Beneath The Cloud Of Abject Insanity

Beneath The Cloud Of Abject Insanity

I’m not sure you could call it “angst,” exactly.

Coming off the weekend, US markets behaved about like one would expect under the circumstances which, on the off chance you’ve been slumbering for the past week, are exigent.

Whether one wants to discuss the epidemic or the situation inside the Beltway, there’s light at the end of the tunnel. The problem is that, for now, “we’re still in that damn tunnel,” as I so eloquently put it last week. The promise of brighter days ahead as well as what is now a dual policy put (i.e., both a monetary and fiscal backstop), makes it difficult for equities to selloff in earnest.

But if it’s not outright “angst,” it’s most assuredly apprehension — or maybe “annoyance” is more apt. Markets are annoyed at the uncertainty hanging over Donald Trump’s final days, and apprehensive about the prospect of more violence. The FBI on Monday warned that armed protests are planned at all 50 state capitals and in Washington ahead of Joe Biden’s inauguration.

Democrats, meanwhile, are likely to impeach Trump — again. The only way around that is if Mike Pence invokes the 25th Amendment in the next 24 to 48 hours. The GOP blocked an effort to rapidly adopt a resolution to that effect Monday, but the House will return Tuesday for a roll call. Either we’ll have “President Pence” by Friday, or we’ll have a second impeachment. The House could then delay sending the articles to the Senate to allow time for Biden to settle in.

Underneath this cloud of abject insanity, stocks retreated from records. Tech shares suffered, as investors fretted over possible backlash from moves by Twitter, Facebook, Amazon, Google, and Apple to preempt additional political violence by, among other things, banning Trump and effectively putting Parler out of business, at least temporarily. Twitter fell nearly 7%.

Treasurys fell, again, although there wasn’t anything dramatic about it. Yields were marginally cheaper at the long-end.

“The underlying factors that drove 10s to 1.136% on Monday and contributed to the new year’s repricing remain solidly in place,” BMO’s Ian Lyngen and Ben Jeffery said, citing “a Democratic controlled government, potential for additional fiscal bailout funding, reflationary outlook for consumer prices, asset price inflation becoming thematic, and the slow, steady progress through the great pandemic of 2020.”

The dollar is going to be a story soon, and the tale will be the opposite of that which defined the balance of 2020. Real yields rose the most since June last week, and that may mean that further downside for the greenback will be limited, all medium- and longer-term “structural” bear cases notwithstanding.

“With 10-year breakeven rates already above 2%, a further rise in nominal yields will have to come from real yields instead of inflation expectations,” Bloomberg’s Ye Xie wrote Monday. “If real yields bottom the dollar probably will as well, given their positive correlation, so there’s likely to be some shakeout in short-dollar positions.”

I’ve cautioned on this repeatedly over the past 72 hours and quite honestly, I hope I don’t turn out to be right. Because markedly higher real yields would be bad news for stocks. Remember: Tech is, in many ways, the poster child for secular growth equity expressions tethered to the vaunted “duration infatuation” in rates. If you get weakness there tied to something unrelated (in this case jitters around the fallout from big tech’s push to crackdown on rhetoric with the potential to incite further political tumult), rising real yields would be insult to injury for those stocks.

Bitcoin had a harrowing ride to start the week, at one point posting the largest two-day drop since March. It didn’t help that the UK Financial Conduct Authority cautioned investors in cryptocurrencies that they risked a total wipeout.

“The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns,” the regulator said. “If consumers invest in these types of products, they should be prepared to lose all their money.”

Crypto fans will make the usual jokes about the “establishment” being “nervous” and about the “powers that be” attempting to nefariously undermine the asset of the future. And those jokes will be funny. Right up until everyone does, in fact, lose all of their money.

As far the overall, 30,000-foot view is concerned, Nomura’s Charlie McElligott said Monday that we’re “in full-blown ‘overshoot’ mode.”

He cited Nomura’s Sentiment Index for the S&P, which is now in the 98.5th%ile.


 

8 thoughts on “Beneath The Cloud Of Abject Insanity

    1. We should all remember that Freedom of Speech is a Constitutional amendment that only applies to government. Private entities are not required to follow that amendment and, in business law terms, a person is not able to invoke that amendment as a defense.

