The Credit Crisis Financial Stocks Short Journal

Quote from Ghost of Cutten:

IMO a plausible scenario is a standard 6-9 month bear market of 20-30%
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When I mentioned having a small stock market long I'm referring to a short-term technical long. I expect a bear market and SPX back to 900-950, if ES plunges some more here, I will increase the technical long even though I expect the bear to bottom out a little lower
 
Fairfax buying derivatives to bet on deflation
http://online.wsj.com/article/SB100...2160.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

If the odds were huge(50-1+) this could be a good bet but other than that its throwing money away. -2% CPI over the next 10years is hugely unlikely for a number of reasons

-Japan didn't experience anything like that
-US in the 30's had deflation from 30-33 but then inflation from 33-37(this messes up the contract)
-Fed will buy every asset in the galaxy after just a year or two of deflation, specially if expectations go negative
-Commodities are in a bull market and the contract is not for the Core CPI but the headline
 
Firstly, Montier is a really good guy. Secondly, the divs trade has been in the works for a few months now. I first heard it mentioned by an equity guy at a round table in May (unfort, I can't do juicy things like these). Finally, the deflation trades similar to what Fairfax has been putting on (these are YoY floors with various strikes) have recently been all the rage in EUR. Putting two and two together, I am thinking that someone is doing the divs trade in chunky size and hedging the deflation tails. I would guess Fairfax is doing smth similar.
 
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