the most footnoted blog posts in history. thank you again for the education. Its probably the number one reason i watch zero news. I wait for the outcomes to trickle down to me. The only ones that actually matter are the ones that withstand the average news cycle. Also love seeing again a side by side of major news media reporting and looking at it like “he chatgpt give me 10 possible versions of a headline blurb about 390,000 job increase” and viola, instant mass media reports that all say the same exact thing with different adjectives. Sounds a lot like some pre-fourth turning action. 🫶🏼
Really appreciate the write-up Balaji. In much of your articles you make explicit what I've felt intuitively over the past decade or so which is incredibly helpful. It also feels like, the establishment has increased pressure (mainly through censorship and spreading fear) to buy into their less and less credible narratives.
As an old market making trader, I sometimes might want to agree, but I also like to take the other side. Often when I traded, I didn't care if I bought or sold, as long as I got the edge.
It's pretty hard to say the 10 yr isn't liquid. It depends on the definition. I haven't seen any problems delivering 10yr's at futures expiration (10 yr futures is NOT cash settled unlike the SOFR). If I had to unload a massive adverse position in the 10 year vs Bitcoin, I'd prefer to unload it in the 10 year. I'd get hurt a lot worse unloading Bitcoin.
I also think that in your metaphor on Apple, what if Best Buy could have hedged??? Virtually none of the banks hedged their treasury portfolio. Idiotic, especially because Powell was pretty transparent that rates were going up. Instead, they sat on their hands---so is that shitty data? the Fed's fault? Or is it unqualified management teams making gigantic mistakes at the bank thinking if they got free money from increased deposits due to Covid spending and invested at 1.5% they couldn't lose? I guess I am disagreeing with you that the bank failures weren't caused by devaluation, but failure to hedge duration risk.
There are plenty of liquid counterparties to hedge against. I disagree with you again. Not only could they go to private OTC markets and hedge, but they could have used plain vanilla standardized futures markets where they would find plenty of counterparties every day. They also could have been more sophisticated and hedged in the interest rate futures options markets, and rolled their hedges.
I don't think that sophisticated traders and money managers buy into right or left wing conspiracy theory when it comes to their portfolio. Unqualified bankers do.
I do agree now, when I used to vehemently disagree, that the BLM is probably massaging the numbers to make Biden look good. They were accused of doing it with Obama as well, and the left accused them of doing it with Trump. Now, it doesn't pass the smell test based on what we are experiencing on the ground. However, I am not totally bought into that opinion.
One big issue that I penned an article at The Epoch Times about is liquidity being leaked out of the the interbank repo system. Essentially, the Fed has to auction off billions and billions in bonds over the next seven months. Who will buy them? That will pull a lot of money out of the market and sideline it. Then what happens?
I really do appreciate you writing this because I agree with some of what you say and in my disagreement, it forces me to critically think instead of nodding my head blindly. Keep doing it.
On the smaller point - Did not realize that the jobs report doesn't distinguish between full time and part time jobs. Could this be why the BLS keeps revising its numbers?
Do the BLS employment projections make a distinction between full-time and part-time jobs?
The BLS projections do not make a distinction between full-time and part-time jobs since the data sources – Current Employment Statistics (CES), Occupational Employment and Wage Statistics (OEWS), and Quarterly Census of Employment and Wages (QCEW) - do not distinguish between these two job characteristics."
What is your take on the Wagner/Treason/Immunity transgression? Is it real? Staged? Why would this happen? What re the motives? I don't think Prigozhin is dumb enough to do this, he never would have made it this far? If it is real, what is the over under on his number of days on earth?
I traded bonds for 25 years. There had never been government intervention directly in markets before. 2008 x long term capital. They came in big. As some of us in the business felt, 'they stopped the depression but we will pay for it with a long recession'. The QE, increasing the treasury balance sheet, etc stalled it more but the treasury, student loan, consumer etc. debt issues are here. If not in this minor rate rise then the next for sure.
You’re a smart dude but your post is simply testament to a lack of understanding of what duration risk and convexity is. Selling treasuries that yield next to nothing is not a “rug pull” by the Fed. Bond holders will receive their coupons and the full par value.
There is only one measure of employment that I want to see - the number of paid hours worked each month by all workers in the US. You can normalize that to population if you like, but even that makes me a bit suspicious.
1. I don't know finance, and even I shorted bonds in 2021. So any bank CEO should've known 1) to not buy 10yr bonds heavily, 2) pro tricks to hedge duration risk. Entities who don't know banking would've been happy to take bank CEOs money hedging the "world's safest" Treasury bonds.
2. I blame bank CEOs, because everything Balaji wrote here is the *exact same* in the medical industrial complex. Any competent bank CEO knew *why* Powell was giving totally wrong interest rate advice, just like any competent doctor knew *why* Fauci was giving totally wrong covid advice. Outsiders think Powell or Fauci "didn't know". But insiders know why the wrong advice was intentional.
iPhone analogy is great
the most footnoted blog posts in history. thank you again for the education. Its probably the number one reason i watch zero news. I wait for the outcomes to trickle down to me. The only ones that actually matter are the ones that withstand the average news cycle. Also love seeing again a side by side of major news media reporting and looking at it like “he chatgpt give me 10 possible versions of a headline blurb about 390,000 job increase” and viola, instant mass media reports that all say the same exact thing with different adjectives. Sounds a lot like some pre-fourth turning action. 🫶🏼
"QE isn't printing" + "We won't hike rates --> immediate hike". It was like watching a Monty python sketch on a global stage.
