Equity?
June 30, 2020
–In the beginning of June, EDM1/EDM2 spread surged, moving from 5.5 to a high settle of 12.0 on June 4. There had been a large buyer of 100k from 5 to 6, and the employment report last month made these buys appear quite prescient. On Feb 24, just after stocks had peaked, the spread had posted a low settle of zero. Yesterday it closed at 1.5, a new low for the month. Dashed on the rocks. In fact, all of the red/green spreads made new monthly lows yesterday even as stocks surged. The ten year yield was unchanged at 63.5; 5/30 spread bounced by 3.5 bps to close near 111.
–The Fed released comments from Powell on the website. What I found rather amusing was how many times Powell said new programs were “backed by CARES ACT equity.” (CAE) TALF is backed by $10 billion of CARES ACT equity. The PMCCF and SMCCF (bond and etf buying facilities) are backed by $75 billion of CARES ACT equity. The Main St Lending Facility is back by $75 billion of CARES ACT equity. Etc. The Federal Gov’t is running a huge deficit. THERE IS NO EQUITY. It’s as if I am trying to buy a new Lincoln Navigator backed by the equity in my 1972 Coupe de Ville. Obviously that’s a joke, because really, who wouldn’t rather just have the Caddy? The proper analogy is that I bought the Navigator with counterfeit bills. And financed it. At zero percent.
–Today we get the release of Chicago PMI. The last reading was just under the 2008 crisis low of 32.5, coming in at 32.3. In 2018 it peaked at 66.5. Today it’s expected to bounce, a good reason to put Main Street Loans to work in Nasdaq.
