressure on real rates at intermediate dated tenors.

Bottom line: expect even lower real rates, and expect an even greater divergence between real rates and breakevens over the coming year.

….

SOURCE : https://www.zerohedge.com/markets/whats-behind-bizzare-break-between-breakevens-and-crashing-real-rates

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Summing up the US Econ

EARNINGS SEASON SHOCKER: FAAMG EARNINGS GREW BY 2% WHILE EPS FOR THE OTHER 495 S&P COMPANIES PLUNGED 38%

Meanwhile the carnage among small caps was unprecedented with Russell 2000 EPS plunging by 97%.

After expecting a 60% plunge in EPS in Q2, Goldman's David Kostin was delighted to report that S&P 500 EPS declined by "only" 34% year/year, well above both consensus expectations for a -45% decline, and Goldman's own forecast of a nearly double drop.

SEE CHARTs

Fig 1: S&P500 EPS fell by 34% Y/Y in 2Q

Fig 2: GS Portfolio Strategy Top Down EPS Estimates

https://www.zerohedge.com/s3/files/inline-images/gs%20q2%20earnings.jpg?itok=T_JCwubA

….

SOURCE: https://www.zerohedge.com/markets/earnings-season-shocker-faamg-earnings-grew-2-while-eps-other-495-sp-companies-plunged-38

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Final Note:

ARE THE COMMERCIAL DOLLAR TRADERS EARLY, WRONG, OR NEITHER?

Commercial traders are now net long the US dollar...

SEE CHART:

https://www.zerohedge.com/s3/files/inline-images/https___images.saymedia-content.com_.image_MTc0NTQ2MTM3ODU4OTc1Njg5_us-dollar-index-vs-cots-take-2-august-8-20020.png?itok=zlN0Gx_x

Extreme Reading But What Does It Mean?

See Chart:

Dollar Index: Short dollars vs Long Dollars

https://www.zerohedge.com/s3/files/inline-images/https___images.saymedia-content.com_.image_MTc0NTQzOTA4MjM0MDc4MTUz_tom-mcclellan-dollar-tweet.png?itok=ThoWcrio

Here is McClellan's Tweet.

From the comments on this post, some clarification is in order. Every futures contract is 1 long and 1 short position, held by diff. parties. Total longs=shorts always. But it matters who holds them. The commercials are supposedly the smart money, but they are often early.

Further Clarification Needed

McClellan is correct that long and short contracts net to zero. But as discussed with gold, the commercials are not the smart money.

With currencies, the commercials consist of two groups.

1. Importers, exporters, and raw material buyers who genuinely want to hedge against a fluctuating dollar.

2. Broker dealers, who take the other side of the trade and those on the sell side with ETFs and other product offerings.

Neither group is either smart or dumb. First, let's go over where one can find the data.

CONTINUE READING AT:

SOURCE: https://www.zerohedge.com/markets/are-commercial-dollar-traders-early-wrong-or-neither

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US DOMESTIC POLITICS

Seudo democ duopolico in US is obsolete; it’s full of frauds & corruption. Urge cambio

He must affect Military Budget or he prefer internal war? What about Z-debt t G-Stud

TRUMP HOLDS PRESS BRIEFING AS STATES COMPLAIN ABOUT UNEMPLOYMENT EXTENSION

'We can't afford it!' Newsom whines..

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WW3 doesn’t make sense today… Election does: Urge deal with Sanders f 3^rd P + new electoral rules. Blind votes before debate & mail frauds is not Democrac We need 3^rd choice to dissuade viol chaos & assure peace Govern post election. New rules, new Pol-Power: 50% for winner, 30 for 2^nd party & 20 for 3er choice

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Delusions of power: what comes with the wind goes with the next wind.

#WHITEHOUSESIEGE – THIS GROUP PLANS TO LAY SIEGE TO" & "OCCUPY" THE WHITE HOUSE NEXT MONTH

"We will lay siege to the White House.And we will sustain it for exactly fifty days. This is the #WhiteHouseSiege..."

….

That has nothing to do with democracy. Real neo-nazis will laugh on it and Orwellians too: 2+2= -50. Freedom= Circus. GOD = cheap hallucination drug

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US-WORLD ISSUES (Geo Econ, Geo Pol & global Wars)

Global depression is on…China, RU, Iran search for State socialis+K-, D rest in limbo

CHINA MOBILIZES INVASION CRAFT ON COAST NEAR TAIWAN AS TOP US OFFICIAL ARRIVES IN TAIPEI: REPORT

"Satellite images show amphibious armored vehicles and mobile missile launchers massing at military bases near the island nation," reports New Zealand Herald.

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SPUTNIK and RT SHOWS

GEO-POL n GEO-ECO ..Focus on neoliberal expansion via wars & danger of WW3

- Trump Rushed From Briefing Room After Shooting Unfolds Outside White House Grounds

- Facebook Investigation Uncovers Reported 'Millions' of QAnon Group Followers

- Biden Reportedly Done With VP Interviews, Set to Announce Pick in Coming Days

- Chicago Mayor Declares Lockdown for ‘Foreseen Days’ Until US City Becomes ‘Safe’ in Wake of Looting

- Tehran Claims European Insurers Responsible for Compensat of Downed Ukraine Jet

- Diets High in Plant Proteins Associated With Lower Mortality Rates

- US Commiss Warns 'Substantial Chance' of No Results on Election Night for 2020 Race

- Derecho With Hurricane Force Winds Cuts Trail of Destruction Across US Midwest

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