*Extensive stimulus packages, record monetary easing, huge wealth transfer from the public sector to the private sector, all globally, has had its stimulative effects on the economy.
Not that it has actually cured the patient, but rather been soothening the pain. No promises what tommorrow brings though, as the cause of the problem has not really been dealt with.
The "sweep it under the rug" policy is still the all governing policy.
* Whats the problem then?
Sentiment indicators globally with both consumers and producers are improving, exports have been rising and corporates have delivered "good" results, relatively speaking. On top of it, the housing markets globally seem to be recovering somewhat, especially in the US and the UK, two very important markets from this aspect.
Well, my main concern is still the fact that so far in history, there has never been an economic recovery without serious credit expansion. With all the massive fiscal spending and monetary stimulus, we should have seen a credit multiplying effect kick in by now, but we are not.
The main reason for this lack of creditmultiplying effect being the still huge amount of debt saddling the financial system via bad assets and bad loans. Financial institutions are still accumulating reserves for upcoming credit losses, not pushing and multiplying the liquidity via lending(=leverage) into the economy via production etc.
* Weak corporate balance sheets
Corporates in general have weak balance sheets and ditto cashflows in an environment of still relatively tight credit. Corporates have gone through the phase of frantic costcutting and are now in the process of restructuring.
This will provide beneficial effects further down the line, but profits will suffer in the meantime as those costcuttings were mostly oneoffs and sales are not really recovering as unemployment levels globally looks set to remain at high levels for the foreseeable future.
* Equity markets riding on excessive liquidity, pricing in too high expectations
Meanwhile, the equitymarkets are pricing in a steep recovery where exit strategies from quantitative easing and growth related inflation concerns are in focus. Excessive liquidity is driving this process via mainly an institutional investor allocation frenzy.
While the world is still trying to adjust its massive output gap, it would seem to me deflation concerns will still linger, and equity markets will have to adjust their growth and profit expectations downwards.
Remember, a depression was avoided via drugs, not by sorting out the bad debt and loan issue. Therefore, to me it would seem more likely than not that the underlying problem comes back to haunt capitalmarkets.
* Why the decline of the Baltic freight index provides important information.
Signs of physical demand can be seen in freightrates or in commodities that are difficult to store (difficult to speculate). Over the last five weeks, the Baltic freight index has declined from 3520 to 2470. At the same time, commodity related equities, commodity currencies and commodities have continued their upward journey.
The rationale being that the price move lower has been due to increased freight capacity. Well, this does not seem to fit in with the decline of recent weeks as shipbuildings have been stopped due to a lack of finance and has not increased over recent months. Worth noting is also that during the financial crisis even shipbuilding projects that had already started were stopped due to funding withdrawn.
Even if the Baltic freight index is an indicator of overcapacity in global shipping, one cant help but notice that a) The Baltic freight index has hardly recovered since 2008.
b) the global freight capacity was fully utilised in 2008.
Hence, even with a moderate increase, global demand seems to have fallen. This is not reflected in the commodity markets. Reason mainly being overliquidity and speculative flow.
* Where from here? Risks are increasing for Chinese policy changes as we approach the 1Oct Chinese 60th revolution anniversary.
This could weigh on commodities, commodity currencies and commodity related stocks. At the same time, the equity market in general should be topheavy as pricing adjustments from inflationary to deflationary outlooks are taking place.
The shift from Jpy as the worlds main funding currency into the other " top six" new funding currencies is ongoing. GBP will likely be a popular such short currency near term. The market is still overly short the USD, so I expect it to strengthen.
* New positions and positionchanges
-Long Aud/Usd puts
-Long Gbp/Usd puts
-Long Eur/Usd puts
-Long Usd/Chf
-Long Eur/Nok
-Long Gbp/Jpy puts
Sold my remaining Citigroup calls.
As usual good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
27 August 2009
26 August 2009
Time to close those short Jpy positions - even if the assetmarket rally continues. Heres why.
* Plenty of funding currencies around - leveraged accounts should diversify by shorting other low yielding currencies - buying the Jpy.
