This page has been archived and commenting is disabled.

How To Make $500,000 With Credit Suisse Betting On A Big Jackson Hole Disappointment

Tyler Durden's picture





 

A week ago everyone was convinced that in three days, Bernanke would reveal the second coming or whatever the equivalent biblical event is these days that would send the Dow to 36,000 in a heartbeat. We laughed at such naive suggestions. Then over the past five days the market has seen a profound transformation with what was initially a seed of doubt that the Chairman may in fact disappoint his stock buying disciples, having sprouted into a full blown weed of outright denial, fear and loathing. Which makes sense: in a world in which everything is jawboning, everyone's hope is always on the event just over the event horizon, but never on the one that is imminent: that way when the inevitable disappointment happens one can just say it was all premeditated and is coming "next time." However, in case the market has finally had enough of being led by the nose, lied to, and does throw a temper tantrum, there are way to take advantage of this. One bank that suggests just a way to do this without trading in that insane asset class known as stocks, where up is down, down is purple, and the triangle-square-square-circle killer combo sequence now works in reverse, is Credit Suisse, which suggests to put on a short bond position in anticipation of a major selloff which should inevitably accompany a disappointment from the Fed. Their suggestion: put on a $50K DV01 short at 1.64% and expect a steep selloff when the Fed disappoints, with a 1.75% target. If all works out according to plan, everyone involved should be $500,000 richer at market close on Friday with Bollingers all around.

If history is any guide, CS is right, and this will be the easiest $500 grand ever made. Then again, if there is one thing central planning has taught us, is that under central bankers with no world experience, history never rhymes.

From Credit Suisse:

As has become tradition at this point, considerable anticipation has been building around Chairman Bernanke’s upcoming speech at the Fed’s annual Jackson Hole conference. With all of the chatter around whether the Fed is going to announce further easing at the next meeting, Bernanke’s every word will be scrutinized to glean any indications of the direction in which he’s leaning.

 

While it is not uncommon to remember Jackson Hole as the venue for some of the most important announcements in the recent policy history of the Fed (remember QE2?), Bernanke has more often than not been loath to make any type of strong commitment.

 

Even the 2010 speech can be better characterized as a discussion of the options at the Fed’s disposal—a far cry from the “QE2 announcement” that it is often remembered as being.

 

In all, regardless of our wistful memories of the Chairman coming to the rescue in Wyoming, history shows us that whatever expectations may be, the speech often ends in a sell-off.

 

With this in mind – and following on the back of the current low-volume re-rally in the market – we recommend taking a tactical short into Friday’s speech. We add a $50,000 DV01 short in the current 10-year note (yield of 1.6400% at the time of this writing) to our model portfolio, targeting a short-term back-up to 1.75%. The risk is that 10s break from their usual behavior around Bernanke’s speech and continue their rally. Note that we remain medium-term bullish with a 1.35% year-end forecast for 10s.

 

Below we show the average movement in intraday yields on 10s for the week of Bernanke’s speech going back to 2008, along with the movements for each speech day. Although the behavior leading up to 10 a.m. differs year to year, 10s have consistently sold off, jumping 7bps on average during the day on Friday. Much of the move occurs in the initial moments

And the empirical evidence behind CS' thesis:

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 08/28/2012 - 14:11 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

I have a DIY bookshelf and a Mexican strat in trade, can haz buy-in?

Tue, 08/28/2012 - 14:19 | Link to Comment FEDbuster
FEDbuster's picture

We need a Zerohedge Hedge Fund, too many good trade ideas are found here not to take advantage.

Tue, 08/28/2012 - 15:01 | Link to Comment Darkness
Darkness's picture

Agreed, why hasn't anyone made progress on this yet? 3 and 25% sounds about right. 

Tue, 08/28/2012 - 15:25 | Link to Comment Zeilschip
Zeilschip's picture

Yeah, shorting T's with Europe potentially blowing up, yeah sounds reaaally appealing.

