Daily Clueless Musings 5/16

US officially hit the debt ceiling today. Mr. Gross, the largest domestic bond buyer, again bashed US treasuries on CNBC. TIC data showed in March foreign accounts increased their holdings of long-term US securities by $24.0 billion, $9 billion less than forecast. China, the largest Foreign US treasury holder, reduced their holdings for the 5th consecutive month in a row. They reduced their holding by 9.2 billion, and the largest one month decline since November 2010. And, yet, once again, futures traded higher, as treasuries rallied. The Empire State manufacturing survey’s headline reading declined from 21.7 to 11.9 in May. As the first glance, manufacturing activity slowed more than expectation, which seems to push futures higher. But the key components, which are included in ISM manufacturing survey, are better than the headline number. ISM-weighted composite index for the survey increased from 57.1 to 58.1. The price paid index, which advanced 12 points to 69.9, the highest since mid 2008. The index for the number of employee also increased to 24.7. It is difficult to justify lower rates when inflation is strong and job is expanding. Paper continue to put up bullish trades. They sold 0N 91 calls to buy 2u 82-6 c1x2. Upside gamma continue to get crushed as futures traded higher. Mid curve gamma options are particularly cheap. 0M straddles traded 13+. Market is pricing the future uncertainty with a incredibly narrow margin of error. As Vladimir Nabokov once said "Complacency is a state of mind that exists only in retrospective: it has to be shattered before being ascertained".