The Credit Crisis Financial Stocks Short Journal

Those silly out of the money puts I purchased on the AUD 24 hours ago are up 30% in value. Black Swans abound.

I only make two kinds of trades - losing trades and trades that I don't take nearly a large enough position in.:mad:

I am expecting a big bounce in Treasury yields soon. In keeping with that thought, I am putting some bids out there on way out of the money T-Bond and Eurodollar puts this morning. It looks like Treasuries could have a big day today. I expect the bids might get hit.
 
Quote from Daal:
A square root, it seems to be it would me something like 1-2% GDP, 100K NFPs(With UR not moving much up or down) and stable inflation
What would be the reasoning for a Fed hike in 2011?
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Only reason would be that it would be a matter of political necessity/expediency.
Quote from ralph00:
I only make two kinds of trades - losing trades and trades that I don't take nearly a large enough position in.:mad:
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Haha, that's a good description of the sort of thing I normally end up doing...
 
I was considering that the Fed wasn't worried about M2 weak growth because of the M2 engineered pop they did in 2008 Q4 and some of 2009. But looking at the numbers here, it doesnt appear that the pop will do much in terms of future inflation

2007 M2 $7,299T
2010 M2 $8,512T

+15% over 3 years, which is normal growth(about 5% a year)
2008 to 2010 the growth is about 5.5% a year
2009 to 2010 +2%

Source:
http://research.stlouisfed.org/publications/mt/20100701/mtpub.pdf

Given that the Fed expects about 3%-4.5% growth in the next few years(lets say 3.5%), that is consistent with 1.5-2% inflation at the previous M2 growth rate, at the new one(after the QE stopped), it is consistent with deflation. So it seems that they expect the banks to pickup on their lending which will boost the M2 growth and bail them out of having to do more QE.

But the trick is that another double dip in housing will hurt the banks as that will increase NPLs so the Fed is effectively long the housing market here praying it doesnt go down. If it does and that shows up on the Fed Senior Survey I just dont see how they dont go back in the market for more USTs and MBS purchases. And it looks likely to me that housing will go down
 
Milton Friedman is known for saying that M2 growth needs to be
"in the range of 4% to 6%, just about the rate required for a rapidly growing non-inflationary economy"

So either the Fed doesnt believe on its own forecasts(3-4.5% GDP growth) or they think there will be a boom in money velocity, effectively levering the weak M2 growth to create some inflation. Velocity did rose after the 'end' of the recession in 2009 but it seems hard to believe they really think its about to boom soon
 
I suppose it could be the fact that GDP fell in 2008 and 2009 it would add some inflationary potential to the M2 pop from the first QE program. The problem is that velocity also fell. To see what happened on net, one would have to look at nominal GDP(essentially M2 x Velocity), its growing at 3% y-y after dipping to the negative in 2008 and 2009(and the 3% has inventory elements on it, netting that out, its even weaker), so on net, the Fed program generated very little inflation potential(although there might be some lagged effects that I dont know about)

I'm not sure how a 2nd QE can be avoided even if the US just muddles through with weak growth. Nominal GDP ex-inventory changes will have to be boosted to 4%, in order for that to happen housing must stay where it is otherwise velocity will stop rising and M2 growth is already faltering
 
Quote from Martinghoul:

Only reason would be that it would be a matter of political necessity/expediency.
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I'm not sure what you mean by this given that political pressures are to keep zero rates
 
Quote from Daal:
I'm not sure what you mean by this given that political pressures are to keep zero rates
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Are you kidding? There's all sorts of people accusing the fed of blowing up another asset bubble etc etc... Hoenig represents a view of a particular constituency.
 
Quote from Martinghoul:

Are you kidding? There's all sorts of people accusing the fed of blowing up another asset bubble etc etc... Hoenig represents a view of a particular constituency.
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Sure but how they compare to the Congress and WH in terms of power?I'm sure there are hawks here and there but the vast majority in Washington wants fed on hold. Greenspan even said he never had a request for a hike by Congress. The guy from the budget got sacked for disagreeing with Summers and daring to say the deficit needs to be cut
 
"The U.S. Consumer Confidence Index tumbles almost 10 points to 52.9 as worries about jobs, recovery flare."

I'm sure the stock market decline had something to do with this, and the market fell mostly as a result of European worries. Thats what some bulls are missing in terms of the EU problem leading to US economic weakness, the stock market link and lack of risk taking could lead to more US pain even though the banks are not that exposed to EU sovereign debt
 
"Democrats May End TARP Program Early to Help Fund Financial Overhaul Bill: Sen. Dodd"

They will drive without a seat belt now
 
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