Fri, 08/31/2012 - 21:25 | Link to Comment CPL
CPL's picture

Go look up TIm Sykes you noobs.

Tue, 08/28/2012 - 16:23 | Link to Comment True.North
True.North's picture

2% in gold, 20% in silver. physical only.

Tue, 08/28/2012 - 18:39 | Link to Comment Grinder74
Grinder74's picture

I hear a savvy super smart guy named Jon is looking to start a new hedge fund.

Tue, 08/28/2012 - 15:20 | Link to Comment graneros
graneros's picture

I don't see why not. I've played many a Mexican Strat and they both sound good and play good.  I don't know why they have such a bad rep.  You can keep the bookshelf.

Tue, 08/28/2012 - 15:26 | Link to Comment slaughterer
slaughterer's picture

"put on a $50K DV01 short at 1.64% and expect a steep selloff when the Fed disappoints, with a 1.75% target"

1.) timing will be everything to this trade

2.) it has the potential to backfire quite quickly for a few whipsaws.  (Prepare adult diapers)

3.)  How many institutional prop traders will be fading this ala Squid?

Tue, 08/28/2012 - 14:14 | Link to Comment roadsnbridges
roadsnbridges's picture

Stolper has a brother?

Tue, 08/28/2012 - 14:26 | Link to Comment malikai
malikai's picture

Twin, apparently.

Tue, 08/28/2012 - 14:55 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Nope, it was a single birth...Stolper was the placenta...

Tue, 08/28/2012 - 14:26 | Link to Comment jekyll island
jekyll island's picture

I listened to a "guru" last year and shorted bonds.  Don't have to tell you how that worked out.  Bonds will eventually tank, but everyone who has bet that "this will be the time" has been devastated.  Color me unimpressed, will just stack more Gold and Silver.  It's the antibond anyway.

Tue, 08/28/2012 - 20:12 | Link to Comment FEDbuster
FEDbuster's picture

Closed my IB account this month (h/t Ann Barnhardt), and moved that money into pre-64 quarters (lots of them), couple more AKs & ammo, more long term storage food, etc...  Still have the Roth IRA, but boy am I tempted to take the "hit" and cash it, too.

Tue, 08/28/2012 - 14:16 | Link to Comment Hype Alert
Hype Alert's picture

If The Bernank doesn't drop a golden egg on the podium, it will be a disappointment!

Tue, 08/28/2012 - 15:00 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Yer friendly neighbourhood PM trader here.

At the auction today, all PMs selling at 20-30% over scrap. Sovereigns at £270 plus comms.

Its freaky - the market can't get enough of the hard stuff.

Go figger...

Tue, 08/28/2012 - 14:17 | Link to Comment Abraxas
Abraxas's picture

Who's this Fred guy everybody's talking about?

Tue, 08/28/2012 - 14:17 | Link to Comment Diesel Seven
Diesel Seven's picture

Credit Suisse . . . blah, blah, blah, where where they in January telling us to short near-term VIX and go long SPX.

Tue, 08/28/2012 - 14:18 | Link to Comment Dr. Engali
Dr. Engali's picture

I hope I can get the house mortgaged in time to put on this trade.

Tue, 08/28/2012 - 14:25 | Link to Comment kito
kito's picture

i may not make $500,000 in my qe3 bets, but im content with my maple glazed turkey sandwich on whole wheat italian, lettuce, tomato, onion and honey mustard............

Tue, 08/28/2012 - 14:32 | Link to Comment Dr. Engali
Dr. Engali's picture

LOL    ;->   If I make $500,000 on a Qe trade kito I'll buy you your own deli. Well maybe not a real deli..more like the buy in rights to a Subway franchise.

Tue, 08/28/2012 - 14:39 | Link to Comment fonzannoon
fonzannoon's picture

Hey guys I am half watching this and half jammed up but are they recommending to short tresuries as a result of QE3 disappointment? If so.....yeah right.

The bond guys have taken yields from almost 1.9% to 1.6% in the last week....and not because they think he is going to print.

