Proxy battle
Tuesday, March 27, 2007
It’s been another fairly quiet day so far as markets digest yesterday’s impressive mid session rally in US equities. Although the Nikkei had a bit of a shocker overnight, submarining Macro Man’s JGB profits, European equities have traded on the front foot thus far. Hawkish comments from the ECB and a robust ifo report have sent European fixed income lower; sadly, Macro Man never added to his profitable Euribor trade. At this juncture, it is probably too late to add until the ECB suggests the possibility of 4.25%. The keynote event of the week, however, will be Bernanke’s Congressional testimony tomorrow.
A quiet day like this allows Macro Man to reflect on trading methodology. Regular reader wcw asked yesterday why Macro Man did not sell a synthetic RUF index as opposed to the XHB trade that he actually executed. Setting aside the prosaic rationale of not being familiar with the RUF (Macro Man typically tracks the HBS index to monitor
However, Macro Man has come unstuck using less perfect proxies in the past. His recent experience with AUD/CHF and EUR/HUF ‘hedges’ on the long SPY beta position still sticks in the craw. Indeed, he is still suffering from a proxy battle: his long Goldcorp position has lagged bullion very badly indeed.
Indeed, Macro Man would not suggest trying to proxy trade Series 1 below with Series 2. An ancillary quiz for those interested: anyone who can correctly identify the apparently correlated series in the chart below will win an actual prize (to be determined.)
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