After the hotter than expected Flash PMI prints yesterday, the market is pricing in one cut for this year to occur in November or December, and another in early 2025.
Source: Markets & Mayhem
The Bank of Airbnb $ABNB by Wolf of Harcourt Street
ABNB's interest income has skyrocketed to $777 million over the past 12 months. This return is more akin to a bank than a travel company. ABNB benefits from being the Merchant of Record which means that it is the party that processes and distributes the actual payment for a product or service. When a customer makes a booking on Airbnb, Airbnb receives the cash in advance. This cash is held on behalf of the host and paid out once the service has been provided. With the interestrate hikes over the past year, Airbnb was able to benefit from investing the cash in short-term US Treasury bills before paying it out to hosts. Source: Wolf of Harcourt Street
Odds of a September 2024 rate cut jump to 53% after the weaker than expected jobs report, according to Kalshi.
The base case now shows TWO interest rate cuts in 2024, up from ONE prior to the report. On Wednesday, Fed Chair Powell specifically said weakening of the labor market could spur rate cuts. Market implied odds of zero interest rate cuts this year have dropped from 35% to 27%. The Fed rollercoaster ride continues. Source: The Kobeissi Letter
Interest rate futures have been wildly inaccurate over the last 12 months.
In September, just 2 rate cuts were expected by December 2024. In January, 6 rate cuts were expected by December 2024. Now, we will be lucky to get one rate cut over the next year or so. In fact, prediction markets are showing a 40% chance of ZERO rate cuts in 2024. Prediction markets also see an 11% chance of a rate HIKE in 2024 despite Powell saying he thinks it's unlikely. Source: The Kobeissi Letter, Kalshi
Fed Cut Probability Update - Jim Bianco (Bianco Research)
- May 1 FOMC meeting (green) less than 50% (meaning no move) - June 12 FOMC meeting (blue) less than 50% (meaning no move) - July 31 FOMC meeting (red) less than 50% (meaning no move) - September 18 FOMC meeting (orange) less than 60% (since it is 5 months away, effectively a coin-toss) After this, the next FOMC meeting is Thursday, November 7, two days after the election.
what a journey...
Source chart: Bloomberg
Prediction markets now show a 36% chance of ZERO interest rate cuts in 2024, according to Kalshi.
To put this in perspective, 4 months ago there was a ~3% chance of no rate cuts in 2024. The base case has gone from 6 rate cuts to 1 rate cut this year. There is just a 31% chance of 2 or more interest rate cuts this year. In other words, there is a higher chance of NO cuts than 2 OR MORE cuts. Could it be the fastest shift in Fed expectations of all time? Source: The Kobeissi Letter
The annual interest expense on US debt is literally moving in a straight line higher, now at $1.1 TRILLION.
To put this in perspective, less than 3 years ago the annual interest expense on this debt was $450 billion. That's a 144% jump as total US debt has surged by over $11 TRILLION since 2020. Even in 2008, at the peak of the Financial Crisis, annual interest expense was just $450 billion. As interest rates surge and debt levels hit record highs, the US paying the prices for decades of deficit spending. Money is not "free" anymore... Source: BofA, The Kobeissi Letter
