Closed the Sugar long:

Sold my £10/tick of New York Jul '06 Sugar at $17.17...this on has been
buggin me for a while, as whilst it made me £740, it has been up and
down in a narrow range and never took off like other commodity markets
did over the last month or so, eg. metals. So happy to take the money
and sit back.

Whilst I think that there will be an increase in sugar used for ethanol
production, and increased demand as the global economy continues
expanding, it sounds like Brazil is having record crops and has been
planting more and more as the price has risen. Like in any market, as
prices change, so does supply. So...it was time to sell.

And briefly, you may have noticed that I haven't said much on GBP
recently...this bloody currency just wants to go up, and I have been
smoked on it. Think I've dropped about £12,000 this month alone on my
short. I don't understand why the market is so bearish the dollar and so
sanguine on sterling...I'll give it some time for the market viewpoint
to come round to the failing UK economy. But at the moment I am a
nervous short and looking at options to re-position myself.

Profit-taking on 3 trades...5y & 10y Treasuries, plus CRUDE...and shorting some DOW futures.

Finally closed my 5y and 10y Treasury shorts...I just couldn't resist
taking the profits on it. If you read my post from Jan 31, when I
shorted them whilst the 10y was at 4.53%, my first stop was to aim for
5%. Today I bought them back at 5.10%. So I was right and Bill Gross was
wrong by 70bps (he tipped them at 4.40% to be long...moron)! I bought
back the Jun '06 10y at 105.18, and so in total the 10y trade made me
£3,146.

And the 5yr Future I shorted at 104.34 and 104.23 on April 3rd, I just
bought back at 103.79...was short £60 a tick, so made £1,980 out of that
one. Still see some downside for Treasuries from here, but I'll sit back
and be flat for a while and consider the price action and the economic
data coming out. Maybe the FED going to 5% really will slow the economy
down.

And just one small other trade, I'd shorted £2/tick of Brent Crude @
73.00, just bought back at 71.90, so £220 quid there.

The future of the US economy and the FED really seem to hold the key to
so many markets, from bonds and stocks to commodities and credit
markets...there seems to be so many risks out there for the global
economy, it almost seems to obvious to be bearish risky assets. Housing
markets just seem to be an accident waiting to happen, and a serious
drop could kill the consumer. Looking back a few years to 1999/2000, I
remember that you could buy property and rent it out for about an 8%
rental yield. Seemed ok at the time, and certainly way over what (UK)
bonds would pay you. Now, everyone is loving the buy-to-let market with
yields of about 4-4.5%. And that yield compression seems to have
happened through an increase in house prices rather than an increase in
rents, as rents seem to move more in line with general wages/inflation.
Now that government bond yields are on the rise (UK 10y bonds have gone
from 3.90% to 4.70% this year), you have essentially competing
investments for property. What if bonds go to 6%? Does it still make
sense to achieve only 4% through buy-to-let, with all the hassle that it
entails? I guess the same goes for the US. So property seems incredibly
vulnerable, especially since the financing of that property both here in
the UK and in the US is linked to where interest rates are! Combine that
with the guaranteed economic slowdown that is currently unfolding in the
UK, and higher unemployment that will entail, this market and
potentially the global economy is going to get crushed.

So whats the trade on the back of this? Short equities is probably it,
especially at a time of high corporate profits. I should really short
some equity index futures against the equities I hold. At the moment all
I have is short £5/point of CAC Futures (for the regular readers, I
never did close that one out when I closed the DAX/FTSE). So as we speak
I just shorted £4/point of DOW Jun '06 at 11376, this is ~£45,000 of
notional, and since I have about £165,000 of equity exposure on my
individual stocks, leaves me room to increase this. I'll trade around
the DOW whilst having it in mind as a proxy hedge.

And just bought some more puts on GBP:

Just bought a 1.7300 PUT on GBP/USD expiring May 12th...£10/cent for
10.4 cents, £104. Small premium but big upside.

GBP has been really interesting lately, having been my biggest position
I've been following the price action closely, and someone somewhere has
been buying it for a while. When it was down around 1.75/1.76 area, even
when "bad" news for GBP came out, it would drop half a point before
resuming its steady upward climb, which has now pushed it up to 1.78
from close to 1.72 not long ago. Whoever has been doing this buying will
have to stop at some point, and then the collapse will be imminent. I do
not want to miss this trade, so spending £104 for this exposure is a
tiny premium to pay.

