The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
Ah, OK... Would you buy it if the paper yielded next to nothing? I see the low in 2y notes was arnd 60bps. We're making a new low in 2y schatz, arnd 70bps. Would you lift them all the way down to 0?
Wow. I go spend the day on the golf course and the world and this thread starts to get interesting again.
My view has been and remains that we are in long-term debt deflation. There are trillions of dollars in debt out there that will never be paid off, never. One trade will work over and over for the next several years, and maybe for a decade or longer - by eurodollars or calls on eurodollars 9-18 months out (I think pros call these the "red" months).
In the last year, massive fiscal and monetary stimulus, plus accounting gimmickry has papered over all of this, led to a stock boom (which reflexively assists the economy), and taken us to the point where I believe the risk in the coming 12 months is that the central bankers believe their own BS and start to jack up interest rates.
In addition to the disruptions caused by rate hike scares (or actual rate hikes), there will be meltdown scares in which near term eurodollars could temporarily decline in value even as markets and economies contract. The best way to not get hurt by this is to concentrate eurodollar purchases in call options 9-18 months out (or by buying the actual underlying when the price is right).
Both the rate hike scares and the meltdown scares will provide excellent entry points for additional purchases of eurodollars and eurodollar calls. The last time I personally made any purchases was around the time of the New Year.
Its kind of a catch-22 right now. Up to this Greece thing, I believe we were headed towards a US rate hike within the next 9 months. The only thing that could upset this rate hike scenario would be some sort of market disruption. Said market disruption also has the chance of blowing out the LIBOR/OIS spread. I believe the blowout in the spread is temporary, but the overload of debt is not, and am thus comfortable holding calls 9-18 months out (I own 99 calls in each contract month from Dec10 to Dec11).
Karl Denninger has compared the PIGS troubles to the failure of Creditanstalt in 1931 - everybody had assumed the worst was past, and then another failure brought another wave of even worse hurt. We'll see ...
http://market-ticker.denninger.net/archives/2271-Does-Anyone-Remember-1931.html
You were a shareholder(like me) in NLY during 2008, so you know how crazy people can get. Remember FNM and FRE spreads over USTs blowing out?It was unjustified in my view, Sec Paulson even hinted the US gov would not bail them out(Q1 2008 IIRC), people got even more crazy, NLY crashed. The whole time I was thinking 'This is ridiculous, of course they will save them'. A similar thing could be happening in the libor market, I dont think there is much of a chance one of the Libor boys is allowed to fail(Unless the sovereign itself is failing) but the market should go crazy as the global gov debt problems continue and they reprice risk
Isnt Greece 2% of EU GDP?If they were able to blow libor this much up, imagine what a Spain debt crisis would do. The crisis might very well continue at full steam during 2011, that wouldn't be good for GE
Isnt Greece 2% of EU GDP?If they were able to blow libor this much up, imagine what a Spain debt crisis would do. The crisis might very well continue at full steam during 2011, that wouldn't be good for GE
The Sep 11 and Dec 11 were lottery tickets, purchased for less than $0.10 (doubled in price since). i expect I will be purchasing Mar12 and Jun12 calls sometime this summer.
i have worried and continue to worry very much about a rate hike. Isn't that what you're supposed to worry about when you're long eurodollars?
edit: this is response to your 8:35 post.
i have worried and continue to worry very much about a rate hike. Isn't that what you're supposed to worry about when you're long eurodollars?
edit: this is response to your 8:35 post.
Even after a nice rally over the past few days, the Jun11 90 day Aussie Bank Bill Futures trade at 94.44 - pricing in another 125 bp of tightening over the next 12-15 months.
Folks, if things get bad again, these things could be trading for a 99 handle this time next year. That's a lot of upside and possibly very little or no downside.
Folks, if things get bad again, these things could be trading for a 99 handle this time next year. That's a lot of upside and possibly very little or no downside.