immature markets
April 17, 2022 -Weekly comment
Jack Dorsey Tweet NFT Once Sold for $2.9 Million, Now Might Fetch Under $14,000
Modest bids for the tweet, which was converted to a nonfungible token last year, reflect a maturing NFT market.
The above is clipped from Sunday’s WSJ site. “Maturing market” is a rather charitable description of something that has lost over 99.5% of its “value”. This, at a time when TWTR and the exploits of Elon Musk have dominated the news. A Forbes article explains that Dorsey created an NFT of his first five-word tweet in December 2020, and initially it “garnered little interest” but in “March 2021, the market entered hype mode” and the NFT sold for $2.9m. “On April 5, Estavi put the NFT up for auction for 14,969 ether, or about $50m. Embarrassingly, no one bid more than $280.” So it sounds like even the quoted $14,000 might be a bit generous.
The Forbes piece named OpenSea as the digital marketplace for NFTs. Having checked the site and watched a short video, I think rather than describing the NFT marketplace as “maturing”, I would have perhaps likened it to a “virtual flea market.”
Markets can get out of hand. Should it come as a surprise that gov’t stimulus checks coupled with the Fed’s confetti money printing, while sports and other public activities were suspended, led to some awfully stupid market decisions?
In the late 1980s it was said that Tokyo’s Imperial Palace was worth more than California, and that Tokyo real estate “could sell for as much as $139,000 per sq foot, nearly 350 times as much as equivalent space in Manhattan.” A golf club membership could cost $3 million. (Take THAT, Harker!)
With dollar/yen breaking out and closing this week above the high of 2015, the next big trade of the year just might be shorting the yen, as the Fed’s inflation-fighting removal of accommodation strengthens USD. At the start of 1985, just prior to the Plaza accord, JPY was 250. Now it’s 126.46.
In the US rates market, the big story was the large rebound in the curve. On the week, the two-yr note yield fell 8.7 bps to 2.435% while 30s rose 15.1 bps to 2.903% for a difference of 46.8 bps. On April 1, this spread had inverted to -3 bps. On March 16, the last FOMC meeting, the spread was 51. In the space of one month this spread fell over 50 bps and then rebounded to end near its starting level. On March 10, yoy CPI was released at 7.9% and last week on April 12, it had accelerated to 8.5%. The steepening bounce likely has more to do with Brainard’s signaling of more rapid balance sheet reduction than with inflation, though a thirty-yr yield of 2.9% is hardly justifiable with >8% CPI. In fact, a friend (thanks Tots) pointed out that i-bonds on TreasuryDirect, priced off CPI-U, are paying juicy rates: “If an i-bond is purchased in April, you’ll get the current rate of 7.12% for six months followed by 8.62% for six months. That’s a 12-month avg rate of 8.37%.”
Some will point to the curve move and conclude that the brief inversion of treasuries is nothing more than a false signal of a possible recession. However, on the Eurodollar strip, the red pack (2nd year forward) is 23 bps higher in yield than the green pack (3rd year) and therefore solidly inverted. Using the SOFR strip, the average price of the first four contracts, SFRM2, U2, Z2 and H3, is 9778 or 2.22%. However, the next four contracts SFRM3, U3, Z3, H4, average to a price of 9704 or 2.96%. That’s above the yield on just about everything on the treasury curve aside from the 20-yr, which was 3.08% late Thursday. In other words, if the Fed carries through with pricing implied by forward ED and SOFR strips, inversion will once again clearly forecast a recession.
Additionally, supply problems keep popping up, for example this crucial tidbit concerning rail shipments of fertilizer to farmers: (from CF Industries site)
On Friday, April 8, 2022, Union Pacific informed CF Industries without advance notice that it was mandating certain shippers to reduce the volume of private cars on its railroad effective immediately. The Company was told to reduce its shipments by nearly 20%. CF Industries believes it will still be able to fulfill delivery of product already contracted for rail shipment to Union Pacific destinations, albeit with likely delays. However, because Union Pacific has told the Company that noncompliance will result in the embargo of its facilities by the railroad, CF Industries may not have available shipping capacity to take new rail orders involving Union Pacific rail lines to meet late season demand for fertilizer.
Tony Will, CEO of CF Industries Holdings added, “By placing this arbitrary restriction on just a handful of shippers, UP is jeopardizing farmers’ harvests and increasing the cost of food for consumers.” The BBG Commodity Index closed at the high of the year Thursday and is up 33% ytd.
A lot of Fed speakers this week, with Beige Book on Wednesday. Bullard late Monday, Evans on Tuesday and Wednesday, Daly Wednesday. On Friday, Powell and Lagarde take part in an IMF panel on the Global Economy.
OTHER MARKET THOUGHTS/ TRADES
In the month of April, FFN3/FFF4 calendar spread has been priced from 1 to 5. In other words, these two contracts, which are a proxy for policy over the last half of 2023, trade at nearly the same price. Friday’s settles 9697.5 and 9695.0 or just slightly above 3%. The takeaway is that the market expects a terminal FF target around 3%, and hiking will have ended by the first half of next year.
Note that rate markets, typically highly liquid, have lost quite a bit of depth in the past few weeks. Moves can easily be exaggerated. Vols remain quite high.
There will be no weekly comment next week.
| 4/8/2022 | 4/14/2022 | chg | ||
| UST 2Y | 252.2 | 243.5 | -8.7 | |
| UST 5Y | 276.4 | 275.6 | -0.8 | |
| UST 10Y | 272.7 | 280.4 | 7.7 | |
| UST 30Y | 275.2 | 290.3 | 15.1 | |
| GERM 2Y | 5.0 | 4.7 | -0.3 | |
| GERM 10Y | 70.7 | 84.2 | 13.5 | |
| JPN 30Y | 97.2 | 92.9 | -4.3 | |
| CHINA 10Y | 275.9 | 276.1 | 0.2 | |
| EURO$ M2/M3 | 179.0 | 164.5 | -14.5 | |
| EURO$ M3/M4 | -32.0 | -28.0 | 4.0 | |
| EURO$ M4/M5 | -24.5 | -11.0 | 13.5 | |
| EUR | 108.76 | 108.31 | -0.45 | |
| CRUDE (active) | 97.73 | 106.38 | 8.65 | |
| SPX | 4488.28 | 4392.59 | -95.69 | -2.1% |
| VIX | 21.16 | 22.69 | 1.53 | |
https://www.depositaccounts.com/blog/inflation-treasury-series-i-savings-bonds/