- According to the IMF, assets not held in domestic currencies amount to 8 TRN USD(16% ish of global GDP). Of those there is roughly a 1.5BN USD non domestic currency liability book which is funding higher yielding global assets. With a number of low yielding currencies such as the USD, SEK, GBP, CHF, AUD and the EUR there are appropriate alternatives. All of the above has moneymarket rates diverging less than 40 BP from the Jpy. The Usd has even 1mth LIBOR below the Jpy 1 mth LIBOR.
Liability managers targeting the lowest riskadjusted funding rate should adhere to these facts and adjust accordingly. Triggering Jpy buying.
-Japanese flows.
Japanese banks are reducing foreign claims abroad. Japanese banks foreign claims topped out during mid 2008 at 465 BN USD (7.2% of total Japanese bank assets), and have since turned decisively lower to 280 BN USD with no signs of recovering.
Why is that then? Well, with prime Japanese foreign markets turning into low yielders, the foreign attraction has waned vs domestic securities and yield curves.
The reduction of foreign bank claims and the increased investments into domestic Japanese assets means a stronger Jpy. Especially as those flows are increasingly turning into equity flows instead of bond ones. Equity flows are normally unhedged, triggering "pure" Jpy buying as assets are being reallocated into Japan.
- Market positioning
Interestingly, it seems both Japanese retail investors and leveraged accounts are short the Jpy. Should there be a move lower anytime soon, the Jpy strength will accelerate at some point, likely sub 130 in Eur/Jpy, alternatively 90 in Usd/Jpy, which in turn will trigger stops from these accounts. Implied volatility should be set to go higher, combined with a curve shifting towards an inverted slope.
- Downside risks to equity markets
While the the reallocation of funding currencies is initially likely to be a slow process, a drop in global equity markets could speed this process up. At this stage it would generate an accelerated pace of Jpy buying.
The main point here being; To get a stronger Jpy, we do not necessarily need a falling stockmarket. Although, it would, in bankers terms, be a bonus (sensitive word, that one).
The next question will of course be; which of the "new" funding currencies will get hit the most in the upcoming reallocation process?
* New positions and position changes
None. However, high probability Ill change my US equity holdings today.
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
- According to the IMF, assets not held in domestic currencies amount to 8 TRN USD(16% ish of global GDP). Of those there is roughly a 1.5BN USD non domestic currency liability book which is funding higher yielding global assets. With a number of low yielding currencies such as the USD, SEK, GBP, CHF, AUD and the EUR there are appropriate alternatives. All of the above has moneymarket rates diverging less than 40 BP from the Jpy. The Usd has even 1mth LIBOR below the Jpy 1 mth LIBOR.
Liability managers targeting the lowest riskadjusted funding rate should adhere to these facts and adjust accordingly. Triggering Jpy buying.
-Japanese flows.
Japanese banks are reducing foreign claims abroad. Japanese banks foreign claims topped out during mid 2008 at 465 BN USD (7.2% of total Japanese bank assets), and have since turned decisively lower to 280 BN USD with no signs of recovering.
Why is that then? Well, with prime Japanese foreign markets turning into low yielders, the foreign attraction has waned vs domestic securities and yield curves.
The reduction of foreign bank claims and the increased investments into domestic Japanese assets means a stronger Jpy. Especially as those flows are increasingly turning into equity flows instead of bond ones. Equity flows are normally unhedged, triggering "pure" Jpy buying as assets are being reallocated into Japan.
- Market positioning
Interestingly, it seems both Japanese retail investors and leveraged accounts are short the Jpy. Should there be a move lower anytime soon, the Jpy strength will accelerate at some point, likely sub 130 in Eur/Jpy, alternatively 90 in Usd/Jpy, which in turn will trigger stops from these accounts. Implied volatility should be set to go higher, combined with a curve shifting towards an inverted slope.
- Downside risks to equity markets
While the the reallocation of funding currencies is initially likely to be a slow process, a drop in global equity markets could speed this process up. At this stage it would generate an accelerated pace of Jpy buying.
