traderboy

Common myths of the market

2007-05-12T19:36:00.000+01:00

I think some misperception of hard facts is going to stop many otherwise sensible traders from making money in the markets this year. Let me clarify some of these.

Common myths of the market:
1) the dollar is weak
2) energy prices are soaring
3) inflation is high and out of control.

Re: 1) The dollar is actually STRONGER (albeit just) than it was against the Euro in late 2004.

Re: 2) Oil prices are only ~10% higher than they were in October 2004, and are down significantly from the middle of last year.

And in that time period, average incomes must have grown (5-10% total at a guess?), the stock market is up ~30%, and GDP has averaged about 3% annually. Not that bad I reckon.

So maybe there isn't a ticking time bomb anywhere waiting to crash the markets, merely a normal slowing economy that we have had many times in the past. If you believe in Occam's razor that the simplest solution is often the correct one, then the most likely course of action in a rapidly slowing economy is to cut rates. Looking at the chart of US GDP to Fed Funds Target rates between 1985 and today, it's very clear that the Fed's target rate is reduced in response to falling GDP numbers.

Now, what do we have in today's market? Yep, falling GDP. And from 1) and 2) you can see that the dollar isn't collapsing, merely at the weaker end of its medium-term trading range, possibly because the market is pricing in the fact that the Fed will be cutting rates in the near-ish future, and you can see that energy prices actually aren't out of control at all, so no signs of "hyper-inflation" anywhere. That leaves the Fed with room to cut. Yet the market is barely pricing in a single rate cut this year, and only pricing ~2 rate cuts through to the end of 2008! See the Eurodollar rates here (if you aren't familiar with this, the rate column is where the market is pricing 3-month interest rates on the dates shown...slightly different from Fed Funds, but tracks it fairly closely, and over the long-term has traded ~10bps higher than the Fed's target rate):

So what's the trade? It seems just too easy and obvious...buy Eurodollars across the curve. I already own some Dec '07 contracts at 94.905, and plan to buy some Sep '08 or Dec '08 contracts next [Update May 15: Just paid 95.21 for Dec '08 contracts]. The Fed could easily trim rates to 4% by early next year, so these contracts could soar from here.

Oh yeah, I'd nearly forgotten about point 3). You think inflation is too high for the Fed to cut rates? Then what do you think of this chart from 1985 to today showing Fed rates versus Core CPI yoy:

Yes folks that's right...if the Fed was to cut now, CPI would actually be much LOWER than at the start of almost all rate cutting cycles in the past (I believe this holds even if you go much further back in time, it certainly does on Bloomeberg where the data goes back to 1970). Rate cuts here we come, make sure you profit from it, cos it seems to me most people are gonna miss this one.

~~~~~~~~~~~~~~~
Addendum:
It was commented on that I had picked the EURO to highlight my case, whereas I should have used the Dollar Index ($DXY)...well, here it is...again, the dollar is stronger than where it was in late 2004 (and early 2005), and if the Fed were to cut rates, who's to say it wouldn't rise on future growth prospects for the US?

~~~~~~~~~~~~~~~
Addendum 2:
There has been some come complaints that Core CPI isn't valid (ie ex-Food-and-Energy), since Food and Energy are rising more rapidly than Core Inflation...and sthis may stop the Fed from cutting. Well, here's the graph, of Headline y-o-y Inflation versus Fed Funds. You can see that Headline CPI is lower today than when the Fed started cutting rates in 1985, 1987, 1989, 1996 and 2000. I think this invalidates the "but REAL inflation is too high for the Fed to cut"...

Couple of things...Short Sterling and S&P puts

2007-05-10T22:31:00.000+01:00

ok, a few days ago I paid 94.06 for Sep '07 Short Sterling, in £300/bp...think the market is overly pricing in an EXTRA rate hike after today's, although fully believe rates have further to go than today's 5.50% level. But at worst, the Bank of England keeps hiking in the near term, I lose money here, but it takes the housing market down and I get a step closer to buying an affordable flat! Win win both ways I reckon...

And also paid 16.21 in £100/point of SP500 Sep '07 1400 puts. Good falloff today in the indices could be the signal of something bigger, plus with HORRIFIC same-store April sales numbers out of a lot of retailers today. The end is nigh...

Sold cable, bought Eurodollars

2007-05-04T08:32:00.000+01:00

A (very) late post...over the last couple of days I sold some GBP at around 1.995 in £5/cent, think that although the UK will hike next month, some bearish indicators on the UK economy are beginning to rear their head, such as lower numbers of mortgage approvals.

And bought Dec '07 Eurodollar at 94.905, one I've been involved in before, I plan to keep trading it by buying on weakness. Still think the Fed will have to cut rates this year.

Buying some Palm...market cap just to small?

2007-04-30T20:04:00.000+01:00

Just bought about £10,500 worth of Palm. Range over the last couple of years has been between about $12 and $24, currenly trading at $16.95. Market cap just $1.75bn, seems tiny for such a well known "tech" company. Yes, earnings have come off over the last year, giving it a P/E of ~26, but if you look at the long-term, surely the future is mobile computing? Was contemplating double the size of this position, but will do a little research first.

Yahoo Profile of PALM

The UK slowdown should begin soon...shorting a retailer (Next)

2007-04-30T19:31:00.000+01:00

Sold ~£24,000 of Next today, the high street clothing retailer. Stock up significantly lately on private equity speculation, but I don't think this happens as it has been talked about for years with nothing happening. So I am viewing the recent spike as a great entry point to get short. Stock trading about £23.50, pretty close to the all-time high.

Not only am I not convinced by the quality of the company, it seems to me that the UK slowdown should start soon. House prices are clearly peaking, with the final burst higher in recent months thanks to City bonus money piling into property, despite the fact that these supposedly intelligent people in the markets should be able to see the speculative bubble that has formed. Once house price growth stalls, I don't see much to keep consumer spending going at a decent pace, as income growth has been fairly stagnant in the UK for the last few years, especially due to immigration from Eastern Europe holding wages down. In this scenario, retailing should be a sector that suffers.

Click here for details of the stock. Market cap £5.33bn, P/E ~16.1

Looking to take about 10% out of this trade, so first target is around £21.00.

Closing SalesForce.com

2007-04-24T20:54:00.000+01:00

Closing out my SalesForce.com short, £1,630 profit. Stock down about 9% since I shorted it just a couple of weeks ago. That'll do me.

Still a complete P.o.S. company and valuation, but will take my money.

Selling cable

2007-04-24T20:49:00.000+01:00

Sold some Jun '07 Cable (USD/GBP) at 1.9997 in £5/tick, putting a tight stop loss of about 20 ticks on it. Trying to catch a move here, think the just maybe with US stocks through all-time highs, but UK stocks lagging, maybe we can't price in too much of a differential in the respective economies and rates.

Was stopped out in a similar trade on USD/JPY recently, but only risking about £125 here.

Dumped Vonage

2007-04-24T20:47:00.000+01:00

Sold all my Vonage stock yesterday, a little below $3. Too much talk of bankruptcy, and too much hinging on a court case (I think today?). Not convinced by this one any more, and lost too much, so cutting out. Probably won't revisit this one in a hurry...

Down ~£6,000 on it.

Took profits on the Eurodollar long

2007-04-19T21:53:00.000+01:00

Sold Dec '07 Eurodollar at 95.03 today in £200/bp. Profit was just under £2,000. Not bad, quite pleased with this trade, and plan to get in and out of it. Am sure we'll continue to cycle this year through periods where the consensus view is that the FED won't cut rates, then will, then won't etc etc. I plan to play this from the long side only, every time it sells off decently.

Adding Starbucks...definite upside potential

2007-04-16T20:02:00.000+01:00

Starbucks trading at ~$31.00, I just bought ~£32,000 worth.

Market cap of $23bn, on last year net income (Sep '06, and according to my bloomberg) of $564mm, sales of $7.8bn, and the company looks to have solid sales growth and good (although less solid) earnings growth. I think Starbucks is an ambitious and well-run company that still has plenty of growth and expansion in it, and that should keep shares on the up, despite a slightly high P/E for my liking (~40, and a forward P/E according to bloomberg again).

And finally the entry point looks ok. Has traded up at $40 in the last year, and it was trading at 30 way back at the end of 2004, so maybe the stock has some room to run.

Doubling the Eurodollar Dec '07 position

2007-04-16T19:48:00.000+01:00

Paid 94.915 for another £100/bp of Dec '07 Eurodollar (I already had on £100/bp at 94.965). I like this trade, and want to be big enough to make some decent money if it performs. A reasonable worst-case scenario is that more hikes come along and I take a 100bp hit, so £20,000, which wouldn't be ideal but would not be a killer.

Trying to catch a big trend in USD/JPY

2007-04-16T19:45:00.000+01:00

Buying some September '07 USD/JPY at 117.54 in £5/cent. Think the Yen could move into a long-term down trend...back in 1985 it was trading at 277, in 1995 it hit 82, and is currently just under 120. The 200-day moving has been steadily moving up since hitting a low in mid-2005, and it seems to me the Japanese are in no hurry to normalise rates, and although the US could be cutting rates this year, I have that trade on in Eurodollars so can think of myself as having a bit of protection on that front.

I'm putting a 50 cent stop on it (from the mid of the market where I put it on), so down ~£300 is my worst-case. And I plan to add to it if it moves my way. Lets see.

Shorting SalesForce.com...what a joke of a market cap!

2007-04-11T19:10:00.000+01:00

My attention was brought to SalesForce.com from the BloggingStocks blog, after an analyst downgrade. Looking into it briefly, this company has basically never made money (P/E of 11,137 anyone?) and yet is valued at $5.12bn...yikes! So SalesFarce.com is a sell...sold ~£23,000 worth, with the stock trading ~ $44.16.

Was thinking of shorting twice the size, but find it interesting that it's only down about 2.5% on the day. Will keep an eye on this P.o.S.

Check out http://www.marketwatch.com/news/story/cowen-analyst-predicts-sobering-future/story.aspx?guid=%7B331628CF%2D24B9%2D4E97%2DBBDB%2D6CADD1C06345%7D&siteid=yhoo&dist=yhoo for a starter on the company.

Fyi, the 52-week range is 21.60 to 50.40, so this is looking like a decent entry.

Admin update...closed EBay last Thursday

2007-04-10T22:27:00.000+01:00

Closed my EBay position last Thursday (same price as it closed today) for £525 profit. Couldn't resist a 3% profit in 3 days, and that was even after paying the bid/offer.

Back in the Dec '07 Eurodollar after recent falls

2007-04-10T20:19:00.000+01:00

Just paid 94.965 in £100/bp of Dec '07 Eurodollar. One rate cut this year looks like the breakeven now, at some point this year I'm sure the markets will get jittery over potential rate cuts again...this contract traded as high as 95.28 recently (although seemed overly aggressive at the time, hence why I sold my previous long around 95.22).

You have to own this.

Shorting some JC Penney...US retailers surely can't go higher?

