Dec 4. Like it’s 1986…(of course, there was a stock crash in 1987)

–Yesterday, $/yen hit a new high and then closed lower on an outside day, same pattern against euro. Stocks continued their pullback, though not unexpected given the 10% rally in the past two months.  Seeing a large rally in Jan Crude…having hit new lows at 92 at the end of November, it’s currently above $97/bbl.  This, while gold and silver continue their drift to new lows.
–Car sales were robust yesterday on the heels of much stronger than expected ISM.  By many measures, the economy is performing quite well.  If a time traveler was propelled from the mid-1980’s, and just looked at the data without knowing the structure of interest rates, he’d probably guess that somewhere around a 5-6% Fed Fund rate was appropriate.  In 1985 inflation was 3.5 in 1986 it was 1.9.  In 1986 FF rate was around 6%. By the way, the unemployment rate in 1986 was 6.7 to 7.2. In 1986 the Fed’s Financial Obligation Ratio was a bit over 17%, now it’s just a bit over 15%. Just take a look at the chart on this short post:    The energy outlook is good, US banks have repaired their balance sheets.  Why is the Fed wringing its hands over the fragile recovery?  How is a 2 3/4% ten year yield justified?  Only because of crushing gov’t debt loads and unfunded liabilities…
–A lot of data out today, including ADP expected 185k, Intnat’l Trade -$40B, New Home sales 425k and non-mfg ISM, 55.5.

Posted on December 4, 2013 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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