Coinbase or Corn
April 15, 2021
–Yields edged slightly higher yesterday but the 132 strike seems to have a gravitational effect on TY, now just back above that level at 132-04 vs a settle of 131-295 (1.632% in cash). Retail Sales is the big release today, expected +5.8% and +6.4% ex-auto and gas. Some estimates are higher due to stimulus checks. Powell yesterday said that a reduction in asset purchases would occur prior to rates being raised, but given massive deficits that the Fed has helped monetize, any tapering will probably be a slow and delicate process. I would also suspect that the curve will stay relatively steep if short rates are held at zero while inflationary pressures continue to build.
–Other releases today includes Jobless Claims expected 700k from 744k last, and Philly Fed at 41.2 from 51.8 last.
–EDZ1 9975 straddle continues to settle at 7.5 with futures 9974.0. The level of 7.5 exactly equals the Sept/Dec calendar spread, EDU1 9981.5 and EDZ1 9974, while EDZ1/EDH2 is negative 3.5. There is obviously a turn priced into the December contract, which option sellers must think is almost exactly right, even though there are 242 days until expiration.
–May Corn is at a new high above $6 this morning, having been around $3.50 in August. In April of 1986, the Chernobyl nuclear accident occurred in Ukraine, 35 years ago this month. At the time, grain prices jumped with concerns about contaminated food. I’m not saying that Japan’s decision to release radioactve water into the ocean has anything AT ALL to do with the price of corn, but food security and scarcity are powerful themes. On a related note, the Arab spring was 10 years ago, partially sparked by high food prices (which in my opinion were tangentially related to the Fed’s QE2 program which started in November 2010). Maybe the cutting edge investment theme isn’t going to be digital currency and social media going forward, maybe it will boil down to basic human necessity.
