They knew

June 9, 2020

–Many years ago I worked at Refco and covered a guy at a well-known hedge fund.  I can’t recall the exact conversation, but we were talking about some type of legislation that could possibly have an impact on interest rate markets.  What I do specifically remember is that he said this relating to the topic: “Our guys in Washington are telling us this…”  Right then I found myself thinking, most people will never have the kind of information that these guys have, so it’s probably best to just watch how the markets trade and go with the flow.  Often, I’ve heard (and used) the phrase, “We’ll find out later what the news was that caused this move.”  That thought is crystalized by another old floor local friend who often observes when a big odd trade is going through: “They know something.”  

–Well, in November and December, there was huge buying of EDU0 and EDZ0 9875/9925 call spreads and 9887/9937 c spreads.  This was at the time when those futures contracts were around 9840 and FF were in the target range 1.50 to 1.75%.  When the virus news was starting to really circulate in late January and February, my floor friend said, “those call buyers must have already known about the virus”.  I replied that they couldn’t have, because the news wasn’t really known until January at the earliest. [Have I learned NOTHING?] Now there’s a news story that supports the idea that they DID know.  From ABC news:

Using techniques similar to those employed by intelligence agencies, the research team behind the study analyzed commercial satellite imagery and “observed a dramatic increase in hospital traffic outside five major Wuhan hospitals beginning late summer and early fall 2019,” according to Dr. John Brownstein, the Harvard Medical professor who led the research.

Brownstein, an ABC News contributor, said the traffic increase also “coincided with” elevated queries on a Chinese internet search for “certain symptoms that would later be determined as closely associated with the novel coronavirus.”

“Something was happening in October,” said Brownstein, the chief innovation officer at Boston Children’s Hospital and director of the medical center’s Computational Epidemiology Lab. “Clearly, there was some level of social disruption taking place well before what was previously identified as the start of the novel coronavirus pandemic.”

Though Chinese officials would not formally notify the World Health Organization until Dec. 31 that a new respiratory pathogen was coursing through Wuhan, U.S. intelligence caught wind of a problem as early as late November and notified the Pentagon, according to four sources briefed on the confidential information.

If the Pentagon knew in November, then these guys knew in October, and probably sooner.

–Anyway, we have the makings of a turnaround Tuesday after the recent fierce stock market rally.  Bloomberg leads off with: Speculative fervor in US stocks surges to ‘stunning’ levels.  (yes, I’ve noticed that).
Nasdaq closed at new all-time highs and SPX is around flat on the year.  The dollar index is seeing a small bounce, as are treasuries, while stocks are paring back due to profit taking.  The ten year fell 2.3 bps yesterday to 88.2 in front of today’s auction.  FOMC is tomorrow, but the Fed already announced yesterday that lending support for smaller businesses will be expanded.  And…North Korea severed the hotlines to South Korea.  “Our guys in Pyongyang are telling us…”  

Posted on June 9, 2020 at 5:48 am by alexmanzara · Permalink
In: Eurodollar Options

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