Chief Market Strategist
Cronus Contrarian Corner
The first month of decline has led to a double in the 5 year yield and OVER a tripling in Eurodollar spreads into 2012 and 2013…1 MONTH….the bankruptcy we are calling for in 2011 is most likely the Fed
The smartest thing I was ever taught about the market was “The ONLY thing that matters is the positions.” We believe that tidal shifts revolve around markets under the stress of liquidation. The context within which the coming seismic shift in F.I. positions comes will define success or collapse. Right now, we are leaning toward the former.
The key take-away of the recent (and not fixed) Euro blasting was the first sign of flexibility and elasticity in the US rates space. The crisis showed what happens when capital markets break from rigidity. The trading community continues to wax and wane toward the tail risk, binary conclusions but elasticity means life in the middle. The Fed, the curve slope and the rest of the Globe will continue to buffer the turning tide. Valuation should push back against momentum bulls and bears. The MOVE Index (Merrill Treas vol index) will rival the VIX for popularity. As we said in October, rolling over is a critical part of the process.
The 10 year future has dropped about 5 points since early November. How far and how long the bounce is the micro discussion for the holiday season. The bigger conclusion for 2011 has already been decided. Higher and wider remains our call. Our focus will be on what can be taken out not necessarily what will move the most. For reference I would suggest a gander at the Note from March to June of 2009. Add a year and a half of monetary voodoo from the Fed and a dozen broken dreams from the public to the picture. Tops are protracted, choppy and frustrating in development. (Bottoms tend to be acute) That we are now engaged in that process is no longer part of the debate.
Kevin Ferry is the Co-Founder of Cronus Futures Management. He created the company in 2005 with five other traders focusing on fixed income, foreign exchange and equity futures trading in the electronic world. Currently, Chief Market Strategist, Ferry has 24 years experience in futures trading. Kevin Ferry Graduated from John Carroll University in 1983, majoring Economics.