Thursday, December 20, 2012
As we come to the end of 2012 we find that, like a movie, the stresses and strains, the thrills and spills and loose ends are all being tidied up into a relatively happy ending. However, like any blockbuster worth its salt, there are the odd questions left open ready to be picked up again in any sequel (2013). 2012 has seen the resurrection of many dark evils but TMM can't see one that has actually resulted in the type of global disaster that many tail hedgers had placed their chips on. The European Zombie Dawn has not torn the heart out of the EU leaving it a bloodied corpse as Greece is still in the Euro and Spain has not defaulted. The US is not in recession, China has not had a hard landing, Iran hasn't been invaded or closed the Gulf, inflation hasn't gone hyper through QE and, lo, we are all alive and well (if you are reading this after 21st Dec).
TMM would like to summarise 2012 as "The Year that cried Wolf". Tail hedging became a theme that saw premiums rise rapidly, whether it was straight volatility for tails or the tail risk products such as CDS. But at the end of the year, though there was money to be made by cunning tail risk traders ( as there is with any market that is wildly moving) the underlying events that these products are designed to insure against did not occur leaving the net sellers of tail risk the beneficiaries. TMM have had some interesting debates with friends about tail risk and we will probably do a post on it soon, but our simplistic view is that if you bet on a 33/1 horse and the price comes into 20/1 then you have made money irrelevant as to whether the horse actually wins or not. And this year saw a lot of betting on ultimate losers.
This is probably going to be the last post of the year from us but we hope to come back strong in January with our Non-predictions for 2013 and the marking of the 2012 set. We can't even remember what they were now and daren't look. For now we leave you with the 2012 Christmas viewing schedule.
2012 Christmas viewing-
"The Shirakawa Briefing"- Staring Matt Damon. A tale of intrigue as one man fights to discover ancient policies shrouded in mystery since the dawn of time. Only he know's the dark truth and is determined to warn the world of a frightening new plan being plotted by a mysterious organisation known only as the BoJ.
"The Fiscal Cliff" prequel to "Into the Void" - Two climbers have to overcome bitter personal resentment and hatred stemming from their disturbed childhoods as political orphans in the House of Representatives in order to overcome adversity and certain death as they face the uncontrollable natural forces of budget control.
"Dead Calm" - A portfolio manager and his Sovereign CDS holdings are becalmed in the once stormy seas of the European markets when they come across a European Central Bank whose story doesn't tally. The investor is left on a sinking ship hoping that the central bank's plans fail and his CDS rescues him before he drowns.
"Big Trouble in Little China" - When an All-British fund manager Anthony Bolton agreed to take his funds to the Asian stock markets, he never expected to get involved in a supernatural battle between good and evil. Bolton's funds are rich in greenbacks, which make them a perfect target for an immortal bent system and its three invincible state structures. Suffering huge losses, how can Bolton's funds now defeat data that can't be seen.
"Green Card" - A French national leaves France for tax exile in Belgium to much derision from his homeland, only to find that a benevolent Russian President is willing to give him residency with no questions asked.
"Tom 'n' Rog'll Fix it" - Far East dealers Tom 'n' Rog try to make their own dreams come true by fixing it for themselves. However their shady activities catch up with them years later once they think they are immune from capture leading to huge embarrassment and fines for their employer. Unfortunately, unlike the other old "fixer", they are not already dead and are about to face prosecution for their outrageous crimes.
"Apocalypse Not Now" - A website in the US is inundated by true believers of the ZH cult expecting to be rescued by Aliens and long gold positions from a doom writ large in ancient calendars. However when Greece doesn't leave the EU, Spain doesn't default, the US doesn't go into recession and China doesn't have a hard landing, as the ancient prophecies predicted, they all have to pack up their meagre belongings, having sold everything else, and trudge back to the realities of a normal curve with their "tails" between their legs.
Happy Christmas and a Happy New Year from Pol, Cpmppi and Nemo.