So, the eurodollar curve has inverted. Bad news. Now what?
While this is a major milestone in the monetary system’s decidedly anti-inflation/growth journey, it is hardly the end point of it. On the contrary, though it takes a lot of negative, deflationary potential to distort the curve in this way, we need to see if the market sticks with that potential rather than just some flashing rush of otherwise fleeting concern (for the record, this hasn’t happened; once upside-down, it has in the past stayed upside-down).
Day 2 of inversion, and, yes, the curve is a tiny bit more overturned than yesterday. Even though the whole curve itself moved up somewhat, falling prices nearly across-the-board, therefore a higher nominal curve level, we are instead interested in the shape of it independent of how it might move up or down.
For the time being, our focus for now remains on the twisting. And we shouldn’t expect much more out of it. At least, for now.
Therefore, inversion Day One did indeed stick around for Day Two. Not good.
What might we expect over the coming weeks and months?
Using both the 2006-07 example as well as the more recent, and darn near carbon copy 2018 curve, it may be that this small amount of upside-down is all we get for some time. Though it then may seem insignificant, it is actually that amount of time rather than depth of inversion which is important as a leading indication.
Going back to three years ago, from the initial inversion on June 13, 2018, the nominal eurodollar futures curve moved a little bit up and down throughout the summer and early autumn. It was practically unchanged until October, and then things started to heat up.
By early November 2018 (shown above), even then the same greens/blues inversion was still no more than 4 bps. Seemingly a pittance, therefore easy to just ignore how it hadn’t completely blown up even after four and a half months.
However, the curve also developed a miniscule inversion right in the reds. And though this one was just half a bip, that seemingly trivial amount of upside-down along with those several months stuck in distortion greens and blues, those together were a powerful and absolutely clear sign the situation was substantially deteriorating.
Remember, Jay and the media were more confident all the time (and, in September, data like payrolls and the unemployment appeared to make that confidence seem inspired).
Within days from the start of November, the landmine blew the whole thing apart which removed all doubts. It was no longer just greens and blues, reds and even whites were in total disarray. The unambiguous implication of wreckage and potential for more and worse was finally clear and out in the open (not just eurodollar futures, it was everywhere from oil contango to inverted parts of the yield curve!)
Even the Fed by early January could no longer deny and pretend the situation was as it had told the public to expect. The embarrassing early January flip flop greeted a “Fed pause” that then mutated into outright rate cuts by July 2019.
All as the eurodollar futures curve had thoroughly priced/predicted throughout the last half of 2018 right on into 2019. Even when it didn’t seem like much at all, just a few basis points, the fact those inverted few hung around and hung around, distorted the curve week after week, month after month, it was actually a very ominous warning of what was to come.
Given this example, this is what we’ll be watching – along with all the usual suspects including the flatter and flatter Treasury curve as well as what might be another crack at zero by the JGB 10s. The dollar’s rise. There are others, as well.
These things are progressions, and rather lengthy ones. In today’s day-to-day focused world, it’s easy to lose sight of what this all really means; or just get bored with it since it might not seem like anything has changed. You see an inversion and it is shocking at first, if only because it really, really shouldn’t be there. But then if or when it doesn’t really seem to do much thereafter, maybe you relax and lose focus.
Then, “suddenly”, bam, the landmine and the whole landscape changes; or, more accurately, the landscape doesn’t really change, it just becomes so obvious and obviously bad that there’s no alternative but to pay close attention.
In other words, at this stage it’s not the depth of inversion, it’s that it is and remains there at all for any further length of time. Nothing so offends the natural financial order as this; ugly and foreboding even at a outwardly minimal state.
Put it this way: if it takes quite a lot of bad vibes just to get the curve, any curve, inverted just the bare minimum (like yesterday) in the first place, what level of pessimism, skepticism, and downright risk aversion must there be hidden from within the shadows to keep it there for any length of time at any depth?
That’s what we are contemplating already today.
Oil Traders Will “Break The Fed” And “Make Jerome Powell Cry Uncle”
Oil Traders Will "Break The Fed" And "Make Jerome Powell Cry Uncle"
Submitted by QTR’s Fringe Finance
This is Part 2 of an interview with…
Oil Traders Will “Break The Fed” And “Make Jerome Powell Cry Uncle”
Submitted by QTR’s Fringe Finance
This is Part 2 of an interview with Harris Kupperman, founder of Praetorian Capital, a hedge fund focused on using macro trends to guide stock selection. Mr. Kupperman is also the chief adventurer at Adventures in Capitalism, a website that details his investments and travels.
