20+ TREASURY BOND: MacDoζe Winter-Blows 4/4
Royal Families, Proletariat, Jerome Powell, and Treasuries.
We introduce Doζer Fact, blue-bloodily.
Is it okay to be a bore now and then? We asked on the fixed-income floor.
Only Stephanie Kelton knows how to drain liquidity through taxation.
Year End: We are brain-doζed yet delighted.
1. Why Do I Care Right Now?
Our last Winter-Blow! The goal is to be extra snarky so we can leave the holy land with a pure conscience and commit fresh blunders in transit to Europe. Also, a lot in 2022 was about Jerome Powell, so why not end this MacDoζe Winter-Blows series with something as exciting as interest rates and inflation? Stay with me!
Forecasting macro movements, especially treasuries, foreign exchange, commodities, or directional equity industry bets, is not easy when your typical time horizon is shorter than two months.
Macro is less predictable due to the sheer size and complexity of its markets. There is less storytelling, less inexperienced manic money, and fewer noisy narcissistic stock promoters who can move markets by twisting truths to make it into Forbes 100 for a minute or two. Ask the House of Saud, Sabah, or Thani how cute or pathetic that Forbes rich list is anyway.
Doζer Fact: The House of Windsor, with its nearly one hundred billion fortune, spends 15 million a year on charity, or 0.015% of its wealth. However, to keep the royal protocol going, the proletariat1 has to cough up more than 100 million a year, while in England and Wales alone, a juicy average of 35,000 people must sacrifice their lives for the winter.2 We call this a disruptive business model.
But as long as we have royal merchandise to sell or disturbing Netflix shows to watch, we are okay with all the deaths.
Long lived the Queen!
I’m not sure how this turned into a mini rant, but we are happy to launch Doζer Fact, the slander-fact machine for all the absolute and real BS happening around the globe, as long as their origins are hysterical enough and vaguely related to the trade.
Back to macro movements. We have already bet on government bonds and been rewarded with a small return. We still like the low correlation to the equity markets. It also makes us look smart to co-invest with the fixed-income crowd, even if we use an easily accessible product like TLT. Still, it's not the end of the world to be labeled a bore now and then.
Check out the old BrainDoζer trade close from July below.
We generally think TLT has gone a little too far. The market wants a terminal rate of four percent, Jerome says five. Despite all the bright minds sitting at the fixed-income desks, we will not fight the Game Master. Rate hikes are in play, and a potential terminal rate of five percent or more will be maintained until inflation is back between two and four percent.
A looming recession in 2023/ 2024 is no reason for anyone to pivot. There is no better scenario for Jay Powell than an orderly market sell-off and an orchestrated manageable recession. That’s the only remedy he has left to combat high prices. It seems to work for now; overall lucky us.
Raising taxes to drain excess liquidity to fight inflation has never been a realistic option. Politicians don’t have the power and lack the knowledge and tools to make taxation work quickly and to a practical and economically sound result. Everybody knew this from the beginning except Professor Stephanie Kelton, the poster child of Modern Monetary Theory (MMT).
A severe crisis or a black swan would open liquidity gates preemptively. We do not assign high probabilities to these scenarios. A terminal rate of five percent or higher means TLT will have to retrace back to zone hundred at some point, and we will take profits on the way down.
2. Useful Background Information
We already wrote about TLT back in June. Due to time constraints, we could not offer much insight into the iShares 20+ Treasury Bond ETF (TLT). We are using the same excuse this time.
But feel free to check out our first TLT BrainDoζer below.
Instead, we'll use the space to rant around 2022, a very successful year for MacroDoζer and our BrainDoζer articles. All performances were positive, except for one trade that is still in UPDATE mode and ready to be turned positive, or end forever with a well-managed and curated loss.
But remember, these Rant Around sections are meant to be skipped. A guilty pleasure, a psychological cleansing, an incoherent narcissistic bug of BrainDoζer & Friends.
Rant Around BrainDoζer & Year End
Okay, everybody, listen up! This is not your regular financial news outlet gathering flashy yet extrinsic news, spinning mediocre analyses, or sending you awkward seasonal greetings or fake football compliments, only to spam you to lethargy. It is no regular piece you can build into your weekly feel-good routine or be looking forward to reading or unsubscribing to at some point in the future.
Instead, we geek out twenty-four-seven to find irregularities or absurd situations, employing offensive products, real-time, real deal. Give us drama, we return a trade: any industry, any discipline. As fast as the fire department - sloth land jurisdiction, fair enough. We do need weeks to close, but anything faster, in all likelihood, smells of gambling. If you are highly disciplined or semi-psychopathic, you might be able to make money that way, but it is a hollow and lonely business.
Trying to outsmart The City or Wall Street at their game instead of rolling roulette or counting cards with fanatics will give you more profound and meaningful dopamine hits. These little friends provide the energy to jump from milestone to milestone. At some point beyond the mundane. A purposeful journey that will end in death, sure, but along the way, we try to create, support, and spread all the loving rants we can.
3. Trade Execution
We are selling a slightly bearish risk-defined straddle at 103, with wings at 92 and 114, maturity Feb 17, 2023. We are choosing February with 60 days to go, so we can roll into the New Year without worrying about rolling contracts.
Break-evens are at 97 and 109.
3.1 Trade Entry - Dec 19, 2022
Total: 6.25 Credit.
4. Final Comments
Expect updates on BrainDoζers within 4-6 weeks. We use the exact heading, ending with (+/- xy%), and label the cover cartoon with a red Doζed stamp. That way, the performance will be easy to follow.
We are not sending BrainDoζer updates via email unless you specifically ask for it here. We want to keep the information flow light and to the point. You can still freely access all updates on MacroDoζer the moment they are released.
My name is Juri von Randow. You can find me on the top banner to the right. MacroDoζing, as if there was no tomorrow. (Email version only.)
Feel free to share. Sincerely.
Polarising words and sarcasm are used as stylistic devices, and to offend the masses.