🎙️ Rate Cuts Incoming

[5 minutes to read] Plus: China turns the tables on Wall Street

Sponsored by

By Matthew Gutierrez and Shawn O’Malley

It’s not often we get such a great example of the time value of money, but baseball star Shohei Ohtani’s contract is exactly that 💵

By deferring his monster $700 million contract without interest, he’ll earn $2 million per year for a decade and then $68 million yearly for another decade. Due to the opportunity costs of time & inflation, the present value of those payouts (calculated for tax purposes) falls to $460 million.

If inflation proves particularly problematic over the next twenty years, the real value of Ohtani’s contract will be reduced further.

💭 Don’t pity Ohtani too much, though. He still makes roughly $50 million a year from sponsorships.

Matthew & Shawn

Here’s today’s rundown:


Options are a key part of the broader derivatives market — roughly how many options contracts change hands each day? (The answer is at the bottom of this newsletter!)

Today, we'll discuss the three biggest stories in markets:

  • Holding rates steady once again

  • Turning the tables on Wall Street

  • Argentina’s economic struggle

All this, and more, in just 5 minutes to read.



⏸️ Powell and Co. Hold Rates, Suggest Three Cuts Coming In 2024

Just what the doctor ordered. The Federal Reserve held its key interest rate steady for the third consecutive time

More importantly, Jerome Powell and Co. indicated that three rate cuts are coming in 2024, which was well received by global markets. The S&P 500 climbed 1.37% into the close, just a hair (2%) from its January 2022 all-time high (and up 23% year-to-date). Bitcoin and other risk assets also surged Wednesday.

And Treasuries rallied across the board, too, with yields on two-year Treasury bonds dropping over 30 basis points (0.3 percentage points).

Here are the highlights from Powell’s speech Wednesday:

  • Inflation is falling but still too high, and he’s still committed to bringing it back down to the 2% target. “The committee is proceeding carefully,” Powell said.

  • The labor market is still tight, but supply and demand “are coming into better balance,” Powell noted.

  • The FOMC will tighten further if need be, but a rate hike is no longer the base case as it was two months ago. 

Progress! Powell was upbeat Wednesday, helping propel markets further. 

  • “I welcome the progress. It’s really good to see the progress we are making” on inflation, Powell said. “We need to see more.”

Rate cuts could signal normalization, not a weakening economy, and Powell noted that the Fed is “very much focused” on the risk that it keeps rates too high for too long.

Source: CNBC

Why it matters:

As we’ve written repeatedly, the inflation picture has brightened in recent weeks. The annual rate is down to 3.1%, well down from its 40-year high of 9.1% in June 2022. 

It appears that, at least now, markets are anticipating cuts in March, June, and September, or May, September and December. 

Too early to dance in the streets: Powell isn’t popping bottles in the nation’s capital just yet. “People are still living with high prices,” he said. “No one is declaring victory — that would be premature.”


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👉 China Turns the Tables on Wall Street

How national debt crises are being handled worldwide is changing, and Wall Street and Western governments aren’t thrilled about it.

Why? Thanks to its Belt & Road lending initiative in recent years, China has become the largest creditor to developing countries, upending norms set by Western powers for over 50 years.

  • China has lent $1 trillion to countries across Africa, Asia, and Latin America in the last decade, boosting its role in the international financial system.

How it works: Borrowers try to negotiate lower payouts/more time that relieves financial pressure, while investors seek to maximize their returns.

Striking that balance gets complicated when multiple parties, from Wall Street bond fund managers to Chinese bank officials, are involved in the negotiations.

  • Clashes between China and Western stakeholders have flared up over financing deals for smaller countries like Sri Lanka, Ghana, Ethiopia, and Zambia, but debt restructurings over more geopolitically significant countries like Argentina and Pakistan could be next.

Why it matters:

According to the Wall Street Journal, Zambia “stands at the center of the power shift” after Beijing lent the country “$4 billion…to build airports and powerplants through Chinese contractors.”

When Zambia defaulted in 2020, the International Monetary Fund (IMF) agreed to a $1.4 billion bailout, contingent on those who had lent Zambia money previously taking a haircut and restructuring the deal.

  • However, the negotiations dragged on for almost two years, with the delay being attributed to “Chinese stubbornness,” writes the WSJ.

