Thanks for reading my Diary.
I look forward to reading Sarge tomorrow.
Enjoy the evening and the weekend.
Be safe.

I stopped my self on the (SPY) trade for a loss.

Jan 13, 2022 ' 01:05 PM EST DOUG KASS

'Sixty-Minute Trade': Long SPY $451.15

* We haven't done one of these in a while!

"If you don't believe I'm all I say
Come up and take my hand
When I let you go you'll cry "Oh yes
He's a sixty-minute man...

There'll be 15 minutes of kissing
Then you'll holler "please don't stop" (don't stop)
There'll be 15 minutes of teasing
And 15 minutes of squeezing
And 15 minutes of blowing my top!"

- Billy Ward and the Dominoes, "Sixty-Minute Man"

Released in 1951 by Billy Ward and the Dominoes, "Sixty-Minute Man" was one of the first rhythm-and-blues songs to cross over onto the pop charts.

Many believe the song was one of the most important contributors to the formation and shaping of rock 'n roll music. In fact, some consider "Sixty Minute Man" the first rock 'n roll song.

It was sung by deep-throated bass Bill Brown with tenor Clyde McPhatter in the background, who eventually went on to The Drifters and was replaced in The Dominoes by legendary Jackie Wilson! -- just listen!

Many other singers covered the song, including Rufus Thomas, Jerry Lee Lewis and The Trammps. One of my favorite renditions was by Huey Lewis and The News.

Several years ago I introduced a new occasional feature - the Sixty-Minute Trade.

I, like many traders, trade, invest and speculate with moving time frames that depend on the opportunity set.

Like "For Traders Only," this trade is speculative, but with a twist of lasting only an hour or two.

It's intended for the swiftest of traders who are extremely opportunistic and like to make quick "scalps."

I am keyed on SPY at $451 (which is the level we are approaching) - its the figure we reached back in August, 2021-September, 2021 that provided a lift off.

It could be support.

I will be out in 60 minutes (by the close) - win, lose or draw!

I will be taking a vacation day - member/guest golf tournament! - tomorrow.

But you will be in the very capable hands of Stephen "Sarge" Guilfoyle.

Bank of America (BAC) now down on the day.

Very poor action.

I have covered my (SPY) and (QQQ) shorts at $455.76 and $370.40, respectively - for a small profit.

Break in!
Peloton (PTON) to halt production due to weak demand.
R.I.P.

If some are questioning why I shorted Spyders (SPY) when I did, here is my answer: 

* I remain negative on the markets.

* More importantly, S&P cash was approaching yesterday's early afternoon intraday high.

I have sold my Chinese stocks - (GDS) and (BABA) - on today's gap higher.

I previously put on a profitable pairs trade long (C) and short (JPM) . 

At the time, JPM was "everyone's" favorite financial. 

I remain long C. 

I am now shorting "everyone's" current favorite financials - (BAC) ($46.88) and (WFC) ($56.08) against C. 

Here is my recent update on banks: 

Jan 18, 2022 ' 09:45 AM EST DOUG KASS

The Period of Bank Outperformance May Now Be Coming to an End

* Bank and brokerage stocks are "over owned" and too popular now just as industry EPS progress may disappoint in the quarters ahead

I have favored bank and financial stocks for several years but I suspect the sector's outperformance may soon come to an end.

I am not suggesting marked underperformance of banks and brokerages - just a reduced limited upside and flat to lower relative performance against the S&P Index.

There are several reasons for a change in my previously bullish position:

* Domestic economic growth is already about to slow - below is the Empire State Manufacturing Index shortfall just announced:

* The Fed seems destined to tighten into a domestic slowdown. As a result, I expect the yield curve to flatten as a rising federal funds rate will adversely impact economic activity. This is not good for bank industry earnings.

* The modest improvement in loan demand - seen in the last few months - will likely fizzle out if inflation remains elevated and economic growth is slowing relative to expectations.

* Banks have grown too popular and after a lengthy period of outperformance they are everyone's go to value stocks. See my "Group Stink" comments in today 's opener!

* As seen by (GS) and (JPM) earnings reports, growing costs have and will likely continue to threaten ambitious bank industry consensus 2022-23 EPS forecasts.

* After large credit benefits, and loan loss reserve releases, bank industry earnings face difficult compares during the next few quarters.

Disappointing earnings and a possible reset of valuations could be an unhealthy cocktail for financial stocks.

My average cost on my (SPY) and (QQQ) shorts are $457.23 and $373.10, respectively.

