Tuesday, July 14, 2009

Merrill's RateLab Retorts To Zero Hedge

Zero Hedge's good-natured critique of Merrill Lynch's most recent RateLab issue seems to have circulated. To wit, its author, Harley Bassman had this to say:

Under the rubric of "All P.R. is good P.R....." .......I can add that I have been called worse !

It was brought to my attention by a friend (yes, I do have a few, though they are mostly paid) that our most recent RateLab was commented upon by the website http://zerohedge.com

While allowing for the fact that everyone is entitled to their opinion, I have included below a few of our recent favorite RateLab issues as rebuttal. I might note that they have been reasonably prescient (as well as having a full compliment of "pretty charts").

A few more thoughts:

1) We did NOT state that Black Swans are "just a figment of Taleb's imagination"; we just noted that, by definition, they do NOT travel in flocks.

2) Our suggestion of a 3% to 4% range for T10yr is purely a short-term trading concept. (see Lemony Bonds, attached)

3) I would NOT call someone a Pollyanna for suggesting that markets might contract from a 4 sigma to a 2 sigma risk vector.

Harley, the P.R. works both way, and we appreciate it as well. To elaborate: Zero Hedge, as could be surmised, is an avid reader of RateLab - traditionally a source of much good and credible data. We were, simply, surprised by the recent departure from this "normal." Of course, if, as is probably the case, this was purely a result of Bassman voicing his opinion, then we encourage and support his platform, even if we obviously disagree with the conclusion. We do wholeheartedly agree with Bassman's clarification that the 10 yr UST range should be read as a "short-term trading concept." The question is what happens, who benefits, and who is currently positioning themselves appropriately, for the day when the 10 Yr hits 2.99 or 4.01% (and of course does not stop there). To say there is a lot of capital at stake in a UST dramatic move in either direction is an understatement: with almost $1 quadrillion in interest rate swaps (yes notional, but welcome to the world where notional and net sometime mysteriously meet) outstanding, the day when the the short-term trading concept is no longer valid should prove to be quite "impactful" to many who have put on bets on either side of the trade.

Last point - if Harley is ok, Zero Hedge would be happy to provide its readers with the 4 reports that were attached to the circulated response. As Merrill is not known for being too happy with Zero Hedge's disclosure of the bank's reports, we would do so if we get the author's go ahead - the bottom line is that he does bring up many relevant and interesting points in these reports and they are definitely worthy of a wider audience.

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