The main point here being; To get a stronger Jpy, we do not necessarily need a falling stockmarket. Although, it would, in bankers terms, be a bonus (sensitive word, that one).
The next question will of course be; which of the "new" funding currencies will get hit the most in the upcoming reallocation process?
* New positions and position changes
None. However, high probability Ill change my US equity holdings today.
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
24 August 2009
Strong European indicators likely to continue short term, but creditgrowth is struggling and likely to slow from here.
*Despite strong European indicators coming in - credit growth to slip lower
For anyone in the "recovery bullmode", credit growth and multiplying effects should be the objects of focus. Without them - no recovery. Well, historically there has never been a recovery without them, anyway. Unfortunately, we are not seeing much, if any, of it.
Weak corporate balance sheets and corporate restructuring will make it difficult to generate profits in line with the equity markets expectations going forward, especially as continued bad assets on continental European banks books will make credit tight to the corporate sector. Blocking any creditmultiplying effects.
Issuing corporate debt is an alternative, but questions remains as to how much liquidity would be available there, especially as creditrisk still remains a very high priority in the financial markets.
*Institutional investors cash levels has dropped to 3.5% from 4.7% over the last four weeks. this is the lowest level since July 2008.
Equity markets volcurves have flattened and buyers of downside protection has dropped significantly. With credit dropping and US banks continuing to go bust (another four during this weekend, bringing the total to 81 this year), while European banks havent even started their clean up process, I cant help but sense a mispricing in the market.
I will mainly use options to ride this rally as well as position myself for assymetric drops.
* New positions and position changes
- Sold most of my Citigroup calls but still long 1/3.
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
For anyone in the "recovery bullmode", credit growth and multiplying effects should be the objects of focus. Without them - no recovery. Well, historically there has never been a recovery without them, anyway. Unfortunately, we are not seeing much, if any, of it.
Weak corporate balance sheets and corporate restructuring will make it difficult to generate profits in line with the equity markets expectations going forward, especially as continued bad assets on continental European banks books will make credit tight to the corporate sector. Blocking any creditmultiplying effects.
Issuing corporate debt is an alternative, but questions remains as to how much liquidity would be available there, especially as creditrisk still remains a very high priority in the financial markets.
*Institutional investors cash levels has dropped to 3.5% from 4.7% over the last four weeks. this is the lowest level since July 2008.
Equity markets volcurves have flattened and buyers of downside protection has dropped significantly. With credit dropping and US banks continuing to go bust (another four during this weekend, bringing the total to 81 this year), while European banks havent even started their clean up process, I cant help but sense a mispricing in the market.
I will mainly use options to ride this rally as well as position myself for assymetric drops.
* New positions and position changes
- Sold most of my Citigroup calls but still long 1/3.
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
20 August 2009
Shortterm bullish assetmarkets - still wary of September
* PBOC ;s relaxed stance vs moneymarket rates is having an immediate effect
The Peoples Bank Of China have guided moneymarket rates higher since early July, taking rates up from 1% to 1.76%. With yields on Chinese three month treasury bills unchanged for the first week of eight it seems the Peoples Bank of China now appears relaxed. For now at least.
This has had an immediate effect on equity and commodity markets, hence moving higher.
Short term, the market has improved for assetbuyers.
Yesterdays sharp Oil move higher on the back of shrinking US Oil inventories (due to lower imports, not higher demand), seems to be indicating the Oil carry trade is not quite completed as of yet.
Conclusion; The Usd will consolidate or even weaken near term
* Jpy and the USD to switch places?
Weekly Japanese security flow data shows continued inflows into the equity market. In contrast to bond flows, equity flows are currency hedged to a much lower degree, hence, the Jpy will benefit from increased equity inflows into Japan.
As such, the inverse relationship between the Jpy and global risk appetite may be easing. Instead it seems the USD could takeover the role as the worlds premier funding currency. Whether this actually happens will depend on whether Japans net flows become equity, instead of, bond driven. Should the Japanese netflows become equity driven it would also mean the Usd would become the premier indicator of global riskaversion. This would be one reason I would expect Usd vols (along with other asset vols) to pick up this fall.