Part 1 of this interview will be found here.
Harris is one of my favorite Twitter follows and I find his opinions – especially on macro and commodities – to be extremely resourceful. I’m certain my readers will find the same. I was excited to get the chance to ask him about anything I wanted, which I did last week.
Q; What one sector of the equities market would you dive into now if you had to pick only one – and why?
It’s not an equity, but if there was one asset to focus on, it would be long-dated OTM oil futures options. They’re the purest way to get long inflation and they’re mispriced compared to the potential upside. All sorts of right-tail assets seem mispriced, but the IV on oil futures options seem particularly mispriced as it is so cheap compared to the parabolic upside potential.
In terms of equities themselves, I think offshore oil services are about to really inflect.
With Brent at $86, demand for offshore production will come back in a major way. Especially because many Western governments are making it so painful to explore and produce oil domestically. As a result, the incremental supply will come from places that need the oil revenue—much of this will be offshore.
Meanwhile, much of this offshore equipment trades at tiny fractions of replacement cost. At the top of the cycle, these companies often trade for a few times replacement cost. I think we’re about to a surprising move in the price of oil, and these equities are the fulcrum security in the oil sector—but since most have restructured in bankruptcy, they have clean balance sheets and minimal risk if I’m wrong and the sector doesn’t inflect.
Oil is about to surprise people—offshore hasn’t moved yet. That’s where I’d be focusing my time, but buying the 2025, $100 strike oil call just seems like a more elegant way to play this with a lot less operational risk and a whole lot greater upside potential.
What’s your broader view on markets in 2022? Will they stabilize? Full on crash? Rotation from growth to value?
I think the market will have a lot of volatility, but sort of go nowhere. Instead, I expect a huge sector rotation from Ponzi and high-multiple growth to industrials and commodities.
A lot of these “old economy” businesses trade at low single-digit multiples on cash flow and fractions of replacement cost. They’ve been ignored for years, they’ve cut costs, consolidated and not invested much in capacity. We’re at the part of the cycle where they finally earn huge returns. That’s where you want to be.
Meanwhile, as the Fed raises rates and tightens liquidity, the high-multiple stuff will get bludgeoned. It’s amazing how many multi-billion market cap stocks are down 75% from the highs last year, yet they still seem ludicrously expensive. This will eventually get corrected and corrected with a lot more pain.
What fiat currencies do you prefer to own, assuming you have to own one? And why?
I think crypto has had its bubble. It now needs to consolidate. There’s far too much speculative interest for me. I sold out of my Bitcoin last spring for a 6x from where I bought it in 2020.
Longer term, I’m quite partial to Monero and own a few. It’s what everyone thinks Bitcoin is, while Bitcoin is actually something VERY different. The privacy aspect, along with negligible transaction costs will make Monero viable. It’s out of consensus, but adoption continues to accelerate. During the coming wash-out in risk assets, I intend to pick up some more Monero.
Is the Fed still firmly in control of the bond market. Is there any chance “bond vigilantes” take over at some point?
Oil traders are the new bond vigilantes. They’ll be the ones that break the Fed and force JPOW to cry uncle. The Fed hasn’t lost control yet, but when oil breaks $100, they’ll go into panic mode.
I worry that they’ll eventually crush everything with a CUSIP while trying to stop oil from going parabolic. Naturally, they’ll fail at this because they have little to do with the price of oil, but that won’t stop them from trying.
What’s one lesson you’ve learned in your investing career that you want to pass on and think is important in 2022?
Leverage is dangerous. We’re entering a much more volatile period. I think the overall market will continue going much higher because they’ll keep stimulating, but there will be periods where they panic and stop stimulating.
Equities can literally trade at any price. Make sure that on these sharp and steep pullbacks, you aren’t the one forced to sell at the lows. Instead, you want to be the one who buys when others get margin calls. Play with less leverage, keep extra liquidity and expect that there will be huge opportunities coming up.
What’s your outlook on how the world thinks about Covid in the coming year?
Covid is a bad cold that has evolved into a mental disorder. You really need to separate the two. Left alone, Covid the virus will evolve to be less dangerous to humans. Unfortunately, governments like to tinker and convince voters that they’re doing something useful. Vaccinating a huge percentage of the population, with multiple boosters, is likely to change how the virus would naturally evolve. We’re already seeing this with Omicron.
