Dec 9. Let them buy Modiglianis

–Continued pressure on EDZ5 reflects certainty of a Fed hike next week.  I am amazed that I have twice in the past few days seen large buy trades go through in EDZ5 9950 puts that were essentially at parity; market makers must be having a holiday sale.  “No MARK-UPS!  How do we do it?  VOLUME.” One was a 20k lot buy at 1.25 when futures were 48.75 bid with small 49 offer and the other was yesterday when there was a buyer of 15k for 2.0 with futures 48.0/48.5, and there were only 8k on the bid (which quickly disappeared).  I apologize for starting out with a focus on the micro, but it relates to a broader picture that vol is perhaps being under priced, especially in the current environment.
–Yesterday the NFIB released its small business optimism index.  From the release, optimism “collapsed in November after three stagnant months” to 94.8, the second lowest reading of the year.  OK…it’s not a BIG data point.  But BoC’s Poloz also brought up the idea of negative rates for our neighbor to the north.  Canada $ unsurprisingly making new lows.  As is well reported, junk bonds and leveraged loans are falling hard.  CNY was again set lower this morning at 6.4277, and there are reports of China dumping commodities on global markets.  So the Fed is going to hike against a backdrop of BAD global economic conditions.  The one hike isn’t going to make a difference as long as the Fed goes to great pains to signal that other rates hikes won’t be so fast, if they come at all.  And if the Fed DOES communicate that message, then red euro$’s will pop, and the dollar will fall, and there will be a brief commodity short unwind.
–Remember the Cramer rant when he screamed ” Bernanke has no idea how bad it is out there.”  Well here’s the clip (with a bonus of Erin Burnett).

It was August 2007 and Bear was blowing up.  I certainly am not suggesting things are that bad, but just remember, at the time Cramer engaged in that (correct warning) rant, SPX was near its all time highs.  He implied that the Fed should toss out the academic models and throw a life line.  Is there an echo in here?  I am sure the energy producers and miners are feeling the same way, with Anglo American slashing payrolls by 85000.  “Let them buy Modigliani’s”.
–Ten year auction today.

Posted on December 9, 2015 at 5:30 am by alexmanzara · Permalink
In: Eurodollar Options

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