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Trade ideas...lets see what we can come up with
Alright folks, i haven't seen a non individual stock based one of these yet so lets start it.
on May 20, 2007, i wrote the following as a brief summary of the overall trends in the global economy: __________________________________________________ ______ well first off, I’d like to break the “economy” into asset classes and countries. Taking global equities first, we have seen a sharp run up in stock prices worldwide. Growth has been strong and globally synchronized. For the first time ever, all OECD countries are growing simultaneously. Globalization has appeared to link the economies of the world structurally. Chinese growth has obviously been a massive driver and demand from that country does not appear to be slowing. Even if efforts to slow the economy by the govt pan out, a growth rate of 8% is still likely. A few things have kept equity prices up. First and foremost is the massive # and amt of deals we’ve seen and continue to see. Leveraged buy outs, share buy backs, mergers, acquisitions, and the like all push ever higher on global equity prices. China may also be moving towards a bubble as the # of new accounts to buy equities has shot up at insane rates. Private equity firms are also flushed with cash. All this cash is tied to the next point, fixed income. Global rates are very low and credit spreads are squeezed tight as a drum. These low rates, when compared to equity yields, make borrowing to purchase companies via cash & debt very attractive. We see this from corporate bond spreads and the deals being done mentioned above. Global capacity utilization at this point in the cycle would usually be getting strained and margins feeling some compression. The globalization though has flooded the world with cheap labor which has kept margins fat and capacity lower than typical at this point of the business cycle. Emerging market debt spreads above risk free rates have also come in a great deal. At least part, if not all, of this is legitimate. Developing economies have changed the way they handle a booming commodity mkt (and thus a very large income stream for commodity exporters). Typically, those countries would actually be running current account deficits by importing a ton and financing those imports with money that would love to invest in their country given how it's doing. But this time, we see those countries running a current account surplus. This is because they are growing and using the export money to invest in their own country (and around the world, thus running a capital account deficit). Overall this is great, but spreads can’t get much tighter. Further, some commodity exporters are running CA deficits & borrowing funds from around the world to consume. This is troubling since a shock there, even if triggered by that country’s economic situation alone, would likely reverberate across emerging mkts and widen spreads. As a result of everything above (high liquidity, high growth, global demand), commodity prices are high as well. China demands a great deal of them as does Japan, the US, & Europe. Moving on to China. Last week (week of may 14th), they finally acknowledged that good 'ol fashioned central bank tightening is really what is needed to slow the economy down. In order to do that, they have to let their currency appreciate vs. the dollar and uncouple their monetary policy from the US (i.e. while the currency is pegged, they can’t raise rates). Otherwise, domestic inflation will rise making the peg worthless (competitiveness will fall as domestic prices rise regardless of the Yuan's level vs. trading partners). This will also help push global rates up as their massive ($1.2 TRILLION) reserves of US bonds will stop accumulating and the US 10yr rates will start to move up. <font color="red"> Addendum: i would have to rethink that latter remark. US10yrs i thought would be less sensitive to economic conditions since there was so much of china's reserves pushing their prices up. recently, we saw about a 40bp upward move in rates. i think overall, the chinese have a smaller effect than i initially indicated although it is still quite big. SECOND: china has come up with a small way to bring equities down a bit by trippling the stamp tax on shares. this has cooled the market slightly, but not by enough</font> This slow loosening of the peg is a step in the right direction, but more is needed. China is accumulating a CA surplus far faster than it is allowing its currency to rise. It will need to purchase ever more US dollars (and thus US bonds) to keep its currency in line. So the Yuan is highly pressured to appreciate vs. the dollar. In terms of currencies, the Yen is also near record lows (121 as of may 18th). Given the low yields in Japan, this has caused a re-appearance of the carry trade, most notably to the US & Australia. These unhedged flows are self defeating in a way and can cause a global risk aversion shock if/when it finally snaps (self defeating b/c selling yen to buy AUD/USDs assets puts more downward pressure on the Yen which makes investment in Japan even more attractive. Eventually, those fundamental economic flows will dwarf the carry trade flows causing those invested in it to repatriate at ever worse prices). <font color="red"> Addendum: we now see the carry trade being even more attractive as AUS, USA, & EUR have all seen their economic prospects rise more than expected, pushing the yield differential even higher</font> The dollar is also very weak vs. the Euro and the Pound. This weakness, however, is warranted as the US needs to borrow ever greater amounts in order to keep financing the massive CA deficit. The figures are truly staggering and an even weaker dollar is possible so long as imports remain as high as they have been in the recent past (we’ve had some good news on this front in the past few weeks, but not enough). In terms of the domestic economy, we saw some weak growth #s in the first quarter and a slight reduction in the inflation rate, which is still outside the fed’s “comfort zone.” The mkts are still pricing in cuts though and given the consumer confidence we’ve seen and the Chinese apparent yielding to US trade concerns (rate hike & peg movement), that/those cut/cuts isn’t looking too likely. A realization of no cuts int eh future may also put a damper on equity prices. The housing issue we have seen hasn’t dampened consumer confidence but has put a dent in growth as we saw from Q1 estimate. Overall though, the economy looks good and inflation is still a touch high. I’d think the next rate move will be a hike, not a cut. Especially since the slack in the global economy felt as a result of global low wages is reducing and wage pressures may rear their ugly head sooner than expected. <font color="red"> Addendum: while growth was revised down by over 50% to 0.6% for Q1, the overall economic outlook has increased substantially as of this writing as can be seen by the pricing of fed funds futures & options. a rate hike is now much more favorably viewed and the probability priced in for a cut has been pared back a lot. </font> Finally, we have low (relative to historic) mkt volatility. Any one of those de-stabilizing things mentioned above can cause this to spike as it did in February. A rise in risk aversion will hurt global asset prices across the board (save the US treasuries & gold, which has done well due to high liquidity). Increases in global rates may catch many not pricing them in off guard. So, to wrap up, the major themes we have going on are 1) syncronized global growth as a result of highly correlated business cycles. 