Closing out the index relative value, and selling some CRUDE as it bubbles...:

First off, some trades. I had bought £10/point on the DAX versus
shorting £5/point each of the FTSE and CAC, on the idea that the Germany
economy is in a growth phase, built on exports, while the UK economy
slows under increasing regulation and the French, well, they are just
bloody useless and are more than a little work-shy.

Sold Jun '06 DAX back at 6094, bought Jun '06 FTSE back at 6092, and
need to wait until the morning to buy back the CAC as IG Index aren't
quoting it overnight, bit annoying. Mid is 5219 just now. This trade
will have made me a little over £300, peanuts, but the volatility has
been really high and I think there is a better entry point. FTSE/DAX
were about 150 apart just yesterday morning (FTSE higher)! Still like
the trade, as UK inflation numbers were horrible today at 1.8%, I am
firmly of the opinion that this indicates slower growth and so should
lead to lower equities...I disagree with the camp that thinks lower
inflation = lower interest rates = higher stock markets. Plus although
DOW/S&P up today, NASDAQ has fared badly and DAX seems to be more
higher-beta and copy that market a fair bit.

Also...commodities are clearly in bubble phase, eg. gold rocketing from
550 to 650 then back to 615 in just a few days...and oil up $10 since I
last traded it not that long ago. Have just sold £2/cent of Jun '06
Brent Crude at 73.00, small size but I'll build the short from here as
it starts to go down. Oil is not in short supply despite what everyone
reckons!

And on the P+L front, I am up just over £5,000 YTD thanks to US rate
sell-off (I am still short 5y and 10y Treasury futures), but NO thanks
to GBP ripping higher against the USD. Dropped about £10,000 in the last
week or so from being short, but we'll put this one in the long-term
trade category. Rate differentials will eventually see the USD win this
battle. Every time I have a doubt about this trade I just look back on
Bloomberg on the 20 year history of the FX rate versus the interest-rate
differential. If you look at it, you'll short it.

Away from that, the markets are very interesting right now. Risky assets
seem to be setting themselves up for a fall, with inflation (ex. UK)
creeping up, central banks in hiking mode, and the markets not
discounting much of this hiking already. But is this too obvious a
trade?? Not sure. But I am beginning to get bearish, and still have an
eye on slowly shorting the S&P against my current equity long
positions...as mentioned before, I am effectively long about £165,000 of
stock.

One of the consistent ways of making money is trading the most likely
outcome...and to me, that outcome seems to be continued growth in the
Eurozone on the back of increased money supply over the last few years,
the US economy powering along for a while yet and the FED playing
catch-up on rates to slow it down, and so a decrease in borrowing from
both private equity for leverage buy-outs, and from the consumer for
home purchases. So housing and retail spending vulnerable, as is the
valuations currently on equities. The time to be short is nearing.

P+L update, current thoughts and some trades I forgot to post the other week:

First off, admin...here's the details of 2 trades from March 30th I did.

1) Quickly turned £10 of my Jun '06 Treasury short, having sold it at
107.44 a couple of days previously, I bought it back at 106.32 on March
30th. Clearly I should have waited since bonds have tanked even further!
But couldn't resist taking the P+L, over £1100, and still have another
£10 of the trade on. Plus it gave me room to sell £60/cent of the 5y
Future.

2) Also on March 30th, I sold back my £5/cent long in EURGBP @ 69.69, as
the position was really too small...if I'm going to be involved in a
trade, it has to be proper size, and I have my main GBP FX risk in the
short GBPUSD position. Pocketed a huge £185!

P+L Year-To-Date is £9,200...am a little surprised some of the equity
longs haven't performed better...the main P+L has come from being short
Treasuries (£5000) and from being short GBP versus USD (£4800).

Am feeling good about most of the current positions, as I think Treasury
yields keep rising as economic growth in the US continues to power
along, and it will take quite a while for the FED to reduce the money
supply it created from an extended period of too low interest rates. On
the back of that, and combined with a slowing UK economy and hence rates
in the UK going nowhere or even down a bit, I am very confident on
GBPUSD (Cable) dropping significantly from current levels, as
interest-rate differentials is still a major driver of FX rates.