The triple vax’d are more susceptible than the double vax’d, and the unvax’d are almost immune to it. This is an adjusted evolutionary path and governments should be terrified of the data. This is a warning that is getting ignored. Most scientists have always known that vaccinating against a coronavirus is a mistake—it’s the reason that they don’t vaccinate livestock against coronaviruses.
They’ve already tried that and know it doesn’t work, with the added risk that the virus can evolve to be more dangerous. What we should have done is gone for herd immunity, protected the at-risk, and gotten on with life.
Unfortunately, Covid has evolved into this mental disorder where people walk around with cloth diapers on their faces and scrub their hands with alcohol all day. There’s this whole neurosis to it, with people lecturing others on if they’re going through the motions correctly.
Governments have been quick to realize that a large portion of the population is mentally unstable and easily manipulated. They’ve prayed upon this to gain power and tell these people that their mental disorder is now normal.
Eventually, most people will get bored of role-playing “pandemic,” and they’ll push back against government-created inconveniences. We’ll return to sanity, while a lunatic fringe will continue with their new neuroses. I finally believe we’re now past peak-stupid, but I’ve thought that a few times and then governments have once again tried to flex their powers and scare people into acting insane.
Fortunately, people are starting to wake up to all of this. In another few quarters, Covid, the mental disorder, will hopefully mostly be over with—though we’ll have the residual question about long-term health risks from these experimental mRNA vaccines—which is still quite a wild-card.
You have to remember that governments are just a collection of politicians trying to guess which way the mob is trending. As the mob adjusts, the smarter politicians will follow the voters and hopefully this thing ends. Here in Florida, no one has worn a mask in 18-months, yet you have these tourists with 2 masks on at the beach.
It’s quite hilarious. But then after a few days in Florida, they attune culturally and no longer fear germs as much. This process will happen everywhere as people realize that this is all just a bad cold. They’ll see others going on with their lives without dying. People will adjust and the more astute politicians will try to stay in front of this trend. Until then, we just have to wait it out and watch this crazy psychological experiment unfold…
Part 1 of this interview can be found here.
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All content is Harris Kupperman’s opinion. I own physical silver, GLD, GDX, GDXJ, PAAS, PSLV and a number of other metals/miners/gold/silver equities as well as numerous companies with exposure to oil and uranium. Readers should assume Harris also has positions in all trends/equities/etc. mentioned in this interview – as do I. We will likely stand to benefit if prices of commodities rise and/or our prognostications come true. None of this is a solicitation to buy or sell securities. It is only a look into personal opinions and personal portfolios. Positions can change immediately as soon as I publish this, with or without notice. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot. I’m not a financial advisor, I hold no licenses or registrations and am not qualified to give advice on anything, let alone finance or medicine. Talk to your doctor, talk to your financial advisor or your therapist. You are on your own. Do not make decisions based on my blog. I exist on the fringe.
Fear And Panic As Bitcoin Crashes 50% From All Time High
Fear And Panic As Bitcoin Crashes 50% From All Time High
Just two months after cryptos hit an all time high amid widespread euphoria that…
Fear And Panic As Bitcoin Crashes 50% From All Time High
Just two months after cryptos hit an all time high amid widespread euphoria that the newly launched bitcoin ETF would lead to even more substantial upside, the two largest tokens have lost half of their value, with the broader crypto sector suffering more than $1 trillion in losses amid an accelerating liquidation panic that the Fed’s tightening cycle will lead to another crypto winter.
Such is the volatility in the sector where, as Bloomberg put it overnight, there has been just one constant recently: “decline after decline after decline.” Of course, for veteran hodlers, Bloomberg hyperbole seems trivial in a world where 80% drawdowns are the norm and the current drop may have a ways to go before it hits a bottom, before a new all time high is hit.
Where Bloomberg is right however, is that superlatives for the latest carnage have been easy to come by: Friday’s decline led to the liquidation of more than $1.1 billion in crypto futures positions and overall more than $1 trillion in market value has been destroyed since the last peak. In other words, “the meltdown is pouring salt on an already-deep wound.”
After the latest furious puke that pushed Bitcoin RSI’s indicator to the most oversold level since the covid crash in March of 2020…
… Bitcoin, which lost more than 12% on Friday, saw its price drop just above $34,000 with Ethereum sliding as low as $2,400, as the two largest digital assets now trade at a 50% discount from their all time highs and are back to levels last seen in late July, early August. Other digital currencies have suffered just as much, if not more, most meme coins mired in similar drawdowns.
