DoubleLine’s Jeff Mayberry and Samuel Lau in their review of the July 5-9 market activity take note of parallel performance by the stock market’s bond proxies, real estate and utilities stocks, with U.S. Treasuries, including the yield on Long Bond back below the “magical 2% number.” The week’s macro releases contained few surprises. The release of minutes of the Federal Open Market Committee turned out to be “a nothing burger.” For the Question of the Week, Jeff delves into the logic and usefulness of studying monetary velocity as an indicator of the economy in general and of inflation in particular. For the week of July 12-16, Jeff and Sam will have their eyes open for consumer and producer price index prints for June, jobless claims and retail sales. This edition of Monday Morning Minutes was recorded after market close July 9, 2021.

Monday Morning Minutes

MMM Episode 23: July 5-9 Recap, Question of the Week and Outlook

After reviewing the week’s positive performance for stocks, negative performance for bonds, a boring Beige Book and a limited crop of macro news, Jeff Mayberry and Samuel Lau turn to the Question of the Week (16:31): the ins and outs of bank debt, aka leveraged loans or senior loans. Credits in this $1 trillion+ market, Sam notes, sit atop their corporate issuers’ capital structures, in fact, “senior to bondholders, both senior and subordinated bonds.” Senior loans, he points out, are floating rate, potentially attractive in times of rising rates and economic growth. However, this asset class comes with unique features and risks not typically encountered with marketable securities, including trade settlements that can take up to two weeks. 
During the podcast’s review of market activity for the week of Oct. 18-22, Jeff takes note of the five-year Treasury yield (3:02) closing about 120 basis points and asks whether that will form the new floor for this part of the belly of the curve. In a related development, Sam also discusses “skyrocketing breakevens” in the Treasury/TIPS market. For upcoming macro news for the week of Oct. 25-29 (32:44), the podcast co-hosts will be on the lookout Thursday for the preliminary GDP release for the third quarter and Friday for the personal consumption expenditure deflator, the preferred inflation indicator of the Federal Reserve.

MMM Episode 38: Boring Beige Book, Interesting Loans and Skyrocketing Breakevens

Jeff Mayberry and Sam Lau spend the Friday before Thanksgiving recapping the continued weak path for energy in the markets and reviewing a light load of macro data for the week of Nov. 15-19. Sam cites speculation about tapping the Strategic Petroleum Reserve, discussed in last week’s episode*, as detracting from portions of the energy sector (2:38). Bitcoin, up about 100% on the year, was down for the week as a possible precursor to the crypto bounce that has come during holiday seasons (7:20). 

For the Question of the Week (14:07), Jeff and Sam break down the concept of financial repression, an intimidating moniker for a negative-real-yield scenario that functions as a tax on savers to the benefit of borrowers, particularly the government. Their deep dive includes discussion of the impact of such an investment environment (20:06) and coverage of some sectors that could provide positive returns (26:20), including a trio of previous QotW topics**: preferred stocks, closed-end funds and bank loans.

Jeff and Sam close the podcast by turning to the week ahead (31:39), including whether Jerome H. Powell will be enjoying Thanksgiving as the reappointed chair of the Federal Reserve or if he will be unseated by Lael Brainard (36:50). Betting markets favored Powell at about 60-40 at the end of the week. This episode was recorded Nov. 19, 2021.

*MMM Episode 41: Broad, Sticky Inflation and the Not-So “Strategic” Petroleum Reserve

https://doubleline.com/podcast/mmm-episode-41-broad-sticky-inflation-and-the-not-so-strategic-petroleum-reserve/

**Questions of the Week

Episode 26 Preferred Stocks

https://doubleline.com/podcast/mmm-episode-26-july-26-30-recap-question-of-the-week-and-outlook/

Episode 28 Closed-End Funds

https://doubleline.com/podcast/mmm-episode-28-august-9-13-recap-question-of-the-week-and-outlook/

Episode 38 Bank Loans

https://doubleline.com/podcast/mmm-episode-38-boring-beige-book-interesting-loans-and-skyrocketing-breakevens/

MMM Episode 42: Waning Energy, Crypto Holiday Chatter and Financial Repression

After their review of stocks, bonds, bitcoin and commodities for the week of Dec. 6-10, 2021, cohosts Jeffrey Mayberry and Samuel Lau peruse the latest readings of jobless claims and the Consumer Price Index (7:31). Taking note of the rise in stocks Friday on the heels of the CPI’s 6.8% year-over-year increase in November, Jeff notes “maybe the market was expecting a higher print,” adding that a minimal month-to-month rise would push the CPI to a 7.0% gain or higher for December. For their Question of the Week, Jeff and Sam explain the use of federal funds futures pricing in deciphering market expectations for the direction and level of that official short-term interest rate (12:06). They also delve into tools based on fed funds futures pricing to handicap changes in that interest rate, including the Chicago Mercantile Exchange’s CME Fed Watch Tool and Bloomberg Financial’s World Interest Rate Probability (WIRP) function (17:13). Looking ahead to the week of Dec. 13, Jeff and Sam discuss the “big meeting” of the Federal Open Market Committee on Wednesday (28:05) with its prospects of embarking on aggressive tapering to quantitative easing in an effort to reach an end to the Federal Reserve’s bond buying in March 2022.

