Curve Advisor

Ex-JPM interest rate prop trader, now trading from home in sunny Texas. STIRed not shaken. My opinions only. Not investment advice.

[Curve Advisor @CurveAdvisor]

you would need to have a view that the 33bps of hikes are "mispriced" to think that the carry on the front of the curve matters. I don't have a strong enough view, given that the Fed will most likely go to a neutral bias and the next couple (at least) of inflation prints will be elevated.

[Curve Advisor @CurveAdvisor]

@KobeissiLetter "It's an honor to meet you. Too bad your father, wife and kids died like dogs."

[Nick Timiraos @NickTimiraos]

This *2021* Waller speech makes for interesting reading today.

At the time, Fed doves had been pointing to trimmed mean measures of inflation to argue against overreacting to spot inflation.

Waller's point was that serially excluding 'one-off' outliers assumes no new one-offs take their place—a fallacy that, in hindsight, anticipated how the transitory framing failed.

"The moral of this little example is that one needs to be careful when selectively ignoring data series—be it used car prices, food and energy prices, or household surveys of inflation expectations. All of these series convey important information about the evolution of inflation, and one should exhibit caution in dismissing data as outliers. We must keep our eyes open to inflationary pressures, wherever they come from, with consistency and rigor and stand ready to adjust policy if we conclude that such a change is warranted."
https://t.co/DiCvOssLUZ

[Curve Advisor @CurveAdvisor]

@Fullcarry you would expect some flattening (negative spreads) further out the curve, since deferred eases will be expected, regardless of whether the Fed hikes in the next 12 months.

[Curve Advisor @CurveAdvisor]

Intro this week:

I am flabbergasted that Trump is considering a $300B reconstruction fund. Gemini says this is ON TOP OF sanctions relief (worth a $500++billion), and unfreezing their funds (worth $100B)? So we are offering a package worth a TRILLION dollars (or more)?!? That is 3+ times Iran’s prewar annual GDP. Seriously – WORST. NEGOTIATOR. EVER! How do you get to that scenario, when walking away costs nothing, resumes the flow of oil and lowers oil prices? Given the revelation that Trump is this stupid and desperate, we are presented with several more “outs” that Trump has with Iran.

[Curve Advisor @CurveAdvisor]

More Outs, by @CurveAdvisor https://t.co/0nTsSlnyx0

[Radha Tripathi @Radha_AI]

INSTEAD OF WATCHING AN HOUR OF NETFLIX TONIGHT.

This 60-minute Cambridge lecture by Demis Hassabis will teach you more about the future of AI than most people will learn in the next 5 years.

Bookmark it and give it an hour, no matter what.

[Curve Advisor @CurveAdvisor]

Excerpt this week:
“It’s déjà vu all over again.” This is about where we were a month ago, before Trump opened his yapper, walked back all of our promises and caused a further spike in oil. We look to a be on the precipice of a “major deal”… on a 1-page MOU, just so we can actually start talking about the details of the deal. Yogi Berra also said, “The hardest thing is to get started, but the hardest thing is to finish.”

Over the past week, oil was lower on deal optimism, but fixed income (in the short end) was lower. Given that these two have been negatively correlated for most of the war, this is an unusual development. The answer is a change in the perceived Fed reaction function this past week. I discuss this and how I assign probability distributions to interest rates during this war.

[Curve Advisor @CurveAdvisor]

Trading Rates in this War, by @CurveAdvisor https://t.co/dpCqYEnS9N

[Curve Advisor @CurveAdvisor]

Excerpt this week:

In poker, when you are behind on a hand, the cards left to be played that can still give you the best hand are called “outs.” My central view on the War is that the impasse lasts longer than shorter. However, what makes the current War difficult to trade is that Trump has the power to quickly change from the status quo – for the better (towards a deal) or worse (escalation). In particular, he has a number of outs to get out of the current Iran mess. And at least one of the outs can be implemented at any time, which makes aggressive positioning challenging.

But first the week in news:

· Rubio said the “US doesn’t need China’s help” [with Iran] after the first day of the China summit. Let’s try a hand-reading (aka critical thinking) exercise. What is most likely to have elicited such a comment from Rubio?

1) The US didn’t ask China for assistance regarding Iran, since everything is under control and we don’t need their help (as stated). But somehow China mentioned they would stop sending weapons to Iran and stated that they opposed tolls on the Hormuz.
2) China offered to give naval, logistical and intermediary assistance, but we declined, since we didn’t need China’s help (as stated).
3) We asked for help and Xi said, “xiongdi, ni zhen can” (Translation: “it sucks to be you, bro”) and offered us nothing.

That’s right! Only the last one makes sense, unless you are still wearing the MAGA hat that is two sizes too small.

[Curve Advisor @CurveAdvisor]

Outs, by @CurveAdvisor https://t.co/61Ug2ICqme

[zostaff @zostaff]

The founder of Renaissance Technologies - the hedge fund that makes 66% a year, runs the most secretive trading floor on Earth, and has never accepted outside money - once stood in front of 500 mathematicians and explained exactly how he did it.

