March 16. A move towards a larger margin of safety

Mar 16.  The epic disaster in Japan overshadows all else, though it has barely registered a blip in US markets. If anything, the situation in Japan appears to be getting worse and the humanitarian ramifications will grow for the globe.  Adding to the mix of uncertainty was a downgrade of Portugal and increased tension in Bahrain with the arrival of Saudi troops.
–In terms of markets, the factors that were in place prior to Japan- uncertainty about energy supplies, the prospect of liquidity removal by the Fed, worsening conditions in european financial markets- are still pretty much in place.  The Fed meeting acknowledged commodity price pressures, but termed inflation pressures “temporary”.  The Bank of Japan has of course pumped out a huge amount of liquidity to try to stabilize financial markets, and the Nikkei rebounded today from it’s plunge.
–The reaction in US rates has been a flatter curve, and of course increased vol.  The ten year note is now around 3.30%, but I think it’s likely to move towards 3%, even though there are inflation pressures, and even though the Fed is the only buyer.  My view is that all financial markets will become further unsettled, and everyone is going to demand a larger margin of safety, be it more collateral for loans, more margin for trading, less financial speculation.

Posted on March 16, 2011 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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