As of 10:36 am:
Breadth

View Chart »View in New Window »

Heat Map

View Chart »View in New Window »

Movers

View Chart »View in New Window »

I have a research call between 11- Noon.

Radio silence.

Initial jobless claims jumped to 286k from 231k in the week prior and that was well worse than the estimate of 225k. Smoothing out the influence of the holidays, the 4 week average rose by 20k to 231k. Delayed by a week, continuing claims totaled 1.635mm, about 70k more than expected and up from 1.55mm in the week prior.

Bottom line, the trip to the 200k level in December was a tease and I wish I can quantify the influence of omicron on this data today, especially for the leisure and hospitality sector. I'm still hearing too many stories of labor market disruptions because people are calling in sick. Expect February to normalize as the omicron numbers will soon be collapsing.

INITIAL CLAIMS

CONTINUING CLAIMS

In sharp contrast to the NY manufacturing index seen a few days ago where it fell to -.7 from +31.9, the January Philly index rose to 23.2 from 15.4 and that was 4 pts better than expected. New orders and backlogs rose m/o/m while inventories fell 10 pts to a 5 month low. Employment dropped and the Workweek fell to the lowest since September 2020 and I have to blame omicron for that as so many call in sick. Delivery Times declined to 25.2 from 31.4 and that is below the 6 month average of 28.5. Prices paid rose 6 pts after falling by 14 last month and is just above its 6 month average at 72.5. Prices received were down by 4 pts and 6.5 pts below its 6 month average.

Looking at the coming 6 months, the business outlook got back what it lost last month. Inflation expectations, similar to what was seen in NY, jumped. For prices paid, the outlook jumped by 22.6 pts to the highest since 1988. For those received, expectations rose 7.7 pts to a 5 month high. Capital spending rose 6 pts but after falling by 11 last month.

Bottom line, the difference between this index and the one from NY is pretty wide and thus we need to see more to get a firm conclusion. That said, the 6 month outlook is about 11 pts below its 5 yr average. I'm most interested to see how things play out after the Chinese New Yr is over after next week as we'll be past that and the Christmas holiday in terms of gauging organic demand and supply chains. Both should ease and we'll soon see to what extent.

PHILLY Mfr'g

6 month Business Outlook

Expectations for Prices Paid

Expectations for Prices Received

(TWTR) , purchased yesterday, is getting jiggy. 

Here is my thesis. 

Jan 19, 2022 ' 09:20 AM EST DOUG KASS

Tweet, Tweet?

* TWTR's shares are down by more than 50% in the last nine months

* Twitter management faces challenges - but those challenges are not insolvable

* With a market cap of under $30 billion, Twitter is a unique and digestible platform/stock

Yesterday I initiated a buy in Twitter (TWTR) (at around $37.40), after sitting out a more than -50% decline (from almost $80/share) from March, 2021.

As mentioned yesterday, TWTR's common has been berry, berry good to me, with a large cumulative share price gain over the last five years.

In a world of expensive stocks, especially in the technology space, Twitter, with a market capitalization of less than $30 billion, providing takeover optionality, stands out as a potential winner and favorable reward vs. risk - particularly given its unique, digestible and scarce platform.

Execution risk has always been the problem for Twitter - the gang that can't hit it straight - as it competes for internet users' time and advertisers' incremental budgets. But, already the company's advertiser returns is making some inroads though measurability and ad targeting must improve in order to remain competitive. To achieve their goals, Twitter needs to personalize the content that users see and it must use its data more effectively. For now, this is a leap of faith as these company challenges remain a work in progress - but there is little doubt that it has management's highest of priorities.

The company's ability to execute with new or changed products could serve to spur the growth in daily users and improve engagement, better penetrate the advertiser market and ramp both ad load and improve pricing, and could produce big increases in revenues, margins and cash flow and drive earnings power.

I suspect by the time there is clear evidence of positive results the shares will be trading much higher.

For 2021, I estimate that the company achieved $5.1 billion in revenues and produced about $1.4 billion of EBITDA with 217 million average users.

For 2022, I estimate that sales will likely rise to $5.8 billion, cash flow should be unchanged at $1.4 billion with 260 million average users.

The big opportunity is for next year - should execution improve, with sales at $6.8 billion, EBITDA of $1.7 billion and 305 million average users.

In terms of price targets - $55 seems reasonable (6x 2023 revenues) - which would be very low considering the company's platform scarcity. But if management can really turn this around and spur faster than expected user growth with new products, which would raise advertiser demand and allow for upside to product pricing - 8x revenues (or $75-$80) is not out of the question.

