Raoul: Yeah I agree. What is interesting oil volatility has been coming lower. Look at don't think it's going to get back to where it was in 2014 when it was trading below 20 but it has come down from a peak of 80, a kind of a real trading range of 50 down to 30. If it comes any lower the ability to buy options start to make sense because oil volatility can go to 80 can go to a 100 so maybe buying some puts on oil or you buy kind of out of the money calls out of the money puts If you've got the view that you have that there is a tail risk events of something that Trump administration will do to drive up the price of oil and that's possible don't forget that the economic policies is credibly pro oil in the U.S. right now with the new administration. So it is in that economic interest to drive up the price of oil.
So yes I can see that too. I love these kinds of puzzles. These are the kind of ones that get me up at night thinking wow, that’s interesting, you've got all of the reasons why the oil price should fall, all of the geopolitical reasons and business reasons why the U.S. wants a higher oil price so how does this play out what does that mean for us.
Erik: What do you think about junk bonds here and I've been short junk bonds for forever it seems and made a bunch of money on that trade a long time ago and now I've given back about a third of my profits and I am waiting for the big move but it doesn't seem to be coming. What do you think here is the maybe the end of the oil selloff kind of spelled the stabilization of the junk bond market or do you think that that big credit risk a lot of people feared is still coming?
Raoul: Right, so with the oil price going high it eases the worst creditors or the worst debtors which were the oil industry. So that has been the relief rally and let's say the industry is like the H.Y.G. So we have had that relief. We've also see an economy that started the year last year almost I think it was negative in the first quarter with the I.S.M. below fifty. So it was very close to recession. That's when junk bonds become super interesting from the short side.
When you had this recovery the oil prices rallied as well. Suddenly junk bonds aren't that interesting because shorting junk bonds is all about credit risk. Will credit risks explode when the economy's growing at 2.2% I would say no. Does it happen if the economy goes to -1% yes it completely explodes it becomes a very very lopsided pressure award.
So there really in economic trade I think many of us thought the economy was going to be weaker last year the election changed part of how that played out and so it is what it is the economy is growing whatever it is right now I think the Atlanta Fed is 2.8 the other markets is 2.2 let’s assume it’s somewhere around that the question is where does it go going forward, Trump has no policies to put into place immediately to generate this growth that the market is expecting.
How long could that take as you point out at the beginning of the interview, we look at all of these elections almost every single one of them has a recession immediately afterwards and that's to do with the economics of the political cycle and how it takes a long time to actually implement policy. So you get some policy paralysis and the flip side of the goosing up of the economy going into an election.