2007-04-10T20:10:00.000+01:00

Selling about £42,000 of JC Penney (JCP), £5/cent of the Sep contract at $84.76. Stock trading at $82.84 just now.

Market cap of $18.7bn, with a P/E of 16.6, far too high given we are probably at the high-end of the earnings cycle generally in the US, and with some significant risks retailers face if the housing crash unfolds as it looks like it will, not to mention the warning signal of recession from an inverted yield curve and falling M1 money supply.

Risks to this trade? That they get bought by private equity. But I think this risk is giving a fantastic entry point, as the stock has been bid up on these rumours.(52-week range is $57.43 to $87.18). Looks compelling.

Buying some VeriSign

2007-04-10T19:26:00.000+01:00

Just bought about £27,000 of VeriSign (VRSN), the company which operates .com and .net addresses. Only read about this company for the first time today, sounds like an interesting medium-term play, they are able to raise prices on .com and .net addresses, good margins, and have RFID technology which sounds like it has potential in the coming years (I need to read more on this).

http://www.bloggingstocks.com/2007/04/09/verisign-increases-pricing-for-com-and-net gave me the first thoughts on this one, it's worth a read.

Stock trading ~$26.20 just now.

Closed out my Oil, and increased SP500 short

2007-04-09T21:54:00.000+01:00

Trade posts from Thursday:

Bought back my Oil short for just over $1, about £575 profit. Clearly took it too early, as Oil is off about $2.50 in today's trading. Dammit, another example of me taking profits too early. I need to think about this.

And added to my SP500 short in £100/point. Still (think) I believe that their are major risks to the US economy, and want to have a decent size position in it. Plus I'm so out of the money on my original short from the middle of last year I could do with averaging in...

Closing Ford for a small profit

2007-04-02T21:05:00.000+01:00

Selling back my ~£20,000 of Ford just at the close, £620 profit from my purchase on March 19th. Stock trading about $8.08.

Think they are reporting sales numbers tomorrow, didn't have time to study it, as I wanted out before the close. This is a stock I'd like to keep moving in and out of from the long side, and I'm happy to book some small profits and wait for the next pullback. Having stated that they won't be profitable for the next 2 or 3 years, and a product that could suffer in a slowdown, I'm sure I'll get a chance to re-enter this one.

Buying some EBay, monopoly position should bring growth

2007-04-02T18:12:00.000+01:00

Just bought about £20,000 of EBay, stock trading at $32.85 just now.

Was reading a blog earlier, and it was going through the rationale of Goldman who are tipping the stock, saying that it should easily see good growth for the next few years. EBay has such a stranglehold on the auction market, it will be very difficult for anyone else to break into (more users/content just encourages more users/content!). I also think that PayPal is an excellent long-term business and is here for the long-term, and Skype is just a bonus alongside the core EBay offering and PayPal. I've never used Skype, but internet telephony seems like it could be a decent business model as bandwidth speeds increase over the coming years.

I may look to increase my position here after a while, I like the long-term story.

Time to sell oil

2007-04-02T17:51:00.000+01:00

Shorting Jun '07 Oil @ 67.40 in $5/cent (spot is trading around $65.90).

Market seems overly focussed on Iran issues right now, whereas the danger move for Oil to me seems to be lower on increasing evidence of a US slowdown.

Closing Bund, Euribor and Carmax trades

2007-03-29T23:36:00.000+01:00

Bought back my £15/tick short in Bund futures yesterday at 115.21, for a profit of £1,356, and my Euribor March '08 short of £75/bp at 95.845, for a profit of £1,275. I still think Euro rates go higher for here, but would like the opportunity to trade it around, so will be looking to re-short the market if it went back up. The whole Euro curve now is basically at 4%, with ECB at 3.75% and going up, risks are too (much) higher yields. But I can't resist taking a profit. Completely flat on Euro rates trades now, have taken about £5,500 out of it in the last few weeks.

And I shorted about £10,000 worth of Carmax a few days ago, earnings out today saw the stock down 7% at one point. Sweet timing. Bought it back for exactly £500 profit.

Selling some Carmax (KMX)

2007-03-23T19:32:00.000Z

Stock trading ~$53.50, I sold about £11,000 worth.

Can't remember which blog I heard of this stock on, but I liked the rationale at the time!

Try this for a first pointer of where to start your research.

Screw it, taking my 20 cents profit on OBL's

2007-03-23T18:46:00.000Z

Just bought back my £100/tick OBL trade @ 108.54, £2,000 from the trade entry on Monday, can't complain.

Still fully believe in the trade, but lets see if we can trade it around.

Buying some Ford, and getting even bigger on Euro rates

2007-03-19T19:44:00.000Z

Buying £20,000 of Ford, stock trading at 776. Some funny rumours doing the rounds today of Chinese buyers for the company, and with a mere $14bn market cap, that seems more than possible. This is one I don't want to miss, plus I think Ford may just turn things around, and having pre-financed a lot of their needs, so stockpiling cash, their near-term survival looks fine. (Although I think a slowing US economy could hurt them, the market seems very pessimistic on their long-term future, so maybe you get paid to take the risk).

And selling OBL's (that's 5y German Government bond futures) at 108.74 in £100/cent (so £500/basis point).

5y bonds are trading around 3.90%, as i mentioned in my commentary before with my Bund short (i am short £30/tick of Bunds, and £75/bp of Mar '08 Euribor also), this seems such a no-brainer. ECB rates at 3.75%, you can guarantee they will be going up to 4% by June at the latest, and you can also guarantee that the ECB will NOT be sounding dovish after that! This trade seems just TOO obvious to me. Rates in Europe are too low, Spain and Ireland have economies and property booms out of control, money supply growth is ridiculously high, I think the high points in rates will be way above what ANY economist thinks right now.

Another trade on Euro rates

2007-03-06T20:42:00.000Z

Sold £15/cent of March 2008 EURIBOR @ 96.015...ie. its pricing in 3 month LIBOR at 3.985% in Mar '08. Given that the ECB is going to hike to 3.75% on Thursday, and money supply is expanding at far too rapid a pace, it seems logical to think that over the next year rates need to go up significantly in order to tighten excess in risk-taking markets. This is a no-brainer trade, and reminds me of when everyone was calling a top in the Fed Funds rate when it hit 3%, then 4%, then 5%.....

Lots of trades...shrinking the portfolio and taking profits

2007-03-05T19:17:00.000Z

1) Sold my Short Sterling Jun '07 at 94.36 in £100/tick, profit £2,300
2) Sold my Dec '07 Eurodollar at 95.23 in £150/tick, profit £2,080
3) Bought £5/tick of Capital One Financial Jun '07 @ $76.45, profit
£3,838
4) Bought £5/tick of Exxon Mobil Jun '07 @ $71.02, profit £2,419
5) Bought £2/tick of KB Home Jun '07 @ $48.76, profit £1,012
6) Sold £2/tick of Whole Foods Sep '07 @ $47.59, loss just £43
7) Sold £3/tick of Motorola Sep '07 @ $18.83, loss just £62

And one new trade, I sold £15/tick of the March Bund future at 116.70,
10y Bund yields were around 3.90%. Seems far too flat a curve, given the
ECB will almost certainly be hiking to 3.75% on Thursday.

Rational on the trades is that I can't resist taking a decent profit in
a short space of time, and also whilst I am long-term bearish on asset
values, I'm not convinced that now is the time markets completely fall
apart, I think it's more likely this is just a short-term correction. So
I'll book some profits and use it to put on some fresh positions with
some fresh analysis.

Stock positions I still have is a short of about £14,000 in Vodafone
which I'm about flat on, going to take that off if I can get out flat,
and re-think it, am short WaMu still in about £43,000, think these guys
still have significant downside, as delinquency rates rise further due
to reduced access to credit, now lending standards are being tightened
across the board, and am long about £8,000 of Vonage, may increase this,
think market cap is too low (it's less than $1bn) for a company that has
built up a decent subscriber base in a new technology. And I still have
my Pipex communications in about £48,000, bit annoyed at this one, as it
hit my target level (around 14p) where my profit was £10,000 (about
25%), but I just didn't get round to selling. Will wait this one out.

Other risk is in DOW and S&P puts mainly, have a lot of DOW 12,000 Puts
so could do with another 500 points down in the DOW, and then I'll prob
take it off.

Covering my USD/JPY short

2007-03-04T21:50:00.000Z

On Jan 4th, I sold USD/JPY Jun '07 at 116.51 in £4/cent (spot was trading at 119.00). Covering this now after last week's meltdown, buying Jun '07 at 115.24, with spot trading at 116.70.

You can clearly see how much negative carry I had to overcome on this trade. In 2 months, the carry on the forward was worth about 75 cents.

Will probably be taking off some other of my trades this week, almost everything has worked out during this sell-off. P+L updates will follow this week. First glance looks like I made about £15,000 last week.

You have to buy Eurodollar here

2007-02-12T18:59:00.000Z

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!

2007-02-12T18:50:00.000Z

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

2007-02-08T20:31:00.000Z

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...

2007-02-08T19:32:00.000Z

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???

2007-02-08T19:18:00.000Z

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

2007-02-08T18:58:00.000Z

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

2007-02-01T20:47:00.000Z

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.

Back in the Exxon short!

2007-01-24T19:38:00.000Z

Selling some Exxon Mobil again, with the stock trading around $74.80, I sold £5/tick (that's £5/cent, or ~£38,000 worth).

As I mentioned in one of the posts when I shorted it recently, the market cap to me just seems WAY too high for any company to sustain, as making that much of a profit will naturally bring competitors in.

We'll look to try and take 5% out of this.

Cutting GBP...about time

2007-01-24T19:10:00.000Z

Closed my short in GBP at 1.9675 in £6/tick. I'd originally put it on a year ago at ~1.78, which I wrote up in this post:

http://thetraderboy.blogspot.com/2006/01/fxcable-gbp-vs-usd-is-set-to-enter_28.html

Basically, I thought that rates in the UK would be moving down (they were then 4.50%, now 5.25%) and that rates in the US would be static or rise. So was thinking the currency would move on the interest-rate differential.

And those interest rates never played out. And now it looks like the UK will be hiking again, so it's time to move on from this trade. Painful...the total loss over a year was £17,555, that's on spot only not on options.

I think I sometimes need to close out trades just to clear my head and re-think the strategy. Feels like GBP wants to make a push for 2.00 just now I reckon, although not sure it's fundamentally justified. Also, as I've mentioned before, but rarely stuck to, I need to use stop losses on some types of trades. Ah well...

Adding to the short DOW position with Jun options

2007-01-16T20:47:00.000Z

Just sold DOW 12,000 Jun calls @ 864 in £5/point...

...and bought DOW 12,000 Jun puts @ 173.2 in £25/point.

Net premium I pay is £10 (that's a tenner, not £10k!).

Will give me a nice leveraged position on the downside, need about a 4-5% drop in the DOW for it to really get going. If the DOW had a 5% drop fairly soon, I'd be up about £4,200, so think the target should be for a bit more than that.