* Usd/Jpy and the US 10 year bond
With the US 10 year bond down at 3.40% yield, well below the crucial 3.47% level, Usd/Jpy should remain top heavy, despite the short term bullish environment.
* Near term bullishness vs slightly longer term bearishness
Looking for the potential of this short term bullishness to hang on for a few days. My bearish weariness to increase as we approach September.
The German election and the Chinese 60yr anniversary working as catalysts for a refocus on bad Europen bank debt as well as a reduction of loose monetary and fiscal policy.
Positioning in most assetmarkets remains onesided, with sentiment to match. Given the fundamental macrooutlook and mismatch between marketplaceoutlook, ingredients are in place for negative surprises to trigger ditto market reactions.
*New positions and position changes
- Sold my Calls on IVN
- Added to my long SAS airline stock
- Long gamma delta hedging in Eur/Jpy, Eur/Usd and Gbp/Usd
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
The Peoples Bank Of China have guided moneymarket rates higher since early July, taking rates up from 1% to 1.76%. With yields on Chinese three month treasury bills unchanged for the first week of eight it seems the Peoples Bank of China now appears relaxed. For now at least.
This has had an immediate effect on equity and commodity markets, hence moving higher.
Short term, the market has improved for assetbuyers.
Yesterdays sharp Oil move higher on the back of shrinking US Oil inventories (due to lower imports, not higher demand), seems to be indicating the Oil carry trade is not quite completed as of yet.
Conclusion; The Usd will consolidate or even weaken near term
* Jpy and the USD to switch places?
Weekly Japanese security flow data shows continued inflows into the equity market. In contrast to bond flows, equity flows are currency hedged to a much lower degree, hence, the Jpy will benefit from increased equity inflows into Japan.
As such, the inverse relationship between the Jpy and global risk appetite may be easing. Instead it seems the USD could takeover the role as the worlds premier funding currency. Whether this actually happens will depend on whether Japans net flows become equity, instead of, bond driven. Should the Japanese netflows become equity driven it would also mean the Usd would become the premier indicator of global riskaversion. This would be one reason I would expect Usd vols (along with other asset vols) to pick up this fall.
* Usd/Jpy and the US 10 year bond
With the US 10 year bond down at 3.40% yield, well below the crucial 3.47% level, Usd/Jpy should remain top heavy, despite the short term bullish environment.
* Near term bullishness vs slightly longer term bearishness
Looking for the potential of this short term bullishness to hang on for a few days. My bearish weariness to increase as we approach September.
The German election and the Chinese 60yr anniversary working as catalysts for a refocus on bad Europen bank debt as well as a reduction of loose monetary and fiscal policy.
Positioning in most assetmarkets remains onesided, with sentiment to match. Given the fundamental macrooutlook and mismatch between marketplaceoutlook, ingredients are in place for negative surprises to trigger ditto market reactions.
*New positions and position changes
- Sold my Calls on IVN
- Added to my long SAS airline stock
- Long gamma delta hedging in Eur/Jpy, Eur/Usd and Gbp/Usd
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
19 August 2009
Euforia slowly evaporating - watchout for the hangover
* PBOC has incrementally channeled reporates higher.
At the beginning of last week it started to bite. Although PBOC refrained from pushing rates higher yesterday, causing a small bounce back in the Shanghai equity market in the process, today it was back down with a drop of 4%.
Chinese loan growth is expected to be tapering off in the coming months and hence, the Chinese stimulus may be viewed as neutral and no longer stimulative. Although, with Chinese stateowned corporations being "ordered" to grow, I am wary of a setback which will entail an abrupt end to the stimulus effort. Monetary tightening is definitely within my expectations framework.