While the selling has been relentless for the past two months, it accelerated in the past three weeks, after the latest Fed minutes – published in early January – showed its intention to not only hike rates but to accelerate the unwind of its balance sheet, which has sent all “bubble baskets” plunging, with bitcoin getting hit especially hard amid the carnage.
And while there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, according to Bespoke, this marks the second-largest ever decline in dollar terms for both.
“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”
Another fact that Bloomberg gets right, is that over the past year, cryptos have transformed from relatively uncorrelated assets providing diversification during market turbulence, into what is effectively a high beta stock. This is easily seen in the following chart showing the 60d correlation between cryptos and stocks. One can thank institutional adoption for that, because the same institutions that are now facing margin calls on their tech holdings, are also dumping cryptos to provide much needed liquidity.
“Crypto is reacting to the same kind of dynamics that are weighing on risk-assets globally,” said Stephane Ouellette, chief executive and co-founder of institutional crypto-platform FRNT Financial. “Unfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class it’s almost a certainty that it falls, at least temporarily in a broader alt-coin valuation contraction.”
Antoni Trenchev,, co-founder of Nexo, cites Bitcoin’s correlation to the tech-heavy Nasdaq 100, which right now is near the highest in a decade. “Bitcoin is being battered by a wave of risk-off sentiment. For further cues, keep an eye on traditional markets,” he said. “Fear and unease among investors is palpable.”
According to Art Hogan, chief market strategist at National Securities, it’s useful to think of cryptocurrencies as living in the same space as other speculative sectors, including special-purpose acquisition companies and electric-vehicle makers. “When we’re in an environment where all of those riskier assets are selling off, crypto is going to find itself doing the same,” Hogan said. “When the Nasdaq 100 or any of the other more-speculative, rapid-growth, momentum-type asset classes start to gain some traction, so will cryptocurrencies.”
Unfortunately for Bitcoin longs, one place where the token’s correlation is especially high is that to such market naplam as Cathie Wood’s sinking ARK Innovation ETF, a pandemic poster-child of speculative risk-taking. That correlation stands at around 60% year-to-date, versus about 14% for the price of gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis. It’s “reminding us to categorize Bitcoin and altcoins as risk assets rather than safe havens,” she said.
Perhaps unaware what “hodling” means, data from Coinglass shows that more than 342,000 traders had their positions closed over the past 24 hours, with liquidations totaling roughly $1.1 billion.
“Digital-currency markets in total have been challenged this month,” said Jonathan Padilla, co-founder of Snickerdoodle Labs, a blockchain company focused on data privacy. “There’s definitely some pain there.”
Though liquidations have spiked, the numbers are rather muted when compared to previous declines, according to Noelle Acheson, head of market insights at Genesis Global Trading. Acheson points out that Bitcoin’s one-week skew, which compares the cost of bearish options to bullish ones, spiked to almost 15% on Wednesday compared to an average of about 6% in the past seven days.
“This flagged a jump in bearish sentiment, in line with overall market jitters given the current macro uncertainty,” she said.
Amid the pain, some of bitcoin’s most faithful are professing patience…
HODLing #Bitcoin is painful.
If you survive the journey, you will truly know what HODL means.
— Dan Held (@danheld) January 21, 2022
… while others are starting to wonder out loud at what point the battering might end. Famed crypto investor and (former?) billionaire Mike Novogratz mused on Twitter that “this will be a year where people realize being an investor is a difficult job.”
2600 $Eth would be the next support. Hoping and thinking it holds. Unfortunately Russel has like 14 percent more to go before it bottoms. Won’t be a straight line down.
This will be a year where people realize being an investor is a difficult job.
— Mike Novogratz (@novogratz) January 21, 2022
Unfortunately for Novogratz, 2600 did not hold and Eth is now trading below 2,400.
Still, many point out that like on all previous occasions when cryptos crashed, they eventually rebounded to new all time highs. At some point, sellers will become exhausted and the market could see some capitulation soon, said Matt Maley, chief market strategist for Miller Tabak + Co. “When that happens, the institutions will come back in in a meaningful way,” he said. “Once the asset class becomes more washed-out, they’ll have a lot more confidence to come back in and buy them. They know that cryptos are not going away, so they’ll have to move back into them before long.”
