🔴How to Trade Fed Rates Falling to Zero with Eurodollars (w/AK)

When a hedge fund legend tells you how he’s planning to make money, it pays to listen up. And in a recent interview on Real Vision, John Burbank, CEO of Passport Capital, told Alex Gurevich of HonTe Investments that’s he’s playing the eurodollars market by using options. So what does that actually mean, and how can others can involved in the trade? AK breaks it down.

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AK brings a fresh spin to the world of finance. Often pulling from Real Vision content, each week, he dishes on what recent event or insight rises to the level of being "the one thing" that matters.

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Fed Rates Falling to Zero & a Fistful of Eurodollars (w/AK)
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Transcript:
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AK: It's not every day that you get a hedge fund legend like John Burbank telling you how he's about to make a bunch of money. But that's exactly what he did with Real Vision when he sat down for an hour-long interview where he discussed his highest conviction trade right now. And some of you, after watching that, wanted to know more like, what's the vehicle that he's using to put that trade on? And how you can do the same thing? And also what is a euro/dollar anyway? So we're going to go over all that and more in this week's episode of Real Vision's The One Thing. What's going on, investors? AK here. Every big trade starts out with the assumption that somebody else is wrong. Because if everybody was right, then the markets would be efficient, and you throw your money into an index fund and just walk away. So what does Burbank think that people are getting wrong? He says that interest rates are going to go way lower than everyone's expecting.
JOHN BURBANK: Them rates market generally is saying most of the rate cuts are going to happen by June, in the next year. But I think the ending rate is way too low. There're not enough people who believe this. Although it's only been the last couple months that the exposure to euro/dollars is positive. There's really no reason to believe in lower rates in a hiking cycle. And it was only until the middle of last year, people are believing higher rates. So this is a huge shift in forward expectations as evidenced by rates
markets. And the question is, is it going to go all the way to zero or not? And if you remember, 2000, or 2007 or 2008, you just don't say, oh, yeah, it's at zero. No, it's like a day by day, month by month valuation process until you get to a bottom and usually, the bottom is way farther than anyone expected.
AK: So basically, Burbank thinks that the Fed will do more cuts and quicker than what people are expecting. And to bet on it, he's using euro/dollar futures. Euro/dollars track the prevailing interest rate on US dollars outside of the US banking system. It's a rate that you might know better as Libor. And while euro/dollars might not be a household name, they're the most widely traded futures contract on the CME. Listen to euro/dollar expert Jeff Snyder talk about it.
JEFF SNYDER: Well, euro/dollar futures pertain to future expectations for where 3-Month Libor will be. Libor is a London interbank offered rate, which applies to claims on dollars that will be on some bank account balance sheet at some point in the future. So the price of a euro dollar future tells us what the market expects 3-Month Libor to be at that point in the future. And so, it tells us a little bit something about how the market perceives not just current conditions, but what the Federal Reserve thinks about current conditions. Because remember, monetary policy, especially at the very short end, has a very large effect on to where short money rates are going to be in the future. So it's a combination of very key factors that tells us a lot about current perceptions of the intermediate and even the longer term future.