YouSaid · the spoken record

Kevin Muir

lines on the record: 107
first: 2024-01-14
most recent: 2024-01-14
sittings or episodes: 1
sources: podcast

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“Well, it took me a long time, Jack. And to be honest, I had always thought I had known kind of this rough calculation that they say Delta approximates the chance of a option finishing in the money. And then when I started looking into it, I was like, oh no, that actually doesn't work as volatility increases and time increases. So I had to go look at all the different formulas and I had to learn in my, you know, option calculator. So it took me an embarrassingly long amount of time to figure it out. But it was time well spent because it was a lot of fun.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So I like to laugh and say that I talk about absolutely everything that's when I named the letter. Everyone would said, you know, the macro tourist, that's kind of a derogatory, you know, a name. And I said, oh, yeah, no, I know. I get it. I just, I like to talk about a lot of different things. So it'll range from different ETFs, different strategies, bond market strategies, anything and everything. You can find it at the macrotourist.com. And listen, if you want to check out my writing, just send me an email, Kevin at the macrotourist.com and I'm going to be more than happy to send you off some of my recent examples.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, Kevin, thanks so much for coming back. We'll make it a January tradition. Tell people quickly about your newsletter, the macro tourist, what you talk about, and where people can find it. Sure.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Know the flows, go look into it the day before the expiry, they have to buy it back, the day of expiry, they roll it into the next month. And it's just kind of, there's one on the S&P. There's one on the Russell, there's one on the and they're just becoming more popular. So, you know, why fight it? Just, you know, trade it.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, and then the other thing is even if you got a situation where it declined, you then end up selling calls, like let's take the crash, like the COVID crash, you end up rolling the calls and stopping yourself out from the big gain. So it's just from a risk-reward basis. There's just such better strategies out there than that. And like if you're going to sell vault, this isn't the way to do it. It's tempting. It looks good. Obviously, you know, I must be an idiot because it's one of the most popular products out there yet, it doesn't make any sense to me instead of complaining about it, you should just be aware of it, take advantage of it.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I'm being short. Nasdaq calls doesn't sound like something that's that appetizing, even if you own the underlying NASDAQ. I mean, last year you probably, I don't know what. That ETF did, but it definitely wasn't the 50% that the NASDAQ did.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“In an index, they like to go buy out of the money puts and the way they pay for them is by selling at the money or out of the money calls. And so you have a very distinct skew. And to go and do this on a systematic basis just seems like. The wrong kind of trade, like there's no edge, and not only that, you're so large at this point, it's $8 billion and everyone knows what you're doing. And it just seems to me that there's much better ways to sell volatility than to do this.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Of deltas over that two hour VWAP period. Okay. And then the next day, they sell it and they sell one. Now let's assume that's a 50 delta. So then the next day they sell $4 billion of Delta over that two hour period. But the market all knows this is coming. So there's all sorts of professional, you know, sharks out there just taking advantage of that. And so even if you don't care about this product and go, I would never buy that. I have no interest in just kind of systematically selling puts at the money puts. You still should be aware of it because it is moving the market. And Jack, just before I go any further, I actually like I'm not one of these guys who says you should never sell puts or sell volatility. I just think that selling it in this fashion isn't very smart. Like we talked about the skew. Everyone in the kind of usually.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Well, no, because it's always a one month. So it always roll like a full month. So every kind of third Friday, they roll the full month. So if that option finishes in the money, then they buy it all back. And so that day they're buying it. Let's just assume that let's assume the stock market's gone up over that month. Okay. Now all of a sudden they're short an option that is that they're buying back that's in the money. So they're buying eight billion dollars.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so if it's in the money, they buy it all back over a two hour VWAP period, and then they sell it the next day over a two-hour VWAP period.