SuRpriSe!! Let’s throw some confetti in the street!
May 7, 2021
–Congrats to Bolingbroke and Spratt for being the lead article on Bloomberg this morning, highlighting the massive buying of 3EU 9800 puts, in the context of a “Jackson Hole surprise”. This strike was bought again yesterday for 6 to 6.5, with open interest jumping another 137k to 421k. The underlying EDU’24 contract only has 382k of open interest. The put has delta of 18, underlying EDU’24 settled 9854.5, expiration is 10 September 2021, and the put settled 6.25. It’s true that the expiration falls just beyond the Jackson Hole confab, but it is also the case that yesterday, in spite of this massive buying, the ten year treasury yield eased a couple of bps to 1.56%, and EDU4 itself was up 0.5.
–Perhaps there is no “surprise” aspect to the trade at all. Julia Chatterly of CNN had a Morgan Stanley guest on yesterday who noted that “21% of all dollars were printed in 2020.” People like to say that bitcoin isn’t backed by anything…but at least we know the supply is limited. They’re printing dollars like confetti. Speaking of limited supplies, a friend said to me yesterday, “OK, you can sell one thing: Corn, Lumber, or Copper. Which one?” How about Nope. July Corn is at a new high this morning 725. July Copper is at a new high this morning 469. And July Lumber is in a class of its own, new high 1607. The “Surprise” is happening right in front of our (and the Fed’s) eyes. Kaplan seems to be the only one noticing it, saying yesterday that the Fed should think about tapering sooner rather than later. And that a hike FROM ZERO should be on next year’s timetable. July Lumber up 4 times from October, Corn has doubled since last summer. How is the ten year justified at one and a half percent?
–The Fed released its semiannual Stability report yesterday afternoon. On the pillar of ‘asset valuations’ the report notes: “However, valuations for some assets are elevated relative to historical norms even when using measures that account for [low] treasury yields. In this setting, asset prices may be vulnerable to significant declines should risk appetite fall.” Phew, they’re ON IT. We can all relax now.
–Almost forgot that it is Payrolls day, expecting a gain of nearly one million. SURPRISE!