Away from that, I'm getting a little nervous of risky assets. Central
banks withdrawing liquidity while markets are at multi-year extremes
(flat interest-rate curves, tight credit markets, high equity earnings,
though not high P/E ratios so I keep reading) is asking for trouble, and
the bear market could be around the corner. It's just hard to tell if
that corner is weeks, months or years away. Given I think that corporate
earnings are at unsustainable levels due to increasing global
competition, transparency in pricing thanks to the internet, and a
consumer who is increasingly indebted, stocks look like they could be in
for a sustainable fall in the future. Am keeping this in mind as regards
my long equity trades, since I have a total equity long of about
£165,000 equivalent, so significant market exposure. I may short some
indices, probably the S&P500, against this. Need to do about £120/point
of the S&P500 to neutralise market risk, will think about legging this
around. Or if you prefer the fund manager bullshit-speak, I'll be
hedging my beta and trading the alpha of this portfolio around.

Other markets I have an eye on is Oil which will be worth shorting at
some point, it is way over-talked that there is not enough supply, OPEC
seem to be unwilling to make any supply cuts with prices this high, so
I'd expect prices to move down from current levels in the medium-term.
Also Short Sterling, the strip is pricing in UK rates not moving or even
going up 25bps at some point over the next couple of years, whereas it
seems to me that economic risks are to the downside, and once the City
bonus season has stopped supporting the housing market, we could see
that come down a touch and get some rate cuts priced into the curve.

3 new trades...back to full size on GM, sold 5y Treasuries, put/call structure on GBP/USD:

Having sold part of my GM position the other day following a downgrade
by one of the ratings agencies, and talk of the threat of bankruptcy of
GM, I sold £3/cent of my £10 position...coming in today, and hearing of
the sale of GMAC announced today, I was fully expecting the stock to
rocket today, but for some reason it has fallen. So I have bought back
that £3/cent at $20.27 today. I think there is a far better chance of GM
surviving than the market is pricing in, and this could be a stock which
increases by multiples over the next few years if they do sort
themselves out. Think about it...Toyota is worth about $200bn, GM is
worth $12bn...yet they sell roughly the same sort of cars. So with a
rejuvinated GM, even applying a discount for higher cost manufacturing,
why can't it be worth $100bn? Using the cash from the GMAC sale, they
can pay upfront to solve a lot of their problems, still benefit from a
51% stake in an improved GMAC (due to what should be cheaper access to
funding), and with the bond market meltdown now near inevitable, this
could be what solves their pension crisis, as they can discount their
liabilities at a higher rate. So...I'm in for the long run, and am going
to do a bit more work on this company and possibly double my position.

Secondly...talking of the bond market meltdown, you can see it happening
already. Q1 of 2006 has seen roughly: US rates up 40bps across the
curve, EU rates up 50bps, and UK rates up 30bps. Having missed the EUR
move despite having an early belief in the economic recovery of the
Eurozone, I do NOT want to miss the next move in the US, so shorted Jun
'06 5y Treasury futures at 104.23 in £40/cent and 104.34 in £20/cent
(~4.85% on the current 5y at the time). With the FED still going, and
the US economy powering along thanks to consumer spending, private
equity and corporate leverage all fuelled by cheap borrowing, the only
way to stop it is for rates to increase, and 5y could be the sweet spot
on the curve to be short if it needs to be slowed down over the next few
years. £60/cent is in the region of £225 per basis point (i'll get the
exact amount off Bloomberg tomorrow).

And finally, GBP is finally starting to crack, down to about 1.7275
today before rallying close to 1.7400 towards the end of the day. I want
to get as short as possible, so on top of the £13/tick I have on at the
moment, just bought a 1.6900 put expiring on April 28 @ 14.8 cents
(thats 0.00148 on the price) in £100 a cent (so costing £1480), and
financed it by selling an At-The-Money (ATM) call, struck at 1.7400
which I sold at 129 cents in £10 a point (so receiving £1290 in
premium). At worst, I'll be short another £10/cent at 1.7400 which I
don't mind, but hopefully this month will see the long-awaited
correction in GBP/USD...now that the rate differential is in place (US
rates at 4.75% versus the UK at 4.50%), it could be soon that the fall
begins. Get on board while you still can!

As always...traderboy welcomes any feedback from readers.