This Tuesday, we gave the podium [3]to Credit Suisse's rates group with "How To Make $500,000 With Credit Suisse Betting On A Big Jackson Hole Disappointment [3]" who in turn suggested that one of the best risk return opportunities heading into J-Hole, was to go short the 10 Year betting on disappointment by Bernanke (as a reminder earlier today we showed [4]that virtually 100% of QE was already priced in). Well, Bernanke came and went, and although our personal take on the speech was broadly negative, which highlighted the adverse side effects of what would happen if there is another big QE round, and substantially toning the exuberant language from the latest FOMC minutes, which had previously made it seem that the majority of Fed presidents thought more easing should be imminent resulting in another centrally-planned market rip, the stock market did not agree with our take. At least not initially. As for Credit Suisse, it said to "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." Turns out nothing worked out quite as expected. In fact, as a result of the J-Hole remarks, we have had another stock buying spree of anything that is not nailed down, with gold popping the most, the DJIA soaring as much as 150 (although rapidly taking on water), and the 10 year... well, let's just say anyone who was on the other side of the CS prop traders, sometimes called "flow" for Volcker Rule purposes, is now down -$400,000 on a trade that was supposed to be a +$500,000 meatpacking extravaganza.
[5]
And, as usually happens, we warned of precisely the "other" thing happening when everyone expects one outcome.
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.
Enjoying central planning yet?