2) low rates/high liquidity 3) high commodity prices 4) strong emerging mkt growth that doesn't look panic/currency devaluation prone. 5) a carry trade that has a potential to destabilize the lowly volatile environment. 6) weak and weakening US dollar 7) strong US economy w/ a touch of inflationary pressure 8) low (implied/expected) volatility In the future, I'd look for a global pull back in equities and US assets as risk premia adjust from their currently tightly squeezed position as the last leg of the cycle finally starts to come into full swing. I’d be long volatility as we are strained as it is and there are many points from which a scare could emanate. __________________________________________________ ________ Now, i'd like to see what we can come up with working off that + the recent occurrances that are not taken into acct as of the time of that writing + stuff i missed/didn't include etc... one example from another thread is the idea i had for the diff bet between silver & gold. another could be a simple short silver, short gold. so from the commodity picture, i think a trade consisting of the following would be a good place to start : outright: short gold diff bet: short gold spot, long gold futures outright: short silver diff bet: short silver spot, long silver futures diff bet: short gold long silver (bet gold falls more than silver) as of the writing above, i was quite strongly short US 10yrs. now that they've sold off significantly and are more realistically reflecting the interest rate environment i'd have pulled a lot back from that. i'm still slightly short in my mind though, may -15% vs. -85% a few weeks ago. i was also neutral to short US equities. maybe at most about -10%. now i'm about neutral (0%) as they've fallen a bit to reflect the IR repricing. sssssssssooooooooooooo, lets hear some trading ideas & discussion. this thread should be great for anybody going into interviews any time soon. thanks and lets get started, Barron |
Re: Trade ideas...lets see what we can come up with
glancing over my usual reading i see two possible good trades:
1) long crude oil at 64.81. possible hurricanes (small bullish signal) and strong growth may push prices higher. i'm not hugely strong on this trade, i'd say +20% 2) long GBPvsUSD as the rise in us10yr yields has drawn a good number of people towards the US. but inflation and growth are both faster in the UK and there. i'd be at a signal of maybe +15 to +20% after today's drop in the pound. if the fall continues, i'd put in a bit more. Barron |
Re: Trade ideas...lets see what we can come up with
A little late to the party(Warren Buffet in below 80), but going long BNI(Burlington Northern).
The main reason I like this play is the continued surge in crude oil being coupled with the continued push for biofuels(mainly ethanol in the midwest). With most of the biofuels located in the midwest, the railroad industry is going to profit from the extra overload to transport the fuel to upper northeast, Florida, and California. Put me down for LONG BNI at the current 88.5 price level. -FH- |
Re: Trade ideas...lets see what we can come up with
DcifrThs,
You seem to be saying that gold and silver are going to break down significantly. Both are sitting at 1-year trend lines after being much higher. This is normally where buying comes in and shorts cover. The long bond is rolling over a 27-year trendline. Normally that means traders see real inflation (in excess of govt estimates) and demand more yield to hold those bonds. Normally this kind of action in the bond market torpedoes stocks and bond pricing. if stocks and bonds are trending south, what's left in terms of asset classes to park inflation-aware money? Certainly not cash or real estate now. The worldwide liquidity explosion caused by the Fed's expansion of money supply (and competitive moves by other central banks) must find a home eventually. Where is it going to go? Right here, long metals at the 1-year trendline, with a 3% stop has very favorable Sharpe characteristics. Charts: Gold ETF http://stockcharts.com/h-sc/ui?s=GLD...;dy=0&id=0 Silver ETF http://stockcharts.com/h-sc/ui?s=SLV...;dy=0&id=0 |
Re: Trade ideas...lets see what we can come up with
I respect Dcifer greatly and because of that have personally gone from being bullish on silver to neutral.
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Re: Trade ideas...lets see what we can come up with
For long-term value investors, do you take into account this type of information?
I assume not or else my road just got a little longer. |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
For long-term value investors, do you take into account this type of information? I assume not or else my road just got a little longer. [/ QUOTE ] this thread is specifically aimed at active managers (alpha), not long term passive allocations (beta) Barron |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
DcifrThs, You seem to be saying that gold and silver are going to break down significantly. Both are sitting at 1-year trend lines after being much higher. This is normally where buying comes in and shorts cover. The long bond is rolling over a 27-year trendline. Normally that means traders see real inflation (in excess of govt estimates) and demand more yield to hold those bonds. Normally this kind of action in the bond market torpedoes stocks and bond pricing. if stocks and bonds are trending south, what's left in terms of asset classes to park inflation-aware money? Certainly not cash or real estate now. The worldwide liquidity explosion caused by the Fed's expansion of money supply (and competitive moves by other central banks) must find a home eventually. Where is it going to go? Right here, long metals at the 1-year trendline, with a 3% stop has very favorable Sharpe characteristics. Charts: Gold ETF http://stockcharts.com/h-sc/ui?s=GLD...;dy=0&id=0 Silver ETF http://stockcharts.com/h-sc/ui?s=SLV...;dy=0&id=0 [/ QUOTE ] first off, you need to speak english. 1 year trendlines? 27 year trendlines? you do realize that now is the present and the coming time period is the future right? and neither are anything like the past? "favorable Sharpe characteristics" are you talking about risk vs. return (again based on past trends and a stop loss?? ) ? if so, then why not just say it...especially when we're talking about alpha generation (where the risk-adjusted-retur is called the information ratio) and not beta (where the passive risk adjusted return is called the sharpe ratio) anyways, despite all the foreignese in yourpost, you ask 2 great questions: [ QUOTE ] where will money go? [/ QUOTE ] and [ QUOTE ] what is the current driver of asset prices? [/ QUOTE ] these are two aspects that i've neglected. since growth is high and capacity is tight, inflation will drive asset prices. when that is the case, precious metals tend to do well. but at the same time, increases in global yields tend to be bad for precious metals. overall, i think we are in new territory here as i just reviewed my long term charts (1960-2006) and we haven't seen a time like this yet where liquidity is widely available, stocks are at record levels, emerging markets are sustainably growing, inflation is still fairly contained (we're seeing bp or single % moves in the developed world) and bond yields are also moving by less than %s. so overall i dont think right now is a time you want to use past trends to predict price moves. the global growth overall has pushed silver & gold prices up (as well as oil & copper) from about 2002-2007. EDIT: just to be clear, by runup, i mean absolutely unprecedented growth in oil, gold & copper (except when gold skyrocketed to like $1700 an ounce). the drivers of this have been the massive amt of liquidity (mostly for gold) and huge growth of emerging mkts while synchronized with every single developed country (copper & oil). so i'd think that right now, despite the historic relationship between inflation & precious metals, a reduction in growth (or an increase in yields) will drive their prices down, not up. the question is then, where will all this money go? well, i think some if it will structurally be withdrawn from the system. this is just what central banks do in order to raise interest rates (they sell treasury securities & take cash out of the system and simply hold it). also, as rates rise, cash does become more attractive relative to gold & silver. so despite the fact that i only understood about 1/2 of your post, i think i'm comfortable enough with your major points to offer the above explanation. in short, 1) historic trends are not likely to apply right now (and tend to be a horrible way to trade). 