The Credit Crisis Financial Stocks Short Journal

Quote from m22au:


Your interest rate trade sounds interesting and I will do some further reading of your journal to gain a better understanding. My knowledge of equities, currencies and commodities is better than that of interest rates.
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Heres another argument for the Fed to stay low for longer(I might have listed more than 10 arguments so far)
http://www.zerohedge.com/article/full-blown-deflationary-episode-coming

Deflation taking over already. IIRC inflation rates tend to fall in the first year of recoveries(it lags, I believe Don Kohn or someone from the fed mentioned this statistic)). When the recovery comes core CPI will probably be so close to 0% the fed wouldn't have the guts to raise rates and risk a Japanese spiral
 
The dove argument would be 'Since inflation tends to fall during first year of recovery its one thing to have a recovery with CPI at 3% and core CPI at 2.5%, its another with CPI negative and core CPI almost negative, the fed might have to for a significant uptick in yoy inflation before doing a hike, this could be in 2012'
 
Thanks for the update.

I think the simplest reason is that (like Greenspan) Bernanke is a serial bubble blower, and will always be quick to cut rates, and slow to raise them.

The hard part is probably working out the risk / reward of any related interest rate trade, but for what it's worth, I find it hard to believe there will be any increases in Fed Funds before 2011.

Quote from Daal:

Heres another argument for the Fed to stay low for longer(I might have listed more than 10 arguments so far)
http://www.zerohedge.com/article/full-blown-deflationary-episode-coming

Deflation taking over already. IIRC inflation rates tend to fall in the first year of recoveries(it lags, I believe Don Kohn or someone from the fed mentioned this statistic)). When the recovery comes core CPI will probably be so close to 0% the fed wouldn't have the guts to raise rates and risk a Japanese spiral
More...
 
Interesting action on gold
big.chart


Whats surprising is that commodities have been weak, oil is almost breaking a support level. The fed has not given any major dovish statement, if anything they are pulling back on UST QE. The american dollar has been quite weak but it really hasnt plunged much since June. Inflation expectations has been declining
http://www.bloomberg.com/apps/quote?ticker=USGGBE10:IND
Silver is strong too
Seems weird for gold to try to test $1k for no reason
 
I agree it's unusual. However as I posted in another thread (http://www.elitetrader.com/vb/showthread.php?s=&threadid=149682&perpage=6&pagenumber=23), technically it looks like the breakout of an 18 month cup-with-handle formation.

The move will look even stronger if and when it goes over 990 USD.


Quote from Daal:

Interesting action on gold


Whats surprising is that commodities have been weak, oil is almost breaking a support level. The fed has not given any major dovish statement, if anything they are pulling back on UST QE. The american dollar has been quite weak but it really hasnt plunged much since June. Inflation expectations has been declining
http://www.bloomberg.com/apps/quote?ticker=USGGBE10:IND
Silver is strong too
Seems weird for gold to try to test $1k for no reason
More...
 
Quote from m22au:

I agree it's unusual. However as I posted in another thread (http://www.elitetrader.com/vb/showthread.php?s=&threadid=149682&perpage=6&pagenumber=23), technically it looks like the breakout of an 18 month cup-with-handle formation.
More...

I remember reading on market wizards that Bruce Kovner thinks its an even stronger signal when a technical breakout happens for 'no reason'. "If everybody believes there is no reason for corn to breakout and it suddently does the chances that there is an important underlying cause are much greater" "the more price is observed by speculators the more prone you are to false signals"
 
Well I can rattle off a list of reasons why, however whether or not I am correct in my analysis might only be known in the months and years to come:

1. Gold has a longer history as money than fiat currencies, including but not limited to the "US Dollar"

2. Large amount of US government debt that can probably only be repaid by being printed away (which has started to happen)

3. Deflationary argument: gold is a currency that is not someone else's debt.

wow @ 981 "US Dollars" on December futures and closing near the high of the day.

Extra loud wow if it breaks 990 in the next week or so, and a really loud wow if it breaks 1000.


Quote from Daal:

I remember reading on market wizards that Bruce Kovner thinks its an even stronger signal when a technical breakout happens for 'no reason'. "If everybody believes there is no reason for corn to breakout and it suddently does the chances that there is an important underlying cause are much greater" "the more price is observed by speculators the more prone you are to false signals"
More...
 
Gross makes a surprising comment on CNBC
-30y bond might be a buy, we are considering it as the US economy could pull a double dip in 2010
-US economy ex-government is lousy(its probably still in a strong recession), this means fiscal/monetary support not going away anytime soon

http://www.cnbc.com/id/15840232?video=1237349639&play=1

Gross is a smart man, he has been beating his benchmark for a long time. I dont always agree with his firm(Heck Paul Mcculey didnt even think there were going to be a recession!) but he is usually ahead of the curve. Says doesnt like junk bonds or risk assets at these levels too
 
This is the thing that really annoys me - if it weren't for the various forms of fiscal interference ("stimulus"), the US economy would be in a more severe recession / depression.

However I am resigned to the fact that with government interference, it is possible for GDP growth to be positive.

2008 was a great year for me, because the significant government interference (eg TARP) only started in the last 3-4 months of the year, and only started to have an effect in late 2008 and early 2009.

This year, however, it's been hard to know just how far equities can go (witness the recent crazy action in FNM / FRE / AIG / CIT / LEHMQ / WAMUQ / ABK / ETFC) because of the various govt stimuli and backstops for financial companies.


Quote from Daal:


-US economy ex-government is lousy(its probably still in a strong recession), this means fiscal/monetary support not going away anytime soon
More...
 
Quote from m22au:


2008 was a great year for me, because the significant government interference (eg TARP) only started in the last 3-4 months of the year, and only started to have an effect in late 2008 and early 2009.
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Gross says this is the new normal, in order to do 'macro analysis' you will need to predict what the government will do because they controlling a bigger share of market outcomes(even more in the future). This is why I need to buy Robert Rubin and Hank Paulson's book, so I can understand better their roles and the US government(Already read Greenspan's and Bernanke's). Maybe I need read Clinton's too, I dont know.

I'm also 'shaking hands' with the government by being long eurodollar calls(dec 2010 99.00), they are up almost 50% so far, I'm gunning for 300%(and 3000% if US goes to negative rates like Sweden and maybe the UK). If I reach that it will be my best trade(risking 10% of my networth there). Predicting government policy and 'shaking hands' will probably be a cash cow in the next few years
 
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