MMM Episode 44: Of Jobless Claims, Prices and Reading the Fed Funds’ Tea Leaves

After running down market and macro news in the face of threatening moves by Russia toward Ukraine, Jeff Mayberry and Samuel Lau look at the sanction responses by the West after Russia’s invasion as their Topic of the Week (17:55). This episode was recorded Feb. 25, 2022. They cover the initial sanctions by various countries and the EU, including restrictions on banking and limiting access to key technology; which parties are already calling for ratcheting up those sanctions or employing additional measures, and what form those moves might take; Russia’s ability to handle current and future sanctions; and the current hesitation to cut off Russia from the SWIFT banking system, which Jeff and Sam see as the worst-case scenario (24:14).

Despite the looming invasion threat, Jeff and Sam note that the flight to quality that might have been expected never materialized in the market week of Feb. 21-25, possibly because markets had already priced in an invasion and the sanctions response was milder than some had anticipated. Equities (2:17), fixed income (3:54) and commodities (6:04) marked a positive week. Next week will deliver manufacturing, ADP and employment data, and an appearance by Fed Chair Jerome H. Powell before the House (31:40).

MMM Episode 54: Market Reactions to Russia-Ukraine and Reviewing the State of Sanctions

After reviewing market and macro news for the week of March 14-18, DoubleLine’s Jeff Mayberry and Samuel Lau cover the March Federal Open Market Committee Meeting (FOMC), which brought a summary of economic projections and expected hike of 25 basis points (14:07). Topics discussed include updated projections, Fed Chair Jerome H. Powell’s prepared remarks and plans for reducing the balance sheet (21:59) and Powell’s performance in the Q&A segment and his perfect answer of “none whatsoever” to one reporter (23:18). 

The week of March 14-18 delivered St. Patrick’s Day, March Madness and a strong performance for U.S. equities pretty much across the board (1:59). On the fixed income side, there was some yield curve flattening, with the spread between the two- and 10-year yields narrowing (4:10). Commodities were down for the week but still the best-performing asset class on the year (7:58), and Jeff and Sam check in on the LME market for nickel covered in last week’s episode*: It’s still dysfunctional. Looking ahead to next week, PMI numbers get a new moniker, and cooling is expected for home sales and durable goods (37:10).
*MMM Episode 56: A Wild Week for Nickel and a Bailout for Big Shot

MMM Episode 57: First Fed Hike Arrives as Nickel Drama Continues

After market and macro news for the week of April 4-8 (3:21), Jeff Mayberry and Samuel Lau for their Topic of the Week compare the relative performance of active asset managers in U.S. stock and bond markets (20:01). This discussion starts with the S&P Indices vs. Active report (SPIVA), which compares the performance of active managers to indices such as the S&P 500 in the case of large-cap equity managers and the Bloomberg Global Bond Aggregate for fixed income managers. SPIVA consistently shows that only a small percentage of large-cap equity managers manage to beat the S&P 500 whereas half or more of active fixed income managers, depending on the timeframes measured, succeed in outperforming the Global Agg. However, that’s not the whole story. Jeff Mayberry explains (28:19) bond managers have much more opportunity to select whole bond sectors outside the Global Agg to improve performance, an option closed open to managers who wish or must stay within the large-cap category.

During the podcast hosts’ review of the market week, Samuel notes (5:33) “pronounced moves” at the longer end of the U.S. Treasury curve restored it to a normal upward slope (longer tenors yielding more than shorter tenors), cutting the yield inversion to three consecutive days. As a recession alert, historically inversions have persisted at least five consecutive days. So perhaps, Sam says, the economy is in “a crisis-averted situation.” Turning to the Federal Reserve (12:12), Jeff expressed surprise that Fed officials want to ramp up to the maximum monthly rate of balance sheet reduction – $35 billion for Agency mortgage-backed securities, $60 billion for Treasuries – in just three months. He suggests the markets might not be able to stomach a sustained balance-sheet normalization at such an aggressive pace.