2) growth slowing & yields rising imo are likely to now push prices of precious metals down, not up despite the fact that traditionally having inflation coming in above expectations increases demand for precious metals. in this case, i think the runup in their prices over the past 4 years (which has been HUGE), is going to turn the other way as growth slows & yields rise. 3) the liquidity that has been introduced via loose money will be at least in good part withdrawn from the system (literally) by central banks. Barron |
Re: Trade ideas...lets see what we can come up with
Regarding trends:
for those that have online subscriptions to the FT (which should be a massive % of people on this forum), please see this: Confused by a fair weather trend for those without access, the comment&analysis piece by John Authers w/ the FT chronicles the problems with trading using trendlines. 2p2 i don't think would be happy if i posted copywritten material so i can't post the whole article for all. i can, however, post the intro: [ QUOTE ] “The trend is your friend.” That is an old saw on the market, and it has made many rich. In the hurly-burly of the dealing room, clear trends – or at least trends that are clear if you can look up the chart on a Bloomberg terminal – give traders something to hold on to. There is an unfortunate corollary. When the trend breaks, you have nothing to hold on to. That is when panic ensues [/ QUOTE ] the article then goes on to explain how the peaks of each cycle have been the same or lower than the ones that preceeded it. the business cycle was thought to be ever reducing in amplitude as it relates to inflation & bond yields. that trend analysis proved dead wrong thursday morning as the us10yr yield passed 5.05% (the trend line of demarcation). then, after a loonnngnggg time where us10yr yeilds wouldn't move by more than a few bps in a day, jumped to 5.13 and then to 5.24%. that was a small panic caused by the holding of trends in the face of logic & data and then being forced to realize that trading strategy was wrong. one goal imo is to never make that kind of mistake. Barron |
Re: Trade ideas...lets see what we can come up with
one quick clarifying thought:
if you have any questions please ask!! the only way to learn is try to poke holes in ones own theories. similarly, what would cause all these trades to be wrong? what should i look for to adjust my theories? another thing i want to clarify is that "slowing growth" isn't a near term thing. as real rates come up, investment will slow and growth will start to come down but there's always a lag. risky asset prices, on the other hand, will adjust immediately in the expectation of slower growth in the future. Barron |
Re: Trade ideas...lets see what we can come up with
Barron,
How about a small wager of exactly 100USD between us, in which you bet against the price of the GLD ETF as of yesterday (Friday close) being higher 6 calendar months hence? I take the other side of the even money wager-- betting on a higher GLD price 6 months from the Friday close-- even though you are cocksure that gold prices are definitely heading lower, and you are (in theory) therefore supposed to lay me very favorable odds. For the record, I am not a formally trained economist [img]/images/graemlins/wink.gif[/img] This is a friendly wager, (even money), and a spectator sport, designed to entertain and perhaps even educate some of the readers of this forum. I realize my English may not be perfect. What say you? |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
How about a small wager of exactly 10000USD [/ QUOTE ] HU INVESTING CHALLENGE FOR PORTFOLIOS PLZ |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
[ QUOTE ] For long-term value investors, do you take into account this type of information? I assume not or else my road just got a little longer. [/ QUOTE ] this thread is specifically aimed at active managers (alpha), not long term passive allocations (beta) Barron [/ QUOTE ] Value investors are the epitomy of alpha generators, i.e. Buffett has generated as much or more alpha as anyone in the world. For the most part, if you are a value investor, this kind of information can usually be ignored. Typically you are looking for the best risk/reward ratios among investments in your circle of competence, and ignore the macro-economic picture. Buffett has said this many times, and most of his investments are like that. There are exceptions, such as his recent currency bet, but that's more a factor of the extreme size of his portfolio, and his limited opportunities in large cap stocks. Another counter example could be if you are buying a company whose profitability is linked to low interest rates, you've got to make a reasonable assumption about the future of interest rates. But usually you are just trying to find good businesses at very low prices, with a margin of error so great that it doesn't matter what the economy is doing. |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Barron, How about a small wager of exactly 100USD between us, in which you bet against the price of the GLD ETF as of yesterday (Friday close) being higher 6 calendar months hence? I take the other side of the even money wager-- betting on a higher GLD price 6 months from the Friday close-- even though you are cocksure that gold prices are definitely heading lower, and you are (in theory) therefore supposed to lay me very favorable odds. For the record, I am not a formally trained economist [img]/images/graemlins/wink.gif[/img] This is a friendly wager, (even money), and a spectator sport, designed to entertain and perhaps even educate some of the readers of this forum. I realize my English may not be perfect. What say you? [/ QUOTE ] sure, 100USD 6mo from friday's close (December 8th 2007) the reason you can't give odds in these scenarios is because a lot can happen in 6 months. downside inflation pressure could delay the bundesbank & BOE, & BOJ from raising rates thus prolonging the liquidity boom while growth could surprise down slightly pushing demand for risky assets up. further, i could be right and gold falls but then lets say i'd want to cover the short, i couldn't. i'm locked in for 6 months. but i'll agree to the friendly wager of $100 in hard US currency payable via some poker site or whatever. GL (and get the gold etf close as of friday and post it here) EDIT: gold for august delivery closed at 653.1. the ETF you linked had it closed at 64.22. which would you like to use (i.e. on december 7th, since the 8th is a saturday, we can either use gold's close for february delivery, or the ETF you linked). thanks, Barron |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
