Downside Risk Bandwagon
March 10, 2019 (weekly comment)
The past week was a full-on compendium of global downside risks. First I will briefly highlight some of the comments and events. Then I will have a note on MMT and the increasing trend of government policy-makers implicitly making the assumption that they are the driving economic force. Finally, I’ll relate a couple of these thoughts to markets.
On Sunday, Powell will appear on the news show 60 Minutes, another effort to enhance the Fed’s communication strategy. The acronym TMI was coined for a reason. Sometimes it’s simply too much information. Continuing discussion about the usefulness or lack thereof regarding the Fed’s ‘dot-plot’ is a case in point. It probably creates more confusion than it clears.
In the US, speeches by both Brainard on Thursday and Powell on Friday outlined risks. Williams did the same in an interview on Wednesday, saying he expected growth to slow considerably relative to last year. Brainard’s conclusion tells the story:
The most likely path for the economy appears to have softened against a backdrop of greater downside risks. Our goal now is to safeguard the progress we have made on full employment and target inflation. Prudence counsels a period of watchful waiting. And with balance sheet normalization now well advanced, it will soon be time to wind down our asset redemptions.
Powell was less explicit about downside risks, concluding, “With nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures, the Committee has adopted a patient, wait and see approach…” A large part of Powell’s comments concerned the idea of an inflation ‘overshoot’ policy to make up for past shortfalls:
The simplest version goes like this: If a spell with interest rates near the ELB leads to a persistent shortfall of inflation relative to the central bank’s goal, once the ELB spell ends, the central bank would deliberately make up for the lost inflation by stimulating the economy and temporarily pushing inflation modestly above the target. In standard macroeconomic models, if households and businesses are confident that this future inflationary stimulus will be coming, that prospect will promote anticipatory consumption and investment. This can substantially reduce the economic costs of ELB spells.
This paragraph implies that the Fed can fine-tune inflation,
which I think is an heroic assumption.
The unconventional policy tools that have been in use since the crisis
aren’t even completely understood with respect to intended and unintended outcomes. Both Brainard and Powell mention QE, with
Brainard saying while “…estimates vary, most conclude asset purchases were
successful in supporting the recovery.”
Powell said nearly the same: “There is a range of views, but most
studies found these tools provided significant support for the recovery.” I.e.
we think it worked but cannot quantify with any accuracy.
Bank of Canada said “…the slowdown in the fourth quarter was sharp and broadly based… it now appears that the economy will be weaker in the first half of 2019 than projected in January.” And of course, the ECB downgraded growth and instituted a new round of TLTROs sparking a sharp fixed income rally Thursday. Adam Smith’s invisible hand seems to be invisible, while the heavy hand of gov’t is pretty apparent everywhere.
To summarize US growth prospects in Q1 2019, the Atlanta Fed’s GDP Now is at 0.5% and the NY Fed’s Nowcast is 1.4%. The OECD downgraded global growth.
The policy of making up for lost inflation idea seems to be taking hold. At the same time MMT is also gaining traction. Stephanie Kelton, the main proponent of MMT, is logical, articulate and completely reasonable in describing the importance of consistently running government deficits, but once again, the implicit ideas are that lack of inflation means there’s unused slack in the economy which can be utilized through government creation of currency and debt. An actual surge in inflation due to maximum demand for resources would supposedly cause a scaling back in gov’t spending under MMT. The fact that growth rates historically decline (with a lag) when the gov’t deficit is reduced, doesn’t necessarily mean that going the other way, i.e. accelerating deficit spending, juices the economy without negative effects.
Doug Noland’s summary of the Fed’s Z.1 report released last week indicates the increasing role of government. “On a percentage basis, Non-Financial Debt increased 4.51% in 2018, up from 2017’s 4.10%. Federal [gov’t] debt grew 7.58%, almost double 2017’s 3.74%, to the strongest percentage growth since 2012 (10.12%). Household debt growth slowed to 3.22% (from 3.90%), with Mortgage borrowings up 2.83% (from 3.19%) and Consumer Credit growth easing slightly to 4.88% (from 5.04%). Total Corporate Debt growth slowed meaningfully from 2017’s 5.71% to 3.69%.”
