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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (167220)	5/21/2002 11:30:56 PM
From: John Pitera	Respond to of 436258

it depends, is the check in the mail. -g-

To: MythMan who wrote (167220)	5/21/2002 11:47:49 PM
From: John Pitera	Respond to of 436258

Actually I think I've found a way to take advantage of the positive funding environment that is making so much money for the banks. I've found the big financial firm that has one of the very best credit ratings and thus the lowest cost of capital in the global credit markets. It looks like it will be possible to take investor X who's got 10 million worth of US Government bonds or high quality corporate bonds, and let him use those bond holding as collatoral for a Libor + points loan that might be 3.5%. So the Guys with the really big bucks who want to be in bonds, can earn the yield and borrow against it. The Money they borrow is at 3.5%, we take that money and put it back into XOM bonds or US Long dated bonds. and they have 225 to 400 basis points of positive interest rate differential. To protect against the chance against a big updraft at the long end of the yield curve, We also hedge the long bond position, one of two ways. with out of the money bond puts that are insurance that the position stays profitable and since they are out of the money the bond puts don't eat much of the positive funding spread. Or hedge number two, a short bond futures position to more fully offset any rise in rates. Obviously that limits the capital gain on the bonds if rates long rates fall to 4% because a deflationary inplosion occurs. But who cares about that, the investment still makes money. This opportunity will be around until the FED starts raising rates and the very large spread between short and long rates narrows. This would be done through One of the world's top 10 banks. I'm thinking it might even pay for a bit of the TC. -g- This works because 1-- inherent credit advantage of bank having very high credit rating -- lower cost of capital. and also because of the bubble. 2-- The FED's record liquidity creation and the huge spread between financial institutions borrowing and lending costs. So thank you Federal Reserve, I appreciate all this money and liquidity, it makes it possible for a guy to earn a living :-) John EDIT: I've been meaning to mention this to MB and HV and see where the holes are, I'm not finding any so far.