Market Morning: Rate Hike Trade Guide, Mnuchin Blames HFTs, Musk Unveils Boring Hole, Facebook Claims Consent

Market Morning: Rate Hike Trade Guide, Mnuchin Blames HFTs, Musk Unveils Boring Hole, Facebook Claims Consent

How to Trade the Rate Hike, Or Lack Thereof

At 2pm today, the Federal Open Market Committee will reveal the man behind the curtain who will announce whether to increase the price of money by 25 basis points or leave it as is. Markets are expecting a hike, but only by a chance of 75%, which is not as high as previous expectations. Meaning, there is still room for the Fed to wiggle out of this rate hike in the face of ongoing bearish trading activity. If the Fed fails to hike rates and the market rallies, shorting the rally could be prudent, since hesitation by the Fed will probably ultimately be interpreted as economic jitters and the confirmation that a recession is indeed ahead. On the other hand, if the Fed hikes rates and the market still rallies on a dovish press release and dovish comments about finding the elusive “neutral rate of interest” by Fed Chair Jay Powell, shoring may still be prudent because that would still signal the end of the current rate hiking cycle and imply that the Fed is worried about the economy like everyone else. If, however, the Fed hikes and the market falls and disregards any dovish comments, leave it be.

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Mnuchin Blames Market Volatility on HFT’s Volcker Rule

After two days of stock declines that have left the S&P 500 (NYSEARCA:SPY) breaking intraday through 52 week lows, Treasury Secretary Steven Mnuchin is grasping at straws trying to explain the downturn in equities. In an interview with Bloomberg cited by MarketWatch, he blamed high frequency trading (HFT) and the Volcker Rule for causing the problems. The problems with this assertion are that he didn’t mention these as problems when stocks were flying high. Second, HFT can’t possibly be responsible, because HFTs both buy and sell, and when they sell they always sell so someone else, who buys. And when they buy, they buy from someone else, who sells, so they can’t be responsible for a net decline, only for an increase in trading volume and liquidity, generally considered good things for market stability. As for the Volcker Rule, this was instituted in the wake of the last financial crisis for vague reasons, and prevents banks from conducting business in their own accounts. But that can’t cause declines either, because if they don’t, someone else will, and they’ll conduct business elsewhere, evening things out. “In my opinion, market structure has led to a lot more volatility. Part of this is a combination of the market presence of high-frequency traders combined with the Volcker rule,” he said. Try again, Steve.

Elon Musk Reveals Big Dig #2 Featuring Boring Company

Elon Musk doesn’t like “soul destroying traffic”, and none of us do either, as fans of souls and enemies of traffic generally. He unveiled his underground transportation tunnel last night to reporters, who reported a quick yet bumpy ride that resembled a dance club. The tunnel takes cars about 30 feet below ground  and takes them a mile into O’leary station in the middle of someone’s backyard. As for Tesla (NASDAQ:TSLA), it has fared pretty well in the face of the current market decline, slightly up on the year with little sign of wear and tear since October, only 12% off its all time highs, much better than any of the FAANG stocks and other market leaders.

Facebook: All Private Data Relationships Were Consensual, We Swear!

Facebook (NASDAQ:FB) was outed by the New York Times for sharing private data with advertisers without user permission, but Facebook denies the claims and says that all relationships involving the sharing of private data with advertisers were consensual, turning the whole thing into a they-said but-they-said affair. “None of these partnerships or features gave companies access to information without people’s permission, nor did they violate our 2012 settlement with the FTC,” Konstantinos Papamiltiadis, Facebook’s director of developer platforms and programs, said in defense of the company’s business practices. Some of the concerns are that Facebook gave access to private messages to companies like Netflix (NASDAQ:NFLX) and Spotify (NYSE:SPOT). It also let Amazon (NASDAQ:AMZN) access contact information through a user’s friends. But it was consensual, so it’s all cool, maybe.

GlaxoSmithKline, Pfizer, Team Up

Two of Big Pharma’s biggest are joining forces in consumer health to create a new company headed by GlaxoSmithKline (NYSE:GSK) and subordinated by Pfizer (NYSE:PFE). The company will be worth about $12.7 billion and will focus on Pharmaceuticals/Vaccines and Consumer Healthcare. Galxo will own 68% and Pfizer 32%.  “The combination of these leading businesses with distinct regional and category strengths will be more sustainable and broader in scope than either company individually,” said Albert Bourla, Chief Operating Officer and incoming Chief Executive Officer, Pfizer. “We believe that this joint venture is a great opportunity to ensure the future success of Pfizer Consumer Healthcare while unlocking meaningful after-tax value for Pfizer shareholders.”