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Yields are rising: *TREASURY 10-YEAR YIELD RISES TO 4.365%, HIGHEST SINCE 2007* so ran the Bloomberg headline. And it’s not just the 10-year. There’s heat in the pipes. As the gaze falls on the colour of Powell’s tie, his gait and general demeanour in the face of a no-pat move on rates today, some analysts are getting a little itchy over where yields might be heading in the face of the waves and waves of supply. Said analysts speak of the US Treasury needing $3.1 trillion over the next two years. It will also need to replace a further $ 3 trillion of maturing Treasuries. And this at a time when the Fed, China, and possibly even Japan, are out selling in size. There’s a risk of labouring the point, but the numbers are spell binding. The same analysts also point out a slightly numbing development with what’s been happening in the murky depths of the financial system known as the reverse repo account, essentially an account where institutions can park money with the Fed and get paid some interest. This amounted to, at it’s peak, about $2.6 trillion. So quite a lot. This $2.6 trillion was effectively just sitting there, out of the system. All good, until that is, up to the point when the interest paid on such reserves slipped below that what institutions could get elsewhere. And so it’s leaving. Up and off, most likely ending up meeting the supply of Treasuries, the latter still regarded as something of a risk free asset: ‘Over the past month the incremental issuance of Treasuries has matched the withdrawals from the reverse repo‘. Hmm. The Treasuries are being issued to fund all the deficit spending and so that cash once sitting idle gathering dust, now ends up sloshing into the economy. This is clearly inflationary. But it’s also a one off, just like the open spigots on the SPR. The reverse repo account will soon be depleted. What happens to yields then? Where are the buyers? ‘The system is surreally bad’ the analysts conclude. As ever, the bond market is the one to watch.

To the backdrop of trumpets and ticker tape, APPL launched it’s latest series of glitzy iPhones last week. The much anticipated improvements to the new gizmos appeared to be confined to the camera, the battery and some minor software improvements. And little else. Bar perhaps a titanium case and screen that pushes a little bit further out, thereby taking off the edges, if that’s enough for you to hand $1000 and change. Or more than the equivalent of four months repayments on the average student loan, as reported today in the WSJ. There was also a new charging port, but there was no accompanying drum roll given it was a development less to do with some clever R&D and more case of the EU telling them to stop being mean and put in something everyone can use. Lots and lots of comment then followed. Whichever way you go, the facts are the smartphone market is in decline. Those who want one, have one. According to International Data Corp, shipments are down, and down to the lowest level in a decade. The problem for APPL, and other richly valued tech names, is that valuations are up, but all too often growth is not. It’s down. When you get so big, the numbers start to look a bit more challenging. Which matters given the concentration is many of these names. The Information Technology sector is rumoured to be almost 30% of the S&P 500, and that’s with the likes of Alphabet and Facebook sitting in another camp. So too, for that matter, AMZN, Tesla and Netflix. Slice and dice it how you want, but owning the the broader index in any sort of passive way then, is some bet on a sector whose make up is starting to run. This concentration of capital has meant that other sectors, notably resources, have been starved of it. The energy sector, arguably as important to the health of the economy as being able to have Big Macs and buckets of deep fried chicken delivered to your front door, is just 5% of the index. And 5% going into a supply crunch. As the IPO market reopens and the likes of Instacart go public at valuations that pale in comparison to what many bulled-up VCs piled into during the reckless age of free money, the cheering and whooping on the opening bell may be a tad hollow and offers a hint, a whisper, that the sands are quietly shifting. An era is ending. Higher rates do matter. So too do valuations. That 30% weighting for IT is not likely going to 40% any time soon. Not in a world of structurally higher everything. Higher for longer. All round. Bar, perhaps, certain share prices.

There appears to be a brewing pot of hope that come October’s earnings season companies are – in the round – going to deliver some earnings growth. Not negative growth, or flat. Up. Proper growth. So the, always in-it-to-win-it Wall Street analysts, seem to think. This would certainly be helpful in shouldering some of the unexpected YTD gains; a ballyhoo that has been driven by a small number of stocks and left the market multiple a squidgy 18.7x earnings for the all-inclusive buffet that is the S&P 500. That said, whilst earnings may sugar-dust the pie, there remain looming headwinds from the resumption of student loan repayments, high energy prices and mortgage rates that bulge the eyes. Any sustained move up from here then – say UBS – needs some collective oomph in those earnings numbers coming down the pipe. Amen to that. It is though, also the time of year when the Congressional air crackles with spittle and hot talk of government shut downs. Revved up by a summer off, Democrats and Republicans are – once again – set to take it down to the wire on the passing of a new budget. Box-office for those who like a political jelly-wrestle, but a sticky set-to given the rather inconvenient fact that the deficit for the fiscal year – according to the Congressional Budget Office – is projected to be $1.7 trillion. And it would have been a whole lot worse had the Supreme Court not reversed the benevolent President’s plan to forgive student loans. Like nudging $2 trillion. Holy. Moly. Within the August report lay one further salty fact. Albeit amongst many other salty facts. Interest payments on federal debt are up 30% from last year, and closing in on the entire national defence budget. Interest payments. Basically a third of the budget is used to pay the interest on all the money borrowed to fund prior years’ fiscal largesse. And this obscene deficit comes at a time when the economy is broadly doing OK, and when spending from the Inflation Reduction Act and other plans is set to accelerate in the years to come. It’s all a bit like the mother-in-law’s chocolate gateaux being served half frozen and everyone just carrying on: nodding, and smiling, eyes slightly glazed, nothing to see here. The sticky question remains: who is going to fund it? Overseas investors? Mom and Pop? Perhaps Warren Buffet. He is usually good for it when the gateaux hits the fan. Or will those printing presses need some WD40? Answers on a postcard.

