Like There’s No Tomorrow

“Global interest rates [are] at 5,000 year lows,” BofA’s Michael Hartnett observed, again, in the latest edition of his popular weekly “Flow Show” series. “In next 5,000 years rates will rise, but [there’s] no fear on Wall Street this happens anytime soon,” he added.

I was immediately inclined to channel Bill Murray’s Phil Connors who, after reliving the same day for the first of what would ultimately become madness-inducing perpetuity, asked, “Well what if there is no tomorrow? There wasn’t one today!”

I hate to be the bearer of bad news, but there’s virtually no chance that this planet will be inhabitable by humans (or most animals) in 5,000 years. In fact, it’s an open question whether it’ll be inhabitable in 100 years. If central banks keep rates glued at zero for another decade, that may well count as 10% of the remaining time on the climatic oblivion clock.

Anyway, it wasn’t the first time Hartnett used the 5,000 year chart (above). He likes it a lot, apparently.

More relevant for investors than whether interest rates are still “a thing” for a hypothetical society that exists 2,000 years from now (presumably after coming to their senses on climate change and the myriad other existential, but eminently fixable, crises which threaten to wipe out our species), is whether long-end US yields move back up over the next, say, three to six months. That’s a time frame unlikely to include a biological apocalypse although, as last year made clear, we’re a mostly primitive bunch. Mother Nature can outsmart our “technology” with a single mutation, even when our scientists are moving at “warp speed.” We can be here one day, gone the next.

When it comes to the trajectory of US long-end yields in the short-term, Nomura’s Charlie McElligott reiterated points from Thursday in a Friday missive. After noting more hawkish banter from Jim Bullard (“hawkish Bullard” used to be a contradiction in terms, but that’s just one more previously ironclad dynamic the pandemic altered), McElligott listed five ingredients necessary for “a legging back into” the Value over Growth trade sometime late next month once the weak seasonal is behind us.

The “‘bearish USTs / higher yields’ macro catalyst” needs to “fall into place,” he said. For that, we need “some mix” of a QE taper announcement, the resumption of heavy IG supply and the persistence of robust economic activity against a (hopefully) improved Delta variant trajectory, to “synchronize” with risk-on seasonality at the onset of Q4 (figure below, from Nomura).

I suppose you could argue that’s somewhat “out of consensus” versus the incessant daily chatter around “peak growth,” “peak profits” and what they mean for risk assets. But McElligott’s not generally wedded to the buzzword/buzzphrase du jour. These cross-asset strategic assessments are based on all manner of factors, from macro musings to flow dynamics to backtests to positioning to seasonality. The analysis isn’t hostage to “this week’s narrative,” so to speak, and the tactical nature of the calls is mostly narrative-agnostic.

Speaking of agnostic, that properly describes equity investors’ feelings towards anything and everything. Global equity funds took in more than $23 billion over the latest weekly reporting period (figure below).