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The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
Do you really really, in your heart of hearts, think that the Fed's on hold till May 2012? Even I, a relative bear, have a hard time seeing this as a central scenario.Quote from Daal:
But I'm considering taking a small position there and treating as an option. The May 2012 will pay more than $4,000 per contract if the Fed doesnt hike anything by then. And it has protection against 100bps worth of hikes, so even if the Fed were to pull a Hoenig, you are still doesnt lose a penny(you make $1,000 per contract actually).
Its an alternative to levering up like crazy in the more near term contracts like I'm doing. I will think about that more and see if I put some bets there
Quote from Martinghoul:
Do you really really, in your heart of hearts, think that the Fed's on hold till May 2012? Even I, a relative bear, have a hard time seeing this as a central scenario.
If there is a double dip yes. We would be reaching new highs in the UR in 2011. Furthermore iirc the avg is something like 2ys for a hike after the end of a recession. Not necessarily the main scenario, the 100bps off protection is what makes this interesting
There is another element here, the Fed purchasing $1.7T barely increased the money supply. If there is another recession, imagine the kind of disinflationary/deflationary shock that is going to be. Almost certainly the means core CPI goes negative. This means the Fed will have to go the other way big time, more QE, more time based promises.
Furthermore to go from negative core to the Fed's preferred range will take quite a while(or at least 1% with Fed forecasts indicating 2% in the horizon), maybe as much as 12 months. Inflation tends to keep on falling for 12-24 months after the end of a recession
The next weeks are going to be important, if there are more signals of a double dip, I'm going to have to act quickly because thats a 'paulson' type moment, where markets are completely unaware of what awaits then and R/R thus expectation is the highest. I just wish I could buy some way back ZQ options, but I doubt there is much liquidity for 2013 or 2014
Furthermore to go from negative core to the Fed's preferred range will take quite a while(or at least 1% with Fed forecasts indicating 2% in the horizon), maybe as much as 12 months. Inflation tends to keep on falling for 12-24 months after the end of a recession
The next weeks are going to be important, if there are more signals of a double dip, I'm going to have to act quickly because thats a 'paulson' type moment, where markets are completely unaware of what awaits then and R/R thus expectation is the highest. I just wish I could buy some way back ZQ options, but I doubt there is much liquidity for 2013 or 2014
Could be... The mkt is very divided here, that's for sure.
You should be able to get some liquidity in futures that far out, but, you're right, you wouldn't be able to do any options. If you want options, you might have to do Eurodollars, as we discussed previously.
You should be able to get some liquidity in futures that far out, but, you're right, you wouldn't be able to do any options. If you want options, you might have to do Eurodollars, as we discussed previously.
That sounds about right... I was seeing a wee bit better earlier on, but it's roughly like that. But open interest on these May12s is smth like 2.5k contracts, so there's hope. Still, I'd go for Eurodollars that far out, if I were you. Then you could switch into FF/ZQ, when you get closer and if you're not happy with the LIBOR/OIS basis position. Might potentially be cheaper to do it that way.Quote from Daal:
The farther that I see is ZQ/FF May 2012 liquidity of 1 contract per side with a spread of 2bps
Quote from Martinghoul:
That sounds about right... I was seeing a wee bit better earlier on, but it's roughly like that. But open interest on these May12s is smth like 2.5k contracts, so there's hope. Still, I'd go for Eurodollars that far out, if I were you. Then you could switch into FF/ZQ, when you get closer and if you're not happy with the LIBOR/OIS basis position. Might potentially be cheaper to do it that way.
What about your views on the likelihood of another US recession or at least a slowdown?
What about the chances that grow picksup and the US reaches 'escape velocity'?
Another slowdown is very likely, IMHO. My central scenario (say 70%) is that neither a double-dip nor significant growth occurs for the next couple of years, actually. A bit of a square root, so to speak, while the West undergoes further deleveraging. Rates are likely to remain low for a while, but won't stay at 0. Obviously, all this changes if China allows yuan to appreciate meaningfully.Quote from Daal:
What about your views on the likelihood of another US recession or at least a slowdown?
What about the chances that grow picksup and the US reaches 'escape velocity'?
Quote from Martinghoul:
Another slowdown is very likely, IMHO. My central scenario (say 70%) is that neither a double-dip nor significant growth occurs for the next couple of years, actually. A bit of a square root, so to speak, while the West undergoes further deleveraging. Rates are likely to remain low for a while, but won't stay at 0.
With real final sales avg 1.2% and the last being 0.8%, there doesn't seem to exist a lot of buffer to absorb a slowdown till both growth and employment turns negative.
With regards to rates, I accept that there could be a small tightening, I'm assuming there is a chance(that is hard to quantify) they do a Hoenig or they go to .50 .75 for 'technical reasons'(money market funds issues or something of that kind), but there is also the chance they stop paying interest on reserves to fight deflation