The Credit Crisis Financial Stocks Short Journal

Quote from Daal:

Yellen said to be top choice for fed vice-chairman choice
http://www.bloomberg.com/apps/news?pid=20601068&sid=aKyXWYGlO.SA

Front not moving on this but to me its quite big, it would mean a dovish chairman and a very dovish vice chair. As some ex-FOMC voters say 'its hard to vote against the chairman, even when you disagree', in this case it would be a triple whammy as the chair, vice-chair and NY fed chair are all dovish and quite concerned about withdrawing stimulus early/deflation
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This was expected. The only way the front end would have moved would have been if some hawkish person from outside the Fed were chosen. They could have appointed the head of the Zimbabwe central bank and it would not have helped the front end.

We're going through an extraordinary period. Equities haven't had a down day in March and have had like 4 down days over the past 5 weeks. Some moves in individual stocks have been enormous. Volatility has collapsed.

The BO administration has gamed the economy perfectly for the 2010 elections. Between census hiring and $200 billion of stimulus being pumped out, I expect outstanding numbers over the next quarter or two.

We are creating Mexican style bubble conditions. How many times over the past decades have corrupt Mexican governments jacked up the economy before elections, and then let everything collapse once voted back into office. This is what is happening here.

Purchased VXX at the close yesterday.
 
Front end tanking a bit here, if it doesnt go anywhere till the NFP then drops on the mother of all NFPs I might very well increase my size there significantly. This could turn out to be the opportunity of the year, specially if it looks like libor-OIS will not blow out
 
There isn't any question that the NFPs are going to print very positive over the next 2 or 3 months. I believe the action we have seen over the past 2 weeks has begun to discount this. So yes, if you believe that the short end stays at 0 over the coming 12 months, you will get a chance to buy. Not yet sure if that chance comes in April, May, or June.

The language from Fed meetings may change this summer, but the Yellen appointment probably means there will be no rate hike before the election. From taking over out-of-favor industries, to showering riches on the politically powerful, to rebuking the Supreme Court at the State of the Union, to pumping the economy before the election - the US has become Latin America. The only thing missing is a President who dresses in army fatigues.
 
http://www.bloomberg.com/apps/news?pid=20601010&sid=acEUHvJAx0VY

Money Rates Rising Hint Treasury Losses Amid Fed Exit

March 15 (Bloomberg) -- Money market interest rates at five-month highs show the Federal Reserve is laying the groundwork to siphon a record $1 trillion in excess cash from the banking system and sending a bearish signal on Treasuries.

Overnight federal funds rates rose to the highest since September and the cost to dealers to borrow and lend U.S. securities for one day more than doubled in the past month. Three-month Treasury bill rates rose last week to the highest since August.

The rise is a sign traders are preparing for tighter monetary policy as stimulus measures end. In the three months before the Fed started raising borrowing costs in June 2004, 10- year Treasury yields rose about 0.75 percentage point as bond prices fell. While higher rates mean increased borrowing costs for President Barack Obama, they also show growing confidence that the economic recovery is gaining traction.

“The Fed is definitely getting its ducks in a row,” said Mark MacQueen, a partner at Austin, Texas-based Sage Advisory Services Ltd., which oversees $7.5 billion. “There is no doubt that in the early phases of the Fed’s plan, the Treasury market could suffer.” ....
 
It would be a surprise to see a surprise in today's FOMC statement

http://www.bloomberg.com/apps/news?pid=20601087&sid=azf48OQdJvyw&pos=2

"“If you think the unemployment rate is going to be above 9 percent and inflation around 1 percent at the end of this year, I don’t think you should have any expectation” of a rate increase by the end of 2010, he says. "

I agree with this guy, the mainstream economists have a quite different view, where resource utilization stays low, inflation pressures stays low and yet the fed raises rates. Thats 2 of the 3 criterias the fed promised to look at before a hike. Inflation expectations might or might not go up, but who is to stay that the fed will not allow IE to stay high for some time while they wait for it to transfer to actual price increases breaking the disinflation/deflation spiral?
 
Back in Jun 2008 during the commodity boom some measures of IE got quite out of line(in particular the Uni of Michigan survey), yet the fed though the financial crisis was more important and kept easy money in.

The hike forecasters are not only betting that inflation expectations will go up some more, but that it will make the fed move right away. Greenlaw in particular seem to hold a crazy view that the fed hikes in Q3(he mentioned september in particular). The chance that the fed stays on hold with the 10y breakeven at 3-4% is certainly not 0%, in particular during a time of little or no inflation and 1937 paranoias
 
What if you don't believe that the headline UE number stays above 9. I believe it will be below 9 on one of the summer prints for a few reasons ...

1. Census hiring will bring job gains of several hundred thousand each month for the next 3 months.

2. Like it or not, the rest of the economy is actually churning along decently right now.

3. To a small extent, the UE rate can be made to be whatever the BLS wants it to be. Its a key election year and I believe the evidence that the BLS has been compromised politically.

What this means for 2011 is a different story, but anybody long bonds (either end) shouldn't expect any help from unemployment (or the stock market which is behaving as though the computers have completely taken over).
 
Quote from ralph00:

What if you don't believe that the headline UE number stays above 9. I believe it will be below 9 on one of the summer prints for a few reasons ...

1. Census hiring will bring job gains of several hundred thousand each month for the next 3 months.

2. Like it or not, the rest of the economy is actually churning along decently right now.

3. To a small extent, the UE rate can be made to be whatever the BLS wants it to be. Its a key election year and I believe the evidence that the BLS has been compromised politically.

What this means for 2011 is a different story, but anybody long bonds (either end) shouldn't expect any help from unemployment (or the stock market which is behaving as though the computers have completely taken over).
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1. Those workers will be fired as soon as their job is done(I believe this year). They will net out to zero
2. Growth in final sales is still weak(1.9%). GDP netted out of inventory changes
3. Thats possible

There is a large pool workers out of the labor just waiting for a better labor market. Bernanke is aware of this, the FOMC transcripts shows that he looks at the employment to population ratio in order to consider tighter money. This indicator has been freefalling since the recession started with hardly a bounce

http://research.stlouisfed.org/fred2/series/EMRATIO/

Its harder to manipulate this one as it doesnt depend on what some guy thinks what the 'labor force' is
 
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