Monthly Archives: October 2026

It’s Been Hell

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Despite all the angst ‘round the earth
The one thing of which there’s no dearth
Is risk appetite
As both left and right
All want to increase their net worth

However, at times it’s been hell
To choose what to buy or to sell
The dollar is strong
So, best to be long
But what if yields here quickly fell

And what about stocks, can they rise
From their now historic new highs?
And let’s not forget
The government debt
Or ‘bout a November surprise

It is very confusing these days, as if you read or listen to the news, the sky is falling.  But if you look at market prices of so many assets, things look pretty good.  Now, I understand the iron rule of media is, if it bleeds, it leads, and so in a world where getting clicks is far more important that recounting a coherent story about what is happening in the world, there is little, if any, effort to produce the latter.  Alas, while sentiment is clearly an important part of all markets, I remain enough of a curmudgeon to continue to believe that the fundamentals still matter.

So, what are those fundamentals?  Well, if we look at the economy writ large, even after a weak payroll report last week, the Atlanta Fed’s GDPNow estimate remains at 3.7% for Q3 as per the below chart.

And interestingly, despite all the positive data, notably things like the ISM Surveys, Retail Sales and Personal Spending, we continue to read headlines about problems in the economy.  A great example was yesterday’s Trade deficit which printed at a higher than expected -$105.6B, which was the worst reading since the month before President Trump’s tariffs were inaugurated last year.  But ask yourself, why is our trade deficit growing?  The answer is because the US is growing far faster than other nations and so not only are we sucking in more imports, but export markets are weak.  As it has been said before, if you want to close the trade gap, send the country into a depression, then we won’t buy any imports, although that seems like an extreme solution.

But that US economic strength shows itself in various ways.  For instance, Treasury yields continue to rise, up 5bps this morning, although that is dwarfed by moves in Europe (France +16bps, Italy +13bps, Greece +12bps, UK +10bps).  The question to ask here is, why are yields rising?  While the most recent generation of traders and economists continue to believe this is a sign of fears over inflation, or perhaps excess government debt, given the lack of movement in TIPS breakevens, it very much appears this is all about higher real rates.  Demand for capital in a growing economy seems to be driving yields higher.  Again, I harken back to my youth in markets when the strong belief was that 10-year yields should trade right around nominal GDP growth.  At 5.33%, we remain far below that level.

Investors are buying the US writ large.  You can see that in the dollar, where the euro (-0.8%) has fallen to its lowest level since May 2025 as per the below chart.

Source: tradingeconomics.com

But look at this chart.  The euro is nowhere near its lows of the past 2 years, let alone historic lows, so the idea that the dollar is overly strong remains laughable.  In fact, if the US continues to grow its economy the way it has been doing, and if investment keeps flowing into the US like it has been, the dollar can get much stronger.  While the yen has been depreciating for a long time, the same has not been the case with the euro or other G10 currencies, and I see no appetite for any official action to stem the dollar’s strength here.  If I consider the insanity of European energy policy leading to its ongoing deindustrialization, I see no reason that parity in the euro is not a real target.  Not right away, but by sometime next year for sure.  And this is especially so if the Republicans hold the House and Senate next month.

In fact, there are only two currencies that have shown any strength vs. the dollar, the BRL, which I discussed yesterday and is rallying on the back of a positive view of a Bolsonaro presidential victory in two weeks’ time, and the KRW, which has been the beneficiary of consistent inflows for investment into its semiconductor sector.  And while the euro has been the worst performer today in the G10, virtually every currency is weaker vs. the dollar this morning as the news flow continues to point to problems overseas rather than in the US.

Which takes us to equity markets and the fact that both the S&P 500 and NASDAQ made new all-time highs yesterday, although futures this morning are pointing a bit lower.  

Source: tradingeconomics.com

In fact, I think we can look at the US performance relative to that in Europe and Asia and learn the same lesson, capital continues to flow into the US.  A look at the below Bloomberg screenshot tells the story well.

Which takes us to commodity markets.  While oil is off its recent lows, it remains well below the 
$100/bbl level that sets hair on fire as you can see below.

Source: tradingeconomics.com

In fact, I couldn’t help but notice the announcement from the IRGC that they would be closing the “illegal” routes through the Strait of Hormuz shortly, of course implying the Strait is, in fact, basically open.  While President Trump has been saying this for several weeks, the media doesn’t like that outcome so has tried to refute it.  I wonder what they will say now.  Meanwhile, gold (-2.2%) continues in its funk and has been dragging silver (-3.5%) down with it.  Frankly, with real yields at 2.9%ish in the 10-year and 3.5% in the 30-year, those are pretty attractive alternatives to the barbarous relic.  While I still think they have room to rise (metals, that is) I guess now is not the time.  Copper (-0.3%) however, continues to hover just below its recent all-time highs on ongoing fundamental demand in the growing US economy.

