Reduction and Closing of Short IBOV (1x) + Short USDBRL (1.4x)

On April 11th I started a short of the Brazilian stock index, the Bovespa and short the USDBRL, volatility-weighted. Spot references at 68164 for the Ibovespa and 1.5833 for the USDBRL.

The sizing was 100% of the NAV in Ibov and 140% of the NAV in USDBRL.

Why these sizes?
The annualized volatility of the Ibovespa has been around 1.2x to 1.5x of the currency pair. At the time I checked and it was around 1.4x.

What are the main drivers of this trade:
- Carry: current carry of around 10-10.40%/year with lower volatility (good carry-sharpe)
- The 2 parts of the trade have a negative correlation (which has been kind-of-breaking of late)
- With the current situation of Brazil I believe in times of mild stress the Ibovespa would take a major beating while the BRL might outperform the USD because it means global issues are at stake and more US-Money printing will emerge.
- Macro outlook on Brazil does not make me happy.

* The current situation in Brazil, at the time (and still present, perhaps worse now) was marked by increasing inflation.
* Both headline and core: it wasn't just commodities, but services, which are sticky in the case of Brazil.
* Recent memory of inflation affecting expectations AND an inflation indexed-economy. In Brazil rent, minimum wage, electricity and other things are indexed to inflation. So current inflation brings in more future inflation + expectations.
* The local Central Bank appears to have a dovish stance. It is adopting macro-prudential measures, trying to curb credit for example, instead of outright rising rates (which are already high).
* I don't believe the populist government of the PT (with Dilma Roussef and Guido Mantega) will be capable of cutting spending or the BNDES subsidized lending program.
* All these macro-prudential measures are making people more wary of what will happen to profitability of banks, a huge part of the Ibovespa Index.
* Brazil has been affected by a HUGE commodity boom, during which is has exported its way to prosperity while not adopting structural reforms. Taxation on corporations is still huge.
* Full employment in Brazil is pushing wage-costs up and businesses will soon feel this. 
* My favorite after inflation and dovish CB: The current and forward P/E for the Index was still printing yields way below the 1y forward CDI (the risk-free rate). With much more uncertainty and risks.

Why would someone buy increasing inflation + a bad start in a new government (I don't like the PT-party, commodity boom surfers) + behind-the-curve Central Bank + peak employment (soon I believe decreasing) + etc, etc?

If you believe the US is okay, why would I buy the Ibovespa at negative premium to risk-free rate when the S&P has an yield (1/ (P/E)) way below its risk-free rate/bond?

If you don't then there's the US money printing machine which I believe will never be ABLE to stop or activity will collapse and the equity markets world-wide would follow anyway and the USDBRL will also go down.

So... We closed 50% of the trade on July 20th and then, today, after Mantega's new measures, I decided to get out completely.

I'm not too sure I made myself clear as it is almost 11pm and I need some rest.
Returns were:
50% +9.01% = 6.18% nominal + 3.03% carry
50% +9.70% = 6.67% nominal + 2.83% carry
Total weighted return = +9.35%

Remaining positions in the portfolio are:
- long Gold / short Silver
- currency basket (long BRL/CLP/CAD/NOK/CHF x short USD/EUR/GBP)
- long USDCNY 3y calls 6.80
- long JPY 3y swaption 4.00%
- long Germany 5y CDS

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Why the BRL is starting to worry me (more) Part I

Today our beloved minister Guido Mantega came out to announce a tax on excessive short USDBRL positions.
Not a single soul I talked to understood the measure, even after the interview which was broadcast on TV.

My understanding was basically that, any speculative short positions on the USDBRL would be taxed 1% of the notional.
Meaning: you're an exporter of commodities, for example, and have planned inflows of 40m USD within 3 months. You can then sell 40m USDs in the future for X BRLs. If you sell 41m USD you will pay 1% over 1m USD (41m short x 40m long in receivables).

