It's the Japanese disease spreading along ever further out the US curve...
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The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
Quote from Martinghoul:
It's the Japanese disease spreading along ever further out the US curve...
This is true. However, during the 90s, there were lots of tightening scares in Japan, and a lot of money could be made on the short side of the Euroyen market. Its only in the last 10 years, that the euroyen curve has flatlined. I believe the US still has a few tightening scares in the cards. OOM puts on eurodollar futures are being given away right now.
You're a better man, with bigger balls than I, if you can play this game and time these things correctly.Quote from ralph00:
This is true. However, during the 90s, there were lots of tightening scares in Japan, and a lot of money could be made on the short side of the Euroyen market. Its only in the last 10 years, that the euroyen curve has flatlined. I believe the US still has a few tightening scares in the cards. OOM puts on eurodollar futures are being given away right now.
Its not about timing. When there is little to no daylight between the front month and the contract 12 months out, you sell the one 12 months out (or buy puts). You risk a few basis points for a big gainer.
I remember Peter Thiel talking about shorting JGBs when they were yielding 0.50% in 2003. He said it wasn't about timing, it was about the fact that he could short them with very little downside and wait it out. He wasn't making a macro call on Japan, just shorting something for free.
P.S. and yes I am a better man than you and yes I do have a bigger pair.
I remember Peter Thiel talking about shorting JGBs when they were yielding 0.50% in 2003. He said it wasn't about timing, it was about the fact that he could short them with very little downside and wait it out. He wasn't making a macro call on Japan, just shorting something for free.
P.S. and yes I am a better man than you and yes I do have a bigger pair.
Brilliant essay from Richard Clarida at PIMCO ...
http://www.pimco.com/LeftNav/Global.../Global+Perspectives+July+2010+New+Normal.htm
Risk On, Risk Off
Second, a New Normal world is likely to be one with frequent flips between ârisk onâ and ârisk offâ days. With so much profit and loss riding on tail events and so little profit and loss tied to the cluster of outcomes near ex ante means, repositioning will likely be more frequent. This is because many investors lack conviction in their understanding of the true distribution, so that each passing day provides an opportunity to learn or unlearn how likely the relevant tail events are. Positioning for mean reversion will be a less compelling investment theme in a world where realized returns cluster nearer the tails and away from the mean.
James Carville said twenty years ago that he wanted to be reincarnated as the bond market because the vigilantes had so much clout over policymakers. But in the New Normal world, he might wish to be reincarnated as the Asian equity markets because they are where traders in Europe and the U.S. look to see if it is a ârisk onâ or ârisk offâ day. With so much money chasing fewer assets with known return distributions, and with reliable investment rules of thumb scarce, frequent flips between ârisk onâ and ârisk offâ days will likely be a continuing symptom of the Knightian uncertainty that still, to some extent, hangs over global financial markets. Uncertainty is less chronic and its impact less systemic than in the first year or so of the global financial crisis, but it has not disappeared. Unlike October 2008, markets are now open and assets trade, but they trade at clearing prices that reflect daily news about the relevant, headline-grabbing tail events. For example, a Chinese growth slowdown suggested by a leading indicator report signals ârisk off,â while the Dodd-Frank bill passing the conference committee with a watered-down Volcker rule signals ârisk on.â
Indeed. Anybody looking at a chart of copper or the AUD/USD or any number of "risk" assets that move tic for tic with the S&P 500 already realizes this. To the man who can find the uncorrelated asset (i.e. GE calls in 2009/10, FF futures this year), riches await.
The rest of the piece is equally good.
http://www.pimco.com/LeftNav/Global.../Global+Perspectives+July+2010+New+Normal.htm
Risk On, Risk Off
Second, a New Normal world is likely to be one with frequent flips between ârisk onâ and ârisk offâ days. With so much profit and loss riding on tail events and so little profit and loss tied to the cluster of outcomes near ex ante means, repositioning will likely be more frequent. This is because many investors lack conviction in their understanding of the true distribution, so that each passing day provides an opportunity to learn or unlearn how likely the relevant tail events are. Positioning for mean reversion will be a less compelling investment theme in a world where realized returns cluster nearer the tails and away from the mean.
