April 25. A certain ‘quality’ is missing

Which are the continuity of quality.

Phædrus read on through line after line, verse after verse of this, watched them match, fit, slip into place. Exactly. This was what he meant. This was what he’d been saying all along, only poorly, mechanistically. There was nothing vague or inexact about this book. It was as precise and definite as it could be. It was what he had been saying, only in a different language with different roots and origins. He was from another valley seeing what was in this valley, not now as a story told by strangers but as a part of the valley he was from. He was seeing it all

He had broken the code.

–From the powerful book, Zen and the Art of Motorcycle Maintenance by Robert Pirsig (died yesterday at 88).

The Dali Lama visits New York, approaches a hot dog stand and says,

“Make me one with everything.”

 

Big hitter, the Lama. –Carl Spackler
–If one left at Friday’s close of business short vol and short eurodollars, by Monday morning, he was one with everything; he had broken the code.  No clearer example was the sale of USM 151 puts at 0’47 during the day, when USM was printing down 1’03 at 153-02.  These puts settled Friday at 0’48 vs 154-05.  the underlying future was demolished, but the puts traded DOWN 1 on the day!  Implied vol was simply crushed across the curve.  And VIX plunged to 10.7, having been 16 earlier in the month.
–Below is a chart of bond vol.  Now near major support, (though the washout may mot be over yet).  In a longer term context, the idea of MBS leaving the Fed’s passive hands and moving back into the world of hedgers should boost vol, but that’s down the road.
–Stocks soared but the eurodollar curve actually flattened a bit by the end of the day, with reds -4.5 and golds -3.375.  FFN7 settled 9894 (-4.0 ), back to a 2 in 3 chance of a hike in June. If the Fed hikes in June with no timetable on the Balance Sheet, look for 5/30 to trade 80 (now 113).
–Trump announced a 20% tariff on lumber from Canada.  Sure, tax cuts in the US are a benefit, but a decline in the global economy due to trade wars is a negative.  And it’s no sure thing that deficit hawks in Congress will pass tax cuts, especially as the Debt Wall is reached.  For now… full steam ahead.

 

Posted on April 25, 2017 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply