Only halfway thru the first MONTH
February 4, 2025
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–Tariffs on both Mexico and Canada were tabled as both countries acquiesced to some US demands about tightening borders. China retaliated with trade restrictions. John Authers has an opinion piece on BBG smugly titled, ‘It’s Almost Like They Knew Trump Was Bluffing.’ I guess he doesn’t think Mexico and Canada really gave anything at all. You know what they say about opinions… I use the analogy of friends going out to dinner. One guy orders the $300 bottle of wine and wants everyone to split the bill. Sure it’s ok once or twice. Friends, right? But eventually, you either stop inviting that guy or want him to kick in a little more. Or drink a beer, like the rest of us.
–Markets are getting rattled due to the new admin. Some stocks continue to make new highs. WMT, COST, IBM as examples. But the backdrop is stretched valuations. Concentration of Mag 7, US stocks at a record percent of global market, market cap to GDP near record high, Cape-Shiller p/e higher than any time since dot-com.
–Big SOFR trade…+40k SFRJ5 9612.5/9637.5/9650/9675c condor for 1.25, then bought another 35k of just the lower call spread for 1.75. Settles: SFRM5 9586.0
Calls: 3.5 1.75 1.25 0.75. Fed Effective is currently 4.33% and SOFR is 4.36 to 4.38. Let’s call it a price of 9565. So the low strike on the condor needs 50 bps of cuts for breakeven. FOMC mtgs 3/19, 5/7. 6/18. We’ll only know the outcome of the March meeting before option expiration, the other meetings rely on perception.
–Bostic echoed Powell, who last week said he’s in no hurry to adjust rates. Bostic said he wants to wait a while and see how the first 100 bps of cuts is affecting the economy.
–Trump put his imprimatur on a Sovereign Wealth Fund.
–ISM Mfg finally poked above 50 for the first time since late 2022. Today brings JOLTS and Durables.
–Curve flattened with 2/10 marked at 28, down 6 bps and a new low for this young calendar year. With Fed officials holding the line, buying necessarily edged out a bit farther on the curve. 2y yield was UP 3 bps to 4.26% while 10s FELL 3 bps to 4.54.
