(Washington)

This has been a week of divergent views on bonds. Earlier this week we ran a story arguing that there would be no bear market in Treasuries. It was a solid argument. However, now there is a contention out there that ten-years, specifically, might struggle. The reason why is that demand at auction has been falling for the bonds just at a time when the US needs to issue more and more to cover its deficit. In addition to excess supply, the other big issue seems to be that short-term Treasuries are yielding so much relative to ten-years, that there is little incentive to buy them.

FINSUM: In one sense this is bad, but in another good. The downside is that holders of ten-years (which are a huge component of fixed income indexes) will be hurt as yields rise. But on the positive side, this is exactly the kind of force that keeps the yield curve from inverting as longer-term yields rise alongside shorter-term ones.

(New York)

In what seems like a series of warnings out of Morgan Stanley, the bank has put out another today on a critical sector. MS says that the market darling chip sector, often referred to as semi-conductors, are in for a rough road. The bank says the sector has the poorest risk-reward ratio in years. “Cyclical indicators are flashing red … Elevated inventory and stretched lead times leave no margin for error as any lead time adjustment or demand slowdown could drive a meaningful correction”, says the bank.

FINSUM: Gains of semiconductors have greatly outpaced the market over the last three years, and MS thinks it is all about to come crashing down.

(Washington)

After a long and quite public back and forth about the potential for an interview, are President Trump and Robert Mueller close to meeting? Trump’s team has apparently responded to Mueller’s request for interview with a counteroffer on the terms. The two parties have been in discussions since at least January. The basic core of the counteroffer is that Trump is happy to talk about collusion with Russia, but not about obstruction of justice. Though Rudy Giuliani, who is on Trump’s legal team, said they did leave the door open to possible questions on obstruction.

FINSUM: This seems like a positive development. It appears like it would be good for all sides to have this investigation finished once and for all, and a sit down with Trump could potentially resolve things.

(Washington)

In what seems to have amounted to the “shot heard round the world” of financial markets, this week Elon Musk, Tesla CEO, tweeted that he may take the company private at $420 and that he already had the funding secured. As expected, this sent markets into a tizzy, with the stock gaining sharply as it moved towards the stated price. Now, however, the SEC has announced it is investigating the legality of the tweet, and is investigating the particular statements made. The SEC maintains that such a statement should have been made in an SEC filing rather than a tweet, and it wants to investigate if funding was actually secured. If not, it could mean Musk was intentionally misleading the market.

FINSUM: Musk has been on a very rocky path lately, and this SEC inquiry is not going to help. That said, the idea of taking Tesla private still seems like a good one to us.

(New York)

Morgan Stanley has put out a warning about the worryingly declining breadth of the stock market this year. The bank says that “Fewer stocks are carrying the load of the market, a sign of exhaustion and, in our view, a bad signal for further price gains”. The bank appears to be quite correct. According to the article “Bloomberg points out that Amazon.com, Netflix and Microsoft accounted for 71% percent of the S&P’s gains through early July. Along with Apple, Alphabet and Facebook, they accounted for 98% percent of the gains”.

FINSUM: Honestly that could not be a more worrying sign on breadth. 98% of gains from from 6 stocks. That does not spell widespread strength. However, earnings have been good for the last month (when the reporting period for these stats ended), so gains may have been better lately.