Hawkish Remarks On Monday Would Play In Favor Of TMV

seekingalpha07-15

Torsten Asmus The Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (NYSEARCA:TMV) is a leveraged ETF that takes a 3x position against a basket of long-dated and expectations-sensitive Treasuries. ...

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L","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4550":"红杉资本持仓","BK4588":"碎股","TMV":"3倍做空20年期以上美国国债ETF-Direxion","FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念"},"translate_title":"周一的鹰派言论将有利于TMV","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TMV":1,"US10Y.BOND":0.9,"US12M.BOND":0.9,"US2Y.BOND":0.9,"US30Y.BOND":0.9,"US3Y.BOND":0.9,"US5Y.BOND":0.9,"US6M.BOND":0.9,"US7Y.BOND":0.9,"FDN":0.75,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6},"content_text":"Torsten Asmus The Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (NYSEARCA:TMV) is a leveraged ETF that takes a 3x position against a basket of long-dated and expectations-sensitive Treasuries. Leveraged ETFs, for reasons we also touched upon in our previous coverage, are only suited for shorter term investments due to value erosion. Additionally, it is essential to comment on the fact that this ETF is going to be very sensitive to market factors, as it is not only high duration but mirrors the value changes of the underlying index by a -3x factor on a daily resetting basis. We've already seen inflation and inflation expectations data. Some reasons would be to play TMV on the jobs data coming next week or on Powell speaking in the US on Monday, which may have a different tone than his testimony to congress recently that had markets excited due to some dovish comments about also needing to consider the growth mandate and not unduly slow down the economy. While it's true that the Fed has a dual mandate and factors like the financial system's exposure to commercial real estate are considerations, contrary to the market's interpretation of calming inflation due to slight MoM declines, the key factors for inflation are not in decline, so we don't believe a trend is starting or disinflation will be meaningful absent an economic hit. We continue to believe that a soft landing is definitionally impossible without major productivity gains, which are nowhere to be found. TMV could actually make sense for speculating on Powell's coming committee speech, which will likely affirm a wait and see approach where some FOMC members remain very hawkish, a view we think is right. The recent testimony has priced in the dovish expectations, which gives more space for a repricing with hawkish expectations, which would be good for TMV. Governor Bowman, for example, is even open to more rate hikes, and views like hers will have to be reflected in the statements on Monday. Regardless of what they say, we do not believe in disinflation currently, and while TMV is less suited for longer-term speculations such as that or longer-term holding in general, it is some modicum of protection and, at any rate, likely to factor into the committee's views which are at least as informed as ours. However, we're not speculators and will personally stay away from TMV. Analysis CPI data is coming in slightly lower MoM, but remains above policy targets of 2% sitting at 3%. The policy target will not change, and the fact of the matter is that inflation remains too high relative to that target. While some MoM easing may seem like a positive sign, we wager that it has absolutely no meaning whatsoever, and that ultimately the expectations of inflation, which remain around current levels, act as a marginal inflation that will keep inflation around the 3% mark unless there are major economic changes, such as perhaps larger amounts of unemployment. The jobs data coming later next week might have some signals about that, although with the US economy still being resilient by all accounts, we do not expect any unusual data in that regard. Inflation expectations data is still above policy levels at 2.9%, only slightly below current rates, according to the University of Michigan surveys which are a recognized reference. Above all else, inflation expectations lead as the cause of inflation. With inflation expectations at these levels, and with the Fed understanding very well the dynamics of inflation, the chances of any dovish remarks on Monday are low. Furthermore, the relatively split FOMC, whose members have differing ideas on the inflation path skewing towards hawkish views, we expect further upsetting of the yield curve against long-dated maturities even though markets have been optimistic due to the testimony Powell gave recently to congress. Moreover, money velocity is still high - it has not declined in this rate hiking regime, which is pretty bearish for long-dated bonds that are hoping for effective declines in credit availability and other inflationary factors. Yield Curve (worldgovernmentbonds.com) The trouncing of cutting expectations that has occurred repeatedly for over a year now is seeing the effect of the translation of the yield curve upwards, especially in longer-dated issues. This is the bond market respecting more and more that the inflation rate may be crystallizing at higher rates, and respecting that inflation has the tendency to anchor quite quickly at new levels. This was the Fed's primary concern and reason for the objective of not only getting rates down, but doing so quickly. They have failed in doing so at current rates, with most of the easing of inflation due to a punctuated increase in costs around the supply chain scares in 2022 and then easing base effects. Bottom Line Expectations lead actual inflation, and expectations are barely below current levels one year out. 5 years out, the expectations are also 2.9%. It's very clear that the sampled consumer doesn't believe in retreating to the 2% target. While this may not lead to an actual rate rise, since the Fed has the health of the financial system, including exposure to commercial real estate, to contend with and Powell's recent comments recognize that they have a dual mandate, we think in all likelihood rates stay higher for longer which will be enough to harm long-dated securities. In our opinion, the meeting tomorrow should affirm that the Fed will take a wait and see approach with cuts again to markets which have been biased towards positivity, so it will likely lead to some disappointment.  TMV is riskier when held for longer periods due to value erosion, but one day is a perfect horizon for the speculative purposes of the ETF, and Monday will be a pivotal day with Powell speaking midday ET. TMV secures leverage quite cheaply with a 1.01% net expense ratio, and with a possible catalyst so imminent, the drawbacks of leveraged ETFs become mitigated. TMV will still be very sensitive to changes in the yield curve at the longer end, so we'd not get involved with it.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2451646723"}