With the changes in recent days on interest rate and stock markets coinciding (only in part, given the big macro trends) with shifts we anticipated in our tactical biases (see below), and our days being very busy, we have made a number of adjustments in our option positions for clients.
Perhaps to the relief of many, I may not going to treat yout to a long tirade on the dangers of deflation or extrapolate about the myth of the printing money (as described by the Austrian Ostriches) he actions of central banks since 2008.
I will, however, provide you two highly interest texts (links).
· The first: Keynes vs Hayek in The Times of 1932.
As George Bernard Shaw used to say, "We learn from experience that men never learn anything from experience".
On the subject of money hoarding, which they recognised as deflationist, the (1) Austrian group replied in an amusing way, from today's situation as reserves deposited at central banks have climbed to unprecedented levels. And yet, this hike in deposits is a corollary of the supposedly hyper-inflationist QEs.
· The second text: “The Monetary Base is Not Money”, from Q2 Outlook of Hoisington IM, who were nice enough to allow me to direct you to their note.
I will make no comment, as you can see for yourself; that is just one way of saying I am not alone on this matter.
Asset allocation biases and advised option strategies
· The long-term macro biases remain downward on eurozone government yields and negative on risky assets (equities, European real estate, commodities) and a deflation/depression scenario, which will require much more effort by the ECB than a shame-faced QE.
· Our short-term biases: a tactical rebound of about 10% on Eurostoxx indices (2900?), accompanied by a narrowing of sovereign debt spreads, resulting in a 2-point decline on the Bund (127-126.50).
Disclosure: Long 20 years OAT and 30 years BTP Zero Coupons, EDF Corp 5 Years 4.5%, Grece 2 Y and 10 Y bonds, Long Eurostoxx50 ETF