Tuesday, December 17, 2013

Dear Santa: If Deutsche Bank's Taper Analysis Is Correct Should I Buy Options on Silver Futures?

If the taper is announced tomorrow and if the amount is small, assets that would be expected to go down on a massive taper should have an upmove because they didn't have a downmove (see Sherlock Holmes: Kids, Know Your Literary Allusions: Canine Vocalizations Edition).

Casting about for some highly leveraged instrument we consider interest rate offerings, precious metals, mixed drinks and trillions of electrons spent on useless guessing about the taper.

Precious metals seem like the most straight-forward bet with silver being the most reactive and options on futures offering the greatest leverage that one's bank would allow without too much oversight.

From Business Insider:
DEUTSCHE BANK: 'Twas The Night Before Taper...'
 In a new research note to clients today, Deustche Bank economist Joe LaVorgna reiterates his expectation that the Federal Reserve will announce the tapering of quantitative easing at the conclusion of its Federal Open Market Committee (FOMC) meeting on Wednesday.

Tapering refers to the gradual reduction of the Federal Reserve's monthly purchases of $45 billion worth of Treasury securities and $40 billion worth of mortgage bonds. The program has been intended to stimulate the economy by keeping interest rates low and credit market liquidity high.

From LaVorgna's note titled "'Twas The Night Before Taper..."
We are looking for a $10 billion Treasuries only taper—we have been projecting this since the much stronger-than-expected October employment data (reported on November 8), which was subsequently matched by a similarly strong November employment report. Current quarter growth prospects continue to brighten with second half output poised to average over 3%. Moreover, the budget sequester was loosened, as we also had anticipated, so there is little reason for the Fed to delay tapering, in our view. The fact that the 10-year Treasury yield is at nearly the same level as it was right before the September FOMC, while the timing of the initial rate hike was pushed out at least six months from early 2015 to late 2015, tells us that the financial markets are indeed expecting a taper. There is now much less concern on behalf of monetary policymakers that a taper will engender a further tightening in financial market conditions. Indeed, since the September non-taper, equity prices are higher and credit spreads are tighter...