MMM E60: Active vs. Passive: Equity vs. Fixed Income Active Managers

MMM Episode 60: Active vs. Passive: Equity vs. Fixed Income Active Managers

After covering the market action and macro news for the abbreviated week of April 11-14, host Samuel Lau and guest host Eric Dhall, a trader and quantitative analyst on DoubleLine Capital’s Cross Asset team, survey (20:08) the hottest rise in consumer and producer prices since the early 1980s. While wishing Federal Reserve Chairman Jerome Powell success in achieving a “soft landing” that tames inflation while avoiding recession, they criticize (29:52) as hubris claims by Fed officials that they will succeed in achieving “neutral rates” through a rapid series of hikes of the Federal Funds rate. In passing, Eric takes note (25:54) statements by Taiwan Semiconductor that it expects manufacturers to try to build up stockpiles of computer chips to hedge against higher chip prices in the future. This is an example, he says, of how deeply inflation concerns have infiltrated the thinking of business management. 

Given the sustained surge in commodity prices, Monday Morning Minutes listeners who want further background on commodity futures can check out Monday Morning Minutes episode 48, recorded Jan. 14, 2022. That backgrounder starts 15 minutes 46 seconds into the episode.

Among items to look out for the week of April 18 (34:18), Sam and Eric point to the releases of the Fed’s Beige book on Wednesday and latest print of the Leading Economic Indicators on Thursday. In addition, Powell and Christine Lagarde, president of the European Central Bank, Thursday will speak on a panel on the global economy. This episode of Monday Morning Minutes was recorded April 14, 2022.

MMM Episode 61: Rising Prices, Inflation Mindsets and Fed Hubris

After covering the week of April 18-22 for U.S equities, fixed income and commodities (2:06), hosts Jeff Mayberry and Samuel Lau put the 9.4% year-to-date negative return of the Bloomberg US Aggregate Bond Index into historical context (6:41). So far, the ongoing drawdown that began August 2020 is the second-worst peak-to-trough decline in the history of the Agg. The worst, recorded back when the then-Lehman Brothers US Aggregate Bond Index was calculated monthly, was a decline of 12.7% from a peak at the end of July 1979 to a trough at the end of February 1980. After that perspective from the rear-view mirror as well as a review of the week’s macro news (11:08), Jeff and Sam put on their forward-looking glasses for insight into future movements and levels of the Federal Funds rate (17:08). Among their recommendations, they agree with Federal Reserve Chairman Jerome Powell that the monthly dot plot, which depicts simple polling of Federal Open Market Committee (FOMC) members on the future level of the Federal Funds rate, provides little useful information. For better guidance, Jeff and Sam rely on the formal statements of the FOMC itself, the Fed chairman’s news conferences and inter-meeting statements by Fed officials. For market indicators of expected rate moves at future FOMC meetings, they rely on the Bloomberg WIRP function and the Chicago Mercantile Exchange’s Fed Watch page. Both these tools distill rate level probabilities from pricing in the Fed Funds futures market. For an idea of where the Fed Funds rate will ultimately end up, they, like DoubleLine CEO Jeffrey Gundlach, use the yield on the two-year Treasury note.

MMM Episode 62: A Red Week for Markets, Predictive Gauges for Fed Funds

After reviewing month and year-to-date market returns (1:58) and the April 25-29 week’s macro news (10:25), Jeff Mayberry and Samuel Lau turn to the broad topic of commodities (15:06), including asset class’s diversification benefits relative to stocks and bonds, the cyclical factors that have supported surging prices and the structural supply and demand factors that could support commodity prices over the longer term, particularly signatories of the Paris Agreement to convert to green energy sources. “When we talk about renewable energy, you have things like solar, wind and electric vehicles, all of which are commodity intensive,” especially in terms of industrial metals, notes Sam Lau. 
The big macroeconomic news of the week was the 1.4% month-over-month decline in U.S. gross domestic product versus the consensus expectation of a 1.0% increase. “The market didn’t seem to move much on that number even though it was a big disappointment,” Jeff Mayberry observes. The week of May 2-6 (35:14) could be a volatile one, he notes, given a heavy news schedule with, among other items, the ISM manufacturing number for April due Monday, JOLTS job openings on Tuesday and most importantly the meeting of the Federal Open Market Committee.

MMM Episode 63: Where Are We in the Commodities Cycle?

