Wednesday, December 12, 2007
...The Fed did have something up its sleeve, a program to auction liquidity that broadens the eligibility of tapping the Fed, both in terms of institution and collateral. At the same time, it's announced a joint FX swap facility to provide foreign currency liquidity across the world.
The Grinch has seen the light, and provided a treat (TAFfy?) to all the Whos in Whoville. Still, $40 bio this side of the Turn isn't exactly OTT, and surely the timing could have been handled better? The last 24 hours has seen substantial amounts of unnecessary financial market volatility; while the Fed doesn't have to bail out market participants, it doesn't necessarily have to go out of its way to screw them, either. And clearly, anyone short gamma over the last day has just been screwed.
So while the story apparently has a happy ending and the Grinch is everyone's new best friend, Macro Man remains wary. This may be the beginning of the end...or it may be the end of the beginning. Either way, the last 24 hours suggests that wherever we're going, we ain't gonna get there in a straight line. Stay long vol.