High-fiving by the water coolers in the Eccles building may have a little more oomph, a little more follow-through, perhaps even, a bit more up through the thighs: SMACK! And grins all round. The reason, is that there appears to be a growing sense of the FED’s grand plan coming together, inflation is almost tamed, the much doubted soft landing is in sight. See Walmart cutting pay for new starters for, umm, starters. Indeed, recent data points to further evidence of the sort of easing the policy makers want to see: job openings – down, participation – up. All good. Gauging the state of the nation’s labour market is notoriously a bit wet-finger-in-the-air, and the data is prone to several revisions, but as it stands, per the WSJ, there is now a ‘Shift seen in the Fed officials rate stance’. No longer up, more let’s wait and see. No more rate hikes is good news for everyone, hence a little more post-holiday vim all round. That said, deeper into the WSJ there’s a report on how those drilling for oil and gas in the shales are struggling. Fields are maturing. Growth is falling. Since the ending of the one-off liquidation of various strategic petroleum reserves, the prices of crude has rallied. There’s a thing. Whilst the price has been up and down, and the narrative been one of recession, commercial inventories have remained tight over the past 12 months. And consumption is robust. One of the key long-term considerations for demand, which even the IEA seem to miss, is that 17% of the world’s population gobble up 170GJ per person of primary energy. The rest – which is about 7 billion people – use just 60GJ. And every year millions and millions more people start gobbling up more primary energy, moving from emerging market to lower-middle income energy consumers. And will continue to do so for years to come, irrespective of what the G20 say. With demand going up then, supply needs to keep pace. But it isn’t. As per the WSJ article, the shales are getting drilled out. Outside the Permian, production has not grown in three years, and even the massive Permian Basin whilst still growing is expected to plateau next year, and then start falling. The only source of non-OPEC growth is tapping out. No wonder the Saudis are more confident at extending their production cuts, no longer fearing, perhaps, the loss of market share. That and perhaps not having as much in reserve as many people think; but that’s a separate issue. With the Northern hemisphere winter looming there’s a quiet thud-thud-thud of an inflationary pulse that can be heard across the energy complex from crude oil to natural gas. Those smiles in the corridors of the Eccles building may yet fade.

On a day when newspapers report that next week’s UK government auction for off-shore windfarms has attracted zero bids, Cameco, the one-stop-shop to play the nuclear renaissance barrels through high after high, with a chart that speaks of a fuse being lit. The uranium market is small, it’s also opaque, and yet analysts talk of a pivotal moment, an inflection point, a dramatic change in fundamentals that will result in a ‘chaotic’ move to the upside. The 60% YTD romp in the industry gorilla CCJ is but a baby-bull, a whiff of cordite, a mere 3-iron off the tee. The reason perhaps for the renewed interest is that for the fist time in history, models are suggesting that the market has slumped into a structural deficit. There is not enough to go round and utilities, that have long grown accustomed to years of plenty courtesy of the surpluses post the 2011 meltdown of the Fukushima Daishi reactor, are about to get one on the nose. For years Europe and the US have been de-commissioning reactors, with energy policy apparatchiks wet-lipped at the promise of wind and solar power, but the fall out of Russia’s blitzkrieg on Ukraine has left many mandarins uneasy of long-term energy security. Some countries are now moving fast. See Sweden for details. By the end of this year it has been suggested that commercial inventories will be run down, the shelves all but empty, with stocks covering less than 18 months of reactor demand. The last time this happened was in the mid 2000s when prices exploded higher. Looking out a decade and the supply deficit only gets worse, with some whispering that the cumulative deficit will exceed 250m lbs. This is bad news for utilities that are woefully under-contracted post 2025 and is a deficit of eye-popping proportions given growing worldwide demand. The emergence of a number of financial vehicles that have quietly launched over recent years adds a whole lot more flavour to the soup. Indeed, news that Cathie Wood’s ARK Investment had been buying Cameco raised more than a few eyebrows over the summer and whilst such news means absolutely nothing, and could be spun a variety of ways, the short TSLA, long CCJ trade is surely not one that many have on in size. ‘Electric vehicles lose their spark’ reads another headline in the same newspaper paper. Hmm. One makes fancy cars the vast majority of the world can’t afford, the other is a key supplier to the only source of zero-carbon, baseload energy. Pick your horse.