We already have a large increase in gov’t debt and funding levels. Wages are growing a bit more strongly than they had been, with year-over-year at 3.4%, the highest since 2009. The Atlanta Fed’s wage tracker is in an uptrend. As the US election nears in the midst of a first-half slowdown, the theme will be ‘government to the rescue.’ This is perhaps a leap, but the longer term implication would appear to be a steeper curve. As a marginal crumb of support for this view, note that Brainard said the Fed’s “portfolio has a much longer weighted-average maturity than the current stock of treasury securities outstanding in the market or than our pre-crisis portfolio… When the Fed begins once again purchasing treasury securities we will need to decide what maturities to purchase. Given how far out of step the System’s current portfolio is from common benchmarks however, it might make sense to weight those purchases move heavily toward Treasury bills and other shorter dated Treasury securities for a time… However I want to emphasize that I do not expect this issue to be addressed for some time.”
News this week includes:
Monday Retail Sales for Jan expected 0.0. 3-year note auction $38b
Tuesday CPI with Core yoy expected 2.2%. 10-year note auction $24b
Wednesday PPI Core yoy expected 2.6% Durables 30-year bond auction $16b
Thursday New Homes Sales
There are also important Brexit votes. On Tuesday Parliament votes for a second time on May’s Withdrawal Agreement. If she loses, on Wednesday there will be a vote on whether to remove the option of a no-deal Brexit. Should that happen, then on Thursday Parliament will vote on whether to delay Brexit. (Telegraph)
OTHER MARKET/TRADE THOUGHTS
Since mid-January I wrote of a probable range in tens of 250-255 to 282-287. We haven’t been outside these levels. Friday ended closer to the lower end at 2.63. The high so far this year has been 2.80%. The bias has been for lower yields as growth has slowed. Implied vol remains quiescent, though there were some large call spreads purchased in the past week in tens: TYK 122.5/124.5 paid 22/23 80k ref TYM9 122-02; settled 38 vs 122-245. TYK 123/125 paid ~22 in 40k, settled 26. The 124.5 strike is approx. yield equivalent of 2.40%.
On the downside, the USM 139/140 put spread, bought in size at 8-10 in the previous week, settled 3 ref 145-31 (settled 10 ref 143-26 on March 1), with 65k still open. From this yield level of about 3% on the long bond, it’s worth owning puts at what continue to be low vols, especially going into the auctions.
March midcurves expire Friday. ATM straddles in red, green, blue and gold all settled 7 to 7.5:
0EH 9750^ 7.0 ref 9746.5 EDH0
2EH 9762^ 7.0 ref 9761.5 EDH1
3EH 9762^ 7.5 ref 9760.0 EDH2
4EH 9750^ 7.0 ref 9751.0 EDH3
As mentioned during the week red/green pack spread is as low as it has been since 2000, settling at -8.625. The new red/green, starting with June contracts, settled Friday at -4.5. The natural bias of course, is to buy these spreads. But it’s so obvious that I wouldn’t be surprised to see a blow-up the other way.
| 3/1/2019 | 3/8/2019 | ||
| UST 2Y | 255.7 | 245.5 | -10.2 |
| UST 5Y | 255.6 | 242.0 | -13.6 |
| UST 10Y | 275.3 | 262.1 | -13.2 |
| UST 30Y | 312.3 | 301.5 | -10.8 |
| GERM 2Y | -50.8 | -55.0 | -4.2 |
| GERM 10Y | 18.3 | 6.2 | -12.1 |
| JPN 30Y | 62.1 | 57.0 | -5.1 |
| EURO$ Z9/Z0 ** | -14.0 | -19.5 | -5.5 |
| EURO$ Z0/Z1 | -1.0 | -3.0 | -2.0 |
| EUR | 113.68 | 112.36 | -1.32 |
| CRUDE (1st cont) | 55.80 | 56.07 | 0.27 |
| SPX | 2803.69 | 2743.07 | -60.62 |
| VIX | 13.57 | 16.05 | 2.48 |
https://www.federalreserve.gov/newsevents/speech/brainard20190307a.htm
https://www.federalreserve.gov/newsevents/speech/powell20190308a.htm
Abrupt Reversal in China
March 8, 2019
–Yesterday I mentioned the sizzling year China’s shares have had, but today Shanghai Comp fell 4.4% as BBG reports that a rare sell rating on PICC by Citic, the nation’s largest broker, was seen as a broad signal that government officials believe the rally has become too speculative. In addition, China’s February exports fell the most in three years. US shares are down in sympathy after yesterday’s losses.
