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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Haim R. Branisteanu who wrote (1587)	10/20/2003 12:14:47 AM
From: mishedlo	Read Replies (2) of 110194

Mish has been talking with Steve Saville via email on the EuroDollar Here Goes: From Mish to Steve Saville Steve, given what Eurodollars have priced in for a rate HIKE, do you really see any chance of that happening before the election. I do not. Going long the Sept EuroDollar future would be one possibility. Another play with a defined risk/reward would be a simple 98.000/98.250 bull spread that can be can be had for $300. That play would double your money if I am not mistaken and all that is required is for the fed funds rate to NOT rise by more than 1/4 point before the election. This would seem to me to be a near lock for a probable 100% return. I agree that 10 year rates are going to rise and junk bond spreads widen, mostly out of risk and out of foreigners refusing to buy our debt on a falling US$, but I am nearly positibve that Greenspan will not raise rates and kill housing before the election. The EURODollar contracts have priced in a huge rate hike that I do not think is likely and I want to take advantage. Thoughts? There are other possibilities as well with long sept futures short June fotures (betting for the spread to narrow to zero, or some interesting option plays on the DEC contract which has a 1/2 rate point hike priced in above and beyone the sept contract. I do not buy this at all either. The DEC 97.75/98.00 call spread is interesting as well That costs $256 and could be worth $625 That would allow approximately a 1/2 point hike from here and still return over 100% I cannot fathom the fed fund rate rising by 1/2 point between now and the election. Is this too easy? What am I missing? From Steve to Mish: I had previously read the Mauldin post and found your comments interesting. A question worth asking, though, is that regardless of the presidential election and what is happening with the economy and employment, is the Fed going to be able to avoid making substantial rate hikes next year if, for example, all of the following are occurring: -gold is threatening to move above $500 -the copper price is $1.20/pound and trending relentlessly higher -the US$ is threatening to plunge below its 1995 low -T-Bond prices are threatening to drop below their early-2000 low It is possible that interest rate hikes will be needed to prevent a complete meltdown in the dollar and bonds and a melt-up in gold and commodities. Cheers, Steve Mish reply to Steve Saville Steve I have been thinking about that possibility already. It is possible but I sort of doubt it. But lets assume for a second that that is the case. The hedge is to load up on some way OTM gold/silver calls while being long call spreads on the EuroDollar In spreads or calls the risk is defined as I am sure you know. The beauty of this mess is that GOLD and Silver may rise anyway even if Greenspan is not forced to do something. This could easily be a win/win situation on both the EuroDollar and gold. Then one has to get the H out of the way just prior to or just after the election. I would cash out EuroDollar calls right then and there. If gold and silver shoot up, I would hope to make more on that than I lose in EuroDollars. Actually I think I win on both, Greenspan being Greenspan and Bernake being Bernake. They can carry this party for perhaps one more year then it is all toast. ======================================================================== I will post his reply If and when I get it Mish

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