The $64000 Question
April 14, 2021
“The $64000 Question” was a tv game show which aired from 1955 to 1958. “The first four questions were provided by an IBM sorter, a cutting edge technology of the day. The machine was used to create the impression that questions were picked randomly, when in fact all questions were pre-selected.” (I guess the Biden team was able to secure that same ‘cutting-edge’ machine for press conferences).
–I bring up the $64k question because bitcoin is trading just above $64000 as Coinbase goes public. New crypto records by the day… One publicized aspect of the digital yuan project is the idea of an ‘expiration date’, that the authorities can use to fine-tune consumer demand; spend it or lose it. Clearly, it’s a form of government control, and negates the ‘store-of-value’ feature of true currencies. Just the thought of government control should destroy the concept of state-sponsored crypto and drive people into bitcoin, ethereum, etc. Is it a coincidence that bitcoin is at new all-times highs? That’s the $64000 question.
–Richmond Fed President Barkin with this bullet point yesterday: *BARKIN: EXPECATION WOULD BE FED MOVES ON ASSET BUYS BEFORE RATES. One of the Fed’s recent mistakes was tapering and raising target ff rates at the same time. The market currently seems to think tapering should come first this time, with comments like Barkin’s solidifying the idea. What if the curve re-steepens? Would it perhaps make more sense to adjust short-term rates first? Just a thought… QE has been associated with equity market rallies; tapering will likely spark the opposite effect.
–In any case, 2/10 flattened to a new recent low yesterday at 146 bps, with the ten year yield falling over 6 bps to 1.62% while two eased just 1 bp to 16. Rally across interest rate futures, with vol subserviently falling with yields. CPI yoy was 2.6% yesterday, but the bond market continues to absorb strong economic data relating to both prices and activity. Oil (WTI) is back above $61/bbl this morning. An Ambrose Evans-Pritchard piece yesterday had the following advice “It [the Fed] is funding a third of the $3 trillion budget deficit with pure QE. It is accommodating the most radical fiscal experiment ever attempted in peace time with the most radical monetary experiment to match. To modify a market dictum, don’t fight the Treasury and the Fed at the same time.” The point of this article was to advise that even though the stock rally has been fierce, investors should stick with it, based on the support of the authorities. Does this sort of thinking also lead to a sneaky bid for crypto?
–A couple of large trades to highlight, both Dec midcurves, expiring on 10-Dec 2021, the end of this year. One, a buy of 25k 0EZ 9962/9937/9912p fly for 4.0. Settled 3.75 vs 9955.5 in EDZ22. This trade looks for the market to price in 2 hikes by the end of next year. (From open interest it might have actually been a roll of short 9962p into the 9937p). The other trade was a buy of 40k 2EZ 9925/9937/9950/9962 c condor for 2.25. This is based on EDZ23 which settled at 9893. Max profit occurs between the middle two strikes, between 9937 and 9950. Obviously this trade looks for a roll higher in price over time. When considered together, both of these trades target the same futures level… could EDZ2/EDZ3 calendar spread move towards flat? Currently EDZ2/Z3 is 62.5.
https://www.pbs.org/wgbh/americanexperience/features/quizshow-64000-question/