Now, if you are a hedge fund based in Croatia... and you have a positive view on Brazil (or just hate the USD like I do), long or short term, you can, yes, short the USDBRL (buying the BRL) in the onshore markets, BUT... you will be taxed 1% when you put the position on. If you decide to take a break for a few days to watch the Debt Ceiling debacle for example, to then get your short USDBRL back... You're paying another 1%.

Yes, the carry here is massive. The current yield on floating-rate sovereign bonds is 12.42%/year (98bp/month). The yield on USDBRL NDFs or futures goes down a bit, to around 9.00%/9.50%/year. Still great, right?

But you have, now, no mobility. You can't get in and out of positions in this cross. You have to sit tight and watch the carry help you out and hope the direction of the cross will remain intact. Or, to cope with possible pain, have a much smaller position (as I have here for other reasons).
Now let's say you want to do AUDBRL. Again.. if you do USDBRL x AUDUSD.. (as most people do) you will have to pay the 1% on the USDBRL position. This time the carry is much smaller since base rates in Australia are north of 4.50%.

Well...
I believe my understanding might not be correct since the USDBRL market today corrected dramatically from the opening highs. I think a lot of players are skeptical about the government's measure. At the end of the trading day the cross took a beating. Mantega has no credibility and these measures, as I took them, are drastic.

My understanding simply screams "Who the hell will be the sellers of USDBRL?"

The exporters only on a net-net position.

Because speculators will be severely penalized for doing it onshore and if they try to do it offshore their market makers will end-up on the other side of the trade on the onshore market. The BRL isn't convertible. It can only be settled within Brazil.

And I think that if I am right this cross will go up for some time, perhaps like the USDTRY (discounting for the yield gap and some of the fundamentals). Or implied volatility in options will become much, much more expensive.

Liquidity should dry up. Am I right? I think so. Look at BM&F Bovespa's stock price today. The local index dipped 2%, but this single stock dropped 5.5%. It seems people who own this company, the local derivatives and stock exchange, believe volumes will decrease or that at least, compared to the almighty local risk-free rate, the CDI @ 12.40%/year, its fwd P/E of 12.7 is still high (yield of 7.80%!!!).

 

Now I had 2 positions that include the BRL.

One of them was the (Short IBOV Index 1.0x + Short USDBRL 1.4x) and the other is the currency basket.

I chose to reduce this position last week (here) and today, watching Mantega 'The Crazy' on TV, I decided to get out of the remaining position as mentioned here.

I will stick with BRL in the basket, though. Reasoning in a future post.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Why the USD, the EUR, the GBP and, soon the JPY, will keep going down...

Check this website out.
There's nothing too special or new about it. It is just visual.

The important take-away info is:

"Ten Thousand Dollars $10,000 - Enough for a great vacation or to buy a used car.
Approximately one year of work for the average human on earth." 

And so I ask:

How many global citizens are necessary to support the DM Economies?

Again, simple math, simple drivers:

If you consider that the current deficits in the US, the UK, the Eurozone and Japan are all massive and that economic activity has been lackluster...

How can these dudes grow out of the current mess with loads of austerity packages?
How can these dudes, if they opt to keep on printing money, fund their deficits?

The DM is very, very, very, and repeat, very much, leveraged to EM growth. EM Inflation is, and should remain for some time, the most dangerous threat to the global outlook.

Beware.
Our times demand large margins of safety.

WTF No Way! http://www.wtfnoway.com/

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Closing remaining 50% of CADMXN Long with 3.03% net gain

We're out of the CADMXN market as mentioned here.

We got some slightly hawkish news from the Canadian Central Bank this week along with worse than expected data from Mexico (Retail Sales, Unemployment, mixed depending where you look at).

The Canadian news (and better risk-on environment) boosted the CADUSD, but the negative news on Mexico didn't do a lot (more recent) and the USDMXN continued its downtrend, which is expected, but things were good enough to boost CADMXN upward by some good 50-70bps in a few days after we closed the first 50% tranche of our position (14-jul).

