Bats*** crazy
June 15, 2021
–Curve bounced with the ten year yield rising 4.5 bps to 1.497% and 2/10 up 3.3 to 133.8. On Monday, 3-month libor set at a new record low of 11.8 bps, leading to the highest ever final settle of a euro$ contract, EDM1 at 99.8820. Coincidentally, Nasdaq made a new all-time high. And the Fed’s RRP was a record high $584 billion. I don’t know if any of these factors will filter into a discussion of financial stability at tomorrow’s FOMC, but it would seem as if tapering should be high on the agenda (again, it would only be slowing the growth of the Fed’s balance sheet, not reversing it).
On Monday Paul Tudor Jones was interviewed by Andrew Ross Sorkin and PTJ said the world is bat-s crazy. His comments were centered around the Fed but for a concrete example of crazy consider that the Greek Five Year note printed a negative yield on Monday, having been 20% just six years ago.
Summarizing PTJ, he said that this FOMC might be the most important in the past four or five years in terms of how they react to the data. He says the Fed is now operating with a single mandate, that of full employment. So, this Fed has a different reaction function [which of course was articulated by the Fed in August of 2020 with the announced change of framework]. He cites the extraordinary fiscal and monetary accommodation as being outside the bounds of orthodoxy, and said it all started with Trump’s 2017 tax cut that resulted in a 5% peacetime deficit. Mohamed el-Erian made similar comments yesterday, saying that even with the economic car rolling downhill, the authorities have the “pedal to the metal”. The Fed has said several times that tapering will precede rate hikes, and it seems as though the tapering discussion must occur now, as the next FOMC is in late July.
One interesting thing about PTJ talk was about commodities: He said that Asset Managers have about $88 trillion under management, and of that about $670 billion is committed to commodities, or about 0.75%, with inflation at 4.9%. He compared that to 3% inflation of 2011, when asset managers had about 1.2% of assets in commodities. To bring the percentages back would cause a flow of about $400 billion into commodities, which he says could double or triple commodity indexes. Elucidating further he says, “They’re SHORT”.
