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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: NOW who wrote (3746)12/21/2003 9:19:59 PM
From: mishedlo  Read Replies (1) of 110194
 
Yep, the best thing he does is not let his opinions get in front of market action.
He thinks interest rates are headed higher but is not taking action on that. He seems to be looking to buy miners, and rising interest rates and rising miners are not normally paired.

I gave all my reasons why interest rates are not headed up but it was interesting to hear him say it is alreay priced in (priced in to eurodollar futures perhaps?). That is my take as well. It is not priced in to treasuries and I agree with Hussman on that. Since hikes are priced in to eurodollars, shorting OTM puts or futures with CCs should be a winner unless rates explode.

Here is the key sentence:
"Meanwhile, it's clear that stocks are unusually overvalued, and that while increases in short-term interest rates are already priced into the yield curve, bond investors may not be fully prepared for the speed and extent to which short-term rates will actually rise (an increase in Treasury bill yields toward 4% during the next 12-16 months appears likely in our work)."

Eurodollars win if rate cuts come slower than expected or are less than expected. In Futures with CC's (or short puts) you can win big even if they come in as implied. The best thing for me would probably be if those rates hikes actually come in almost as much as implied but lagging by about 6 months. On the second hike or so, our economy will be reeling so frigging fast we will not see another hike and it will be "short at will" and buy eurodollar calls at will knowing the mext move will be a rate CUT as our economy imploads.

That is the scenario I am following.
IMO he is giving this "recovery" far more creedance than most of us here, and certainly me.

Mish
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