James Carville said twenty years ago that he wanted to be reincarnated as the bond market because the vigilantes had so much clout over policymakers. But in the New Normal world, he might wish to be reincarnated as the Asian equity markets because they are where traders in Europe and the U.S. look to see if it is a ârisk onâ or ârisk offâ day. With so much money chasing fewer assets with known return distributions, and with reliable investment rules of thumb scarce, frequent flips between ârisk onâ and ârisk offâ days will likely be a continuing symptom of the Knightian uncertainty that still, to some extent, hangs over global financial markets. Uncertainty is less chronic and its impact less systemic than in the first year or so of the global financial crisis, but it has not disappeared. Unlike October 2008, markets are now open and assets trade, but they trade at clearing prices that reflect daily news about the relevant, headline-grabbing tail events. For example, a Chinese growth slowdown suggested by a leading indicator report signals ârisk off,â while the Dodd-Frank bill passing the conference committee with a watered-down Volcker rule signals ârisk on.â
Indeed. Anybody looking at a chart of copper or the AUD/USD or any number of "risk" assets that move tic for tic with the S&P 500 already realizes this. To the man who can find the uncorrelated asset (i.e. GE calls in 2009/10, FF futures this year), riches await.
The rest of the piece is equally good.
Quote from ralph00:
Its not about timing. When there is little to no daylight between the front month and the contract 12 months out, you sell the one 12 months out (or buy puts). You risk a few basis points for a big gainer.
I remember Peter Thiel talking about shorting JGBs when they were yielding 0.50% in 2003. He said it wasn't about timing, it was about the fact that he could short them with very little downside and wait it out. He wasn't making a macro call on Japan, just shorting something for free.
P.S. and yes I am a better man than you and yes I do have a bigger pair.
The difference was those JGBs were quite longer in terms of duration. I'm not sure which month you are shorting but the debate as outlined by Bernanke appears to be when to throw more stimulus and what type of stimulus should the Fed do. So the largest 'fundamental'(the fomc) setting the price of those contracts is already set and the market seem to be reflecting that. But if you are using E$, maybe libor can blow out
Firstly, it IS about timing. The fact that you're risking a few bps is an illusion. You're paying away carry/rolldown, which is the real cost of the trade. The longer you hold the trade, the worse it gets and you get no redeeming benefits of convexity.Quote from ralph00:
Its not about timing. When there is little to no daylight between the front month and the contract 12 months out, you sell the one 12 months out (or buy puts). You risk a few basis points for a big gainer.
I remember Peter Thiel talking about shorting JGBs when they were yielding 0.50% in 2003. He said it wasn't about timing, it was about the fact that he could short them with very little downside and wait it out. He wasn't making a macro call on Japan, just shorting something for free.
P.S. and yes I am a better man than you and yes I do have a bigger pair.
Peter Thiel's performance speaks for itself, doesn't it? As you may have noticed, I am not a fan of the "I can do no wrong, because I am so successful" style of macro punting. If he thinks shorting JGBs is free, he's a bigger idiot than I thought. This is not to say that selling 10y JGBs at 50bps is a bad trade. It's just not free, no matter how low the yield looks on the chart.
P.S. That's quite all right. I like having a small ego and a small pair. Healthier that way and makes walking easier, you know?
Stress test criteria
http://www.cnbc.com/id/38376100
"adverse scenario and adverse scenario plus sovereign risk", you got to love the sense of humor of the guy who created the adverse scenario less sovereign risk
http://www.cnbc.com/id/38376100
"adverse scenario and adverse scenario plus sovereign risk", you got to love the sense of humor of the guy who created the adverse scenario less sovereign risk
So it's confirmed officially to be a joke of a stress test. Only trading books to be tested.