Sunday, July 31, 2016

S&P 500 Catalysts This Week Sporting The Official Fun Rating: Negative Real U.S. Treasury Yields

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*This week sports the two biggest economic numbers that everybody needs to care about.
*Inflation is the most critical metric that nobody was paying attention to until last week's Fed meeting.
*We will show you why we think investors suddenly care. If PCE is bad this week, we think it will finally matter.
*We spoke with the dollar and caught the BOJ singing a "fun" song.

This is probably one of the most exciting stock market (NYSEARCA:SPY) weeks we have coming up. The Fed's key inflation metric, PCE reports this week. Non-farm payrolls, the (not really) blow-out report that broke markets out updates this week. Plus we have the spillover effects from the Fed and BOJ reaction. This week is jam packed with trading fun. We had key hints last week of changing investor perspectives on upcoming key metrics. We think data will start to matter again.
We are about to show you how the dollar move last week can predict the US stock market move this week with PCE. This is key because while there are many market pundits expecting stocks to go up or down, the key is identifying the catalyst. We've been saying inflation is that catalyst (bubble popper).
Here's what investors want: "Line it up for me Elazar and make my job easy, tell me why, when and how it's going to happen and then you'll get a coveted follow from me."
Great point, we need a catalyst. Let's line it up! That catalyst we think is inflation and now we think (based on the dollar) investors are finally paying attention.
If inflation reports higher than expected, investors are finally ready to pay attention.
Inflation has been the most underfollowed metric for risk. It's about to go front and center. While everybody was thinking deflation, inflation has been picking up. Now that investors are telling you that through the dollar post-Fed meeting, you have an important metric that could do damage to markets.
The dollar said a lot last week. Here's what the dollar said:
"Investors sold me last week because they think the Fed is behind the curve. They think it's going to take more of me to buy things as inflation is out of the cage after no more rate hikes."
You now heard what the dollar was saying last week.
This is hinting to you that foreigners are showing early early signs of getting restless. Bad inflation news (PCE this week) could confirm their greatest suspicions that the Fed is now behind the curve (thus the dollar drop last week).
Let's go step by step.
US in real terms also has negative rates
We think that the US is quickly going to be seen as "sporting" (our new favorite analytical word) the LOWEST interest rates in the world.
Elazar how can it be? They are riproaring at 1.5%. All other economies are "sporting" negative rates?
Great question. Let us explain.
Right here you see the US 10 year Treasury yield at about 1.5-1.6%. Right?
Click to enlarge
Above you see the US 10 year treasury at 1.6%.
How do we calculate real interest rates?
Real interest rates are rates minus inflation.
Let's do the math.
Rates are 1.6%. Great.
What is inflation?

Chaim Siegel has been working with hedge funds and mutual funds as an analyst and PM his entire career. Chaim specializes in earnings and predicts, analyzes and reacts to earnings and earnings events as well as developing current company stories with a hedge fund perspective. If you want his analysis real time sign up to the right for real time email alerts. #in, $spy, $qqq, $iwm, $vxx, $ycs, $fxe, $EUO, $YCS, ^GSPC, INDEXSP:.INX, #elazaradvisorsllc, CME Globex: ES Disclosure: These trades can lose you money and principal especially when using leverage BY USING THIS SITE YOU AGREE TO TAKE ALL RESPONSIBILITY FOR YOUR OUTCOMES AND LOSSES AND HOLD BESTIDEAS, ITS CONTRIBUTORS AND ELAZAR ADVISORS, LLC HARMLESS

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