Dec 13. Fed announces thresholds to determine policy

“We also understand sales to be an indicator and they are very bad industry-wide. I am seeing the worst results in locations near shopping where we are usually the strongest during Christmas. Watch for some really bad retail numbers! Talked to someone from Target over the weekend who confirmed.”

Above is purely anecdotal evidence, a note from someone who owns fast food locations. I don’t even know the region of the country… but to say that the worst results are coming from what should be the strongest is eye-catching.

–Fed announced $45b of new QE per month and tied changes in ZIRP to inflation over 2.5% and unemployment below 6.5%. Massive statement by the Fed recognizes tremendous deflationary weight on the economy. So, like other central banks they are trying to manufacture inflation, (which hasn’t worked for Japan but perhaps they are seeing a glimmer of hope as the yen slides). But from the view of a pension fund manager needing 6.5% to 8% to hit target, he might say if the Fed buys every treasury bond I will NEVER achieve those returns, which in turn causes states to raise taxes to make up for pension fund shortfalls. Others nearing retirement conclude they need to save more/spend less as investment income dwindles. In some ways QE adds to deflationary pressure, especially given demographics. And lack of volume also bodes poorly with respect to the ‘wealth effect”….from BBG: “Stocks are changing hands less often this year, with trading volume on U.S. exchanges falling about one-third from 2011 levels.”
–Perhaps gold and silver and stocks are giving ground simply because of ‘buy the rumor, sell the fact’ rebalancing. SP’s are hanging right around election day levels, having failed from a post-Fed surge. Interest rates moved higher and the curve steepened, with tens up 5 bps to 169.5. 2/10 treasury spread made a new recent high of 145.7 (range on the year has been approx 118 to 200). There has been a reasonable amount of bearish positioning in eurodollars, for example a buyer yesterday of 30k blue March 9887/9862ps for 3.5, and a buyer of 30k Green March 9937/9925/9912p tree flat. However, open interest in all these strikes, while growing, is only about 90k each.
–News today includes Job Claims exp 370k. PPI -0.5 and Retail Sales for Nov expected +0.5 less auto/gas.

Posted on December 13, 2012 at 5:33 am by alexmanzara · Permalink
In: Eurodollar Options

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