Friday, August 12, 2011

Nothing new to say...

So what have we seen in the past few days/weeks?

- The ECB stepped in the bond markets buying now also Italian and Spanish bonds. Yields in 10-year tenors, for example, dropped over 100bps to around 5.00% even though equity and credit markets collapsed, then recovering some of the losses until today's close.
- Bernanke, even though having 3 officials against him, pushed to keep the Fed Funds rate at 0%-0.25% for another 2 years and strongly signaling that he acknowledged the economic deceleration and that the Fed will bring the horses if need be.
- European policy makers banned short-selling of bank stocks in a range of countries
- A variety of newspapers articles and commentaries by brazilian policy makers (President, Finance Minister, Central Bank president) arguing that in case the economic backdrop goes bad "brazilians have many tools to be used and they will use it".

So really... there isn't anything new to say.

The markets moved down in great speed and volume and finally the credit markets felt the pain too.

US Treasury yields collapsed (downgrade? what?), CDS spreads widened remarkably, bank stocks collapsed, volatility exploded.
Rumours of repo lines being cut for some french banks went around.
An ugly 30-yr US Treasury auction was placed (10bp tail...).

So basically we're seeing monetary easing in the US through extended 0% rates.
We're seeing some type of QE in Europe through the ECB bond buying of all kinds of sov debt.
And other policy makers world wide seem to be watering their mouths over rate cuts.

But what is really new?

The only thing new is that economic data remains bad.
Industrial activity numbers out of Europe were bad.
Confidence in the US was bad. Bad as in 31yr low.
Trade Balance in the US was really bad.
And other stuff..

And, by the day, the market pushes policy makers further down the 'bail-out' road. Testing them, more and more.
How much time until they get down their knees and, without any more bullets left, just raise their hands and start praying to their gods?

Things are getting ugly.
And I think they will get even uglier.

I wonder how Bernanke sleeps at night.

PS: EDZ1EDZ2 3m USD Libor future spreads remain negative @ -9.5bps. The low was @ -13bp.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

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