Had series of meeting in New York today and some things has become absolutely clear to me:
1. The incoming Obama will do ANYTHING-- including risking inflation and devaluation of US Dollar to restart economy.....EVERYTHING GOES - and Fed and Treasury agrees on this outlook even holding back their dire forecasts (They believe in +9 % unemployment)
2. The Fed, Treasury policy is driven by Entourage like - self-happy people who has no reality checks - It reminds me of Michael Jackson and his entourage Geithner being MJ....
3. The innner circle.. the entourage has been told to CUT ALL DERIVATIVE RISK before end of Q1 2009 or else.. they will lose their banking license... in other words.. there is going to be some SERIOUS UNWINDING in derivatives, which most likely will drive MARGIN ON FUTURES through the roof (the only leverage vehicle left when O's Dirigisme has left the station )...
4. Finally, there is NO balance sheet capacity left to do deals - in Fixed Incomeland there are so many arbitrage opportunities.. on/off the run 5/10s ... calendar spreads.. but NO ONE..and I mean no one willing to arbitrage it-- indicating to me.. there is massive downside risk and with some important calendar dates coming up.. 8/10 dec.. Jan 20/21..I am unfortunately more than ever convinced more trouble is coming......
More tomorrow for full report.... Over-and-out from New York,
Steen
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