$3 trillion market cap is a whole load of market cap and yet, APPL, is a stock that just goes up; up and up it goes, fuelled by momentum, price blind algorithms and retail buying that has made it all but a one-way trade. Active money, put off by a near pink-in-the-face multiple and negative earnings, gazes on, slack-jawed hoping valuation does, at some point, matter. And there’s hope. As fundamentals start to fray at the edges analysts have quietly been pulling back forecasts. Goldman Sachs, notably, the latest to do so poked, perhaps, by Foxconn’s recent gloomy guidance and comments that “the pandemic-spurred high growth period has come to and end”. Foxconn puts together about 70% of all iPhones. Much has been written about the shape of the market’s bear-defying pimp higher YTD, led by a narrow cut of stocks, of which APPL is just one. And yet, with the top ten names of the S&P muscling up to more than 30% of the index, as selected stocks have smashed through all-time hights, their earnings contribution has collapsed. Like APPL. See a recent note from JP Morgan for details, but the beef seems to suggest the recent run is going to come under some heat into the second half of the year. More so when readings of tech stock sentiment relative to the market sit at the highest level in twenty-three years. “When all the experts and forecasts agree, something else is going to happen” so said Wall Street legend Bob, good-for-a-quote, Farrell. Hmm. Tick, tock. Tick, tock. In other news, for those flicking between Sky Sports and RT – the ever so slightly one-eyed state controlled Russian TV network – events at Headingly were potentially put into perspective last week, with a meaty announcement that the BRICs were indeed planning to introduce a new trading currency backed by gold at the upcoming August pow-wow. This had previously been a suggestion that had only been made by gold bugs, late at night, eyes glazed and breath stinking of bourbon; and whilst it was made by state controlled Russian TV so should perhaps carry the same weight, it’s a story that won’t go away. Who knows. Also last week: Japan. For those getting a little tight over the inflationary pulse in Japan and the potential for a ruckus in the Yen, last week’s nominal wage data was another holy moly. If you missed it, the data came in hot. Hot, hot, hot, ushering in a potential ‘Ay caramba’ moment for those loose-limbed money men at the Bank of Japan. Mind the eye.

It is whispered that the all-in hoo haa seen across risk assets this year boils down to positioning. The doom-laden calls of many high-end strategists at the turn of the year, scarred by the rough and tumble of a 2022 defined by losses, the call was of recession. Woe. More losses. Not so. Up we went. And yet now, per the BAML Fund Manager survey, positioning can loosely be defined by long US duration with a generous side serving of bonds. Commodities have been rinsed; speculative positioning is short. And ‘value’ is no longer on the lips of those sipping overpriced cocktails at the pool bar. No wonder when stocks like NVDA and META are up 100% plus. The upside surprise has in many ways been cathartic, the boom is back; and retail money is coursing into stocks. With the money mandarins confidently plucking the strings, this still hasn’t put off those analysts touting a more cautious line off the tee. One of which is due to mortgage rates closing in on cycle highs, north of a stomach turning 7%. Treasury yields also remain elevated which matters if history is anything to go by. A steady stomp-stomp hike up in yields hits economic indicators roughly 18 months later; and the longer they mooch around at the top, the longer the recession. Nice. All told, they whisper with darting eyes, the full-face impact of the FED’s inflation busting moves will be felt in 2024. That may be so say the bulls but the US economy is doing A-OK, inflation is easing and everyone who wants a job, can get one. Talk of catastrophe remains just that. Indeed, watch Japan, say the eyes; where core inflation is still rising, and speculators are massively short the yen. For the new man at the BOJ, letting inflation expectations bed in further whilst core measures scream higher, is a buttock clenching game of ‘are you there Moriarty?’ The repatriation of all those overseas assets – specifically US Treasuries given the massive issuance coming due – could quickly pull the shorts off those speculative shorts. Here’s hoping they’re wearing pants. For those who identify neither as a bull nor a bear, positioning across thin summer trading is likely to matter more than ever.

