The Credit Crisis Financial Stocks Short Journal

From June 2009 letter:

Over the last couple of weeks we began purchasing out of the money call options on the current 30 year US Treasury bond. Do not be too concerned, we have only used about 20 basis points of the Fund’s NAV on such option premium so far. However it is our intention to add to this amount should the elevated levels of fixed income volatility subside. Given the capacity of this market to thrash around from extremes, it is not unrealistic to imagine that yields could match their lows of just six months ago. Should this happen before the year end, our options would payout 14 times our investment.

Similar asymmetric payouts are achievable in the short sterling interest rate market where investors are pricing in a 2pc hike in Bank of England base rate by the end of 2010. This is eerily like this time last year when they were expecting a 2pc hike for the second half of the year. If this time around the market again reverses its opinion by December, and takes the view that this is unlikely to happen, then our option package could payout over 10 times our money.
 
Yellen on slow growth
http://www.zerohedge.com/article/janet-yellens-optimism-waning

-Mentions Rogoff study for why she thinks growth will be weak
-Mentions weak income growth hurting consumer spending(This is an instance where the unemployment rate will be a leading indicator as the slack in labor pressures incomes)
-Says if losses by banks come back this could add new fuel to the credit crunch
-Says economy has substantial amount of slack
 
"Federal Reserve Bank of Dallas President Richard Fisher said the Fed has seen an increase in the number of items that are falling in price compared with rising" - WSJ

"The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc. " - Telegraph

Yet a few hawks are saying 'maybe we wont buy all mortgages we said we will', this is a bluff, like it was all the inflation hawkish talk all the way from 5.25% to 2%
The fed will very likely keep creating monetary base and hope some of that will be turned in to M2 by the banks. Clearly their current purchase program is not enough as M2 is barely up in a 6mo basis, the seem to be too much in green shoots mode right now. Perhaps the core CPI will bring them back to reality
 
Quote from m22au:

Some recent Hugh Hendry letters mention buying calls on interest rate futures:

http://greenlightadvisor.com/glablog/2009/08/27/hugh-hendry-investment-outlook-august-2009/

http://greenlightadvisor.com/glablog/wp-content/uploads/2009/08/eclectica-0809.pdf

http://greenlightadvisor.com/glablog/2009/06/18/hugh-hendry-june-2009-letter/
More...

Thank you for posting these.
It seems pretty clear to me its almost free money to pile in the front end in a levered way to take advantage of this descrepancy between actual tightening probability and 'V shaped, green shoot, excess historical term risk premium' implicit probability
And I'm seeing some of the smart money people doing the same like Pimco, Hendry and I would be shocked if the folks at Clarium dont have that trade on
 
Daal, if I may ask you a question...

I remember reading your interesting topic a few weeks ago in which you commented common sence would suggest taking profit on the precious metals rally so you were of the opinion a contrarian point of view was well in order and rightfully so given golds performance as of late.

I'd be interested in your opinion today on gold and the dollar both short and longterm which ever you have any opinion about.

Cheers.
 
Quote from Debaser82:

Daal, if I may ask you a question...

I remember reading your interesting topic a few weeks ago in which you commented common sence would suggest taking profit on the precious metals rally so you were of the opinion a contrarian point of view was well in order and rightfully so given golds performance as of late.

I'd be interested in your opinion today on gold and the dollar both short and longterm which ever you have any opinion about.

Cheers.
More...

I like gold as a long I believe the Fed will stay loose and do more QE. The market seems to think the Fed is close to exiting everything and maybe hiking rates. I'm of the opinion they will stay low for longer and will increase their purchase programs in order to try to combat deflation(essentially trying to prop up M2 by printing monetary base)

Since the market will be surprised when they announce this(And I dont know when this will happen) this should be worth maybe a $50-75 pop in gold plus all the momentum

I know everyone doesnt like Greenspan but he was a central banker so its worth paying attention to. he made some comments lately that seem to suggest that inflation could come sooner than people think. He actually is only 'dead sure' there wont be inflation in the next 6 months while I'm making a call the fed will get looser because I see disinflation/maybe deflation for the next 10 months and probably more.

You must be confused that I'm mentioning disinflation as bullish for gold but thats the way I'm reading the gold market now. Inflation expectations are not getting out of line http://www.bloomberg.com/apps/quote?ticker=USGGBE10:IND
so this move seems to be a run from currencies, fears of devaluation and some kind of future inflation rather than imminent inflation. By reading bernanke's book you get a sense that the man will drive gold higher and higher the more the core CPI falls
 
As far as the dollar goes it seems to do just the opposite of the stock market so since I'm bearish on the market, the dollar might rise soon. The soon part is the tricky one as this rally is on the mometum bubbly phase where everyone goes mental and the game can keep going for a while(like oil last year)

A rally would pressure gold but gold had a lot thrown at it and it kept holding at around $900 no matter what

It seems that the history for the next 6-10 months will be
Lower stock prices/HigherVIX + Higher USD + More disinflation in core CPI + Pressure in Gold prices(due dollar) + worst bank performance(this could support gold) leading to easier Fed through more QE(although they will probably lag the events)

I'm reluctant to buy the dollar, I might as well short equities. And they havent shown significant technical weakness for me to buy more XLF puts
 
You must log in or register to reply here.
Back
Top