FOMC Mash Up

Well the headline risk air pocket re-pricing affectionately known as the "Presser" provided plenty of fun and Twitter jocularity today. (@IvantheK won the day with a great Courtney Love, Missing Plane, Fed Forecast Graphic) We tilted our customers toward the Blue Dot shift and our view that 2015 and 2016 Eurodollars and 5 year Notes were offering decent risk to go in short. We found it amusing that the "Blue Dot Theory" peaked at the statement and was tossed over board by the presser. I'd rather be lucky than smart, i guess.

Covering down 20 in the Paks seemed logical, so of course chunks were thrown around down 30 almost immediately. This type of adjustment should make everyone jittery and give the Fed reason to rethink FG as a primary buffering tool. To put in perspective, even at a higher base, the Green Pak moved about 30 on the collapse/bail of LTCM. Even the record short interest in the complex provided no support or liquidity when falling.

Apart from exposing market dysfunction, what did we learn? The Exit is on and returning to a rates regime is the Yellen mission. The timing of the arrival at Policy Nirvana Neutrality may move in and out some but diverging from the Mission carries a high bar. FG is buffeting a dangerous orientation toward "What to own?" rather than where can I sell (carry's a bitch). The hawkish tone narrative is false. The settles from yesterday had Reds at .88 and Blue Dot at 1% and Greens at 1.88 and Blue Dot at 2-ish. Strips adjusted sharply from a slightly "rich" FG supported place.

I term the Fed as "Constructive" not Hawkish. The exogenous events that knocked back the expansion in prior years were more damaging than the harsh winter in the Committee's view. The one possibility the Fed is entertaining - and markets will need proved to them - is that rate neutrality may be lower than sticky 70s inflation memories consider. We are happy to say at least we are on our way to finding out. . That Steve Liesman tried to promote a "soft landing" meme from a 2% growth flight shows how long we've languished. I'd rather grow much faster. A big reason no CB has ever exited is the extreme volatility associated with the early adjustment. We're barely in that process and.....well there's those Paks down 30.

Going from a tad rich to a tad cheap is easy. It is not uncommon for these products to have 4 or 5 tightenings well embedded BEFORE the Fed acts. Getting there may prove tricky given equity traders Sybill-like mood swings. By the time it occurs (and shockingly, I'm hearing this on Fast Money right now!) the action will be cheered as a good thing and -of course - bullish. We aren't there yet, but I can assure you it won't be either.

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