[ QUOTE ] [ QUOTE ] For long-term value investors, do you take into account this type of information? I assume not or else my road just got a little longer. [/ QUOTE ] this thread is specifically aimed at active managers (alpha), not long term passive allocations (beta) Barron [/ QUOTE ] Value investors are the epitomy of alpha generators, i.e. Buffett has generated as much or more alpha as anyone in the world. For the most part, if you are a value investor, this kind of information can usually be ignored. Typically you are looking for the best risk/reward ratios among investments in your circle of competence, and ignore the macro-economic picture. Buffett has said this many times, and most of his investments are like that. There are exceptions, such as his recent currency bet, but that's more a factor of the extreme size of his portfolio, and his limited opportunities in large cap stocks. Another counter example could be if you are buying a company whose profitability is linked to low interest rates, you've got to make a reasonable assumption about the future of interest rates. But usually you are just trying to find good businesses at very low prices, with a margin of error so great that it doesn't matter what the economy is doing. [/ QUOTE ] i think you know what i meant. it is aimed at macro type bets. i thought he meant "long term passive portfolio" and i corrected that. value-investing, isn't the industry i'll be going into, nor is it as practiced as it should be. despite buffet "telling 'em time and again." equities aren't my passion and there are so many things going on in the world i wanted to make a non-equity alpha generation thread. so pick away! Barron |
Re: Trade ideas...lets see what we can come up with
Barron,
OK. Wager size: $100 Instrument: GLD (ETF) Base price as of start date-- Friday June 8 close: 64.22 What we are betting on: The closing price of GLD on Friday December 7 (8th is a Saturday) If GLD closes lower than 64.22 on this date, Barron wins, otherwise Mr. Now wins. Terms: Payoff to winner from loser not later than December 14 2007; payment method by mutual agreement at that time (poker site, PayPal etc) I really like my chances here. Let's talk on December 7th. |
Re: Trade ideas...lets see what we can come up with
WSJ article on bond yield movements:
[ QUOTE ] Investors reacted to the interest-rate move by pouring $3.5 billion into money-market funds this past week. While these short-term funds won't get a rate boost from higher long-term rates, investors won't lose money if bond and stock prices keep falling. [/ QUOTE ] step 1 [img]/images/graemlins/smile.gif[/img] Barron |
Re: Trade ideas...lets see what we can come up with
YAY [img]/images/graemlins/smile.gif[/img]
[ QUOTE ] Gold, Silver Fall as Higher Interest Rates May Pare Demand By Choy Leng Yeong June 12 (Bloomberg) -- Gold fell, resuming a decline that sent prices last week to their lowest level since March, on concern that higher global interest rates may cut demand for the metal as an alternative investment. Silver also dropped. Gold fell 3.9 percent last week, the biggest drop in three months, after the European Central Bank and the Reserve Bank of New Zealand raised rates. Holding gold becomes less attractive when rates rise because the metal has no fixed returns. U.S. Treasury yields rose today after China and Japan showed consumer and producer prices rising, renewing speculation that faster global inflation may prompt central banks to raise rates. ``The climbing Treasury yields could keep gold prices a little lower,'' said Michael K. Smith, president of T&K Futures and Options Inc. in Port St. Lucie, Florida. ``Higher rates might bolster the dollar and keep inflation away. No inflation is bad for gold.'' Gold futures for August delivery fell $5.90, or 0.9 percent, to $653.10 an ounce on the Comex division of the New York Mercantile Exchange, after dropping as low as $649.50. The price on June 8 touched $647.80, the lowest since March 16. Silver for July delivery fell 18.5 cents, or 1.4 percent, to $13.09 an ounce. The metal plunged 3.3 percent on June 8, the biggest decline for a most-active contract since March 2. It fell 5.1 percent last week. The yield on the 10-year bond rose 6 basis points to 5.22 percent at 1:29 p.m. in New York, according to bond broker Cantor Fitzgerald LP. Dollar Rising The dollar rose to near a two-month high against the euro today and has climbed for a fifth day, the longest winning run since October, as speculation increased that the Federal Reserve will hold interest rates steady this year. ``You're going to make more money in agriculture than in gold,'' Jim Rogers, chairman of Beeland Interests Inc., said yesterday in an interview. ``I would worry about gold.'' Traders assigned a 44 percent chance that the Fed will raise rates 25 basis points by December as of yesterday, compared with no chance a month ago, according to options on Fed funds futures. ``If the interest rates get high enough, people would just go for the guaranteed rate of return versus the speculative one, gold,'' Smith said. ``Until the market absorbs all the negative information, I won't start recommending silver and gold again. Grain is where the action is for me.'' A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net . Last Updated: June 12, 2007 14:15 EDT [/ QUOTE ] Barron EDIT: i think it would only be gentlemanly of me to offer you a buy out of $75 this early on. global rates are sooo unlikely to fall in the next 6 months (while chinese & other emerging mkt inflation will only push rates higher) that i should offer you the buy out option. lemme knwo Mr. Now [img]/images/graemlins/smile.gif[/img] |
Re: Trade ideas...lets see what we can come up with
Quoted from your gold falling article -
``You're going to make more money in agriculture than in gold,'' Jim Rogers, chairman of Beeland Interests Inc., said yesterday in an interview. ``I would worry about gold.'' Iowa farmland is the clear play here. |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Quoted from your gold falling article - ``You're going to make more money in agriculture than in gold,'' Jim Rogers, chairman of Beeland Interests Inc., said yesterday in an interview. ``I would worry about gold.'' Iowa farmland is the clear play here. [/ QUOTE ] LDO. but i didn't make a prop bet on farmland. Barron |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
YAY [img]/images/graemlins/smile.gif[/img] [ QUOTE ] Gold, Silver Fall as Higher Interest Rates May Pare Demand By Choy Leng Yeong June 12 (Bloomberg) -- Gold fell, resuming a decline that sent prices last week to their lowest level since March, on concern that higher global interest rates may cut demand for the metal as an alternative investment. Silver also dropped. Gold fell 3.9 percent last week, the biggest drop in three months, after the European Central Bank and the Reserve Bank of New Zealand raised rates. Holding gold becomes less attractive when rates rise because the metal has no fixed returns. U.S. Treasury yields rose today after China and Japan showed consumer and producer prices rising, renewing speculation that faster global inflation may prompt central banks to raise rates. ``The climbing Treasury yields could keep gold prices a little lower,'' said Michael K. Smith, president of T&K Futures and Options Inc. in Port St. Lucie, Florida. ``Higher rates might bolster the dollar and keep inflation away. No inflation is bad for gold.'' Gold futures for August delivery fell $5.90, or 0.9 percent, to $653.10 an ounce on the Comex division of the New York Mercantile Exchange, after dropping