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A Lesson In Cherry Picking Data From Morgan Stanley

Courtesy of Tyler Durden

Somebody better remind Morgan Stanley’s Jim Caron that he is now pitching 10s30s flatteners, cause he sure seems giddy over the 25 bps move in the 10 Year (coupled with an even bigger, i.e. steeper, move in the 30 Year), which of course means his advice continues to lose his clients money. Of course, this being the most optimistic bank on Wall Street, Caron immediately equates rising rates with surging stocks: “The last time UST 10y was around 3.00%, S&P’s were around 1127. If the high level of correlation between bond yields and stocks hold, then the breach in the bull UST 10y trend may signal better performance of risky assets.” And that, ladies and gentlemen, is how you cherry pick data. Because taking Caron’s chart a little further back, shows that the last time the 10 Year was here, as Rosenberg reminded us three weeks ago, the S&P was at 805. So… 1,127 or 805? The upside/downside after today’s 1,110 close sure looks very attractive to the upside. Just like Caron, we will leave it with the  rhetorical “Just an observation to think about before you head home for the weekend”, and we’ll add – “pick your kool aid.”

From Morgan Stanley’s Jim Caron:

A point that we have discussed in our research is how highly correlated many asset classes are to the level of interest rates. Recently we have observed the rising rates are good for risky assets and falling rates are bad. The short-term rationale is quite simple: higher rates reflect a reduction in the tail risks for a negative economic outcome and vice versa. We argue that the interest rate market is leading the equity market, so it follows that rising rates may usher in higher equity prices. As one can observe (see chart below), the short-term correlation between rates and stocks is quite high.
 
What is significant about today in the rates market. Today, we observe a break in the bull trend line for UST 10y. Please reference the work done by our tech analyst Drew Baptiste for more details (further below in the e-mail). Drew’s analysis indicates that a close above 2.72% in UST 10y (10y is at 2.80% currently) may target a move to 2.85% and beyond that 3.00%. The last time UST 10y was around 3.00%, S&P’s were around 1127. If the high level of correlation between bond yields and stocks hold, then the breach in the bull UST 10y trend may signal better performance of risky assets.
 
Just an observation to think about before you head home for the weekend.
 


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