Friday, January 26, 2007

Conversations with myself

Ok, wiseguy. Thought you were a genius, didn't you? Got a little smug when the P/L zoomed higher with the stock market. Thought you had the carry trade played perfectly. You even thought Merv the Swerve had bailed you out in short sterling. But you took the biscuit when you showed me a chart of vol at all time lows.

Well, the joke's on you, bozo. You've gone from a tasty positive back down to negative on the month. When you were counting your winnings from the long SPY, didn't you notice that the 'breakout' was accompanied be negative divergence? Dont you know that that is normally a big red warning sign?


Easy, tiger. The long SPY is a beta position- it stays there until and unless stocks get expensive relative to bonds. And I keep it that way so I don't have to worry about daily swings and moaning from the likes of you. Where you might be able to criticize me is on the Goldcorp. I said I was gonna take some off at 28, then got greedy and left the offer at 28.25. For the potential benefit of an extra $25k, I ran the risk of not getting filled at all- which is what happened. The high was 28.16. Mea culpa.

In any event, I remain underinvested in the beta plus portfolio. I only have 1/3 of the FX carry trades on and 2/3 of the equity position. So really, I am only carrying 1/2 of my alloted beta risk.

And I'm doing that precisely because I am concerned. I am not short bonds, but man, that price action is awful. More worrying is the recent uptick in inflation breakevens. I think that yesteday's equity and EM weakness was a direct result of the breakout in the breakevens. As you know, breakevens give us a pretty good read on volatility- and it is pointing higher.


The daily swings in P/L suggest that we've got plenty of risk on at the moment. Bonds are at a pretty critical level here and seem to be pausing for thought. The central bank bid seems to have vanished just as the street was starting to lean on it, so we've had a nasty squeeze. Meanwhile, the US economy continues to tick along nicely- new home sales were the highest since April! Curiously, the very piece of data that should have sent bonds over the edge have met with, surprisingly enough, a small rally. Could it be that bonds are already catching a safe haven bid, which could in itself be sufficient to right the leaky risky-asset ship?

We need more data. Let's stay pat, leave exisiting orders (reflecting decisions taken during the cold light of day) in place, and see how this stuff closes out the week.

OK, that sounds like a plan.



1 comments:

Anonymous said...

"It would be difficult to exaggerate the psychological and social impact of the anticipated replacement of the jumble of existing monetary systems--for many, the ultimate fortress of nationalist pride--by a single world currency operating largely through electronic impulses." ... so you wanna know the markets do ya? ... well be prepared tires ain't pretty ... European Central Bank council member Axel Weber said investors shouldn't expect central banks to bail them out in the event of an ``abrupt'' drop in financial markets.

``If you misprice risk, don't come looking to us for liquidity assistance,'' Weber said in an interview in Davos, Switzerland at the annual meeting of the World Economic Forum. ``The longer this goes on and the more risky positions are built up over time, the more luck you need.'' ... The catalyst may come in Japan ... ``Global liquidity will dry up and when that point comes some of this underpricing of risk will normalize,'' according to Weber. ... so where does this leave us ... location location location ... due to fractional reserve banking it is possible for the usd to be considered scarce ... ... voip{think nttl.ob} has made the traditional telco obsolute {at&t nationalized? ... along with oil [eck] ... and gold/silver mines ... those that don't get nationalized will dry up due to lack of funding} ... china goes to war {they killed the fetus girls now they got too many males "imbalance sex ratio"} ... mbank {nokia/visa} did away with national currencies {hey we only need one clearing house right?} ... usa/uk made the central bank of iraq independent (now we're talking love that dinar) ... "It would be difficult to exaggerate the psychological and social impact of the anticipated replacement of the jumble of existing monetary systems--for many, the ultimate fortress of nationalist pride--by a single world currency operating largely through electronic impulses."