Tue, 08/28/2012 - 14:44 | Link to Comment Dr. Engali
Dr. Engali's picture

If the Bernank or Draghi don't turn on the presses soon then there is going to be a flight to "safety" I wouldn't want to be short treasuries in front of that.

Tue, 08/28/2012 - 15:44 | Link to Comment mkkby
mkkby's picture

Finally an intelligent comment.  Past QE cause bonds to be sold, yields up.  QE dissappointment means safe to hold bonds, yields down.  This trade is a loser.  I'm surprised some of the Tylers forgot.

Tue, 08/28/2012 - 14:45 | Link to Comment kito
kito's picture

fonz, im sensing that you are developing a bond fetish......................

Tue, 08/28/2012 - 14:53 | Link to Comment fonzannoon
fonzannoon's picture

nope but i did step in front of the bond train a few years ago when i thought i had it all figured out. I still have the tracks on my ass to show for it.

Tue, 08/28/2012 - 15:20 | Link to Comment Dr. Engali
Dr. Engali's picture

Well when you have it all figure out let me know because I've certainly been run over by a few trains in my lifetime.

Tue, 08/28/2012 - 14:53 | Link to Comment ThirdWorldDude
ThirdWorldDude's picture

Long latex suits and whips?!?

Tue, 08/28/2012 - 18:16 | Link to Comment stocktivity
stocktivity's picture

Gutsy...but I wouldn't do the trade. Romney has said the Bernack will not be Fed chairman if he wins. Benny need Obama to win. He may not announce QE3 but he will give enough BS hopium.

Tue, 08/28/2012 - 14:22 | Link to Comment Bam_Man
Bam_Man's picture

The only way to win is to not play.

If you haven't already, leave the casino now and don't come back until it is under new management. And the old management is either dead or in prison.

Tue, 08/28/2012 - 14:24 | Link to Comment YesWeKahn
YesWeKahn's picture

What if that asshole prints anyway?

Tue, 08/28/2012 - 14:32 | Link to Comment Brother Sebastian
Brother Sebastian's picture

That's exactly the point...you got it right.  Benny-boy is a master of deception.  Tell the market one thing, do something else behind everyone's back.  No matter what happens, he will make big profits for his masters.

Tue, 08/28/2012 - 14:42 | Link to Comment drivenZ
drivenZ's picture

he's actually been pretty predictable. everyone already knows there won't be QE, which is why this trade won't work. Buy the rumor sell the news. Treasuries will probably rally a few bps. 

Tue, 08/28/2012 - 15:35 | Link to Comment Debt-Penitent
Debt-Penitent's picture

Nothing else up til now has made sense, Why start now?
So: if commons sense says not to,,,Hell, He's printing for sure!!!

Tue, 08/28/2012 - 14:25 | Link to Comment LongBalls
LongBalls's picture

When markets hang in the balance on every word puked by a central banker then it is very clear that the markets are broken. Place your bets boys and girls. In time...the house will always win. OR you can count your money while your sittin' at the table. Cause I don't think there will be time enough for countin' when the dealers done. Kenny Rogers had it wrong.

Tue, 08/28/2012 - 14:26 | Link to Comment Brazillionaire
Brazillionaire's picture

 

August 31, 2012, Jackson Hole, Wyoming- In a surprise move today, Fed Chief Ben Bernanke calmed investor's fears by unveiling the Federal Reserve's latest program to calm investor's fears. Dubbed "Operation TotCon", the centerpiece of the new program involves taking the Federal Reserve public, with an IPO scheduled for late October. The central bank will trade under the symbol JACK. Market watchers were unclear as to whether the phrases "you ain't got JACK" and "you got JACK" would acquire new meaning. Quasi-paradoxically, the phrase "if you ain't got JACK, you got jack" may be true; however, the phrase "if you got JACK, you ain't got jack", may no longer be allowed. When asked about the motivation for this latest effort, Bernanke said, "for too long, the markets have been seen in a 'risk-on, risk-off' modality. With Operation TotCon, credit for prevailing market sentiment will be properly allocated, as we anticipate ackowledgement of a 'JACK-on, JACK-off' trade to carry the market predominantly forward." A Fed spokeperson who wished to remain anonymous, said that Operation Totcon will begin 2 days prior to the IPO by buying controlling interest in all publicly traded companies on the New York Stock Exchange. In a related story, the Obama administration announced today that "day trading on margin" would now qualify as acceptable as a work requirement for receiving welfare benefits. 

