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« A Unique Review of 2011: The Year that Wasn't! | Main | Bespoke Investment Group and Forecasting Follies »

December 31, 2011

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Proteus

Angel: Thanks for the link to the ECB paper. But now I have to go and read/understand it :)

Jeff, hoping 2012 is indeed a prosperous New Year! Your efforts (and I am sure they represent a considerable investment of time) are truly appreciated.

Angel Martin

Thanks Jeff. Happy new year to you and best wishes for you and your clients in 2012.

You have really helped my thinking this year, especially about sentiment wrt europe.

On my OTM euro puts, and on currency crashes generally: when they happen, these things always seem to drag on for years and then end with a surprise collapse.

To me, that argues for an OTM options strategy, and being patient and willing to endure a slow bleed.

In the case of a sudden crash to 50 on FXE, current euro options allow for something like 2300 months of time decay so i feel like the strategy has potential... i just hope it doesn't take that long :)

I'm also starting to look at the yen, pound, dollar and the sovereign markets in those countries - all have bad fundamentals as well (esp Japan) and less current negative sentiment than the euro

oldprof

Angel -- Thanks for the pointer. I'll take a look.

I very much appreciate your comments and constructive engagement over the last year. I am sure that many others have also benefited -- both from your comments and because you nudge me to another level of response.

Best wishes in the new year. I wish that your options were not so far out of the money so that our interests were more closely aligned.

Putting this aside, I am confident that you will continue to succeed in your investments:)

Jeff

Angel Martin

Jeff, I have been looking at alternatives to the St Louis Index.

One I stumbled on has been looked at by the ECB
http://www.ecb.int/pub/pdf/scpwps/ecbwp1327.pdf

It's a really complicated paper, and i understand very little of it (state - space methods?) but one thing they have done is to create a forward looking indicator of financial distress- as opposed to coincident (or near coincident) indicators like the St Louis Index

Also, the pattern post 2009 is quite different from the St Louis Index, with ECB indicator at the end of 2010 at above 2008 levels for europe. (see fig 8)

Jeff, i'd be interested if you have looked at this paper, and your reaction.

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