Further, the underlying profitability of Chinese corporates is waning as steelproducers are reporting dismal results. The exports part of the economy does not seem to be taking place. The US consumer is holding back and it shows. The domestic Chinese market seems to be too small to make any substantial compensations. In addition, as mentioned in yesterdays blog, the Chinese multiplier effect is absent as stimulus funds are mainly used for speculation on the worlds capital markets.
* Markets
Should there be a more serious downturn, I dont expect it to come all in a straight line and with a one off fall out of bed. Rather I am wary of bullish pullbacks at this stage as technicals are getting stretched. Overall, I will be looking for good entrypoints for bearish positions from here.
*New positions and positionchanges
- Sold 40% of my long Gbp/Usd put
- Sold another 50% of my long Aud/Usd put
- Added to my long Eur/Usd put
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
At the beginning of last week it started to bite. Although PBOC refrained from pushing rates higher yesterday, causing a small bounce back in the Shanghai equity market in the process, today it was back down with a drop of 4%.
Chinese loan growth is expected to be tapering off in the coming months and hence, the Chinese stimulus may be viewed as neutral and no longer stimulative. Although, with Chinese stateowned corporations being "ordered" to grow, I am wary of a setback which will entail an abrupt end to the stimulus effort. Monetary tightening is definitely within my expectations framework.
Further, the underlying profitability of Chinese corporates is waning as steelproducers are reporting dismal results. The exports part of the economy does not seem to be taking place. The US consumer is holding back and it shows. The domestic Chinese market seems to be too small to make any substantial compensations. In addition, as mentioned in yesterdays blog, the Chinese multiplier effect is absent as stimulus funds are mainly used for speculation on the worlds capital markets.
* Markets
Should there be a more serious downturn, I dont expect it to come all in a straight line and with a one off fall out of bed. Rather I am wary of bullish pullbacks at this stage as technicals are getting stretched. Overall, I will be looking for good entrypoints for bearish positions from here.
*New positions and positionchanges
- Sold 40% of my long Gbp/Usd put
- Sold another 50% of my long Aud/Usd put
- Added to my long Eur/Usd put
As usual, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
18 August 2009
TIC data and the USD; the market is short the Usd.
Yesterdays TIC data indicated that the US is once again a favoured destination for long term investments as 90.3 BN Usd was reported to have flowed into long term US assets. However, there was a net outflow(short term minus long term flows) of minus 31 BN USD. This should be a good explanation to the Usd weakness back in June, at least.
Another conclusion is that the USD has once again been used extensively as the worlds premier funding currency. Providing funding for global capital markets. It seems the foreign long term flows into Usd denominated securities has been used as collateral, creating a substantial outflow of shortterm funds. On top of it, US based investors have placed funds abroad, seeking higher returns.
Conclusion; The market is short USD.
This seems to match the most recent survey numbers from 7 Aug, where only 3% of investors were bullish Usd. (Back in late March, 93% were bullish,,,,,, and only 3% were bullish equities,,,,,,)
* More
- Central banks have reduced deposit holdings with commercial banks, placing those funds with the FED instead. Custody holding have increased by 45% over the year.
Conclusion; Foreign currency reserve money is standing ready to be invested into longend US bonds
The US 10 yr bond is currently around 3.50%. 3.47% is the level for the current uptrend from April. Should this break, the Jpy will get a boost, equities will not.
*Higher volatility will hurt the carry trade as well as investing into assets, triggering a demand for USD
The VIX rose almost 15% yesterday and seems to be in the process of bottoming out to test the 35% and, 40% levels.
Conclusion; If so, this will naturally weigh on all assetclasses, but with many of these heavily onesided positioningwise, there is an apparent risk of swift reversals out of carrytrades, equities, commodities etc which will make the USD soar.
*Tight credit
The US Q2 loan officers survey indicated weakness for every major category, bar prime residential mortgages. Banks tightening creditstandards and borrowers remaining cautious being the main explanations. The corporate sectors depositholdings with commercial banks have fallen to a level not seen since 2001.
From what I understand, corporate recoveries only take place when there is credit available or there is a sound cash flow position. (Rising corporate deposit holdings with commercial banks).