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Past the amount of the call. And then when the market goes down, you get almost all the downside, right? There is less of it. So you'd actually be better off buying half as much or whatever the number is of the Nasdaq and living with more volatility and not exposing yourself to this. And one of the things that you might say is, okay, well, Kev, that doesn't really matter. I'm not dumb enough to buy this thing, so I'm not going to, I don't care. But the thing about it, Jack, is that as it's gotten bigger, effect on the market has become huge. Yeah, because like if you think about it, it's $8 billion. Of calls that need to be sold every day, every month. I'm sorry. And the interesting thing about it is they don't roll it in a very logical fashion.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“It is when you think about those numbers and what they mean. That means that the sharp ratio for the buy rate is 0.27 and the NASDAQ is 0.86. And if we go to this next chart, you'll see that when it really matters and you get a drawdown, the two indexes aren't that much different, meaning that you'll still, because you're going and you're still long, you're still exposed to 100% of the drawdown after you earn that amount of the call that you've sold. So the NASDAQ is orange. The blue is the buy right. And so it's kind of like old joke about headside wind tails, you lose. It's a little bit like that in that you're going to make when the market goes ripping to the upside, you're going to be stopped out. You're going to have basically the call is going to get exercised and you're not going to participate.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's good. So let's just talk about this. Let's go look at the returns. And the thing about this QYLD, although it's only been around since 2018, it's actually an index that's been around for a long time because it's based upon the, I can't remember what's called the CIBOE NASDAQ 100 buy right version 2 index. Okay, so we can go and look at it. We can compare owning that strategy versus owning the QQQs. So the QQQs are the orange line and that other strategy is the blue line. And what you'll realize, or you have a look at, you'll see that the annualized return over that period for the buy right is 5.73. NASDAQ's obviously much higher, 15.17. And then we'll look at the volatility of the two. So the buy right does have a lower volatility, as you would expect. And it has 16 basically percent volatility and the NASDAQ is 22. Now the thing...”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“The other one with the growth. There we go. So you see this thing in 2018, 2019. There's almost no shares. There's 10 million shares of this QYLT. It wasn't really that big a product. 2021 comes and this thing goes through the moon. Like it goes from 50 million shares to 400 million shares. And that's $8 billion or something. It's a monster number. And there's a whole host of them. This is by no means the only one. It's just one of the more popular ones that I've decided to look at. So now let's go to the next chart, which shows it's going to show the one.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so it's a terrible product is the right word. But let me tell you why. First of all, let me explain what it is. You go out, you buy an ETF and the ETF is in essence long and the most popular one is the QQQs. They go buy the QQQs. And then every month, they systematically sell and at the money call. Okay. So they buy the IQQs and they sell the call. So you're buying and then writing a call. When you think about it, it seems to make sense, right? Like you go, you earn that income. You're going to be taking advantage of the volatility. It's a great way of just getting paid every day, every month and just kind of earning some money. If you stop and think about like put call parity and think about what you're really doing, you're in essence selling a put every month. That is what you're doing. You're selling and at the money put and just rolling it over and over and over again. Now let me explain to you why it's bad, but before we do that, let's go with the first chart.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Interest rate volatility moves up and also credit spreads widen. And this is one of the few times when credit spreads is not widened, and they've actually cheapened, and you have a situation where relative of the MBS spread versus the credit spread, it is as cheap as it's ever been. So the way I did it is I went and actually married the MTB with an IBI, which is a credit instrument that actually has the proper duration. So you can just do it one for one. And Bob's your uncle, you can put this trade on and be just like those two legends of fixed income.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“That you need an MBS that has a current coupon, meaning that it was recently issued. And the problems when you go look at indexes is that there's all sorts of older issues that have 2% and 1% coupons or way down. So you need the new ones. So you go look at Harley Bassman. He's made a new product that is just these new ones. It's called MT. And what that is, is it's a mortgage-backed security. And inherent in there is a short volatility trade. So okay, you're just shorting volatility when you buy MBSs and that's just, you don't really even know why. One of the things that I thought was interesting was you could actually marry this with a short credit trade, which is what Bose mentioned, because usually what you have is when MBS spreads widen, it's because volatility has risen. And usually what happens is credit moves with it. You get a situation where the”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Right. So I was listening