Wednesday, November 29, 2006

Housing collapse clearly unfolding, recession should follow

OK, so where are we.

First, my positions. GBP is f*cking killing me, I covered some 2 weeks ago, but combined that with selling a 1.8850 straddle...well, it promptly went up every day since I put it on. I feel that this trade is falling into the "markets can remain irrational longer than you can remain solvent" category. £1 buys you $2? Nuts. UK economy just happens to be 6 months to a year behind the US, this trade may need some more time. But as i said before, my flaw on this trade was not using a stop loss.

I remain short £6/tick of GBPUSD (that's £600 per big figure). I'm not covering now it's gone up 8 days on the trot, lets wait for a pullback and see what happens.

Talking of stop loss, I've put in an order a few pence below the market on my LloydsTSB position (current price a little under 550p), so if it doesn't bounce from here I'll be cut out for only a small loss. This one is annoying since I made a few grand within days of putting the trade on, but i believed a takeover was close so held on. The upside/downside in this stock is (UPSIDE) it prices in a takeover (or gets a bid), versus (DOWNSIDE) it's earnings fall due to its unsecured lending exposure to a slowing UK economy.
 
I feel comfortable with my other open positions...short S&P and DOW, mostly through options...short Washington Mutual, the US mortgage lender, what can go wrong during a housing crash? Short Bunds and Gilts, yes I still believe in the global reflation trade...central banks still need to take liquidity out of the system, through much higher interest rates. And long Pipex, the UK internet service, this penny stock should do fine whilst other small UK operators are getting bought out, if I got to make £10k on this one I'd probably take the money though and look for a lower re-entry. So targetting 14-15 pence (currently at 12p).
 
Now, what new trades are out there to put on? I have room to buy single name US stocks, due to my index short. Keeping an eye on previous ones I've traded like Motorola and Intel, so any extreme selling of either may give an opportunity for re-entry. Can't help thinking that trading US stocks through options to capture the downside on indices, whilst picking up single name stocks on days of extreme weakness, could be the best opportunity now. Oil...this ones tricky, I feel that it's either going WAY lower due to slowing global demand, or going WAY higher due to OPEC manipulation and a falling dollar. Will wait on this. Eurodollar futures....was an idiot, missed this one, should have bought, probably STILL supposed to buy Dec '07, but again, today is not the day for entry.
 
More another time, portfolio still well in the positive for the year, but would LOVE a 8-10% fall in stocks over the next couple of weeks!

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