Thursday, July 21, 2011

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

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