Good Afternoon Traders and Investors and thank you for joining me for another edition of the Magnelibra Markets Podcast, I’m your host Mike Agne and today’s episode #30 is entitled “Economic Fundamentals Do Not Matter. META Explodes Higher”
Quick Disclaimer: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.
Before we get into the equity markets and METAs absolute massive move, we wanted to discuss a little bit about current economic fundamentals. We know that the US Treasury is dishing out $270Bn this week in regards to their auction schedule highlighted by new 3Y, 10Y and 30Y Bonds, with $54Bn, $42Bn and $25Bn respectively. We believe these auctions will be well received and the 10s and 30s will most likely come with coupons that are 50bp lower than their November issuing rates. Just thinking back during the entire ZIRP regime where rates were basically pegged to zero in the short end, and now investors think receiving 4% fixed isn’t enough. The investor is always looking at things in such a short term perspective. We get it though, the thought is inflation will remain high, rates will remain high and deflation is the last thing on investors minds. Well there may be some truth to that, however we also must be cognizant that the US treasury will certainly not want to pay $1T plus interest costs per year for very long. The MO has been to increase debt, while simultaneously taking rates toward the zero bound. What strikes us odd is that the majority think low rates leads to inflation and higher rates decreases inflation. Well in a closed fixed capital economy that may be true, but today’s modern day monetary mechanics do not work that way. Banks don’t create money any more, their lending is absolutely nascent compared to the financialization of the shadow bank private lending market whereby credit companies create all sorts of securitized loans backed by all sorts of a collateral and sometimes, rehypothecation. Rehypothecation is the claim of an asset by multiple entities, for instance you could have a single US treasury bond out there with multiple chains of claims backing multiple various loan structures. We often hear that the banks themselves have derivative books of $50T notional, and people will say, well that value is not netted. Our response, even if it is netted down, how much leverage is built into the entire chain, how far does the domino fall if one counterparty fails???
This is the financialization game that is being played out, its also why the Federal Reserve continues to expand its balance sheet at a 11.21% annualized clip. Honestly it shouldn’t be any secret that the basic economic fundamentals of the past need not apply today, because the money printers have stolen so much from the future and realized it forward that the capital that backs our global financial system far exceeds the natural rate of organic economic growth. Quite often you will hear that bailouts are necessary, that they are there to save the system, that if the Federal Reserve doesn’t print trillions the economy will collapse, people will lose jobs, asset prices will fall, real estate prices, equities etc. The reality is nobody can say for certain that the global economy is any better off than it would have been if the global central banks didn’t go 5x on their balance sheets since 2007.
We would tend to argue that this is just the excuse to keep the insane amount of monetary growth in place to keep the financialization of assets and astronomical nominal asset prices elevated. In fact we know this is the case, because while everyone cheers Warren Buffett and Berkshires 30 year performance, the reality is they simply matched the Federal Reserves annualized growth rate of their assets on their balance sheet. For us, as traders as managers, if you don’t beat the Federal Reserve annualized rate, well then you are negative on the year. Basically your goal as an investor or manager should be able to outpace the annualized growth rate of the Federal Reserves balance sheet over time. If you do not you have underperformed. This honestly is the real metric they hide from you, it is the real inflation rate and its the reason why 90% of the population needs 2 jobs and credit just to afford the basic necessities.
All of it traces back to the Federal Reserves monetary base asset increase and long time readers and listeners have seen this data from us before, but we will share it again:
They will make you believe that this type of inflation is necessary, but the reality is, economics is not science and mathematics with strict rules, there are weapons of preferential treatment, leverage, margin, all sorts of games that can circumvent and skirt natural organic economic rules. The big question becomes is if inflation in the money means everything is rising in price, well then if everything is rising, nothing is really rising, its just a higher and higher plateau and level that consistently is being made. However the problem with this higher level is that over time, it exponentially favors a very small minority and leaves the majority struggling because for all intents and purposes, the top 10% will eventually own 90% of all the wealth. To get even more granular, the top 1% of households, which represent 5.3% of the total in regards to just equity ownership alone, hold more wealth than the rest of the top 20% Combined! (usafacts.org) Currently the top 10% own 67% of all the wealth in the United States and this will continue to grow as time moves forward.
Why does this matter? Because the balance of a decent society rests on the upward mobility and economic opportunity for the majority of people. When we do not have this, when we have an economic disparity so large this leads to further constriction of economic mobility and opportunity. Why? Because a very few tend to own all the assets, tend to own all the properties and tend to raise all the prices up to their level of affordability effectively pricing out a vast majority of individuals. This leads to an asymmetrical dispersion of societies that struggle to afford not only adequate housing, but safe villages and towns to live in, access to good schools and education. This leads to families struggling, which leads to both parents having to work, which leads to increased levels of stress and the burden to be continually oppressive. This is not the type of society that promotes economic prosperity. This is the type of society that is more akin to that of Serfdom, the court, Kings and Queens. Its no wonder America is in the midst of a revolution call for Socialism.
