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Something smells bad


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I noticed, like many others, over the last few days/weeks that both commodities and long term treasury yields are tumbling badly. It wasn't long ago at all that the 10 year treasury was just above 2% and now it is already down to 1.69%. These are signs that the economy is doing pretty poorly, especially considering the speed of correction in these two very broad markets.

 

Looking at the U.S. numbers or until the terrible employment report today, you could not really figure out what was wrong. I guess we know now. Payroll tax, sequester and more importantly weak global demand are starting to impact the U.S. and has already impacted most countries. While I will not call a global recession, there are some signs pointing to it.

 

The other thing that seemed wrong was central banks around the world pumping enormous amounts of money into the system while things seemed relatively stable and improving other than for Europe. The scary part now, is what are they going to do if things truly slow down?

 

It is probably not a bad time to have some cash on hand and some hedges to take advantage of opportunities possibly around the corner.

 

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Something smells bad for GMO.  Commodities are turning and the bond bull looks like it will continue.  If this is the case, those unsustainable, can't go on any longer, high profit margins will also continue.  Good for equities??

 

Of course, just my 2¢ as a backbencher. I still can not see why a reversion to the median could not just last a few more years, or longer.  If I am GE, P&G, et al, my input costs are either going down or remaining the same as labor costs are surely going nowhere in 2013 and into 2014.

 

 

Cheers

JEast

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I smell the same thing you have two markets in an up trend right now the DOW and the  Japanese stock market. What they are proposing as economic policy in Japan can best be described as a play from the Thelma and Louise playbook. If I was in Japan right now I would sell anything that had a bid and put my money in Gold bullion and ship it out of the country. I think Kyle Bass has got it right and the powers to be know it or they soon will. What happened in the Japanese bond market over night may have ruined someone big.

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FFHWatcher,

 

Roughly 10% of the value of my longs in free cash.

Roughly 30% of the value of my longs in shorts with enough cash aside to cover.

Then I have SPY puts very slightly out of the money to cover 1.2 times the value of my longs. My stocks tend to be more volatile than the index hence why I have a larger notional value in puts.

 

I am giving you "blended" numbers since this goes for non-registered and registered accounts for which you can't short.

 

If you can help me, how do you calculate a % long vs % short for a portfolio or as described by hedge funds? This would have helped me answer your question more easily.

 

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What happened in the Japanese bond market over night may have ruined someone big.

 

Really, recognize that the 10-year price is up 100% over the past 12 months.  Maybe someone is just recouping some of their massive loses.

 

Cheers

JEast

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