June 2008

Probability price reaches $133/135………………15.7%
Less than $133……………………………………..69.1%
Greater than $135………………………………….15.2%

Probability price greater than $129……………..72.0%
Between $127/$129……………………………….15.2%
Less than $127…………………………………….12.8%

The risk adjusted trade is therefore LONG into Fed Wednesday.

The last week has seen some quite heavy selling in the banking sector again. The fear seems to be based on the exposure to the commercial & industrial sector.

This is quite a rational fear, as the exposure is still high.

We can see that the Residential Real Estate exposure has come down now.

The Government securities chart highlights the “easy money” posture from the Fed that in part created the rush into MBS and other manufactured financial products.

As Yields dropped due to Greenapan easing, the Banks reduced their Government securities to hold MBS that paid a higher yield. This mismatched not only the maturities, but also the convexity. As rates started to rise under Bernanke, all hell let loose.

With MBS assets reduced, the question the Fed needs to ask the banks is this; what is your exposure on the maturities and convexity of assets held? If we [Fed] start to raise rates again, to combat inflation, what will happen to your exposures?

I do not think however that the Fed are as concerned with the Regional Banks going under. They are I feel quite prepared to let a large number go to the wall, as they do not pose a material threat in the same way as the major money centre banks and brokers did.

The Fed has also been signalling that any further cuts in interest rates are simply not on the cards, while higher rates to combat inflation are definitely on the immediate horizon.

Thus I would not be suprised to see +25 basis points tomorrow.

Buy LONG @ $13.91

D-Day: War’s over, man. Wormer dropped the big one.

Bluto: Over? Did you say “over”? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!

Otter: Germans?

Boon: Forget it, he’s rolling.

Bluto: And it ain’t over now. ‘Cause when the goin’ gets tough…
[thinks hard]

Bluto: the tough get goin’! Who’s with me? Let’s go!
[runs out, alone; then returns]

Bluto: What the fuck happened to the Delta I used to know? Where’s the spirit? Where’s the guts, huh? “Ooh, we’re afraid to go with you Bluto, we might get in trouble.” Well just kiss my ass from now on! Not me! I’m not gonna take this. Wormer, he’s a dead man! Marmalard, dead! Niedermeyer…

Otter: Dead! Bluto’s right. Psychotic, but absolutely right. We gotta take these bastards. Now we could do it with conventional weapons that could take years and cost millions of lives. No, I think we have to go all out. I think that this situation absolutely requires a really futile and stupid gesture be done on somebody’s part.

Bluto: We’re just the guys to do it.

D-Day: Let’s do it.

Bluto: LET’S DO IT!

Late addition;

Dean Vernon Wormer: Mr. Kroger: two C’s, two D’s and an F. That’s a 1.2 grade average. Congratulations, Kroger. You’re at the top of the Delta pledge class. Mr. Dorfman?

Flounder: Hello!

Dean Vernon Wormer: Zero point two… Fat, drunk and stupid is no way to go through life, son. Mr. Hoover, president of Delta house? One point six; four C’s and an F. A fine example you set! Daniel Simpson Day… HAS no grade point average. All courses incomplete. Mr. Blu – MR. BLUTARSKY… ZERO POINT ZERO.

It had to happen. Be very interested in watching this program.

Wannabe traders are to battle it out under the tutelage of former Goldman Sachs director Lex Van Dam in a new TV series to be aired early next year by the BBC.

Apprentice Traders
More than 5,000 candidates are understood to have applied to star in the programme, which is being produced under the working title of Traders.

While the programme will draw parallels with Sir Alan Sugar’s The Apprentice, Traders will have a different format, with more than one winner.

Mr Van Dam is a former head of equity proprietary trading at Goldman Sachs and a fund manager at London-based GLG Partners.

He holds a masters in investment theory and econometrics.

Search on Indian stockmarket turned up this metric;

Which is interesting when you compare it to the following cartoon, which although it is difficult to tell from the actual cartoon, is from an Indian newspaper.

Stagflation, stagnant growth + inflation.

Stagnant growth can be demonstrated a number of ways, Capacity Utilization, Inventories [rising] and increasing unemployment.

All of the above conditions are met. There is little argument currently that inflation is again increasingly out of control. Thus stagflation is fast becoming a reality again.

The last bout required the Fed under Paul Volcker to raise Interest rates up around 16% to finally break the back of the inflation. Of course, while this was happening, the economy wasn’t so hot.

Ironically, one of the BEST investment themes at that time was Real Estate. Time to buy property will again become the way to go. Just not yet…but soon.

Anyone who read my old blog, will remember the MVIS war. Something seems to be up [down] today. I’ll be having a look a little later…

The story, if there is one appears on a “Seekingalpha” article. A brief summary indicates that TI have arguably come to market earlier with a product of lesser quality, but are grabbing early market share. The article was written by an author who is associated with a Hedge Fund with a SHORT position on the common stock.

This is where the very weak financial position of MVIS becomes crucial. If the capital requirements force MVIS to the market to raise capital, and the market baulks, that’s MVIS finished.

LIBOR spreads are again very wide, which adds pain to Option ARM mortgages, and they really don’t need any more pain.

Federal Reserve Target Rate…………. 2.00 2.00 2.25 4.25 5.25
1-Month Libor……………………………… 2.48 2.38 2.61 4.86 5.32
3-Month Libor……………………………… 2.80 2.65 2.61 4.86 5.36

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