Now, with the bullish sentiment in the air, with the SPX closer to the recent highs, the weak USD across the board and european bonds rallying, I believe it is good timing to get out. The CADMXN traded above the recent range (50dma = 12.08, 100dma = 12.15, 200dma = 12.18) and I think that investors, if things normalize and vols go down, will jump on the gimme-carry wagon of the MXN. The cross's carry is around -1bp/day (neg 0.01%/day), which, adjusted for the cross's volatility, is something to ponder. The entry point this time was quite good and we don't like to 'throw away' good-luck.

It is time to sit tight and look for new plays. Or for prices on plays we like to get back to levels we also like. I really don't want to chase rallies, especially when they go against my fundamental backdrop.

News this week that the Soros Fund is 75% cash and past news that Stanley Druckenmiller, Soros' wingman for years, gave back $ to investors should be eye-opening.

They argue that with so much government/central bank intervention in the world at the moment (as it has been in the past 3-4 years) it is rather tough for macro investors to actually think about fundamentals and place large bets. It is a game of politicians and policy makers, of bail-outs and tax-payer funded global sharing. And it is time for risk-aversion if you ask me. In Brazil, with the local Central Bank hiking the SELIC rate by another 25bps last night, now @ 12.50% and local 1-day deposits running at generous 12.39%/year I am VERY, BUT VERY happy to stay on the sidelines, reducing risk.

I haven't changed my mind about the structural problems in the US, UK, Europe, Japan, the global inflation pick-up hurting incomes, but I do believe Angela Merkel or Bear-man-QE have more powers than I do. Let's sit tight and study more.

I will post about the 50% reduction in the (Ibovespa short + USDBRL short) I talked about on twitter yesterday when I have more time.

Good luck to us all.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Closing WTI Crude spread trade (Apr12 x May12) with +0.60pts gain

Earlier today I closed out the short CLJ2CLK2 WTI Crude spread trade opened in 02-March-2011.

Entry price was +0.26 USD/barrel, closing price was -0.34 USD/barrel, for a +0.60 USD/barrel gain or 0.59% gain with the trade size of 100% of the fund, with front-month WTI trading at around 102.50 USD/barrel.

The trade:

After the Middle East conflicts broke out earlier this year and global crude prices started to go up fast with an even faster jump in late February I took a step back and dug into the North American situation and thought about global growth implications of such fast move up in energy prices. I remember what happened to the US economy in 2008 (and how fast crude collapsed and the contango became massive) and had in mind the billions of US dollars that north-americans would fill their gas-tanks with x the size of the payroll tax benefit that was passed at the end of 2010 by Obama & Co.

Things didn't seem too promising and I believed that, even if things got a bit worse in terms of geopolitical stress (as they did, supporting prices up to this day) the supply situation around the WTI delivery point wouldn't change much therefore not heralding such premium on the curve compared to the previous averages for 2009-2010, same 'tenor'.

Market Prices and dynamics:

In early January, before the conflicts made the news, the WTI Crude was trading with a 5 to 1.5 USD/barrel discount to Brent. The discount was 5 at the front month and then decreasing until this discount stabilized around 1-1.5 USD/barrels further down the curve.

WTI's contango was quite large around 5-6 USD/barrel from 1st future to top of the curve around 10-15 months down the curve.

At the same time Brent future's curve reflected much tighter fundamentals across the Atlantic.

Brent front-month future versus top of the curve futures around 1.5-2.5 USD/barrel and prices, as mentioned above, already higher than the WTI.

Even in-land American crude prices had a premium versus the Cushing, OK WTI benchmark. Why?

Inventories kept piling up at the delivery point and this reached an all-time high in 1Q2011.

By law the US cannot export crude so another positive for the trade

Doing some back of the envelope calculations, inherited from my times trading physical soybeans in the brazilian Midwest I checked shipping costs around the US and read a bit about crude transportation issues in the U.S. Paying this transportation costs (and related) wasn't worth it to match the premium in other places.

That gave me some confidence that weak demand, ample supply and technical barriers wouldn't make it too easy for crude to flow away from Cushing and things wouldn't change too fast in terms of inventory levels.

The "too fast" was the 'information' that I needed because I thought that this was the end-game for the trade. With a size of 1x the fund a fast change wouldn't allow me to stop-out where I wanted. I needed this comfort (that yes, sometimes means nothing).

