There are no guarantees
November 1, 2023
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–A lot going on today to kick off November:
Treasury releases details on compostion of borrowing at 8:30.
ADP at 8:15
JOLTs and ISM Mfg at 10:00. ISM expected 49.0 from 49.0 last
FOMC in the afternoon.
–Quiet session yesterday with main feature being continued flattening (and snow flurries in Chicago). For example, on Friday, SFRZ4 settled 9543.5 and yesterday at 9535.5, a drop of 8 bps in two days. SFRZ6 only went from 9580 on Friday to 9578.5. SFRZ7 from 9568 to 9567, so the back end is holding relatively steady. Is that an indication that Treasury is likely to weight supply to the front end? Or that the Fed will maintain a hiking bias? Perhaps it’s a little of both, though SFRZ4 at 4.645% still reflects an easing bias next year; just less of it.
–On the topic of treasury supply, the only thing to keep in mind is MORE. Druckenmiller says he has a massive bet on 2s. I suppose it doesn’t take a master trader to weigh the benefits of a guaranteed yield north of 5.06% vs SPX ytd 9.6% with a lot more risk. And when I say guaranteed, it’s not like the bonuses given to employees by Guaranteed Rate Mortgage which the company is now trying to claw back. How does that leave ‘Guaranteed Rate Field’, the home of the Chicago White Sox? Look, let’s just go back to reality and call it Comiskey again. On the other hand, with the US Gov’t making every effort to tie its currency to the Argentinian Peso (or is that the other way around?) the 5% coupon may not provide quite as much purchasing power a year or two from now. On the third hand, I suppose I’m glad I sidestepped Zillow, which dropped 7% yesterday after a jury found realtors guilty of collusion. (Who could have imagined that?) Z closed at 36.25 yesterday from 57 in August. I’ll give it a ‘Zestimate’ of 25 by year end.
–In terms of inflation, here’s a tidbit from Almost Daily Grants (piece is about Electric Vehicles, emphasis added):
Elevated replacement costs for e.v. components and a dearth of specialized technicians to troubleshoot mechanical problems further dilute the value proposition for potential customers: average insurance costs rose 72% over the first nine months of the year, data from comparison site Confused.com show, well above the 29% uptick for combustion autos.
72% for EVs and 29% for gas-powered insurance? I’m not sure that 5% coupon is going to cut it.