* New positions and position changes
- Sold half of my long Eur/Jpy put, closed my partial delta hedge
- Sold half my long Aud/Jpy put, closed my partial delta hedge
- Sold half my long Aud/Usd put, closed my partial delta hedge
- Bought SEB puts
The combined case of fundamental macro and positioning makes a compelling case to me anyway. As usual, well see. Having said that, I am very much aware of the swift and fickle nature of the markets, especially during holiday times. Prudent instruments are recommended. Options are currently attractively priced in many assetclasses and is what I currently prefer.
As ususal, good luck.
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
Another conclusion is that the USD has once again been used extensively as the worlds premier funding currency. Providing funding for global capital markets. It seems the foreign long term flows into Usd denominated securities has been used as collateral, creating a substantial outflow of shortterm funds. On top of it, US based investors have placed funds abroad, seeking higher returns.
Conclusion; The market is short USD.
This seems to match the most recent survey numbers from 7 Aug, where only 3% of investors were bullish Usd. (Back in late March, 93% were bullish,,,,,, and only 3% were bullish equities,,,,,,)
* More
- Central banks have reduced deposit holdings with commercial banks, placing those funds with the FED instead. Custody holding have increased by 45% over the year.
Conclusion; Foreign currency reserve money is standing ready to be invested into longend US bonds
The US 10 yr bond is currently around 3.50%. 3.47% is the level for the current uptrend from April. Should this break, the Jpy will get a boost, equities will not.
*Higher volatility will hurt the carry trade as well as investing into assets, triggering a demand for USD
The VIX rose almost 15% yesterday and seems to be in the process of bottoming out to test the 35% and, 40% levels.
Conclusion; If so, this will naturally weigh on all assetclasses, but with many of these heavily onesided positioningwise, there is an apparent risk of swift reversals out of carrytrades, equities, commodities etc which will make the USD soar.
*Tight credit
The US Q2 loan officers survey indicated weakness for every major category, bar prime residential mortgages. Banks tightening creditstandards and borrowers remaining cautious being the main explanations. The corporate sectors depositholdings with commercial banks have fallen to a level not seen since 2001.
From what I understand, corporate recoveries only take place when there is credit available or there is a sound cash flow position. (Rising corporate deposit holdings with commercial banks).
* New positions and position changes
- Sold half of my long Eur/Jpy put, closed my partial delta hedge
- Sold half my long Aud/Jpy put, closed my partial delta hedge
- Sold half my long Aud/Usd put, closed my partial delta hedge
- Bought SEB puts
The combined case of fundamental macro and positioning makes a compelling case to me anyway. As usual, well see. Having said that, I am very much aware of the swift and fickle nature of the markets, especially during holiday times. Prudent instruments are recommended. Options are currently attractively priced in many assetclasses and is what I currently prefer.
As ususal, good luck.
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
17 August 2009
Wild month of July - set to continue?
Back after a long summer holiday, and theres still some summer left. Thin markets, reversing moves at a swift pace. First two weeks of july were bearish , but the last two weeks were megabullish - uberbullish. Although I joined in by buying Citigroup, risks are clearly building
for a bulltrap. Market sentiment and positioning certainly looks oneway in many assetclasses.
*Other reasons for renewed assetmarket weakness
- Chinas insane creditexpansion - More than 90% of the credit provided in China for stateowned banks during the 1h went to stateowned corporates, of which 90% used their credit to speculate in equities, realestate and commodities. The Shanghai index was up 90% YTD as of last week. Since then, there has been a 15% drop lower. It is still very lofty. Commodities have also been pumped higher, although they are currently experiencing a setback. In short the Chinese creditmultipliereffect is not taking place, credit has mainly been used for speculation. This is clearly unsustainable. If theres a creditbubble anywhere in the world, it is in China.
On top it, the misallocation factor is probably at world record levels.
The Chinese centralbank is probably very aware of this. Painted into a corner, I believe they will have to start tightening before long or risk loosing economic control completely. Tightening is in the works - lets just get the 60 year revolution anniversary out of the way first. Once the credittightening starts, equities, commodities and commodity related currencies will have a rough time - big time.
