I'll focus on the areas where we actually trade, work, and enjoy.
Left Hash's Calls for 2012
Fed Funds:
I think Ben and his gang have sufficiently squashed any hope of a rate hike for all of 2012. Their language at the last FOMC meeting even hinted at further QE, which in my opinion, is an even bigger mess than the one he's trying to solve. The funds rates have been settling around 7-9 bps for a while now and though the market and its participants don't really like this level, I don't foresee it moving more than 4-5 bps {and the only direction is lower}. I am comfortable selling the 1 year 87-93 strangle strip at 39.5 {1.5.12 settlement prices + some modeled data}. Any premium collected with cover you in the rare event that we actually move. Additionally, I believe that our model will create a lot more opportunities to trade if we do head lower and spreads start expanding. I firmly believe, a settle outside of that strangle has about a 15 delta.
ED:
I don't believe LIBOR will stay here for the year. I believe that the European banking/sovereign debt crisis has 'mostly' blown over and we'll begin to see a return to cheaper money. If Ben and company do initiate some type of QE3, I don't think its out of the realm of possibilities to see the 97 line come back into play across the whites. However, I would wager that for the most part, you'll see LIBOR average around 40-45 bps for the year with an occasional dip down into the 50-55 range. I would buy put spreads to take advantage of extremely rich put skew and to hedge some of the event exposure {9925-9900 or similar}Buying calls on the grind higher also would be prudent, as they somehow 'decay' on an uptick in the futures. It will be interesting to see if the Fed Funds vs Eurodollar correlation comes back into line as 2013 {and raising rates} looms.
SPX:
I don't really trade equity futures except to speculate. My one year target is 1405. The range will be 1080-1465. Drifting lower at the end of Q1 will bring about some type of QE3 and rally the equities into the 1400 range. A long grind for the summer months, followed by a slight pull back into year's end for a gorgeous print of 1405. Buy ES puts when the VIX is below 20, sell everything you can if it spikes above 40.
Yield Curve:
The Tens will print 1.50% and the Bond will touch 2.40% and because neither is good for anyone but giant banks, they will snap back and settle at 2.25% and 3.50%. The locals still have the front skews to the calls {implying that in the near term, the traders feel we'll trend higher and therefor pay a premium for that protection versus the puts} However, if you look 6 months out that trend levels out and 9 months out, it has actually shifted towards the puts {implying lower price and higher yields}. I wouldn't be afraid to buy puts and sell calls up to 3 months out.
Gold:
Currently $1600
2012's high: $1872
2012's low: $1344
Settle: $1440
Crude:
Currently $101
2012's high: $114
2012's low: $82
Settle: $88
EuroCurrency:
Currently $1.2725
2012's high: $1.3630
2012's low: $1.2200
Settle: $1.3150
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Never to be out done, my colleague, Mr. PrD {Philosophical Rail Defender} has offered a quick glimpse at what he believes will be our 2012.
Mr. PrD's Calls for 2012
Overall, I think 2012 will have a periods of reflationary hopes, dashed by deflationary fears, much like 2011. Much will be dependent upon further increases in central bank balance sheets. However, I predict that the half-life of any such increases will be increasingly shorter and shorter. My advice for the year is not marry any one idea, keep an open mind (don't fall into the trap of extreme sentiment accompanied with herd psychology), and understand that we live in exponential times.
S&P
High:1320-1350
Low: 950-980
Oil
High:110-112
Low: 65-68
Gold
High:1850
Low:1400
30 Year yields
High: 3.75
Low: 2.40
Euro currency
High: 1.3400
Low: 1.1800
Hope we all make a ton of money this year.
~LH