But it’s not just central bank tightening fears and liquidation technicals that have depressed cryptos: one can also throw in a relentless news cycle, where just in recent days, regulators from Russia, the U.K., Singapore and Spain all announced interventions that could undermine crypto companies looking to grow in those regions. Meanwhile, the Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and task federal agencies with assessing the risks and opportunities that they pose, Bloomberg reported late on Friday.
Testing the resilience and patience of the faithful, so far the sharp drop below the psychological level of $40,000 has failed to serve as an upward inflection point. Crypto proponents say heavy liquidations often serve to cut out the froth in easy-win asset speculation, helping to solidify new bottoms in the market.
Ultimately, the real support will come from none other than the Fed, which will soon realize that it is hiking into a slowing economy…
Tightening into a slowdown… Déjà vu? pic.twitter.com/pczXzMVSxb
— Julien Bittel, CFA (@BittelJulien) January 22, 2022
… and will be forced to be far more dovish during this week’s FOMC meeting, a reversal which should serve to send risk assets sharply higher.
“Fear and unease among investors is palpable,” Nexo’s Trenchev,said. “If we see a bigger selloff in equities, expect the Fed to verbally intervene to calm nerves and that’s when Bitcoin and other cryptos will bounce.”
In other words, the more the Fed tightens – or the more the Fed scares markets into believing it will tighten – the bigger the market selloff, and the worse the economic slowdown, until eventually Powell will be forced to ease, a key point brought up by Bank of America CIO Michael Hartnett yesterday.
Incidentally, it also means that the faster markets crash, the faster the Fed panics, and is forced to stabilize stocks because even if the new and improved Powell Put is well below previous levels, the Fed can’t risk a market crash just to appease Biden’s demands for an inflationary slowdown so Democrats aren’t destroyed in the midterms.
And incidentally, this weekend’s ongoing selloff in cryptos means that while stocks are currently mercifully not trading, Monday should be another bloodbath, as Jim Bianco reminds us.
The BTC/SPX correlation is “significant”
Or as @jeffdorsman says, crypto is a 24/7 VIX.
See the table, as of this writing, Crypto is down another 10% since Friday’s NYSE Close.
If this hold, no-coiners have about 36 more hours to gloat before it is their turn. pic.twitter.com/JpWeMJZbAf
— Jim Bianco biancoresearch.eth (@biancoresearch) January 22, 2022
One thing is certain: several more 2% drops in the Nasdaq, and Powell – who two years ago crossed the Fed’s final rubicon and bought corporate bonds to halt a catastrophic collapse – will be making emergency phone calls to put an end to the carnage. As such, a continuation of the meltdown may just be the best thing that the bitcoin faithful can hope for.
Trucker Shortage Leading to Widespread Grocery Outages Across Canada
Grocery stores across Canada are beginning to showcase bare shelves, after a recently imposed vaccine mandate further exasperated what has
The post Trucker…
Grocery stores across Canada are beginning to showcase bare shelves, after a recently imposed vaccine mandate further exasperated what has been a growing trucker shortage.
Since January 15, unvaccinated truck drivers from the US have been refused entry into Canada, and grocery stores across the country are beginning to feel the pressure of fruit and vegetable shortages. Given that approximately 90% of Canada’s entire supply of fresh produce comes from its southern neighbour, the fact that only about half of American truck drivers are inoculated against the vaccine has already caused substantial problems for grocery stores attempting to secure shipments.
“We’re hearing from members they’re going into some stores where there’s no oranges or bananas,” Canadian Federation of Independent Grocers senior vice president Gary Sands told Bloomberg. The stringent mandate is further exasperating Canada’s supply chain woes, which have only worsened due to adverse weather as well as the Covid-19 pandemic.
According to North American Produce Buyers, fright costs of one truck hauling fresh produce from either California or Arizona to Canada has risen from an average of US$7,000 to US$9,500— an increase that will only help accelerate already surging food inflation across the country. To make matters worse, the logistics industry has already been suffering from a growing shortage of eligible truckers, leaving hundreds of shipments bound from Canada to the US sitting in warehouses.
The situation will likely become worse, as the US is set to impose its own vaccine mandate on foreign travellers come January 22, which is expected to eliminate up to 16,000 truckers off the road.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
The post Trucker Shortage Leading to Widespread Grocery Outages Across Canada appeared first on the deep dive.
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