1) Obama named David Petreaus by ordering down McChrystal as his war General
2) Fed came up with cautious outlook for economy.
3) Rates are to stay low forever
4) Long end rates will grind down lower
5) Swaption Skew changes will be favoring receivers
6) Equities will be looking range bound to lower
7) Oil will be range bound
May month has been sovereign crisis issue for Europe, BP gulf crisis for US and inflation global growth problems for Asia. June has been mostly aggravating Gulf crisis in US and equanimity in Europe and currency appreciation in Asia. Towards the end of month new twist came to this drama in the form of replacement of war general in Afghanistan. I think this is more of a political change rather than a strategic change. This act proves obama is very serious about what he means. Okay now what next, is everything all right? NO. Housing sales came low yesterday. Fed came up with cautious outlook and reading same FOMC statement for last 1 year. What does it mean. I can also read the same stuff every month. Why should fed be given such high respect for their acts? It means Fed is viewing the economy through those old rusty indicator lens. Markets are evolved, we have high frequency trading, exotic derivatives, large public sector deficits, persistently high unemployment and huge health care costs. Cocktail of all this well give a hazy picture of some thing being right all the time . This is sufficient for fed to keep rates low etc. Anyway even fed hikes rate nothing is going to happen bank lending. As they have stopped their sacred money long time ago. This means no inflation. This means long end rates have further room to fall or rise slightly.
Swaption skews for receivers are very rich.
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