Complacency rules supreme at the moment. Lets get earnings season going with some bad numbers out the homebuilders and mortgage lenders, and some weaker growth out of, say, Intel, and we can get the downward momentum going.

Buying a little Motorola for the long only portfolio

2007-01-11T21:00:00.000Z

Just paid equivalent of $18.30 for Motorola, in about £5,700 of stock. Overally beaten up after results, market cap just $45bn now, this is a great long-term prospect within the technology sector. See previous postings on it, as I've been in and out of it recently:

http://thetraderboy.blogspot.com/2006/11/buying-20000-of-motorolanext-year-is.html

http://thetraderboy.blogspot.com/2006/11/cant-resist-quick-profitsold-motorola.html

May look to increase this, want to see the stock stabilise properly first.

Taking profits on my Exxon short:

2007-01-10T19:29:00.000Z

Just bought back my £10/cent position in Exxon, I've made 6.8% on the trade (well, the original trade, not the doubling of the position) since my entry in November, despite the overall market being pretty much flat. A nice drop-off in Crude prices helped my achieve this one. Just eye-balling the chart, I fancy it maybe has a little bounce up a couple of bucks from here, so taking my £2,920 profit for now. May look to re-enter this one...like I said in the original post, the absolute market cap is just way too high.

Buying Vonage for the long-only portfolio

2007-01-09T22:11:00.000Z

Bought ~£10,000 of Vonage stock, trading today at $6.44. http://finance.yahoo.com/q?s=vg

Market cap of $1bn. This to me seems low for a company that has had decent success with market penetration of internet phones. Plus I know many businesses are using their technology. Yes I've read that profits seem a long way off, but with a small market cap like this, you've got to think some of the majors have their eyes on this company, as there is plenty value in having a decent subscriber base.

Anyway, it's now in the long-only portfolio along with Whole Foods which I bought yesterday.

The new long only portfolio...buying Whole Foods:

2007-01-08T21:24:00.000Z

I'm going to try another slant on my investing/trading. I'm too bearish. So I need to have a long only portfolio, not necessarily because my trading hasn't been profitable so far, but just to focus my mind on the long side of the market.

So I'm going to put £100,000 into the long side of the market (that's my thought of size at the moment anyway) over the coming weeks and months, gradually. And I'll keep track of my returns separately from my other trading. Hey, looks like I'm running a hedge fund AND a mutual fund now!

So to start...I've just bought a little over £9,000 of Whole Foods...it's trading around $46.25 right now, and I've bought £2/cent.

I've looked at this before, the stock has had some interesting price action, what with a warning recently that growth is slowing (but still respectable). Following that, the stock has had a decent slide. Reading Slate today reminded me of it, and the thought of them expanding internationally is interesting.

Plenty room for growth, and whilst I am a firm ANTI-BELIEVER that organic food is better for you OR the environment (pesticides were made for a reason, to kill bad things! and organic food production uses FAR more land to produce the same amount of food as regular intensive farming, so we better get chopping those rainforests down to make some space for these organic crops!), I think the "public" will embrace this more over the next few years. So demand will go up and growth will continue.

Will be looking to put on about 10 trades of ~£10,000 each...any comments appreciated and I'll look at anything! Next one I'm considering is Motorola, following its recent warning that its numbers will come in below estimates. The 8% beating the stock took is making it look decent value. This is a great long-term tech play.

And selling USD/JPY

2007-01-04T21:42:00.000Z

Also, I've just sold some USD/JPY. Carry is expensive on this trade, but
if Japan is beginning a rate hike cycle and since I believe a US rate
cutting cycle is not far away, maybe it can really start to move. Also
the entry point looks good here.

Spot is trading at 119.00, I sold Jun '07 at 116.51 in £4/cent. If it
starts to move my way, I plan to increase the size and put in a stop
loss, and see if I can catch a trend. If the global carry trade decides
to take a breather, then this is what's going to move. Come on the
January rate hike BoJ!

Closing Copper short after a perfect trade, and doubling up the Exxon short:

2007-01-04T21:27:00.000Z

Covering my Copper short that I put on on Dec 19 at 301.20 in £1/cent, I had put a buy order in at 260.00, the level i'd written in my original post that I planned to buy it back. £4,080, that'll do nicely. Chart still looks ugly, but that is a very fast correction, down ~13% in 2 weeks, can't argue with that! Again, thanks to Mish for the original idea.

I also shorted ExxonMobil at the end of November selling the Mar '07 future at $77.00 in £5/cent. The Mar '07 contract is trading at 73.00 today (the stock is ~72.50), oil is dropping and the chart doesn't look good for this stock. I've doubled my position by selling another £5/tick, and put a stop at my average price of 75.00 on this contract, so at worst I'll be stopped out flat, but hopefully I can ride this down another 5-10%.

That'll do for today, am short on time. So far this year I'm up £11,500, thanks to Copper, Exxon and my long in Dec '07 Eurodollars, although my timing on that one looks like it could have been better.

Am more and more convinced of my US stock index shorts...P/E multiples are too high, and I think the slowdown/recession risk is not being priced in and will take the market by surprise when it finally dawns that the best is behind us.

End of year 2006

2007-01-01T20:00:00.000Z

Final 2006 P+L. Yes, pretty disappointing, I set out the details of it in a recent post. Fought equities all year by being short. Going to do some long hard thinking going into the New Year.

Current open positions:
Short GBPUSD in FX.
Long Pipex (UK internet operator)
Short ExxonMobil
Short Washington Mutual
Short Vodafone (small size)
Short Copper
Long Dec '07 Eurodollar
Short S&P500
Long Jan and March Puts on S&P500 (1330 and 1350 strikes)
Long Jan and March Puts on the DOW (11,600 and 12,000 strikes)
Short Jan Call on DOW (12,000 strike)

Yes, I could do with a decent drop in equities over the next few weeks!

Thoughts on the market another day.

Shorting Copper for the first time

2006-12-19T18:18:00.000Z

Selling some Copper. This is my first time in this commodity, and I'm entering it as I was reading one of Mish's blog posts, and it got me thinking.

Very interesting chart also, looks like decision time and could break lower, with much lower long-term support. Plus I believe in a continued US housing slowdown, and also the price of copper and other commodities are significantly higher than in the not-so-distant past, and so there will be plenty of companies out there trying to increase mining and hence increase supply. At some point extra supply will come on line, probably at just a time when the market doesn't need it!

Let's put on a small position and look for a 40 point break lower. Selling Mar '07 future at 301.20 in £1/cent, which should make us £4,120 if we can get it back at 260.00. Let's have a good think about cutting if it gets to 315.00.

Well at least I can trade rates ok...covering Bund and Gilt short

2006-12-19T18:13:00.000Z

Bought back my £30/tick Bund short at 116.86 (that's the March Bund future) and bought back the £10/tick short in Gilts at 108.22 (again the March contract). Still think that long-term rates are heading much higher from here (February rate rise in the UK looks a done thing, so short rates at 5.25% and looking like they are going up means 10y yields will struggle to stay as low as 4.70%, which is about where they are just now), but I've made £5,000 on the combined position since putting it on last month, and that was without having the full position I wanted on. So we'll take that and look for another entry point.

Bund market having a really tough time the last 2 weeks, down about 2 points from the highs, and feels like it's trading very poorly, but we may see a little support around these levels (~3.85% on 10y Bunds) for a little while.

2 weeks to go, still up, just!

2006-12-17T21:06:00.000Z

Well, I guess one of the plus points is that I am UP this year at least. Not quite the million quid I was after though.

It's pretty clear to see from the P+L that FX and Equity Indices hurt me.

In FX, it was exclusively Cable (GBP/USD) which killed me, I traded from the short side all year, as it rose ~20 big figures. I used options on it also. Would be easy to say that I misjudged the trend, but most of the gain was from mid-April to mid-May (1.75 to 1.90) then over the last month its up another 6 points. So maybe the solution is a stop-loss system, and then keeping myself out of the market for a few weeks, or at least betting smaller size. If I'd used stop-losses, and bet small then added to WINNING positions only, I'd have minimized losses (£26,000 in total). My problem was that I was SCARED to not have the short position on in size if the market was going to move!

Equity Index problem looks the same, sticking to a losing position all year instead of realising an early loss and walking away. Down £28,600 this year trading SP500 and DOW 30, both index and options. Although it did give me more comfort having my individual stock long positions on despite being bearish most of the year, and I'm up £21,900 on those stock picks.

The better stock picks...up £4,500 on GM, up £2,000 on Heinz, up £3,000 on Cisco, up £6,000 on Pipex, and the best one, up £14,000 on British Telecom.

In commodities, I missed the bull run in Gold despite being an early believer, I kept missing my entry, and only had one small trade on. But the main winner was on Crude, where I shorted it around $73-74 a barrel, and bought it back 9-10 points lower, despite having some hairy moments when it ramped up to $80. Very very nearly pulled the trigger on cutting losses on that one.

And in rates, did some good trading in Treasuries (up £8000), Bunds (up £2500), and chucked in about £1000 each on Gilts and EURIBOR futures.

Lets hope (yes HOPE) for an equity setback coming into Xmas, and I'll be using the festive season to think how I should be positioning for 2007. That will be my year!

Any thoughts, comments or ideas, feel free to post!

Equities killing me...but I still believe...buying DOW Puts, and Dec '07 Eurodollar

2006-12-15T18:30:00.000Z

P+L update this weekend.

My Dec DOW Put/Call rolled off (I had bought 11,000 Puts and sold 11,500 calls)...wow. Down £10,000.

So this time, I'm just spending money on the Puts, so at least I know my downside. Buying Mar '07 DOW 12,000 Puts, at 122 in £10/point.

And following CPI today coming in at 0.0%, it looks like the FED has done its work, overdone the hiking cycle as usual, and should embark on some serious rate cutting next year. So I'm buying Dec '07 EuroDollar at 95.225 in £100/bp. Lets look for a 20bp move higher then re-consider the position.

That'll do for now. Over the next week or two I'll be shuffling the portfolio around and looking to position for next year. I also want to discuss my trading style, I'm not happy about a couple of trades from this year, I think the use of stop-losses is necessary. Possibly combined with a mandatory week out of that particular market!! For example on stocks, I just didn't want to lose my position, but losing £10,000 on more than one trade is a sure sign of bad trading discipline.

Selling some Exxon Mobil, market cap just too high:

2006-11-29T20:14:00.000Z

Currently trading ~$76.00, market cap about $443bn, this will not be sustainable over the long term. Any company that makes this much money will eventually have it competed away. Plus I think Oil has seen its best days, and a US slowdown should take the price lower from here.

Sold it in £5/tick, so a short of about £38,000 notional.

Housing collapse clearly unfolding, recession should follow

2006-11-29T03:47:00.000Z

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!

Selling some Vodafone

2006-11-24T13:21:00.000Z

Just sold equivalent of £13,600 of Vodafone, stock price currently 134p. (I sold the Mar '07 future at 136 in £100/penny).

I think that over th next year, the competition that Vodafone will be facing in the future will become more apparent, with ultimately free mobile telephony being available by routing calls over the internet.

