S&P 500 And Margin Accounts Near All-time High (Will Fed Rock the Boat??)

The S&P 500 stock market index is near an all-time high. But then again, margin accounts at NYSE firms are also at all-time highs.

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Meanwhile, brokerage call money loan rates on margin accounts continue near the all-time low (despite recent increases in The Fed Fund Target rate).

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Will The Fed’s proposed 25 basis point increase at the December FOMC meeting (which would result in the call money rate rising to 3.25%) result in a slowdown of margin borrowing? Probably not.

Party on Stan, Party on Janet! 

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Bitcoin Hits All-time High (Market Cap Almost As Big As Goldman Sachs)

The crypto currency Bitcoin just hit another all-time high, reaching 5,606.

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Here is Bitcoin relative to gold.

Bitcoin’s market cap is now $93.5 billion.

Making Bitcon almost as large as Goldman Sachs in terms of market capitalization.

While not quite bigger than Goldman Sachs, Bitcoin is on its way.

But unlike Goldman Sachs, Bitcoin is NOT Too-big-to-fail (TBTF).

Here is Lloyd Blankfein, Goldman Sach’s CEO, doing his best Hyman Roth impression from The Godfather 2.

Bond Trader Up $10 Million by Joining Bets Yield Curve Too Flat (Game of Drones)

Big futures trade adds to steepening momentum amid selloff.

(Bloomberg) — Traders in the $14.1 trillion Treasuries market are signaling that the persistent flattening of the yield curve this year has gone far enough.

The outperformance of longer-maturity debt has been a dominant theme in the market for months. Now, open interest data show investors are unwinding wagers that the slope of the yield curve from five to 30 years will fall, after it turned the flattest in nearly a decade.

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In one case, a trader executed large block trades in 10-year and ultra-long futures. The combination created a bet on curve steepening that gains or loses $4.2 million for each basis point move in the yield spread. It’s already up more than $10 million, extending gains after Treasury’s $28 billion seven-year auction drew a yield that was below indications from before the sale.

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The futures positioning reflects a sentiment shift in Treasuries as traders gain conviction that the Federal Reserve will tighten again in December and as President Donald Trump promotes his tax plan. The benchmark 10-year yield, at 2.31 percent, broke above its 200-day moving average for the first time since August.

“Selling blocks have weighed on long duration Treasury notes” as traders adjust expectations for a tax overhaul, John Herrmann, director of U.S. rate strategy at MUFG Securities Americas, wrote in a note Thursday. At the same time, shorter maturities “are barely pricing in any FOMC interest rate action beyond the December” meeting, leading the curve to steepen.

To be sure, the benchmark is right around its 2017 average, a long way from the 3 percent level that some analysts predicted to start the year. And the curve is still within spitting distance of pre-financial crisis lows. But the pullback highlights that traders may have gotten too aggressive in wagering long-term yields couldn’t move higher.
At the very least, it shows investors are wary of a repeat of the events of right around this time last year, when 10-year yields rose 75 basis points in seven weeks. Money managers in Japan, where the fiscal half-year closes Sept. 30, were hit particularly hard.  

Treasuries tumbled in Asia trading hours Thursday, with some traders saying Japanese investors are stepping back. The selling momentum intensified after the 10-year yield rose above its 200-day moving average, spurred in part by hedging with options against even-higher interest rates.

And investors aren’t just turning bearish on long-term rates. Traders are alsoadding to wagers on declining eurodollar futures, positions that profit if the market prices in more Fed hikes. The odds that policy makers boost rates again in December are about 66.6 percent, based on overnight index swaps and the effective fed funds rate. A full rate hike isn’t priced in until mid-2018.

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So while Treasuries aren’t in a bear market just yet, the bullish momentum that pushed long-bond yields to the lowest since November has certainly faded. 

In other words, the hope that President Trump could undo Obama-era legislation (amongst other things) has faded to near zero.

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So now we are in a Game of Thrones world where the 10 year Treasury yield has to rise faster that the 2 year yield to get the curve climbing again.

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Venezuela’s Inflation Rate Just Hit 2,061% (6 Mo CDS At Almost 13,000)

Yes, the US economy like Europe and Japan are suffering from chronically low rates of inflation (unless you count things like home prices,. rent, college tuition, healthcare, etc).

But not Venezuela! They just surpassed the year 2017 in terms of their inflation rate: 2061%!

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Venezuela’s sovereign curve remains steeply downward sloping with short-term rates in excess of 50%.

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And Venezuela’s CDS curve is similar in that it is downward sloping with 6 month CDS at almost 13,000.

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“Look amigo, I can spin the basketball just like Steph Curry!”

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The Hysteria Curve: US Treasury 10Y-2Y Curve Slope Declines To 78.6 BPs As 10 Year Soveriegn Yields Decline In Americas and Europe

Choose your hysteria to explain the Treasury market: 1) debt ceiling crisis, 2) hurricane (Global Warming) crisis, 3) North Korean nuclear attack crisis, 4) Trump’s Russian collusion investigation crisis, 5) the DACA (“Dreamer”) crisis, 6) Brexit crisis, 7) NAFTA crisis or 8) fill-in-the-blank crisis dejure. Please tune to CNN or MSNBC (and even Bloomberg) for the latest in hysteria.

Which ever portfolio of crises you select, we watching the US Treasury 10Y-2Y curve slope fall below 80 to the lowest slope since September 2016.

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10 year sovereign yields in the Americas and Europe can down with the US falling around 10.1 BPS and Argentina down almost 40 BPS.1010

Gold prices are up since the 2016 election while the US dollar basket is down.

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We are seeing a jump in equity and Treasury volatility, but not much.

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Tune into MSNBC’s Rachel Maddow and Lawrence O’Donnel for particularly entertaining hysterical rants (like about Trump’s 2005 tax return).

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US Treasury 10Y-2Y Slope Declines as Gold Rises

After a yield curve rally in late June that sent the 10Y-2Y slope almost to 100, it has started declining once again and is down to 91.425. But notice that gold rose today and continues to be generally inverse to the Treasury curve slope.

Inflation continues to be under The Fed’s 2% target and has averaged a meager 1.1% under Yellen’s management.

Here is Fed Chair Janet Yellen looking for 2% inflation and not finding it.