–Strong rally in fixed income, sparked by the ECB’s growth downgrade and new TLTRO stimulus steps. The euro plunged to a new low of 1.1178, a level last seen in mid-2017. While there has been a small bounce this morning, data didn’t help with German Factory data falling 2.6%. There is a decidedly risk-of tone to end the week going into employment data for the US. Nonfarms expected 180k with a rate of 3.9%. Average Hourly Earning expected 3.3% yoy.
–For the past two sessions there have been large buys in May TY and FV call spreads: on Wednesday it was 80k TYK 122.5/124.5cs bought for 22/23 ref 122-02 which settled 37 yesterday vs 122-21. Yesterday it was 40k 123/125cs, which settled 24. Vol still relatively low. It’s clear that flows favor the upside. On the eurodollar strip greens led the surge closing +6.875. Probably worth owning some May or June otm FV calls in case the global risk-off theme starts to snowball. Even if there are stronger than expected payrolls, data would likely be met with a dip-buying mentality in treasuries.
–Yesterday the Fed’s Z.1 report came out, unsurprisingly showing a big drop in Household Net Worth due to the stock market rout in Q4. This report also shows growth rates in debt for the major sectors: Households, Business, and Gov’t. Household debt is broken down into Mortgage and Consumer Credit. The largest increase in growth was in Consumer Credit, +6.17%. Total HH was 2.86%, Business +3.78% and Fed’l Govt only 2.50% (expect the latter to start going up by A LOT). As noted yesterday, credit card interest rates are at new historic highs. Default rates are increasing. It’s interesting that Consumer Credit is growing strongly as the price of it increases, which I conclude is due to a stretched consumer. The data on wages and debt service ratios tell a more supportive story, but it’s obviously the case that banks are tightening as default rates increase with higher debt levels. Credit quality is declining across the spectrum.
New highs US credit card rates
Worth clicking on this link and/or chart from St Louis Fed Fred site on Credit Card Rates for the US consumer.
According to the article in Asia Times
https://www.asiatimes.com/2019/03/article/chart-of-the-day-us-credit-card-rates/
US Credit Card Rates have hit their highest level IN HISTORY….near 17%. The Fed chart doesn’t reflect a new high, but the trend higher is clear. Is the US consumer on the verge of a pullback?
It’s all starting to look the same
March 7, 2019
–Yields fell yesterday with tens -2.9 bps to 2.69%. While 5/30 spread rose 1.7 bps to 57.4, the eurodollar curve flattened slightly. Once again reds to deferred pack spreads notched new lows with red/gold -0.75 bp to 6.875. Treasury vol is drifting to lows with USM9 vol 6.1.
–From NY Fed’s Williams yesterday: “…I expect growth to slow considerably relative to last year, to around 2%. Three developments contribute to this view: a downturn in global growth, heightened geopolitical uncertainty, and the effects of tighter financial conditions.” The Bank of Canada cited similar concerns: “…trade tensions and uncertainty are weighing heavily on confidence and economic activity. …the slowdown in the fourth quarter was sharper and more broadly based. …it now appears that the economy will be weaker in the first half of 2019 than projected in January.”
–ECB today also expected to downgrade growth estimates. Draghi’s term ends in October, so more uncertainty looms for monetary policy going forward.
–However, Chinese shares have responded strongly to stimulus by the PBOC, with Shanghai Comp up a sizzling 27% this year. US stock futures are a bit lower this morning, with a lot of room to pull back after a strong start to the year.
–Today the Fed releases the quarterly Z.1 report with data on economy wide debt levels and growth. Employment report is tomorrow.
Classic headline flagged by RJO’s 24 hr desk in their morning missive:
Hipster whines at tech mag for using his pic to imply hipsters look the same, discovers pic was of an entirely different hipster
https://www.theregister.co.uk/2019/03/06/hipsters_all_look_the_same_fact/
EURO$ CURVE
Above is a snapshot of red/green pack spread in ED’s. (Second panel is reds/golds). Red/ green settled -7.625 bps, the lowest since the year 2000, (pressured in part by Y2K concerns). Of course, March is going to roll off the board In a week and a half, but the NEW red/green pack spread is still -4.25. In the US, there is talk of letting the economy ‘run hot’, the idea of further rate hikes has nearly been eliminated. B
Some of the current price action may be influenced by the idea of ECB engaging in new TLTROs.
