Eurodollar University’s Making Sense; Episode 34; Part 3: SOFR-ing The Real Crime of the QEntury

———WHERE———

———WHO———

Twitter: https://twitter.com/JeffSnider_AIP
Twitter: https://twitter.com/EmilKalinowski
Art: https://davidparkins.com/

Jeff Snider, Head of Global Investment Research for Alhambra Investments with Emil Kalinowski, can sense the slightest human SOFR-ing. Artwork by David Parkins.

———WHY———

34.3 ‘Crime of the Century’ Bankers say SOFR ‘useless’
The LIBOR price-fixing scandal was called “crime of the century”. Central bankers saw the crime as an opportunity to shunt aside LIBOR – a global rate that shouldn’t exist for a supply of dollars that shouldn’t exist. But does.

[Emil’s Summary] A social contract is the agreement between government, business, wealthy and ordinary households in how to apportion the costs and benefits of society. The recently concluded (?) American election comes to mind, as a potential first step towards a new (green?) deal. In this, the 34th episode of Making Sense, Jeff Snider identifies another, less obvious freshly fashioned contract: China and its recent 14th Five-Year plan. But as Snider explains, question marks are not unique to democratic republics — communist ‘republics’ have them too.

The most successful, contemporary social contract your podcaster is aware of are the early-2000s Hartz Reforms in Germany. Listeners may be surprised to learn that before them today’s “economic engine of Europe” was the “sick man of Europe”. The decade-long assimilation of East Germany had taken a heavy toll and unemployment levels would breach more than 10% — in 2004! The new social contract ensured employment in return for low-wage growth that favored business. So, success doesn’t mean cost-free. But we’ve always known that; remember the story of one of humanity’s original contracts?

As we learn in Exodus, Moses had to introduce The Commandments twice; the stone tablets were angrily shattered in the first attempt! And by the time the second draft was presented the scene was rather tense. Firstly, God was annoyed as all get-out to see Moses again — what, he doesn’t have anything else to do other than hew stone tablets? Secondly, Moses was ill-tempered that he couldn’t leave the chosen people alone for a few days before they started chugging flagons like Frank the Tank. Lastly, the people, like the teenager unable to thread the needle in a way that explained bongs and brassieres strewn across the yard to her parents, were anxiously awaiting judgement.

When Moses returned for the second time the apprehensive throng gathered before him. Moses announced, “I have good news and bad news. The good news is, I got him down to ten.” And a great cheer of relief issued forth. “The bad news is… adultery stays.”

———WHEN———

00:05 What is SOFR, the Secured Overnight Finance Rate?
01:24 LIBOR represents the offshore (euro)dollar; is that the Fed’s responsibility?
03:59 When did the Fed finally look to address LIBOR? Why did the issue come up in 2011/12?
07:04 How can an OVERNIGHT SOFR replace a multi-tenor / multi-period LIBOR?
09:32 The International Monetary Fund recently noted “worrying” banker disinterest in SOFR
13:49 The IMF says market participants have recently moved AWAY from some SOFR products
12:38 Why can’t regulators say, ‘Use this or else’? Do they know SOFR is a bust?
14:31 Even if you don’t like banks (or Xi Jingping) they have an important message for us all

———WHAT———

There Is A Hard Truth To This Soft SOFR Arrogance: https://bit.ly/38mPBJM
IMF Global Markets Monitor (03-Nov-2020): https://bit.ly/2GD911j
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7

Eurodollar University’s Making Sense; Episode 34; Part 3: SOFR-ing The Real Crime of the QEntury

About the Author: Jeffrey P. Snider

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