Market On Open, Wednesday 3 December

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Read our full disclaimer, here.

Yen Crisis? SOFR Crisis? What Crisis?

by Alex King, CEO, Cestrian Capital Research, Inc

Monday, as was obvious, it was All Over because (1) money was getting more expensive in Japan and/or (2) money was getting harder and more expensive to get ahold of in the US interbank market. Which of these was to blame I know not, but I do know that more expensive money and less of it is bad for risk assets? Why, you might ask, does it matter? And the answer of course is greed.

If everyone bought their stocks and bonds and whatnot with cash they had earned and had sat in their brokerage accounts - I am talking everyone from large funds down to Mr. Miggins the retired janitor - then the cost and availability of credit wouldn’t immediately affect securities prices. But since everyone from Miggins on up cannot help but try to juice their own returns by going large, the number of funds and individuals that are hooked up to an IV line named Margin Capital Dispensary is remarkable. And there is no holier-than-thou claim from bigs either. How do you think Renaissance Technologies hit those 60% returns on the Medallion Fund all those years? Was it genius or divine intervention? It was not. It was a system capable of delivering 10% returns most years, amplified by 6-7x leverage on the fund.

If the margin loan plumbing is opaque to you, take a look at 1929 by Andrew Ross Sorkin. It’s not a financially complex book but it deals in simple terms with the relationship between the Federal Reserve system, money center banks, regional banks, brokerages, and those who buy and sell securities. All set in an earlier age when the systems were simpler. The relationships now are the same, but as always if you study systems earlier in their life, the setup is easier to understand and you can than apply that understanding to the more complex current setup.

Thankyou … And My Apologies

My apologies for the lack of a daily note yesterday; the day got ahead of itself here at Cestrian Towers, a result of a very successful Cyber Monday, for which I am grateful and flattered. Now that we have all these new customers … time to get back to work!

Bonds, volatility, equities, sectors, crypto, oil … we have it right here for you as always.