Feb 11. Yellen seen as dovish. Like that one the Pope released in St Peter’s
–New Fed chair Yellen speaks before Congress today. Gold knows what she will say. MORE MONEY. Gold up 8 this morning to new high for the year at 1283. Stocks are getting the same message, up 8.50 near 1804. Crude oil also strong, CLH over 100 this morning, having been as low as 92 in early January. One of the reasons to taper is because QE creates market distortions, artificially funneling money into financial assets. It’s like the huge river dam projects to control water and create hydroelectric power. Sure, water is stored where it’s needed, but the climate of the land downstream turns into a desert as droughts and seismic risks increase. That’s QE, or the risk at any rate.
http://www1.american.edu/ted/ICE/china-dam-impact.html
–Remaining with the water theme, option premium continues to evaporate. All eurodollar straddles fell 0.5 to 1.5. TYH 126 straddle fell another 10/64’s to 52. April 124.5 straddle fell 16/64’s to just 1’40. And it’s not just decay of options rapidly approaching expiration. For example EDZ5 9900 straddle was 77.5 one week ago and settled yesterday at 73.5. 22 months left until expiration.
–High point on the curve with respect to one year eurodollar calendars has moved out one slot to EDH16/EDH17 which settled 107, down 1.5 on the day. 5/30 treasury spread is near recent highs at 2.20 (using w/i bond) as pressure has come off of the five year. FVH vol was as high as 3.8 last week, I marked at 2.8 yesterday.
