Thursday, April 20, 2006

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.

2 Comments:

Anonymous Anonymous said...

Interesting site. Useful information. Bookmarked.
»

17 May, 2006 07:29  
Anonymous Anonymous said...

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»

17 May, 2006 12:57  

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