Settles, Correction and Curve Cake

We will post the settlement page for today at the end, please note we are including the 24th -today as we had to correct our European settles. Alright, let’s just get right to it, obviously the FOMC meeting has accelerated the expected path and we have to admit, the markets still seem way offsides. Yea a bright spot today Apple and its earnings, but let’s be honest, past is not prologue and we would rather believe the FED is about to embark on what will go down as the largest ever policy error in history. Maybe its intended, maybe they are doing exactly what they have always done. Rig and then Rip knowing all the while the weak hands always sell last and when they do, well the immune ultra wealthy will be there to vacuum it all up. The regime over the past decades has been the same, print our way out of every problem, expand Federal Reserve balance sheets and then pretend that we have to raise rates to stall things. Yes this time there’s inflation, yet in reality the drive is supply driven and not an overheating economy. So with all that said and with the FED clearly on the path to cut the bond buying and then to raise rates at a 25bp drip till around September, where the SP and NQ will undoubtedly still be negative on the year to then be forced to stop hiking when the FED FUNDS reaches 1.00% by then the US 10yr will probably be 1.5% and the 2s/10s safely inverted by a few basis points.

Speaking of the US Yield Curve, let’s just take a look at the ultimate pancake over the last 2 sessions shall we:

Whoever didn’t think the FED was serious, well just wait till the banks are forced to play and they will be soon and the convexity will be killer as it works both ways. When rates dump you get negative convexity driven my fast hot accelerated refinances and payoffs and money forced to reyield itself at lower and lower rates. Well this time around its the opposite, now your stuck holding in a higher rate environment and its a game of how high will the expected yields rise in the short end till the FED cries uncle and the equity market weakness gives way to fresh rounds of stimulus.

Its a strange scenario that we paint here because we know the FED is going to be called out here, decades of conditioned MOMO players waiting to buy every dip. This time does feel different, we can smell it and we know its different because the last few decades haven’t seen supply side inflation, nor have they seen a $9T dollar FED balance sheet that has priced out the entire general economy and the sacrificial lamb was the middle class and now these disastrous monetarists policies have finally hit the wall.

We do think Cryptocurrency has a lot to do with this as well as it has syphoned massive amounts of investments away from traditional assets and this has led to a restructuring of the fiat economy. So this time is different and the forces behind the FEDs juxtaposition is inflation and trust. On one hand we know the FED is powerless and we recently told one investor why, because, they can’t print cheaper food, they can’t print cheaper gas, they can’t print organic growth…they can only mask all the problems with devaluation.

Till next time, expect the Apple news to spill into some confidence and a rip higher, yet we don’t think it will last but a good healthy consolidation may be in order. We leave you with our settlement page with Silver the big loser on the day and Nat Gas the winner as the world finally realizes the cold isn’t going anywhere:

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