The second panel is red/gold pack spread. Same idea as red green, except that at the end of the year it rallied from -5.625 to +22.25 as stocks were imploding (and the Fed had just hiked in the middle of Dec). That spread is now around 8 bps, halfway back.
Sideways behavior
March 6, 2019
–Welcome to new recipients…unfortunately yesterday didn’t provide much market action to talk about.
–Yields were essentially unchanged on the day, with implied vol continuing to seep out of option prices. In rate futures, it’s been a sideways trade since the middle of January. As an example, on January 11, the Green pack euro$ 9750 (atm) straddle strip traded 370-372 on large lifts of atm calls. That day marked the high of the strip, which has been compressing ever since, and settled 299.5 yesterday (identical contracts). Since a couple of months have passed, a better comparison will be the ‘new’ long green pack 9750^ strip: EDM1, U1, Z1, H2, and that settled 321.5. EDH19 expires on the 19th and contracts will shift forward.
–I don’t know if it’s a reflection of low volume, but CME shares closed -2.39% yesterday while ICE fell 1.05% on a day that SPX was -0.11%. CME nearing the low of the year.
–On the euro$ curve, reds were especially weak, closing down 3.0 (with greens -1.625, blues -0.625 and golds -0.25). Red pack to deferreds made new spread lows with red/gold -2.75 to 7.625 (new low since mid-Dec). One option trade exemplified the move: Buyer of 13k 0EU 9712 put for 5.0 vs selling 10k 4EU 9712 put at 9.0 (pkg price 25.0). Settled 4.5 v 9746 in EDU0 and 8.0 v 9734.5 (pkg 21.0s).
–BBG base metals index near the high of 2019, with some pointing to copper’s recent strength as a sign of resurgence. However, oil appears ready to roll over and the Baltic Dry Freight Index continues to languish near the low set in early Feb. This shipping index plunged from 1400 in mid-Dec to the low of 600 and is now 669.
–OECD cut forecasts for the global economy in 2019 and 2020 citing trade disputes, uncertainty about Brexit and Europe.
–Business Insider’s Most Important Charts indicates a high level of concern about odds for a near-term recession. New today includes ADP and Trade Balance.https://www.businessinsider.com/most-important-charts-that-explain-markets-investing-finance-2019-2
Yet another stock reversal pattern
–Mini-SP and Nasdaq futures made new highs for the move yesterday, had outside days and closed lower. Classic reversal pattern (that hasn’t been much of a signal recently). DJIA and Russell also posted outside days with lower closes, but yesterday’s highs weren’t quite through those of late Feb. Yields softened with tens -3.3 bps to 2.72%. The curve was modestly flatter. This morning stocks have stabilized and are positive. Oil is slightly lower after topping over the past week.
–Premier Li Keqiang gave his state of the union at the National People’s Congress and lowered the GDP target to a range of 6-6.5%, with CPI of 3% and a budget deficit of 2.8%. He warned of tough economic challenges ahead and announced tax cuts. According to Asia Times car sales were -5.8% last year and ZH notes that both car and housing prices are being slashed.
–US news today includes Service ISM expected 37.4 and New Home Sales -8.7% at a rate of 600k –Tens are giving back some of yesterday’s gains in a low volume environment.
Quick notes from Friday
March 4, 2019
–30 year yield closed at the highest level of the year Friday at just over 3.12%. Tens rose 3.1 bps to 2.753%. Jan ’20 Fed funds (FFF0), an indicator for the odds of tightening in 2019, settled at a new low for the month of February at 9759.0, down 3 bps on the day and 1 bp above the current Fed Effective of 2.40%. No hike/no ease.
–This morning rate futures are steady and stocks are higher as an impending US/China tariff deal is close to being inked.
–On Friday there was a new buyer of 65k USM 140/139 put spreads for 8-10/64’s. Yield level of the 140 strike is around 3.33/34% vs Friday’s close of 312.3. Friday also saw new highs in near one-year euro$ spreads. EDH9/EDH0 surged 5 bps to close at +2.0, the only positively signed 1-yr until EDH2/EDH3 which also settled 2.0. Like FFF0, EDH0 gives some indication of hike expectations over the year; EDH9 through EDH0 are all within 2.5 bps of the 9737.5 strike except for EDZ9 which settled 9732.5. EDH0 settled 9738.5. The lowest one-year calendar is still EDZ9/EDZ0 at -14, but that also had a nice rally on the day, +2.5, and week, +4.0. Libor/ois forwards have been compressing for the past two weeks, now around 22 for the next six months.
