In 2013, the overwhelming majority of regional presidents will be doves, with the possible exception of Esther George of KC (about whom I know very little). As you point out, the guvnors are known doves. This makes a hike in 2013 less likely, IMHO. On the other hand, Ian Shepherdson, who is one of the better US economists out there, expects them to go in 2013. I disagree, but, either way, I don't think there's much to do, given where the contracts are.
True, except for Bullard(Guaranteed dissent) the others have been in line with Bernanke. I'm not sure there is a lot of juice there, specially if they implement some kind of Twist 2 and drive the EFF higher(high teens) I'm going to wait for the contract to fall more before doing anything, also to try to get more clarity in the economic outlook
Gonna be another ugly day in Treasurys today. You can have stocks and the economy doing fine or you can have the 10-year at 2%. You can't have both. TBT might outperform Apple in H1 this year. TLT has broken resistance as the tech boys like to say. What we have here is what folks in Latin America have known for generations - a central bank pumping up the economy like mad in an election year. 2013 will be the reckoning. There may well be no rate hikes then. That doesn't mean FF can't price in 100 bps of such in the coming weeks.
ECRI maintains recession call. Says season adjustments skewed by financial crisis, making recent headline data better than reality. http://www.businesscycle.com/news_events/news_details/5065#.T2Hv8r2G26A.twitter
The one thing I don't like about the long bond trade is how damn widely observed it is. Actually wouldn't mind a quick shake-out / retest to make folks question and offer an add-on point. Then again, the macro drivers for bonds are so damn big, the trading element of the equation might amount to a flea on an elephant's backside.
How about a discussion on position size? For example, what about be an appropriate % of total trading capital to have in short the 30 year futures at the moment (if you agree with the trade)?
30y priced at 136, figure max initial risk would be to 143, look to cover at 126. R:R isn't great. Figure the move takes max 6 months to complete, using 100% of capital means you can risk 5% to make about 7.4% over half a year. Extend the target to 120 (2011 support) or 117 (2009-10 support) and reward goes up but IMO much lower odds of the first leg down getting there, means you need to sit through pullbacks, lower odds of getting the target at all and the trade extends in time. I like to keep my risk on trades (as opposed to investments) to 2-5%. If I was going to short this I'd prob do a total position size equal to 50% of capital, maybe half now and half on either a pullback or break of 135. Personally I rather prefer the idea of looking to go long the pullback somewhere in that 115-120 area, figure a 12.5% gain inside a year plus positive carry if we get another wave in the GFC, but if you have dry powder...
A few potentially bearish (or at least, out-of-place) tidbits. CA income and sales-tax collections down double digits from last Feb: http://globaleconomicanalysis.blogspot.com/2012/03/california-tax-revenues-plunge.html Petroleum and gasoline usage diving, now back to levels of 10-15 years ago: http://globaleconomicanalysis.blogspot.com/2012/03/another-plunge-in-3-month-rolling.html The latter especially is surprising in light of reported economic strength, but makes sense given that the Dow Transports have been lagging - they've visibly underperformed since the beginning of Feb and have not confirmed the Dow's breakout of the 2011 highs, but on the other hand it's less than 5% from doing so.
Some people are saying that QE is that same as sterilized QE. I'm not sure I agree with that. Normal QE lowers both long and short terms rates whereas the sterilization is only successful to the extent that you are able to draw short-term funds by offering a higher interest rate than short-term money markets(or t-bills), therefore it raises those rates while lowering longer term ones There difference in terms of bps is probably not huge but only if the program is not huge, otherwise the difference will be material