to you speak with Hari Krishna the other day, and he was saying, I don't understand why the higher interest rate volt hasn't moved into the stock market vault. And, you know, there's a lot of like I don't really understand why either, but it doesn't really matter to me. I just look at it and I say one of the things I want to do is I want to be selling interest rate fall, which is really expensive. It's really high and I want to be buying stock market vol, which is low on a regulative basis. And one of the ways to do this trade is to do what I call my Bose Harley spread. And it's because Bose from Saba Capital, he talked about this. He was doing it. And I thought it was a really interesting trade because one of the things is that if you look at MBSs and you are correct that you talk about mortgage-backed securities, you are correct that.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so because you think interest rate volatility is priced very high, basically the market thinks, oh, the Fed could cut to. Actually, don't have as much exposure, aren't as short volatility as more recent ones. So Harley, because more recent ones will prepay a ton if interest rates go to 2%, whereas if it has a coupon of three, the prepayment's going to go. So that's why you like Harley Baston's new ETF, which targets higher coupon mortgage-backed securities. Right.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Expected inflation, and I think that is continually too low. And so I suspect that in the coming years and decades, whereas there's going to be a repricing and a more of an appreciation of the fact that we are going to have continual inflation.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Right. And it's just, yeah. And I think that, and part of the things that you need to remember is that you're actually short the bond market when you're long on inflation break even your long tips and you're short and nominal so well like another way of thinking about it jack is like if you have a two percent break even inflation break even and you're thinking about whether i should invest in a tip or whether i should invest in a nominal If inflation ends up being three percent on average for the next 10 years, then you would have been better off owning the 10% the tip because you're going to earn 100 braces points more than the nominal one because it was pricing in a 2% difference and yet you actually earned a 3% difference. So it's the market's expectations about for”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“I think you're going to earn a lower real yield. It could even be negative because we continually be surprised by inflation being higher than everyone expects.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Remembering the pain of inflation. I think we're going to have just the opposite in terms of disinflation. I think that, and we talked about why the bond market is overly quick to expect the Fed to lower rates. And I think you could also argue that the bond market is overly quick to expect inflation to come down. It's because everyone remembers that. Nobody like a lie, like that's in the markets today was around or very few were around trading in the 80s or the 70s when inflation was higher. So there is kind of a recency bias to assume that inflation will be lower. So therefore, over time, in over the next decade, I suspect that the bond market will continually underestimate forward inflation and therefore instead of earning like in 1982 a higher real yield.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Going to gain by the market's expectation of forward inflation rising. And can I expand on that a little bit more? Yeah. So if you think about two when Volkler broke the back of inflation. He came in there and he was like, I'm going to raise rates and we're going to crush this. And even when inflation came back down, which it came back pretty quick. People kind of always, they remember the 12 and the 15s, but they don't realize kind of within a couple years it was three or something like that. Bond market refused to think that it was that that was a permanent kind of inflation rate and they demanded a higher real rate. So even though inflation was running three or four percent, they said, nope, 10 years like over the next 10 years, inflation is going to be five, eight, 10%. That's why we're going to expect 10% inflation. So the real rate that you could earn, meaning the amount over inflation stayed high. And it took a decade for that real rate to lower. And that was because of everyone's recency bias of...”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Okay. Now you have to remember you're buying inflation. Let's say you pay two percent for a 10 year inflation break even. So you're going to earn any amount of inflation over 10%. So let's just say that we have another great year in terms of inflation where it goes to 10% again. You're going to earn 8% on that portion of it. But you're also subjected to the next kind of nine years of what the market expects inflation to be. So if you bought that for two and then the market said, you know what? Actually, even though we're having 10% inflation today, it's going down to one, you're going to lose because that break even is lost. But if you have a situation where the market reprices inflation even higher, which is what I think is going to happen, then you will not only gain with inflation being higher than the break even that you're long, but you're also...”