affect of twist?

dannyrussell53 · Sep 21, 2011

What do you guys think the affect of the Fed extending duration on the asset portfolio?

Currently I think too much is baked into the market. I am short EUR/USD @ 1.35922 looking for the euro to consolidate around 1.34. I have a tight stop.

I am also currently contemplating shorting the USD/CAD at .998.

I also don't think QE3 will happen politically.

Thoughts?

Sidekicker · Sep 21, 2011

Look up effect vs affect.
Twist will be $ positive assuming no extra QE is added.

TheBramble · Sep 21, 2011

In what way do you feel the Twist is anything other than QE? Selling short-term to buy the long-term implies that they currently have the short-term to sell. Is there any basis for this assumption? My understanding is they will need to magic the funds to first purchase the short-term in order to sell them to 'purchase' the long-term.

libertas · Sep 22, 2011

TheBramble said:
In what way do you feel the Twist is anything other than QE? Selling short-term to buy the long-term implies that they currently have the short-term to sell. Is there any basis for this assumption? My understanding is they will need to magic the funds to first purchase the short-term in order to sell them to 'purchase' the long-term.

This table from the Fed's own website seems to indicate that they do own more than $400billion in short-term treasuries. The effect this will have on the short end of the yield curve though remains to be seen. The 2 year is already up 32 basis points since the announcement which is a jump of 20%. :-0

Martinghoul · Sep 22, 2011

Well, now we know...

libertas · Sep 22, 2011

Yes indeed. The 30 year below 2.89% :-0

Would you lend to Uncle Sam at this rate ?!

Martinghoul · Sep 22, 2011

libertas said:
Yes indeed. The 30 year below 2.89% :-0

Would you lend to Uncle Sam at this rate ?!

Well, I don't see why not, a priori... If there's nobody else to lend to and the world is sh1t, what's wrong with lending to Uncle Sam? Look at it this way, if Mrs Watanabe is happy to lend money to the f*cked up Japanese govt for 30y at 1.86%, 2.89% from Uncle Sam might just be a steal.

libertas · Sep 22, 2011

Martinghoul said:
if Mrs Watanabe is happy to lend money to the f*cked up Japanese govt for 30y at 1.86%

Yes but even old helicopter Ben has stated he would like to see inflation of 2% in the US (and he appears to be doing all he can to achieve at least this). A real return of .89% a year for 30 years! :-0 Surely there is somewhere better in this great wide world to invest.

scose-no-doubt · Sep 22, 2011

What's brazil offering atm?

MajorDutch · Sep 22, 2011

scose-no-doubt said:
What's brazil offering atm?

hot women with big asses! and a few guns thrown in.

scose-no-doubt · Sep 22, 2011

sounds like heaven. well sans all the kidnaps, obviously.

libertas · Sep 22, 2011

scose-no-doubt said:
What's brazil offering atm?

I think it's Mr Bernanke who is offering the free ATM.

Well you can get 12.25% on the 5 year. Can't find a 30 year rate at the mo.

Sidekicker · Sep 22, 2011

libertas said:
Yes but even old helicopter Ben has stated he would like to see inflation of 2% in the US (and he appears to be doing all he can to achieve at least this). A real return of .89% a year for 30 years! :-0 Surely there is somewhere better in this great wide world to invest.

What percentage of the bond market understands inflation I wonder...

Martinghoul · Sep 22, 2011

libertas said:
Yes but even old helicopter Ben has stated he would like to see inflation of 2% in the US (and he appears to be doing all he can to achieve at least this). A real return of .89% a year for 30 years! :-0 Surely there is somewhere better in this great wide world to invest.

Well, what Ben wants and what Ben gets might be two very different things... That implies that you might get smth a lot different to 0.89% per annum for 30y. As to where to invest, clearly there are some people with a lot of money who don't know of any better places to park it.

Martinghoul · Sep 22, 2011

Sidekicker said:
What percentage of the bond market understands inflation I wonder...

What makes you think that there's anyone in the bond mkt who's stupid and doesn't understand inflation?

Sidekicker · Sep 22, 2011

Martinghoul said:
What makes you think that there's anyone in the bond mkt who's stupid and doesn't understand inflation?

A real return of .89% a year for 30 years.
Granted they are playing for capital increase atm or long term changes.

Martinghoul · Sep 22, 2011

Sidekicker said:
A real return of .89% a year for 30 years.
Granted they are playing for capital increase atm or long term changes.

That's the expected real return for 30 years, assuming inflation does end up running at a 2% annual rate. The mkt is probably pricing that this 2% inflation doesn't materialize. You may disagree, but there's no reason to believe the mkt doesn't "get" it.

Sidekicker · Sep 22, 2011

Martinghoul said:
That's the expected real return for 30 years, assuming inflation does end up running at a 2% annual rate. The mkt is probably pricing that this 2% inflation doesn't materialize. You may disagree, but there's no reason to believe the mkt doesn't "get" it.

Ok, look at it another way. How much has the dollar been devalued in the last 70-80 years. Why would you invest in dollar denominated assets paying less than inflation over that time?
Bonds are seen as the safe investment and although the market may "get" it, don't you think there is also a large part of that market that just invests in bonds because they have to...pension funds, etc.

Martinghoul · Sep 23, 2011

Sidekicker said:
Ok, look at it another way. How much has the dollar been devalued in the last 70-80 years. Why would you invest in dollar denominated assets paying less than inflation over that time?
Bonds are seen as the safe investment and although the market may "get" it, don't you think there is also a large part of that market that just invests in bonds because they have to...pension funds, etc.

It's not correct to look at the "value" of the dollar over the last 70-80 years. The value of the dollar, taken by itself doesn't matter. You should only look at it as a proxy for the cost of a unit of labor. The dollar, as an arbitrary unit used to measure economic activity, is irrelevant. It's like saying that things are further when you measure distances in kilometers, rather than miles.

Well, yes and no. There are definitely investors that have to buy bonds and especially USTs, because it's the only mkt that's large and liquid enough. However, I don't believe that is what's driving the mkt at the moment. The fundamental forces of economics that mean that the West has to go through a long and painful deleveraging is what this is all about.

scose-no-doubt · Sep 23, 2011

Martinghoul said:
The mkt is probably pricing that this 2% inflation doesn't materialize

numbers?

affect of twist?

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