Wednesday, August 4, 2010

Congressional Relief...

"No man's life, liberty, or property are safe while the legislature is in session." - Mark Twain
Congress is going to go on dislocations and decorrelations are testing peoples reserve to the max...the bankruptcies (deleveraging) on both sides of the trade are continuing...get ready for a free for all!

11:30 pm: I wanted to add that the free for all to me means more, we need to expect shorts to pushed violently into submission and longs to be sorely hammered thereafter...I think most people are going to fail the trade...shorts will be broke prior to the short and longs will not have time to get out.

In any case, the 30 year bond is trading near the 2008 highs...and has barely pulled back...It is also in a trend mode break out if support at 126 holds. Overall, this is highly unusual behavior and is an example of the issues I have repeatedly stated with pair trading, correlation or arb trading. People who think treasuries rally when the equities go down and sell off when the equities rally are using selective historical information and are getting hammered. We had the same issue with Gold versus the Dollar index last month and the EURO vs equities at the beginning of the year to name just a few. These are examples of disorderly de-leveraging and I do not think that they will result in a pretty picture when the process in each security is fulfilled. $50 billion in retail investor money has come out of the equity market while it has been at fairly high levels. Most of these people have not made back what they why are they selling? Delveraging would be the right answer...people need to convert their assets into cash and reduce their exposure to economic stress so they can buy dinner and pay bills. That ultimately means anything not glued down will be sold it does not matter if the Fed and their buddies want to levitate prices. For now, we can see it demonstrated in these correlation blowups that are taking people out on stretchers.

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