As I stated in last week’s CoT report post; I enjoy Mr. Paban Raj Pandey ‘s website, Hedpoia, thoroughly. Therefore, I am forwarding/posting his analysis of the Commitment of Traders report each weekend. With the end-goal to gain further skills in the market commentary as Mr. Pandey exemplifies each week at Hedgpoia.
Righto, off we go.
10-year note: Currently net long 44.7k, up 30.4k.
The Fed and the Administration are not on the same page when it comes to expected growth in the U.S. economy. One is way too optimistic than the other.
The FOMC this Wednesday raised the fed funds rate by 25 basis points to a range of 1.25 percent to 1.5 percent. Beginning in January, the Fed would also step up the monthly pace of shrinking its balance sheet to $20 billion from $10 billion, as scheduled.
Per the dot plot, the median estimate for economic growth next year jumped to 2.5 percent from 2.1 percent.
This follows actual growth of 3.3 percent and 3.1 percent in the last two quarters. As of Thursday, the Atlanta Fed’s GDPNow model put 4Q17 growth at 3.3 percent.
FOMC members, however, view this recent surge in growth as transient.
They expect growth to come back down to 2.1 percent in 2019 and two percent in 2020, and, importantly, their median forecast for long-run expansion was left unchanged at 1.8 percent. This massively diverges from what the Trump administration expects – GDP growth to increase gradually to three percent by 2020.
In all probability, even after proposed tax cuts are signed into law, the Administration’s forecasts are pie-in-the-sky optimism.
Going all the way back to 2Q47, GDP growth has averaged 3.2 percent. And post-Great Recession, growth has only averaged 2.2 percent. Sustained growth in the three-percent range would be welcome, but this late in the cycle to expect one would be unrealistic.
30-year bond: Currently net long 100.9k, up 26.4k.
Major economic releases next week are as follows.
December’s NAHB housing market index is scheduled for Monday. Builder sentiment rose two points month-over-month to 70 in November. March’s 71 was the highest since 72 in June 2005.
Housing starts for November come out Tuesday. Starts surged 13.7 percent m/m in October to a seasonally adjusted annual rate of 1.29 million units. In October 2016, they reached 1.33 million – the highest since August 2007.
Existing home sales for November are on tap Wednesday. October sales rose 2.1 percent m/m to 5.48 million (SAAR). The cycle high 5.7 million – the highest since 5.79 million in February 2007 – was reached in March this year.
GDP (3Q17, final estimate) and corporate profits (3Q17, revised) will be reported Thursday.
The second estimate showed real GDP grew 3.3 percent in 3Q17.
Preliminarily, 3Q17 corporate profits adjusted for inventory valuation and capital consumption increased 5.4 percent year-over-year to $2.22 trillion (SAAR). Profits peaked at $2.23 trillion in 4Q14.
Friday brings durable goods (November), personal income and outlays (November), new home sales (November) and the University of Michigan’s consumer sentiment (December, final).
Orders for non-defense capital goods ex-aircraft – proxy for business capital expenditures – jumped 9.3 percent y/y in October to $66.9 billion (SAAR). After peaking at $70.3 billion in September 2014, orders bottomed at $59.9 billion in May 2016. October orders only inched up 0.3 percent m/m.
Core PCE – the Fed’s favorite measure of consumer inflation – rose 1.4 percent y/y in October. The last time this metric grew with a two handle was in April 2012.
October new home sales jumped 6.2 percent m/m to 685,000 units (SAAR) – a decade high.
The preliminary estimate showed consumer sentiment fell 1.7 percentage points m/m in December to 96.8. October’s 100.7 was the highest since 103.8 in January 2004.
Crude oil: Currently net long 654k, down 785.
The 100-mile-long Forties pipeline – the North Sea’s most important, transporting 450,000 barrels per day – was shut down for at least a couple of weeks after Ineos, the owner, discovered a widening crack.
Crude oil was bid up on the news, but both spot West Texas Intermediate crude and the Brent were unable to hang on to the gains.
The WTI ($57.33/barrel) in particular has made lower highs since peaking at $59.05 on November 24. There is currently a tug of war between the bulls and bears around shorter-term moving averages. The former camp cannot afford to lose support at $54-55. The 50-day lies at $55.12.
Non-commercials hold near-record net longs. The risk at this stage is if and when they decide to unwind.
In the meantime, as per the EIA report for the week of December 8, U.S. crude production continued to increase – up 73,000 b/d to 9.78 million b/d. Since OPEC and Russia reached a deal in November last year to cut production by 1.8 mb/d, U.S. production has gone up by 1.08 mb/d.
Gasoline stocks rose as well, up 5.7 million barrels to 226.5 million barrels. Ditto with crude imports, which increased 161,000 b/d to 7.36 mb/d.
Refinery utilization inched down four-tenths of a point to 93.4 percent.
