On the day Mario Draghi announced that the ECB would launch a historic corporate bond monetization program, the first of its kind, we said that we expect bond yields to tumble imminently as the market frontruns the ECB's open-market purchases of corporate bonds and soaks up all available supply in the market. Not even we expected what would happen next though.
In order to gauge the ‘fair value” of home prices, we typically compare prices to the trend in income. The logic is simple – the more income one earns, the more housing he/she can access. However, prices will occasionally diverge from income, as we are experiencing now and clearly did during the early 2000s. As we have been arguing, home prices are currently overvalued - by our estimates 14% on a national level.
"...we’re in a phase where we’re realizing that the people who have been allocating capital thus far have done a horrendous job...the result is that most of the things we’ve funded are mostly crap and largely worthless."
The "smart money" have been net sellers of US stocks for the ninth consecutive week. Investors are positioning for a market reversal based on leveraged positions in volatility funds. Oil bulls never jumped on board the latest rally. The CS Fear Barometer remains elevated
The S&P 500 is stalling below 2085 as daily momentum for price action and especially market breadth is waning. Similar to early November, confirmation of a near-term S&P 500 peak could come on a close below rising channel support near 2028 with daily Williams %R moving out of overbought. This would place the focus on the 200 and 100- day MAs near 2017 and 1997, respectively, which are ahead of chart support at 1969- 1947.
"I’m not buying anything; I’m sitting on my hands and waiting. I would definitely sell this rally because it’s totally central-bank driven and has nothing or very little to do with fundamentals."..."The question everyone should be asking is what has really changed in the last three months? Global concerns, while slightly less, are still there."
"Three quarters of the previous selling of equity ETFs during January and February has been reversed in just three weeks. CTAs appear to have fully covered their shorts. Indeed both CTAs and Discretionary Macro hedge fund managers appear to be close to neutral right now... we conclude that the short covering phase that started a month ago is very advanced."
As Bank of America's FX quant strategist writes, "ahead of the Fed, the USD was already trending lower against 8 out of 9 G10 currency pairs with GBP being the only exception. The surprisingly-dovish Fed has only further accelerated the decline in the US dollar. The decline started in late January and has occurred during the critical local New York trading hours. The US hours downtrend looks likely to continue in the near future."
"Buyback blackout period starts Monday. An increasing number of S&P 500 companies will enter into their blackout period starting next week, about a month before the earnings season kicks into high gear in the third week of April." This is taking place as institutional clients have been aggressively dumping stocks for the past seven weeks, while corporations have been soaking up all this liquidating activity. Should the selling continue for yet another week, who will soak up the selling this time?
“As we’ve seen both Brent and WTI climb above $40 we have also seen the contango collapse. If we rally too high the contango will collapse further and the storage economics reduce -- that could trigger storage in tanks to be reduced,” increasing supply and putting pressure back on crude prices.
In a note that may have been quite prescient, BofA's HY strategist Michael Contopoulos released a note last night titled "Fed acknowledges global growth concerns… again", in which he said that "we have to admit; today’s dovish comments by Yellen took us by surprise" and adds that "although the market’s initial reaction was positive, we think the longer run impact of a very dovish message is bad for risk assets. In fact, we’re a bit amazed by the initial response from high yield today."