May 8. Skeptical undertone in the markets

–The Fed’s QE in support of asset prices is supposed to lead to increased confidence and “escape velocity” in the economy, or at least that’s what is hoped.  However, skepticism, rather than confidence, seems more prevalent. “Much of the market’s gains in the past few years have been due to the Federal Reserve making money cheap and keeping interest rates low, forcing investors into riskier assets like stocks.” This line is from a HuffPost article; it has become common knowledge. But there’s an implied addendum: ‘what happens if the Fed stops?’.  I saw sev’l headlines this morning saying China’s Trade Growth Accelerates, yet every article including WSJ, RTRS and BBG said that analysts doubt the veracity of the data.  US Consumer Credit was released yesterday, weaker than expected at $8B, but the trend continues: almost all growth in consumer credit is non-revolving, which is to say student loans and autos.  It’s simply not a picture of broad based confidence, even with Dow 15000.
–From a BBG article: “Fear is big business nowadays,” Hussein said. “People buy the guns because they’re afraid. People buy the guns because they want to scare others. We’re in a jungle now.” You might think that the story is about the US, where gun sales have soared, but no, this article is about collapsing investment in Egypt.  http://www.bloomberg.com/news/2013-05-07/egypt-investment-collapses-as-violence-sparks-lawless-vigilantes.html
–Today’s US news includes comments by Jeremy Stein who has recently cautioned about credit overheating, and the ten year auction.
–Big trade in euro$ options yesterday, steepener of red/green March. Sold 100k 0EH 9925/9900ps 2.5s (12d) and bought 2EH 9875/9825ps 7.5s (18d), all at a price of 5.0.  Red/Grn March futures spread unchanged at 43.5, though there was some liquidation of other year spreads, including sales of Grn/Blu June at 50.0

Posted on May 8, 2013 at 5:35 am by alexmanzara · Permalink
In: Eurodollar Options

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