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“That works, so it's two kinds of you've got it absolutely right in terms of the nominal bond, like a regular bond. If you think about what effects that you earn the current yield on a year-to-year basis, like let's say you buy a five percent and let's just nothing happens with interest rates, you're going to earn that 5%, right? You're going to earn that. But don't forget then you have a nine-year bond. If it's a 10-year bond and then a year later, you have a nine-year bond. But if interest rates have gone from five to six, you'll have a capital loss on that repricing of that nine-year bond. And so the question is, does the current yield of the bond make up for it if rates go higher? Or you might have the opposite situation where interest rates actually go down. So you not only do you earn the 5, but you also earn a capital appreciation when the bond goes, the nine-year goes from 5% down to 4%. Now, in terms of inflation break-evens, you are earning inflation.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So, what is so, I understand a tenure nominal treasury, you're being paid the yield, and then if the yield goes up, you lose a little depreciation. If it goes down, you get the capital appreciation. In terms of this yellow line, the 10 year break-even total. So your exposure is not to nominal interest rates. It's only to the break-even. So are you being paid the break-even and you make money if the break-even goes down? How does that work?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, it's interesting that the best hedge in 2022, one of the best hedges was oil. And, okay, you want to be long oil, but oil is, you know, and commodities so frequently in Kantango, so you're paying that royal yield, as I talked, has Hari Christian on talked a lot about in our interview. And then you invest in commodity companies and some commodity companies are really good, but other companies, you know, they'll go on a TV channel and say, you know, we're going to be capital disciplined and then they just drill like crazy. So it's, you know, I mean, Canada, you're Canadians.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yet, when you go look at the inflation break evens, that strategy is still sitting almost at the highs. So it protected you in the period when we had higher inflation and the bond market was doing bad, and yet it also was continued to chug along. So when I think about constructing a portfolio, I think that marrying kind of your risky assets of the stock market with inflation breakevens is really, really interesting. And I think it's kind of going to be something going forward that people are going to be doing a lot more of.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“You know, you buy the bonds, you buy stocks, and as they said, when things got bad for stocks, you actually still did well with your bonds. Okay. Now, that didn't work in 2021 and 2022, but yet inflation break-evens sure did great. And this was, in essence, a long inflation trade. Now, people say, well, no problem. I'll just buy inflation trades like commodity stocks.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Year for the 60 40 it had ever been, or it was really bad, and that was the real problem was that they were going together. And just as an aside, one of the things that I worry about with this rally in the stock market right now is that it was completely and utterly driven by the rally in the bond market. We're still joined at the hip. That correlation is still very positive, right? Fed pivoted. Bond market got a bid. Stock market went with it. Okay. Now let's go to the next chart, which is inflation break-evens. You'll see that inflation break-evens have actually performed the whole time, even as the bond market was going down. And Louis, my buddy Louis Gav talks about the anti-fragile asset. He's always trying to find this anti-fragile asset. What that means is like bonds were the anti-fragile asset that used to want to own for your portfolio.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And you saw a situation where you could actually create a great portfolio doing this because you had a situation where they were negatively correlated, you could buy your stocks, your risky asset, you could buy extra bonds, lever them up, you had a situation where interest rates were falling. So you were earning money there. And not only that in a time of crisis, you would actually have the bonds being kind of the ballast to your portfolio. And one of the things that I've been talking about for a while is that I think that was in a disinflationary world of lowering interest rates. If we have the opposite inflationary world of higher kind of interest rates, I think that bond market might actually, instead of being a balanced to your portfolio, might be the anchor that drags you down. And so the first chart I have is the stock market versus the total return of the US Treasury Index. And you'll see that 2022, they both went down together. And I was like, what?