as low as $649.50. The price on June 8 touched $647.80, the lowest since March 16. Silver for July delivery fell 18.5 cents, or 1.4 percent, to $13.09 an ounce. The metal plunged 3.3 percent on June 8, the biggest decline for a most-active contract since March 2. It fell 5.1 percent last week. The yield on the 10-year bond rose 6 basis points to 5.22 percent at 1:29 p.m. in New York, according to bond broker Cantor Fitzgerald LP. Dollar Rising The dollar rose to near a two-month high against the euro today and has climbed for a fifth day, the longest winning run since October, as speculation increased that the Federal Reserve will hold interest rates steady this year. ``You're going to make more money in agriculture than in gold,'' Jim Rogers, chairman of Beeland Interests Inc., said yesterday in an interview. ``I would worry about gold.'' Traders assigned a 44 percent chance that the Fed will raise rates 25 basis points by December as of yesterday, compared with no chance a month ago, according to options on Fed funds futures. ``If the interest rates get high enough, people would just go for the guaranteed rate of return versus the speculative one, gold,'' Smith said. ``Until the market absorbs all the negative information, I won't start recommending silver and gold again. Grain is where the action is for me.'' A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net . Last Updated: June 12, 2007 14:15 EDT [/ QUOTE ] Barron EDIT: i think it would only be gentlemanly of me to offer you a buy out of $75 this early on. global rates are sooo unlikely to fall in the next 6 months (while chinese & other emerging mkt inflation will only push rates higher) that i should offer you the buy out option. lemme knwo Mr. Now [img]/images/graemlins/smile.gif[/img] [/ QUOTE ] Mr Now, to help you in your decision, if you have a 50% chance of being right, your expectation would be: $48.82 (assuming 5 % interest rate and the time from june 12th to dec 8th 2007) so you should be indifferent between paying that amt or taking the 50/50 gamble. at $75 payout, you would be indifferent between paying me that amt and gambling wiht me if your expected probability of being wrong was 76.82% (note: i picked a $75 buyout without doing the simple math so that # was the probability i just backed out). so if you feel that your probability of being wrong is less than the above %, you should'nt take my buyout offer. if you feel you are more likely to be wrong than the above figure indicates, you should ship me the $75 now. (note: this assumes you are 100% risk neutral...you may, however, enjoy the uncertainty of the gamble for such a small friendly wager and turn down the buyout offer on that account further, it assumes that you agree with a 5% interest rate. finally, each day that passes amounts to about a 1cent change in the total amt at stake) Barron |
Re: Trade ideas...lets see what we can come up with
lets get this thread back on track now that my bet w/ Mr. Now is in losing position by a few cents:) (still long way till december though)
next idea: long yen vs. dollar...this long term idea i think has reached a very attractive point. first the political issues. shinzo abe's govt has been suffering curruption, defection, suicides as a result of scandals. i believe there is room for constructive improvement on this front (very low conviction due to lack of expertise in this area) next, we have the increased shareholder activism in a very traditionally pro management culture. the latter culture, however, isn't backed by business provisions since shareholders have the most power in japan than in (im pretty sure) any other country. they can directly vote on boards, executive pay and they have recently started to break away from their stoic following of management. this makes japanese companies more attractive as shareholders get a bigger say in how they are run and a better opportunity to oust ineffective management. large shareholders have said they will vote to oust managers/boards that fail to reach a return on equity of 8% for any 3 year period. now onto economics. then yen is at a very low point of about 123 to the dollar. this low yen (and the fact that it has been so low for so long) has contributed to the yen current account surplus and capital account deficit. locals sell the yen to gain higher returns elsewhere in both a carry trade (earning higher risk free rates of return) and as overall investments (in companies & other country's risky assets). economic investment isn't as large as they can get if real investment in japan responds to the low yen. instead, income transfers jumped 41.7% in april to account for about 3 times the japanese surplus in goods and services. this is partly a direct result of japanese yen weakness (so income in yen terms from foreign investments become larger) and partly a result of the low interest rates available at home (so yield seekers invest elsewhere to gain while the yen stays low and calm). so if real investment in japan increases, the capital account would start to show larger foreign flows into japan. the yen is at a level where these real economic flows are becoming very attractive. these can overwhelm carry traders & other "hot money." right now, the market seems to think that the income transfer part of the CA is a small factor & that interest rate differentials are the tradable info. as long as JGBs stay low and the BOJ doesn't push up rates (to try to make sure deflation doesn't again rear its head), the yen will stay low. it isn't likely to get much lower. in order for this to happen, the BOJ would have to actively start to intervene in the market, or the rate of flows out of japan would have to increase beyond the recent historical rate. a rate of 125-135 would make real economic investments extremely attractive from a foreign standpoint and make japanese companies even cheaper than they are. this ties back to the shareholder activism as the companies are less tied to management and shares are held more by hedge fund and foreign investors (this makes comapny takeovers less troublesome & faster so that investors could respond quicker to further drops in the yen). other aspects of this trade include the fact that japan is a net importer of commodities, the fact that a large part of the current surplus comes from chinese & other asian countries' demand for japanese goods, and the fact that US dollar is fundamentally weak overall but bouyed vs. the yen as a result of higher relative yeilds (though not as much as AUS or NZD). so i don't think the yen is likely to drop further, and the way these things tend to unwind, it would prove to be extremely profitable and fast. the last time the carry trade unwound, the yen popped from somewhere north of 160 to the dollar, down to 120 or so in VERY short order. a comparable drop would put us at a yen level of 90 vs. the 123 it is currently trading at (different time period obviously but it's an example of how the carry trade can unwind). now i'm not saying the yen would jump to 90, but even a move to 110, or 105, or 100 would be a very nice profit. the risk here is fairly low as no likely (or even unlikely event) could push the yen much lower. further, even if it DID occur (and yen moved down to 135 or something), fundamental flows would likely see that as huge buying opportunities (depending on the event that caused the drop) overall, i'd be very bullish the yen right now and i'd put the overall signal at about +80% so thats it, any thoughts? questions? comments? thanks, Barron |
Re: Trade ideas...lets see what we can come up with
Another idea (from reading the economist) is to start thinking about CDX.
