Convexity Maven’s Picks

Harvey Bassman’s picks are available for all. What I like about Harvey is that he sends out an email when he has something to say, unlike some folk who feel that they have to say something every day even when nothing has changed and they have had no new insights (!).

Anyway, Harvey’s picks all revolve around trading to take advantage of the Fed’s de facto policy.

1. a straight bet on SPX, structured via short put and long call (structured to be no net premium),
2. a four year call on the STOXX50,
3. buy a mREIT. These things trade at a discount to depressed NAV, and have a nearly 9% yield,
4. buy a muni CEF (not available outside USA, I suspect),
5. buy gold, as insurance,
6. buy an OTC 7-year put on the 30 year bond. This is not accessible to non-institutional clients, but is a bet on inflation that, in Harvey’s view is very likely to pay off.

So, another seasoned professional who thinks we’re going to be in for a period of financial repression followed (eventually) by inflation. This becoming the consensus view: inflation down the road, but very low and stable rates for the time being. I sort of follow the logic, but I can’t help thinking that once the whole market has decided this, the end will be quicker coming than most might think.

I like the idea of buying something that yields 9% (maybe especially buying some call options on it). But credit spreads are bound to rise, eventually, and a long time before govt. bonds break.

Wrap

Fairly extreme risk off. $DXY down 0.3% to 90.45. All US sectors green. VIX crushed, SPX up 1.2%, IWM up 2.5% Crude up 1.3% Most global equity markets up between 1 and 1.5%.

Politics

Now Biden is confirmed, he’s disclosing the bribes he used to get the nomination. The first out of the hat is Pete Buttigieg as Transport Secretary. Twitter commentators are mocking the guy for his total lack of qualifications for the job, willfully failing to understand that politics is all about rewarding loyalty, and nothing about rewarding competence. It’s not that Biden had a moral duty to choose someone who knows about transport. It’s that if he didn’t pick off his competition with bribes, he would not have got to where he is now. The problem is that this is a truth that can never be acknowledged by politicians or those who report on politics, except obliquely. Bismark said “Laws are like sausages. It would be much better if you don’t look closely at how they come into existence.”