April 28. Things rather than paper?
–Ten year yield was up less than 1 bp yesterday to 1.923, however, real yields as indicated by the 10 yr inflation indexed note continue to fall with a barely positive close of just 3 bps. The spread between the two (10yr -10yr tip) closed at the highest level of the year, 192, so inflation expectations might be increasing somewhat. In January of this year the spread averaged around 160 bps. Also, the 5yr/5yr inflation forward has surged this month from below 2% to 2.20. So if the Fed is looking for inflationary impulses prior to tightening policy, then some evidence is building.
–On the financial stability and engineering side of things, AAPL reported a surge in revenue, but also boosted plans to return cash to shareholders through increased dividends and stock buybacks. Stock buyback plan jumped from $90 to $140 billion! And AAPL will be tapping the debt markets to help fund the scheme. Corporate debt is at record levels, and Capital Spending continues to languish, so debt is being added to juice per share corporate earnings; AAPL is just another example. Does the Fed step in? It seems to me that the complaints about a lack of high quality collateral in the debt markets, and the financially engineered buybacks could both be addressed by the Fed beginning to unwind its portfolio, especially in longer maturities.
–Or, maybe this problem of increased corporate leverage will resolve itself through a gold old stock sell off as the will to pay more per unit of earnings burns itself out. ESM had a key reversal day yesterday, though not a particularly big range, with a higher high for the move, outside day and lower close. The pattern was more pronounced for the Russell…
–At the same time, gold and silver had strong rallies. An incipient move towards physical things rather than paper as the commodity bust might have run its course? Probably not, but worth keeping an eye on. In some ways, increased social stress like the Baltimore riots are also indicative of a turning point.
