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We’ve Trained a Model…

Ok ChamathGPT, define a margin call for me. ChamathGPT: “A small line of credit that we used to drive incremental returns during ZIRP quickly ballooned as some of the assets we used to collateralize it saw up to a 70% reduction in price. What initially seemed like access to free money became a liability that we managed carefully so we could continue to do business as usual. I have always considered myself to be a sober, risk-averse person who has relied on a large margin of safety when investing. To be consistent with myself, I had to recalibrate my original models and question from first principles the purpose of leverage in the first place.”  

“…recalibrate my original model" 

Ok I am indebted to the brilliant Robert Smith for pointing out that Chamath Palihapitiya delivered a word soup instead of just saying ‘we got called’. Writing in his annual letter to investors, Chamath even questions “the purpose of leverage”… I mean really. Another nugget: “If your company is unprofitable, the mathematical truth of high interest rates is that it renders your company valueless.” Chamath was/is one of the biggest pumpers of SPACs around – no wonder he bemoans the Fed ending “the best party in town”. Shillers gonna shill.


Jobs Data Disappoints

Light of my life, fire of my loins...weaker-than-expected employment figures from the US added to the sense that Fed rate hikes are starting to take effect. ADP jobs figures were far weaker than expected, on top of the JOLTS fall earlier in the week. More weakness: ISM Services at 51.2 was weakest since December; prices paid weakest since May now pricing in 100bps of Fed cuts by January – again the market is way too keen to price in a pivot. This is not what the Fed is saying nor what it will do unless there is a major credit crunch. But it’s lose-lose right now – either the Fed hikes into oblivion or the economy is trashed or both. NFP tomorrow expected at +238k, unemployment at 3.6% and average earnings +0.3%.


Dollar in Twain?


Dollar bill


Meanwhile reports of the death of the dollar are greatly exaggerated. All sorts of chatter is flying around about non-USD crude trades being settled meaning the end of the petrodollar...all utter rubbish. Be more afraid of a central bank digital currency taking away your freedom, for that is the goal of all governments unless the people decide. The problem today is the people prefer safety over freedom.


Index Mix


Index analysis


Stocks in Europe rose in early trading on Thursday ahead of the Good Friday holiday and are on track to just about rise for the week. The FTSE 100 was just above 7,700 while the DAX traded a little above 15,500. US markets were mixed yesterday with the Dow up a quarter of a percent and the S&P 500 off by a similar margin. The Nasdaq declined 1% despite lower Treasury yields. The 10yr slipped under 3.3% and the 2yr was around 3.75%, having traded near 4.2% earlier in the week.


Happy Easter - back April 17th.

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