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So for me, I'm kind of the position that I love best is long inflation break-evens. And inflation break-evens is, in essence, buying tips, which are a bond plus inflation, and then shorting the nominal bond. And by doing that, you get exposure purely to interest rates. So I'm betting, or sorry, purely to inflation. So I am betting on what will inflation be and over the next little while and also what will be the market's expectation about what future inflation will be. And so I brought a couple of charts that I thought were really interesting because I think that one of the big kind of kind of challenges facing investors during this whole cycle is that from 1982 to 2020, stocks and bonds were negatively correlated, meaning that when stocks went down and there was a big sell-off, usually bonds went up.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So it sounds like you like to be short rates now because you think the market's not going to be. What do you think about in terms of like putting on trades such as that? And what are some pitfalls that you think are wise to avoid?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And so it'll be different. Stock market almost never trades that way. Like you find that almost always, especially in indexes, you'll see a situation where the puts always trade fatter than the calls because everyone knows that the stock market takes the escalator up and the elevator down. Interesting enough though, Jack, if you look at right now, you have a situation where the difference between the out of the money call and the out of money put on IWM, the small caps is as lower or as tight as it's ever been or in the last decade because everyone is underweight that asset and wants upside bend in small caps. So you do get times when it gets a little more normal.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“More, he would do one by twos, meaning he would sell them one to buy twos so that he would be able to buy more downside bend down lower. And it was just constant the whole way. And I so it's not always the case where the skew is such that it's kind of expecting a big, huge cut. I think at that time, it was actually the skew is the other way and people were overpaying for the protection for the actual hikes.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Well, it is now, but don't forget it can vary. We had huge amounts of rate hikes when we had this last year. So for a little while, I remember the guys from my stir buddies, short-term interest rate traders, they would go and they would be talking about how there was a huge buyer of puts in the market. And it was back, it was euro dollars and then eventually turned into SFR. So for futures. And I'm convinced, like I look back and I think about that buyer. And I'm convinced that was Jamie Diamond and JP Morgan. And I might be wrong, but to me, if you listen to him very early, he was like, nope, there's way more of a possibility this thing goes way higher than everyone expects. And there was just this constant bid. And it was, at first, he cleaned everyone out of calls. I mean, sorry, puts on the euro dollar futures that he could. And then when they wouldn't do them.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“In the equity world, if stock's at $100, the odds that it goes to $110 or to $90, often it is priced at a similar probability. Sometimes the put that is going to go to $90 is a little bit more expensive because people want downtime protection. But there's not in the world of interest rates because it's all controlled by the Federal Reserve, the short-term rates. I mean, the market, I think, accurately perceives that cuts are much, much, much more likely than hikes, but that can result in some, I mean, the SKU chart must look very lopsided, right? Well,”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Higher, and that is ultimately why you have a situation where the kind of the future is trading at a price that has more cuts built in than really should be the case. And if you look, for example, the September contract, the most likely outcome is four and a half to five. That's like $19.90 at 4.28. And the reason for that is because you have to price in the possibility of that right tail of them going and actually cutting rates down to below two.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And I looked at the Sulfur Futures for September and December. And if you look at this, you'll see that the current rate for the three months sofa is 532. And if you look at the September contract, it's trading at 428 and the December contract is $394. But then what I've done is I've created a bunch of buckets of different kind of expectations based upon the probability based upon those implied volatilities. And you'll see that, for example, seven and higher, meaning like raises, almost no chance of it occurring. But as we spoke about earlier, the fact that two and under, the market thinks there's an 8.4% chance of it occurring before September and there's a 16.2% chance of it occurring before December. So the market assumes that that kind of tail is a lot.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So, Jack, when I made this chart, it took me all Sunday afternoon to go through my option pricing. And even then, I was making some assumptions about the zero bound that weren't correct. So it's not a perfect chart, but it's good enough for most folks. And so what I was interested in is the fact that if you take a volatility surface, you can see kind of where the market, how the market is expecting the forward distribution of returns to be. And I took the sofa, which is the short.