Nov 6, 2012. Judgment day

–Activity in front of today’s election was quiet. If there was a theme to be discerned in US interest rates it was straddle selling and put buying; atm vol edged lower.
–New recent low in red/gold pack spread as curve flattened, down 4.5 bps to 124.25. 2/10 treasury spread fell 4 to 140.8. (this year range 118 to 200).
–Intrade has Obama at 69.8 vs Romney 31.1. Nate Silver (a famous pollster that I had never heard of) has Obama at 92%. If Romney were to win, it will shake markets. What happens if coyote catches the roadrunner? http://www.youtube.com/watch?v=KJJW7EF5aVk
–I looked back at election day 2008 to compare a few spreads. Front euro$ contracts were around 2% or 98.00. First red was 97.50. Reds/greens around 118 vs current 23.6. Reds/golds 210 vs 124 now. Surprisingly, ten year note to inflation indexed tip was 90 bps (and ended 2008 at 15 bps!) while today it’s 247. Obviously not much of a forecasting record there. But certainly current and forward rates indicate economic malaise ahead, hopefully another mis-forecast.
–An interesting note on China on ZeroHedge (citing Goldman) that China’s Corporate debt as % of GDP has exploded to 151%, double the US at 75%. I often refer to this line from John Mauldin regarding debt: “That day comes when the debt is growing faster than the economy. The final Bang! moment happens when the total interest on the debt overwhelms the nominal growth of the economy.” I wouldn’t suggest that China is facing a crisis on debt, but it seems clear that overcapacity is an issue, and some assets can’t cover debt service. http://www.zerohedge.com/news/2012-11-05/chinese-credit-bubble-full-frontal
–Business Insider has a chart showing that analysts’ earnings estimates for Australia have been plunging, reflective of the same thing…a slowdown in China.
http://www.businessinsider.com/australia-earnings-chart-2012-11
–I may be a bit late today as I vote first thing in the morning. Polling place opens at 6 am, but in my community, the regular staff of a few older women is always just a little tardy, making sure the coffee orders are right (did Mildred want sugar in hers?), trying to find their reading glasses (on top of head) in order to shuffle through the sheaf of voter registrations…so I will likely miss the usual train.

Posted on November 6, 2012 at 3:46 am by alexmanzara · Permalink
In: Eurodollar Options

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