El Risitas

November 7, 2021 – Weekly note

You have one job: to guide and align policy with monetary and economic goals.

Andrew Bailey, after steering the markets to expect a November rate hike and then failing to deliver:
“I don’t think it’s our job to steer markets day by day and week by week.” 

As Efficient Market Hype @EffMktHype said on a mock-up of the famous El Risitas interview (The Giggles, otherwise known as the laughing Spaniard): “If these guys taught a communications class, it would be sign language in the dark.” (Link at bottom, not appropriate for all work situations, but succinctly captures market conditions leading to this week’s whipsaw).

Obviously the Fed takes its communications and guidance seriously and Wednesday’s taper announcement was fully expected.  However, on the week there were large changes in rates and expectations.  US 2y yield fell 9.4 bps to 39.5.  Fives sank 13.4 to 1.05%.  Tens fell 10.2 to 1.45%.  On the euro$ strip, EDZ’21/EDZ’22 plunged 11.5 bps to 55.0 and FFF2/FFF3 dropped 12.5 from 58 to 45.5, essentially shaving half a hike from expectations for next year. The 5/30 treasury spread steepened modestly from 74.6 to 83.0  The low on Oct 29, 74.6. is the lowest the spread has been since the Covid volatility of March 2020.  Inaction by the BOE led rates to drop everywhere.

The week’s action concerning stirs has been well reported.  As an example, Sept’22 short sterling was 9945.5 on Sept 21, just prior to the MPC meeting.  By Oct 29 it was 9864, a plunge of 81.5.  After this week’s meeting, the contract settled Friday at 9899, a rebound of 35 on the week.  Wild.

Perhaps the idea of financial stability is destined to become more of an issue.  Similar to the 1999 dotcom bubble, all I am hearing about now is crypto.  I personally think economic growth and prosperity comes from investment and productivity.  To me, blockchain fits that bill.  But the plethora of crypto currencies and pyramid schemes being hawked on this basis is nothing more than the South Sea Bubble.  Maybe it’s not big enough to make an economic dent if and when the unwind comes.  However, according to CoinMarketCap.com, the total capitalization of all coins as of Sunday is $2.77 trillion.   Of this, Bitcoin and Ethereum are $1.71 T combined.

Many commentators have called the rise of cryptos a failure in confidence of fiat currencies.  I am sure there’s a kernel of truth to that.  However, all sorts of asset valuations are suspect at this point. 

Consider the chart of Zillow, down 67% from the high in February.  From MarketWatch: “In announcing its latest quarterly earnings on Tuesday, Zillow confirmed that it will ‘wind down’ its Zillow Offers division that focused on buying homes, refurbishing them and then selling them, hopefully for a profit.  But the profit piece was missing.”  The market cap of Z has evaporated by $34 billion to $16.8b from a high of $50.8.  This is a company which supposedly has expertise in valuing homes. I don’t know if Z touts AI in its methodologies.  But I think a lot of companies that do will end up being painted with the A brush over time: Artificial.

Zillow’s entrance into the home-flipping business has a lot in common with crypto-ccy flipping.  A big part of “financial engineering” is predicated on negative real rates.  The fact that valuations rise given inflation and highly negative real rates is not permanent.    

Coming up
Tuesday: PPI expected +.8.6%
Wednesday: CPI expected 5.9% from 5.4% with Core 4.3% yoy.  Jobless Claims 265k
Thursday, November 11: VETERAN’S DAY
Friday: JOLTS and U Mich indicators

Treasury auctions Monday, Tuesday and Wednesday of 3s, 10s, 30s. 

UST 2Y48.939.5-9.4
UST 5Y118.5105.1-13.4
UST 10Y155.2145.0-10.2W/I 146.7
UST 30Y193.5188.4-5.1 W/I 188.3
GERM 2Y-58.4-72.9-14.5
GERM 10Y-10.6-28.0-17.4
JPN 30Y66.567.10.6
CHINA 10Y297.0289.0-8.0
EURO$ Z1/Z266.555.0-11.5
EURO$ Z2/Z361.059.0-2.0
EURO$ Z3/Z417.023.56.5
CRUDE (active)83.5781.27-2.30

Viral star Juan Joya Borja – known as the man behind the ‘Spanish Laughing Guy’ meme – has died aged 65, with tributes pouring in.

The Spanish comedian and actor, aptly nicknamed ‘El Risitas’ (‘The Giggles’) is best remembered for bringing millions of people joy with his distinctive laugh, when he was interviewed on Spanish TV.

The star told a story about his time working at a restaurant and could not hold it together, descending into fits of giggles.

Posted on November 7, 2021 at 3:54 pm by alexmanzara · Permalink
In: Eurodollar Options

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