Jose is short JGBs?

2016-02-04 7am EDT  |  #Japan #Jose Conseco #JGB #Credit Suisse #Deutsche Bank


Who knew baseball star Jose Conseco had become a macro trader in his retirement? And by the looks of his tweets, he has the short JGB trade on, and is not happy.


Hey Jose, I feel your pain. I too am short this bad boy, and have the scars to prove it.


They don’t call this trade the Widow Maker for nothing.

Kuroda’s recent move to negative rates has pushed the 10 year Japanese government bond yield to sub 0.10%. At this rate it won’t be long before the whole curve is trading below 0%.


Although I am hurting with my JGB short, I don’t view the recent development as any reason to hop on Twitter to vent my fury at the BoJ. I am not upset by their adoption of negative rates. As they rally the JGB market, it only creates an opportunity for a better sale.

I know you are probably saying to yourself this logic could have been used the whole way higher. And you are right. What makes this level any more likely to be the JGB top than all the previous highs?

I don’t have an answer. Maybe we eventually get a negative 10 year JGB yield. Maybe it even goes to minus 100 basis points. I don’t know.

But I do know Herb Stein’s law “that which cannot go on forever, doesn’t” always eventually kicks in. The absurdity of global Central Banks’ monetary policies are about to become glaringly obvious to all investors (and not just scandal disgraced ex-baseball turned macro traders).

There is no point ranting against the system. Instead I suggest Jose have the grace accept the things that cannot be changed, have the courage to change the things which should be changed, and the wisdom to have the JGB short on in the correct size so he can sit through the final manic move higher.

Central Bank absurdity

Speaking of Central Banker policy absurdity, even the ECB’s board members are wondering about our upside down topsy turvy economic environment:


Things are starting to become unglued, and they know it…

The market knows too…

And the market is figuring it out as well. Have a look at the Deutsche Bank 6% contingent convertible bonds (aka known as CoCo bonds):


As part of the effort to shore up bank balance sheets after the 2008 credit crisis, many banks issued contingent convertible bonds. These bonds have a convertible trigger clause which is evoked when the bank gets into financial trouble. Therefore as things get bad, the bank has less debt and more equity.

I believe wide scale adoption of these issues is a relatively new affair, so whether they actually help in a crisis is a question still up in the air. In the mean time, many investors are taking a better safe than sorry attitude as these bonds have been plummeting in value.

And it’s not just bond investors. Even normal overly optimistic equity investors are selling European banks with a vehemence usually reserved for crashes. Have a look at the Credit Suisse equity price:


Something is really wrong. These are large institutions with deep liquid markets, yet they are going no bid with an alarming regularity. Be careful out there…

Thanks for reading,
Kevin Muir
the MacroTourist