I call this a short massacre...
Short DAX at 7740
- Thread starter ASusilovic
- Start date
as expected spreads for Portugal and Spain over bund are tightening by 30 bps but the bund is selling off so net net the borrowing cost is not going down that much.
Today is a one-off effect bound to disappear over the next few days.
Now that there is a fund in place, maybe let's test it
Today is a one-off effect bound to disappear over the next few days.
Now that there is a fund in place, maybe let's test it
I am exiting my profitable 6000.00 calls for some more 5800.00 protection...
santander up 17% now, the IBEX is up 10%.
oh boy these HF shorties betting on the collapse of spain and portugal are having rough ride. over the weekend, the portuguese PM announced additional budget cuts which will put the deficit in line with the rest of the EU countries very soon. no wonder those CDS are crashing pretty hard.
oh boy these HF shorties betting on the collapse of spain and portugal are having rough ride. over the weekend, the portuguese PM announced additional budget cuts which will put the deficit in line with the rest of the EU countries very soon. no wonder those CDS are crashing pretty hard.
Comments from London :
Market reaction has been predictable, a short squeeze in peripheral Euro, corporate emerging and high yield credit, a sharp rally in 'risk' currencies, be that peripheral EU (PLN, RON, HUF), Commodity (AUD, CAD) or Developing (MXN, BRL, KRW, THB), and an almighty wallop for Bunds, Treasuries, though a rather less marked sell-off in Gilts, and of course Equities have gone off to the races. But this is standard short-term rough and tumble, and the more enduring aspect is likely to be a more sustained level of volatility, despite the extra liquidity that is being pumped in.
But there are still lots of unresolved issues:
a) Perhaps the most important point is encapsulated in a 1950s German saying:
"Wer soll das bezhalen?" or who goes to pay for this? After all, this is just another extension of transferring risk onto the public sector/govts/international agencies at a very large long-term cost. It should be added that this is not just a question for the Eurozone, or for the currently government-less UK, but across the heavily indebted countries of the world (yes that means you, Uncle Sam). In other words this is just another example of a short-term, leveraged solution, that merely adds to the burden of future problems.
b) If the EU/Eurozone can re-write its rule book in just a couple of hours, admittedly after dallying like rabbits in front of the headlights for many months, then surely there needs to be a lot more in the way of absolute risk priced into govt bond yields, and incrementally across the curve?
c) In conjunction with a), working off this exponential rise in the debt burden of the developed world will take even longer, impairing the long-term growth potential of all these economies. If, and the jury is still very much out on this subject, the developing world (primarily Asia and LatAm) has a sufficient internal growth dynamic, i.e. trade between these countries can continue to rise rapidly, thus replacing the slide in demand from the developed world, and continue to foster the very gradual improvement in living standards in the most populous parts of the world, then demand for primary, raw and food materials will continue to exercise upward pressure on prices, making a revaluation of the developing world currencies ever more inevitable, and by extension a devaluation of developed world currencies, with the inevitable conclusion that inflation pressures in the latter will rise. (By the way this is precisely how inflation is possible in a 'depression' like economic environment).
Strategically, this would continue to favour commodities, corporate credits with strong balance sheets (which look increasingly like better credits than much western govt debt) and indeed developing world govt debt, above all foreign currency denominated, though also domestic debt where there is some semblance of liquidity and a reasonably liquid FX market (Poland, Czech Rep., Mexico, Korea spring to mind immediately). Govt debt in the G7 looks likely to be a sell on rallies, even though demand for shorter-dated index-linked debt may be quite strong, and curves in these countries will surely remain steep.
Market reaction has been predictable, a short squeeze in peripheral Euro, corporate emerging and high yield credit, a sharp rally in 'risk' currencies, be that peripheral EU (PLN, RON, HUF), Commodity (AUD, CAD) or Developing (MXN, BRL, KRW, THB), and an almighty wallop for Bunds, Treasuries, though a rather less marked sell-off in Gilts, and of course Equities have gone off to the races. But this is standard short-term rough and tumble, and the more enduring aspect is likely to be a more sustained level of volatility, despite the extra liquidity that is being pumped in.
But there are still lots of unresolved issues:
a) Perhaps the most important point is encapsulated in a 1950s German saying:
"Wer soll das bezhalen?" or who goes to pay for this? After all, this is just another extension of transferring risk onto the public sector/govts/international agencies at a very large long-term cost. It should be added that this is not just a question for the Eurozone, or for the currently government-less UK, but across the heavily indebted countries of the world (yes that means you, Uncle Sam). In other words this is just another example of a short-term, leveraged solution, that merely adds to the burden of future problems.
b) If the EU/Eurozone can re-write its rule book in just a couple of hours, admittedly after dallying like rabbits in front of the headlights for many months, then surely there needs to be a lot more in the way of absolute risk priced into govt bond yields, and incrementally across the curve?
c) In conjunction with a), working off this exponential rise in the debt burden of the developed world will take even longer, impairing the long-term growth potential of all these economies. If, and the jury is still very much out on this subject, the developing world (primarily Asia and LatAm) has a sufficient internal growth dynamic, i.e. trade between these countries can continue to rise rapidly, thus replacing the slide in demand from the developed world, and continue to foster the very gradual improvement in living standards in the most populous parts of the world, then demand for primary, raw and food materials will continue to exercise upward pressure on prices, making a revaluation of the developing world currencies ever more inevitable, and by extension a devaluation of developed world currencies, with the inevitable conclusion that inflation pressures in the latter will rise. (By the way this is precisely how inflation is possible in a 'depression' like economic environment).
Strategically, this would continue to favour commodities, corporate credits with strong balance sheets (which look increasingly like better credits than much western govt debt) and indeed developing world govt debt, above all foreign currency denominated, though also domestic debt where there is some semblance of liquidity and a reasonably liquid FX market (Poland, Czech Rep., Mexico, Korea spring to mind immediately). Govt debt in the G7 looks likely to be a sell on rallies, even though demand for shorter-dated index-linked debt may be quite strong, and curves in these countries will surely remain steep.
Quote from Alexandre:
I wonder who got screwed out of this
will the shorts be squeezed to such an extent as to produce the next leg up that will bring ES to 1350?
If you compare earnings yields to 10 government yields ( that's more conservatice than to compare it to 3month LIBOR ), you have a situation of massively cheap stocks out there....