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

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To: russwinter who wrote (5354)	1/17/2004 12:29:53 PM
From: mishedlo	Read Replies (1) of 110194

Keeping rates low, works to keep the global economic and speculative activities in hyper-drive I believe that is the intent. Is it a moral hazzard? Most assuredly. Unless and until the FED sees jobs it just does not care about the moral hazzards and bubbles it is creating. As long as that holds true, and I think it will hold true for a "considerable" period, betting against huge hikes will likely be a huge winner. For example. I am short March 2005 95.25 puts. 10 of them in fact. I collected 9 BPs each for them. Is that money at risk? Hell they can hike 1 point and those are safe. BTW those are now worth 6BPs. (note I did not short those anywhere near the lows) Some stuff I collected 26BPs for I took off for 2.5BPs. I added those after the runups to put more coverage back on. (90 BPs * 25 = $2250 free money). I am short 15 June 2005 95.00's I collected 15 BPs for those and they are now worth under 10. I dont think those are at risk either. 3.75% interest rates by June 2005? That is preposterous. Literally. (151525 = $5625 free money). That is the kind of stuff I am doing. I am giving myself a huge cushion of error. I took off more than 3/4 of my futures after this runup. That stuff is decidely more at risk. Every day that goes by without a rate hike is another day's decay on those puts headed to my favorite number, zero. If we get any kind of pullback here I will short some SEP 2004 97.75 puts for 8 or 9 points free money. IMO no chance of a full point hike between now and sept. I am already short sep 2004 97.50's from 13.5 (now worth only 4.5 and headed to zero). As for In fact, I see 20 bps for EDs over FF as an anomaly, and unusual. I do not know. 20 seems like a good number and it gives me a cushion over the 16 spread we see right now with March ED's at 98.84. BTW I see the Jan ED just closed at 98.88. That is only 12 BPs! I believe 20 gives me a fine cushion of error of 5-8 BPs. In short, I have tried to be conservative at every step of the way. If that spread tightens up, I can always add another 4-5 BPs to my "implied rate" calculations. I doubt I will need to. Mish

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