Another aspect is the DXY rally over the last couple months.
Strong US Dollar should also contribute to a reduced forward guidance by many companies that rely on international revenue (e.g. tech).
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Alf and I must have been on the same wavelength as he posted a video this weekend that discusses alot of these same points. Always love his perspective, definitely worth a watch.
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For anyone following along, Im out of most puts from over the weekend (still holding some HYG) but I’m happy with the day, not going to force any trades. Ill move future callouts back over to the Asgard Callout thread.
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If there was one person I would blindly follow into longer term trades it would be Ray Dalio. Since news broke he is officially moving on from Bridgewater I have noticed he has been a little more vocal about the future of the market. Im most definitely taking notes.
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That’s my fear, this isn’t the COVID market, but more like the 1999 market that took 12 years to get back to breakeven. We have a lot of reckoning to experience, QT from QE since the 2008 crash, 4 trillion COVID stimulus, 31 Trillion total debt, and boomers retiring and leaving the workforce.
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Personal savings rates are lower right now than they were in 2008, and the average savings account is at a 10 year low currently. Inflation is taking it’s toll on people it seems.
Not expecting good CPI numbers tomorrow with bad PPI report. If businesses are paying more at wholesale still, then they can either increase prices to the consumer to make up the costs, or they can not raise prices and cut into their profit margins. I’m not betting on the latter.
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So a lot of financial Youtubers(mainly bearish channels I guess) have been bringing up the “bank have 2 days news” which I assume is referring to this: Bloomberg - Are you a robot?.
Could this be a catalyst for the next leg down? Playable with puts on the bank stocks/general ETFs? Or is this just random fearmongering by financial youtubers to get clicks?
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This is a great question, one Im not sure I have an answer for. I think we will just have to see it unwind in real time.This particular situation may or may not be market moving more than it already has, BUT I would expect ripple effects as they liquidate.
When thinking about why this fund failed in the first place, I think another big question is how many other funds are exposed due to taking on similar risks? This situation has to do with assets losing value and the collateral pressures this can bring, most especially when leverage is involved. I would be surprised if this was an isolated event.
Wish I had more insight on how it plays out, maybe someone here can add some depth. Thanks again for posting this question
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CPI might come in below but Core might come in hot. PPI today was an indication. Food prices increased which will reflect in tomorrow’s Core. But then it all depends how market reacts to it. For what’s worth it, it could still be green or flat with bad numbers as possible priced in after today’s report. We shall see.
My guess CPI 7.5 and Core 6.6-6.8
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If the BoE sticks to their “you have three days to sort it out” deadline, then yes there is a chance that there will be extreme violence in the UK financial space on Friday, and that will spread to other markets to various degrees.
The chances of this happening are somewhat unlikely though. The UK Treasury increased the BoE’s authorization for bond purchases, up to 2/3 of the money may have been raised already, and frankly, since this affects almost all pension funds, they’ll sort something out. Worst case scenario, they roll back all the changes from the new govt that caused this crisis, including the PM losing her job.
Nevertheless, it is possible (very small probability) that things get broken in England on Friday, and don’t get sorted until the weekend. In which case, Friday can be quite exciting indeed.
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MacroAlf breaking down the UK pension fund situation. He used to manage a billion+ $ bond fund so this is right up his alley. Im going to dive into it tonight but figure get it out sooner than later
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Parking this for future reference - both headline and core inflation came in hot.
The bond markets almost immediately priced this in as “more pain”. From:
To a wholesale move of the entire curve by 25bps across the board:
Markets did the expected thing at first - sold off. But as a testament to how often the tail wags the dog, the market did the opposite as a result of positional flows. The details are not for discussion in this thread, but what we should note is that if we believe that: a) inflation was hotter than expected, and b) bonds priced this in right, then this move up makes little sense in the long term, and that we should be prepared for more downside because of this CPI print.
Now, if that happens or not depends on other things - Q3 earnings, Britain, Russia, etc. But in and of itself, the CPI print seems to have been interpreted as unequivocally bearish.
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Wanted to throw this here too: https://www.federalreserve.gov/publications/files/financial-stability-report-20220509.pdf
This is the Fed’s semiannual financial stability report. They will release another report next month. The upshot is that the average consumer has continued to remain financially stable, but the Fed remains concerned about what will happen when those student loans have to start being repaid again.
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Morning everybody. Or as Swole would say “Morning dick lickers, sex havers, cum gulpers” etc.
Im about to board a plane for a little music getaway, my experience with onboard wifi is pretty fucked so I wanted to share some thoughts ahead of time.
Im circling back around to a post I made over the weekend. As much as yesterday’s swing rattled my psyche, it really speaks to a play I listed out as the reaction to CPI is what really matters. I think next week is when we can start to see some earnings thay reflect the macro picture. Ill be looking for longer puts closer otm for Nov, little deeper for Dec.
Im willing to be patient and avg a bit into early next week and play any upside to stay as neutral as possible. Bull case and risk is Q3 earnings come in better than expected.
Here are a few screenshots from that post on Sat.
Lets trade smart, cut losers quickly, hedge if you know what your doing, and be open to the possibility that anything can happen.
Hope everyone has a fantastic day.
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Fixed income markets are expecting the sharpest drop in inflation ever since the 2008 Great Financial Crisis.
Seems like folks are being rather optimistic.
In fact, turns out folks have been rather optimistic all along. Expected inflation a year ago for today was 2.7%.
Expectations aside, when (if?) the bond market has to reprice future inflation expectations when (if?) core inflation turn out to be a lot more sticky, it will not be pretty. The long end will take an ever bigger dive. We’ll probably need a few more CPI prints for this to happen though.
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Brief thoughts heading into this week.
