The Credit Crisis Financial Stocks Short Journal

The main difference is the US and Japan can easily afford to service their debt at current (or somewhat higher) interest rates. Greece can't. Or at least, the market believes they can't (and US/Japan can).

Quote from Daal:

The thing is, japan is the exception(how many countries have that much debt without being shutdown by the market?not a lot)Its a russian roulette with 5 bullets to stay long during massive fiscal problems
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Wrong. Run the numbers and you will see how much debt these countries can afford to service at current interest rates. It's a lot higher than the present debt loads, hence why yields are not soaring as Faber and the tin foilers expect.
 
Quote from ralph00:

Being long eurodollars or long eurodollar options is not any more short gamma than being long bonds. We're talking about the same thing. The only decision to make is at what point on the curve you want to buy. Right now, my preferred point is about one year out. I am also long call options at this point - I fail to see how that is short gamma.
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Well, sure the options are, but I wasn't recommending options as they require timing and have cost of carry instead of yield. You did suggest putting on a bunch of carry trades, which could easily get hit hard if the long bond goes up 10-20 points in a mini-panic or general market correction. As for Eurodollars - I am not sure of the scenarios where the risk would be lower and the reward higher than being in Treasuries.

If it's going to be a "new normal" then carry trades would make sense. If it's going to be a disinflation a la Japan, then I think bonds are the place to be - at least right now, with stocks up so much, and real yields at reasonable levels. If bonds rally a lot and risky assets become cheaper, then the carry trades will become more attractive.
 
Quote from Daal:



My point is that there are safer ways to play the disinflation/deflation theme, by staying in the front end through eurodollars and fed futures. The long end should suffer during a GSD as competing debt will be increasing their premiums and that should take USTs with them(or maybe there will be a flight to safety and compression in the US, point is, nobody knows), that could or not be offset by a decline in inflation. The uncertainty is much greater in the back end
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Ok, this is where I definitely disagree. Remember 1998? 2001? Q4 2008? US Treasuries are the safe haven trade par excellence. A GSD will make people scared of even Bunds, since Germany is going to be footing the bill if the PIGS go teats up.

I'm also puzzled - where is the return relative to risk from owning Eurodollars? If I buy March 2010s my upside is 100 basis points. My downside if the Fed panics about inflation is what, 100-200? That's a shitty risk/reward. With 10 year bonds my upside is maybe 10-15 points, my downside maybe 5. The yield covers a lot of the risks involved. Or are you fearing long-end rates going to 6, 7% while the Fed stays at 0.25%?
 
Risk reward is an overrated concept. All I care about is my expectation, I'm not afraid of running an insurance business as a long it makes me rich
 
I'd lay 1000-1 that Obama wont set himself on fire in the next 6 months. My risk reward is terrible, but I'm pretty sure my expectation is excellent
 
As of April 05

"Credit standards remained generally unchanged across the nation, while credit quality was mixed. New York, Cleveland and Kansas City reported tighter lending standards for commercial mortgages. In Atlanta several business contacts reported difficulty getting credit. Dallas and San Francisco said standards continued to be tight. New York saw increased delinquency rates for all categories except consumer loans, which were flat. Philadelphia and Richmond saw little change in credit quality, while Cleveland was mixed. Dallas reported that credit quality was either stabilizing or improving, and appeared to have turned a corner. Chicago noted an improvement in consumer and business loan quality, although credit quality for many small firms continued to decline."

I just dont see how the Fed downgrades extended period
 
Agree with GoC on most of what he said (I didn't read everything properly, though), which is why I have so many flatteners on, I can't see straight. There are some creative ways to do 'em to avoid negative rolldown.

In USD, I just don't see any runaway inflation, sovereign default or any of the other bugbears people love to come up with. US is Japan v2.0.
 
Quote from Martinghoul:

Agree with GoC on most of what he said (I didn't read everything properly, though), which is why I have so many flatteners on, I can't see straight. There are some creative ways to do 'em to avoid negative rolldown.

In USD, I just don't see any runaway inflation, sovereign default or any of the other bugbears people love to come up with. US is Japan v2.0.
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I would just point out that Japan had the benefit of global real interest rates in gov debt going down during their deflation, while the US will probably see global real rates up if this is the beginning of a GSD crisis. This makes the trade less attractive, and I'm not saying it wont work, as I said I dont have a strong opinion one way or the other
 
Yes, this was known when the package was put together. However, various national spokespeople have been coming in, one by one, suggesting that they're confident their parliaments will approve. Today it's the Dutch finance minister. Ministers in France, Ireland, Italy and Spain have already said they expect full parliamentary approval. Obviously, Germany is going to be the big question mark, what with the threats of Constitutional Court and all.
 
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