Good Morning 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 #28 is entitled “FOMC Hawkish and Social Media Giants Have Been Put On Notice”
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.
Alright before we get into today’s developments we wanted to give a shout out to a subscriber today that hit up our Dedicated Souls sponsorship. This is the top tier where subscribers can subscribe at a level above our yearly amount. We are very grateful and this confirms that our work is providing meaning and substance and we hope that others will join the growing ranks of being well informed, well educated and wielding the kind of knowledge that can only come from countless years in trading and research!
Ok so obviously the big news overnight yesterday was the Microsoft, Alphabet and AMD moves lower setting the bearish tone. Equities were under attack most of the morning and into the early afternoon, pre FOMC. Then the FOMC came out and of course the Nasdaq futures had to take out the overnight highs to only dump to new lows shortly after and into the Powell pressor. As we noted in today’s earlier post, Powell’s tone continues to be hawkish (we don’t buy it) and he said yesterday that,
“Inflation has eased from its highs without a significant increase in unemployment. That's very good news,” Powell said. “But inflation is still too high and ongoing progress in bringing it down is not assured—and the path forward is uncertain.” -JPowell FOMC Jan2024
He want on to say that,
“This is a good economy, let’s be honest.” -JPowell FOMC Jan2024
The markets did not like any of the words or tone and the weakness led markets down to their lows into the close.
However given all the attention on the FOMC, we felt that there were two other very major developments today that Magnelibra listeners need to know about.
New York Community Bancorp posted a troubling quarterly report and this is the parent company of Flagstar bank, the very bank that took over all the assets and liabilities of Signature Bank during March 2023 banking crisis.
As if the banks management didn't know when they decided to purchase those Signature bank deposits (Flagstar) also this should not be any surprise considering the massive losses being undertaken in the MF and CRE sectors. Where we see commercial real estate all across the country getting sold for over 50% of the prior selling price, or getting dumped rather…
NYCBs loan book is made up of 56.4% of these types of loan. Furthermore Q4 results showed a massive 796% QoQ increase in provisions for credit losses (PCL). If MF LTVs are 63% and below and we are seeing write downs of this size now, how long till some of these loans are completely underwater? Quantitative Tightening and the negative carry that has been the regime for the last year and a half seems to be a wrecking ball that just keeps on hitting...Bank managers around the nation, credit unions etc. better be taking a good long look at what's backing their loans right about now. No wonder CALPERs needed to take out a $30Bn loan!
NYCB stock today was hammered, dropping 38% today closing at $6.47 -$3.91.
An even bigger development than NYCB or the FOMC today was the absolute grilling Social Media giants took in front of the Senate Judiciary Committee hearing yesterday, specifically, a hearing about safeguarding children on their respective platforms.
This is very significant and when Dick Durbin is actually siding with Republicans in a bipartisan approach, well let’s just say this is very, very telling. Senators Cotton and Hawley absolutely hammered Zuckerberg and TikTok CEO Shou Zi Chew:
This was an absolute powerful exchange, let’s listen in to a bit of it and the link to this exchange can be found here, courtesy of the Heritage Foundations YouTube page, Hawley vs TikTok CEO
Ok so the fact that the US Senate knows that more than just meta data is being obtained, categorized and profiled by the CCP. Senator Hawley was correct when he stated, “Your App oughta be banned in the United States for the security of this country!” We will not argue that point.
We have the whole hearing courtesy of CNBCs YouTube channel, Social Media vs US Senate Judiciary Comm
We also know that Dick Durbin in his opening comments mentioned Section 230 of the Communications Decency Act of 1996. For those that don’t know what this is, this act provides immunity to online platforms from civil liability based on third-party content and for the removal of content in certain circumstances. Congress originally enacted the statute to nurture a nascent industry while also incentivizing online platforms to remove content harmful to children. The combination of significant technological changes since 1996 and the expansive interpretation that courts have given Section 230, however, has left online platforms both immune for a wide array of illicit activity on their services and free to moderate content with little transparency or accountability. -Dept. of Justice website
We also know the Dept. of Justice has been working on compiling analysis for opinions on overhauling this act and their review can be found, linked here, Section 230 review DOJ
Furthermore, the Congressional Research Service did a review just this month and this review can be found here, Congressional Jan2024 Review of Section 230 CDA1996
It is pretty safe to say that the United States Government is about to unleash some massive overhaul allowing for massive fines and lawsuits should these online social media companies not be more diligent in regulating their content. We did notice that there are major issues with immunity in regards to differentiating from not only Free Speech Rights, but content providers, from editors to 3rd party producers. There is a lot that goes into this complex issue, but for us, we follow the money. The Social Media giants generate giant sums and their lack of accountability will open them up for large government fines after all the US Treasury has $34T and counting in debt and $2T yearly deficits to fund, so we get it.