And being a long-time Vodafone customer, I know how badly run a company this is! I like to think I am vaguely technology savvy, but getting email to work on your phone, or watching video clips, using the internet, and even understanding what 3G means is NOT explained or eploited by Vodafone at all! This company will be out-competed and out-priced by new and existing competitors eventually.

I plan to get the position to about 4 times this size, but lets use this as the initial entry point.

Market Cap: £71bn

Dividend Yield: 2.87%

Next years EPS estimate: 11.6

Next years Net Debt: £19.2bn

Selling more Bunds

2006-11-23T17:50:00.000Z

Selling another £10/tick of Bund futures at 118.00

That's the Dec '06 Bund future, with the yield on 10y Bonds ~ 3.75%

As I've said before, European economy steadily expanding, so a clear sign to be short bonds...and there is no reason for yields on 10y Bunds to be flat to 2yr Bunds virtually, there are plenty rate hikes still needed by the ECB. 4% first stop, and the £30/tick I now have own should make about £5,000. So easy it's boring!

Buying even MORE downside in stock indices!

2006-11-17T21:29:00.000Z

Zero-cost option trade:

Sold Jan '07 12,000 DOW calls at 473 in £2/point.

Bought Jan '07 11,600 DOW puts at 35 in £27/point.

It's a matter of time before the 10% correction is due.

Can't resist a quick profit...sold Motorola after 3 days! And stopped out on Oil long:

2006-11-16T22:19:00.000Z

Motorola stock up 6% from when I bought it 3 days ago...$22.65...so sold
out the £10/cent I had bought on Monday. £1,246 to the good guys! This
stock market is nuts!

And I put a stop in this morning on Crude, with the sharp fall today, I
was stopped out my £5/cent long at 58.15, so losing £495. I was never
overly keen on this one, and can easily imagine a substantial fall in
energy prices due to economic slowdown and loss of confidence of the
bulls in this market.

Actually I need to buy the downside:

2006-11-16T06:20:00.000Z

OK, having just paid 1400 for SP500, I can't take it. I have to be short in size. I just bought January 1350 PUT for 7.89 points in £100 a point.

I can't believe how cheap options are. For 3.5% out of the money, I can buy a Put for about 1% of the notional value. Crazy stuff. Bring on the meltdown.

And Year to Date P+L is up £13,500 as of just now.

Cutting back some bad positions:

2006-11-16T06:00:00.000Z

I must use a stop-loss, I must use a stop-loss, I must use a stop-loss, I must use a stop-loss, I must use a stop-loss, I must use a stop-loss, I must use a stop-loss............

Having been SMOKED on my US Equity Index shorts....I am cutting it back a little. Bought £50/point back of SP500 at1400, I was short £100/point all the way from 1241. Nightmare. Really believe in US slowdown, and lower equities, but feels like it will never come, and I can't take the pain any more. I am annoyed at myself for the poor discipline.

I am still short the DOW at 11,500 in £10/point from an options trade, have £50 left of SP500 short, and have a March 2007 PUT on SP500 at 1330 in £250/point. That'll do.

Also cut back some of my GBPUSD short, trading just under 1.8900 I bought back £5/tick. Now have £6/tick short left. Also sold a 1.8850 PUT and CALL to Nov 24, in £5/tick, sold the call for 90 cents and the put for 50 cents. So at worst I put the short back on at 1.8990, or get taken out of £5 of my remaining position at 1.8710. Ho-hum. Have waited to long for the GBP collapse, and again didn't use stop losses so gave away more P+L than I needed to.

And finally, have put a stop on my Crude long, am long at ~ $59.20, currently at ~ 58.70, and I've put in my stop at 58.20. Have £5/cent on, I am not convinced by this trade, I think confidence has been lost from those in the long side of the energies market (Amaranth wipe-out helped that!), OPEC seem to have lost some control, and the oncoming slowdown I see will not help demand. So lets not lose too much on this one...

Buying ~£20,000 of Motorola...next year is their year:

2006-11-13T20:01:00.000Z

Just bought £5/cent of Motorola stock, stock currently trading at $21.20.

Motorola, from what I've read (will try and dig out some links another time), are all over Wi-Max (yes my favourite technology which is going to change the world in the next couple of years!). Stock has taken a beating on recent earnings, but it seems the company is setting themselves up for the future in investing within the WiMax space. (As an aside, I think Intel will also be a HUGE beneficiary of selling WiMax chips, and Microsoft Vista for that matter....)

Get aboard, the stock has taken a fair drop recently and now looks like the right entry point.

Closing the BT long before results tomorrow:

2006-11-10T12:21:00.000Z

Sold the balance of my British Telecom long. Stock has had a great run, up from ~220p when I first bought it, to 290p now. I had originally bought £200/penny (so £44,000 of stock), had sold £100/penny at ~270, and sold the balance today with the stock a little above 290p.

£14,153 in the bank. Sweeeeeeet.

Results out tomorrow, think its 9-month revenues, looks like they'll only be a little up on last year, so not sure the catalyst is there for a massive re-rating higher of the stock. Happy to take my money out for now.

US stocks....they kill me! Surely they gotta go down some time soon??? This credit bubble is becoming farcical.

Late post! Sold more Bund futures...yesterday:

2006-11-07T19:49:00.000Z

Just to keep all positions posted...I sold another £10/tick of Dec Bund futures at 117.43 yesterday, increasing my short to £20/tick at about 117.75 average...shame really, its up 45 ticks today to 117.82 unfortunately!

Never mind, this one is all about the long-term. No way 10y Bunds can hold onto 3.75% with the ECB on a rate hiking cycle. It's going to be just like the Treasury market last year, where they NEVER priced enough into the curve...I remember (and posted at the time) Bill Gross talking earlier this year about how good value the Treasury market was, around the time the new 30y came at 4.50%, well that bond preceded to PUKE 11 points lower in short order (as I had predicted at the time)....now, Bill Gross is up about 2.40% Year-to-Date, he'd have been as well sitting in cash! And now he's telling us he sees 10y Bunds going to 3.60%. I mean really...base rates are at 3.25%....growth is in place....inflation risks are there...unemployment has only JUST started falling, it's only just under 10% in Germany, it can drop a LONG way from here...would rates at 3.50% cool the situation? 4.50%? 5.50%?? Maybe. Maybe not. But either way, I don't see the rate hike cycle stopping anywhere near current levels.

They are all morons, just trade with a view you are keeping stuff for 6 months, and most sensible trades will work out (although my DOW and S&P shorts are really hurting...REALLY hurting...!)

Actually since I'm talking about it...just bought some Oil:

2006-11-03T20:51:00.000Z

Just paid 59.14 for £5/cent of Dec '06 Crude Oil. If it moves up, I'll increase the position and put a stop-loss around the breakeven level.

Blog "kinda-correction"...still fully in the CABLE short!

2006-11-03T20:45:00.000Z

When I thought I was buying back £5 of cable (GBP/USD FX) the other day, with spot around 1.9080, the trade didn't actually go through, as something messed up with my connection...and since today's US payrolls number, it has dropped back to ~1.9000...better lucky than smart!

Am going to keep on the full position (am short £11/tick, so £1,100 per big figure, eg 1.90 to 1.89). US numbers today were very interesting, with previous months payrolls revised up again by ~100k per month for the last two months, and the unemployment rate down to a VERY LOW 4.4%. I don't think the FED will be happy with that number, and some poor inflation data over the next couple of months could result in the curve pricing in rate hikes again.

So, with no CUT on the near-term horizon for the FED (and yes Roubini, I've read your stuff, and kinda buy into it, but we look safe untill the next bout of weak growth data), I can see the DOLLAR holding up well, so we'll keep on the short in Cable. I feel this also supports the shorts in Gilts and Bunds, as it seems that the global rise in interest-rates has more to play out.

As for equities, and earnings.....well I'll keep the S&P and DOW short, and opportunistically add single-name long positions when I see any opportunities. Although the trade I'm closest to pulling the trigger on is shorting Dell.

Very quick update! Covering cable, selling Bunds and Gilts:

2006-11-02T23:13:00.000Z

Ok, couldn't take the pain any more, so bought back GBP/USD in £5/tick with spot around 1.9080...leaves me short £6/tick. $ seems to be breaking down, and lower rates look inevitable, AS DO HIGHER RATES IN GBP (and EURO, for that matter). The rate differential was the whole rationale for me having the trade on, so if that is going to be disappearing in the coming months, it makes me nervous on the short, even if I don't think you should get 2 bucks to the pound (shopping in the US is insanely cheap as it is for us Brits).

And also selling Bunds and Gilts here...yields are BONKERS, even Trichet (head of ECB) came out today and said "10y Bund yields are extraordinarily low"...YIKES! If he thinks that, then I am going along with him...although I wanted to be short anyway (I won't mention how bad a trade it would have been for you if you'd shorted US Equities in 1996 when Alan G warned of "irrational exuberance").

10y Bunds are around 3.73%, that's with base rates at 3.25% and CLEARLY going up to 3.50% next month, and a further series of rate hikes lined up for next year. The market needs to wake up. I sold £10/tick of the Bund future just above 118.00, so that's about £75 per basis point. And I will be increasing this, I want to make £10,000 if it moves from here to ~4%, so need about £250 ber bp.

And I sold Gilt futures also today, 109.78 on the future, 10y yields are a smidge over 4.50% today. Again, £10/tick. Base rates are at 4.75%, they are going to 5.00% next week, the housing boom in the UK is in FULL-FORCE (any Americans reading this, you wanna take a close look at UK prices and how they have moved over the last few years to see that it is way more irrational than even your own housing bubble) and needs SERIOUS slowing down. Rates need to get up to 6.50% I think. Gilts are in trouble, yes they may have support from the Government enforced theft from pension funds (through forcing them to match liabilities with assets, ie. buy Gilts even if prices are crazy, see 50y Gilts at 3.75%!!!!!!!!!!!!!). This should easily see a short-term move to 4.80%, where they were recently, and again I'll be taking the position up in size, maybe 2 to 3 times the size.

Sell bonds now while you still can (even the US is over-valued, although at least they'll benefit from the oncoming rate cuts).

Taking profits on half my BT position:

2006-10-26T22:16:00.000+01:00

Sold half of my BT long...sold £100/penny with the equity around 280p (got paid 281.4 on the Dec future). Stock has had a VERY good run, and I'm happy taking my money partly off the table here. I'll have a good think about the rest of it.

Think stock could reach 320p in the near future, if BT profits rise nicely, and their expansion strategy becomes liked by the market so allowing an expansion of the P/E multiple. However I also think the fundamentals of the stock are relatively unloved, so if the market were to turn it could give up a fair bit of the gains.

Still long Pipex also, so have UK IT/Telco exposure still. If Pipex got up to around 13 I'd probably take my profits. This is a company with HUGE upside, see some of my earlier posts on it. Wi-Max Wi-Max Wi-Max, it is the future.

