July 20. Liquidity trap

July 20. Quiet day Monday.  Natl Assoc of Home Builders (NAHB) data was weaker than expected.  Libor ($) setting continues to edge slightly lower in the US (while moving higher in EUR); EDU0 was trading 98.485 late, marginally below the current setting.  BAC took another hit, down 2.7%, as did gold.  Interestingly Larry Summers had an op-ed piece in the Financial Times with this quote: “In most of the industrialised world, given that economies are in or near liquidity trap conditions, it is the last two propositions that should control policy. Together they make a case for fiscal actions that maintain or increase demand in the short run while reassuring markets on sustainability over the medium term.” I don’t think he actually understands what a “liquidity trap” is.  I’m not sure that I do either, but they do, and they’re the ones that are trapped.  In this case BofA and other big banks are under suspicion because revenue growth is lacking; the weak economy deters loan demand while credit quality also deteriorates. And these are the banks with a gov’t backstop…smaller banks are simply being closed.
–Curve was steeper, with red/gold pack spread up 4 bps and 2/10 treasury spread up 3 at 237. 
–IBM and TXN disappointed after the close, sending ESU slightly lower on Monday evening.

Posted on July 31, 2010 at 8:54 am by alexmanzara · Permalink
In: Eurodollar Options

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