Hi ! This shit is freaking gold. I just rabbit holed on everything and anything and tried to kind of get why you longed the 2yr.
Was this 2yr position dated and did you use ZQ to help execute this plan ? Like what made you execute this plan ? I know you have stated that it is because the 2year was hawkish as hell. But what gave you the edge, but what was the unseen advantage to take this trade other than the fact that the 2year was hawkish ? Was it that the fed funds futures was telling you that cuts were on their way, and that was the “unseen” that made you execute this trade ? Was it the dot plot was showing you a downtrend in rates ? Like what was it ? I know the question is kinda redundant but I want this to be as natural as can be. I’m very curious in this. I’m really trying to get my macro spot on.
So basically the market was pricing exactly what was on the dot plot which was unlikely. It was pricing the most hawkish outcome when a lot of things can happen between now and then pushing rates down marginally.
Decomposing the equity into its cash flow function and valuation function. These have embedded implied assumptions about the future. See my primer on the s&p500
Perhaps unrelated to trading, the Fed will still cut rates even if inflation does not return to 2% this year based on the current trend with JPow’s rhetoric being unnecessarily dovish, why do you think that is?
They are targeting the spread between inflation and fed funds. Its not as if inflation needs to get to 2% before cuts even begin. Cuts can start before we hit target but it increases risk inflation reaccelerating depending on where growth is.
Hi ! This shit is freaking gold. I just rabbit holed on everything and anything and tried to kind of get why you longed the 2yr.
Was this 2yr position dated and did you use ZQ to help execute this plan ? Like what made you execute this plan ? I know you have stated that it is because the 2year was hawkish as hell. But what gave you the edge, but what was the unseen advantage to take this trade other than the fact that the 2year was hawkish ? Was it that the fed funds futures was telling you that cuts were on their way, and that was the “unseen” that made you execute this trade ? Was it the dot plot was showing you a downtrend in rates ? Like what was it ? I know the question is kinda redundant but I want this to be as natural as can be. I’m very curious in this. I’m really trying to get my macro spot on.
Thank you !
what do you mean by saying "perfect pricing was seen on the dotplot"? How do you interpret and actually read this?
So basically the market was pricing exactly what was on the dot plot which was unlikely. It was pricing the most hawkish outcome when a lot of things can happen between now and then pushing rates down marginally.
Is there a way to quantify the market pricing is in line with the dot plot? What do you look at? Thanks!
Look at the dot plot pricing from the SEP or its on FRED. Then compare it with what the fed fund futures are pricing. This can be found on the cme tool: https://www.cmegroup.com/tools-information/quikstrike/treasury-watch.html
Id spend a lot of time understanding how fed fund futures price rate probabilities and understanding FOMC statements/SEP, statements by them
Where would one go to understand that better? Also what is SEP and FRED?
Sep is the statement of economic projection found on the Fed website.
https://fred.stlouisfed.org
Keen to understand - what similar tool can be extended to single name equities? thx
Decomposing the equity into its cash flow function and valuation function. These have embedded implied assumptions about the future. See my primer on the s&p500
Perhaps unrelated to trading, the Fed will still cut rates even if inflation does not return to 2% this year based on the current trend with JPow’s rhetoric being unnecessarily dovish, why do you think that is?
They are targeting the spread between inflation and fed funds. Its not as if inflation needs to get to 2% before cuts even begin. Cuts can start before we hit target but it increases risk inflation reaccelerating depending on where growth is.
https://www.capitalflowsresearch.com/p/bond-view-update