This is typical hazing for new Fed Chairs. Nothing Powell said today was crazy or more hawkish than expected. This is typical Wall Street towel snapping Powell’s ass (no homo) — testing the man’s mettle — trying to show him who’s boss.
Here’s the trade that’s playing out.
Higher rates is pushing up dollars.
TLT down, UUP up
Higher yields is hurting rate sensitive industries, like Utes and REITs.
The higher dollar is an explicit implication of benign inflation, ergo sending gold sharply lower.
Gold miners have been destroyed. I sold my JNUG yesterday.
Higher rates means a widening yield curve — bullish for banks.
Bank stocks are all higher, especially regionals.
Other than that, equities are soft and commodities are now weak — across the board. Defensive stocks are also catching a bid.
I think this trade has legs and believe rates will press higher — sending the 10yr close to 3.00% inside the next week. When that happens, pandemonium will break loose. As such, I took on another hedge, buying 3x short REIT — DRV.
Aside from my oils, I am hedged via SQQQ and DRV.
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…but will the towel snapping leave any marks on Powell’s ass? That’s the question…
Ya know… Yellen blinked every single time the market let the towel snap. So the real question is will Powell blink? Answer: of course he will.
QE 6, 7, 8… on the way.
I take you stayed up late reading relevant investor documents pursuant to $DRV
Yes, I read the entire prospectus and it told me DRV is going higher.
Weird I show banks flat and every other sector down. This market does not seem to like the idea of higher rates.
Why would they. Stock have gone up at the same time as ratse before, but they have never gone up *because* rates went up. On the contrary, optimisitc investors have sometimes sold bonds to get into stocks, explaining the correlation. Scared investors sell stocks and buy Treasuries.
The only reason Treasury prices and stock would move in the same direction is because of Central Banks, who are not out to maximize their own returns.
Boobs. The higher rate fodder is brought out when they want a reversal. It never went away. It never goes away. They exhume it when desired, or required
Fly (or anybody else), have you ever looked at the the BHC Performance reports for the big banks? The reason I’m asking is because it say that the Yield on Trading Assets is only 1.86% for JPM and only 1.69% for Goldman (and it’s actually been faliing sicne 2011). I assume that this is a “net” number, because otherwise I would have guessed much higher.
So here’s the situation. So banks are required to have a certain amount of reserves at the FED (to avoid bank runs). They can deposit “excess” reserves optionally, and since 2008, the FED has actaully paid them interest on these (A lot of interst, in fact. Hundreds of Billions that would have otherwise have gone to the taxpayers via the Treasury. But that’s a tangent). In fact they raise this interest rate, along with the Fed Funds rate, so that now they are paying 1.5%.
So here’s the question: if the FED raises rates to 1.75%, then why would the big banks continue the risk of trading if they can get a risk-free return of 1.75% from the FED? Wit the big banks out, liquidity will fall, as would trading volume. This would mean an end to momentum trading algorithms, so no more melt up.
Comments (or questions), anyone?
Hmm… Wrong blog I guess…
Slip and sliDE time. Passive will be sellers.
Unless you have neither cash, nor the ability to borrow, using 3X etfs is stupid.
Shorted OC and TMHC this morning.
I beleive that you did short those in the morning. I also believe that you would not have posted about it if the trade had gone against you….
Also, you are wrong about 3x ETFs. Obviously that covers a lot of ground, so some of them do have better alternatives. However, there are some advantages that you are ignoring. For example, if you are leveraged via borrowed funds, you could face a margin call, so you amy be forced to clsoe out some or all of your positions early, without the opportunity to wait for a recovery (similr to what happened to XIV holders, althoguh that was for a differnt reason) Leveraged ETFs cannt (noramlly) be boguht on margin, so you can sit and hold your investment in hopes for a gain later.
Another way to achieve leverages is with options, but 3x ETFs are usualy much more liquid than options, so that’s an advantage (why I bought UVXY instead of VIX options).
Powell has balls. yellen did not. Berenky closet tranny no balls as well. Last fed chair with balls, Volcker.
The last thing I want in the head of a central bank is someone with metaphorical “balls.” It’s a nation’s currency that they control, not a hedge fund.
What a fucking twit.
Retest the lows! Kidding. Markets are just adjusting to gradually rising rates, everyone relax. The 10 year is at historically low levels still. If we are actually going to have GDP growth, then gradually rising rates is a good thing.
Interest rates going up but inflation not so much = real interest rates going up. Gold won’t like that. Rising real rates would be a new experience for many, not a pleasant one. So we are hoping for inflation/growth but the basic materials are not really behaving like that. There isn’t a leadership change, it still flashes back to tech even though we already got the shot across the bow. So a retest might get the inflation plays going…
Soup,
get in oil/fracking stocks. They will be the leaders this year. They have been beaten up so much from 2014-2017 due to the bear market in oil that started in 2014 through 2017.. I think oil hits 90 this year.
Oil going to $90? Not a chance. Supply and demand say otherwise. This isn’t the whole story by any means, but here’s some US data:
Supply: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wttexus2&f=4
Demand: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=a103600001&f=m
Of course, oil stocks will do well even if we hit $70