Thread by @pauleluard

It's sunday night so it's time to post some weekly updates.
Pooches have been fed, it's the PhD student's turn to cook dinner and there is a lot to ponder after watching gogglebox.
1/x

First we have the stymie checks coming. This happens in a very protective gamma environment.
We have FOMC this week and it won't be hawkish (that's Yellen's job now).
An opex which should be lenient.
Can we break 4000 this week? Certainly.
2/x

Also we still have a ton of underwater VIX hedges (remember those guys who sold 1M VIX at 25 just to realise it decayed?).
Skew has been killed. And Bitcoin is being pushed with the checks. Value is up. All is good.
Kill those forward vols please.
(h/t @BRzymelka re btc)
3/x

But the real indicator is not equities. Growth/Value rotation has one driver and it's the rates market.
Is it a reflation rates mode? Or pure inflation ahead and Powell will have to make a choice between jobs inequality and inflation containment?
It's the real question.
4/x

There is not one answer sadly. But I still believe we are going to put more weight on the inflation problem.
The NY Fed had its latest consumer survey results this week and the expectations of rent infl ahead have picked up massively.They expect rents to rise 9% this year!
5/x

And in particular the “income inequality” finds itself back into the “inflation inequality” similarly.
For all income groups the inflation expectations have shifted higher, but the "uncertainty" continues to pick up pace in the low income group.
6/x

Again this inflation debate can seem preposterous but the recent Conference Board Consumer Confidence showed a divergence in confidence in the low income groups.
Those should have enjoyed a strong benefit from jobs strength, stocks rising and the stimulus checks coming.
7/x

And we are seeing inflation forward rates “capped” currently at 2.5% given the Fed AIT measure.
Which in turn is helping Real Rates. But a divergence in this normalisation could pose problem to the Fed both from an asset pricing point and a financial conditions point.
8/x

The Fed expectations of rate hikes are still below the heat zone where the Fed usually tells us to get our act together ("and no sir we won't hike 8 times this year")
9/x

But the market is definetely struggling and volatilities should remain elevated.
The volumes are very large, both way and for example the paying friday was enormous. But implieds have repriced, so it's not a short gamma event.
10/x

Overall I can see we are building a very similar picture to 2008. I'm not expecting a Lehman event (been there done that).
But the infl dynamics are making the system more fragile.
And keep watching credit. It shrugged off a lot of the mvoe but it's where the danger is.
11/11

Forgot to post the end of thread picture (aka “dog drop”)