Nov 16. Fiscal cliff ad nausem

–Stocks continue to be pressured in front of today’s fiscal cliff meeting. AAPL has lost about 1/4 of its value since September, having gone from 700 to 525, which equates to market cap loss of about $170 billion. (It started the year at 400). That’s really the danger of hanging policy objectives around the neck of the wealth effect, as Bernanke did when he pointed to a rising stock market as evidence that the Fed’s magic was working. The wealth effect on consumption can cut both ways.
–In spite of lower stocks and weak economic data, ten year notes can’t seem to rally. Ten year yield essentially unchanged at 159. Perhaps all the talk about fiscal problems has sharpened focus on the fact that the US must borrow from the world to plug its massive deficit, and perhaps the rest of the world isn’t a willing lender at paltry rates. (Although Japan’s tens are only 73 bps). A note from Sovereign Man is sobering: There are three categories of fed’l govt spending, 1) interest on the debt, 2) mandatory (social sec’y and medicare) and 3) discretionary (all else). “In Fiscal Year 2011, for example, the US government spent $176 billion MORE on debt interest and mandatory spending than they generated in tax revenue…In Fiscal Year 2012, which just ended 6 weeks ago, that shortfall increased to $251 billion. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion.” The Post Office alone lost $16 billion last year. And while Fannie and Freddie are now stable (though both only trade at share prices of around 28 cents), the FHA which came to housing’s rescue as the former two flamed out, may now need a bailout.
–November midcurves expire today, atm calls were exited in good size yesterday. There was also a seller of about 100k Dec 2yr notes at 110-085, capping the contract…perhaps related to long call positions.

Posted on November 16, 2012 at 5:49 am by alexmanzara · Permalink
In: Eurodollar Options

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