The Credit Crisis Financial Stocks Short Journal

Its looking like the top again but ES didnt broke even the 40MA. The smart money is very fast to close out easy $ chances, VIX hit 28, up 10%(Lots of hedge funds must be pilling into options). By the time it reaches the 50MA it should be at 33, thats the dilemma, you can get in now and risk get green shooted in the face but with good odds or wait get poorer odds but with more technical safety
 
I agree with most of what you are saying. However looking at this Bloomberg chart (it's the best I could find quickly):

http://www.bloomberg.com/apps/quote?ticker=.LOIS3:IND

the 3-month LIBOR-OIS spread was still as high as 100 bps as recent as April 2009.

In any case I think it just boils down to the fact that you're happy to take this risk, whereas I'm far more reluctant. If and when you make (more) money on the calls you'll definitely deserve it.

Meanwhile I'm still thinking about the merits of Fed Funds Futures / 13-week T-Bills / 3 month OIS / 2-year T Bonds / maybe a short term UK govt interest rate instrument.


Quote from Daal:

My thinking is, by Dec 2010 the financial crisis is likely to be over. So the Libor-OIS(the expected 3m Fed Funds Rate, I rather use this as fed funds trades at a premium to govs too) spread will be around 11bps, which was the avg leading up to 2007
4-1 odds on the calls looks good, plus I'm long fat tail of negative rates. After today they almost doubled but if I'm right, this party is just getting started
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Quote from Daal:

Lets remember that during Jan and Mar where the world thought every bank was insolvent and C debt was yielding 25% YTM, libor blew up by only 25bps, which reversed as the manipulations(like the stress test) kicked in. So my eurodollar trade already has a buffer of protection against the case the financial crisis is not over by then or that bank fears come back(Which they probably will) and dont leave the system
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Olivier Blanchard from the IMF

"Q:One of your predecessors as chief economist at the IMF, Michael Mussa, predicts a strong recovery, saying there is a rule of thumb that sharp recession are followed by sharp recoveries. But the IMF report doesn’t discuss that theory? Why?

Blanchard: With all due respect to my predecessor, I have no clue where this rule of thumb comes from. The general proposition that when things go down then they go up is hard to disagree with, but that doesn’t seem to settle the case. We have studies of recoveries after banking crises and on average the recovery is slow. Bank credit acts as a brake. Based on historical evidence the case is fairly strong the recovery will be weak."

Looks like Jim Grant might have to file for jobless claims pretty soon
 
"The slowing in core prices is more of a concern, said Michael Feroli, an economist at JPMorgan. The core rate fell following three prior recessions in which unemployment rose above 7 percent. That “suggests that core inflation could well be below zero within two years,” Feroli said in an interview.

Core CPI fell 5.3 percent following the recession of 1973- 1975, 10.7 percent following the recession of 1981-1982 and 3 percent following the recession of 1990-1991."

http://www.bloomberg.com/apps/news?pid=20601068&sid=ame31IjWda6w

Core CPI went from 2.75% to 1.15% yoy during the 2000-2004 cycle
 
Geithner QE began this week. $34B worth of UST bills purchases(through reting debt)

U.S. Treasury, supplementary financing account 164,945 -34,987 week over week

Morgan Stanley strategists said this is keeping upward pressure on T-bills. This in turn might be the reason the fed funds rate is trading so low
 
So I like the bet that the Fed will only raise rates by about 1-2 years after banks start to net loosen credit standards. The stock market looks headed to a 20-30% correction as economic pessimism takes over. I'm still short COF ACC CAL PPD(although I had to cut back some as they rallied), long XLF puts(staging a comeback after yesterday), ZQ futures, E$ calls, long ACTS and a bit of VLO. Will add more XLF puts if ES breaks a bit lower. I'm up a little less than 20% YTD and if things go according to the plan, it looks like the year end could be strong
 
ES broke 50MA in the pre-open trading here. July NFP was revised quite lower. The fed hawkish brigade couldn't have timed their bluffs any worse


"U.S. Sept. average workweek falls to 33 hours" - This is supposed to be a labor leading indicator
 
Today is the day, depending if the selloff holds till the open I will buy more XLF puts here. Today could easly be one of those trend days where the market gets hammered all day long. VIX should open quite high too.
 
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