Shorting (SPY) and (QQQ) on a scale.

Started at $456.35 and $372.60, respectively.

Not that it should be a surprise but the possible more aggressive approach by the Fed in reversing its policy is not going to influence what the ECB is going to do according to ECB president Lagarde. She said today in an interview, "The cycle of the economic recovery in the US is ahead of that in Europe. We thus have every reason not to act as rapidly and as brutally that one can imagine the Fed would do." She doesn't want to sound so dovish now at this point as she followed by saying, "But we have started to react and we obviously are standing ready, to react by monetary policy measures if the figures, the data, the facts demand it."

The ECB is currently expected to end its PEPP in March which by April would take their monthly bond purchases to 40b euros per month from 80b. Then in Q3 that would fall to 20b and then eventually end I believe one quarter later. After that, if they attempt raising interest rates it likely won't come until 2023. Since the ECB went negative in June 2014, the Euro STOXX bank stock index is down 34%. From the peak in 2007, they are lower by 78%.

And thus it should be no wonder why the monetary policy stance Draghi took and followed by Lagarde was not the right approach since about 80% of lending in the Euro region is done via its banks. That said, the bank stocks will hugely benefit when NIRP ends, mitigated though by their large holdings of European sovereign bonds which will be in trouble when rates rise. We're certainly getting an early taste of that. After 4 days of weakness, European bonds are rallying today and US Treasuries are following in sympathy.

Euro STOXX Bank Stock Index

Making Lagarde's job that much more difficult was the German PPI for December seen today where it spiked by 5% m/o/m, well more than the estimate of up .8% and up by 24.2% y/o/y. The German statistical office said they've never seen a print this high since the stats began in 1949. Of course it was only 20+ years earlier that the Weimar Republic was in charge. Energy prices led the way but even ex energy prices still rose 10.4% y/o/y. As PPI is not a market mover typically, inflation breakevens are down slightly as are bund yields after yesterday's taste of zero for the 10 yr.

GERMAN PPI

French business confidence in January fell 2 pts to 107 and that was below the estimate of 109. That's the weakest since April and we can blame omicron as services and retail fell while manufacturing rose to a 4 yr high and employment was unchanged. The French 10 yr oat yield sits just below a 3 yr high.

After doing so last month, Chinese banks cut again their loan prime rates for one year and 5 yr terms. The former by 10 bps and the latter by 5 bps. This follows the move by the PBOC a few days ago. So the analogy is this, get drunk on credit, have a bad hangover and instead of drinking a lot of water to hydrate, we'll give you another shot with that water to ease the discomfort. Industrial metals are rising in response with iron or prices up 2%+ to the highest level since late August. Copper is up 1%+ and nickel prices are rising to a 10 1/2 yr high.

Central banks in Indonesia and Malaysia both left rates unchanged as expected after the Bank of Korea hiked again last week. Even the Turkish central bank kept rates at 14% and the lira is bouncing a touch.

IRON ORE

NICKEL (on LME as of yesterday and up again today)

Exports out of Japan in December were higher by 17.5% y/o/y, just above the estimate of up 15.9%. Imports jumped by 41% vs the forecast of up 43%. Not surprisingly auto's and semi's led the export strength. The value of imports are exploding higher because Japan imports so much of its energy needs after shutting down most of their nuclear plants. I still remain positive on uranium by the way. And Japanese stocks too.

Australia added a bit more jobs than expected in December and its unemployment rate fell down to 4.2% from 4.6% with a 66.1% participation rate, well above ours. The news is putting more pressure on the RBA to end QE next month and eventually raise rates. The 2 yr Aussie yield is higher for the 6th straight day and by 21 bps in this time frame. The Aussie$ is higher for the 3rd day in 4.

Aussie 2 yr yield (the Oct spike was when YCC ended)

Yesterday Investors Intelligence said Bulls fell to 39.8 from 43.7 and about half went to the Bear side and the other half to Correction. Bears rose 2 pts to a still low 25. Confirming the shift in sentiment, which should not be a surprise since mood follows price was today's AAII data. AAII said Bulls fell for a 3rd week by 3.9 pts to just 21. That is the lowest since July 2020. Bears jumped by 8.4 pts to 46.7, the highest since September 2020. Bottom line, optimism has obviously cooled as the Fed begins the process of taking away the punch bowl.

AAII BULLS

AAII BEARS

I have sold my (LABU) at about $21.40 for a profit.

