With fingernails that shine like justice
September 16, 2020
I want a stock with a smooth liquidation
I want a stock with good dividends
At Citibank we will meet accidentally
We’ll start to talk when she borrows my pen
Cake – Short skirt/Long jacket
–I had recently read that Powell & Co would prefer to address the risk of equity market froth with macroprudential tools rather than tighter monetary policy. They’ve put on a clinic with Citi. The stock is down 12% in the past two days on talk of regulatory action to address inadequate risk control. Going into today’s FOMC, stock indexes remain near all-time highs, but the Fed is widely expected to keep rates near zero for the next three years. There is some talk of going out further on the curve in terms of bond purchases, but a resulting flatter curve would probably work at cross-purposes: the Fed needs a strong banking system in order to transmit policy objectives, and a flatter curve encourages financial intransigence. Already, the Fed owns something like 20% of all mortgages: Z.1 report coming out today, the last one showed household mortgages outstanding at $10.6 trillion and the St Louis Fed reveals that the Fed owns $2T of MBS. In some ways it’s ironic that the Senate kicked Fed nominee Judy Shelton to the curb; her views have been associated with a less independent Fed and a gold standard. Maybe that’s just too conservative for this QE infinity Fed? https://fred.stlouisfed.org/series/WSHOMCB
–By the way, it’s not just the Fed doling out macroprudential justice. NFLX has been on the receiving end of cancellations due to its show Cuties which is said to depict young girls as sex objects (NFLX down 14% from 9/1 to 9/14). And Kim Kardashian is jumping on the bandwagon with her #StopHateFor Profit cancellation of Facebook.
–Interestingly, front October ED contract was heavily bought yesterday with volume of 75k and an open interest increase of 12.5k, the largest OI change of any contract on the curve. It traded 9975.5 but settled 9975.25, just one bp below the just expired EDU0 settle of 9976.27, even though Oct covers the turn. Perhaps a hedge for more aggressive accommodation by the Fed today?
–There was a note on ZH yesterday citing BofA which concerned the value of book value as a useful metric. From the article:
But, BofA asks, what’s more intuitively valuable to a company like Google: the physical buildings and the network servers inside them, or the intangible algorithms running on those servers? In other words, whereas traditional book value makes sense in an economy composed of factories, farms, and shopping malls, it is increasingly irrelevant in an economy driven by intangibles like patents, licensing agreements, proprietary data, brand value, and network effects.
And the punchline: from just 17% in 1975, the total value of corporate intangibles has risen to over $20 trillion, representing a record 84% of all S&P assets!
Intuitively we all know of this change to intangibles, but it’s still a pretty stark stat!
