Nov 8. Election aftermath

In a ringing endorsement of Obama’s re-election, stocks tanked, with SPX -2.4% and Nasdaq -2.5%. Copper and Crude made new lows for the move, as did the euro, with crude oil down over $4/bbl to 84.40. The curve flattened to new lows, with red/gold -7.75 to just over 118, (only 10 off the lowest level of the year). 2/10 to 137, down 8. All deferred euro$ spreads made new lows. Wholesale exits of puts that had been bought in the hope of a Romney victory, and aggressive buying of calls on blue/gold euro$’s and on bonds. Implied vol was eviscerated with TYZ down to 4.1 (but had traded 3.9 early). Perhaps it’s not Obama, but simply the focus on fiscal cliff ramifications. But regional votes also tell the tale. In CA, Prop 30, a temporary (7 YEARS!) state income tax increase from 10 to 13.3 on the wealthy passed. The only article I read said that these funds would help education, and the measure was passed due to support of the youth vote. The headline on the Chicago Trib: “Mayor hopes Obama’s 2nd term proves fruitful for funding”.
–Rates (and the curve) at these levels say nothing positive about economic growth going forward, and indeed exacerbate the problems of unfunded pension liabilities. The only hope for investment funds was a strong stock market, underpinned not by growth prospects, but by forced investment in search of yield. So the Chicago Teacher Pension fund, for example, which is woefully underfunded, will suffer right along with the rich guys. That’s why Chicago’s mayor hopes for help and why Illinois’ Governor is hoping the Fed’l Gov’t will guarantee the states pension obligations. Otherwise it means more taxes.
–Hopefully resolution of the fiscal cliff will occur soon, though stocks are still at least partially subject to global forces, i.e. european problems and changing of the guard in China, etc.
–If there is resolution, then buying puts/put spreads on greens/blues/golds has never been cheaper…

Posted on November 12, 2012 at 7:33 am by alexmanzara · Permalink
In: Eurodollar Options

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