Remember, I use these leveraged ETFs only for very short term trades - in minutes/hours/day or two.

I am still long (XBI) .

Kate's Dad @KASDad

Replying to @DougKass

When men were men and animals were afraid in the 60's, 70's and into the 80's there were no equities futures and the post regular session/pre-mkt session were so thin I was taught only idiots traded then. Mkts evolve. Participants have to or risk failed analysis.

On (approximately) this day (I think) in 1865, as the Civil War was winding down and as Lincoln prepared for his second inauguration, an important part of America began to change. Newspaper editorials began to rail about something bad that had occurred in the summer of the prior year. (No, it was not the Battle of the Wilderness, or Cold Harbor or Mobile Bay.) The editors were aghast that a guy named Al Reach had left Brooklyn to earn money in Philadelphia. Reach's problem was not interstate commerce; it was the trade he practiced. Reach was compact, wiry and fleet of foot. He was perfect for his job.

Al Reach was a second baseman. (Baseball? you say. Yes, Baseball! Virginia.) In the summer of 1864, Al Reach left the Brooklyn Acfords (or Brooklyn Atlantics) to go to the Philadelphia Athletics. The inducement was a paycheck (the amazing sum of $25.00 per week "in season".) Irate Brooklyn fans began to push for a boycott. Baseball was a gentleman's game and money could only sully it. Well, the controversy festered into the Hot Stove League (back when folks actually sat around hot stoves). But the outraged editorials, amid the winter chill, had an unexpected boomerang effect. In trying to be fair, they noted that other players may have been paid "off the books." (Jim Creighton of the Brooklyn Excelsiors was said to get a "piece of the gate" under the table.)

The other unexpected effect was that the simple act of publicizing the payment may have led more players to ask for payment. And so baseball turned professional. In less than ten years, superstars were earning more than doctors. That worked well for decades. After all, free enterprise should fit America's game. But then someone walked in and said - "I'm from the government and I'm here to help." With the purpose of keeping America's game pure, Congress gave it anti-trust protection.

Management used the tool to keep some exceptionally gifted people at a compensation level that equaled indentured servitude. That lasted for decades until the advent of free agency, which naturally swung the pendulum all the way back. After that there was no further trouble about salaries in baseball that we know of. To mark the day, drop by the compensation committee and show them your curveball. Try not to spit any Bull Durham on the carpet.

There wasn't much talk about baseball on the Exchange floor on Tuesday, but it was pretty clear that the bulls struck out rather badly. Unfortunately, we were correct, the yield on the ten-year returned to center stage with a vengeance. The yield moved up through that perceived resistance at 1.85% and, got as high as 1.88%. That, in fact, put pressure on the tech stocks.

Tuesday's action would have been a bit more of a disaster except they got bailed out through a small degree by the energy sector, which was the only sector in the S&P that closed up on the day and, I think, that is a mixed blessing. It came obviously because of military instability in the Middle East and, the higher prices put pressure on the inflationary numbers, which will not be helpful to the consumer and, may in fact, put some more pressure on the Fed.

Higher energy prices also will not be good for the President, who is not having a particularly auspicious beginning into the year 2022.

We think it is best if we refer to the late morning update and, take a look at some of things we thought may happen and here is what we wrote:

Late Morning Update Averages are testing support at moving averages and former monthly lows. Dow is down disproportionately due to Goldman Sachs, which may be accounting for over 200 points of the loss. If they roll over and make lower lows, let's see if there is a trapdoor effect. Think we are in that selloff with a bottom around the 24th of January.

Stay safe.
_____

The pressure of the weakness in Goldman Sachs was evident all day and they did, in fact, account for almost 200 points of the Dow fall. The markets did find some support at some of the moving averages and former lows.

The S&P, in particular looked like they found help at the 100 day moving average - not a great day but a little bit. They tried to reverse them in midafternoon, but some weakness returned late in the session.

The market, to repeat again, seems to have been locked in by that small seasonal pattern we discussed that looked for a top last Wednesday and a possible bottoming out on the 24th, just before the FOMC meeting begins.

So, we will stick with that until we begin to see some sign that the seasonal pattern is not a clear factor here. You want to continue to watch the yield on the ten-year should it push up through 1.90%. They may force a spurt of short covering among the yield players and, that could get you within hailing distance of 2% and, it would be intriguing to see how the market reacts to that. Would we get a trapdoor reaction? The selling was broad and very consistent, but it wasn't a selling climax kind of day. We didn't get to 90% down. We came reasonably close with 80% in a lot of areas.

