Thursday Thoughts – Dollar Down as Bank of England Hikes 0.5%

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The Dollar is down a bit this morning.

That’s giving the Futures a bit of a lift as the Bank of England raises their overnight rates by 0.50, but that’s only to 1.75% while our Fed is now at 2.5% so they are still way behind and the British Pound is still down 15% against the Dollar from back at the end of 2020.  That’s because money moves to whichever country is paying the most interest (credit ratings being equal(ish)), causing demand for their currency. 

Lower currency values exacerbate inflation and stronger currencies mitigate it and keep that in mind as our strong Dollar (caused by the Fed being more aggressive than other Central Banks) is keeping Inflation from being much worse than what we’re already experiencing in the US.  

Europe pays $7.50 per gallon for gasoline, $8.50 in the UK (no wonder Johnson was fired) and $11.27 in Hong Kong (which is why they all have bikes).  As noted in yesterday’s Webinar, we are exporting 4M barrels of gasoline per day to countries who pay a lot more for it than we do.  No wonder the refiners are making such insane amounts of money…

Meanwhile, just imagine it cost you $200 to fill up your tank?  Then imagine having to do that once a week so you could report to your $15/hour ($600/week) job.  You can see why so many people have simply given up working – it’s pointless.  

We’ll get more on the Labor Situation in the US tomorrow with the Nonfarm Payroll Report at 8:30.  372,000 new jobs were created last month and Hourly Earnings were up 0.3% with Unemployment at 3.6%.  We also get Consumer Credit at the end of the day and if that’s up another $20Bn for June, it will be a little concerning. 

Revolving Credit is the main concern at $1.11Tn.  As the Fed raises rates from 1.75 to 3.75% another $22Bn is drained from consumer pockets just to pay the interest – that is as much as the $35,000 take-home pay of 628,000 $50,000 jobs.  Non-Revolving Credit is $3.46Tn and is slower to react to rate hikes but, when it dos, say goodbye to another $70Bn of spending power.  

Americans are still shopping but, unfortunately, it’s all on credit.

Speaking of interest, the 10-Year Notes are now paying 2.67% but the 2-Year Notes are at 3.05% and that’s what they call “inverted” – when long-term rates are lower then short-term rates and it indicates a slowdown lies ahead but I would argue that this is not a normal inversion as it reflects the short-term aggressive Fed and the long-term rates simply haven’t accepted the reality that we’re not going back to ZIRP.  

Historical 10Y-3M Treasury Yield Spreads

Still, A LOT of people believe that an inverted yield curve is a fairly sure sign of Recession and, as you can see from the chart above, it has been 7 out of the last 8 time’s it’s happened and here we are again – there will be a lot of hand-wringing about this over the weekend.

 

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Phil / PARA earnings today thoughts?
Paramount Global Non-GAAP EPS of $0.64 beats by $0.02, revenue of $7.78B beats by $230M
Paramount Global (PARA)

  • Paramount Global press release (NASDAQ:PARA): Q2 Non-GAAP EPS of $0.64 beats by $0.02.
  • Revenue of $7.78B (+18.6% Y/Y) beats by $230M.
  • Global DTC subscribers rose to nearly 64M.
  • Paramount+ subscribers grew to over 43M, which reflects the addition of 4.9M subscribers and the removal of 1.2M Russia subscribers.
  • Adjusted OIBDA decreased $302M year-over-year, reflecting increased investment in our DTC services.

Good Morning.

Good morning here are the links to the last 2 PSW webinars

7/27 – https://www.youtube.com/watch?v=8v5HDS_28VY
8/03 – https://www.youtube.com/watch?v=I1kYp3oPoYE

YETI is getting kicked in the cooler….

Talking to various contractors, consultants, labs, etc. – we are seeing a ton of running about regarding inflation and a complete failure in figuring out how to address this. It is worse than 3 months ago, and I don’t see anyone who knows what to do.

Phil – I have no broad short positions or hedges right now, I got out of stuff when we were about 10% lower. The only “hedge” would be calls sold against long positions. I always find closing a 3X hedge successfully difficult. I am thinking of the Dec 16 2022 $185-170 IWM put spread for <$4.5. Dec 16 so it is before the Santa Claus rally. Does this sound reasonable?

bloomberg just did a scary russia – ukraine possible nuclear war news release due to some situation i believe to try and stop oil going down market came back abit during same time.

Phil / MO holding some jan 2023 45 long calls (paid 4.58) from an old bcs(bought the shorts back). would like to roll to a 40/60 2024 spread. Still in learning mode for adjusting positions, I am familiar with just rolling down in price ie. pay $2.50 to roll down $5 but not sure of how to adjust when rolling both down to a lower price and for time? appreciate your thoughts.

Phil – any new estimate on an update and K-1 for PSW Investments?

MO Boomer, Phil really sugests a new play.
I look at it a bit different. At present both longs are cheap. I roll the Jan 23 45 to Jan 24 40. Cost about 4.10. To ease the cost you can sell half the Jan24 40 put for 4.40. That is if you do not want to enter a compleat new play. Obviously the incomming tide lifts all boats. So I would hold back on the short call sale as they will go against you, if sold to early.

thx yodi, that was my initial thought as i felt i was running out of time to recover fully on the jan 23 call. That is what i will probably do, although i like phil’s idea for a new play on MO as well.