Thursday, December 18, 2008

ZIRP -- Tdday's New Acronym -- Updated

December 18, 2008

Found this at
Cassandra Does Tokyo, a new blog for me, found at Helena Cobban's blog.

I was doing my "Bernie" Madoff homework when I came across another term, "split-strike conversions." A search only turns up fifty hits (at this writing) but there may be more to come as the Madoff scheme unwinds. It's an investment strategy involving options trading with spreads. Think Rubik's cube in financial dealings. Some Yahoo message board contributor mentioned the term back in July after quoting from an email from an unidentified securities dealer.

My investment strategy utilizes "non conventional option" strategies known as "split strike conversions".The basic portfolio comprises of long equities whereby a call is sold and a put is bought with part of the call premium received. The "bias" of the portfolio is adjusted by the sectors selected and the number of options sold or purchased at any one given expiration time and strike price.The strategy preferes Index options, instead of individual stock options.I am also using selling naked put options to establish positions.
The "basic" portfolio includes 75% equities of the S&P 500 index and the Eurostxx 50 and 25% equities with no restrictions,usually "special situations",small caps and turn around".
Whereby the basic portfolio is not "traded",but subject to the use of options and futures, the 25% portion is very heavily traded.

This is not the end of the string. Just one of the loops sticking out.
I'm still reading.

Check out this post from Cassandra.

Meantime, here's this great flight of prose...

ZIRP (c) - The policy of pricing money as if it were free, thereby encouraging its creation in [errr hopefully?!?] unlimited quantities to any and all comers, for the stated purpose of avoiding deflation, though actually it is to make sure that those whose eyes were bigger than their stomachs don't explode, which ostensibly is less than desired by anyone.

nearZIRP(sm)(c) - same as the above, only a few basis points higher; usually meant to keep at least one final bullet for the FRB in the eventuality things get even more FUBAR. Also can be used on the rebound in order to allow the FRB to keep the fallacy alive that it is symmetrical insofar as it takes similarly aggressive action against inflation as it is against deflation. (See also: ZIRP-lite)

ZIRPtastic - The feeling of joy and bliss that overcomes the borrower of "free money" upon swapping US Dollar paper for something that will depreciate less.

ZIRPflation - The likely future consequence of ZIRP.

disZIRPflation - The temporary state of purgatory where core asset and commodity prices are falling coincidental to ZIRP, and/or nearZIRP.

ZIRPulation - Leveraged specutrage predicated upon borrowing Dollars at nearZIRP for investment in anything and everything nonZIRP.

ZIRP-sixed - Losing one's hedge fund either by maintaining long risky-asset positions enroute to ZIRP, OR, maintaining short risky-asset trades beyond their sell-by date (See Donchian Channel Breakout)

ZIRPcurve Risk - The aggregate embedded risk in a ZIRPified financial system where the paucity of short-end yield induces investors to "reach for yield" by going farther out on the curve, thereby squashing long-term rates towards ungodly low levels that cause a bubble in the long end, circularly making it near-impossible to shift policy or paradigms without inducing massive mark-to-market capital losses throughout the financial system. (See: "the folly of sequential bubble- blowing")

1st Law of ZIRP-o-dymanics - For every borrower there is a lender causing the net stimulatory benefits of ZIRP to be lost as savers now devoid of income curtail consumption.

2nd Law of ZIRP-o-dymanics - Exceptional circumstance of 1st Law where lenders are foreign, allowing the possibility that domestically , the net stimulatory effect might be positive.

ZIRPstamps - Food Coupons issued to OAPs (Old Age Pensioners) who live off of the interest from fixed-income investments, and as a result, now require income supplements.

ZIRPerrific - Celebratory "High-fives all around" in the Treasury War Room when stocks fall less than "a few percent", swap spreads converge, Jim Cramer finally shuts-the-fuck-up.

ZIRPBento - The FreeLunch(c) Box served in Financial cafeterias, but available to any and all comers.

ZIRPtomism - The belief that the power of positive-thinking and free-money will allow something-for-nothingism to live yet another day.

ZIRPquake - - Colassal dislocation in financial markets when eventual unwinding of ZIRP-related positions occurs.

neoZIRPeralism - Using all manner of monetary policy tools to insure the neoliberal regime suurvives. (See Income inequality, Public Interest, Beggar-Thy-Neighbor)

ZIRPing-on-a-String" - Economic state describing the ineffective outcome of employing ZIRP monetary strategies when the the root causes of America's ills has next-to-nothing to do with the price of money, and everything to do with unimaginable financial and regulatory policy mismanagement and neglect during eight years of the Bush Admin.

ZIRPatility - The phenomena describing the schizophrenic market adjustments to ZIRP as they attempt to fathom whether deflation or inflation will prevail.

ZIRPocracy -Describes capitalism's policy paradox where the market price is proffered to be essential to the optimal, (or reeasonable approximation thereof) allocation of a scarce resource excepting when it comes to finding clearing prices for stocks, real estate, and anything covered by TARP, TAF, TSLF

ZIRPlosion - - Eventual market relapse caused by putting-off until tomorrow what should be adjusted to today.

ZIRPO - The fourth Marx Brother.....

December 17, 2008

John Robb uses the term.

ZIRP (zero interest rate policy) has arrived in the US. The Federal Reserve and the US Treasury are now in desperate straights to stabilize the US economic system (and by extension, the global economic system). From a systems perspective, it's also a formal indication that the US and the global economy is now operating far from equilibrium and the Fed/Treasury is using every control input they have to return the system to its previous equilibrium.

Unfortunately, from a systems standpoint, that's VERY unlikely to happen. What will happen is either a monstrous overshoot (overcorrection) or a control system failure that plunges the entire system deeply into turbulence/non-linearity. While the establishment of a new equilibrium point at our current position, where the forces of correction and positive feedback loops are balanced, is possible, it's also unlikely since there isn't an external reference environment available to fix the system to.

In econo-speak, this translates into:

  • Hyper-inflation (overshoot) and potentially a dollar collapse/run.
  • Depression (control system failure).
  • Stagnation (new equilibrium point).

Best bet? Option 2, due to the long running secular trend (30 years of data) towards wealth concentration. This concentration has led the US middle class/consumers into a solvency crisis (in short, we can't correct the impact of that feedback loop with cosmetic policy initiatives).

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