Get thefreeapp!Use the browser menubelowon the top rightand tap
After this week's violent moves in yields the market is begging the Fed for a closer guidance. March FOMC will provide such an occasion, unless they "need" to explain stuff earlier, this coming week already.
Fed is facing a delicate balance here; they want markets to respond to an improving economy (higher yields), but they do not want too violent moves in yields as it can delay the recovery.
As Bofa points out there are 2 primary channels;
1, higher borrowing costs could dampen rate sensitive sectors of the economy too agressively
2, a big fall in equities and credit spread widening would lead to a negative feedback loop (note we are writing this with SPX down 3.2% from ATH...)
March will definitely be interesting, and we could potentially get Fed headlines hitting the tape this week already. As Bofa concludes;
1, Qualitative guidance over quantitative
2. “Buzz” words - expectations
3. Waning slowly about policy changes - 6 mth window to set expectations could be appropriate
As a gentle reminder, equities do not like violent rate rises. Second chart shows SPX performance vs st dev moves in rates.
Manias often end the same way, people losing their minds and giving in to irrational group think.
MSTR has been one of thee hottest stocks around due to the company having loaded up on bitcoins (until the recent crash). The problem as we have been pointing out over past weeks is the fact people paid ridiculous prices for the company as a "bitcoin proxy". Just because you are long bitcoins, you have to value 1 bitcoin where it is trading, not applying some fantasy multiples on the current holdings. The inverse MSTR bitcoin arbitrage has been one of our "core" ideas when it comes to the arbitrage of people's stupidity. Not long ago people valued MSTR at $11bn. As of writing they value it at almost half that value. Since our post on Feb 9,The bitcoin alchemist?, MSTR is down approx 45%, while bitcoin trades at the same levels. This has been the only "bitcoin trade" that has returned almost 50% over the past weeks.
As we wrote onFeb 9;
"We think Saylor did a great "prop bet" last year by loading up on bitcoin, but as we warned our readers yesterday, we fail to grasp the logic of chasing MSTR stock at these levels...The stock has become a cult/meme but has actually little to do with bitcoin, unless the MSTR bitcoins have leverage to them..."
MSTR is much more realistically valued here given the bitcoin holding, so time to close out the inverse arb, say thank you and move on....
MSTR vs bitcoin chart.