When Doves Cry

Maybe I'm just too demanding. Maybe I'm just like my father, too bold. Maybe you're just like my mother, she's never satisfied. I wonder how often Jay Powell has been singing those lyrics from our title song of late. This week I look more forward that back to last week. We have some huge earnings reports, but those will likely take a back seat to the Fed and fiscal policy news that's due out on Wednesday.

When we quickly look back at last week, we can see most equities were up nicely. Japan was the one major index I follow that was off. Commodities were mostly up, and strongly. Crude rebounded and Gas as well. Ags were mixed and Metals were mostly up, except the most followed one. The Krona and Swiss Franc were off. Most major bond indexes were up with the exception of the Developed Government bond index and that weighed down the JPM GBI too.

We're getting into the meat of earnings season. This week we get reports from five of the Mag 7. Something to keep in mind. Alphabet, aka Google, has a predicted miss, and Amazon has a monster beat predicted from the Starmine Smart Estimates. I'm also interested in the big energy names reporting. Exxon, Chevron, Shell, Phillips 66, and Marathon all report. There's a bunch of health care names too. One that should be very interesting is the Boeing conference call, on a jam packed Wednesday.

Best of the Week

A MUST LISTEN ahead of this week's Fed meeting on Wednesday. Lundy Wright does a masterful job at explaining the important points coming into this week. It's not only the Fed, but also the TBAC , which is the Treasury Borrowing Advisory Committee. This is the group that recommends to the Treasury how they should borrow. For example, the increase in the 5-year Treasury is up to $70B /month from $40B. The info from this group comes out the morning of the Fed meeting. We also get Employment Cost Index and ADP. On top of that, it's month end. This means the bond indexers will be trading at the month end. Likely equities, we should see a ton of volume on Wednesday. As Lundy notes, aside from the Fed commentary, the day already has a lot going on. Why are we locked into opinions on needing rate cuts? Well, Lundy says it's mind-bending because of the data showing strength in hard data, and the soft data, or opinions, is also trending higher. He doesn't think the Fed has any choice other than to ease. Too many are already anticipating lower rates and walking this back would be a surprise and very dangerous. He also thinks they have room to cut without over stimulating. A cut would still be restrictive but 200 bps less restrictive. He also noted that Christine Legarde opened the door for a cut and the ECB's language is likely the template for the Fed's comments. He also thinks that a cut in March will allow them to slow walk it and be more data dependent. As you can see in the charts below, the market is not expecting any cuts this week, but the language should be a more dovish statement to prep for a March cut otherwise, things might get ugly. Every one wants lower rates, so the Fed is going to have to take this opportunity to lower them a bit.

Listening time: 26 minutes

Fed Preview: We’ve Already Got Goldilocks. So Why Will the Fed Likely Signal a March Ease?

Best of the Rest

Keeping on the TBAC, who have an input on the Quarterly Refunding Announcement, Alfonso walks us through some of the scenarios. The US Bond supply is one of the keys. Alf shows a chart of how things are changing with fiscal deficits. He then walks us through the mechanics of monetary plumbing. This is where the TBAC comes in. Lundy mentioned it was important, and Alf shows you the details here on why. Moving from long bond issuance to T-Bills, which would be suggested by the TBAC, changes things. It helps smooth out the repo market. Concoda has a good visualization of the Repo market. It's a bit complex, so I wanted to share this. Read or Listen to this in 8 minutes

Pay Attention To Monetary Plumbing

We hit on Bitcoin a bunch recently. This episode from The Investor's Podcast discusses the business of custody in digital assets. Caitlin describes it as a coat check or valet for your digital assets. The legal structure in this space is huge. She also gives some details around assets getting caught up in receivership. Bankruptcy treatment for banks versus Trusts are different. She thinks the SEC looked at allowing the big banks access to the market but making it incredibly prohibitive based on the treatment of assets on the balance sheet, which means a tier one capital charge. Her company, Custodia, is not FDIC insured, as a point, so the FDIC does not have jurisdiction. There's also a point where Preston, the host, goes off on how Custodia has a case versus the Federal Reserve and other bankers are playing dirty politics to keep firms like Custodia from running their business. This is a conversation focusing on the legality of the digital asset infrastructure, but so informative for understanding this market. Listening time: 75 minutes

BITCOIN CUSTODY FOR INSTITUTIONS W/ CAITLIN LONG AND WES KNOBEL

Another rehash from last week is the story behind new highs in equities. Some of these stats are are that crazy, but a good reminder. I share only five here.