The interaction between bond yields and large government deficits in a low inflation world
Weekly Comment –March 3, 2019
At the end of February, the scientific journal ‘Amphibian & Reptile Conservation’ featured an article “Ecological interactions between arthropods and small vertebrates in a lowland Amazon rainforest”. I’m sure you saw it.
If for some reason you missed it, the admittedly dry title refers to a “dinner plate sized” TARANTULA killing and dragging a small possum across the floor of the jungle before eating it! “It appeared to be the first documented case of a spider eating an opossum.” Doctoral students Michael and Maggie Grundler, brother and sister, observed and videoed the event and co-authored the paper, noting they were “witnessing something pretty special.” The Grundler clan really knows how to have a good time.
In the markets, we’d call it a ‘black swan’ event. You might wonder whether I’m referring to the spider/possum or the Grundlers. Both. As an aside, I especially enjoy mangling serious scientific works and badly relating my misconstrued interpretations to the markets, and I have at least one fan of these efforts, for whom I’ve also included the letter to the Smithsonian as an addendum to this missive.
Below is a chart of the 30-year bond yield with some recent peaks tagged, along with unemployment rates that occurred around those highs. In 2007, when the yield was around 5%, the unemployment rate was 4.5%. In 2010 and 2011 when yields topped around 4.8%, unemployment rate was 9.5 to 9.0%. After the mid-2013 taper tantrum where the yield surged to 4.0%, the rate was 7%. And the peak yield in 2018 was associated with a jobless rate of 4.0%. Economists are tentatively concluding (are you sitting down for this?) that the Philips curve may be breaking down. Science. I, for one, am reeling.
Our chart might indicate either that the unemployment rate should be going up, or that a MUCH higher yield is justified, given the current jobless rate. The idea of letting the economy ‘run hot’ is gaining traction as there’s no inflation, and Modern Monetary Theory is also being bandied about. On top of that, there was a Bloomberg article late Friday, ‘Fed Said to Quiz Primary Dealers About New Tool to Manage Rates’, which said the NY Fed “…has sought feedback on how an instrument that keeps money-market rates from rising too far above the central bank’s target range should be designed” as the Fed prepares to halt its balance sheet unwind. Tantrum?? The Fed is seeking to cap short rates, while letting the long end go where it may in a world of trillion dollar deficits. To quote market wizard David Bowie, “It’s like putting out fire… with gasoline.”
Remember, QE had the effect of making risk assets rally, while yields generally increased over those periods. The end of QT may have that same outcome.
An OECD paper out last week (highlighted by Simon Thorp of Aperture Investors on linkedin) outlines issues in global corporate bond markets and, like our Amphibian example, also has a catchy title: ‘Corporate Bond Markets in a Time of Unconventional Monetary Policy’
http://www.oecd.org/corporate/Corporate-Bond-Markets-in-a-Time-of-Unconventional-Monetary-Policy.pdf
Key findings taken from the paper:
- Historically low ratings for investment grade bonds
- Prolonged decline in overall bond quality
- Decrease in covenant protection
- Risk of amplified borrowing costs for lower quality issuers
- Increased pressure on the non-investment grade market
- Record level repayments ahead
A couple of interesting quotes: “Any developments in these areas [global growth, CB policy, record sovereign borrowing in 2019] will come at a time when non-financial companies in the next three years will have to pay back or refinance about USD 4 trillion worth of corporate bonds.” “Importantly, net issuance of non-investment grade bonds turned negative in 2018 indicating a reduced risk appetite among investors. The only other year that happened over the last two decades was in 2008.” Of course, the Fed’s shift has caused risk appetite to be whetted in 2019.
Another interesting point: “The People’s Republic of China has moved from a negligible level of issuance prior to the 2008 crisis to a record issuance amount of USD 590 billion in 2016, ranking second highest in the world.” For many years people talked about “vendor financing” with respect to China. The US bought manufactured goods with dollars, which were then recycled into treasuries, increasing China’s reserves. ‘They send us goods, we give them paper.’ Is it now the case that China is peddling lower quality ‘paper’ rather than manufactured goods?