Its not that the people generally understand this concept of redistribution of wealth, rather it is predicated on the very suffocating monetary mechanism practice that continues to bail out excessive leverage and risk and puts upward pressure on all prices which decreases affordability for the many. Look Capitalism isn’t perfect, but it is the best form of economic systems that exist and what America has today, well this is not capitalism, this is a corporate plutocracy plain and simple and right in your face. You can try to argue against our logic but honestly once you dig deep into how our system really operates you will see that ultimately the majority, well they do not have a choice, they have a semblance of choice, that is not the America that I believe should exist. I believe that the rules and the regulators need to do their job and start leveling the playing field because the majority are absolutely powerless to change anything at this point.
This is why Bitcoin and blockchain is a major threat to this system, this is why they try to subvert, coopt and destroy it, because it is the ultimate trust based system that punishes deception and corruption and rewards diligence and thrift. Rewards economic processes that create, that add value, that add opportunity to thrive. Yes it is in its infancy but it is obvious that the financial system that exists today, is getting inflated away. Yes we know its impossible for stocks to go up, for prices to continue to go up but the reality is and has always been that prices DO NOT REFLECT ECONOMIC REALITY.
Prices are a function of the trillions upon trillions in credit debt that is leveraged by factors to exploit a consistent and complete unassuming consumer that continues to pour base money and labor wages into a system that by design is created to weaken their potential. We aren’t saying equity buying and long term ownership of real estate are wrong in fact we are saying quite the opposite, you don’t really have a choice, but to pay up and own them. If you do not then you will never keep pace with the trillions in debt that being unleashed into our economy each and every week!
Speaking of that and enough of our educating rant, and as we stated at the start of this podcast the US Treasury is auctioning some $270Bn this week in new debt, with new 3s,10s and 30Yr bonds:
Maybe the bonds have started building in a concession for this auction as yields have now risen some 25bp off their lows, so will see if the start of the week sees a continuation of this recent rise.
Technically we like the 30Y near 4.40% and we feel accounts will be buyers of that level:
As far as Friday, the US Treasuries were hit hard especially in the 5Y sector as it rose 19.2Bp on the day and the 5s30 curve dropped 6.7bp:
As far as the settlements for Friday the Equities were led by the Nasdaq +296 points and once again a move back above 17600 in the futures with the R2K the weak link -12 points on the day. The Dollar was well bid with the Suisse Franc the big loser down 123.5pips. Energies and Metals continue weaker with Crude closing near that important $72 level and Nat Gas was up slightly:
As far as the Futures Model Tracker the weak bonds and strong Nasdaq leading to the largest declines in the model. This weeks adjustments are a reduction in the Five Year and addition of ES and YM or SP500 and Dow longs and adding onto the short in GC or gold:
As far as the MEGA8s well a massive day for META as it gained 20.3% closing +80.21 to $474.99 adding $206Bn in market cap in a single day the biggest single market cap gain ever, topping Apples $190Bn in 2022. Amazon also a standout +7.9% +$12.53 to $171.81 and Nvidia +4.97% +$31.33 to $661.60. The MEGA8 will put a hedge on tomorrow and will be looking at the 432 Calls for Friday Expiration:
When we look at the MEGA8 individual market caps we can see that since May 10th 2023 Nvidia +$921Bn and Microsoft +$735Bn:
The MEGA8 total market cap as a group hits $13.79Tn, +$6.83Tn in 9 months:
This weeks data is light with Services PMI and ISM tomorrow, some FOMC speakers on Tuesday and Jerome Powell is on 60 Minutes tonight, so will see how that goes. We will continue earnings this week and if anything stands out options wise we will let you know, we can’t help to keep thinking about that MSFT $460 call some lucky soul put on…quite amazing…so we will keep an eye out and post as the data and analysis comes in. We leave you with the META chart and just the absolute epic candle it put in on Friday, one for the record books. The target/reversal area is $498 area so let’s see how quickly it can get there, but remember, seasonality despite these earnings isn’t favorable, then again the indexes as a whole are getting murdered vs these individual MEGA8s, so nothing will shock us!
Finally we just wanted to share with our audience the recent Netflix documentary we saw “The Greatest Night in Pop” what a fantastic job by the producers. Quincy Jones was a genius and the background coverage of one of the most iconic events and songs ever made was truly amazing. This is for anyone that grew up or lived through the 80s this one will surely bring back some memories, absolute must watch. Heck watch it with your kids or share it with the younger generation, what a momentous time and we loved that every single radio station around the world played it at the exact same time back then. As you know Magnelibra believes that much of our world is governed by laws of electromagnetism, by frequencies, vibrations and music and harmony are at the very center of this resonance. Music is what drives and motivates and brings everyone together, so if you get a chance check it out!
That is all for today guys, we thank you for listening and as always please give a like and or share our work if you can and absolutely if you haven’t already think about hitting that subscribe button. Our goal is simple, to make Magnelibra listeners the most informed, well educated and financially savvy individuals out there, You owe it to yourself, so sign up and spread the word, we can’t do this alone! If everyone just shared our work with one other person our network would grow significantly, till next time, cheers.
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