Sept 12. Debt fears and online ads
-Monday featured a relief rally in stocks and an unwind of safe haven trades in bonds. However, it was likely more important than just a reaction to the ‘less worse than feared’ events over the weekend. Stocks made new highs, and the curve had a steepening bias on the sell off. The idea of the Fed instituting the Balance Sheet plan at next week’s FOMC seems highly probable given the resilience of financial assets. However, odds of a December hike in funds remain around 1 in 3.
–Tens are auctioned today and the yield rose 6.4 yesterday to 2.122. (w/i was 213.0). 2/10 treasury spread steepened by 1.5 to 80.7. Interestingly, the spread between the ten yr treasury and tip closed at a new recent high of 183.6…perhaps market measures of inflation may lead a turn in official data (PPI and CPI out Wed and Thurs).
–There were several large option trades in dollars (will be detailed in a note later this morning), but the main idea was typically selling longer dated vol. One trade to note here: +25k 0EM 9825/9800/9775p tree vs 9850c for 1.0 appears to be an exit of long 9800 puts; rolled into a longer atm put spread, and sold calls to finance.
–Several stories about outstanding debt, as US Gov’t debt exceeded $20T in the wake of the debt ceiling deal. According to the BEA, current dollar GDP in Q2 is $19.246T. So there’s that. Other stories mention that credit card debt is nearing the peak set in 2008 of $1T. That figure can pretty much be ignored; non revolving debt (autos and student loans) have $2.75 T outstanding, and of course over half of that is the latter. The Fed’s data on Household Debt Service (FOR) doesn’t really indicate warning signs for now.
–Article on Bloomberg has the headline: Three Reasons the Global Rally Can Keep Going. They trot out the usual tripe about strong growth and easy financial conditions. Here’s my 3 reason synopsis: BoJ, ECB, FRB.
Below is a clip from the CEO of Restoration Hardware. It’s pretty interesting with respect to online advertising:
I’ll share a little anecdote with you on this point.
We had our marketing meeting in the company several years ago and the online marketing team was pitching to double their budget, right, and at the time, say, look, nobody in the company is doubling their budget. But tell me why you believe that’s the right thing to do. And they said, well, look, our customer acquisition cost and our ad cost is the lowest in the company. And I said, well, tell me about the data, show me how. And they said, well, people who click through the words that we buy on Google, the ad cost was lowest. And I said, how do you know that they’re clicking on the word and going to the website because of the word you bought versus they saw a store or they received a source book? They said, oh, we know.
I said, well, how many words do you buy? They said 3,200. 3,200 words. I said, well, what are the top words? How are they ranked, the ranking of the words? Oh, we don’t have that, right. And I was getting the look at like, oh, Gary is kind of one these old brick-and-mortar guys. He just doesn’t get it.
And I said, well, what are the top 10 words? And they didn’t have the information. I said, why don’t we cancel the meeting and come back next week when you have the data? I’m sure that Google sales representatives who are taking you to the expensive lunches and selling you the 3,200 words have that data. So why don’t we get the data and then let, review the data?
And they came back the next week and we sat in a meeting and all of a sudden, I can tell you there’s a little change in the faces. They had to wear it kind of down. Everybody kind of came in. I said, so what did we find out?
And they said, well, we’ve found out that 98% of our business was coming from 22 words. So, wait, we’re buying 3,200 words and 98% of the business is coming from 22 words. What are the 22 words? And they said, well, it’s the word Restoration Hardware and the 21 ways to spell it wrong, okay?
Immediately the next day, we cancelled all the words, including our own name. By the way, we are paying for the little shaded box above our words and said, oh no, we have to hang on to that because Pottery Barn might squat on top of us. I said, excuse me? I said, if someone goes to a mall or a shopping center and they’re going to Restoration Hardware and there’s a Pottery Bam there, they’re already squatting, okay? It doesn’t mean they’re going to go into their store. If somebody wanted to buy a diamond from Tiffany and just because Zale’s is sitting on top of them in a shaded box doesn’t mean they’re going to go to Zale’s and buy a diamond.
I mean, I can’t believe how many companies buy their own name and they’re paying Google millions of dollars a year for their own name, like maybe if this is webcast, right, a lot of people are going to go, holy crap. They’re going to look at their investments. They’d go, maybe we don’t need to buy our own name. Google’s market cap might go down…
Big trades:
-35k 3EM 76/80p 3×2 at 15 and 15.5 cov 9802 this is new.
+25k 0EM 77/80/82p tree vs 9875c 1 paid put…rolled out of long 9800puts
EDU8 76p fut 9847.5 .04d (+) exit
EDZ8 73p fut 9840.5 .03d (+) exit
VS
EDM9 73p fut 9836 .08d (-) new
EDU9 73p fut 9832 .11d (-) new
SOLD 25k at 6.5 in pkg
