hedge the fed

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traderlux

I am getting concerned about the fomc supposed rate increase. first the current rate is not zero as everyone seems to think. it is "0 to .25%". the effective rate is .12%.
you can go to the fed web site at .gov and check this stuff out for yourself, read thru the actual minutes and reports and you will see it aint as simple as the guy on cnbc makes it out to be.
if they do raise, it most likely will be a rate of ".25 to .50%", I think when people hear this .5% number, confusion will reign.
of course I am just cooking cheeseburgers here and it could be no big deal. time will tell.
I saw a detailed report of all the variable rate credit world wide affected by the fed related rate. it was stunning.
the fed also does reverse repos when they are trying to get rates to move up, I think stocks are in for some downward pressure.
 
"Waiting for Godot and Godot never shows up"

I have decided that everybody is so tired of the endless on again/off again rate hike that all anticipation is already built into the market...and then out of the market and then into the market... so where are we now? Wer Weiss.

I had been holding off waiting for the rate hike and gave up. Now I've decided that I'll just go about my business ignoring Janet Yellen & co and just deal with whatever happens whenever it happens.
 
traderlux said:
First the current rate is not zero as everyone seems to think. it is "0 to .25%". the effective rate is .12%.
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yeah, i'm on the fence as to the math on this one as well, i traded fed funds futures since the product was released, and the fed toolbox "probability" shows 80% because traders are not up for speculating on 37.5 vs 50bps.

However its hard to imagine Yellen would not want a round number, vs rates going up in increments of 1/8ths (1/8th, 3/8th, 5/8th). That would be kind of "odd" vs historical and for no reason in particular other than they did not want rates at zero on the dot. But these have been strange times indeed and what is left of those who play fed funds anymore are prob not looking to make a bet on a number that will be arbitrary from a fed president that has never raised rates.

My math: 37.5bps would mean price would move down to 99.74 vs current 99.78, so there is a little slippage that the actual daily effective rate may take a week to get to target. Its almost a 100% bet, there are only a few ticks of juice.

A full 50bps would be 99.67 vs vs current 99.78 - and that short has 11 ticks give or take.

So basically the market has until now been thinking exactly what you are thinking. Personally, i think its 100% at 37.5 and therefore risk / reward is still positive for short.

EDIT: I just did the math on Jan Fed Funds and it looks like there is also 5 ticks of profit (or slippage on the effective rate) - which is also basically 100%-ish of yellen moving to 37.5bps with no move @ late Jan meeting. Shorting the Jan contract may be a better bet because it removes noise from the cash market on a fresh rate and any year end liquidity positioning.
 
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oldnemesis said:
"Waiting for Godot and Godot never shows up"

I have decided that everybody is so tired of the endless on again/off again rate hike that all anticipation is already built into the market...and then out of the market and then into the market... so where are we now? Wer Weiss.

I had been holding off waiting for the rate hike and gave up. Now I've decided that I'll just go about my business ignoring Janet Yellen & co and just deal with whatever happens whenever it happens.
More...



I hear ya. I've been adjusting the standard positions I would normally have taken for months now, but it's just exhausting (and not very profitable)

I'm not gonna quit yet though, I'll give it one more shot. I'm currently all but out of the markets (just a few Iron Condors on) just waiting this last week.

If it's yet another bust, I'll be right with ya. Ignore them and do the trades I normally would. I'm tired of this #%@#.
 
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