this is a crossover credit default swap index (BAA or the credit grade on the boarder between investment grade and junk) in based on North american & emerging mkt companies(though i forget the composition. you can, however, pick a more specific index from the many they have etc.) in june, spreads blew out a bit to close to 150-200 bps above treasuries. they got as low as 100bps above treasuries before the february mkt hiccup (and they then jumped to over 200). i have to check but if they've come back down to anywhere near 100bps i'd look to start a short at a signal of -20% to -50% depending on how close to 100bps the index CDSs are trading above treasuries. for those that aren't 100% clear, a CDS is a derivative that pays when an underlying instidution default's on ints debt. so then economic growth is good or demand for these instruments is high, these spreads tend to come in. when risk aversion increases or when underlying institution (typicaly company) balance sheets are at risk, they should blow out. this is another one of those things where the upside is huge and the downside is small b/c they can't reasonably be priced below 100bps above treasuries since that is just ludicrous pricing and indicates irrational demand for them (possibly for hedging reasons for certain hedge funds/private equity groups) so i'd want to short the spreads here at near 100bps above treasuries. the lower the spread the stronger my signal. Barron |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
for those that aren't 100% clear, a CDS is a derivative that pays when an underlying instidution default's on ints debt. so then economic growth is good or demand for these instruments is high, these spreads tend to come in. when risk aversion increases or when underlying institution (typicaly company) balance sheets are at risk, they should blow out. [/ QUOTE ] when times are tough benchmark spreads increase; bidding interest may or may not cancel out this change. |
Re: Trade ideas...lets see what we can come up with
Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. Also, don't forget that yield curve is inverted between 6mo and 2 yr.
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) [/ QUOTE ] doesn't that refer to oil vs. heating oil or other products chemically 'cracked' from the initial 'dirty' product? [ QUOTE ] Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. [/ QUOTE ] i'm not really interested in risk premia. i want to express a specific macro view in the gold/silver futures market for alpha generation purposes. historically, there have been returns from holding backwardated futures contracts till the next near by and rolling it over. i'm not as well versed in this area though so i don't want to think about that specifically as a macro based trade idea. if youw ant though, we can discuss your expectations of capturing the 'backwardation premium' into the future and how it relates to different commodities. that'd be an interesting discussion as well, but for trade ideas, i wanna stick with macro views expressed as trades. [ QUOTE ] Also, don't forget that yield curve is inverted between 6mo and 2 yr. [/ QUOTE ] yes, but that is i think a mistake and there are likely opportunities there as well. haven't outlined those yet here though so that is something i'll think about and get back. thanks, Barron |
Re: Trade ideas...lets see what we can come up with
buy CROX and ICE. these stocks are close to breaking out and if the market continues to rally, these stocks will lead.
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. Also, don't forget that yield curve is inverted between 6mo and 2 yr. [/ QUOTE ] you will lose your stack on the roll. not to mention you probalbyd ont have the cpaital to put on a perfect crack spread (due to underlying notionals) |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
[ QUOTE ] Sorry didn't read all your reasoning for gold/silver spread, but isn't a crack spread a better arbitrage strategy. (assuming if the spread still exist) Personally, if I am taking risk premium returns, I would look into premiums provided by futures backwardations. Also, don't forget that yield curve is inverted between 6mo and 2 yr. [/ QUOTE ] you will lose your stack on the roll. not to mention you probalbyd ont have the cpaital to put on a perfect crack spread (due to underlying notionals) [/ QUOTE ] forget the "perfect" crack spread for a second. to execute 1 crack spread you just need the margin on 1 long contract and 1 short contract and the ability to weather a small storm, right? Barron |
Re: Trade ideas...lets see what we can come up with
refinery ratios, which have a fundamental basis, are 5 barrels of crude = 3 barrels of gas + 2 barrels of heating oil.
you can put on 1-1 crack spreads, although i think these are more speculative than anything. |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
refinery ratios, which have a fundamental basis, are 5 barrels of crude = 3 barrels of gas + 2 barrels of heating oil. you can put on 1-1 crack spreads, although i think these are more speculative than anything. [/ QUOTE ] ah, i got it now. all that margin would make a dent. i dont know notionals/tick size for RBOT or Natural Gas but crude is 1k/point. margin is probably around 20% right? if so the amt is pretty significant. Barron |
Re: Trade ideas...lets see what we can come up with
Another trade today:
US 10yr yield is now just above 5.02%. likely causes are 1) economist's survey reveals they feel new growth will not cause inflation so no rate hikes in the future (capacity hasn't fallen, so future demand must be expected to fall). in that vien, home depot & others have talked their forcasts down. 2) subprime downgrade possible for just over 12bil in securities by S&P. may cause demand for safe debt. 3) related to 1, possible slower growth & lower earnings and feeling that subprime mortgage market may still indeed spill over to consumer demand which has remained robust throughout. i think there are some good reasons for the rally, but i feel it overshot and the yield we are seeing now is too low relative to current economic conditions imo. so i'm back to being more strongly short the us10yr. maybe a signal of around -50 to -60% Barron |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Another trade today: US 10yr yield is now just above 5.02%. likely causes are 1) economist's survey reveals they feel new growth will not cause inflation so no rate hikes in the future (capacity hasn't fallen, so future demand must be expected to fall). in that vien, home depot & others have talked their forcasts down. 2) subprime downgrade possible for just over 12bil in securities by S&P. may cause demand for safe debt. 3) related to 1, possible slower growth & lower earnings and feeling that subprime mortgage market may still indeed spill over to consumer demand which has remained robust throughout. i think there are some good reasons for the rally, but i feel it overshot and the yield we are seeing now is too low relative to current economic conditions imo. so i'm back to being more strongly short the us10yr. maybe a signal of around -50 to -60% Barron [/ QUOTE ] i think it's time to stress this again as at this moment (11:09am July 18th), bond yields are trading at 5.018%. inflation data is still pushing the upper boundry coming in at 2.2% core reading yoy and with June readings at and above expectations at .2% for headline and .2% for core respectively. yes, crude oil is high which may depress consumption and bring out some slack in capacity. but there is an offset there too, high crude oil creates large surpluses in oil exporting countries. those surpluses find their way back to the US govt bond markets since a whopping 2/3s of other country savings are in US bonds. so net net, the effect of higher crude on bond prices may be anywhere from slightly positive (pushing yields down) to even: either way, not a big upside for bonds as many seem to think could be the case. despite this, the economy has been very strong and is likely to continue to stay as such keeping capacity at or above its level of 81and change %. anything higher (i.e. leading indicators coming in tomorrow at more positive than the consensus -0.1% and/or jobless claims coming in below the 310k consensus) and we'll likely start to see more upward pressure on inflation. we'll get some more data next week as advanced GDP and durable goods orders come in. i think these are likely to show strength and come in at or above expectations. there is a risk in that the "spillover" fear is still imminent if consumption comes in as a result of reduced buying power of subprime homeowners. at best though, this will simply delay a rate rise rather than spark a rate cut (still a slight likelihood priced into the fed funds options markets). capacity is too high, growth too strong, and inflation too close to uncomfortable levels for yields of 5.018% to be justified imo. Barron |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Quoted from your gold falling article - ``You're going to make more money in agriculture than in gold,'' Jim Rogers, chairman of Beeland Interests Inc., said yesterday in an interview. ``I would worry about gold.'' Iowa farmland is the clear play here. [/ QUOTE ] Exactly right!!! Information on this subject can be found in my IOWA FARMLAND thread in this financial forum at 2+2. Ethanol is the main reason behind this. |
Re: Trade ideas...lets see what we can come up with
Sheesh now what does Mr. Now do? Mr. Now cannot decide.
