I am in the middle of reorganizing the web site, and wanted to see what the demand was for back issues (a la Jim Grant).  If you want to purchase the February 12th issue (from which most of this Digest is based), you can order it HERE.  If you are unsatisfied in any way, I will donate the amount in your name to a charity of your choice.  As always, I welcome your feedback.


The Super Bowl confirmed by suspicions… the Trump supporters still like him. (CA, Feb 8, 2017)  My informal survey at a neighborhood Super Bowl party showed that while the Trump haters have been very loud, the Trump supporters still like him (even though they have been mostly silent).  We could see further divisiveness as Trump’s term progresses.
Watch for new features in coming weeks.

Weekly Essays:

1. A Post-Tarullo FOMC:

There are some important implications of Tarullo leaving early:

  • Trump gets to pick THREE Fed Governors, ONE Fed Chair (next Feb) and ONE Vice Chair (next June)…  
  • Tarullo is a dovish voice that will be leaving the Fed… 
  • The bank President voters now outnumber the Board voters…  
  • The new bank President voters are somewhat more balanced, leaning slightly dovish… 

I also mention an interesting piece on how Kashkari thinks about rate hikes, and that the voters will be much more hawkish in 2018 (making 2018 hikes more attractive aotbe).  CLICK TO READ THE REST OF THIS ARTICLE FROM THE CA WEB SITE

2. Trump’s Glass of Water:

I discuss some Trump psychology, and why Trump’s acceptance of the “One China” policy seemed like a much bigger deal than it was (considering this has been the status quo for dozens of years).  CLICK TO READ THE REST OF THIS ARTICLE FROM THE CA WEB SITE

3. Trade Thoughts – Rate Hike Framework:

Ever since we had that surge in non-quarterly meetings a few weeks ago, I started thinking more about different ways to think about combinations of meetings.  Lately, I’ve been thinking more about algos, so I put my comp-sci hat on and I decided to just jot some “rules” down on Fed meeting pricing.  These are not “hard rules,” but once we start writing some of these “soft rules” down, I think they could help us look at value.  I’ll start with the more obvious ones:  CLICK TO PURCHASE THIS FEB 12 ISSUE

Next Week: I discuss why you need to factor in changes in regimes when looking at historicals.

Other Delayed Market Comments from the CA Newsletter:

I still have no view, because we sold off after the election on Trump stimulus, and we are rallying back on the lack thereof.  We are in his third week, and the only whiff of stimulus we got was the pipeline and vague “less regulation” executive orders.  Where’s the beef?  So far we have gotten no visibility on his main stimulus plans (tax cut, infrastructure, repatriation).  I’m not expecting the actual legislation – I just want to know what he is proposing.  All we got was trade restriction, immigration restriction and renewed mideast and Asian tensions.  None of those are good for growth.  In any event, it’s not crazy to think that no Trump stimulus = no Trump ED selloff.  So the market is probably just sitting around speculating on the next headline.  We could sell off huge on a stimulus headline.  But at this point, if Trump needed to use Pence as a tie-breaker to get a cabinet selection passed, I’m not sure how he’s going to get a major piece of legislation passed.

Trade Summary from the Delayed CA Newsletter:

FLIP TRADE UPDATE: We will generally be the last ones to know what the headlines are (“insiders”).  This puts us at a competitive disadvantage in the zero sum game that is futures trading.  So I think being patient is better, until we get a stronger view.

OFFICIAL TRADE UPDATE: We got some partials on four trades, but not enough to call an official fill.  But these partials all add up.  CLICK TO PURCHASE THIS FEB 12 ISSUE

Forum Update:

I posted in four threads last week.  If you ask it, I will answer.  The most notable posts from the Forum were:

I answer a member’s questions on interpreting butterfly prices.  An intuitive interpretation is to look at calendar spreads as function of the Fed rate path.  I have several replies in this thread.  CLICK TO READ THE REST OF THE POST ON THE CA FORUM

I update my thoughts on the FOMC dots.  While the dots get a lot of flack for the wide error distribution, it does contain some useful information.  CLICK TO READ THE REST OF THE POST ON THE CA FORUM

Let me know if you have any feedback on the format or content.
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