Short Black Swans

Quite the action today in the fixed income market. I’m glad we got a little bounce, its good for the business I’m in, naked call selling! As my (one or two) readers know, I’ve been very bearish on the long end of the yield curve, especially for US debt…the duration has made for some great derivative trading.

I owe a big thanks to Joe Dowling, Hedge Fund Manager of NYC and Greenwhich origins. I had the opportunity to discuss investment strategy with Joe last year, when we discussed amongst other things the impact of the printing presses on treasuries. Joe fuelled my inspiration to learn and ramp up which has resulted in amazing gains in my portfolio, thanks Joe!

I just looked up my trade log, its been 11 months since I made my first speculation on fixed income with TBT!  Since then, I’ve moved onto ZB, which I think any serious trader should.

I’m planning on holding some form of my naked 120′000 July calls on ZB position open, and rolling as necessary.  There is still lots of this trade left, we are not even finished the first inning.  27 years in the making. My guess is these 120′000 strikes will expire worthless this month, and the 118′000’s next month, then so on and so forth.

Warning: I do not recommend shorting ZB calls, to anybody who doesn’t understand all the characteristics of how fixed-income can move combined with advance option models.  I consider myself extremely well equipped analytically and mathematically for trading these vehicles. They are not for the faint of heart.  I’m happy to answer e-mails and help anybody with questions.

Desalination: An Ocean of Problems

June is going to be a historic month, for Ontario, and Canada’s Nuclear industry…and the wicked web of possibilities is getting weary with every way of weaving.

See, the crown is putting up AECL for sale, simultaneously, during the decision making of who wins the work at Darlington. Areva, Westinghouse and AECL are the bidders, and the stakes are high.

My hypothesis is that AECL will win the work and then Westinghouse, Areva, and/or GE will come in with bids for AECL - and this is exactly how the government wants to see it played out…because a competitive AECL, with better access to capital, and smarter risk management, combined with a notch under its belt from a sale of the ACR1000 would launch Canada foward in the nuclear energy industry.

…is the downside in US Debt.

I want to make sure everybody I know, who wants to learn, understands how bond duration and intrest rate risk combined with the current economic storm…is creating a dramatic climax and great opportunity out of the last 27 year bull market in fixed income products sold by the US Government.

So…if you start learning about the market on your own, and are curious about the derivative products available…just let me know, feel free to e-mail.

The run in emerging markets, is no doubt, just getting started.  While there might be a pull-back, short-term, I think it’s worth hitting some EWZ and/or some 2011 $50 strikes….while selling front months, of course.  Does anybody really hold equity, without selling front months?

I’m going to put this trade on, on Monday.

I like brazil because of their energy reserves…but a little worried about how much water they waste.  Only 2nd to China, in terms on Non-revenue water levels.

I’m busy these days…here’s my current outlook, and it’s time to execute. Get it ?

if(Recovery == Soon)

{

IntrestRates(Up); //Putting Pressure On Dollar

Commodities(Demand); //Putting Pressure On Dollar

Inflation(High); //Putting Pressure On Dollar, destroying purchasing power

USAStocks(10% + EPS(FX_Earnings_Gains));

}

elseif(Recovery != Soon)

{

PrintingPresses(On); //putting pressure on the dollar

USGovernmentDebt(SupplyPressure); //putting downward pressure on bond market, upside for rates, pressure on dollar.

USAStocks(Flatline); //making market neutral strategies name of the game

if(PressureOnDollar == High){Commodities(Up);}

}

else

{

EndOfKnownEconomics(DollarUp,StocksUp,MoneyStaysCheapForever,USAWinsAgain);

JeffLosesShirt(2009);

}

double RunInvestmentThesis(Dollar,Bonds,Commodities,Stocks)

{

//Notice this function, is written such that, the results work with or without a recovery…so they don’t even use the global variable inputs.

Profits = ShortCalls({116′320,118′000},5 Year Treasury Notes);

Profits = ShortPuts({$55,$60},Crude Oil Futures) + Profits;

Profits = ShortCalls({950,970},S&P Futures) + Profits:

do while(t <= infinite) {CaptureTheta(&Profits);}

return Profits;

}

If you’re one of the 50 or so people who reached out, or one of the 200 people who downloaded my resume while I was job hunting, THANKS! You’ll be interested to know, that despite my best efforts, the upside I was hoping for by leveraging the charities, didn’t come to fruition. 

But, I am employed, and back on my feet, at least for now.  It’s an 8 month contract that I hope to turn into longer term.

BUT, even tho my plan failed, and it didn’t lead to a job…or even a single interview, I’m still going to carry through with my pledges to the charities.  Starting at the end of this month, since I have a job now.

That said, I’m pretty sure half of the last 100 followers, have been bots…who, guaranteed, did not care about my job search.

I have to give a special thanks again to Scott Anderson,  Steve Case, Ross Greenspan and Mike Sinclair and everybody else who tried to help…

Also, PS, I took the post down…because, in hindsight, it wreaked of desperation. 

H/T Maoxian

TED Talk

CCC TTEK NLC FSLR HEK ERII GLD CL/LO TBT SRS AMZN CVA VE Hyflux Vestas JEC RIG RIMM AUY CCJ ITU CREE

 …and precisely 93 other water stocks.

I may or may not have positions in some, all, or none of these names at any given time…

It’s days away, maybe a week, depends on what the dollar does. But I think…since…

…the volatility of oil has collapsed:

and since the curve is also collapsing…

I feel it is likely a smart time to buy at least half as much 2012 crude oil call verticals, as I ever plan on owning. I’ll save half my powder, for when my position gets cut in half. Crossing fingers I get the chance to.

Doesn’t matter, both are uber cool stories to me.

Below, is a desal plant, in Bahrain. It produces 60 Million Gallons of H2O per day. See, Bahrain, was not as cursed by the dutch disease as Dubai is.  That’s why, this plant, is extra cool in my eyes.

Photo curtousy of Sidem.

I’ve never put too much weight on where to cover my naked option positions…I’m going to try, holding out, to cover, when delta measured in %/% equals theta measure in %/day, on an absolute basis.

That is all.

While 1500 farmers are offing themselves…California farmers are protesting.

I’d love to sit down with one of these California farmers, and say something like “What exactly do you expect Arnold to do, about the environment you chose to farm in?  What exactly do you expect Arnold to do, about too many people living in an area that can’t sustain anymore growth? What exactly do you expect Arnold to do with a collapsed budget, peaky state, and energy costs rising? Is it maybe time, to move your farm, to where there is water rather than move the water to you? Yah, I realize, the mouths will have to follow the farm, sooner or later they’ll get the idea.  Promise, energy prices will see to it.”