• This was the longest since the five years after the GFC.
• New highs come in clusters. While the author might extend some of these a bit too much, there's still some clustering.
• New highs happen a lot, as there have been over 1,100 new highs in the S&P 500 since 1957.
• After a new high the market is up 71% of the time a year later and 7.4% on average.
• Only a few highs will be the end of the bull market. New highs after a bear market are the best new highs.

Six Things to Know About All-Time Highs

I've seen a lot of famous market or financial commentators really misrepresent the historical returns of the US markets. It's something I dealt with way too often when I was supporting LSEG's portfolio analytics product. So many people do not understand arithmetic versus geometric mean. The author shows just how wild the difference can be with the last statement, "A person with $100,000, that averages 8% for two years, could end up with any amount between $32,000 and $116,640."

How You Average Matters

A quick chart from Callum Thomas from his weekly Top Charts newsletter. He combines the Forward PE, VIX, and Bullish AAII sentiment to create an indicators of the level of euphoria for US equities. You can see below that the Fear & Greed index has also hit Extreme levels again.

The Euphoriameter

Another chart to share via Charles-Henry Monchau, CFA, CMT, CAIA from BofA. This is just an incredible amount of money moving into Emerging Market equities.

Largest Weekly Inflow to EM Equities EVER!

This is a wonderful look at what the recent rise in rates has bought you. Essentially, it's a little more security. The team at Verdad thinks you should target credit quality over yield, because "yield can mean very different things over time."

What does a yield buy?

This is one of the last interviews with one of the greatest leaders in sports. Kobe Bryant was an amazing human being and such a loss for society. There are so many great points in this conversation with Lewis Howes . Kobe talks about the summer he was 11 year old and scored ZERO points in a summer league. I find it incredible that one of the all-time greatest athletes, not just basketball players, was THAT bad at 11. He talks about how he went to work and in two years he was much better, and by 14 he was the top player in the state. I loved the story of Jason Williams showing up early to beat Kobe to the gym, and Kobe was already there. Kobe then stayed until he left. Kobe said, "I knew you were watching and I wanted you to know that I was willing to out work you." Man, this is what made him great. He was physically gifted but also crushed the mental game too. So many good stories here. One how he went out with teammates late and then waking them up at 5am to workout. I liked how he challenged and motivated Pau Gasol. A great quote he share from one of his teachers, "Rest at the end, not in the middle." My jaw dropped when he said losing is exciting. He said he found different ways to get better from losing. Watch time: 68 minutes

Kobe Bryant’s LAST GREAT INTERVIEW On The MAMBA MENTALITY

One for the Road

When most people talk about luck, they're generally referring to 'Blind Luck'. Alex Brogan discusses the four type of luck written about in the book by neurologist Dr. James Austin. 'Blind Luck', aka "dumb luck, is a matter of being in the right place at the right time. Nothing you can do about this one. Like which family your born into. There are, as the title suggests, three other types of luck. 'Luck from motion' comes out the hustle you put into things. The more seeds you plant the more that will have a chance to germinate. There's also 'Luck From Awareness,' which is being able to recognize the opportunity in front of you. Think of someone like Henry Blodget, an excellent analyst and coming to his own at the dawn of the internet. The fourth and final example is 'Luck from Uniqueness.' Alex gives a good example of this. Lucky enough that your the only deep see diver that can go to 1,000 ft when a pot of gold drops to that depth. I'm of the belief that we can all have a hand in our own "luck."

The Four Types of Luck

Thanks for reading. Go out there and get lucky.

Michael