Bet initiated at: 64.22 Current price: Last Trade: 67.01 Trade Time: 4:15PM ET Change: Up 0.39 (0.59%) Prev Close: 66.62 Chart: http://stockcharts.com/h-sc/ui?s=gld Mr. Now is very lucky. For now....right? |
Re: Trade ideas...lets see what we can come up with
From Marketocracy, starting with 1MM:
NOW-L * Name: MrNow's LONGS * Net Asset Value (NAV): $14.34 * Compliant: No * This past week + Return: 3.19% + Did you beat the: o S&P 500 (return of 1.44%): YES o NASDAQ (return of 1.52%): YES o Dow Jones (return of 2.17%): YES * Trailing 30 days + Return: 8.27% + Did you beat the: o S&P 500 (return of 2.43%): YES o NASDAQ (return of 4.83%): YES o Dow Jones (return of 3.15%): YES Mr. Now is very lucky. Right? |
Re: Trade ideas...lets see what we can come up with
Mr. Now respects DcfrThs and values his posts.
Mr. Now wonders out loud if DcfrThs might be willing to do some detailed intermarket analysis on gold, gold shares, the indexes (SP, Dow), the dollar and the long bond. Wednesday of this week is certainly an interesting day for serious students of intermarket analysis. |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Mr. Now respects DcfrThs and values his posts. Mr. Now wonders out loud if DcfrThs might be willing to do some detailed intermarket analysis on gold, gold shares, the indexes (SP, Dow), the dollar and the long bond. Wednesday of this week is certainly an interesting day for serious students of intermarket analysis. [/ QUOTE ] :SDFJK:WJKEOPJIPOJFL:WKEJC mother F*CKER. i just spent 1 hr responding to this post and forgot about the time and got a "form no longer valid" error... i can usually hit the back button and get the text back but NOT THIS TIME. F*CK. grrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr rrrr. pissed, Barron i might have to rewrite the response tomorrow but i'm too pissed right now. EDIT2: F*CK still steaming when i think of the work i put into this response, jesus...i even made pretty excel charts (weren't included in my response though) on money supply and evertying F*CK. |
Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
Mr. Now respects DcfrThs and values his posts. Mr. Now wonders out loud if DcfrThs might be willing to do some detailed intermarket analysis on gold, gold shares, the indexes (SP, Dow), the dollar and the long bond. Wednesday of this week is certainly an interesting day for serious students of intermarket analysis. [/ QUOTE ] Ok so here we go: take 2. WARNING: this is long as SH*T w/ pics b/c I’m going through the equity (briefly), bond (in depth) & liquidity, currency (moderate w/ pics), and gold markets (brief) Wednesday was an interesting day indeed. I don’t have the tick by tick mindset though so if you are interested in that, then don’t think I can be of much help [img]/images/graemlins/frown.gif[/img] Anyways, let’s start where I always like to start, which is with the economy overall. We’ve seen strong earnings reports, many beating estimates, and the stock market pushing ever higher with record closes. The only major drag on the economy comes from caterpillar type home construction companies & the related building folks (which, is definitely a large part of the economy). Despite that drag, business investment and consumer spending contributed to the ~2.25% real GDP increase (which puts nominal GDP at about 4.5% depending on how you calc inflation...) for the first half of 2007. the fed FOMC has further forcast growth to be above 2.5% in real terms for 2008. Given the capacity constraints we’ll be pushing up against, even a growth rate of 1.75-2% in real terms would start to cause inflation to move towards the 2.5-3% zone, which, of course would cause a need for rate hikes. This contradicts the current yield curve’s current pricing. We have an inversion from ~5% on 6mo tbills down to about 4.85% on 2yr tbills. After that, it stabilizes & increases out to the 15yr mark, trading at about 5.25% (10yr was right above 5%) as of 7/19/2007. In order for this pricing to be correct, the fed must be expected to cut rates in the near-medium term (read: 6mo-2yrs). In order for that to occur, growth must slow significantly while inflation comes in. given that right now we’re possibly experiencing the biggest part of the slowdown in growth due to homebuilding/construction, I don’t see that [fed cut scenario] as likely. So, then what could be driving the 1-2yr rate down? Well there are two main factors driving this imo: 1) the thought that housing slump will cut deep enough to warrant a cut near july of next year (based on fed funds options markets now…these markets are currently more certain also as implied vol on those bets are at/near historical lows), and 2) the fear dynamic caused by deterioration in credits of the subprime based segment. Both of these drive demand up for the 2yr disproportional to the rest of the yield curve likely causing the shape we see now. Overall inflation expectations have risen a bit in the near term but remained moderate over the long term (as judged by bets on the PCE index & the BEI spread between nominal treasuries & their inflation indexed counterparts). So 2yrs I think are mispriced, as are 10yrs (which also gain from huge foreign holdings and continued buying to the tune of ~45% of total outstanding debt on that part of the curve). I’d be short the 10yr now (maybe also with a steepener long/2yr, short 10yr) as well as short the 2yr outright. Aka, I bet the yield curve will shift up and steepen. I’d also be going after the fed funds option market, long puts on futures at 94.75. Implied vol there is just too low (i.e. market is too certain a cut is imminent at that point of the curve). Moving onto the corporate/mortgage parts of the FI markets, we see that while the yield curve has already done a (small) upward shift, corporate debts have shifted by a proportional amount, keeping overall spreads near historical lows http://img.photobucket.com/albums/v7...m1998-2007.jpg …except in the subprime mortgage based section where CDS spreads have absolutely blown the F*CK out. Also, 10yr inv.grade commercial MBS over swaps spread have jumped (for crossover ratings of about BBB) but stayed low for triple A credits: http://img.photobucket.com/albums/v7...ditdefault.jpg http://img.photobucket.com/albums/v7...compressed.jpg So the faith in US companies is very strong (US historical defaults for 2007 are near 0, and are expected to remain there for the near future) still as seen both by the low spreads of corp debt over treasuries and by equity market rallies. The equity market rally