Overnight, global markets are a bit nervous and mixed with a definite change to the sell side. The biggest losses were in Asia, which is mostly catchup to selling by their American cousins since Asian markets were closed during most of yesterday's battering in New York. European markets, which participated in the selling yesterday for at least a couple of hours, are more mixed but there again is an edge slightly to the sell side. Oil prices are higher once again, although there is no new news on the Mid East disruption.

Things are temporarily quiet around the United Arab Emeritus. The futures here in New York as dawn hits Central Park are trading slightly higher, discounting an upward move in the Dow of about 75 points. Most traders expect a bit of a consolidation day after yesterday's battering, a little bit of a feeling and hoping to go well.

It would not be good if selling comes in and we go to lower lows and, the markets looking at its own internal technicals, taking its temperature, checking its blood pressure, etc. So, traders on the sideline will be watching if the break for lower lows. That will indicate the seasonal selling has further to go.

As we told you days ago, we traders will look for a bottom on or about the 24th. It usually occurs two days before the January Fed meeting.

So, we will let the market begin to tell us where it wants to go.

The yield on the ten year is threatening the 1.90% level. If it punches through there, traders will wait to see if there is a sudden rush of short covering among the yield traders that takes it close to 2%. That should bring a lot more pressure on stocks.

We start with a wait and see game and then we will wait and see how things develop.

In the meantime, stay safe.

* More proof below

* Charlie Munger may be right again!

My two Chinese holdings are  (GDS)  (+10%) and (BABA) (+6%) in premarket trading.

Unfortunately, small-sized.

* In a regime of heightened volatility, an analysis of overnight futures trading provides an important tactical perspective

* Changing market structure requires a more complex analysis - outside of normal trading hours - in order to trade on a short term basis

Many disregard and deem irrelevant the overnight futures market - citing the randomness and lack of liquidity. 

I couldn't disagree more. 

The pattern and movements in the overnight futures market provide me with a perspective. To me, it is actually equivalent to a day's trading. 

As Night Follows Day

Don't many people evaluate the prospects for today's regular trading session with the results - volatility and price - of yesterday's regular trading session? 

Voila! The same applies to the after hours of 6 pm to 9:30 am price action impacting my decision on the trading that follows during the next regular trading session between 9:30 am and 4 pm. 

Tuesday Night, Wednesday Day

Tuesday night's overnight trading activity aided me in my decisions in trading the Indexes yesterday (Wednesday). 

When I started my business day at around 3 am on Wednesday morning, S&P futures were -35 handles and Nasdaq futures were -155 handles. 

Remember, I ended Tuesday's regular trading session Long (SPY) and (QQQ) trading long rentals - so when I awoke, though the position was small-sized - I faced a potential trading loss - note the time stamps of my posts: 

Jan 19, 2022 ' 06:15 AM EST DOUG KASS

A Quick Look at Overnight Futures

A fairly wild evening.

I am in my office at 3:15 am.

S&P futures hit a high of +9 and a low of -35. Now -18 handles.

Nasdaq futures hit a high of +60 and a low of -152. Now -97 handles.

Position: Long SPY, QQQ

Between 3 am and 7 am futures rallied briskly - and my potential trading loss (had turned out to be a small profit) and, relieved, I sold out the trading rentals in SPY and QQQ.

I did so with the recognition that futures were about 35 handles lower only hours before! Were it not for that poor price action (importantly, the weakness wasn't a "blip" and was sustained for more than an hour) I may not have sold and would have been exposed to the subsequent weakness during the later part of Wednesday's trading session!

Jan 19, 2022 ' 06:20 AM EST DOUG KASS

Update

To update the last post, S&P futures at 6:15 am are +12 handles and Nasdaq futures are +61 handles.

That is quite a rally from the morning lows - and helps to explain why I sold out my Index trading long rentals in premarket trading this am.

Position: None

Jan 19, 2022 ' 06:35 AM EST DOUG KASS

Out of Index Trading Long Rentals

S&P futures briefly went positive after being -35 handles at 3:15 am or so.

At around 4:55 am I sold my trading long rentals in (SPY) and (QQQ) at $456.70 and $371.45, respectively.

Position: None

For a variety of reasons I was considering buying the dip (long trading rentals) but that evening Tuesday/early Wednesday futures weakness gave me pause - and when I did go long again (rental) when the market weakened again yesterday, I had more modest upside expectations as the -35 handle overnight low was still fresh on my mind. 

