PROG is off to the races this morning

Already coming back down into the $4s. PROG is heavily shorted so hopefully the squeeze has just started.

Tuesday Macros

Risk On...S+P Futures At New Record... Bonds Bull Flattening...

We are seeing a Global Risk on Trade... US Equity futures are setting records and European Equities are up close to 1%... What happened to soaring energy costs and inflation?...Even Greenspan was interviewed saying that inflation is well above the Fed estimate...Bloomberg intelligence put out a report that INFLATION WILL TOP 3% THROUGH 2024... Elon Musk, the wealthiest human, is now worth more than the total market value of Exxon....and it keeps going... Tapering next week, and expected rate increases in 2022 is not stopping the bandwagon... We got our 5% correction, and we got to our objective of 1.25% 5 years... So now what? Too much money chasing yield and opportunity... Surprisingly no one is talking about the scenario that is playing out in DC... Who would have thought that the Trump corporate tax cut to 21% in 2017, would make it through unscathed?... That 25% lower than expected tax projection from 28% that Biden proposed looks to be dead in the water...even 25% no longer looks likely... We think that part of the soaring equity market is that analysts are starting to build in the 21% tax rate from the proposed 28%... That is a lot of value to the equity market when you propose that extra cash flow into earnings at 22 P/E..

Overnight we have seen two block buyers in the long end of the treasury market... We have seen this scenario before, we hit an exhaustion back up in rates of 1.25% 5 years and 1.70 10 years... And then the momentum stops... Shorts end up having to cover ... And now we are at 1.62 10 years.. 1.60 is no longer the next resistance, probably more like 1.58... We do think higher rates resume after the Fed meeting next Wednesday... It usually takes about 18 hours to see the move start after the Powell Presser... Add in a much higher than expected payroll report a week from Friday and we can see new high yields in treasuries.

Corporate demand remains strong, with only 4.5 billion yesterday. But the bigger news is that the HY market has set a record for size...according to our friends at the FT, new companies raising debt have swelled US JUNK BOND SIZE MARKET TO A RECORD... OVER 1.5 TRILLION WITH OVER 150 ISSUERS BORROWING THIS YEAR... The demand is there and the amount of money floating in the system is massive with M2 now over 21 Trillion...Mortgage spreads tightened two basis yesterday to 68, using the 5/10 blend....

China... Yellen and Vice Chair Liu had a call yesterday that was reported as " pragmatic, candid, and constructive" by the Chinese... PBOC opened the spigots with 200 billion yuan injections, the second day of large injections... Meanwhile Chinese authorities continue to soften their regulatory, financial leverage and fiscal tightening... But power shortages still loom... And another Chinese company missed a payment...but the Chinese are pressuring companies to pay their dollar debt.

Oil... Larry Fink said overnight from a conference, that there is a high probability that crude prices would hit 100 dollars a barrel, as the pressure against fossil fuels accelerates... Steve Schwartzman says the energy squeeze will trigger unrest ... Not a good sign, meanwhile we see that Pioneer Natural liquidated hedges on 28,000 barrels of crude, about 8% of their production, as they think prices are going much higher...

Inflation is there and not going away... The Fed will taper and raise rates... Equities will adjust... But not today... But there is a Bloomberg story with the headline "BOND MARKET CRASH WILL SURPRISE ONLY THE UNIFORMED"...WE DISAGREE, but nonetheless, enjoy the risk on trade for now...