Diary of a Financier

From the Trading Desk: Trade Reconciliation (Weeks of November 21-December 12)

In Trading Desk on Sun 18 Dec 2011 at 18:10

I fell behind a bit in the past weeks with my trade recs, but this entry will catch me up to date.

Joe Weisenthal over at Business Insider posted a weird piece this evening. The article was as inconclusive as it was intellectually void–often the BI meme it seems. He poses an observation with which I take issue:

Earlier we speculated that the European crisis might in fact be over.

The point of the post wasn’t to argue that Europe had been solved; rather the point was that crises can and do end without the fundamental problems being solved. So if you’re waiting around for a “solution” then you’ll inevitably end up missing the turn.

The US crisis of ’08-’09 demonstrates this pretty nicely…

For what it’s worth, it’s this contradiction of a crisis being over against the backdrop of ongoing fundamental problems that’s caused so many experts to miss the incredible comeback in the market.

So what does this mean for the Eurozone crisis? Well, it’s the same: You don’t actually need to fix all the fundamental problems for the crisis to end; you just need to be fairly certain that the whole thing isn’t headed for total collapse.

First, I value “thought pieces,” articles that don’t necessarily draw on data, but rather logical musings. However, Business Insider’s content farmers sometime abuse the genre. This instance particularly irritates me, because Mr. Weisenthal plays both sides of the trade, essentially disclaiming, ‘We’re going to patent a wildly contrarian call by being the first shout it from a soapbox, but it wouldn’t surprise us if the call never materializes.’ If it happens, we’ll see a ‘we told you so’; if it doesn’t happen, the idea dies a quiet death in a dark room.

Second, Mr. Weisenthal misses an opportunity to assert a salient suggestion: while he seems to distinguish between market recoveries and economic ones, I want to scream that the US market “recovery” failed the test of sustainability. If Europe were to employ monetary machinations like those of America’s Fed (2008-10), markets would not digest such an ephemeral fix. The American Treasury market has maintained its bid mostly because it’s the super super-senior and the preeminent safety trade–both by virtue of USD reserve status and the “least sick patient” verisimilitude. (If you think USD devaluation were a deterrent for Treasury investors, consider the negative yields accepted by so many fearful institutions at auctions throughout this crisis.)

My point is that fundamentally, refinancing sovereign debt with short-term bills will never end the Eurocrisis (leaving roll-risk an outstanding concern), and an appetite for long-term issues does not exist. When Mr. Weisenthal asserts, “the point was that crises can and do end without the fundamental problems being solved,” I have to call BS. Such crises never end until the fundamental problems are solved.


Here’s that trade rec…

  • FYI floating rate bank loans r junk credit Look at LIBOR. Those guys r feeling some sharp pain, cost of borrowing up, growth dwn. $HYG $FLOT Dec. 13 at 9:31 AM
  • $HYG at 87.23 hides the junk bond carbage cuz it’s an index of lrg, liquid issues, not the little levered ones undergoing shakeouts. Dec. 12 at 4:42 PM
  • $SPY has only retraced 75pc of ystrday’s loss. Intraday VWAP only retraced 62pc. Weird that the mkt doesnt expect ECB to flinch. Dec. 9 at 6:51 PM
  • Has anyone put this together yet? “PIGS FUKING US,” a good pnemonic device to remember the sequence of dominoes to fall fm $EUROPE. Dec. 2 at 7:46 PM
  • USD secular bull still in the works, but until Euroreckoning, a ST risk rally and $DX_F pullback in store. Nov. 30 at 10:46 PM
  • Also worth noting that USD swap lines are an effective extension of QE/monetary policy, an end-around Congress to batter $DX_F, help exports. Nov. 30 at 10:30 PM
  • Entirely possible that global central banks decided to reduce rate on USD swaps as preemptive measure: might $GREECE be returning to drachma? Nov. 30 at 6:08 PM
  • With memories of the past few years’ Thanksgivings, Dubai World, LTCM, i hope I don’t have to follow the news this $Thanksgiving. Nov. 22 at 11:49 PM
  • This is what i feared: Shut down NYSE, Oakland ports, #OWS #Occupy discredits self w irratnl intiatives that stray fm its altruistic mission. Nov. 21 at 10:46 AM
  • 3-month Eurodollar futures take out support today in a loudly silent crash. I have last print 99.36 $ED_F. Nov. 16 at 7:15 PM
  • Wtf is US Govt doing offering student loans toward for-profit education? It’s a subsidy to a private business. Nov. 16 at 9:04 AM
  • $MBB sold at 107.65, TR up 1.7pc. I dont care what Gundlach says about MBS, MBB looks technicly bearish and I’d rather cash to buy SPX dip. Nov. 15 at 1:30 PM




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