Jim Simons. The Einstein Lecture. American Mathematical Society. 1 hour 20 minutes.They left it on a small university channel. Almost nobody knows it exists.

No one's talking about it. Bookmark it before they do. Then read the article below.

[Curve Advisor @CurveAdvisor]

Why is Trump is bringing all these CEOs? Is the intent to swap tariff relief for trade deals? I have no idea why China would give us anything (deals) without us giving them something in return, and we don't have much to give. Is Trump expecting China to give us tribute?

[Curve Advisor @CurveAdvisor]

Excerpt this week:

Q: How do you keep a moron in suspense?

A: I’ll tell you tomorrow.

I’ve been saying for weeks that the time negotiating advantage was not on our side. We wanted an answer Friday, and it is Saturday night and still nothing. Unless the Iranians need days to read a 1-page proposal, it is obvious they are unconcerned about oil getting shut-in “in 3 days.” There was some CIA report leak saying Iran could hold out for 3-4 months before economic collapse. I haven’t read the report (because it is classified), but I am taking the over on that time estimate. I discuss my latest thoughts about the war and interest rates.

[Curve Advisor @CurveAdvisor]

The Waiting Game, by @CurveAdvisor https://t.co/Paju0TJmzz

[Curve Advisor @CurveAdvisor]

@TansuYegen Better if you put wood glue w toothpicks

[Sohbet Karbuz @sohbetkarbuz]

crude quality matters!

[Trevor Noren @trevornoren]

WSJ: "Bequeathable wealth rose from 256% of US GDP in 1997 to 424% in 2021, the last year of available data. A staggering 97% of that increase was due to wealth gains in households where the head of household was 55 or older. About 75% of the total increase was from gains by the wealthiest 10% of households age 55 and older. The age group with the most aggregate wealth in 2021 was 55 to 64 years old—a demographic that could have decades of life left. That is especially true if a person is well-off. The top 1% of earners on average live into their late 80s, longer than people earning less."

As long as I've been a thematic analyst, the "great wealth transfer" from baby boomers to the (relatively) young has been talked about as an imminent and powerful investment theme. Yet, too often it's neglected the systematic ways in which wealth is still being transferred from young to old. You can point to stock markets or private equity or education or taxes. I often anchor to housing. Roughly 40% of US homeowners own their housing debt free and greater than 55% of those homeowners are over the age of 65. In the 1970s and 1980s, down payments accounted for 20% to an early-80s peak of 28% of the purchase price. From the 2000s through the 2010, that average often dipped below 10%. Today, first time buyer down payments average 9%. Boomers have benefitted both on the front end (debt driving up home values) and the backend (running the institutions that profit on mortgage payments).

The great wealth transfer keeps getting pushed back. To again quote the WSJ: "In Fed surveys conducted between 1998 and 2010, Americans in their late 50s were most likely to report receiving an inheritance. People in their mid-60s were most likely to report inheritances in surveys conducted between 2013 and 2022." I plan to dive deep on the implications of this and investable opportunities related to it in a future report on "Healthspan".

Learn more about Sage Road Research here: https://t.co/Wgwz2xnvR6. Interested in subscribing? Message me.

WSJ link: https://t.co/Wx8NJOCBWF

[Curve Advisor @CurveAdvisor]

Excerpt this week:

It seems obvious that the Don thinks the US blockade will be a huge success, as he seems to think it’s the Trump card in getting the Iranians to capitulate. A blockade can be effective over time. HOWEVER, there are a few things that should be noted:

· Trump’s limited experience with naval blockades has been positive, and could be clouding his judgement on effectiveness. The naval blockade worked well in Venezuela because they only have three neighbors: Guyana (who they have threatened war), Brazil (I doubt there is much commerce through the Amazon), and Columbia (who have had a tense history with). So in effect, Venezuela is an “island” so they are heavily dependent on the sea. Ditto for Cuba, which is an actual island.

· Iran has SEVEN neighboring countries by land. Plus, they have the Caspian Sea, by which they have access to two more countries (including Russia). Russia is making so much money right now that they are probably happy to provide as much assistance to Iran as possible to keep the standoff going. That is a total of NINE countries that Iran can actively trade with, WITHOUT THE BLOCKADED OCEANS. It is no coincidence that Persia was the center of global trade for millennia. In addition, Iran is part of China’s Belt and Road railway, so while China is not a direct neighbor, Iran still has access to trade with China. In other words, Iran has access to EVERYTHING. So while the ocean is how they get out almost all of their oil and conduct 70% of trade, they still have trade – especially since the US naval blockade does not include food, medicine and other supplies. Is the blockade annoying? Sure. Is it as critical as Trump is saying? Probably not.

[Curve Advisor @CurveAdvisor]

Blockade Stumbling Block, by @CurveAdvisor https://t.co/k1Snm0nazp