Randy Woodward

Friday, January 10, 2014

10yr to 2.87%, attached is the 10yr intraday yield over the past 10 trading days.

Randy Woodward

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Terrible employment numbers, 10yr treasury trading higher taking yield to 2.89%

· Non-farm payrolls came in at 74k, with 197k expected. However, last month was revised from 203k to 241k.

· Unemployment rate improved to 6.7% from 7.0%.

o However, the participation rate fell back down to 62.8%, which is a 36yr low.

o 347,000 people left the labor force. We have no idea why, but that’s what caused participation to fall, and unemployment rate to improve.

o So make no mistake, this will NOT meet the Fed’s “qualitative” component of improving employment.

· Average weekly hours worked fell back to 34.4 hours from 34.5.

· With all that said, several “experts” on CNBC said we should just ignore these numbers. They aren’t right and they’ll all be revised better next month.

o Which makes me ask, then why don’t we JUST report revised numbers and ignore the current numbers?...by the rational!

Reaction my markets. Bonds immediately traded higher, but so did stocks because it will be assumed that this “may” cause the Fed to pause their tapering. Because central bank money creation will solve everything.

Randy Woodward

Thursday, January 9, 2014

Non-Farm Payrolls come out tomorrow which always has the potential to move markets.

Here is a look what analysts are expecting from Bloomberg surveys. Note that Bloomberg has added a “rank” column showing you who has the best track record in predicting this particular metric. 195k to 200k is the consensus. Keep in mind the ADP estimate from this past Wednesday was 238k.

Randy Woodward

Perspectives - Many "experts" are calling for higher US Treasury yields. I don't believe so.

I can give a myriad of reasons why I don’t believe this will happen, but I thought this simple demonstration was quite powerful. Below is a list of 10yr sovereign bond yields for major countries around the world. Let me point a few out, look at France at 2.572%, Italy at 3.925%, Spain at 3.802%. These three countries in particularly are staying straight down an economic abyss. Citizen confidence levels in each of these counties have cratered since 2008 to levels not seen any time in the recent past. Unemployment, particularly youth unemployment, have been skyrocketing reaching new highs each month. Spain’s 10yr got as high as 7.621% in 2012, and now it’s at 3.802%, and things have only worsened in that country. With that said, there is just no way US treasury yields are going to climb any closer to that of these countries. And I also believe that’s why every time the US 10yr hits 3.00%, buyers come in and bring that yield right back down. AND, you just wait until a crack appears in Europe, which I believe it will. Sooner or later, the realities in Europe are going to service, and there is going to be massive selling in European debt, and it will all come this way to the US.

I’m obviously an outlier, but if/when the “catalyst” comes, I think we’ll test 2% on the US 10yr again. And I think it could come this year.

Randy Woodward

Tuesday, January 7, 2014

Yields Update - 10yr yields have fallen slightly over the past few days, currently at 2.939%

As you can see from the graph below, the 10yr treasury has been trading in a range of about 2.60% to 3.00% since June. The 3% level has proved a solid resistance on several occasions. “If” we were to get through 3%, I believe 3.25% would be the next resistance level. However, I think it will take some kind of “catalyst” to push us through 3%. In the meantime, I think we’ll remain in the range. And given we are at the high end of the range, I believe now is a good time to put “some” money to work. The most popular product, and the one I recommend the most, are 2yr+ seasoned 15yr MBS with modest premiums or discounts. Randy

Randy Woodward
Managing Director, Fixed Income Capital Markets

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Crash Predictors - Does the current relationship between stock prices and commodities prices predict a crash to come?

This is the S&P graphed against the CRY (Commodities) index. One would think if companies equity prices are up, they are making more money buying selling more product. And if they’re selling more product that should also be producing more product. And if their producing more products, they should be buying more commodities to make the products. However, as you can see in this graph, commodities prices have been steadily declining over the past 3 years. Also note the spread graph in green. I don’t think it’s a coincidence that the spread of the S&P over the CRY index spiked in mid-2000, mid-2007, and has not spiked to levels never seen before. How much longer can this relationship proceed. Either commodities prices need to spike because of the demand to produce, which we know is simply NOT the case, or stock prices must correct. A correction is coming and this is one of many metrics I believe demonstrates it’s overdue and severe.

Randy Woodward

S&P graphed against NYSE Total Margin Debt. All time high Margin, all time high risk when it turns.

Randy Woodward