James Brodie
Head of Learning & Development, Flux
Yields Ramp Higher, Chinese Housing Market, Bonds are NOT a Safe Haven
Bond yields surge as markets stay complacent; metals, housing and long-duration bonds all flash warning signs.
Yields ramp higher yesterday U.S. 30-year rises 6bp (highest since 2007), Japan’s +7bp with equities -0.7% and clearly trending lower (Moving averages & MACD).
With the dollar continuing to trend higher precious metals continue to fall: gold -1.8%, silver -5.2% (down 17% in 4 days).
Unbelievable levels of complacency in an unfolding bond crisis, history repeats itself!......BofA Fund Manager Survey in May shows the biggest one-month jump in equity allocation ever (net +13% OW → +50% OW). Cash drops to 3.9% – sell signal triggered. 73% call "long semis" the most crowded trade (up from 24% in April). Bull & Bear Indicator: 7.8 of 8.0. (Bank of America)
The U.S. Presidency gets more corrupt by the day…. The IRS just agreed to never audit Trump again. A one-page addition quietly attached to yesterday's $1.8 billion settlement permanently bars the IRS from examining Trump's tax returns, his family, and his companies. The original settlement said nothing about taxes. This showed up the next day. Former IRS commissioner Danny Werfel said he was "unaware of a single precedent where the IRS has agreed in advance to permanently forgo examination of previously filed tax returns for a specific person or business." The settlement was sold as accountability. The extra page is a lifetime audit exemption for the president.
Housing is important to every economy. But to China, it’s extra important. According to the PBoC, 96% of urban households own a home, and 41% own at least two. The average household owns 1.5 properties. And as such, property constitutes around 70% of China’s private wealth. The comparable figure for the US is around 30%. So when Chinese property prices fall, the authors make a pretty compelling case that this has all sorts of particularly bad economic spillovers. And fall they have. The negative wealth effect is substantial, and “effects are amplified by elevated household debt, much of which consists of mortgage obligations. (Chart, FT).
Foreclosure listings surging in Vancouver. (Chart, REGBV, Steve Saretsky)
U.S. property is set to follow (Chart, U.S census Bureau)
Just a reminder bonds are NOT a safe haven. Austria’s 100-year bond 0.85% coupon issued 2020, down a mere 71%. (Chart, @convertbond)
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