At the time of this story, the DJIA had rallied 6,300 points in light trading.

Tue, 08/28/2012 - 14:28 | Link to Comment Bunga Bunga
Bunga Bunga's picture

I think you are correct, but the symbol will be "SUCK".

Tue, 08/28/2012 - 14:38 | Link to Comment Aquaman
Aquaman's picture

Brilliant!

Tue, 08/28/2012 - 14:51 | Link to Comment Brazillionaire
Brazillionaire's picture

Much appreciated. BTW, is you had a son, would he be WaterBoy?

Tue, 08/28/2012 - 14:52 | Link to Comment LongSoupLine
LongSoupLine's picture

Future breaking news story:

 

This just in:  Every middle-class American's 401k was Hi-Jacked today.

Tue, 08/28/2012 - 15:51 | Link to Comment mkkby
mkkby's picture

Great, then I can hold my gov motors and facebook shares until the next jack-off.

Tue, 08/28/2012 - 14:26 | Link to Comment Dr. Engali
Dr. Engali's picture

Now that everybody is all gloomy about Jackson whole watch old Ben come out and say "put your party hats on boys and girls because I'm going to print like a mother f#*%^r!"

Tue, 08/28/2012 - 14:36 | Link to Comment Dubaibanker
Dubaibanker's picture

If he prints, he has a problem, if he does not print, he has a problem.....

Tick tock, tick tock....what will Bernanke do?

I say...he will sit on the sidelines....some call it nothing....but words will be worth something and will help push the can down...His main role is stability, and stability is what he will bring. The last 30 years, yields have gone down, Germans and Swiss are running negative...why can't the US?

Billions or perhaps trillions are flowing back to the US with corporates sucking profits through Apple, Exxon, Starbucks and what not or selling planes, guns and missiles to anyone who needs 'security' or 'nuclear deterrent' value proposition.

 

Tue, 08/28/2012 - 14:38 | Link to Comment dracos_ghost
dracos_ghost's picture

I just hope they have water on the dais for him. Last time, I was getting cotton mouth just watching the dry slapping of his lips.

In the end, "Stupid is as stupid does". He will pull the trigger. The elite monkeys need more bananas to trade. They bring nothing else to the table.

 

Tue, 08/28/2012 - 14:29 | Link to Comment Racer
Racer's picture

So CS is in effect gambling on black or red with 10X leverage, anyone who allows them to 'manage' their money is a fool

Tue, 08/28/2012 - 14:46 | Link to Comment drivenZ
drivenZ's picture

not really. you can make(or lose) 500k with no leverage if you buy(sell) a 10MM position. DV01 doesn't equal leverage.  

Tue, 08/28/2012 - 14:28 | Link to Comment Meesohaawnee
Meesohaawnee's picture

TZA bitchez!

Tue, 08/28/2012 - 15:28 | Link to Comment slaughterer
slaughterer's picture

Today:

NAZ up .01%

SPY up .02%

Russell 2000 (RUT) up .45%

TZA?

Tue, 08/28/2012 - 18:21 | Link to Comment roadsnbridges
roadsnbridges's picture

Hot money just unsure where to go.  Waiting for 16.20 meeself.

Tue, 08/28/2012 - 14:31 | Link to Comment Aquaman
Aquaman's picture

I wonder if there is an etf for that.  In a world where everything can be created to trade on, I'd be surprised if there wasn't? 

