You have to buy Eurodollar here

So I did. Paid 94.82 for £30/tick, adding to the £120 I already have. Te housing meltdown, and subsequent pain being felt by mortgage lenders and homebuilders is just beginning to get the publicity it deserves, and I think this could indicate the start of the slowdown cycle, where GDP growth slows, unemployment increases, and the Fed has to embark on a rate-cutting cycle to hold the economy up. Just 1 cut this year will see me breakeven on this trade (approximately).

Buying back Countrywide already...6.50% in 2 days!

On Thursday I sold ~£22,000 of Countrywide stock, detailed in this post: http://thetraderboy.blogspot.com/2007/02/cant-resist-betting-on-housing-and.html.

 

The stock is down over 6.50% since then (and it was already down a fair bit on Thursday before I sold it short), so can't resist taking my profits already. I firmly believe that the housing meltdown is only just beginning, but am going to try and trade it around a little. Am still short WaMu and Cap One anyway.

 

£1,376 profits to the home team!

And getting short in the homebuilders sector

Sold KB Home in ~£10,000....stock trading ~53.00, down $1.45 on the day. As previously mentioned, the worst is just beginning in housing. Cancellations, writedowns and a collapse in revenue is gonna really hurt these guys.

Can't resist betting on the housing and banking bust...

Selling ~£22,000 worth of Countrywide (that's the US one, not the UK one), stock trading ~43.75 just now.

 

There is far too much optimism from market participants on how the housing crunch and repurcussions to the lenders will pan out. When they finally realise how bad this is going to get, this is one stock that will get crushed...along with WaMu, which I'm already short.

WOW! How cheap is FX vol???

Just bought some EURUSD 1.31 calls, expiring March 2nd...paid 60 in £15/point, so £900 premium. ie. if EURUSD is above 1.3160, I am in-the-money.

 

I was originally going to buy EURUSD spot which is trading at 1.3035, but the option seems so cheap and limits my downside so much that this is the better trade.

 

With the mortgage industry imploding, foreclosures running ahead of the last recession, and talk today on the back of inventory numbers that Q4 GDP will be revised downwards, US rates have clearly topped, and I expect the FED to be cutting with a few months...and even if they don't, I think it will get priced in.

 

Combine that with a hawkish ECB, Trichet pretty much confirming they will hike next month and then almost certainly looking to hike again, and with money growth just out of control in the Euro area, I think the Euro rate curve is underestimating how high rates can go.

 

So a very obvious way to express these views is buying EURUSD. If it starts moving my way, I plan to increase the position and try and piggyback onto a larger trade.

Selling Cap One on technicals

Liked the look of this post, http://tradertim.blogspot.com/2007/02/chunda-from-down-unda.html, so shorted £5/cent of Capital One, with the stock trading around 82.50.

 

Don't usually trade on technicals, but I'm going to try a few trades based purely on charts and see how it goes.

 

Plus I think financial stocks are vulnerable to a severe and lasting earnings downturn.

Buying more Dec '07 Eurodollar

Just bought £20 of Dec '07 Eurodollars at 94.83...adding to my £100 I already have that I bought at the wrong time! Original trade at 95.225, new trade today trying to average into a better level, and also I think the US is going to slow down this year a lot quicker than the market is pricing in.

 

The housing slowdown is only just unfolding, and one of the few ways the FED can stop the crunch is by cutting rates. Despite a lot of bloggers giving it the "it's different this time" thoughts, I think slower growth = lower inflation = lower rates, as it always has.