05/21/10: In a week that saw the currencies settle down a little, one can't help but notice the dramatic flattening of the yield curve. The market is repricing both long & short rates as central bankers in North America prepare locals for the end of near 0% rate policy (of which CRI has been warning now for more than 3 three months - refer to this week's spotlight for more on that) and Europeans must now prepare for a potential inverted situation. As should be the case, the end of easy money may lead to the end of the equity party. Confirming this notion, the S&P 500 just this week tripped its stop (on a move just below 1056). So while all the equity markets are still tentatively pointing higher, 5 of the 8 have had their long positions stopped out and thus liquidated.
Eurodollar: CRI warned its readers weeks ago that not only was there a top in the Corporate short term interest rate market, but that the prevailing 'easy' short term interest rate market was soon to come to an end. While the latter is up for debate, the former has indeed played itself out. In a recent report (issued February 19th, 2010) CRI suggested starting to build a long term position in the Eurodollar market [by buying out of the money PUT options on deeply deferred contracts - in this case it was the December 2010, 98.00 PUT at .07 ($175 each)]. While I would like to continue to add to that position, it has moved up by 50% and on any short term bottom in price I may elect to just take the money and run.....we shall see...
Regardless, this is such a good looking trade that it ought to get its own blog entry for the ages, so here it is.
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com
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