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“I was accurate that CMU was reporting this, but I don't think CME was exactly right in this context. And I don't think advanced short-term interest rate traders who are using CME, I don't think they're using that tool. That's more for, you know, people like me. So you actually did the work on the options, the actual options pricing to show what is actually being priced. And just you talk about that, about the odds of 7% versus the odds of 2% and how it's extremely skewed to the downside.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Four guns, exactly. So, Kevin, we've got two more topics we've got to broach. Well, one of them is still on short-term rates, and it's interest rate volatility and what the market is actually pricing in. So I like a lot of people when I look at probabilities, I go to the CME, Chicago Berkotal Exchange, Fed funds, which is interest rate rits, Fed funds probability calculator, which I believe calculates something based on the future's price and assumes something like a logarithmic equal weighted band probability around that, which I don't think is right. So for example, it can tell me something like the market is implying a 100% chance that the Fed does XYZ, which, you know, if it truly is the case, you could get infinity to one odds that it wouldn't happen or a million to one odds. And I've reported this on Twitter and I think”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“So, just to square those two things that you said, which on one side, they may appear to not be on the same side. But so you think the market has gotten way ahead of the Fed so that the Fed will not be as dovish as the market thinks. However, because this election year, that is the reason why the Fed turned dovish so quickly.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“I think that we're going to be surprised that they're not going to cut as much as the bond market expects. I think the reality is the bond market is way ahead of Powell and that we're not going to get these cuts and we're going to be disappointed. Not only that, I think that inflation, even though it's 2% now, and I talked about that one year inflation swap coming down. I think that there's a lot to be setting. It's setting up to bounce again. And I think we're almost at the point of maximum disinflation. And the next surprise is going to be a bounce back higher.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Another point is if you're Powell and you're thinking about when you're going to pivot, you can't pivot six months ahead of the re-election or the election. Sorry, you can't be doing that. It's going to appear political. That's why they've gone now. So everyone's been surprised at how hard they've pivoted, how dovish they've become. My argument is that they had to do it. If they were going to do it, they had to do it now because they couldn't do it in six months' time, right? And anyways, so that's how I feel about that. Now, my suspicion is that going back to this idea that the bond market goes and gets ahead of the Fed too often.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Trump in office just to beat down inflation from three down to two percent. And I don't believe he does. I don't think it's as conscious and I don't think he's sitting there going, I can't let him win. I can't let him win. I'm going to do everything I can to lower rates. I don't think it's like that. But I do believe that when he's assessing the risk reward, he's looking at it and he's going, you know what? The kind of the risk has gone up for very little reward.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, he couldn't put. He's like, hates Powell. There is no doubt in my mind that the establishment does not like it, does not like Donald Trump and is scared of him. And so I think if you're sitting there and you're Jay Powell and you're sitting there and saying, okay, inflation's 3%, I can risk, you know, putting the economy into a recession to get inflation down below to good and hard. I can risk that. In doing that, If you look over history, I think it's been since 1924 every single president who has presided over a re-election campaign when their economy was in a recession is lost. Like there's nobody has won. So the question is, does Powell want to risk putting Donald Trump in office or at least being the deciding factor or one of the deciding factors in putting Powell?”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“And I don't want to make it sound like this is the only reason they're doing all these things because I don't believe that. I do believe that inflation is coming down. The table is being set for them to do all these things. But at the margin, I believe that the political situation is setting up to make the Fed error a little bit on the dovish side. And what do I mean by that? I mean the fact that Donald Trump is a threat to the establishment. And listen, I don't Please, I'm not making any political judgment here. I am just trying to read the tea leaves about how they're falling in terms of how this affects markets. Like them or not, Donald Trump is a threat to the establishment. Remember, he told me, he told Powell he couldn't put. You know, like the guy.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT
“The things that we were worried about is slowly coming, you know, is being removed. Now, let's talk a little bit about the Fed being dovish, though, because I do believe that there is a political aspect of this.”
2024-01-14 · Forward Guidance · Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High · IDENTIFIED FROM THE TRANSCRIPT