Monthly Archives: February 2018


Policy makers are turning to Nobel winning theories in behavioral macro in the wake of the Florida school shootings. Perhaps the Powell Fed will embrace similar thinking as decision making becomes more difficult in 2018.

The Fly in the Toilet

One way the FOMC could "increase its aim" is to allow policy to be nudged in the market determined direction. This simple compass calibration would actually be a radical departure from the last 30 years of leash pulling. Using our cocktail party rule for neutral, the current FF rate would be around 1.75 if Mr. market could set it. Toss a late cycle, full employment tax cut and a potentially pro-cyclical budget agreement and "neutral" tilts a tad north of that rate.

The Unseeded Hurricane

Two high decibel attacks on innovative monetary policy during the crisis ("defining down monetary pornography" I believe was the way one delusional CNBC contributor - I heard he was awesome - termed it) were : 1) It would be "better" to let everything fail

2) Deficits are bad

The former was a counter factual value judgement and the latter was a straw man handcuff that forced monetary policy to perform even heavier lifting. In behavioral terms, if you seed a hurricane you accept the liability of the landfall. Extraordinary monetary policy, euphamized as QE, now must accept the consequence of a successful landfall. Too many have locked into the balance sheet rolloff camp under slow rate rise Zoloft, in our opinion. Dumping securities and holding the anchor rate slightly lower than neutral (maybe just a nudge higher) should be an option, at least. Continuing to fiddle with the funding rate will increase impacts in the already messy fulcrum of the curve. (Year money at 2.39 today and 5 yr at  2.66+ and the 2 at 2.23 (auction day))

Was he a good dog? Who's to say, but he didn't deserve to die

Should the normal arc of Federal Reserve tightening, snugging, nudging cycles prevail; The Fed will own the expansion's demise. For many perma-bears and apopleptic TV bond reporters, this would verify their long held inaccuracies about the cycle and the bold innovations that nurtured it.



Resignation Boogeyman

Now that equity markets have broke loose from the velvet ropes of global CB policies reverse engineered for low vol and promoted as "Zee Stabeeelitee" - the "Bond Market" has once again found itself the near universal boogeyman excuse for the violent sloshing around. Got that? Move along, nothing to see here...millennial buying opportunity..yada yada ....

Now, if my martini soaked brain serves me correctly, same said pundits were trotting out all kids of graphic representations 6 months ago showing how the Fed's actions and the subsequent rising of the rates was all sorts of positive for their out over their skis equity holdings. The long flattening twist to the yield curve was also hunky-dory because the general direction was North.....they said. Presently, a jolt back steeper in a vol spike causing all matter of unwinds, is all Martha Stewart "good thing."

Speaking for the Bond Market, "I turn my back on this world. I'll turn my eyes from this world, Oh well...."

As we have mentioned before - and @Conorsen has also - from Oct thru Jan STIR futures broke away from the pre-ordained, vol suppressing, "we will tell you what we're doing" openness of the FOMC. Massive pro-cyclical fiscal initiatives at full employment 8 years into an expansion improving around the globe doesn't jive with "measured." The positive effects of "twisting" come with a caveat of "for a little while", then funding costs start to nip ya. Our core belief from 2016 remains in tact - Interest Rates Rise and that's different from 35 years of the opposite. (If you want to see a good graphic look at ZEM19 Monthly !)


Super Bowl

The Sp opened 17 lower after ripping down several Dog patterns and the Weekly.

A few lost souls began hoping for an FTQ to save their rapidly decaying bond holdings ...lo siento.

Watch the 2731 1st number down into the Mon actual open (2733 low so far) -

once the opening range is established at 8:31ct you can use that as good marker for LFTH