There
has been a resurgent reach for risk in 2019 as a result of the Fed’s change of
heart. The BBB Corporate Option Adjusted
Spread was 140 bps at the start of October 2018. It powered up to 206 bps by
the start of this year and has now retraced all the way back to 168. Retracements of high-yield etfs have been
even more dramatic.
In a capitalistic system, we would expect the findings of the OECD to eventually result in higher default rates, higher spreads, and more circumspect (better) capital allocation. In a world where central banks find it necessary to coddle investors, those results may be delayed ad infinitum. However, supply in the form of both US sovereign and corporate bond debt may yet overwhelm central banks and cause yields to reach levels which are perhaps unsustainable in the longer term, but extremely painful in the shorter time-frame. Like a monster spider taking down small mammals. A “pretty special” event.
OTHER MARKET/TRADE THOUGHTS
Here’s an update on libor/ois proxies. I use 3 month quarterly ED contracts vs the average of the next two FF contracts. Over the past two weeks these spreads have compressed by 3.75 to 5.0 bps.
___________________________________________3/1/2019 2/15/2019
EDM9 9738.5 vs avg(FFN9+FFQ9) 9759.0 = 20.50 24.25
EDU9 9737.0 vs avg(FFV9+FFX9) 9758.25 = 21.25 24.50
EDZ9 9732.5 vs avg(FFF0+FFG0) 9759.75 = 27.25 31.00
EDH0 9738.5 vs avg(FFJ0+FFK0) 9761.75 = 23.25 27.50
EDM0 9742.5 vs avg(FFN0+FFQ0) 9765.75= 23.25 27.25
EDU0 9746.5 vs avg(FFV0+FFX0) 9769.75 = 23.25 28.25
There was a large new buyer (+65k) Friday of USM9 140/139 put spread for 8-10/64’s. Settled 10 with 5 delta. With USM 143-26 vs the 30-yr yield of 3.124%, the 140 strike is a bit over 21 bps away, or 3.33-3.34%. At this yield, a 1 point move in USM is approx. 5.6 bps (Increases as the yield goes up). In November the peak yield for 2018 was 3.455% and the stock-plunge-inspired low yield in Jan was 2.903%. The halfway mark is 3.18%, about a point lower, with the 0.618 Fibonacci at 3.24%. Next Friday is the employment data, and the following week features 3, 10, 30 year bond auctions. If the yield moves to 3.24 in two weeks then the put spread should be worth about 19 (at 141-22).
This Friday the employment report is released with NFP expected 185k vs 304k last and Avg Hourly Earnings +3.3% yoy vs +3.2 last. On Thursday, 7-March, the Fed’s Z.1 summary of Financial Accounts of the US is released, which features a quarterly snapshot of household, corporate, and gov’t debt flows and levels (along with the headline-grabbing Household Net Worth data).
| 2/22/2019 | 3/01/2019 | ||
| UST 2Y | 248.3 | 255.7 | 7.4 |
| UST 5Y | 246.3 | 255.6 | 9.3 |
| UST 10Y | 265.4 | 275.3 | 9.9 |
| UST 30Y | 302.1 | 312.3 | 10.2 |
| GERM 2Y | -56.5 | -50.8 | 5.7 |
| GERM 10Y | 9.6 | 18.3 | 8.7 |
| JPN 30Y | 57.5 | 62.1 | 4.6 |
| EURO$ Z9/Z0 ** | -18.0 | -14.0 | 4.0 |
| EURO$ Z0/Z1 | -0.5 | -1.0 | -0.5 |
| EUR | 113.35 | 113.68 | 0.33 |
| CRUDE (1st cont) | 57.26 | 55.80 | -1.46 |
| SPX | 2792.67 | 2803.69 | 11.02 |
| VIX | 13.51 | 13.57 | 0.06 |
https://www.linkedin.com/feed/update/urn:li:activity:6507305972652871680/
http://www.oecd.org/corporate/Corporate-Bond-Markets-in-a-Time-of-Unconventional-Monetary-Policy.pdf
https://fred.stlouisfed.org/series/BAMLC0A4CBBB
+++++++++++++++++++ADDENDUM
Paleoanthropology Division
Smithsonian Institute
207 Pennsylvania Avenue
Washington, DC 20078
Dear Sir:
Thank you for your latest submission to the Institute, labeled “211-D, layer seven, next to the clothesline post. Hominid skull.” We have given this specimen a careful and detailed examination, and regret to inform you that we disagree with your theory that it represents “conclusive proof of the presence of Early Man in Charleston County two million years ago.” Rather, it appears that what you have found is the head of a Barbie doll, of the variety one of our staff, who has small children, believes to be the “Malibu Barbie”. It is evident that you have given a great deal of thought to the analysis of this specimen, and you may be quite certain that those of us who are familiar with your prior work in the field were loathe to come to contradiction with your findings. However, we do feel that there are a number of physical attributes of the specimen which might have tipped you off to its modern origin:
· 1. The material is molded plastic. Ancient hominid remains are typically fossilized bone.