- Deflation is the game - inflation is not. Too early for inflation - still. The global outputgap will soon become apparent for assetmarkets. Global backend yields are on their way down. Growth expectations are priced too high in equitymarkets and assetmarkets. This is bearish for assets, apart from backend bonds of course.
- German elections coming up - bad banks to the surface?
Risk for a renewed focus on German and European credit and bad debt issues. This has so far been ignored by the markets and swept under the rug by the authorities. Risks are increasing for a renewed focus as growth might be dissappointing.
The European banking system is is my opinion in more dire straits than the US one. Should low growth, high unemployment continue, loan losses will have to be written off on a grand scale, leaving taxpayers to pick up the tab.
However, with taxpayer reluctance building this could be a hard one to push through. Therefore, increased likelyhood of more financial institutions being allowed to go bust could be higher this time around. This is NOT priced into the market.
- Long SKF ETF via options
- Long SAS Airlines stock
* Optiondelta hedge smaller than prescribed market delta.
Good to be back.
As usual, good luck.
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
for a bulltrap. Market sentiment and positioning certainly looks oneway in many assetclasses.
*Other reasons for renewed assetmarket weakness
- Chinas insane creditexpansion - More than 90% of the credit provided in China for stateowned banks during the 1h went to stateowned corporates, of which 90% used their credit to speculate in equities, realestate and commodities. The Shanghai index was up 90% YTD as of last week. Since then, there has been a 15% drop lower. It is still very lofty. Commodities have also been pumped higher, although they are currently experiencing a setback. In short the Chinese creditmultipliereffect is not taking place, credit has mainly been used for speculation. This is clearly unsustainable. If theres a creditbubble anywhere in the world, it is in China.
On top it, the misallocation factor is probably at world record levels.
The Chinese centralbank is probably very aware of this. Painted into a corner, I believe they will have to start tightening before long or risk loosing economic control completely. Tightening is in the works - lets just get the 60 year revolution anniversary out of the way first. Once the credittightening starts, equities, commodities and commodity related currencies will have a rough time - big time.
- Deflation is the game - inflation is not. Too early for inflation - still. The global outputgap will soon become apparent for assetmarkets. Global backend yields are on their way down. Growth expectations are priced too high in equitymarkets and assetmarkets. This is bearish for assets, apart from backend bonds of course.
- German elections coming up - bad banks to the surface?
Risk for a renewed focus on German and European credit and bad debt issues. This has so far been ignored by the markets and swept under the rug by the authorities. Risks are increasing for a renewed focus as growth might be dissappointing.
The European banking system is is my opinion in more dire straits than the US one. Should low growth, high unemployment continue, loan losses will have to be written off on a grand scale, leaving taxpayers to pick up the tab.
However, with taxpayer reluctance building this could be a hard one to push through. Therefore, increased likelyhood of more financial institutions being allowed to go bust could be higher this time around. This is NOT priced into the market.
- The Baltic impending bankruptcy - core Europe might share a similar experience before long. Russia not feeling well either. A lower oilprice does not bode well.
Besides, with harsher conditions likely for Europes financial institutions, the European Commissions willingness to pump money into the Baltic black hole will likely wane. Not least due to domestic political consistency reasons (equal treatment of European financial institutions and countries). Overall bailoutcosts rising should also force a prioritasion where the Baltics will slide down on the list.
Net net, I am erring towards a setback before long. A classic bulltrap.
*New positions and position changes
Squared my positions and took profit as the Chinese GDP number came in as expected in July.
Current positions;
-Long Gbp/Usd puts
-Long Eur/Usd puts
-Long Eur/Jpy puts. Partially deltahedged.*
- Long Aud/Jpy puts. Partially delta hedged.
- Long Aud/Usd puts. Partially delta hedged.- Long SKF ETF via options
- Long SAS Airlines stock
* Optiondelta hedge smaller than prescribed market delta.
Good to be back.
As usual, good luck.
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
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