Good Evening, Traders and Investors welcome to another edition of the Magnelibra Markets Podcast. Today’s episode #43 is entitled “The Markets Love High Interest Rates?”
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.
For those of you who listened to our last podcast, you should fully understand why Magnelibra believes higher rates are actually contributing to a massive wealth transfer from the governments and central banks to the private wealthy elite class which includes not only individuals but the top pension funds, endowments, private equity, and the rest of the cash rich corporations out there.
We proved this point in a very simple example of comparing current interest rates and deposit bases vs the ZIRP regime of lower interest rates. Its almost as if the central banks are intentionally inflating money and destroying the labor wage via devaluation of ones efforts. What many fail to realize is that no matter how much your wage increases, the cost of living is increasing faster. This will further accelerate the division between classes and basically we are already left with only two classes, which we often call this type of system “Serfdom.” You are either kings and court or your left fighting for the scraps. Our thesis is further solidified by the massive increase in part time jobs and dual job holders. There really is no hiding the real facts any longer, this is the system and nothing will really change it. Status quo is the goal, we think you can see that, the majority are left to plainly deal with this debt ridden devaluation via inflation mechanism, but behind it all is a future that will be very uncertain.
This week we saw CPI come in hotter than expected now rising month over month for 6 straight months rising 0.4% MoM and to a 3.5% YoY print. This really shouldn’t be any surprise, as we often say $6Tn of Covid money back 4 years ago just doesn’t disappear, it makes its way into the hands of the hoarders and becomes cannon fodder for equity valuations that continue to defy any basic fundamental principles. The only principles that truly matter are those of the modern day levered monetary mechanisms by which private sector shadow banking now dominates the real economy. All of which is now ASSISTED BY HIGHER RATES, and to the amazement of those that truly do not understand how our monetary system works.
Magnelibra readers and listeners know how this system works and we thank all of you for being loyal to our work. As we often say it is our goal to make you the smartest players in the room!
We also had PPI today which came in at a less than expected 0.2% MoM and YoY +2.1% expecting 2.2%. However all was defused of course by some more funny gimmickry which the BLS used a seasonal deflator to offset the increase in energy costs and as Zerohedge X account was correct to point out stating you actually paid 6.3% more for gas but the BLS told you you paid 3.6% less:
Well the markets whipsawed from CPI death spin to PPI euphoria and all ignoring the bond markets which saw the yield curves get crushed and yields driven much much higher. The reopening of the 10s and 30s maturities auction saw some massive tails as buyers balked even at these higher levels, makes you wonder if the U.S. has lost some of its luster and many have chosen the top cash rich corporations as their safe havens! Well we know this is the case in some instances and we have talked about it for quite some time as we know Apple can borrow cheaper than the U.S. Govt.
AS far as that move after CPI in the bond markets here is how the Yield Curve ended on Wednesday with 2s and 5s getting crushed +22.1bp and 23.8bp respectively and the 10Y was not far behind +19.4bp closing above 4.50% at 4.56%:
The US 30Y and 2Y charts look ugly as the bond market rose 13.4bp the largest rise in some 5 months:
The 2Y has once again risen to near 5%:
We know these higher rates are transferring risk free interest money to the private sector and that US government interest payments are projected to hit $1.6T by December assuming stable rates:
So by looking at this chart and knowing the US Treasury needs to manage its debt accordingly we wonder if the FOMC and the US Treasury are purposely creating all this new debt in a final massive death spiral for fiat money or if they simply know the next few decades will truly be spent in ZIRP. Its almost as if they know if they cut rates everything turns around, inflation drops, equities drop, valuations drop and affordability returns or maybe they have just completely lost control of the narrative!
We have bank earnings up tomorrow led by JPM Chase and Magnelibra listeners know we watch this stock and it is sitting at the top of the channel seeing some decent profit taking:
The ATM straddle for tomorrow expiry is trading around $6.60 so a move of 3.3% for breakeven, skew is heavy on the Calls up to $205 with $190 the sweet spot it seems for the market makers. So will see how this one transpires a move back into the channel would be consistent with rate cuts in the future not rate hikes, so this is one to watch here.
As far as today’s settlements, we have included all weeks so far and we had to correct some of our system data so we apologize:
I think the market to watch tomorrow is the Nasdaq futures, 18348.25 in the futures was the opening for this week, so in order to avoid a 3 week in a row loss they will need to avoid a 150 point loss or so:
When we look at the Magnelibra Futures Model Tracker there are no changes currently:
As far as the MEGA8s Tracker Broadcom (AVGO) was the big winner today and is intertwined with the big dogs as a chipmaker so this is one to watch and why all the news has been Nvidia, we think this one has been overlooked but has increased over 2x in the last year:
The tracker does not have a hedge this week and will continue to look to hedge this tracker to assist those that may utilize long only strategies. As many listeners know we like to use the QQQ to hedge this static long tracker and post the results daily, but for this week were targeting that 446C at 3.00 or better early on but never got there…As far as the market cap for the group, it hit new all time highs today a hair shy of $15Tn:
On an individual basis here is how they have fared since May 10 2023:
Ok that is it, we know you have a lot to do, we know there is a ton of information, but we hope that you find what we provide, insightful, thought provoking and above all different from main stream narratives. I know a lot of you love golf and its all eyes on Tiger at the Masters this week and Tiger looks to win for the 6th time, who knows but should be a great weekend for golf! Alright, that is it, we hope you have a great weekend, good luck tomorrow and always keep the motor running and the powder dry, you never know when the right opportunity may arise. Remember you can’t win the prize if you don’t take the shot, as the great Michael Jordan once said,
You miss 100% of the shots you don’t take!
Till next time!