  • The disagreements stem from alternative views of how debt restructurings should be handled.

  • Under the old status quo, bond investors often recovered a larger share of their investment, usually at the expense of official creditors; China has reversed that precedent.

Flipping the script: While bond investors are used to backdoor negotiations with Western governments to navigate restructurings using the same playbook, China has, in some cases, approached negotiations in a vacuum.

After Sri Lanka’s recent default, the IMF offered to provide a $3 billion bailout amid a broader restructuring.

  • Although Chinese officials sat in on meetings with other creditors, including officials from Japan, India, and France, China opted to negotiate its own side deals with Sri Lanka’s government to restructure $4 billion worth of debt.

Read more (WSJ)


🍩 Krispy Kreme arrives in France, and Parisians can’t get enough

🌏 Over 190 governments agree on deal to transition away from fossil fuels

📝 A list of terms that captured the popular mood in 2023

🎬 Netflix just pulled a classic Hollywood power move

🥇 Microsoft tops list of best-managed companies in 2023

💬 Is ChatGPT getting “depressed”?

😅 Sports Illustrated CEO fired following scandal over using AI-generated authors

🇦🇷 Argentina Devalues Peso By 54% Amid Economic Struggle

Argentina has been in trouble, so it’s taking drastic measures to boost its crumbling economy. Oh, and it’s trying to mitigate something else: triple-digit inflation.

So, Argentina devalued the peso by 54% while announcing spending cuts to eliminate its primary fiscal deficit in 2024, steps from new President Javier Milei. 

Trying to reboot: Argentina, home to about 45 million people, also cut the number of ministries and reduced other spending while bolstering welfare programs. 

  • The International Monetary Fund (IMF) praised Argentina’s “bold initial actions,” adding that “their decisive implementation will help stabilize the economy and set the basis for more sustainable and private-sector led growth.”

  • On Sunday, Milei warned Argentines that they’ll have to endure “months of pain” as he tries to lift the country from its economic mess. Inflation is running at over 140% annually, and prices could rise another 40% in the coming months.

  • Poverty levels have also spiked in Latin America’s third-largest economy. Milei also commented that if Argentina continues “as we are, we are inevitably headed towards hyperinflation.”

Argentina’s inflation is back in triple digits. Source: Reuters

How it works: By devaluing the peso — making it weaker relative to major currencies globally— Argentina can boost exports, decrease trade deficits, and ultimately (hopefully) mitigate runaway inflation. But in the short term, a currency devaluation is inflationary. 

  • “This is precisely so that we do not have to suffer these consequences anymore, so that we do not have to suffer more inflation, so that we do not have to suffer more poverty,” he said.

  • Another Argentinian leader said the country has an “addition” to fiscal deficits that needs to be corrected immediately to avoid further economic slumps. 

Root of the problem: It’s been a complicated mess in Argentina for years, explaining why Milei has pledged to scrap the peso and replace it with the U.S. dollar. 

  • “We’re always worse off because our response has been to attack the consequences but not the problem,” he said. “What we’ve come to do is the opposite of what they always did, and that’s solve the root problem.”

Why it matters:

Argentina is trying to avoid the hyperinflation (3,000%) of 1990 and its major economic crash in 2001, including skyrocketing unemployment and political and social unrest. 

  • Milei said he has met with top U.S. officials to try to revitalize and dolarize his economy. However, no guarantee transitioning to the U.S. Dollar would single-handedly save the country’s economy. But it could help. And it’d be a start.

“I want you to be aware that we are going to begin the reconstruction of Argentina after more than a hundred years of decline, redrawing the ideas of freedom, although we are going to have to endure a period of hardness, we will move forward,” Milei, an economist, added.


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Do you think Argentina will successfully "dollarize" its economy?

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Yesterday, we asked: As an investor, how worried are you about Middle Eastern conflicts disrupting the global oil market?

— Said one reader, It may be the grey swan that we see and underappreciate / underestimate the risk of happening. Following the Annie Duke approach, I assign a greater than 50% probability it may have a significant impact.

— Another commented, “It worries me from a humanitarian perspective, but even a large spike in oil prices probably wouldn’t meaningfully hurt the companies I invest in.”


44 million. That’s the average number of options contracts that changed hands each day in 2023. That’s the highest rate ever, double from five years ago.

See you next time!

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