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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: loantech who wrote (8915)	2/28/2004 11:03:21 AM
From: russwinter	Respond to of 110194

When I look at positions (in the COTs for example) I see the market is extremely long about everything. That means the market may be potentially offside everything. That makes "everything" risky. Taking this one sector at a time: Commodities: You obviously don't want to be short commodities in a Flucht in die Sachwerte, in fact if you were convinced that was happening you'd borrow all the USD you could, and buy everything of value you could. There are clear signs aggressive specs are doing just that. The CBs won't be able to talk down a crack-up boom though, they will have to defend, and at this stage even the three percent prophylactic Steve Roach proposed may not be enough. And as Misheldo rightly points out, Steve and I aren't running the Fed. So if that's really true, and you feel serious penalty flags will be thrown only "patiently" in the face of a serious inflation, then there is really nothing to prevent a continuation of the commodity and input goods inflation run up, and you would play it. Of course at some point (very soon, not 2005, this is happening much faster), the economy will seize up from the pricing pressures, and shortages, and get to some equilibrium. But equilibrium in a one or one and a quarter rate environment might look like this: $42 oil, $3.00 gasoline, 20% higher food bills, plant and business shutdowns (in China also, so at least that "cures" the offshoring problem <snicker>), and people taking out more home equity loans to pay for (and speculate on) all this (and thus sustaining higher prices). That last sentence is the very definition of the crack-up boom. Stocks: I don't think stocks will do well in the climate I just described. They are a short, but you have to risk the moral hazard crowd, who knows what they will do week to week. This week you had to endure another Fedhead performance, and that just fuels long speculation and more borrowing (as Greenspan encourages such "prudent" acts as taking on ARMS). You could just hedge by buying XLF puts as they have very low premiums, but don't bet your life savings on put options. I'm more aggressive, and posted some ideas earlier in the week. Eurodollars: Right now the 3 month yield on the June ED is 1.23%, and the Sept is 1.43%. mrci.com Here I'm taking the anti-long, anti- moral hazard stance, and since at some point the shock, the surprises, the offsidedness of the market (and the Fed) ought to be revealed, I'm betting on a ramp up of rates to perhaps a surprising level. I think anybody who is inclined towards aggressive long plays in commodities ought to have some hedges or insurance in short EDs just in case there is a sudden wake up call. If the market is at this level Monday, I'm going to double my short ED position prior to the 7:00 ISM release, this time in the Sept (keeping my June's, which are breakeven despite being wrong about the Fed's moral hazard road and pom pom girl show in Jan. and Feb (didn't think they would do it).