The Credit Crisis Financial Stocks Short Journal

Quote from ralph00:

I follow (but do not own) the Aug FF futures. It fell 22 points over a period of a few days between Thansgiving and the NFP report. I'm not sure why you would want to own something w/a max 20 point upside that could fall by 22 points in a manner of days, and has a total downside of 5 times that amount.

If that 22 point decline didn't seriously sting you, then the position size you have is so small that you shouldn't even be discussing the trade.

The options trade is an excellent one because you can limit your downside and can make multiples of your money on the upside. The FF trade not so much and the move between Thanksgiving and NFP proves it.
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I trade based on expectancy not on maximazing my emotional return. I'm ready for a 40bps decline, it will hurt but so what

The reason I like the FF trade is
-its highly likely to be a winner(due the facts I listed) while still having positive expectation
-there are no libor issues
-historically it has worked

"Its better to make a bumpy 15% than a smooth 12%"
 
No problem with any of that. I'll reiterate that I don't believe you have a significant position in this. Otherwise, there is no way you could easily sit w/a 40 point loss (that could quickly become a 100 point loss) on a position that at most can gain 20 points.
 
Quote from ralph00:

No problem with any of that. I'll reiterate that I don't believe you have a significant position in this. Otherwise, there is no way you could easily sit w/a 40 point loss (that could quickly become a 100 point loss) on a position that at most can gain 20 points.
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If they expire at 99.87 I will make about 6-7% of my networth there. Now you tell me if you consider that significant. Furthermore I roll over to other months as time goes on(untill I get hawkish and stop) so the final gains from here will be higher
And yes I'm prepared to see a drawdown of double that, even though I believe that is highly unlikely.

You seem like a guy who is afraid of putting a lot of money all-in with pocket aces. If my analysis is right the ZQ trade is a total nobrainer
 
From Rosenberg
"Chart 4 depicts total U.S. bank credit. In the third quarter, it contracted at a record $1 trillion at an annual rate (over 9.0% decline — also a record).
The banks have left the business of lending — loans to companies fell $282 billion at an annual rate in Q3) and have moved to issue their own debt — total corporate bond issuance in Q3 came to +$262 billion. A near-perfect offset."

There is also the TALF which is helping a bit.
So it appears that the MS theory is playing out, market provided liquidity is offsetting zombie banking. But there are some differences in this type of credit
-It doesnt increase M2(so its not as inflationary)
-It can go away at any time
-It doesnt help small business and the little guy

Therefore its not as hawkish for fed policy but it might be more supportive for next year S&P500 earnings
 
Maybe the poker analogy is not the right one for ZQ. But to me it does resemble running a roulette business. In this case my worst possible loss is 50% of my networth, capped by the fact that I trade through a corporation using leverage. The max realistic drawdown should be 10%, in the very unlikely outcome the bet is off

I guess you are not into low risk profits
 
Rosenberg
"The U.S. producer price index (PPI) offered up a huge upside surprise today — the headline came in at +1.8% (market was at +0.9% MoM) and the core (excluding the effects of food and energy) was +0.6% (market was at +0.2% MoM). The story was almost exclusively in light trucks where prices soared 4.2% — outside of that, the core PPI was a tame +0.2%. Remember that light truck prices sank 5.2% in October and that was the only reason why the core PPI was down 0.6% that month.
Best to look at the broad trends — total PPI negative 0.7% at an annual rate on a three-month basis, +0.7% on a six-month basis, and +1.2% on a YoY basis. Not much of an inflation story here, to tell you the truth."

So, a lot of this decline in the front end is unjustified, so much for efficient markets
 
I don't necessarily think the front end was moving due to PPI...

Moreover, be careful what you wish for. If we had efficient mkts, you and I would have nothing to do.

Finally, I'd be careful about listening to Rosenberg. He's been saying the same thing forever, which suggests to me that he's very entrenched in his views. Moreover, he seems to agree with your views and your position. Personally, whenever I have a trade on, I ALWAYS want to talk to people who disagree with me.
 
Quote from Martinghoul:

I don't necessarily think the front end was moving due to PPI...

Moreover, be careful what you wish for. If we had efficient mkts, you and I would have nothing to do.

Finally, I'd be careful about listening to Rosenberg. He's been saying the same thing forever, which suggests to me that he's very entrenched in his views. Moreover, he seems to agree with your views and your position. Personally, whenever I have a trade on, I ALWAYS want to talk to people who disagree with me.
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I heard the best arguments against the front end trade and the most persuasive is the one that inflation expectations will explode due the size of the balance sheet and skepticism over the fed ability to exit. But I happen to believe the fed will just do a bunch of reverse repos and decrease the money base in that case, also talk hawkish.
So far the evidence for a V shaped recovery has been lacking, the Empire Mfg Report today showed just that. Services ISM also pretty weak
 
On the margin, as I have mentioned, I agree with your fundamental view, although I think it's a very very crowded trade, which is why I ain't in it...

However, I really have begun finding Rosenberg really annoying of late. I think he's very biased and can't admit when he's wrong. I find his view of the world unrealistic and too bearish. He truly sounds like a broken record and it's really grating. Just my opinion...
 
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