And, when I sold my longs and went short, I felt more confident with the distance at the time of +25 or so handles (top of the day) compared to the overnight low of -35 handles (a difference of 60 handles!) gave me confidence on the short side - all other things being equal. Indeed, the market's rally was brief and from the regular trading session's mid-afternoon high of +25 handles, the S&P closed by over -40 handles... a -65 move from intraday top to intraday bottom in a very short period of time. 

It should be mentioned that just as the one day's regular trading session may give you no clue about the next day's price prospects, the same applies to overnight futures trading. Tuesday evening/early Wednesday morning futures pattern gave me an important prospective that I profited from. 

For these reasons, and others, I have begun to briefly highlight on a daily basis the overnight futures market in my Diary. 

Speaking of overnight futures trading, here is what I saw last night and early this morning: 

* S&P futures bottomed at -10 handles and peaked at +30 handles - to me, exhibiting a positive bias. At 6:40 am S&P futures were +24 handles.

* Nasdaq futures bottomed at -40 handles and peaked at +145 handles. At 6:40 am S&P futures were +132 handles. Again, to me, a positive bias. 

Remember, I make about 30% of my trades outside of regular trading hours as I feel, in part, I can take advantage of market inefficiencies. 

Finally, in the interest of transparency I bought a trading long rental in SPY and QQQ before 8 pm last night. And I just sold them at $454.29 and $369.80, respectively, for a nice gain. 

The Buy/Short The Close Crowd

There is a large and growing body of short-term traders who go overnight in their trades based on the momentum seen at the close. 

Simply stated, if the markets close weak, like yesterday, they position short for the next day's opening - thinking that the prior day's weakness will extend into the opening. 

Conversely, if the markets close well, these momentum traders go long for the next day's opening - thinking that the prior day's strength will extend into the opening. 

To me, with the advent of 24 hour global trading, the game has become more complicated than their strategy addresses. 

Perhaps, more importantly, is that when we enter a regime of heightened volatility - which now appears to be the case - more attention should be placed on overnight futures trading and less on the nature of the close. 

As an illustration of this: markets, we all know, closed on their lows yesterday and S&Ps were about 70 handles below their intraday high. The day's end price momentum was unequivocally bad and based on that weak close, short term traders would clearly have gone out short with such a poor ending of the day. By not even considering the positive overnight futures bias - which last night had a clear positive bias - those traders face large losses, with S&P futures up more than +24 handles now in premarket trading. 

I hope this analysis and outline provides you with a better understanding why the overnight futures market may be important to me!

From Mikey: Looks like Germans need to learn about hedonistic adjustments!

From my friends at Miller Tabak:

Quantitative Tightening Is Not a Major Threat to Markets or Growth

With its asset purchases set to end soon, there is growing speculation that the Fed could also start to reduce its balance sheet later in 2022; these asset sales could be described as "quantitative tightening." We don't doubt that this is coming. Deutsch Bank's prediction that the Fed may reduce its balance sheet from $9 trillion to $6 trillion over the next several years is plausible. Nevertheless, asset sales of this magnitude will only have small impacts on asset prices and economic growth.

There are two reasons for our optimism. First, the evidence suggests that while the Fed's long-term asset purchases were initially effective (both in 2012 and in spring 2020), they quickly lost their impact. Asset purchases work to lower long-term yields by reducing term premiums. Figure 1 plots New York Fed economists' estimated 10-year term premium (black, right axis) against the Fed's balance sheet (red, left-axis). There is no clear connection between sustained asset purchases and term premiums, nor does more sophisticated analysis reveal one. The last $3 trillion of asset purchases have simply replaced the private sector's low interest rate debt with Fed reserves. A $3 trillion reduction in the Fed's balance sheet will likewise not raise long-term yields by more than 10-20 bps.

Figure 1: 10-Year Term Premium and the Fed's Balance Sheet



Second, part of QE's effectiveness comes from signaling to markets that interest rate hikes will not start until asset purchases wind down. There is no similar effect, however, for asset sales. Asset sales will do nothing to curb inflation and will thus not be a substitute for four rate hikes this year, which will help lower inflation. Asset sales are likely to generate a lot of concern, and hints that they are coming could temporarily harm equities. These effects will, however, be temporary and investors should instead pay far more attention to Fed Funds rate policy.

China cuts rates again.

Chinese stocks are flying (especially of a real estate developer kind).

Alibaba (BABA) , a holding of mine, is +$7.70 in premarket trading.