Tue, 08/28/2012 - 14:44 | Link to Comment Aquaman
Aquaman's picture

It would also be good if they created a 1 900 xxx-xxxx number with Ben talking about all the different methods he has of "fluffing' the ecomony.  In addition to pleasuring all the people that called, we could use the money to pay down the deficit (just kidding...we'll give it bankers)

Tue, 08/28/2012 - 14:40 | Link to Comment Meesohaawnee
Meesohaawnee's picture

trade becky quick's jackson hole.

Tue, 08/28/2012 - 14:54 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Calling my broker now....

Tue, 08/28/2012 - 14:59 | Link to Comment Darkness
Darkness's picture

Can anyone explain the DV01 derivative in more detail?

Tue, 08/28/2012 - 16:50 | Link to Comment drivenZ
drivenZ's picture

Dollar value of 1 basis point change. When yileds move from 1.64% to 1.65% how much money does your position make(or lose). So it's dependent on how big your position is. 

 

yields go from 1.64% to 1.75% you pick up 11bps on a short. if your DV01 is $50,000 x 11 = $550,000

 

It's just for illustration purposes, the size of the position doesn't need to be that large. A DV01 of 50k would mean you had a position of something like $50MM. 

Tue, 08/28/2012 - 15:02 | Link to Comment BeetleBailey
BeetleBailey's picture

Here's my Jackson AssHole crystal ball for the Ben BerSCHMANKE audible out his sphincter synopsis;

1. Hey...we are printing money anyway, and doing it soooooo fucking freely - the public don't get it. Never will. Fuck 'em.

China OWNS our asses anyway. Shhhhhhhhhhhh (much laughter from the crowd of uber-douches)

2. QE? Hmmmm....never been the Queen Elizabeth boat...do they accept Bernanke-bucks? Ya know....just printed up stuff - or - will they go for me thinking up money out of thin air to pay for my fruity, faggy fizzie drinks???

3. By the way, my helicopter is out on the Jackass lawn here; The "Litter 1"; a printing press mixed in with a converted lawn blower....watch me take off and paper bomb Boise!

4. Steve Liesman - you need new knee pads; Draghi is not coming - or cumming - since you wore out your old CNBC logoed models. Get with it, douchebag!

Cheers! Fuck You all for sending those beard trimmers last Xmas - you silly fuckers. I have Bob Pisani for that chore.

Tue, 08/28/2012 - 15:22 | Link to Comment geotrader
geotrader's picture

Called my broker to ask about taking a short position in a bond.  He said can't do it.  Who would take this bet?

Tue, 08/28/2012 - 15:59 | Link to Comment Strider52
Strider52's picture

Yeah, and who would pay off? Too much counter-party risk.

No thanks, I got my precious at the bottom of the lake, that's good enough for me.

Tue, 08/28/2012 - 16:32 | Link to Comment drivenZ
drivenZ's picture

If you're a hedge fund? Goldman, JPM, BAML, etc etc

 

individual investors can accomplish a treasury short via ETF's or futures. 

Wed, 08/29/2012 - 03:53 | Link to Comment Roger Knights
Roger Knights's picture

"individual investors can accomplish a treasury short via ETF's or futures."

The ETF for 7-10 year Treasuries is IEF, iShares Barclays.

Tue, 08/28/2012 - 16:57 | Link to Comment cdude
cdude's picture

How generous of CS to give EVERYONE this "tip" on the trade of a lifetime. I guess this is their way of doing "god's work".  

Tue, 08/28/2012 - 17:54 | Link to Comment lolmao500
lolmao500's picture

Time to sell my silver and do this.

Tue, 08/28/2012 - 18:24 | Link to Comment roadsnbridges
roadsnbridges's picture

Start with the pewter first....

Tue, 08/28/2012 - 19:08 | Link to Comment FieldingMellish
FieldingMellish's picture

Useless fuckers can't even get history to repeat itself.

Tue, 08/28/2012 - 22:21 | Link to Comment HeavydutyMexica...
HeavydutyMexicanOfTheNorthernKingdom's picture

junior miners bitchez...

Do NOT follow this link or you will be banned from the site!