Brilliant piece - too many are missing the forest for the trees (s/o Luke Gromen)
Really appreciate the write-up Balaji. In much of your articles you make explicit what I've felt intuitively over the past decade or so which is incredibly helpful. It also feels like, the establishment has increased pressure (mainly through censorship and spreading fear) to buy into their less and less credible narratives.
As an old market making trader, I sometimes might want to agree, but I also like to take the other side. Often when I traded, I didn't care if I bought or sold, as long as I got the edge.
It's pretty hard to say the 10 yr isn't liquid. It depends on the definition. I haven't seen any problems delivering 10yr's at futures expiration (10 yr futures is NOT cash settled unlike the SOFR). If I had to unload a massive adverse position in the 10 year vs Bitcoin, I'd prefer to unload it in the 10 year. I'd get hurt a lot worse unloading Bitcoin.
I also think that in your metaphor on Apple, what if Best Buy could have hedged??? Virtually none of the banks hedged their treasury portfolio. Idiotic, especially because Powell was pretty transparent that rates were going up. Instead, they sat on their hands---so is that shitty data? the Fed's fault? Or is it unqualified management teams making gigantic mistakes at the bank thinking if they got free money from increased deposits due to Covid spending and invested at 1.5% they couldn't lose? I guess I am disagreeing with you that the bank failures weren't caused by devaluation, but failure to hedge duration risk.
There are plenty of liquid counterparties to hedge against. I disagree with you again. Not only could they go to private OTC markets and hedge, but they could have used plain vanilla standardized futures markets where they would find plenty of counterparties every day. They also could have been more sophisticated and hedged in the interest rate futures options markets, and rolled their hedges.
I don't think that sophisticated traders and money managers buy into right or left wing conspiracy theory when it comes to their portfolio. Unqualified bankers do.
I do agree now, when I used to vehemently disagree, that the BLM is probably massaging the numbers to make Biden look good. They were accused of doing it with Obama as well, and the left accused them of doing it with Trump. Now, it doesn't pass the smell test based on what we are experiencing on the ground. However, I am not totally bought into that opinion.
One big issue that I penned an article at The Epoch Times about is liquidity being leaked out of the the interbank repo system. Essentially, the Fed has to auction off billions and billions in bonds over the next seven months. Who will buy them? That will pull a lot of money out of the market and sideline it. Then what happens?
I really do appreciate you writing this because I agree with some of what you say and in my disagreement, it forces me to critically think instead of nodding my head blindly. Keep doing it.
Sociologist Tim Jordan wrote a whole book about how conflicts over information have become a major deal in modern politics and culture.
ESG and DIE are the sludge of the toxic waste. They destroy capitalism and democracy. Both were prominent in the SVB implosion: https://yuribezmenov.substack.com/p/svb-linkedin-receipts
On the smaller point - Did not realize that the jobs report doesn't distinguish between full time and part time jobs. Could this be why the BLS keeps revising its numbers?
https://www.bls.gov/emp/frequently-asked-questions.htm#:~:text=The%20BLS%20projections%20do%20not,between%20these%20two%20job%20characteristics.
"
Do the BLS employment projections make a distinction between full-time and part-time jobs?
The BLS projections do not make a distinction between full-time and part-time jobs since the data sources – Current Employment Statistics (CES), Occupational Employment and Wage Statistics (OEWS), and Quarterly Census of Employment and Wages (QCEW) - do not distinguish between these two job characteristics."
Learned this from Forbes now https://www.forbes.com/sites/greatspeculations/2024/04/06/employment-numbers-mislead-the-coming-banking-crisis-and-why-inflation-will-moderate/?sh=3472bdc3fde2
Bush 1 and 2 rly screwed it up
What is your take on the Wagner/Treason/Immunity transgression? Is it real? Staged? Why would this happen? What re the motives? I don't think Prigozhin is dumb enough to do this, he never would have made it this far? If it is real, what is the over under on his number of days on earth?
I traded bonds for 25 years. There had never been government intervention directly in markets before. 2008 x long term capital. They came in big. As some of us in the business felt, 'they stopped the depression but we will pay for it with a long recession'. The QE, increasing the treasury balance sheet, etc stalled it more but the treasury, student loan, consumer etc. debt issues are here. If not in this minor rate rise then the next for sure.
You’re a smart dude but your post is simply testament to a lack of understanding of what duration risk and convexity is. Selling treasuries that yield next to nothing is not a “rug pull” by the Fed. Bond holders will receive their coupons and the full par value.
Create financial crisis to justify the urgent need for FedNow?
There is only one measure of employment that I want to see - the number of paid hours worked each month by all workers in the US. You can normalize that to population if you like, but even that makes me a bit suspicious.
Balaji or anyone -
1. I don't know finance, and even I shorted bonds in 2021. So any bank CEO should've known 1) to not buy 10yr bonds heavily, 2) pro tricks to hedge duration risk. Entities who don't know banking would've been happy to take bank CEOs money hedging the "world's safest" Treasury bonds.
2. I blame bank CEOs, because everything Balaji wrote here is the *exact same* in the medical industrial complex. Any competent bank CEO knew *why* Powell was giving totally wrong interest rate advice, just like any competent doctor knew *why* Fauci was giving totally wrong covid advice. Outsiders think Powell or Fauci "didn't know". But insiders know why the wrong advice was intentional.