The Yellow-Lipped Parson

If you’re a male Parson, you can be forgiven for being a commitment-phobe…and thirsty. Though we don’t play scientists on TV, nor are we in our day jobs, we suspect that it has something to do with their gigantism vis-à-vis the majority of chameleons. Unlike most that grow to about 12 inches, a Parson’s chameleon can reach up to 28 inches and weigh as much as a small house cat. Of all the Parson’s, the “yellow giant” is most recognizable -- it goes dusky and stripes into the background when stressed, including its yellow-lined lips. If you’re lucky enough to spring one out of the humid forests of Madagascar now that the export quota has been lifted, prepare your budget. These mammoth masters of disguise eat mountains of super-sized crickets, hornworms, and roaches. Did we mention parched? Leave a drip and Parson’s can drink for minutes on end every day. As for the time commitment, if you can tease eggs out of a female, plan to tuck in for a good long while. Females in captivity can lay more than 50 eggs and the hibernation period, a.k.a., “diapause,” takes up to two years before hatchlings emerge.

Unlike squid and octopus, chameleons don’t hide by dispersing pigments within their skin cells. Instead, these lithe lizards rely on structural changes that affect how light reflects off their skin. Homo sapiens sense the adaptable autocrat Vladimir Putin is related to these reptiles. Every trading day seems to invite a new and different despot. The latest from a paranoid White House is that we’re being hoodwinked by a “false flag” stand down even as Putin prepares an “imminent invasion.” The weather forecast along the northern Ukrainian border and a bumper crop of cash flooding oil oligarchs’ coffers suggest otherwise. Though he may feign to be threatened when it suits, Putin knows he’s in a position of negotiating strength. Looming sanctions have no teeth -- they don’t bite into Russia’s energy exports nor its access to the SWIFT financial system.

As we look to the upcoming trading week, markets will no doubt be on tenterhooks awaiting the outcome of U.S. Secretary of State Antony Blinken’s meeting with Russia Foreign Minister Sergei Lavrov in Europe. If that’s not entertaining enough, we’ve got a solid two weeks of FedSpeak to look forward to before blackout kicks in March 4th. Who knows what Christopher Waller might say at his appointed time at 10:15 am this morning, or Jim Bullard on just about any other date and time?

As efficacious as they are in the art of diversion, there are several things that could temper the enthusiasm of voting hawks on the Federal Open Market Committee. Evidence of the industrial recession was abundant in Thursday’s Philadelphia Fed manufacturing for February, which tracks the most leading of all cyclical sectors -- chemicals. As gauged by z-scores, deviations from the mean adjusted for volatility, at -2.5, the aggregate of the report’s three most forward-looking markers skidded to the weakest since December 2008 (orange line), a month that needs no footnoting for any market veteran. Broken out, at -.5, the future workweek, the most lagging of the three indicators queried as what’s perceived six months out, it hit the lowest since January 2016, which coincided with the industrial recession. For all the bluster about delivery times inducing inflation, at -2.2, future delivery times are at an October 2008 low. And finally, future backlogs, otherwise known as future demand, slid to -1.75, the lowest since July 1998. The labor market, price pressures and growth are all set to slow.

The other leading-edge sector – housing – also put us on high alert given Freddie Mac 30-year mortgage rates hit 3.92% Thursday, the highest in nearly three years. Given the historically low starting point, we mapped the rate’s 2-month delta z-score, which at 81 basis points, clocked in as the highest since December 2016 (yellow line). But still, you must be saying, rates are so low, they can’t begin to hinder residential real estate? Black Knight data say otherwise as the pool of borrowers who would benefit from refinancing has shrunk to 3.8 million from 11 million since the start of the year and more than 20 million in 2020. Given the loftiness of the National Association of Home Builders Buyer Traffic starting point of 65 (purple line), which is down, but only by seven points in the last year, we still harbored doubts about such low levels stunting buying activity. Is housing structurally sound despite the relative jump in mortgage rates?

The answer is in the intricate table we hope you have been studying for a few minutes. Save three instances in data back to 1986, buyer traffic has always been negatively impacted by this big of a decline in rates. The two standouts occurred in 1994 (red highlighted rows), when the Fed was aggressively tightening, and buyer traffic fell by double-digits.

Other attempts to draw parallels to recent history are equally challenging. Chameleons need not apply as Ukraine is not Crimea, Taiwan is no Hong Kong, U.S. fiscal flexibility won’t bail out the economy as the Hill is already a battlefield eight months shy of Election Day, and inflation is not contained as the Fed contemplates its first rate hike in less than a month. Is it any wonder, per Bank of America, that Treasury funds saw their greatest inflows since March 2020?