After reviewing Willy Whipsaw’s deviltry in the markets of May 2-6 (1:34) and the week’s macro news (10:16), Jeff Mayberry and Samuel Lau dive (14:03) into the May 4 meeting of the Federal Open Market Committee, which raised the range of Federal Funds rate by 50 basis points, and Federal Reserve Chairman Jerome Powell’s news conference. While the risk markets rallied that Wednesday on Powell’s ruling out for the time being 75 bps move hikes, Jeff and Sam in particular focus on the Fed’s guidance on the pace and timing quantitative tightening. QT is scheduled to start June 1 with potential reductions of $30 billion in Treasuries and $17½ billion in Agency MBS, shedding those assets at a pace of up to $60 billion and $35 billion, respectively, in subsequent months. 

Looking ahead the week of May 9-13 (31:40), Jeff and Sam will be watching Wednesday for the Consumer Price Index for April, and Thursday for the Producer Price Index.

MMM Episode 64: A Wild Whipsaw and a Tightening Fed Star the Week of May 2-6

After reviewing another wild market week for May 9-13 (2:05) and the April consumer and producer price indexes (8:49), Jeff Mayberry and Samuel Lau examine the bloodbath in the algorithmic stablecoin pair TerraUSD-LUNA (14:15), then ponder the unknowns of other stablecoins, including Tether and USD Coin, (16:30) and the risks to the broader financial system (26:43). Among other issues, they note that while Tether and USD Coin claim to be backed by cash reserves and cash equivalent to ensure their parity to the U.S. dollar, those assets are opaque to investors. For the week of May 16-20, (33:10) Jeff and Sam will be on watch Tuesday for retail sales and Thursday for the monthly release of the Leading Economic Indicators.

MMM Episode 65: TerraUSD-LUNA Meltdown and Its Broader Implications

With Samuel Lau on the road, DoubleLine’s Jeff Mayberry is joined on the latest episode of Monday Morning Minutes by Eric Dhall, a trader and quantitative analyst on the firm’s Cross Asset team, to break down a volatile May 16-20 week in the markets. Jeff and Eric begin with a look at the S&P 500, which narrowly averted a bear market Friday and was down 3% on the week. Energy, healthcare and utilities were the week’s only positive performers. Consumer discretionary was the big loser, down almost 8% on the week and 31% on the year. Bonds actually helped this week for those with a diversified portfolio, with Eric pointing out the value of diversification amid a bear scenario. (3:35) Over in Macro Land, Eric digs into a retail sales report that generated positive headlines but could be heralding price hikes at some big retail chains. (7:29) The labor market remained strong, posing a challenge to inflation-fighting efforts by the Fed, whose messaging is saluted by Jeff and Eric for being consistent. (10:28) The Topic of the Week will return next week, when Sam rejoins Jeff to take a look at the FOMC’s May meeting minutes.

MMM Episode 66: A Narrow Bear Escape, Diversity in Face of Inflation and Consistent Fed Speak

Surveying the week of May 23-27, Jeff Mayberry and Samuel Lau (2:01) take note of improved investor sentiment in the form of a rally in stocks, allowing the S&P 500 to skirt the -20.00% definition of a bear market. The improvement in stocks was accompanied by lower bond yields. While bitcoin has typically behaved as a risk asset, the cryptocurrency was down about 1% on the week as of mid-Friday May 27 (8:38). Jeff Mayberry asks whether that move in bitcoin is contradicting the more optimistic message of the week’s rally in stocks, or whether bitcoin’s decline, muted compared to larger losses for other cryptocurrencies, suggests technical selling pressures are abating for the marquee cryptocurrency. 
 
Turning to the week’s macro news, the cohosts zero in on the release of minutes of May 4 meeting the Federal Open Market Committee (FOMC) (10:34). The minutes took note of tightening financial conditions, Fed expectations of a rebound in GDP in the second quarter of the year and PCE price inflation on a path to near the Fed’s 2% inflation target in 2024. “They are being a little optimistic,” Samuel Lau says, “relative to what the market’s thinking in terms of the progression of PCE price inflation.” While the minutes couched the statement in what Jeff Mayberry describes as a “squishy” turn of rhetoric, the FOMC for the first time raised the possibility of the Fed’s selling Agency mortgage-backed securities. 
 
For the week of May 30-June 3 (25:28), the hosts point to the March reading of S&P CoreLogic Case-Shiller 20-City Composite City Home Price Index on Monday; the beginning of quantitative tightening, the ISM manufacturing survey for May and JOLTS job opens report on Wednesday; and the ISM services and May labor market reports on Friday.

