Oct 25. Bikes, not oil
–Interest rate futures backed off their highs yesterday, as the notable feature of the day was large buying of Green Dec put condors (2EZ 9875/9862/9850/9837 for 1, 50k). On Wednesday there had been a large outright buyer of EDZ5, so this trade, and other 2EZ put buys, could be related – downside protection. Ten year yield rose 3 bps to just over 251. Curve steepened. Treasury auctions 2’s, 5’s and 7’s next week.
–China is constantly calling for an end to US dollar reserve currency status. Some commentators are saying the Saudi rift with the US, and the fact that China is the biggest importer of oil could hasten the loss of the dollar monopoly if the Saudis accept other currencies. Dollar reserves would not be as essential for other countries to hold; US borrowing rates could be pressured higher. In the shorter term, crude oil and the CRB index both appear to be weakening, while China is letting its repo rate rise in a bid to stem inflation. The great debate between deflation and hyperinflation in the era of huge debt and huge QE rages. Michael Pento notes that fine art auctions are seeing record price increases, which he believes are a precursor to massive inflation, (yet gold is 25% off its high, Mr Grant). Ambrose Evans Pritchard wrote a piece this week saying the EU is under threat of a dangerous deflationary spiral due to large and rising debt levels. In a nod to his argument, NPR: In Almost Every European Country, Bikes Are Outselling New Cars (in Italy the first time since WWII). http://www.npr.org/blogs/parallels/2013/10/24/240493422/in-most-every-european-country-bikes-are-outselling-cars The US interest rate market signals idle inflation, stocks lean the other way. I have to jump on my bike now and ride to the train to squeeze the last value out of my monthly pass.
Buy bonds.
