Forward Guidance

Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High

Jan 14, 2024

01:21:33

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Kevin Muir, veteran trader and publisher of The Macro Tourist newsletter, discusses the U.S. fiscal deficit, buy-write ETFs, and reasons why he is bullish on inflation breakevens and Japanese equities. He believes inflation surprises will be consistently to the upside and talks about his excitement for Harley Bassman’s new mortgage ETF.

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Quick takeaways

The market may be overestimating the extent of rate cuts by the Federal Reserve due to a significant skew towards lower rates in options pricing on short-term interest rates.

Political considerations, such as the upcoming election, may partially explain the Federal Reserve's dovish stance and reluctance to adhere to the market's expectation for significant rate cuts.

Traders and investors should be cautious about relying solely on market pricing to predict the Federal Reserve's rate cut plans, as there may be a potential misalignment between market expectations and the central bank's actual intentions.

Deep dives

Bond market expectations of rate cuts are likely overestimated

The bond market is currently expecting multiple rate cuts from the Federal Reserve. However, the market may be overestimating the extent of these cuts. The pricing of options on short-term interest rates shows a significant skew towards lower rates, with higher probabilities assigned to cuts of 7% or more compared to cuts of 2% or less. This suggests that the market is overly bearish on interest rates, and the actual rate cuts may not be as drastic as expected.

Introduction

3min

The Impact of Monetary Policy on the Economy

20min

Undervalued Japanese Microcaps and a Paid Endorsement

3min

Youth, Treasuries, and the Fed's Pivot

25min

Market Expectations and Interest Rate Volatility

20min

Exploring the Buy Rights Strategy

7min

Shorting Nasdaq Calls and Better Strategies for Selling Volatility

4min

Kevin Muir, veteran trader and publisher of The Macro Tourist newsletter, returns to Forward Guidance to update viewers with his thoughts on the U.S. fiscal deficit, the bond market, and buy-write ETFs. Muir argues that persistently stimulative fiscal policy will keep nominal demand and growth high in the U.S., and that over the next decade, inflation surprises will be consistently to the upside. Muir explains why he is bullish on inflation breakevens and Japanese equities, and shares why he is excited about Harley Bassman’s new mortgage ETF. Filmed on January 9, 2024.

Public dot com has just launched its new high-yield cash account, offering an industry-leading 5.1% APY. Learn more at https://public.com/forwardguidance.

Follow Kevin Muir on Twitter https://twitter.com/kevinmuir

Kevin Muir’s newsletter, The Macro Tourist https://themacrotourist.com/

Follow Jack Farley on Twitter https://twitter.com/JackFarley96

Follow Forward Guidance on Twitter https://twitter.com/ForwardGuidance

Follow Blockworks on Twitter https://twitter.com/Blockworks_

Use code FG10 to get 10% off Blockworks’ Digital Asset Summit in March: https://blockworks.co/event/digital-asset-summit-2024-london

Timestamps:

(00:00) Introduction

(00:48) U.S. Fiscal Deficits Are Fueling A Boom

(08:54) Are Higher Interest Rates Actually Stimulative To The Economy?

(10:29) Modern Monetary Theory (MMT)

(15:11) Thought Experiment With Bank of Japan

(20:53) Why Kevin Likes The Japanese Stock Market

(24:48) Bond Market and Fed Policy

(33:24) Rates Market Is Overzealous In Pricing In Fed Cuts

(34:10) Floor vs. Corridor System

(42:08) Kevin's 2024 Economic Outlook

(51:14) Using Options To Identify True Market-Assigned Probabilities In The STIR Market

(57:14) Kevin's Favorite Trade: Long Inflation Breakevens

(01:07:36) Interest Rate Vol Is Cheap (And Harley Bassman's New Mortgage ETF)

(01:11:04) Kevin's Thoughts On Buy-Write ETFs

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

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Forward Guidance

Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Bond market expectations of rate cuts are likely overestimated

The Fed's dovish stance may be influenced by political factors

Short-term interest rate volatility implies uncertainty in market expectations

Market pricing of rate cuts may not align with the Fed's intentions

The Liquidity of the Market and Its Future Expectations

The Downsides of Buy-Write Strategies

Get the Snipd
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AI-powered
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Forward Guidance

Kevin Muir: The Market Has Priced In Too Many Fed Cuts Since Government Money Printing Will Keep Nominal Growth High

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Bond market expectations of rate cuts are likely overestimated

The Fed's dovish stance may be influenced by political factors

Short-term interest rate volatility implies uncertainty in market expectations

Market pricing of rate cuts may not align with the Fed's intentions

The Liquidity of the Market and Its Future Expectations

The Downsides of Buy-Write Strategies

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