Sept 1. We make money the old fashioned way…
WSJ reports that Obama’s economic team is considering a new round of fiscal stimulus including tax cuts/incentives and infrastructure spending. Late stock surge was able to hold DJI above 10000 for the last day of August.
–New lows in Dec/Dec and March/March eurodollar one year calendars, with the former at 40.5 bps. The tightness of these spreads underscores the idea that the economy (and monetary policy) is going nowhere.
–JPM is closing some prop trading desks to comply with the Volcker rule. Probably not a big deal for JPM, but new fin regs mean that banks are probably more dependent on the old fashioned banking model of making money…borrow short and lend long. So a flatter curve is a negative, and, in a way, could be self reinforcing. For example, near euro$ contracts were slightly weaker on the day even as treasuries surged. If bank stocks weaken in response to a flatter curve, perhaps credit concerns in the interbank lending market also rise slightly, which could beget selling pressure in near euro$ contracts. Circular.
–At the same time the Feds are pretty much telling the public that they want to depreciate the dollar. Paltry yields can’t compensate for this risk, and growth in corp earnings had thus far been accomplished with cost cuts, but stocks are likely more dependent on gen’l economy going forward, so gold rises as the alternative.
–ADP this morning and ISM, expected 53.0
