FED Minutes Hawkish Tone

The FED minutes weren’t that big of a surprise as the FOMC voters were pretty unanimous when it came to future rate hikes. It has been clearly telegraphed and repeated by JPowell that the June no action was a skip and not a pause. We believe this rhetoric to be absolutely necessary in regards to maintaining the credibility of the FOMC and their extinguish inflation at all costs mantra. We keep hearing the 2% inflation target and we can’t help but think the FOMC has rarely achieved that as the reality of prices never seems to jive with such a low inflation rate. Anyone who has to shop for food, gas and shelter knows this all too well.

Anyway we do apologize for the missed updates as we have been traveling. As long time readers know Magnelibra continues to move the business model barometer and we are considering a move to a general partner, Hedge Fund strategy model as opposed to the Commodity Trading Advisory. This move is one that we believe is a better fit for our relative value/ Long-Short strategy and the proprietary database we utilize alongside our RV/LS models are better suited in that environment and suited for a more institutional HNW clientele. With that being said we are on the road for both business and family and felt that the July 4th time frame would workout nice to meet with a few old colleagues, family and friends.

So let’s take a look and see how the Magnelibra MEGA8 Tracker has for us today. We do know the options hedge was looking great into month end, but because we kept the 6/30 expiry the month end saw the QQQ well bid and thus the options hedge did cost the tracker. However as readers know this is a tutorial hedging technique demonstration and that everyone’s strategies are unique and this is just something we add to demonstrate one possible technique. The tracker is short the QQQ 372C at 1.25 today and will hold till close or if it trades to < .20 tomorrow:

It will be interesting to see how much capital continues to flow into these mega caps and how much retail can actually sustain, especially if the FRB is serious in their intentions. With the July meeting showing a near 90% certainty of a 25bp hike, we suspect the data to continue to deteriorate into this meeting date. We saw factory order today again plunge and we also saw this bankruptcy graphic, which should give some of the FRB voting members something to indeed chew on.

Higher rates are hindering the most economic sensitive consumers, the data is definitely starting to show that. As far as all those sub 4% mortgage rates, we can only tell you that RATES DO NOT MATTER if one loses their ability to fund said mortgage payment. So we get it, we get the theories out there that nobody will refinance at higher rates, and maybe that is indeed the case, but once Non Farm Payrolls turns negative things will get very interesting.