July 19. Unsustainable trends

–It’s remarkable that every time Bernanke gets in front of Congress he bluntly says that fiscal trends as they currently stand are unsustainable, yet treasury yields continue to decline. Tens remain below 1.5%. This is the same Congress that grills JPM about a large trading loss (in a quarter that was still profitable), while the WSJ reports that the US Post Office may default on a $5.5b August 1 payment for health care benefits and Congress does nothing to stem the bleeding. The same article notes that the PO loss was $3.2b in Q2. Maybe the solution is a scheme where the Fed should just buy Post Office bonds directly…
–Another article at Reuters says that states have been cutting support to state universities, causing general cutbacks at schools, rising tuition, and larger loan balances for students. (And many of those loans are funded by the federal gov’t, with increasing default rates).
–Spain just sold 5 year debt at 6.54%, while US 5’s are 60 bps. Would you lend to the Post Office at 60 bps?
–The trend in the US is for lower yields and a flatter curve… Trades continue to lean that way, for example buyer of 30k Gold Dec 9850/9875/9900c fly for 6.0. So stocks become the only game left in town.
–Pressure in the mideast is building with the US sending another aircraft carrier to the Gulf. The possibility of sudden escalation is rising as rebels in Syria appear to be turning the tide, raising the stakes for respective backers. A $30 spike in oil probably wouldn’t steepen the curve, but would certianly be negative for stocks.
–Today’s news includes Philly Fed -8.0 (from -16.6) Jobless Claims 365k, Leading Indicators expected -0.1.

Posted on July 19, 2012 at 5:42 am by alexmanzara · Permalink
In: Eurodollar Options

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