Distillate stocks, however, dropped 1.4 million barrels to 128.1 million barrels. As did crude stocks, which fell 5.1 million barrels to 443 million barrels – the lowest since October 2015.
E-mini S&P 500: Currently net long 67.7k, down 99.2k.
Flows continued to stream into S&P 500-focused ETF’s. In the week ended Wednesday, SPY (SPDR S&P 500 ETF) took in a massive $11.4 billion (courtesy of ETF.com). Another $935 million went into IVV (iShares core S&P 500 ETF), and VOO (Vanguard S&P 500 ETF) attracted $539 million. This followed combined inflows of $6.4 billion in the prior week.
The cash (2675.81), essentially flat through Thursday, rallied 0.9 percent Friday on signs the tax measures would go through.
Interestingly, before this, non-commercials cut back big.
Also in the week through Wednesday, U.S.-based equity funds lost $16.2 billion. This followed inflows of $32.4 billion in the prior nine (courtesy of Lipper).
Elsewhere, XLF (SPDR financial sector ETF) produced a back-to-back spinning top candle. It is looking tired. Financials represent 15 percent of the S&P 500, second only to information technology’s just under 24 percent.
Euro: Currently net long 113.9k, up 20.8k.
The impetus that makes you fly is our great human possession. Everybody has it. It is the feeling of being linked with the roots of power,but one soon becomes afraid of this feeling…That’s why most people shed their wings and prefer to walk and obey the law.” (Herman Hesse, Demian )
The twentieth-century psychologist, Abraham Maslow, was convinced that within us all exists an impulse to achieve greatness and a desire to move toward what he called our “highest possibilities”.
Few among us achieve anything of great worth. While there are various reason for this, one of them, according to Maslow, is that we simply fear our greatness more than we desire it.
We are generally afraid to become that which we can glimpse in our most perfect moments.. We enjoy and even thrill to the godlike possibilities we see in ourselves.. And yet we simultaneously shiver with weakness, awe, and fear before there very same possibilities.” (Abraham Maslow, The Farther Reaches of Human Nature)
Maslow called this fear of greatness, The Jonah Complex, in reference to the biblical character Jonah who attempted to flee from the fate bestowed upon him by god.
What is the driving force behind this psychological fear? How can we overcome it?
In his book, Art, and Artist, Otto Rank agreed that human beings are driven by two fundamental fears; Fear of Death and Fear of Life. The former, according to Rank, is not merely a fear of our physical extinction.
We also fear a form of psychological death, which occurs when we conform so fully to societal norms that we lose our individuality. Rank describes this fear as one that propels us to differentiate ourselves by actualizing our potentials that make us unique. It drives us to Exist, in the Latin sense of the word. That is, “to step out, stand forth, emerge, appear.”
Standing out too much, however, can stimulate feelings of loneliness and isolation. The more we individuate the more we lose the comforting protection of the crowd. And it is this fear of standing alone that Rank characterized as, The Fear of Life.
This fear, Rank argued, drives us to reestablish a greater connection with society by way of conformity and reject much of what makes us unique.
This life of each person alternates between the impulse to individuate driven by the fear of death, and the impulse to conform driven by the fear of life.
“Between these two fear possibilities, the ind visual is thrown back and forth all his life. (Otto Rank, Will Therapy) “
For most of us, the fear of life predominates over the fear of death. We are more afraid of standing out, daring to be different than we are of relinquishing our individuality. This analysis of Rank’s argument suggests at its root our fear of greatness is a fear of life. A fear of standing alone and a fear of separating ourselves from the masses.
For as Frederic Nietzsche oftener likes to remark:
“The concept of greatness entails.. being able to de different. (Nietzsche, Beyond Good And Evil)
However, a fear of life isn’t all that is inhibiting us from actualizing our potential.
Colin Wilson, a prolific writer on the matter in the twentieth century suggested that an “insignificance neurosis“ permeates modern society. Acting as an additional barrier to the cultivation of one’s greatness.
Wilson observed that much of the twentieth century thought was dominated by what he called,”the unheroic hypothesis”. Which he defined as, “the sense of defeat, or disaster, or futility, that seemed to underlie so much of modern writing. (Colin Wilson, The Age of Defeat) . In answering the proverbial question, Is man more akin to a god or a worm? Wilson thought that the modern world instilled in the individual that we are much closer to the worm, thus helping explain the average tendencies to expect a life far below their potential.
Abraham Maslow, a friend to Wilson, came to very similar conclusions. Maslow made a habit of asking his students who among them would write a great novel or become a great leader or composer and undoing so discovered that;
“Generally, everybody starts giggling, blushing, and squirming until I ask. ” If not you, then who else?” Which of course is the truth.. If you deliberately plan to be less than you are capable of being, then I warn you that you’ll be deeply unhappy for the rest of you life. You will be evading your own capacities, your own possibilities.” ( Abraham Maslow, Farther Reaches of Human Nature)
Maslow thought the anxiety displayed. Y his students were the result of an inability to fathom the god-like possibilities within ya for too long. Without succumbing to the fear that such arrogance could lead to unhealthy dilutions of grandeur. As a result of this fear, people tended to the opposite extreme and view themselves as more analogous to that of a worm. Incapable of achieving anything of significance.