Covering the EURIBOR short, and buying longer-dated S&P puts

2006-10-24T21:39:00.000+01:00

OK...on Sep 29th I sold £75/tick of Dec '07 EURIBOR @ 96.25, I just
bought it back yesterday (Oct 23) at 96.12, so pocketing £975. Trade
worked out nicely as ECB came out with some hawkish rhetoric this month,
although I feel this should have made about £2500 as I missed my entry
point by a day as I was working and I faffed about before putting it on,
and since the market was lower than what I wanted I did half the size I
intended. Dammit. I continue to make money on interest rates, but not
nearly enough due to me sizing it too small. Whilst my DOW and S&P
shorts are swinging about in thousands of pounds, my rate trades feel
like they're about a fifth of the size. Must try harder.

And I just increased my Equity market short. The more I read, the more
the bigger picture seems to be that the housing boom has come to a firm
end, wage increases are not keeping up with inflation, inflation itself
is higher than the FED wants (and just maybe the FED will hike again),
profit growth seems to be slowing (and there seems to a decent chance
that profits fall), and there is a DEFINITE risk of consumers pulling
back in their spending.

Also it amazes me that corporates IN GENERAL make so much money
considering we are 10 years into the Internet Age, I would think that
the price transparency and lower barriers to entry that the internet
offers would cut into profits.

So despite having taken a BATH on my S&P short, and my DOW option trade,
I just paid 20.48 for a 1330 Mar '07 PUT on the S&P, in £250 per tick,
so £5,120 premium, which is my total downside. With volatility so low,
now is the time to be buying options, and I like pushing them further
out (the other ones I could have traded were only until December).

Bring on the crash.

Buying back my Bund short, and selling out Intel...just taking profits:

2006-10-16T21:25:00.000+01:00

Just bought my £15/tick Dec Bund future short back at 117.11, and sold
my £10/cent Intel long out, spot price was $21.60.

Booked £425 on the Bund, and £1,432 on Intel.

Sigh. I put the Bund on at about 117.40 average (that had the 10y Bund
around 3.78%), but the market did trade way above 118 after I did it,
annoyingly I 1) missed a higher entry and 2) didn't add to the trade
when the terms were better, despite my strong belief in it.

I still like this position, but think I'll get a better entry. Would
like it in bigger size also...my interest-rate positions are never big
enough! Having a CLOSE look at Dec '07 Eurodollar also, its pricing in
5% right now, think at some point the FED will move into rate-cutting
mode, and could cut pretty quickly especially if housing downturn
unfolds further. However, the last week or so it has felt like the FED
are on hold at 5.25% for a while, that the ecomony will continue to
strengthen, and that more hikes could be in order. So I'll hold off,
maybe at 5.50% I'll look to enter in size.

And sold my Intel purely because I've had a nice run on it, but also
because I'd like to have double the size, and so will see if I can get a
better entry level for a new position of more like £40-45k worth of
equity. Plus I think equity markets are due a bit of a setback (fingers
crossed anyway, I've taken a pummelling being short S&P and short DOW
11,500 calls!). Market is a little euphoric for my liking.

That's it for now, its getting late and cold here in London...its
reaching the stage where by next week it'll be dark on the way to work
and dark on the way home...how depressing, at least the ski season
starts soon.

Year-to-date P+L is up £16,500 at today's prices. Biggest losses have
been on GBP against USD which I'm still short and like, and on being
short US stock indices. Biggest wins have been individual equities,
Crude oil short which is now closed, and in rates, where I've generally
been betting on higher US rates earlier this year.

Selling out my Cisco and IAC Corp...why? And covering a little of my GBP short:

2006-10-10T21:28:00.000+01:00

Sold Cisco in £10/tick, spot price 24.30...thats about £24,000 of stock.
Had bought it back in Feb and March (wow time sure flies), seen a 15%
rise or so. Part of the rationale is that I wasn't long enough, so I'll
step out of the position for a bit and see if I can get an entry point a
bit lower. Think still a lot of potential in the stock, as internet
TV/Video continues to grow, and so demand for routing equipment etc will
increase, but I feel the market cap is kinda high relative to earnings
(profits for the last few years have been ~$5bn a year, but market cap
is close to $150bn). Will wait for a new entry point. P+L from Cisco
Year-to-date ~£2,750.

Similar rationale in IAC Corp (Ask.com), still like it, but cutting out
of my long of £10/tick today (spot price was $29.10). Wasn't long
enough, still like it, but will cut out now and wait for a better entry
point to put on maybe 50% bigger position...I'd like most of my equity
positions to be ~£40-50k. Total P+L for IAC Corp Year-to-date is DOWN
£6,200. Pretty disappointing, but main problem was doubling my long
earlier this year after a large rise in the stock, but then cutting that
as it dropped later on.

Also bought £2/tick of cable (GBP/USD fx), bought the Dec contract but
spot was at 1.8536. Was short £13/tick (equals £1300 per big
figure)...still like being short, but buying a little back as it falls
so I can trade it around a little.

Continuing the equity build-up...selling WaMu:

2006-10-02T18:51:00.000+01:00

Sold £10/cent of Washington Mutual...mid-price of the stock was
$43.29...so selling ~£43,000 worth of stock.

Why? Well 1) I dont like the smell of the US housing market, read
Roubini or the Big Picture for some good commentary on it, it seems to
me like the US is way over-leveraged, far more so than even here in the
UK. Whilst the Bank of England slowed the boom by taking rates to 4.75%,
then brought it to a halt without letting it drop by taking rates back
to 4.50%, it seems that with the more "exotic" loans available in the
US, there is more potential for Joe Public to struggle to meet payments,
even if the FED does try to cut rates to support the market (negative
amortisation, optional payments, etc).

2) Hat tip to Mish for this awesome post on how lending
guidelines were tightened by the regulator this weekend...this has HUGE
potential to massively slow the housing market since fewer people will
be able to get mortgages they cant afford to buy a house that is
over-valued.

3) I also think that as this "crash" unfolds, we will start seeing
class-action suits targetting banks/brokers who sold them mortgages they
couldn't afford, in a similar way to the lawsuits we saw on the back of
the dot-com crash.

So then it falls down to: Who should I short? WaMu seems an obvious
example, being the largest pure-play mortgage bank out there. I'm sure
that despite securitisation, they will still have risk on their balance
sheet, and also if the above scenario unfolds, the revenue slowdown
could be drastic. Also having a close look at Countrywide, but this
short will do for now. And also interested in the Mortgage Insurance
players, such as PMI/MGTC/Radian, but don't feel I know enough about
them yet. Any thoughts appreciated.

This could be one of the best trades out there...selling Dec '07 EURIBOR:

2006-09-29T18:25:00.000+01:00

Sold £75/tick of Dec '07 Euribor at 96.25.

In case you don't know, this is trading on where 3m LIBOR will be in Dec
'07...over the long-term, 3m LIBOR has typically been 10bps higher than
base rates (and can be significantly higher during a rate hiking cycle).
Currently, Euro rates are at 3.00% and clearly going up at LEAST once
more. The ECB will be EXTREMELY relectant to entertain cuts in the
future I think due to runaway money supply growth over the last few
years. And I think Europe is slowly reforming, allowing economies to
expand faster (we can see this from falling unemployment levels in
France/Germany etc).

There is no reason that rates shouldn't be at least 4% by the end of
next year, which would mean 35bps in this trade (the rate is 100.00
minus the price of the Euribor future). And I think this has very little
downside but significant upside if the central bank gets more hawkish
and starts raising aggressively.

Would like to have this position higher, but I missed ~5 ticks by not
trading this morning, so will increase it over time.

Adding to my individual equities...buying LloydsTSB

2006-09-27T22:05:00.000+01:00

Bought ~£43,000 of LloydsTSB, the UK retail bank. Paid equivalent of
540p per share, in £80 per share.

Why? Well mainly, 1) they pay a dividend yield of 7%, 2) I think they
could spin off their Scottish Widows insurance subsiduary, and focus on
banking, and 3) they are a properly sh*t run business that a buyer could
come in and turnaround...given increasing banking sector consolidation
in Europe, it seems credible to believe that large US or European guys
could pay up to get a UK footprint (current market cap ~$57bn).

This is a proper bellweather UK stock (lots of normal folk still own
shares from privatisation of TSB 20 years ago), and as they UK market
rises, this is one of the shares that will get bought by those retail
investors looking for equity exposure...the only way is up. Target 600p
for starters.

Buying Intel...and clarifying the blog a little:

2006-09-26T20:11:00.000+01:00

First off...just shipped in some Intel...$19.96 was the offer, I bought
£20/tick = ~£20,000 of stock.

Why? Because lets face it, there are 2 chip companies in the world,
Intel and AMD. And Intel is the one that GENERICALLY people want in
their machines...yes I know IT geeks may say AMD is
cheaper/faster/better, but Intel marketing has made it a must have. And
Microsoft are on the verge of releasing its new Vista operating system,
meaning a necessary (probably) upgrade of computers worldwide. How can
Intel fail to make money in this scenario?

Also I continue to believe in a revolution for braodband communications,
where anyone anywhere will be able to connect wirelessly to the
'net...and that equals more computer demand = higher chip sales.

Also I am nervous on being too short the equity markets...while I think
they will go down as the US slowdown unfolds, I have played in enough
markets in my time to know they can get irrational for long enough to
make it unbelievably painful having the wrong side of the "right" (ie.
sensible) trade. At the moment, I am short ~£132,000 of S&P futures and
£111,000 of DOW futures (through my sale of 11,500 calls)...so £243,000
of equity. Against that I am now long £162,000 of individual stocks
(£51k BT, £40k Pipex, £28k IAC Corp, £23k Cisco, £20k Intel). I would
like to maintain a bearish bias, and try to outperform with individual
stocks.

And finally...I am going to simplify my description of trades...since
not all of you will be spreadbetting, I'll reference the spot price of
whatever I trade rather than the price of a certain contract date, as in
the Intel above. Although I will be keeping an exact track of my P+L.

Increasing the Bund short

2006-09-19T20:19:00.000+01:00

Sold some more Dec '06 Bund futures...£10/tick at 117.46 (thats about
3.77% on the 10y Bund)...now have £15/tick position. Would like this to
be up to £50 at the right time...no way the ECB can stop any time
soon...see my note from a few days ago for details. ECB always letting
inflation remain too high = way behind the curve in hiking rates =
steeper and higher long rates.

As a slight aside, it does interest me that for years, the "market"
never seems to want to put on steepeners...always Bull or Bear
flatteners...but if risk premium does pick up, the curve should steepen
nicely. Think this could be the next big "thing" to happen in capital
markets.

Covered all my Oil short...

2006-09-15T22:38:00.000+01:00

Having bought back half my Oil short the other day, I took the other
£10/cent off this evening...think the price was 63.00 exactly on the
NYMEX Oct '06 contract. Will post some P+L numbers in a few days, but my
total P+L between this and the other £10/cent short was about £16,000 I
think. Sweet. Think Crude still has long-term downside on slowing demand
from a slowing global (and especially US) economy, but let's try trading
it around a bit.