· 2. The cranial capacity of the specimen is approximately 9 cubic centimeters, well below the threshold of even the earliest identified proto-hominids.
· 3. The dentition pattern evident on the “skull” is more consistent with the common domesticated dog than it is with the “ravenous man-eating Pliocene clams” you speculate roamed the wetlands during that time. This latter finding is certainly one of the most intriguing hypotheses you have submitted in your history with this institution, but the evidence seems to weigh rather heavily against it. Without going into too much detail, let us say that:
- A. The specimen looks like the head of a Barbie doll that a dog has chewed on.
- B. Clams don’t have teeth.
It is with feelings tinged with melancholy that we must deny your request to have the specimen carbon dated. This is partially due to the heavy load our lab must bear in it’s normal operation, and partly due to carbon dating’s notorious inaccuracy in fossils of recent geologic record. To the best of our knowledge, no Barbie dolls were produced prior to 1956 AD, and carbon dating is likely to produce wildly inaccurate results. Sadly, we must also deny your request that we approach the National Science Foundation’s Phylogeny Department with the concept of assigning your specimen the scientific name “Australopithecus spiff-arino.” Speaking personally, I, for one, fought tenaciously for the acceptance of your proposed taxonomy, but was ultimately voted down because the species name you selected was hyphenated, and didn’t really sound like it might be Latin.
However, we gladly accept your generous donation of this fascinating specimen to the museum. While it is undoubtedly not a hominid fossil, it is, nonetheless, yet another riveting example of the great body of work you seem to accumulate here so effortlessly. You should know that our Director has reserved a special shelf in his own office for the display of the specimens you have previously submitted to the Institution, and the entire staff speculates daily on what you will happen upon next in your digs at the site you have discovered in your back yard. We eagerly anticipate your trip to our nation’s capital that you proposed in your last letter, and several of us are pressing the Director to pay for it. We are particularly interested in hearing you expand on your theories surrounding the “trans-positating fillifitation of ferrous ions in a structural matrix” that makes the excellent juvenile Tyrannosaurus rex femur you recently discovered take on the deceptive appearance of a rusty 9-mm Sears Craftsman automotive crescent wrench.
Yours in Science,
Harvey Rowe
Curator, Antiquities
Yields pushing higher
march 1, 2019
–Once again yields rose with tens up 3.1 bps to 2.722%, as Q4 GDP came out stronger than expected 2.6% (2.2 exp). Chicago Purchasing Mgr also solid at 64.7 vs 57.5 expected. Personal Income and Spending today expected +0.3 and -0.3, with Core yoy PCE prices 1.9%. Employment data is NEXT Friday.–Euro$ curve flattened somewhat, reds -3.375, grns -2.625, blues -1.625 and golds -1.5. However, 2/5 treasury spread closed positive for the first time since Jan 22 (I marked at 0.1 bp, 2.52 in 2’s and 2.521 in 5’s).
–This morning treasuries a bit weaker as stocks re-test recent highs. MSCI quadrupled China A-shares weight in global benchmarks, further supporting a stimulus infused rally in China. However, S Korea trade data was extremely weak, with exports -11.1% and imports -12.6%. From a CNBC piece: “China-bound sales are tumbling especially as memory chip prices are falling. Looking ahead, export growth should remain weak in March but shrinking of exports should bottom out March or April as demand from China recovers on stimulus measures,”
–Are yields going up due to robust growth, or are auction supply concerns growing? An end to QT may alleviate some of the supply concerns, but with short rates on hold and better growth possible, the curve is still at risk of steepening.
