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Sep 21

Tonight should be a turning point…either way

With the Federal Open Mark Committee (FOMC) currently meeting, many pundits are expecting a very very big package to be announced by Ben Bernanke tomorrow. If its not what the market expects, then I imagine there’ll be more equity market pain but if it is big, then I’m confident we’ll see a strong market (so a purchase of both put and call option appears to be an appropriate strategy).

Given Obama has little to no chance of getting anything decent through the Republican controlled congress, inflation is a non-issue, Ben has the freedom to try something innovative and big and he appears to be the only US option left. In terms of being innovative…could be another QE3 at the long end of the yield curve or even a concentrated monetary expansion where he buys bonds of a specific non-government securities.

Either way, I still believe the European debacle is the biggest issue and it will have no impact on solving that.

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3 comments

  1. BB

    Maybe the FED will surprise us and backstop euro debt? Great for short term US and EU sentiment, provides a big potential carrot to get equity market speculation going again and appears to solve longer term euro solvency issues without actually doing so. Oh and not to forget the fact that it can all be paid for with free (aka tax payers money) By current standards it looks to me like it ticks all boxes required for reckless intervention…. accept maybe US political popularity. Well, in a few hours we will all wake up to see just what the surprise will be…. just like Christmas!

    1. michael

      Happy Chrismas to the Put holders

  2. BB

    I had lunch with a broker out of Melbourne a few months back, he had priced up an asx200 collar when the market was around 4,600 – 4,700. and at that time we were both struggling to see how the market was going to break and hold above 5,000. If memory serves me correctly the call was close to 5,000, the put was around 10% out of the money and the net cost was basically zero….. if only the dealer group agreed with the idea…..

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