Will be looking to increase my Bunds short next week also.

And my equity individual name longs are working out nicely...Cisco, IAC
Corp (Ask.com) and BT (British Telecom) al continue their upward
trajectory...am going to hold on for now, especially since I have hedged
my market risk by shorting S&P, and putting on some bearish DOW option
trades out to December.

Any thoughts of other good trades out there appreciated.

Setting up more bearish equity market trades:

2006-09-14T20:59:00.000+01:00

Bearish option trade on the DOW...~ flat premium:

I sold December 11,500 call @ 335 in £10/tick (ie. I receive £3,350
premium)
I bought December 11,000 put @ 115 in £30/tick (ie. I pay £3,450
premium)

Taking £10/tick risk above current levels, I get exposure to £30/tick on
the way down, in exchange for missing the first 500 points of the
move...which is less than 5%.

I think there is a decent chance of an equity rout as the slowdown
unfolds this year. Risk I see though is that the equity market takes FED
cuts (or the pricing in of FED cuts) as a positive for
equities...although I disagree with the usual reasoning touted around.
Rates go down because economy slows down = bad news for corporate
profits.

We'll see how this unfolds. I like it.

Opening up a short in Bunds...3.80%...YOURS!

2006-09-14T20:49:00.000+01:00

Sold £5/tick of Dec '06 Bund futures at 117.26, corresponds to about
3.80% yield on the 10 year Bund. Nuts.

ECB at 3%, not happy with rates so low, clearly going up, money supply
way above target, inflation above target for 5 years in a row indicating
that the ECB is consistently BEHIND the curve in controlling inflation,
which should hurt longer bonds. The talk in the market place seems to
like the 2s/10s inversion trade, but that should only happen if the ECB
hikes too fast, and clearly with inflation consistently above their
target, I don't see why you would think they would over-tighten.

ECB will probably be at 4%-plus a year ahead, and the economy will
continue to expand in Europe. I think Bunds should easily get to 4.50%.
I'll add risk onto this trade as the move gets underway. Happy to risk
£10k, and think 3.30% is a worst case scenario, so need about £500/basis
point which is ~ £60-£65 per tick on futures (duration around 8).

Get involved.

Don't worry, traderboy is still going! Taking profit on half of my Oil short, and adding Pipex:

2006-09-11T20:36:00.000+01:00

Just bought back half my Oil short...paid $65.57 to buy back £10/cent of
the October contract (I had originally shorted the Jun '06 contract on
June 12th at 71.89, I paid to roll it a couple of times, I'll work out
the P+L and post it shortly. But looks like I should have made 500-600
points in £10/point, so £5000-£6000 pounds...and I am still short
another £10 from June. I really think Oil could collapse back to $40 on
a US-led global slowdown, and the fact that OPEC can still pump Oil for
probably $15 a barrel so aren't going to be cutting back on pumping the
stuff. But felt the need to take half my position back, as when it was
up at $80 and I was down about £15,000 I was REALLY concerned and began
to doubt my position...so maybe the size of it was too big relative to
my other trades.

And a new trade today...I bought £40/penny of Pipex Communications, a UK
telco (PCX LN on Bloomberg off the top of my head)...this company is an
ISP, and has been buying some broadband services such as Bulldog and
Toucan, so building a broadband subscriber base. No big deal, and that
wouldn't usually appeal to me, buying customers like that, BUT this
company has a joker up its sleeve...it has one of only TWO Wi-Max
licences in the UK (I think BT has the other but I'm not sure on
that)...if you don't know what Wi-Max is, you should search for it on
Google.

This is going to revolutionalise the world in a couple of years. It's
like Wi-Fi, but instead of the few hundred feet that Wi-Fi can
broadcast, Wi-Max can broadcast up to 30 kilometres (about 20 miles for
you imperialists). So to blanket the world in Wi-Max, in the same way
mobile operators covered the globe, should be fairly easy. And then you
can connect to the internet from ANYWHERE, and its superfast broadband,
faster than the line into your home. You could just turn on your
computer anywhere and be instantly connected (to, say, PIPEX)...or you
can get a "mobile" phone which just connects to the internet and allows
you to make free calls over the 'net, just as easily as your mobile
works now. This is going to DESTROY Vodafone.

Market cap of Pipex today is £250mm...isn't this the type of company
that could just as easily be worth £5bn if they get their model right
(to put it into context, BT is worth ~£20bn and Vodafone ~£80bn, again I
think that's about right, without checking it on bloomberg). Get long
now. I may take this position up to £100,000 notional (so about
£95/penny) but want to mull it over for a few days, and see ow the
position evolves.

Now the dull summer is over, the posts and the trades should become more
regular. I put on no trades for the last few months, so every trade is
still fully documented in the blog. I will do a P+L update soon.

Buying back GBP calls, using the profits to buy more puts...

2006-06-19T22:17:00.000+01:00

Bought back the £5/point of Jun 30th GBP/USD 1.8600 Call that I'd sold
back on June 6th at 170.1, for 42.9, and bought a 1.7950 July 14th Put
for 29.3. ie. I made £636 from the call, and spent £644.60 on more puts
(I already have a 1.8200 Put expiring Jun 30th in £23/tick).

And yes I still have an outright short in cable of £13/tick. GBP is
going to get crushed...the rate differential between the UK and the US
continues to increase in the US's favour, and this is what has held GBP
up for years. Just check out the 20yr chart between GBP/USD and the rate
difference between the currencies (I use the first LIBOR contract, but
you could take base rates). It is truly amazing how far this has
diverged over the last year...GBP should be around 1.40 if it were
following the rate difference as it always have. I just have to be
involved in this one.

Also have some concern around my '07 EuroDollar contracts that I put,
about 30 ticks out the money as Bonkers Ben decides to hike rates
despite it being 100% unnecessary. It will just kill the economy more. I
will look to buy more '07 Eurodollars, maybe June or September, as the
FED will be well into their cutting cycle then. Also if you trade
Treasuries out there, surely you gotta be putting on 2s10s
flatteners/inversion trades!! Think 2s are about 5bps wide to 10s just
now (5.20% vs 5.15%)...that trend will only continue.

And I remain short Oil...a "vigilent" FED taking down growth, and a
China who is going to let its currency float more freely, will bring
down demand in a market where OPEC and others are pumping out the black
stuff as fast as they can.

My S&P500 short is in the money...let's double it:

2006-06-13T20:11:00.000+01:00

Selling another £50/point of S&P500 Sep '06 at 1234.1 (my first sale was
at 1248.1), I don't want to have a strong view and not be short enough!
May put on more if it gets below 1200 (yes that's right, below! Not
waiting for a higher sell, I want to pile into the trade even bigger as
it moves my way).

Oil down, GBP down, my trades are starting to look good! Will update P+L
another day soon, for now it's back to Brazil/Croatia, its just kicked
off...

* FROM June 7th...Blogger having problems * Sold more Oil earlier...and its working:

2006-06-12T22:10:00.000+01:00

Was thinking more about my Oil trade earlier, so sold another £10/cent
at 71.89 of July '06 US Crude earlier today. And its working. Oil is
falling. Stocks are falling. The US economy is slipping, and so it is
clear that stocks will continue to fall, commodities will fall, Crude
has been high on speculation and will fall to $50 a barrel in short
order.

Treasuries are a screaming buy, although the number one trade in the
market, that unfortunately I can't trade as IG Index doesn't offer it,
is Fed Fund July '06 futures. Last I looked it was trading at 94.80, so
pricing in 80% chance of FED hiking rates this month, but I would be
willing to spend £10,000 to win £40,000...must think of a way I can put
that on. With 10y Treasuries at 5%, they are NOT pricing in rate hikes.
Remember my trades from earlier this year, when I shorted 10y Treasuries
at 4.38% because FED was DEFINITELY going to 4.50% and a good chance of
carrying on...if the FED goes to 5.25%, 10yrs cannot hold 5%.

I am so bearish the US...so I need to be short...selling S&P:

2006-06-12T22:09:00.000+01:00

Selling £50/point of the Sep '06 S&P500...1248.1 is the level, £50 per
big figure. Will look to double the size of this position if it starts
to fall say 15-20 points.

The FED has already gone too far, and looks like it will keep going. I
am no economist, merely a lowly trader, but even I see that the FED is
in the middle of a massive error with its rate rises. The slowdown is in
place from previous hikes, and the last year of hikes still has to work
its way into the system (e.g the Bank of England here in the UK reckon
rates take TWO years to fully work their way in...if that's the case in
the US, that's a lot of hikes!). Housing is going to get crushed, the
consumer is going down, GDP growth will slow massively, and corporate
earnings will fall away drastically from current record levels. And that
will take stocks down. I can't stand to not have the position on, so am
selling now, not waiting for a "bounce" like so many
commentators/strategists/morons advise.

Other trades I have an eye on is long Japan/short US, now that Japan
seems to be emerging from deflations, and also short 10y Treasuries
against long July '06 FED FUND Futures...if you can put this one on,
this is a no-brainer. 10y T = 4.99%. FF July'06 = 5.21% (94.79). You buy
FF, if they hike you lose 4bps, and so need the 10y to widen at least
4bps. If the FED is at 5.25, you can be sure the 10y will not be lower
than 5.03%!! And if the Fed doesn't hike, you make 21bps on the FF, and
as long as Treasuries don't rally further than 4.78% you'll be in the
money...with the FED at 5.00%, I think 10y struggle to trade over 20bps
through. Hope that made sense, as it's easy money.

Also looking at trying long DAX/short FTSE again, now the DAX is 200pts
below the FTSE. This one is volatile, but should work as the German
economy continues its expansion, and the UK continues its slowdown due
to over-reliance on slowing Government spending.

And finally, for all you traders out there, one of the errors I have
definitely made this year is in the sizing of my trades, with a few
trades having P+L swings of almost £10,000, and others only having
swings of £1,000 or less, despite the underlyings having large moves.
I'll try to be consistently a bit bigger in my trades where I have a
belief, and be more methodical about trade sizes.

Some new trades:

2006-06-06T22:18:00.000+01:00

AS I mentioned yesterday, I added to my short in Crude Oil, selling
£7/cent of US Crude at 72.72.

Also, as I mentioned, I was wanting some impetus to take on the
anti-consensus long $ trade...was reading that HBOS strategists just
called for 1.12 year-end rate on the Euro, citing a slowing US economy
reducing the current account deficit...this is a view I also take, as I
view the US as entering a slowdown, whilst Europe/Asia continue with
decent economic growth...thus less imports to the US but continued
exports...everyone needs to buy more dollars!! Since my preferred trade
is still short the pound against the dollar though, I sold some Jun 30
ATM calls to buy OTM puts...specifically:

Sold 1.8600 call (jun 30) at 170.1 in £5/point (so taking in £850.50
premium), against buying 1.8200 put (jun 30) at 37.6 in £23/point (so
spending £864.80 in premium)...so a net flat trade that will work out if
we get a sharp fall this month. With the way markets have been moving
lately, I favour sharp re-pricings rather than gradual drifts.