and bond purchases have also helped to offset, in part (but not enough) the huge current account (CA) deficits we have accumulated. But before I go there, this is a good time to briefly discuss overall liquidity conditions globally (which have contributed to the rise in risky assets in aforementioned markets as well as gold, to be discussed later). Since yields have stayed low while economy has grown, business investment and all, overall global liquidity is very high with only a small (relative) pull back in subprime credit quality. US money supply (M1 & M2, which account for demand deposits and all sorts of cash type measures) has stabilized & grown respectively. NOTE: these are not good to trade off of but important to note: http://img.photobucket.com/albums/v7...oneySupply.jpg source: me & excel w/ fed data. So risky asset prices are very positively affected by this ample liquidity (including gold) Back to the CA deficits. We are near 5.75% of GDP in the hole to int’l countries. The capital account (KA) has shows remarkable strength with foreigners willing to continue to purchase our debts and drive money into our markets. http://img.photobucket.com/albums/v7...A1999-2007.jpg http://img.photobucket.com/albums/v7...s2003-2007.jpg http://img.photobucket.com/albums/v7...sofLTussec.jpg As noted though, the CA deficit is too big for the KA to finance so the currency has dropped against most of our trading partners to at or near record low levels (except of course Japan). Note that “official” bond purchases is basically east asian countries buying 10yr bonds, namely china. So the USD is at record lows vs. EUR & super weak vs. the GBP. JPYvs.USD though is weak (USD strong vs. JPY) as noted earlier in the thread (I recommended a purchase of JPY at 123.18 and even now at 122 and change I’d be bullish). These trends are nicely pictured here: http://img.photobucket.com/albums/v7...thedFXrate.jpg http://img.photobucket.com/albums/v7...currencies.jpg So now, that brings us to the point of this post: the gold market. Gold, historically has been treated as an inflation hedge, a store of value, a dollar hedge (more correctly, since the gold price is quoted in dollars, we’d expect to see an increase in the price of gold as the dollar weakens…historically that has been a 30% negative correlation which makes sense and I’d expect to be even higher going forward…though when it is traded off of is a different story), and most recently an allocation in portfolios by commodity seeking folks. This last part has contributed to the popularity of gold ETFs. So demand is strong for gold and supply is basically unchanging (though maybe slightly, though not significantly positively in the future…years). It is said (by the FT) that all the gold in the world can be melted down and fit into an industrial (large) container. So basically, liquidity & weak dollar have likely contributed to the run up of gold prices in the very recent past. The weak dollar has been pushed down further recently by the low expectation of rates and bad CA situation not offset enough by inflows via the KA. Gold has thus likely responded to the weak dollar more strongly than high liquidity (since that is fairly constantly known and experienced as high). Another aspect, which I have to respect, despite not believing, is the technical research & trading that goes on within commodity markets. Gold has runup huge though and I think there is room to move down once liquidity comes in and it becomes more important to markets. Unfortunately for me, there seem to be a “support level” judged by the moving average futures price of nearby comex gold at right around 6.46-6.a48 (2nd chart). NOTICE though, that a strict reading of those support levels would put it at around 656, rather than 646-648 where it appears to be. this goes to show that while support levels can exist for one reason or another, they can also go to hell (as in the treasury bond market where 5% was the level and it broke through to 5.3%... a big difference) http://img.photobucket.com/albums/v7...technicals.gif http://img.photobucket.com/albums/v7...espast2yrs.gif So while I am losing this bet right now (gold ETF at 64.22), and it looks more likely that I’ll, uh, not win it, I still hold the view that liquidity will come in and drive the price down despite technical support levels. So THAT is it…this is good that I lost the first post since I have came back and BOOM made a much more important post for my own summarized learning and feel better about it than I did the first one. Hope this helps, please feel free to shower me w/ questions and break my thoughts apart. Thanks, Barron |
Re: Trade ideas...lets see what we can come up with
some other thoughts/trade ideas:
1) latvia: read in the economist that they have a pegged currency to the EURO, huge growth, 8% inflation (up from whatever it previously was though), and a 21% of GDP CA deficit financed almost entirely by private bank loans (which are obviously used for consumption rather than investment). this is EXACTLY what i'd look for in attacking the currency. economy is moving too fast so they can't raise rates to cool it down. while "hot money" isn't moving in, there are flows that can reverse quickly and a massive trade deficit. no real investment in the economy and high inflation. that spells devaluation in the future, so i'd look for them to move off the peg. HOWEVER, i don't have all the info and i'd liek to research further via world bank & IMF site reports/studies on the economy there before going in guns blazing. it seems though that it is a candidate for the typical "consumption financed growth spurt pegged currency" dynamic leading to a devaluation. so im looking to short LATvsEUR [img]/images/graemlins/smile.gif[/img] 2) something interesting that you see over time is that, for some reason, decades seem to be good markers of economic/asset price cycles. this decade has been fantastic for risky asset prices as well as massive global growth and liquidity. what will the future hold? and will the turnaround come before 2010?? i'd bet on some at least stabilization and slight downturn...but will the decade market bring somethig more drastic from 2010-2012 or so? i guess we'll have to wait and see [img]/images/graemlins/smile.gif[/img] but i wouldn't mind writing an article about that, tracking the decade by decade movements for some publication (caugh caugh WSJ/FT) so if you have contacts, lets see 'em [img]/images/graemlins/tongue.gif[/img] Barron |
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