If you went home early on Thursday, you missed the big Eurodollar play of the day.

Through two big trades, this bet makes (or loses) ~$2m for every extra basis point of rate hike price in (or out) in 2022. Lumpy.

Details and more on @markets pic.twitter.com/aVcaOgHZDg

— Stephen Spratt (@StephenSpratt) January 8, 2021

The Fed has said rate hikes are so far in the distance it doesn’t even see them. My have things changed in the past couple of months. Now some are betting on rate hikes by the end of 2022 as you can see from the chart above. We have been saying for months rate hikes could start in 2023, with there being an outside shot of them starting in 2022.

It doesn’t matter what the Fed has said in the past. The market can push the Fed in the hawkish direction. Quite frankly, it’s impossible for the Fed to ignore the rise in commodities prices. The Fed will begin to get more optimistic on the economy once the vaccines allow for a reopening. If the Fed starts talking about future rate hikes in 2021 and the 10-year yield is above 2%, it will be rough sledding for the unprofitable story stocks that had amazing runs in 2020.

Momentum Party

As we mentioned, the story stocks did well last year. It was a party similar to 1999. It has become common knowledge on FinTwit that certain industries such as EVs are in a bubble. If these stocks fall more than 50% in the next few months, everyone will acknowledge it was a bubble.

As you can see from the chart below, the momentum long index has exploded.

'The U.S. Momentum Long gauge surpassed its 200-day moving average by as much as 40% in December. The index hadn’t been so far above the average, an indicator of price trends, since March 2000.' https://t.co/g6U1S3we2r pic.twitter.com/rtQVNKvOvJ

— Jesse Felder (@jessefelder) January 10, 2021

The index’s rise above its 200-day moving average is the highest since the end of the tech bubble. With the recent drawdown at the end of the line, some wonder if the party is almost over. Tesla TSLA stock fell 7.8% on Monday (recovered 4.9% on Tuesday) and bitcoin had a 25% correction in 2 days before recovering half its losses. There is no logical way you can get mad at 2% inflation, but not care about a 25% decline in 2 days. That volatility is normal for bitcoin. Proponents claimed bitcoin was becoming less volatile as it got older, but it’s still just a speculative trading vehicle based on the easiest financial conditions in over a decade.