108.2 Most UNDERRATED Anti-Taper Market-Warning Ever

———Ep 108.2 Summary———
Interest rate swap spreads are negative. These ‘underwater’ derivatives indicate very high market demand relative to money dealer supply. So, if bank balance sheet capacity remains constrained–available only at a premium–that means there’s not enough ‘money’ in the world economy.

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Twitter: https://twitter.com/EmilKalinowski
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Emil YouTube: https://bit.ly/310yisL
Art: https://davidparkins.com/

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———Ep 108.2 Topics———

00:00 Show Intro: The Fed wants to taper it’s QE, rate swap spreads recommend against the move.
00:45 Interest rate swap spreads turned negative for the first time ‘ever’ in 2008 – shocking.
01:56 Can Y2K still happen? Emil Kalinowski thinks so – he’s also bananas.
02:43 Interest rate swap spreads – what are they, what is the ‘textbook’ interpretation?
05:54 IRS are bank balance sheet tools to manage risk, growth and balance sheet capacity.
07:14 Negative IRS spreads signal there’s a supply (down) and demand (up) ‘imbalance’ / reset.
07:46 Bank balance sheet capacity grew exponentially from the 1950s to 2008. Then? Dead-flat.
10:41 IRS spreads did peek above zero in July 2013, a short-lived normalization.
13:01 IRS spreads became less negative since Mar. ’20 but have gone sideways since Feb. ’21.
15:17 Show Outro: A money-flooded economy would not be registering negative IRS spreads.

———Ep 108.2 References———

Hey Jay, Maybe Check The Swaps Before Committing to Taper: https://bit.ly/3ET9VjM
(WSJ) Spread on 30-Year Treasury Swaps Turns Positive: https://on.wsj.com/2XNJLxr
Alhambra Investments Blog: https://bit.ly/2VIC2wWlin
RealClear Markets Essays: https://bit.ly/38tL5a7

———Who———

Jeff Snider, Head of Global Investment Research for Alhambra Investments and Emil Kalinowski. Art by David Parkins, grand marshal of editorial cartoons. Podcast intro/outro is “Digital Breath” by ELFL from Epidemic Sound.