The Credit Crisis Financial Stocks Short Journal

I wouldn't regard a Moody's downgrade of the banks as good news. They are always last to the party.

The Dec 11 FF futures had an incredible run, topping at around 99.37 10 days ago or so. That's just 45 bp less than the front month, and Dec 11 is 15 months out!!! I'm sorry, but you need more of a risk premium than that. I'd like to know the fool that top-ticked that run. Wish I hadn't been spending so much time at the beach and golf course, or I might have had the awareness to short it.
 
Quote from ralph00:

I wouldn't regard a Moody's downgrade of the banks as good news. They are always last to the party.

The Dec 11 FF futures had an incredible run, topping at around 99.37 10 days ago or so. That's just 45 bp less than the front month, and Dec 11 is 15 months out!!! I'm sorry, but you need more of a risk premium than that. I'd like to know the fool that top-ticked that run. Wish I hadn't been spending so much time at the beach and golf course, or I might have had the awareness to short it.
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Actually, its more like 9 months. The way the Fed and Bernanke has been speaking(debating more stimulus) the probability the fed will hike in the next 6 months is as close to 0% as it gets. The market is quite aware of this
 
James Bullard does some stand-up comedy
"REMARK

(29/07/10, RTRS): Extended period increases risk of Japan style deflationary trap as could cause drop in inflation and inflation expectations. Should consider buying more Treasuries. Does not plan to dissent against extended period.

VIEW

: Quite how extended period itself is deflationary is unclear to us, but it is interesting to note that Bullard is taking about buying Treasuries. Earlier this year, when data looked better, he appeared more enthusiastic about asset sales than most."

Doesnt like extended period but says Fed should consider more QE stimulus
 
Bullard says extended period might boost deflationary outcomes. I cant see how this is correct, why cant governments promise 0% for 10 years so they can finance government debt on the cheap for a long-time?Low rates for longer is just a different method for monetization of debt, therefore I believe it will produce similar results to buying more USTs
 
Quote from Martinghoul:

It's a signaling effect... "Rates low for extended period" -> expected nominal growth low for extended period -> deflation.
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But they also publish their forecast at the same time which shows different expectations, plus there are all the speeches where they try to sound like everything is ok
 
"Real final sales of domestic product -- GDP less change in private inventories -- increased 1.3
percent in the second quarter, compared with an increase of 1.1 percent in the first."(The 1.1 figure was revised from 0.8)

" The price index for gross domestic purchases, which measures prices paid by U.S. residents,
increased 0.1 percent in the second quarter, compared with an increase of 2.1 percent in the first.
Excluding food and energy prices, the price index for gross domestic purchases increased 0.9 percent in
the second quarter, compared with an increase of 1.6 percent in the first."

A theoretical Final Sales Nominal GDP growth was 1.4%(annual rate!) and 2.2% ex-food and energy prices
 
Quote from Daal:
But they also publish their forecast at the same time which shows different expectations, plus there are all the speeches where they try to sound like everything is ok
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Yeah, but it's rates that serve as price signals... That's Bullard's point, as I understand it. That's what the Japanese experience is all about, really. It's not just trivial deflation, but rather a more nuanced shift in expectations towards lower nominal growth rates.
 
Quote from Martinghoul:

Yeah, but it's rates that serve as price signals... That's Bullard's point, as I understand it. That's what the Japanese experience is all about, really. It's not just trivial deflation, but rather a more nuanced shift in expectations towards lower nominal growth rates.
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But if the Fed credibly said 'we will keep rates a 0% for 15 years', dont you think the opposite would happen?Zero financing for government borrowing for a long-time, essentially monetization of the risk premium
 
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