Markets Calm as FOMO Needs a New Catalyst
The markets haven’t really moved very much to start this week and honestly after last week, this is probably a very welcomed response by many. The real dilemma for the markets is the fact that inflation is still lurking despite the deteriorating underlying fundamentals. Maybe the ultra wealthy sub sector of our economic system can continue to support consistent and steady economic growth. Does it matter that there is an ever increasing wealth gap?
Maybe the wealth gap doesn’t matter, maybe all that matters is the amount of money in the system or should we say debt. When we continue to see massive write downs in CRE land and yet, we never hear of anyone blowing up, of anyone under duress, not even regional banks matter to main stream media anymore, all that matters is Nvidia. Is the AI Mania so formidable that 80% CRE write downs in nearly every major city is a non event? We can’t really figure it out, so lets assume you have a $50m CRE loan and you put down 30% and financed the rest. So you bought a building for $70 million 4 years ago and finance company A took your 30% equity as a down payment and you have a $50m dollar loan now. Well fast forward 5 years later and you need to sell so you dump it for $14m, so who takes the $36m loss on this thing? What other loans were tied to this building as collateral? Honestly the fact that a large private lender or public institution hasn’t been blown out yet.
Not only is the investor out their $21m down payment equity, but now they took a loss of $36m. Now the only thing I can think of as to why this hasn’t led to massive contagion loss is that these investors that own these properties, are conglomerates, with massive pockets, massive amount of Limited Partners and they can afford to take such losses, but in reality how long can this go on? This is the perplexing part for us and one that continues to confound our rational senses.
So that is what is on our mind at this time and it is a massive head scratcher.
The other thing that is on our mind is all the talk that ATT was hacked late last week because their network was done, well let’s just say we can blame the Sun for all of that as there were consecutive X class solar flares and we believe those CME’s are the direct cause of the network failure.
Ok for this week we still have GDP revisions, PCE data and ISM. So let’s see how things go from here. The consensus seems to be that inflation will remain sticky and the FOMC may have to keep things steady for now. We honestly believe that the higher rates are contributing to inflation via the net risk free interest pick up. So for us, we will continue to wait for a negative NFP number and the subsequent first Rate Cut in order for us to believe the top in the US equity markets are in. Till then, we believe the markets may just grind higher. We are still under the seasonal influence of weakness for equities, but they have defied that seasonality thus far.
Ok we leave you with the last two days of settlements as we update the new US Treasury 2s and 5s issued this week. We can see yields continue to rise but continue to hang around the 4.40% marker for 30Y bonds. Also we like to see Crude trade above $78 this could lead to a push back to $81.50. Other than that we continue to see Bitcoin push against the major target and reversal area:
As far as the model tracker, its had an abysmal February and hopefully we can turn things around here in the model come March:
As far as the MEGA8s a lackluster day indeed, please note the new hedge the 439 QQQ Calls for expiry on 3/1:
Alright, we don’t see too much else here. We won’t sensationalize it, we believe the markets are acting in a very FOMO manner and its not something you want to fight to heavily rather play it defensively. We know there is a lot of cash out there, but the majority is most likely encumbered and we view the markets in more of a hot potato mode. We also view the sheer insanity of nominal asset prices as nothing more than a stamp on the side of debasement of our currency. Ok that is it, we will be back with more. Till next time.