Full Disclosure

June 10th, 2008 9:22 am | by John Jansen |

I think the 2 year part of the curve is oversold. I think (I know) the economy is weak. It is an election year and the unemployment rate just jumped to 5.5 percent. The housing market is a debacle. The Fed’s favored metric the core PCE  has strayed very little from the top end of its prescribed  range. Hemingway and Fitzgerald are not writing novels about World War One and this is not the Weimar Republic. The credit markets are frayed frazzled and fragile. Recovery has barely begun.

I bought some SHY this morning because I think that any move to higher rates is a dream deferred. The Fed wont tighten and these are fair levels to establish long positions in the front end of the yield curve.

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  1. 9 Responses to “Full Disclosure”

  2. By steve gelmis on Jun 10, 2008 | Reply

    does this also mean you think today’s dollar strengthening is an opportunity to open a short position?

  3. By John Jansen on Jun 10, 2008 | Reply

    No. I guess one could imply that but dont have strong opinion on that trade.

  4. By joe on Jun 10, 2008 | Reply

    totally agree. trichet, he of the sole-mandate, may go for the gusto, but there is no way that Mr. Sikorski (aka Big Ben) will raise rates until the worst is far behind us. That day is not here. The man spent his entire career railing against the federal reserve’s decision to contract the money supply in the early 30’s. I find it hard to believe he will do the same today.

  5. By fatbrick on Jun 10, 2008 | Reply

    In 30s, there was no $140 oil. Things changed a lot over 80 years.

  6. By evangelist on Jun 10, 2008 | Reply

    front end of the curve does make an interesting long proposition…especially as it gets close to the 3 handle. To me what seems like a real risk in the curve is the long end….despite the differences b/w the ECB and the FED on the current state of inflationary affairs, one thing is for certain. Volatility in inflation is certainly HIGHER and it doesn’t seem to be the bond is discounting much of that.

  7. By Dan on Jun 10, 2008 | Reply

    One of Bernanke’s papers about 10 years ago was on oil price shocks and the proper policy response should one arise. To sum up about 50+ pages of analysis, he concluded the Fed should not raise the FFTR in response…it’s the “stay the course” administration, remember?

    http://ideas.repec.org/p/cvs/starer/97-25.html

  8. By hedgingrisk on Jun 10, 2008 | Reply

    Short Euro’s worked today… Its weird trying to go long dollars when your already based in them…

    Oh well, its what we get paid to do…

    HR

  9. By MW on Jun 11, 2008 | Reply

    Thanks for posting that link, Dan.

  10. By Dan on Jun 11, 2008 | Reply

    MW – No problem.

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