This trade was basically a carry trade, betting on an ending to stressed-conditions in a crude market that seemed rather well supplied warranting no premium.

So... 

As the MENA issues became more clear and they made headline news crude prices of all kinds started moving upward and the curves started to shift. Brent further and faster, WTI following reflecting the distance the Atlantic is from the Middle East / Europe / North Africa and the still lagging fundamentals of the U.S. economy and great output capacity from Canada.

Egypt's mess erupted, followed by Lybia, a great supplier of crude oil to Italy. And chaos was instated in the energy markets.

In a few days market moved up by ~20% and the stable price of the spread exploded upwards.

There had been some refinery shut downs in the US. Canadian crude was flowing down from the North and stocks were plentiful, while imports were around 8-9 year lows. That meant lower demand for me. And since I am strong believer that the US is not doing well if you consider the amount of monetary and fiscal stimulus... there you go. Some type of bear trade or carry trade could be profitable.

When analyzing Total Crude and Products supplied, historically, these numbers had also been low.

So... trade on back then.

Getting out now as I believe there is little upside left unless you believe global activity will  decrease further. The previous 3-5 USD/barrel contango in the front-end of the curve was what I aimed, but with prices 20% above 2010-year-end-levels I do not think these will will materialize and holding the trade to gain 4-10 cents do not seem a great return. I'd rather add risk somewhere else.

Let's treat apples as apples and leaves oranges for another day. The trade was about normalization in WTI spreads and carry.

It happened.

Now moving on...

Some interesting charts below:

 

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Hugh Hendry - Eclectica Fund May 2011

And today we got our hands on Hugh Hendry's Eclectica Fund May 2011 letter.
Again, short and straight to the point.
I guess he hasn't changed his broad view of "DM can't afford hiking rates", but this time market prices corroborated and his fund did well for the month: +4.6%, +3.0% for the year.

Mr. Hendry mentioned his liking for such macro idea before and now, expressed through options in USD, GBP and EUR rates, profitted from it.
We have, before, mentioned that we agreed with Mr. Hendry and talked about getting out of receivers/flatteners in Short Sterling and Euribor as the front-end futures of the spread (Jun11 - Dec12) were expiring in 2-3 weeks (here).

He goes one step further saying he added to some of these positions and is betting on longer durations.
The roll-down is very large and there's room for more profits. And static curves bring in results and steepening (in prices is my understanding) bring in even more profits.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Will Funding Issues Bring Europe Together?

And we are back.

Italian and Spanish 10yr bond yields are again at their peaks around 6%. The short-end Eurodollar futures prices are again at their lows (rates at their highs). Current 3m USD Libor fixings hover the 25bps level, but the market price for this same 3m USD Libor (in December Z1) is at its high, around 55.5bps. Or we could say the bringer-of-death TED spread is wider of lately (US T-Bills @ 0.00%, printed negative last week)

So:

1. The largest european peripherals will be issuing debt at very, very high rates. Good, right? No. But against these high funding rates their GDPs aren't growing much, unemployment is high and the globe seems to be slowing down amid a lot of tightening from all sides. Good right? No.
2. Italy money supply plunge flashes red warning signals - Telegraph (h/t Credit Writedowns)

The problems existing in Europe can't be solved in a nice way. Bad stuff must happen, be it money printing (and people selling european bonds because the EUR would collapse), selective default, massive austerity (and negative growth), etc, etc.

Market stress derived from worries about Europe will keep coming even if policy makers engage in a BOLD move. Because even if they come and say "Hey, we're guaranteeing all the debt coming from eurozone sovereigns" something must give. This could mean all countries came together for the greater good, but time would make this headline change. Coming together to save the current mess would mean laws being passed in some countries that would inflict pain. Be it austerity. Be it asset-sales. Be it equity sales in European banks full of sovereign debt. There's no free lunch.

