Give me some water

June 25, 2019

–It was June of 2007, exactly twelve years ago, when Bear Stearns was forced to inject capital into two of its funds loaded with mortgage ‘securities’ which had lost almost all of their value.  These funds eventually failed, as did, of course, the firm.  The bell was ringing at the top.  But it wasn’t the top.  Stocks pulled back but went on to make new highs before the ultimate conflagration.  What brings this footnote of financial history to mind is Natixis’ H20 Fund, with a bit over $32 billion AUM.  This fund was flagged by FT Alphaville and Morningstar last week, and is now facing a liquidity squeeze as investors rush to withdraw in the face of markdowns and illiquidity.

https://ftalphaville.ft.com/2019/06/24/1561376308000/H2O-Asset-Management–Lars–liquidity-and-lingerie/

The analogy with Bear perhaps is unfounded, but the broader issue of illiquidity is central to the current market environment.  

–Yields in the US dropped yesterday, with tens falling  4.5 bps to 2.019%.  On the euro$ strip reds through golds were +5.0 to 5.5.   The Dallas Fed manufacturing survey was particularly weak at -12.1, but Dallas Fed President Kaplan was out later in the day saying that he thought adding monetary stimulus at this time might be counterproductive, and increase imbalances.  However, the market is darn sure of a move in July, with July/August Fed Fund spread settling at -34.5.  

–Both bitcoin and gold soared to new highs yesterday and are higher this morning in a flight to something other than assets controlled by central banks.  Russell led stocks a bit lower.  As I’ve noted before, Russell and NFIB small business optimism are closely correlated; not a particularly comforting sign going forward.  The chart below shows the ratio of Russell to SPX, which has matched the 2016 low and is not all that far from the depths of the 2007-2009 crisis levels.

–Powell speaks at 1:00 pm today, and is slated to deliver semi-annual testimony to the House on July 10.  Other news includes New Home Sales expected 684k, Consumer Confidence 131.0 and the 2-year auction. 

Posted on June 25, 2019 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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