On the flipside, we feel that free speech cannot be afforded the luxury of immorality in regards to open access by minors or children, sorry, there are limits and a civil moral society has an obligation to protect those must vulnerable. So all in all we feel this was the most important development of the day and anytime we see Mark Zuckerberg get up and openly apologize to grief stricken families for the pain his platform has caused, well, it is a unique day indeed. We here at Magnelibra believe that all Cell phone usage and Social Media content should come with an age restriction, just like driving a car, sorry generations before us survived, so to could the new generation.
Alright, so let’s get to the markets shall we and take a look at the Settlements Tracker:
Fixed Income was up big as the front end of the US bond curve was on fire as the 2Y fell by -14bp while the 30Y fell by only -6.3bp. This led to a nice steepening move in the US yield curves, giving further confirmation that the bond market feels Powell will cut sooner rather than later. As far as equities, the Nasdaq futures were pounded, dropping -346.25 points, while the SP500 fell -80.50, the Dow -332 points and Russell2k the weak link dropping 2.5% losing -50 points on the day. FX was mixed with the dollar down slightly and the Yen higher by 57.5 pips. Energy and Metals were mostly weaker with Nat Gas up slightly and Gold was +$16.50 to $2067.40.
As far as the star and worse performers for the first month of the year, the Nikkei futures +7.8% and the Russell2k -4.50%:
When we look at the Magnelibra Futures Model Tracker there are some changes for yesterday on the close. The addition of +1 J6 (Yen) and -0.3 ES (EminiSP) going flat there on that contract. As a whole the tracker P+L wise finished -2.27% for the month:
When we look at the MEGA8s Tracker, well Broadcom didn’t last long and Tesla is back in the 8th spot. Alphabet the bigger loser on the day dropping 7.35% to $141.80 with nearly 2% drops in Apple and Nvidia and the rest of the group down -2% plus across the board. The option hedge for this week is working out nicely to neutralize a lot of the down move thus far and we will continue to favor QQQ call sales to hedge this group:
As far as the MEGA8 Market Cap chart Berkshire, META and Nvidia still the top performers just $8Bn, $28Bn and $31Bn off their respective highs:
Ok the post is getting long here, let’s not forget, big tech earnings after the close tomorrow as we have Apple, Amazon and Meta reporting. So let’s take a quick look at the ATM or at the money options straddles to see what the expected move is looking like:
Apple, the $185 Straddle is $7.05 indication of a 3.8% potential B/E move with 72k OI from $185 to $170 for the puts and 156k OI from $185 to $200 in the calls. $180 seems to be the sweet spot here for the MM (market makers)
Amazon, the $155 Straddle is $10.40 indication of a 6.7% potential B/E move with 128k OI from $155 to $170 for the calls and 55k OI from $155 to $145 in the puts. $147/149 seems to be the sweet spot here for the MM (market makers)
META, the $390 Straddle is $26.26 indication of a 6.7% potential B/E move with 19k OI from $390 to $405 for the calls and 15k OI from $190 to $175 in the puts. $385 seems to be the sweet spot here for the MM (market makers)
Anyways, we hope you learned something today. Thank you thank you thank you to our Dedicated Souls subscriber and Please definitely think about hitting that subscribe button, also if you are so kind to leave a like and if you can please try to share with your friends and colleagues. We have 20 plus years of complex fixed income, futures and options trading behind us, we look at data and market structures in ways most do not. We want Magnelibra listeners to be the most informed parties out there, when you are talking shop at a dinner, at a golf course, out on the town, its our job to make the smartest person in the room. You owe it to yourself!
Till next time, cheers.
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