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Noteworthy News – November 15, 2010

Economy:

Why is America so rich? – The Economist

How to Make the Dollar Sound Again – New York Times

Why Japan Fell … and What It Teaches Us – Newsweek

Japan’s Economy Grows at 3.9% Annual Pace, More Than Estimates – Bloomberg

Baby Boomers: The Greediest Generation – Forbes

Markets:

Ireland’s cost of borrowing soars after dramatic sell-off – Telegraph

Markets Fall for a Second Day as the Dollar Improves – New York Times

Will ETFs Blow Up & Splinter Other Markets? – Barrons

Politics:

You Fix The Budget – New York Times

Deficit Plan Matches $3.8 Trillion Math With Tough Politics – Bloomberg

Ireland Is the ‘New Greece’; Japan and U.S. Next in Line for “Catastrophe”, Pento Says – Yahoo Finance

Psst! Rand Paul Was Right About Federal Pay – Newsweek

Banks:

China’s Four Big Banks to Suspend Property Loans, Paper Says – Bloomberg

Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire – Bloomberg

Posted in Economics, Markets, Media, Politics.


Quantitative Easing Explained

It’s worth it to watch the whole video.  Quite amusing and informative.

Posted in Conspiracy, Economics, Markets, Media, Politics.

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TSA’s Naked Strip Searches

There is a growing backlash against the backscatter technology that has become pervasive at airport security  checkpoints.   Pilots were the first group to start complaining about the “naked strip searches” and now the media has embraced the movement.

The most frightening aspect is the potential health consequence of repeatedly going through the body screeners:

“The physics of these X-rays is very telling: the X-rays are Compton-Scattering off outer molecule bonding electrons and thus inelastic (likely breaking bonds).

Unlike other scanners, these new devices operate at relatively low beam energies (28keV). The majority of their energy is delivered to the skin and the underlying tissue. Thus, while the dose would be safe if it were distributed throughout the volume of the entire body, the dose to the skin may be dangerously high.”

Read the full complaint from University of California, San Francisco faculty here: [Download not found]

From my perspective the solution is simple: Just opt out of the body screener and go for the “aggressive” pat down.  Do you really think that it is more intrusive to be felt through your clothing than to have someone in a back room staring at a naked picture of you?  Also, if a large number of people opt for the pat down then the TSA and our government will need to either force everyone to go through the screener (which is hopefully too big brother authoritarian for the American public to stomach) or find another method because full pat downs would delay and cancel a lot of flights.  The sad truth is that 30 years down the road, if you have cancer from the body screener, it will be a little difficult to prove that it was due to the body scanner…

Go to Nudeoscope.com, DontScan.us, and StopDigitalStripSearches.org for more information.

Posted in Conspiracy, Politics.

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Where is Vol Headed?

The market has been trading as if we are preparing for a correction, ready to burst back through the 1200 level on the S&P 500 at any moment.  With that feeling, I have reduced some risk in my portfolio.  Despite my risk reduction, I still have the feeling that the market can move higher and volatility can grind tighter as we move through the holiday season.

Low historical volatility, but plenty of downside left

The other disconnect is with the VIX futures curve as usual.  The spot VIX has fallen to 18.64, but the Dec 2010 is at 21.05 and the Jan 2011 is at 24.3.  The gap between the Dec and Jan contracts is very close to its wides:

Sell Jan, Buy December?

I am still short the Jan 2011 contract, but I have a hard time closing out the position with this gap so wide.  Maybe I will take the lest risky position and go long Dec until this gap closes.

Posted in Derivatives, Markets, Trading Ideas.

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More Interest Rate Artifacts

In a follow up to our look at 10 year treasuries versus 5 year treasuries, we should look at the longer maturities as well.  It turns out that since the end of August, the 30 year treasury rate has significantly broken away from its downward trend while the 10 year treasury is bouncing between 2.5% and 2.75%.

Disconnect?

This divergence in rate paths between the 30 year and the 10 year mean that the curve is steepening.  In historical context it is a massive steepening:

Can you say "steepest in 30 years"

What else makes this historic steepness interesting is just how low yields are in general.  The absolute spread between the 30 year and 10 year is 1.5%, but that’s over 50% of the 10 year rate.  Visually:

That puts it in perspective

Nice and pretty pictures, but what does it mean?  The 30 year treasury is not being purchased which is making supply overwhelm demand which means that investors do not want to lock in rates for 30 years that are comparable to the rates that they are locking in for 10 years.  This means that there is an expectation for rising rates that is rather strongly viewed by the market, but at the same time the shorter term rates have remained stable because anything is better than sitting in cash…

You could bet that this spread would collapse by buying 30 year treasury futures and selling 10 year treasury futures on a duration neutral basis.

Posted in Economics, Markets, Trading Ideas.

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