Thursday, August 4, 2011

Some fast thoughts.

[I didn't review spelling or even re-read before posting... so forgive me if I sound confusing]

Basically putting up a lot of charts here on the blog takes some time and patience. There are so many interesting ones to analyze. So I will simply sit down and organize a few thoughts.

It has been some time since I wrote anything.


No, I am not surprised that markets are falling or showing signs of stress.
Yes, I am surprised that it happened this fast.
Yes, I am surprised that Italian yields have soared so fast and by this much after the European policy makers got together to come up with the last solution presented.
Yes, I am surprised that the EUR has been holding up so well.

What also surprised me?
In the economic data front the 4Q10, 1Q11 and 2Q11 US GDP numbers (and all the other past revisions down) looked horrible.
The ISM Manufacturing came in ridiculously low. Historically recessionary I would think.
The Non-Manuf one also dropped.
The employment component of both of them don't look good. Coming in worse too.

The Debt-Ceiling event for me was simply a political spectacle and I really don't have much to say about it. Borrowing words from some articles and commentaries I read lately, the debt-ceiling issue simply brought in more uncertainty to investors and corporations that wanted to allocate capital and sweat.

The Global PMI (ISM included) numbers have been declining. OECD Leading indicators have been declining.

That is what happened.
Now what do I believe will happen?

Markets will keep going down for some time until policy makers come scream in our faces "Hey! We're at zero-rates, but we can do something! Not sure how!".

The Open Trades:

-- Long GOLD (XAU) / Short Silver
It is a bet that fiat currencies will implode and with it industrial activity will keep declining

-- Long USDCNY Calls May14 k = 6.80
It is a bet that the market will price in capital outflows from China if international trade goes down dramatically. This is also a LONG VOL play. Done below 8% in vol, this 3y play is all vega. If the 3y NDF helps directionally (indeed helped a bit up from 6.16 to 6.24)
Also a hedge for the currency play described below.

-- Long JPY 3y10y Swaption Mar14 k = 4.0%
That one trade against Japan... I have talked about it for some time. It will only make money is there's debt monetization and inflation in Japan... pushing interest rates higher. That is catastrophe in my book.
The JPY has so far gone up against many other currencies, helping with deflation.

-- [replaced below by another trade, I will correct it shortly] Short USD/EUR/GBP (33.3% each) x Long BRL, CLP, CAD, NOK, CHF (30%/15%/20%/20%/15%)
The "Printing Presses" trade x population growth, productivity growth, commodities and safe-haven.
The solution for these 3 economic blocks with high deficits and low growth and zero interest rates is money printing for fiscal boosts. If they succeed growing the other nations will be hella healthy. If they don't they will print themselves out of the hole and inflation (commodities?) will set in.

-- Long German CDS Sep16
Greece is insolvent. Portugal is insolvent. Ireland is insolvent. If you consider that there has been a lot of tightening world-wide (in EM basically) and that the european austerity packages won't boost european growth.... Europe has no way out. Now add in confidence going down in Italy and Spain, as their activity and fiscal situations aren't great... And we have Germans paying the bill again. But this time for something they aren't the ones to blame for.

I'm out for a beer.
Hugh Hendry should sleep fine tonight.

*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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