In the end, the world is not ending, and in fact I’m positive going forward.  But then, I’m just a poet.  On the data front, on the calendar today we see EIA oil inventories with a small build expected and the FOMC Minutes at 2:00pm.  I imagine a lot of effort will go into parsing those Minutes, but the market has already decided there is no hike coming this month although they still see December as quite likely.  A backing off from equity highs is no surprise, and I do not see this as the beginning of a new trend lower.  In fact, until the election results, I think we are more likely to rally risk assets then sell them.

Good luck

Adf

Back to his Pen

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The poet is back to his pen
And thinking ‘bout euros and yen
And oil and gold
As bonds all get sold
While indices rise yet again

Remarkably, o’er the past week
Though headlines, to havoc, did speak
The movement of note
Showed oil got smote
While dollars have reached a new peak

I have not been keeping close tabs on markets overall during my road trip, although am back to focusing again.  But first, the news from Topeka was that, while Marvel showed beautifully, we did not get placed amid very stiff competition.

Plus, as in every judged event, there is a measure of politics involved, and I am just not politically correct!

One other issue is that today is the first day I’ve had viable Wi-Fi to work with as the previous places I stayed just didn’t have it.

So, with all that in mind, I will be brief this morning.  Prior to leaving, I left myself records of where markets closed on September 25th so I could see how much things changed.  And the truth is, not all that much, at least on net since I last wrote.

In the equity markets, while the NASDAQ made new all-time highs, it is just 2% higher than when I left.  The S&P managed a much smaller gain, 0.7% and the DJIA actually slipped a bit during the period.   Elsewhere in the equity space, Japan (+7%) was the big winner while France (-2.5%) cannot keep up as the student riots and the fiscal problems, which are bad enough to garner a top WSJ story this morning, are obviously weighing on things there.  

Of course, all the equity moves are happening within the context of the bond market, which continues to see yields climb around the world.  US yields (+11bps) are the talk of the market, but Japanese yields (+3bps and up to yet more 30+nyear highs) are also still climbing.  But arguably, the biggest news is Brazil, which in the wake of the surprising first round lead in the presidential election by Flavio Bolsonaro (son of previous president Jair Bolsonaro) where we have seen Brazilian yields collapse (-115bps) while the Brazilian stock market rocketed 7.7% in the wake of the election results

Source: tradingeconomics.com

Elsewhere, both oil (-5.1%) and gold (-2.9%) have slipped as the former continues to seesaw based on comments about the amount of oil coming out of the Strait of Hormuz, although it is clear product prices are not falling, while the latter has just lost its appeal.  Gold is a funny thing, it is a wonderful long-term store of value and has been so for millennia, but it cares not a whit about day-to-day movements in prices.  Arguably, gold has done its job as that store of value as many holders have utilized their reserves to shore up their own financial situation, thus selling the barbarous relic.  However, it remains difficult for me to look at the fiscal policies extant around the world and think that fiat currencies are going to be embraced.  

Speaking of fiat currencies, while the dollar is just that, fiat, it is also the currency of the strongest current economy around, so despite all its flaws, and all the questions about the Fed and whether they will be hiking again and what that means, and despite all the angst over the selloff in Treasuries, the dollar continues to be the safest play around.  For instance, the euro, saddled with French misery and Germany fiscal and energy incompetence (as well As Spanish insanity regarding housing policy) has slipped -1.3% over the past week while the DXY has rallied a similar amount.  Despite the Nikkei’s rally, the yen (-0.6%) has slipped as well.  In fact, the only currency of note that has performed well is, not surprisingly, BRL (+3.5%) as money is flowing to the country in anticipation of a Bolsonaro win in the runoff election at the end of the month.  That, my friends, is a serious gap opening!

Source: tradingeconomics.com 

And that’s really all I have this morning, but I will be back going forward, most days, I believe.

On the calendar, there is not a ton this week after last week’s disappointing payroll report.

TodayTrade Balance-$102B
ThursdayInitial Claims200K
 Continuing Claims1710K
FridayMichigan Sentiment47.6

Source: tradingeconomics.com

The payroll report served to reduce the probability of a Fed hike this month dramatically and it is now down to 21% from above 60% when I left.  I still don’t think they need to hike more, although the market remains convinced they will do so in December.  But December is a long time from now and much can happen in the interim.  As to the dollar, it remains the cleanest dirty shirt around.

Good luck

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