Jan 24, 2018. The Mnuchin Show

–What the Fed hasn’t been able to accomplish for years, namely, generate 2% inflation, Mnuchin is going to do this year, by giving the green light to currency devaluation.  In Davos, Mnuchin indicated he welcomed a weaker dollar, which immediately fell to a new low.  It used to be that a Treasury Sec’y could ONLY say, “A strong dollar is in the best interests of the United States.”  In was in 1987, when then Treasury Sec’y James Baker threatened the Germans with USD devaluation, that stocks tumbled (with many commentators specifically pointing the finger at Baker).  In today’s environment, a weaker USD is embraced by the stock market, however, the bond market (if there is any sanity left) should run like hell to higher rates.  Gold is at a new high this morning, with Feb Gold +13.30 to 1350.  GBP, which had rebounded all the way back to pre-Brexit levels, is higher yet this morning.

–Two year notes were well rec’d yesterday.   Yields over 2% are obviously attractive for relatively short end paper.  But that won’t be the case if a drop in the underlying ccy value ensues.  What if the Fed is eventually forced to respond to the effects of a weaker dollar?  I’m not really supposed to make trade recommendations in this note, but THE TREASURY SEC’Y OF THE US IS SENDING AN ENGRAVED INVITATION TO SELL BONDS. *Disclaimer* Past performance is no guarantee of future profits (or losses).

–Yesterday was indeed a turnaround Tuesday, but the trend and sentiment is still bearish.  Feb treasury options expire Friday.  I would simply mention the USG 147p closed at 2/64’s.

Posted on January 24, 2018 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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