July 9. Eminence Front, or eminent domain….

The news slows
People forget
The shares crash, hopes are dashed
People forget
Forget they’re hiding. (Eminence Front Lyrics-Who)

Friday’s trades continue to be geared to lower rates in a sluggish economic environment. For example, gold Sept (4EU, EDU’16 underlying) 9825/9837/9850/9862 call condor (4.0s) WITH gold Dec 9850/9862/9875/9887c cond (3.25s) were bought in total 40k…some in pit for package price of 7.0, new positions. TUU 110-08c were bought in size of 16k, mostly covered (straddle settled 11.5, I calculate straddle price about 8.25 bps).
–Ten year yield closed 1.54, down 6 bps on the day. All back month calendar spreads closed at new low settles. FOMC statements say fed funds will remain low at least through late 2014…Sept14/Sept15 one year calendar spread closed at a new recent low of 37 or 3/8%. The market has pushed the point of expected tightening further and further out the curve. A spread of 37 barely acknowledges the chance of tighter policy.
–This week brings 3,10, 30 year auctions in the US (Tues,Wed,Thur) and FOMC minutes on Wednesday.
–This is pretty amazing, from MSN.com: “Instead of tearing down property, California’s San Bernardino County and two of its largest cities, Ontario and Fontana, want to put eminent domain to an unorthodox use to keep people in their homes… The municipalities, about 45 minutes east of Los Angeles, would acquire underwater mortgages from investors and cut the loan principal to match the current property value. Then they would resell the reduced mortgages to new investors.
In 1984, the U.S. Supreme Court upheld Hawaii’s use of eminent domain to transfer residential tracts of land to renters to break up a landownership oligopoly and stabilize home prices. In 2005, the court affirmed a Connecticut town’s right to use eminent domain to transfer nonblighted homes to a private developer to spur redevelopment. That spurred several states to pass laws restricting these powers.” MSN.com
–Here is a link on Bloomberg that describes the same thing: http://www.bloomberg.com/news/2012-06-28/eminent-domain-is-bad-ploy-for-underwater-mortgages.html
–My understanding of eminent domain is that the gov’t must pay fair value for the property. But fair value may be substantially less than entities are holding paper on their books…

Posted on July 8, 2012 at 10:03 pm by alexmanzara · Permalink
In: Eurodollar Options

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