Yikes. No one likes surprises, no one. Especially when it comes to the financial guidance on next year’s earnings. It is, then, well, no surprise to see the shares of Siemens Energy getting properly smoked. Walloped. The problem is at the group’s wind turbine business, and the problems, well, there are many. The profit guidance, beloved of sell-side analysts, got canned. Management, through thin lips, talked about how “bitter” it was that they will need to spend more than €1bn fixing a whole bucket of stuff. The bucket included. Many of the issues were thought to be getting better, but they are not. Indeed, the company has been plagued by issues from blades plunging to the ground, refusing to move, or taking out unsuspecting wildlife. There have been strikes, plant closures and supply chain horrors. Lawsuits swirl. Whilst wind power is hailed as a crucial component of the great energy transition a read-through of the problems at Siemens Gamesa is no confidence builder that net-zero is within reach. Which is why, perhaps, in the same week that it’s all gone wrong for shareholders, the Swedish Government took the eye-brow twitching move in announcing that it was scrapping its goal of 100% renewable energy. Out. No more. Wind and solar are basically too unreliable to base a country’s supply on. And so, they’re not. The savvy politicians are on it, and aware that the slack-jawed electorate want warm houses to lounge and chomp their way through Netflix’s increasingly uninspiring catalogue. What they don’t want, is black outs. It’s poignant that the renewable agenda was pioneered in the Nordic countries, but there now seems to be a general switching off from the idea. The answer, say the Swedes, is obvious: “Only a nuclear pathway is viable to remain industrialised and competitive” said an impassive Finance Minister Elisabeth Svantesson. Cameco, the Giant Haystacks of uranium miners, is up nearly 50% over the past 12 months, and pushing fresh record highs. Spot uranium is closing in on $60. Long-term contracts are flying. There is simply not enough around. The nuclear renaissance is here.

The prices of precious metals like gold and silver, have long been prone to manipulation by the dealing desks of nefarious banks who, every now and then, received a naughty-naughty wag of the finger from the high courts coupled with an easy-to-swallow fine. It has even been suggested that the nefarious banks are possibly acting on the instructions of money mandarins to suppress price discovery as they continue to torch their own fiat currency to finance ever increasing deficits. Hmm. The actions of largely Eastern Central Banks over recent years as they stack record quantities of gold. then, has stoked all sorts of wild-eyed theories: one of which is to create some sort of new currency backed by a shiny metal that has seen off many civilisations. Some commentators appear now to be quietly whispering that the BRICS+ may even use a pow-wow in the dog days of August, as a platform for a press conference of what would be, quite epic proportions. Hard to believe. The demise of the dollar has long been talked about but, thus far, there has been nothing really to change the status quo bar the odd lurid headline on Reuters. But that might be about to change, there being no better time to make such an announcement than when the moneyed Western elites are bobbing up and down in some azure bay with sketchy Wi-Fi, wondering whether it’s too early to open a bottle of rose. Aside from the potential bonfire of fiat currencies, the underlying fundamentals for silver, look particularly interesting. A precious and industrial metal, shunned by sane investors due to eye-watering volatility courtesy of the po-faced puppeteers – the market is currently being drained of physical metal at a time of rip-ripping demand. The impending deficit is colossal enough to have any politician up on their feet, fist-pumping and hollering approval. The demand is largely being driven by the steady drip-drip of eager government officials, announcing massive new investments into solar. Silver being a must-have component, in the must-have panels. There is no reward without risk, and in a market where many asset prices are looking bloated after a bullwhip YTD hee-haw, those who reach for a 1-iron off a tight lie may want to look no further than the precious metals. Particularly silver. Given the recent pull back now could, possibly be, the right time to take aim. Time will tell.

Goldman Sachs has its fingers in a lot of pies, and when it comes to ‘the macro’ has the resource and reach to have as an informed view as any. The complexity of cross-asset and, cross-border flows, warrant all sorts of intricate models, that are then distilled and simplified for the rest of us with the use of words and colours that are normally the domain of the climate-aware TV weather reporter. The bear-defying YTD romp in equities, led by the tech fuelled NASDAQ, has – one suspects – left many a money manager scrambling to buy some NVIDIA before month end, lest their investors start to question their talents in the half-year call. AI, as taxi drivers now tell us, is the next big thing. That said, according to Goldman, the easy money has been made, given how many clients are ‘long’. Sentiment is stretched, and stocks are overbought. ‘Lofty’, is the somewhat benign word they use given the potential loss of capital and impoverished retirement that beckons. Even the AAII Bull-Bear spread, a popular yardstick of how much clicking is happening at Robinhood, is at 1-year highs. Talking of Robinhood, 24-hour trading has just gone live surely indicating the boom times are back, ‘baby’. Hmm. Vanda Research also show that the retail money has been relentlessly driving markets higher YTD and, whilst still on the bull train, strategists there have started to whisper about when it’s time to short US equities. If they’re whispering it publicly, the official call is but weeks away. This should be news for all those boomers hooked on stocks and primed to buy any sell off, but for those uncomfortable with crowds, the taxi rank is full. Time to go. Or for those in the macro hut, time to short those overbought US stocks. It’s showtime.