MMM Episode 67: Improving Sentiment, Curious Bitcoin, Squishy Fedspeak

DoubleLine’s Jeff Mayberry is once again joined by Eric Dhall, a trader and quantitative analyst on the firm’s Cross Asset team who is subbing for Samuel Lau at the end of the holiday-shortened market week of May 31-June 3. Jeff kicks off the review of a relatively quiet week with a look at equities, which are operating under a conflicted dynamic where strong performance draws a Fed reaction. This is a reversal from the Fed’s long run of moving to boost the market. Bank loans were a standout on the fixed income side, where Eric notes that bonds do look attractive at these levels. (5:31) Commodities remained strong year-to-date*; Bitcoin remained the year’s worst performer. (8:46) Over in Macro Land, housing prices were up 21% in March, putting further pressure on consumers. (11:32) After running through a mixed bag of macro metrics and discussing Fed rate hike expectations, Jeff and Eric look to next week (22:00), which will bring data on consumer credit as well as a new CPI reading.

*For a deeper look at commodities, check out Jeff and Sam’s DoubleLine Strategic Commodity Webcast: Driving Season (recorded May 24, 2022).

MMM Episode 68: Tough Fed in Town, Digital Tulips and Music City Home Prices

In their review (1:49) of the carnage in the equity and bond markets June 6-10, Jeff Mayberry and Samuel Lau zero in (3:50) on “a big compression of the differential” between the yields of the two- and 10-year Treasury notes. As of Friday’s close, the 10-year yielded only 9 basis points more than the two-year. Not yet an inversion, so not enough to put Jeff and Sam on recession watch, but thin enough to put them on “the pre-watch to the watch.” In their discussion of the week’s macro news (11:32), the showstopper of course was the CPI and Core CPI reports for May (12:42), both showing accelerating inflation. While one economist suggested the negative news was tempered by the fact that inflation was limited to energy and energy-linked inputs (14:18), Samuel Lau pointed out that the rising cost of shelter is “already a big contributor to that Core CPI print” and “is picking up speed.” 

For their Topic of the Week (20:12), the podcast cohosts discussed the phenomenon of stagflation, which is the prevalence of high inflation amid a sluggish economy. They found similarities between the present environment and the economic context of the 1970s-early 80s when the U.S. last experienced stagflation. Turning to the economic calendar (23:38) for the week of June 13, the cohosts concentrated on the Federal Open Market Committee meeting, scheduled for Wednesday June 15. Jeff Mayberry noted the federal funds futures market on Friday June 10 increased the probability of a 75-basis point hike in the fed funds to 27%, up from 9% as of the previous day’s close. He doubts, however, that Friday’s inflation report will be enough to “spook the Fed” into a 75-basis point hike and still expects a 50-basis point move by the FOMC.

MMM Episode 69: Hot, Sticky Inflation; Flattening Treasury Curve; Speculation on Stagflation

After a recount of the rough, red run for the market week of June 13-17, DoubleLine’s Jeff Mayberry and Samuel Lau review the June meeting of the Federal Open Market Committee (FOMC) and Fed Chair Jerome H. Powell’s subsequent press conference (19:37). The FOMC approved an increase of 75 basis points for the federal funds rate, a move somewhat cushioned by the leaking of the decision to a Wall Street Journal reporter earlier in the week (15:00). Topics covered include why the Fed doesn’t raise the rate in one large move instead of incremental hikes (21:41), dot-plot projections pointing to a deteriorating economic outlook (24:54), and Powell’s press conference performance and mention of “eye-catching” data (29:38). 

A red wave washed over the market in the week of June 13-17, leaving investors with nowhere to hide (2:06) as even commodities shared in the pain (9:55) while Bitcoin took a bruising (14:20). On the macro front, the PPI data suggests that inflation may be moderating (17:15) and the LEI number fell as expected (18:58). This episode was recorded before market close June 17, 2022.

MMM Episode 70: Nowhere to Hide, Fed Baby Steps and Powell Transparency

DoubleLine’s Jeffrey Mayberry and Samuel Lau run down the reversals during the short market week of June 21-24. Jeff and Sam note the seasonal effect of summer doldrums across the week in which the bulk of market activity occurs right after opening and is then followed by mostly flat lines the rest of the day. In a thematic reversal (1:59), the S&P 500 and Agg were up for the week – as was Bitcoin – while commodities were down, a sector that could have its first negative month since November 2021. It was a relatively sparse week for Macro Land data, with PMI manufacturing and services numbers missing estimates but still in expansionary territory (10:28). While Jeff and Sam are not big on surveys they do take a look at the new University of Michigan Consumer Sentiment Survey, as Fed Chair Jerome H. Powell mentioned the metric at last week’s FOMC press conference (12:11). Next week will bring in some lagging measures (16:10), including durable goods in May and April home prices, as well as Jeff and Sam’s review of the first half of the year. This episode was recorded after market close June 24, 2022.

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