As I have explicited my opinion earlier, this entire situation has now become pure politics. And politicians, for the most part, can't be trusted to put the "global financial system" ahead of "my electorate". This is the stronger reason I like betting against Europe right now. In the US, for the TARP to move forward it was first voted down and the financial markets froze and tumbled. Then TARP moved forward.

In Europe, right now, we're speaking about economic union without fiscal union. That means tax payers in Germany will, when time comes, vote 'No, let's not pay for everyone else's bad behavior'.
And especially Germans. Tough history on their side. Bad choices made back in the days resulted in a lot of pain for them. I do not believe Germans will come rescue the peripherals unless they have been inflicted a massive dose of pain.

That is why I can't buy the EUR currency or peripheral bonds at the current levels. Or can't buy the european stock market at current levels.

Bunds? Perhaps yes, because if, remotely thinking, Germany leaves the EUR currency, their new currency would explode in price. That's very remote, but with so much uncertainty at hand those are the thoughts I am having right now.

I'll stick to shorting the EUR (and USD and GBP) against a basket of higher-growth/commodity/demographics/solid-banking-system countries.
I'll stick to buying German CDS.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Weekly Recap, 2011 07 15

Another week and more fears, huh?

Italian and Spanish bond yields broke to the upside from that range we mentioned weeks ago and they certainly don't look any good.
The Stress Tests today were mild and sounded like good news, but I wonder, really, what is in there.

Some interesting facts are:
- US Electricity Output has come down YoY.
- US Railroad Freight Carloads are also down YoY.

A lot of revisions to US 2Q and 3Q growth started to pop up and Bear-man-QE was, as expected, super dovish in his comments this week.

I am not seeing a lot of good macro trades on the table right now.
I like surfing what I got, but major new ideas are not cheap on the table.

Now to those charts no one cares about:

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Michigan visits level that meant S&P500 @ 850 in April 2009

The Michigan Consumer Confidence was released this morning and it came in 8.4 points below expected representing a drop of 7.7 points.

The curious thing here is that the last month this Confidence Index was at this level... the SPX average 850 points.

Everyone talks about a good level in earnings and cyclical multiples at inexpensive levels... but with Confidence in the doldrums will revenue remain strong? I do not believe there is a lot of room for lay-offs and cost-cutting anymore. Perhaps input prices will drop, but where will earnings growth come from?

I am still pretty bear (globally speaking), but don't like shorting the SPX too much. The short IBOVESPA Index 1x + 1.4x shorting USDBRL is my lower-vol + high carry + risky bet on this global equity-bearishness.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

Reducing 50% of CADMXN Long with 2.32% net gain

As posted on Twitter earlier:

Reducing the long CADMXN trade started on May 26th @ 11.91 spot reference. It was noticed on Twitter first and when I had the time available I wrote the fundamentals backing the tactical trade here.

The cross has rallied back to average levels and, considering its reduced volatility and its daily carry of around -0.7bp, I find it interesting to close out 50% of the trade @ 12.225 spot reference.
Nominal gains of 2.64%, with -0.32% in lost carry, totalling 2.32% for the lot.

The remaining 50% of the trade remain open, fundamentals not having changed one single bit since start of the trade. Just not a lot of short-term upside either as these pairs (as AUDBRL or MXNBRL, etc) have much smaller volatility and, against USD or EUR, trade with great correlation).

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

SocGen's Dylan Grice - Summer Reading List

This I would say is better than his actual market studies and commentaries.
SocGen's Dylan Grice brings his suggestions in reading:

- Howard Marks (Oaktree) - "The Most Important Things"
- Antti Ilmanen - "Expected Returns: An Investor's Guide to Harvesting Market Rewards"
- Carl E. Walter and Fraser J.T. Howie - Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise"
- Adrian Goldsworthy - "Caesar: The Life of a Colossus"
- James Grant - "Mr. Speaker! The Life and Times of Thomas B. Reed".

As Mr. Grice said.... the one book I had my hands on was Howard Marks' and I strongly recommend reading it. I am going to buy some 10 pieces of it and distribute among my friends who also manage money. Focusing on the downside is extremely valuable.

Email me if you need the PDF and can't get from the link.
Here is the PDF.


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*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com