It’s Pronounced Yee-ros

Lately, my email has been flooded with an array of white papers, news links and general narrative groping discussions of Eurodollar futures. The recent movement of Lie-bor sets started the nostalgic looks at the once "largest pit in the world." Recently, the articles have dug deeper - and in my opinion, more accurately - into the risks hidden in the Gyro-dollar contract.

Bloomberg highlighted the BIS paper on PIMCOs warehouse of contracts at Bill Gross' untidy exit to Janus. (Now a tag line for anyone or anything facing an abrupt change) Gross held 1.2 million contracts according to BIS along with an ego maniac amount of short vol T positions. Well after the fact, smart people are realizing the connection between these positions and the T melt up. For novices, 1000 contracts has a notional 1B value, so Gross' fall at the firm he created is attached to his Tony Montana sized mound of Gyros. A small country's GDP worth to be exact.

These positions are green lit by the Fed's - wrong headed in our opinion - desire for openness that morphed into Forward Guidance. Eurodollars have begun to gyrate sans any official Fed activity. More tremors should be expected and, as always, the positions will be the problem. Government suppressed volatility creates a nasty side effect of markets being driven violently by liquidation. How many more practitioners will be heading to janus soon?

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