Preview Mode Links will not work in preview mode

Broken Pie Chart


Oct 22, 2023

Derek Moore is back with ZEGA Financial CEO Jay Pestrichelli to discuss whether Jay Powell or bond traders are in charge of interest rate policy? How option volatility changes around earnings announcements. Why the spread between the 30-year Mortgage Rate and 10-year treasuries is historically wide including MBS (Mortgage-Backed Securities) impact. Plus, how MBS are doing something kind of weird right now. Later they discuss financial conditions, how high yield loans and bonds have greatly outperformed “safer” fixed income areas, and the breadth of the market vs the “magnificent 7” companies.

 

Is the bond market doing the Fed and Jay Powells work for them?

How higher interest rates tighten financial conditions.

The Fed not buying bonds creating lack of buyers?

Typical spread between the 30-year mortgage rate and the rate on US 10-year treasuries

How the spread is historically high (like 2 standard deviations)

When the 30-year mortgage spread over treasuries widened in the past

Does this mean mortgage rates need to come down or treasury rates have more to rise?

What are MBS Mortgage-Backed Securities

How MBS bond convexity is positive (hint, it’s almost always negative)

Interest rates moving higher means less refinancing (and home sales) extending loan durations.

What is bond convexity and how does it relate to interest rate sensitivity risk

High yield bonds and loans surprising outperformance over investment grade and treasuries

Divergence is higher now than before Silicon Valley Bank

Chicago Fed National Financial Conditions Index

S&P 500 Equal Weight Index vs the magnificent 7

How the S&P 500 Index forecasted next 12-month earnings are higher now

The forward PE ration of the S&P 500 Index back down to about 17.5 PE

Are we behind the trough in earnings?

 

Mentioned in this Episode:

 

Deep Dive: Can Bonds Recover? | TLT ETF Breakdown |Inflation and the Fed https://podcasts.apple.com/us/podcast/deep-dive-can-bonds-recover-tlt-etf-breakdown-inflation/id1432836154?i=1000631358491

 

Bond Market Collapse https://podcasts.apple.com/us/podcast/bond-market-collapse-oil-price-problems-bond-stock/id1432836154?i=1000630742799

 

Cheap vs Expensive Options | Warren Buffett on Options | Fed Powell Presser

https://podcasts.apple.com/us/podcast/cheap-vs-expensive-options-warren-buffett-on-options/id1432836154?i=1000629058900

 

0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831

 

Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia

https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400

 

GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained

https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446

The Big Short Movie and Credit Default Swaps Explained

https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6

Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp

Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt

 

Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

 

Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

 

Contact Derek derek.moore@zegafinancial.com

 

www.zegafinancial.com