      You can’t go into your work and yell profanities about your boss and not expect to get punished. You can’t go into your place of business and threaten to destroy the entire company and not be fired. That’s because the First Amendment does not apply.

      Considering Parler’s “town square” mentality specifically, who in their right mind would go to the town square and openly advocate for inciting insurrection and not expect to be immediately arrested by the town guards? The town square is a public place and, you can exercise free speech in public, but you can’t threaten the government. A credible threat must be responded to with credible action.

      Facebook, Twitter, etc. are private entities. They are not government regulated or associated nor are they members of the press corps. The First Amendment does not apply to their business. They can kick anyone off at any time for reasons they decide through policies such as fair use. If you went into Wal-Mart and started harassing people and threatening them the way many do on social media, I’m fairly certain you would be removed from the store if not banned.

  1. Financial blogger/libertarian types on other sites have had hands wrung and pearls twisted all day about ‘free speech,’ Parler, etc.

    First Amendment Free Speech analysis is rooted in the concept of state action. Amazon, Apple and Twitter are not the State. Also, and no matter what forum, to incite violence against another person, and/or against our government, is all kinds of problematic, and, with the right facts, can be charged as a crime. This is not the same thing as “free speech.”

    We need to have a conversation about the power of publishers, limitations that are prior-restraint-adjacent (but not precisely the same as prior restraint), etc. To bellyache about free speech without that context is disingenuous and intellectually sloppy.

    1. Yeah, honestly, I advise not reading that stuff.

      Not all of it is the same, but most of it is, and the ringleaders of it are always the same sites.

      Here’s the important thing to remember about some of those portals (and there are at least a half-dozen of them): It’s impossible to separate the necessity of generating click money from the articles. So, while you know the content is always poor quality, you also have to keep in mind that even as far as poor quality content goes, some of it is going to be especially bad, whether that means over-the-top bombastic or just completely trite. The reason is simple: The people who run those sites apparently have overhead/fixed costs and quite plainly no alternative source of revenue. So, it ends up being just this almost manic posting pace that rivals Reuters, only Reuters is a global operation with tons of employees. I get the impression that some of these sites have to “engineer” posts even when there’s absolutely nothing to say in order to generate enough clicks not just to keep the proverbial (i.e., the business) “lights on,” but to keep their literal lights on at their own homes. So the point is, when you read that stuff, it’s not just that it’s poor quality, it’s that it seems very desperate — as if not posting could be a financial death knell at any moment.

      Note that, for example, feature articles on The New York Times will stay put for hours on slow news days. Sometimes, when things are slow, feature articles on Bloomberg, for example, will stay up in one of the top three or four slots for an entire weekend. That’s certainly not because they don’t have the resources to produce content — it’s because if there’s nothing to say, they’d rather highlight the good stuff they just said. With some of these right-wing blogs, you get the impression that such a thing isn’t an option — like, they may keep one particularly inflammatory post at the top, but the “new post” feeds are just an endless, manic, stream. Who does that? Only two types of sites: News wires and sites for whom the absence of a minute-by-minute click stream is an existential crisis.

  2. Real question, are the Democrats pushing the impeachment because they want to get a bunch of Republicans on record one more time defending Trump?

    1. Bingo!

      To quote from the Atlantic – “Given the calendar, even a successful impeachment effort is not likely to remove Trump from office much faster than the constitutional deadline will. But it will force members of his party to go on the record for him or against him. It would signal to the world, and to our own country, an awareness that something terrible has happened, and cannot happen again. Societies that shrink from, fictionalize, or paper over the ugliest parts of their past invite even uglier episodes. The claims that impeachment would be “divisive,” advanced by many of the same people who tried to overturn the resounding Biden-Harris win, should be “dismissed with prejudice,” as the legal terminology goes. And in practical terms, a successful impeachment, meaning a two-thirds margin for conviction in the Senate, could bar Trump from holding any federal office again–in turn limiting the destructive black-hole effect he could have on the next presidential race.”

      https://www.theatlantic.com/ideas/archive/2021/01/biden-must-look-forward-rest-us-must-contend-past/617625/

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