No liquidity in 2010 options of ZN and ZB(10y and 30y). That leaves only IEF and TLT options but they dont seem a good bargain
Bill Gross outlook "1. Global policy rates will remain low for extended periods of time. 2. The extent and duration of quantitative easing, term financing and fiscal stimulation efforts are keys to future investment returns across a multitude of asset categories, both domestically and globally. 3. Investors should continue to anticipate and, if necessary, shake hands with government policies, utilizing leverage and/or guarantees to their benefit. 4. Asia and Asian-connected economies (Australia, Brazil) will dominate future global growth. 5. The dollar is vulnerable on a long-term basis." http://www.pimco.com/LeftNav/Featur.../Gross+Sept+On+the+Course+to+a+New+Normal.htm
Wow, even though I was dead wrong on starting to buy my XLF puts two weeks ago, todays plunge made them recover most of their value. This is the dilema I referred to, if you wait for the trend to completely reverse the VIX will have soared already and you dont get a good deal. Assuming ES doesn't make a miracle recovery I will be buying more XLF puts tomorrow in the open. Jan expiration and assuming prices will decline by 33%(20% on ES, adjusting for the beta) http://www.bloomberg.com/apps/news?pid=20601087&sid=a8gKrCThYvyg
Equities got smashed Whats even worse, price didnt just fail at the trendline, it failed after suceeding(it put a 1-2-3 type rally). This is the so called 'porn' pattern popularized by former ET trader Anekdoten. Its the third test of a trendline that fails after temporarily suceeding. Its supposed to indicate nice reversal as the people who bought the 123 get trapped(He claimed 80% accuracy, well today it worked). Daily Volume looks the highest since April
Daal, First of all thanks for sharing your thoughts in this journal. It's been a while since I read through it. Daal / Ralph00, For what it's worth, there could be RBA rate rises in the coming years. For example: http://business.theage.com.au/business/rba-indicates-rate-rises-coming-20090901-f6y1.html However 300 bps in 2 years does sound excessive. Unlike the USA or UK, Australia's residential property market bubble hasn't really burst as yet. Part of this has to do with various state and federal government home-buyers' grants: http://www.firsthome.gov.au/ It is worth noting that one of these grants disappears after 31 December 2009, which *could* result in home prices remaining flat and/or falling in 2010. Now I just hope that I won't be hurt by an angry mob of Australian home owners, nor investigated by the Australian Government, for daring to suggest that home prices could actually fall. Also a very good Australian web site about debt deflation: http://www.debtdeflation.com/blogs/ Not only does Keen cover the US economy, but (as a resident of Sydney, Australia) he also has a lot to write about the Aussie economy.
m22au, Good to see you back. Did you see the action today?A few things jumped out to me in the negative side -WFC rumor that they were raising capital -Rumor of a large bank failure XLF dropped 5.3% in these even in the face of a 53 ISM Mfg. The financial crisis look to be alive and well. The green shoots and 2nd derivative lifted everyones spirit and made the market immune to bad news, looks like they overdosed and now they are immune to good news. Treasury is running out of TARP money, Fed could be forced to disclose everybody who used the discount window/TAF, Bove says bank stocks are trading at levels only justified by 2011(!) earnings. Stress test shows banks are going to lose a lot of money over the next quarters What Bernanke dubbed a 'rellapse of financial conditions' could be well in the cards for the next 6 months, bank fears, liquidity problems, bailout weekends, plummeting XLF(which triggers more fears). This stuff could come back. I will participate in these with more XLF puts As far as RBA rates go, IB doesnt seem to offer anything other than a stock future in the Sydney futures exchange. Maybe they are doing me a favor, I dont know much about AU except that its like the US(housing bubble, current account deficit) The short sterling call thing was laying me 5-1 on no hike till Jan 2011, the eurodollar calls laid 4-1 on no hike till Jan 2011. The better odds might not be worth it as I dont know much about the BOE. I rather stick with reading the Fed which I consider to be my strength
Thanks for the links. I'm going to pursue short Aussie rates a bit more, just to see exactly what the odds would be of betting on similar or lower short term rates 2 years from now. It appears that Australia, like the US and the UK is a highly levered economy, and any extraordinary strength they are seeing right now is the result of the bubble-blowing in China. I believe today was an important inflection point. The Kudlowites finally got their good hard data point (ISM) that shows the economy is growing and prices are picking up. What happened ... stocks tank and bonds shoot up. I respect the guys at Clarium Capital a great deal. They've had a tough year since they were not positioned for the massive rally in the equities and cable over the past few months. Its actually pretty amazing that they are only off 6% this year. Kevin Harrington (of clarium) was interviewed by Bloomberg, and they are sticking to their guns - long dollar, short green shoots.
"Yen Trades Near 7-Week High on Banking Concern, Asia Stock Drop " http://www.bloomberg.com/apps/news?pid=20601110&sid=aCctlcQtMm10 "The yen traded near a seven-week high against the euro on concern U.S. financial institutions will incur more losses and as regional shares fell" It is taking a while for the market to realize the obvious. JPM trades at a 14x forward PE(46 trailing). The stress test shows JP makes no money from Q1 09 to Q4 10. So the stock trades at an infinite 2010 PE and an highly uncertain 2011 PE(where the government should be starting all the regulation, higher capital requirements more agressively and the Fed will be hiking) Bank Debt Risk Rises Most in 15 Weeks on Capital Demand Concern http://www.bloomberg.com/apps/news?pid=20601110&sid=acP2Tj7mdHIU
I have a better idea, instead of buying XLF puts today and risking a green(shoot) reversal I might as well wait for SPX to break 980 support level in a intraday basis then increase my position. I get the additional benefit of the fact that my existing XLF puts will be winning trades by then, so I avoid breaking the rule of adding to losing trade without a pretty darn good reason. SPX might break the 50MA at the same time, so I get double confirmation that the uptrend is ending
Yes I saw the action yesterday. The idea of equities falling on the good ISM news sticks out like the clichéd sore thumb. Your interest rate trade sounds interesting and I will do some further reading of your journal to gain a better understanding. My knowledge of equities, currencies and commodities is better than that of interest rates. As for Australia, we recently had a positive GDP print, and as I mentioned yesterday the housing bubble hasn't popped (yet). So although interest rates may not go up by a lot (if at all), they mightn't fall any time soon. Also a very reliable indicator seems to have worked again. Whenever FRE / FNM (and you can add AIG, CIT, ABK, SIRI, LEHMQ and WAMUQ to the list) go up by a lot in the space of a few days, a short-term market top is nearby.