At the risk of embarrassing myself, I'm feeling that tomorrow may be explosive in many markets. I think a lot of markets are at critical junctures, (ie. the $ has rallied to a point that much further rally might be considered a long term trend change, bonds have been steadily creeping up and could be explosive to the upside and equities are scitzo every other day). My bet is explosive rally in bonds after FOMC hike of 25 bps as market interprets this as one of the last hikes of the cycle, $/Eur takes out stops to the downside (of Eur) pre-FOMC and $ sells off hard after the decision (EUR range 1.2760-1.2980 closing at highs). Equities rally on higher bonds but selloff into the close on a weakening economy. I might buy some one-day vol. and forget my predicitions .
Don't think you embarrass yourself by calling out the possibility of erratic action, my friend. I think if you came on here claiming armageddon was in the mix, you might (read all the black monday threads). But a little warning about the potential? Nah, actually I prefer warnings from people I know to be rather experienced. Cheers.
Thanks, Ivan. It's always a risk to post BEFORE events take place. So many market observers/participants love to voice opinions how they had it nailed after the fact. I suppose no guts, no glory. This is my scenario and I'm sticking to it! Unless I change my mind...
trade-ya1, interesting thoughts. are you still long EUR? And what are your positions in bonds like? misc
I'm long Yen looking for supportive price action to buy EUR. I'm long bonds looking to buy more on confirmation of my overall market thesis. Not heavily positioned at the moment, however, I believe I will be shortly after FOMC if see confirmation of my ideas. Best, Neal.
If you haven't guessed, I like to have a hypothesis and see it confirmed by market action before getting aggressive. I am ready to bite the ass off a bear if my thoughts are confirmed by market action, however, I try to stay in my shell and play defense prior to seeing confirmation that my ideas are correct. This way, I can't lose too much if I'm wrong.
Given the bearishness of the crowd on bonds and this spoken certainty that rates on the long end are headed higher; I think you have it right. In fact I think that the odds are better for the yield on the 10 year to retest the June 2003 lows than tagging 5%. Aside for commodity inflation (which will begin to tick down when China revals.); the deflationary forces of globalization and the demographic trends in mature economies are the <i>real</i> head winds. The economy has been zapped with historic fiscal and monetary stimulous (not to mention war) and inflation will probably peak out at, what, 3% year over year? Capitulation by the heavily-indebted American consumer (i.e. consumer-led recession) in response to crushing DEFLATION and falling income, not inflation (generally income rising slower than cost of living). We're just not there .. yet. New era, baby! Bring on Bernanke!
Good thoughts. I agree. Bullish case for bonds: 1. Very strong periods of growth over last ten years (5%+ GDP) yet inflation (as measured by gov't statistics) did not materialize inflation (remember 1993?). Is inflation going to materialize with the moderate growth we have now? 2. Unprecedented wealth creation from 1995-2000 due to rise in equities, particularly NASDAQ, yet, couldn't materialize inflation (as measured by gov't statistics). Current wealth creation in Real Estate. 3. Signficant globalization of labor-very deflationary. 4. Technology (read: Internet) very deflationary. Ever try to buy a shovel in Kansas 10 years ago? One had to pay the ask at the local hardware store, now can log onto homedepot.com and pay the most efficient price. 5. Global rates very low and US actually at the upper end of developed world rate scale. Japanese bonds are less than 1%, etc. (shows you where they can go). 6. Economic growth is moderating almost across the board. 7. Equities are unstable (NASDAQ -11% YTD). 8. Nobody is positioned well, everyone assumes rates going higher. Only a tiny minority positioned for lower rates, despite.... 9. Most important reason- Price Action! With all the higher rate talk, 10-yr. is significantly lower in yield than it was a year ago at this time. 10. Greenspan Fed is historically dovish and has a bark worse than it's bite. Greenspan has a dual responsibility, fighting inflation BUT, also, allowing employment to grow at it's fastest possible rate without the creation of insidious inflation. Greenspan is very conscious of this and is probably very close to neutrality on Fed Funds. 11. Market is anticipatory rather than reactionary. Biggest risk- Changing of the guard at the Fed.
Really? I thought LaSalle and I are the only ones. The street is bearish rates overall and has been for some time.