Maslow, however, believed that both extremes, seeing oneself as a god or a worm were equally detrimental. He, therefore, advised that we find the “Golden Mean” or middle way. To overcome our fear of greatness, we must learn to move bodily toward our goals, while simultaneously maintaining humility in the awareness that we are all, after all, “human, all too human.” Or as Maslow explained:
For some people this evasion of one’s own growth, setting low levels of aspiration, the fear of doing what one is capable of doing, voluntary self-crippling.. are in fact defenses against grandiosity, arrogance m, sinful pride, hubris. There are people who cannot manage that graceful integration between humility and the pride which is absolutely necessary for creative work. To invent or create you must have the “arrogance of creativeness” which so many investigators have noticed. But of course, if you have only arrogance without the humility, then you are in fact [delusional]. You must be aware not only of the god-like possibilities within but also of the existential human limitations… If you can be amused by the worm trying to be god, then in fact you may be able to go on trying and being arrogant without fearing [delusions of grandeur].. This is a good technique.” ( Abraham Maslow, The Further Reaches of Human Nature)
In European Equity Markets stocks fell on Friday, weighed down by weakness in the heavyweight banking sector and a decrease in retail stocks following a disappointing trading update from fashion brand H&M.
Via Mr. Sanders of Snake Hole Lounge
The pan-European STOXX 600 lost 0.2 percent at the end of the session and posted a 0.3-percent fall over the week as resurfacing worries over political risk spurred profit-taking and offset continued optimism in the region’s economic recovery. H&M lost 13 percent, leading losers on the STOXX, after the world’s second largest fashion retailer reported an unexpected decline in quarterly sales as fewer shoppers visited its stores. The stock hit its lowest since April 2009 and posted its biggest one-day loss in 16 years.
In Currency Markets the U.S. dollar rose on Friday as Republican negotiators in the U.S. Congress put the finishing touches on a sweeping tax overhaul, raising expectations that the bill would be passed by year-end.
The dollar index was last up 0.27 percent to 93.745.
The euro was down 0.03 percent to $1.1774.
The New Zealand dollar rose 0.36 percent after the country’s Finance Minister Grant Robertson said he was comfortable with the currency’s general trend.
Against the Japanese yen, the dollar rose 0.27 percent to Y112.69.
Sterling declined 0.75 percent to $1.3330.
The Australian dollar was steady, with Aussie at $0.7665.
In Commodities Markets oil prices were mixed on Friday, lingering below two-year highs on Friday as the continuing outage of a North Sea pipeline and OPEC-led production cuts supported prices, while climbing U.S. output kept a lid on gains.
Brent crude futures were down 4 cents at $63.27 a barrel.
U.S. West Texas Intermediate crude futures were up 25 cents at $57.29 a barrel.
WTI hit a two-year high of $59.05 on Nov. 24.
Gold prices were roughly unchanged on Friday as gains were capped by a rise in the dollar amid growing investor optimism on tax reform.
Gold futures for February delivery rose by 0.04 percent, to $1,257.60 a troy ounce.
Silver futures rose 0.85 percent to $16.07 a troy ounce.
In US Equity Markets major indexes scaled new heights on Friday, with all the major sectors pushing higher as the long-awaited bill to lower corporate tax rates enters the final stretch.
The Dow was up 0.6 percent, at 24,655.56.
The S&P 500 was up 0.84 percent, at2,674.4.
The Nasdaq Composite was up 0.99 percent, at 6,924.30.
Financial stocks rose 1.11 percent, led by gains between 1.2 percent and 1.7 percent in the six biggest U.S. banks.
While the technology sector also gained, one notable decliner was Oracle The software maker fell 4.34 percent after it gave a disappointing forecast for its cloud business.
CSX fell more than 8 percent after the railroad said its Chief Executive Hunter Harrison was taking medical leave, amid its controversial turnaround plan.
In Bond Markets Greek 10-year government bonds yields hit an 11-year low on Friday, as recent upbeat economic data and a deal struck with its lenders encouraged investors to snap up Greek debt.
Italy’s 10-year bond yields, trading at 1.80 percent , looked set to end the week around 21 basis points higher, its biggest weekly jump since early July.
Benchmark 10-year notes last fell 9/32 in price to yield 2.3762 percent, from 2.346 percent late on Thursday.
The 30-year bond last fell 5/32 in price to yield 2.717 percent, from 2.71 percent late on Thursday.
Have a nice weekend. (Self)