Bigger picture, I want to position the book on the basis of a US
slowdown, and also try and turn stuff over a little mor actively...if I
am to make a lot whilst keeping the sizes manageable, it's the only way.

The picture is getting clearer...

2006-06-05T22:29:00.000+01:00

The US ecomony is as transparent as ever...the US economy is in slowdown
mode, the FED hikes have taken effect and will further increase their
restricitve effects as the last few hikes work into the system, the FED
has gone too far, inflation talk is all the rage but within 6 months
DEFLATION will be the talking point. With a slowing economy and higher
commodities, profits will get hit, stocks are going down, Treasuries are
going up, and Oil is going down.

Inflation will turn out to be a non-event...when unemployment starts
increasing, prices will stop going up! Its so obvious, and yet only a
few of the smarter commentators (Dismally.com, RandomRoger,
TheBigPicture etc) seem to see the slowdown, but even they still think
inflation will continue on up and so the FED has a dilemma...NO! There
is no dilemma...stagflation will not occur when the economy is weak AND
there is confidence in Central Banks (which there is, despite everyone's
whining about Bernanke).

And as for oil...there is plenty oil in the world to go round, and when
the US starts clearly slowing down, the overhang of supply and too many
long positions will crush this market.

So the trades are...long Treasuries (which I have on with my £150 long
in Mar '07 Eurodollars), short stocks (I just day traded the DOW in £3 a
point, selling at 11,162 and it closed at 11,049 so making £339
pounds...I plan to continue to trade from the short side, and have a
core position on with my July 10,450 Put on the DOW), and short Oil,
where I am only short £3/cent and need to increase this...I'll try to
put it on tomorrow when the market is open.

And as for the dollar...I am not entirely convinced it is going to drop
like EVERYONE else in the market. I tend to follow it against EUR and
GBP, and I hate both those currencies. the EUR will eventually fall
apart as the whole monetary union will not work as it is not flexible
enough, and countries can cheat by running large budget deficits, and
the UK is similar to the US so should have rates moving similarly, so
the US having higher rates than the UK will eventually crack the pound,
especially when people realise just how much this country is falling
apart under a socialist tax & spend government. I wouldn't say I'm a
dollar bull, but I am not finding the real reasons to sell it.

Portfolio update - a few trades done over the last few days - and taking profits on 30y Treasury long:

2006-05-22T19:17:00.000+01:00

As I mentioned on the 17th, I closed out the ~zero-cost put/call DOW
option trade, where I had sold a 11,500 call in £5/tick and bought a
11,200 put in £20/tick, when the underlying was close to 16,000. I
bought this back on the 17th, buying the call for 70 and selling the put
for 137, netting £2460. And I bought back my £4/tick in the DOW at
11,267, making £436. As I'd cut some equity risk in individual stocks
the previous day, I didn't mind closing this out. Looks like I may have
taken this off a little early though, as the market is lower from when I
closed it out, although holding up remarkably well given the carnage in
European equities and even more so in EMG stock markets.

And also I sold £3/cent of US Light Crude Jun '06 @ 68.94 on the 19th,
as I think commodities could come under pressure on a slowing US
economy, and also because I think the US economy is slowing down, I
increased my £100/tick position in Mar '07 EuroDollar by ANOTHER
£50/tick on the 19th May, buying it at 94.72.

My 30y Treasury contract has been performing, so I'm going to sell it
just now, as I think there is some chance of the US rate curve
steepening on 1) the FED pause and 2) markets building in more risk
premium as stocks continue to drop and volatility picks up. I'll keep
the risk in the EuroDollar Mar '07 contract. So as we speak, I've just
sold the 30y Treasury Future back at 107.46 in £10/tick, so making £920.
Think the yield was a bit inside 5.10%, although can't be bothered
logging into Bloomberg Anywhere to check it. I may trade this again from
the long side. Especially since Bill Gross of Pimco has said he has
massively reduced all his longer duration Treasury positions...that guy
is such a bad trader, when the 10y was at 4.38% just a few months ago,
and the Fed CLEARLY going to 5%, he was recommending a long position,
now they are 60-70bps wider he wants to sell! Well I'm not falling for
it and common sense will rule for my portfolio.

Aside from that, the 3 equity positions I still have are looking good,
as BT was up even as the FTSE was getting a kick-in, Cisco is only a
touch down today, and IAC Corp (Ask.com) was up over 1% when I last
looked. I'll hang on to these for now.

That'll do for now...I'm still mulling over FX, think GBP/USD will crack
on rate differential eventually, and think a high EURO will not make
Euro Finance ministers for each country happy, as it makes exports more
expensive. I never fully understand why everyone says the dollar is so
over-priced, just walk into a McDonald's in London/New York/Paris/Toyko
and check out just how much cheaper a Big Mac is in the Big Apple!!!
This applies to so many other goods also...

Took some profits on my DOW shorts on today's equity sell-off:

2006-05-17T21:51:00.000+01:00

Bought back my £4 short on Dow Futures, and closed out the put/call bear
trade I had on also. Will update levels another time, but took in about
£2,400 in total. Felt ok about doing it since I'd reduced my total
equity risk yesterday by selling GM and some IAC Corp. That's it for
today...markets beginning to look interesting, planning to trade equity
index options around in this market.

IT problems...here is a post from yesterday (the 15th May) - Covered the CAC position during today's equity rout:

2006-05-16T22:18:00.000+01:00

Bought back May '06 CAC short at 5075 in £5/point, putting to an end the
trade where I was long the DAX versus short FTSE/CAC...took in £734 in
total on that trade. It's just not enough though!

Also just in the interests of book-keeping, I was stopped out on the
small EURUSD position I put on the other day with a tight stop-loss.

Year-to-Date P+L is down £11,500...not great given I was up about that
amount at one point! Analysing the book, the problem seems to have been
1) not taking my profit on the GBPUSD trade, 2) not cutting the GBPUSD
trade as it moved the other way, even though I even wrote that the price
action looked like it was going to keep going up. 3) Sizing my trades
wrong...the GBPUSD was much bigger than the other trades, so P+L moves
in that have swamped the portfolio.

Anyway...in the markets...IAC Corp falling away from the level I own it,
I may cut it if it drops a little more. Dow Jones put spread is looking
good, if only it would fall as much as the European markets have the
last few days. And bigger picture, I am willing to bet on the FED being
done, the US economy slowing down, taking the rest of the global economy
slowly down with it...5% rates should support the USD though, as it will
be some time, if at all, that GBP/EUR/JPY rates catch up with it. And
with tighter Central Banks, risky assets will suffer, so that means
playing equities from the short side. I'll try and keep the main risk in
options, since volatility is so cheap at the moment and i'll be net
buying vol. And as for commodities...well, what a crazy market. Am I
supposed to bowl right in there and short the likes of copper?
Probably...over time people will just adjust by using other materials
instead of copper, now that it has TRIPLED in price from a few years
ago. There must be producers out there REALLY HURTING on these commodity
moves...maybe its the car makers? Economic slowdown, higher interest
rates and higher raw materials? Sounds like a great short. Will be
thinking about this.

Buying Long Bonds, adding to Eurodollar future longs, and cutting some equity risk:

2006-05-16T19:53:00.000+01:00

OK, today's weak core PPI data and poor housing market indicators has
led me to call the bottom in the US bond market sell-off. Think long US
bonds versus short EUR bonds will be a good trade, but for now, I've
just bought £10/tick of 30yr Jun '06 Treasury futures at 106.54, that's
a yield of about 5.22%. May look to add to it if it starts to move my
way.

And in stocks, I am reducing some risk...selling my GM position with a
view to getting back in lower (I have a feeling I'll live to regret
letting this position go, but we'll see how trading it around goes...),
I sold £7 of Jun '06 @ 25.94 and £3 of Sep '06 at 26.06...total P+L on
the GM trade is £4,481, so happy with that. Will try and trade it around
more also. And sold half my IAC (Ask.com) position, sold £10/tick of Jun
'06 @ 26.54, making a loss of £3,060 on that position, and leaving an
open position in Sep '06 of another £10/tick which is £5,000
down...yikes. But must be vigilant and cut positions when the go wrong.

And also on the US rate position, I bought more Mar '07 Eurodollar at
94.74 in £50/tick, doubling my position. Think the FED may be cutting
rates by the time this contract comes round!

Its a real Monday evening trading spectacular...bearish option trades on the DOW:

2006-05-08T19:41:00.000+01:00

OK so that didn't take me long from my last post of 10 minutes ago. I
checked out options on the DOW, and just sold £5/point on a Jun '06
11,500 CALL @ 222, and used that premium to buy a Jun '06 11,200 PUT @
52 in £20/point.

This fits well in my portfolio, as I am net long stock so this gives me
a £5 hedge if it ends above 11,500 and a £20 hedge if the market really
cracks. Hopefully we'll see a 200-300 point correction in short order. A
300 point drop this week would net me about £900 on my put and £750 on
the call, after bid/offer, so lets hope volatility picks up so I can put
some quick cash in the account!

Just a few trade posts - Sold Heinz, bought EURUSD, bought Euro$.

2006-05-08T19:09:00.000+01:00

Sold my Heinz long position (£5/point) at 42.31, had bought it at 37.95,
so £2,180 profit. I almost feeling like I'm doing the cardinal sin of
taking my profits and running my losses (since my IAC Corp trade is
under water)...but 1) I can't resist, 2) I am beginning to get bearish
on risky assets and 3) I could do with turning over stuff much more
frequently if I'm going to make any decent money this year!

Also bought just £2/tick on EURUSD Jun '06 at 1.2748. Tiny size I know,
but I want to start doing a few trades where I increase my exposure as
it starts to move my way, and using stop losses also. So if EURUSD moved
up well into 1.28 area I'll buy some more and move the stop up to the
average purchase price. Have set an initial stop-loss at 1.2720, so not
much margin for error. We'll see how this goes!

And finally, I am really coming round to the opinion that the FED really
will peak at 5%. I have been so bearish on rates for a while, for
instance when all anyone talked about was how it was reasonable for the
curve to be inverted at 4.25%-4.50% rates, I stayed short 10yrs all the
way through. And now I feel like the contrarion trade is now to be long
Treasuries. Claims data is inching up, payrolls just disappointed, and
rates are really starting to bite into homeowners mortgage payments. As
we speak, I just bought £50/tick of Mar '07 Eurodollars at 94.67 ie.
its pricing in 3m rates at 5.33% in March next year. I think the market
may have to start pricing in rate cuts later this year, or at worst no
more rate hikes. Bernanke has been (reasonably) clear about going to 5%
then stopping for a while, so we could see the start of this happening
this week after the FED hikes.

And since this could be the turning point for the economy, I should
really by considering shorting stocks. But the market seems to want to
take the DOW up to its old highs (about 150 points higher) so maybe now
is not the exact moment. I may use options to get in since the market is
pretty squeezy, so don't want an outright short as it could easily run
up a few hundred points in my face in this market! Looking into the
options now...

