Aug 31. Jax Hole. Bernanke vs Natasha, the genius chimp

Bernanke Jackson Hole speech today. Also Chicago PMI expected 53.0 from 53.7.
–Might as well lead off with something interesting rather than my bitter comments below.
(Story about Natasha, the genius chimp).

–I gather that the speech is supposed to outline policy guidelines…no real commitments. But as of yesterday’s close nearly all eurodollar calendar spreads are at their lows. Red/green euro$ pack spread is only 20 bps. Tens fell another 3 bps to 162. There was again heavy buying of green and blue September calls…2EU (green sept) 9950/9962 c spd was bought in size of about 40k for 1.5 (open interest -46k and -20k, so exit trade). 3EU (blue sept) 9925/9937cs bought for 1.5 40k, new. The front contracts are DEAD. In fact, total calls traded in the first 8 contracts, from Sept’12 to June’14, were less (at 54.5k) than 2EU 9950c alone (at 62k). No calls traded in red U,Z,or H.
–Persistent low rates and flat curve are likely to contribute to a zombie financial sector. The idea that open ended bond purchases will provide a shot of confidence to the business community is ludicrous. It may well be that when the music is playing, (paraphrasing Citi’s Chas Prince), that business will dance, but the minute the song dies out it’s over. Does anyone think that’s a path to permanent hiring? I think it’s more likely to spark a lingering fear of lost purchasing power. I actually got a splashy ad in my mailbox from the local bank offering a 2 yr CD at 1%. Great. So if I put my fake $100k in there, in one year I get $1000, perhaps enough to pay my real increase in property tax.
–Enjoy the labor day weekend. I will be out on Tuesday. In honor of the holiday Chicago Public School teachers are threatening to strike. Third largest system in the country. (Reuters) “Public schools CEO Jean-Claude Brizard has said that with a projected $3 billion deficit over the next three years, the school system cannot afford the raise the teachers want.” THREE BILLION OVER NEXT THREE YEARS! Maybe Bernanke will buy THOSE bonds. Even Natasha’s smart enough to know that’s the wrong strategy. Or at least she’s capable of learning it.

Posted on August 31, 2012 at 7:44 am by alexmanzara · Permalink
In: Eurodollar Options

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