Last week we had new hopium news from our WSJ fed “whisperer” that the fed will be looking at a slightly more dovish stance on the Dec rate hike. 50bps vs 75bps that the bond market was pricing in.
This should be respected especially in the short term as it could pave the way for less restrictive policy heading into 2023. We also saw what looks like a coordinated response from select fed presidents echoing some dovish tones. I suppose we will all just ignore the fact that the fed reserve is leaking information to a journalist now for a 2nd time this year but thats a different conversation.
The fed’s policy has very little impact on energy, most especially in the short term. This has been stated by J Pow himself. This could be an issue if prices stay persistently elevated as higher energy prices impact prices in nearly every sector of the economy. I believe this continues to push this violent wage price spiral we are seeing today. Nominal wage growth means absolutely nothing when real wages suffer. Outside of energy, housing continues to reak havoc around the country.
Remember, monetary policy descisions are based on lagging indicators like core CPI and unemployment. Monetary policy effects carry a 6-8 month lag at a minimum. 75bps, 50bps, 25bps means we are still tightening. Less credit impulse = less demand.
How does monetary policy help housing affordability in the short term?
So the fed cant ease energy or housing in the short term, so what does that mean for the real economy?
Consumers are tapped out heading into a season that makes or breaks alot of companies.
Either directly or not. Again my favorite chart.
Itll be interesting seeing how this index changes in the next 12 months.
Companies that dont make profits will be punished. Its fucking wild to me that it even has to be mentioned.
With that said, we have to remember that the economy doesnt have to “crash” for the broad market to see significant declines. We saw unusual unsustainable growth the last few years, just getting back to a “normal” PE ratio means significant haircuts to most companies.
I wanted to repost this thought process as I continue to see an unreasonable fixation (Not here, just in the fintwit world) on J pow and friends.
Previous policy changes in the last 10 years have all been in completely different macro conditions, this is important, this matters.
This week we have some mega caps reporting earnings. I believe they will move markets. If they come out strong I believe we will see a sustained rally heading into FOMC. If they come in weak its game on for bears. Ill have some puts on for the big tech companies this week but position sizing will be limited until I get confirmation of a trend.
And finally, for fucks sakes, cap preservation should be top priority. Bulls and Bears, If a play doesnt go your way cut early, take a small L and move on. Market swings are just too violent and you want to always be in control.
If im allowing a trade to form through swings Im always always hedged. Im usually hedged intrayday aswell, this market is a circus filled with clowns, dont allow yourself to be too exposed.
Hope everyone has a great week
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Love this summary, appreciate it.
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Great thread by Alf on why WSJ’s “soft pivot” could actually create more systemic risks.
TL;DR:
Soft pivot and less aggressive fed now means a repricing in the long end due to higher inflation expectations. Could see some risks in leveraged credit markets like we did in UK. In addition to bond vigilantes punishing Fed by repricing of Yield Curve, Foreign Reserve Managers could put additional pressure on bond yields by actively selling USTs to protect their currency (like BoJ).
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Wanted to post a few thoughts about tomorrow and the week ahead.
I have spent alot of time here articulating how I feel about the economy and how equities are being priced going forward. I do think Amazon sends a clear message of what is to come but will be speaking more towards the market reaction short term.
Yes, Apple came in great, I believe their day in hell will come with time but nonetheless it was enough to stabilize a grim broad market reaction. A company like Amazon showing big declines based on fundamentals should make everyone pause. If your paying attention I have said this before, see Fedex commentary, which was the foundation of this earning season that has been great for anyone following this thread.
With that said, we have big boy energy ER’s pre market. Honestly I got a little too focused on Amazon and Apple and forgot about them, would have been a real nice hedge. I would assume they come in strong with optimistic guidance.
I think tomorrow we will see mega tech headwinds battle mega energy tailwinds. I ofcourse want and think Ill be able to secure some profits on my positions but I have no clue how that will play out, depends on actual ERs and sentiment reaction.
I think the next big market moving event will be FOMC. Not the rate decision itself, but the J Pow post decision press conference. We have seen fed presidents, fed whisperers, and fintwit point to a more dovish monetary policy path. This is when we find out.
Bears need to respect this as it absolutely has short and long term implications in equities and bulls need understand this doesnt solve the worlds economic problems, and in fact could potentially make them worse (See Fed Chair Arthur Burns late 1960’s). Also a reminder that a real pivot means cutting rates not slowing hikes. So mechanically, credit impulse thus demand will still be tightening well into Q3 23 at the earliest when we take into account the lagging effects these policies have.
I have an opinion on what direction and tone J Pow will go with and will make a post about it in depth before FOMC day.
Imo now is not the time to go long in either direction if you are swinging “legs” Its safer to wait until FOMC and see where the market goes from there.
The next few days ill be playing the expected volatility, paying attention to the few ERs leading into Wed. Trading this market is challenging but there will come a time when most of us wish we had it back. Not the economic implications, calm your tits, I know those are painful for alot of people. Im talking about the 1, 2, 3% moving days in either direction multiple times a week with big swings almost daily.
One hell of an opportunity, but only if you have a strategy to play both sides with an emphasis on cap preservation (Thanks again Valhalla) If I can do it any super gay bear can, and perma bulls, this goes for you too.
And finally, we need to continue to pay attention to CB’s around the world. Lots of creativity out there right now applying short term bandaids to long term problems. The fact that they are taking action in the first place tells us there is global risk in the worlds financial markets that shouldn’t be ignored.
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Tomorrow’s core PCE data release should have major weight on the upcoming rate hike decision, JPow tone, and especially bond yields.
Thinking AAPL calls may be a good bet in the short term if core PCE comes in not-that-hot.
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