Trading the most likely outcome

2006-05-02T21:06:00.000+01:00

No trades today, but thought I'd muse on what trades are out there that
I should be putting on. Lets look at interest-rates:

So the market finally priced in higher rates. I've had this view for a
long time, but didn't seem to profit as much from it as I should have.
So where to position from here, now rates are considerably higher? Well,
what is happening? Global interest rates are going up. No doubting that.
Japan has ended quantitative easing, and looks set to raise rates from
zero at some point. China just raised rates a touch, to 5.80% I think,
which seems intuitively low for an economy motoring along at 10%+. The
US has raised rates from 1% to 4.75% and will go to 5% next month, and
the FED is then looking like it will pause while it waits and sees how
the data unfolds for a while. And the UK hiked a couple of years ago
from 3.50% to 4.75%, and had to cut back to 4.50% last year as they
choked the economy a bit at 4.75%.

The fact the UK had to ease rates after a few hikes when they hiked
1.25% from the lows is interesting. Is this a precursor to other
economies? The FED hiking too far too fast is not the scenario that I've
bought into before, as I think the US economy is very flexible and can
absorb 5% rates in its stride. However, now that an increasing portion
of home purchases there have been done using mortgages linked to
front-end rates, unlike the traditional 30y mortgage where rates are
linked to the long-end and don't reset higher, this could force the
economy to slow down quicker than it would have otherwise. I have read
that about a third of mortgages now are ARMs (Adjustable Rate Mortgages,
like the UK where its set off short-term rates), so hiking from 1% to 5%
could bring out a pretty horrible outcome for some owners when their
repayments shoot up. Maybe we could see an extended period of 5% rates
then, with the market even pricing in rate cuts at some point? In that
case, I need to be careful of my $ short versus £, if £ were to rise.
And I need to think about shorting the Dollar generally in that
scenario, but only if rates elsewhere are to rise aggressively.

So how high can UK/EURO/JAPAN rates get? Well, I am not a fan of
monetary union, and think the whole EURO project is very unstable as
monetary policy cannot be aligned with fiscal policy on a
country-by-country basis to control the economy/inflation etc. Just look
at Ireland, where they screwed the rest of Europe by cutting corporate
taxes to 10% and so brought on a massive economic bubble. That economy
sure needs slowing down. But then you're stuck with idiots like the
French and Italians who refuse to restructure fiscal policies while they
have a chance, and so have rigid, inflexible economies destined to have
high unemployment, falling FDI and be uncompetitive with the rest of the
world. Just look at the student riots because they want a job for life,
they just do not understand how beneficial the free market can be for
them. And then you have Germany, which I like more, and think they are
slowly reforming. They have strong but fragmented banking markets which
will benefit from consolidation, and a powerful export base helped by
technological prowess and a talented workforce. With a bit more reform,
they can remain the powerhouse of Europe.

So growth will be mixed in the Eurozone. With 10y Bund yields at 4%,
what's the answer? This one is tough. Markets are pricing in the ECB
quickly getting to 3.50% (they are at 2.50% just now), and then they
will be virtually done. It seems to me that money-supply growth in the
Eurozone is out of control, inflation has been above the ECB target for
years, so that tells me they aren't that bothered about inflation and
will be slow to react, so surely that means having steepeners on in
rates? I will have a look at shorting Bund futures versus buying some
shorter EURIBOR contracts, maybe say buying 1 year out EURIBOR, so with
the average life on Bunds being 7-8 years I think, I'll have a 1y-8y
steepener on. That seems to make sense. If Treasuries can get to 5.10%
and Gilts to 4.70%, no reason for Bunds to remain down at 4.00%.

So if they FED is done for a while and the ECB are going on a slow but
extended rate hike cycle, I have to buy EUR vs USD. I just don't
intuitively like it, but that is all I can take away from what I have
written. I'll start in small, put in some limits and increase the size
if it starts going my way. I'll take a look at this over the weekend
though before I put anything on.

And as for the UK...well, I think the key here is in Government
policies. It seems pretty clear that the are pursuing socialist
policies, increasing taxes and putting burning more cash on the NHS and
the schools, and the main thing Labour care about is remaining in power,
and not the long-term health of the UK. This has meant unemployment has
been creeping up despite low rates, and will end up keeping rates lower
than they otherwise would. I also think it will ultimately hold back the
stock market also. I also always have a preference to be short bank
equities in the UK, as I think unsecured loan defaults will pick up, and
the mortgage market is very competitive. I am surprised by just how much
money the banks make, and think the profit growth must come to an end
sooner rather than later. But UK bank stocks seem to have a tendency to
go on surges, and so I want to be careful and convinced before I short
them. I'll take a further look into these stocks. And I'll remain short
the pound. And I may consider buying some Short Sterling contracts,
maybe late 2007, if I come to the view that rate cuts will be happening.
These contracts are pricing in over 5% interest rates for next year, so
could be some good upside in those.

That'll do for now. I'll be having a close look at the summaries from
this, and potentially put these trades on. Any comments appreciated!

Closed the Sugar long:

2006-04-27T18:50:00.000+01:00

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.

2006-04-26T22:26:00.000+01:00

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:

2006-04-20T20:50:00.000+01:00

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...:

2006-04-20T20:19:00.000+01:00

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:

2006-04-10T21:45:00.000+01:00

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:

2006-04-03T22:44:00.000+01:00

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.

Cut a little GM risk on S&P downgrade:

2006-03-29T22:26:00.000+01:00

Sold £3/cent of GM Jun '06 stock at 21.85, leaving me long £7 a cent(so
about £15,000 exposure). Did this because of S&P downgrade to single-B
credit rating, need to read the report in full, but basically I scanned
it quickly and it concerns me if GM is losing access to its loan
facilities. Maybe this company can go bankrupt after all. If once I've
read it I still feel comfortable and I want to get long again, so be it,
I'll buy it back, I don't care if I miss a few percent.

Stock closed at 22.15 in the June contract, so you could say it was a
bad sale, but I'll wait and see. Interestingly, check out what FIAT
(FIAT IM on Bloomberg) equity looked like 2-3 years ago, when everyone
thought that company was going bust...stock is now double the level it
was at then. My money is (probably) on GM being the same by 2008...

On another note, I hope all you readers have been shorting the pound as
I've mentioned in umpteen posts...its now on the verge of collapse
following US rate rise taking US rates above the UK...we should see 1.55
in cable in short order.

So the FED keeps going. And a trade post from a couple days ago:

2006-03-28T22:02:00.000+01:00

First off, just to say that I was thinking about the size of my
positions, and decided that given how strong my view is that Treasuries
are (massively) over-valued, I needed to have a bigger short on, so sold
another £10/cent of 10y Jun '06 Futures at 107.44, taking my size up to
£20/cent (which makes it about £150/basis point).

That was when 10yrs were around 4.71% I think, but now they have sold
off a decent amount today following consumer confidence in the US being
through the roof, and the FED hiking (plus German IFO also very high).
10y Treasuries last 4.79%. Haven't read the FED statement yet, but it
seems to me that despite rates now at 4.75%, the US economy is in
overdrive, with unemployment low (4.7%) and dropping further, and credit
conditions still exceptionally loose. Long rates are still low, as are
credit spreads, allowing both private equity and the consumer to borrow
to spend. This will not end until money becomes more expensive, so we
probably need another 100-200bps increase in long rates. Lets face it,
with the FED at 4.75% and looking like they are going to 5.00%, 10y
Treasuries would still not look terribly cheap even at 6.00%.

The bond market meltdown is coming, be prepared.

Closed out my Oil short for £250:

2006-03-22T19:53:00.000Z

Just bought back my small short in Brent Crude May '06 @ $61.66, I had
been short £2/cent at $62.91.

Still think its more likely to go down than up, but we'll see how
trading it around goes. Anyway, I had shorted the UK Brent Crude
contract by mistake, had meant to sell US Light Crude since it seems to
be the global benchmark. Not sure if there is really a difference, if
anyone knows of a reason these shouldn't always trade close to each
other please leave a comment!

Main risk continues to be in GBP which is going down slowly but surely,
also my US equity positions are down a touch although GM is up a little.
And I am still short £10/cent of US 10y Treasury futures, I should
probably increase this as I think the FED will keep going, and even when
it does stop I suspect the curve steepens. Just seems that the whole
world has the view that the FED is wrong, is hiking too much too fast,
and will have to start cutting this year. Does no-one out there think
that the US is a very dynamic, flexible and powerful economy that can
take 5% rates in its stride and keep on growing?? Comments appreciated.

Year to Date P+L ~ £10,400

2006-03-20T22:41:00.000Z

Current PROFIT this year is about ~£10,400 (I need to check the level
some of my trades rolled at, eg. if I had a March contract, my
spreadbetting company automatically rolled it into June contracts when
it expired).

Highlights are:

UP £3,400 on GBP versus USD in FX (outright and options)
UP £3,000 on BT stock
UP £1,700 from being short Treasuries (10y and 30y)
UP £1,000 on Cisco Systems stock
UP £800 on IAC Corp (Ask.com)
UP £500 on EUR vs GBP in FX (outright and options)
UP £450 on long GOLD
UP £375 on Dec '06 Short Sterling
UP £300 on shorting CRUDE OIL
UP £250 on Heinz
UP £200 on S&P call.

DOWN £800 on GM stock
DOWN £700 from shorting DAX outright
DOWN £300 on long DAX/Short FTSE & CAC relative value

I hope you readers are getting involved as well! Every trade, and every
time I've closed them, have been detailed at the time, you can read them
in earlier blogs, I always put the size and the level where I put trades
on. If you haven't joined me yet, my highest conviction trade is the
short GBP trade versus the USD. Don't miss it. See details in my earlier
notes.

Buying sugar:

2006-03-20T22:22:00.000Z

I was reading an article on Bloomberg today about sugar, with the basic
summary being several fund managers (who i'm sure are already long)
talking about how it could quadruple and still look cheap.

Well, that was enough to do some further looking into sugar, since the
trading I am interested in is in identifying trading opportunities where
prices have CONSIDERABLE room to move. Thinking further about my current
views on the world, it seems to me we have a broad-based global economic
recovery, inflation creeping higher, money supply and liquidity
extremely high (although now slowly being removed through central bank
hikes) and a vast number of people being dragged out of poverty in
China/India through the forces of globalisation.

This increase in inflation, demand, and the sheer number of people with
increased spending power, it seems logical to think commodities can go
higher still. Also, it seems the world is becoming obsessed with
alternative energy sources, one of which is producing ethanol from
sugar, so decreasing supply into its regular markets.

Looking back at past "price shocks" in sugar in the 1970's, the spikes
are exponential in nature, and if we had an equivalent price move today
it would more than quadruple the price, and that is just to get it to
the same NOMINAL price as in 1970's, not even adjusting for inflation! I
will be returning to exponential price moves in future blogs, as I think
this could be a fundamental thing in the markets, as it is in nature.

I bought £10 per cent of New York raw sugar expiring July '06 at $16.43.