Looking Ahead

Wednesday, August 26, 2009

The fun just won't stop, will it? It's been a bum-clenchingly slow day today, which follows on the heels of similarly uninteresting days over the past week or two. Add in the fact that asset prices don't appear to respond to fundamental news (at least as Macro Man understands it), and you have the sort of classic August meandering that used to characterize the late summer before the onset of the financial crisis.

There doesn't even seem to be much point in short-term trading at this juncture, as the playing field is far from level. The security cordon around US data used to be pretty tight, but yesterday's consumer confidence figure was leaked, to the exact decimal place, several minutes before the official release. Perhaps the IRS will send Macro Man a pair of cotton khaki trousers with his next tax return, because it certainly feels like the US is turning into a Banana Republic.

Then again, given yesterday's budget projections, maybe not. Perhaps Big Ben can underwrite a new pants program sometime in his second term as Fed chief.

Anyhow, given the lack of action, interest, and predictability in today's market, it's perhaps worth looking ahead to September, when punters and fund managers of all stripes will be back from holiday and investment flows will be driven by rationales more compelling than "which stock has the lowest price?"

Now, normally, Macro Man could and would compile a list of favoured themes for the last four months of the year and try and figure out the best way to play them. Perhaps he has been numbed by the Novocaine of recent market lassitude, or perhaps his underlying belief in a noisy Q4 (as Lehman base effects and the inventory cycle wreak havoc on comparisons) is dominating his worldview, but he's struggling to come up with exploitable themes with which to go for it into the close of the year.

Sure, he's on board with the "lower for longer" game in front ends, though he expects quite a bit of vol in the reds in coming months. And while Macro Man believes that there's a good risk that the wheels come off of the Chinese equity "miracle" after National Day on October 1, that's a view that he's content to trade once he sees that it's actually materializing.

Other than that.....there's not much. Currencies are such a wasteland that Macro Man half-expects T. S. Eliot to start covering him. The further out you go in the yield curve, the less conviction he has in forecasting...hell, he can't even explian what he's seeing in real time! Perhaps there's an argument to start paying EM rates in certain sectors, though if Macro Man's "double dip" thesis is correct, that trade won't look so clever. Commodities? Macro Man's always been a tourist there...and given the surprise of the squeezes in, say, the base metals, a foray into these markets looks about as atttractive as a holiday to Flint, Michigan.

Maybe Macro Man just needs another cup of coffee this morning, or maybe he just needs to get August out of the way to focus his attention. But right now, his crystal ball is looking decidedly cloudy. So he throws it open to readers: what are your favourite themes and trades for the rest of the year?

Posted by Macro Man at 8:51 AM  

42 comments:

Favourite trades in fixed income. Puts or put spreads on June Eurodollars, 98/97 put spread for example. Maybe also some cheap Dec9 structure to play for some LIBOR/OIS widening on back of FDIC and Fed disclosures. Something to position for sharp back up in rates, Oct TY 113 puts should do the trick.

Anonymous said...
9:53 AM  

All silliness aside, my PA ideas on lithium have paid off: check out ORE AU and LAT CN. Needless to say I didn't think the Bolivia cash-in-suitcase trade was worth the trouble.

Also, when the hell is the yen going to go somewhere sensible?

Nemo Incognito said...
9:58 AM  

Oh, and I'm all about the December trade war trade. Long US Steel vs Baosteel, long Alcoa vs Chalco. Wait for the news to pick up first though.

Also, viz all this carbon trading, International Power's brown coal assets will be toast in Australia in 6 months time. Not sure how much of that is priced in.

Nemo Incognito said...
10:01 AM  

I consider the pound as a proxy for the health of the oversized financial system and see it at parity to the euro. So I will first short equities and as they get ugly, closing equities and start shorting bonds.

Anonymous said...
10:09 AM  

Aggressively long (have been since mid-July) particularly telcos, Japanese and US steel, autos and even financials. We're seeing a massive restocking bounce - inventories have been emptied and they have to be refilled and despite the debt overhang I believe developed market consumers will follow on with increased demand. Big risks/unknowns: China - can they hold off economic apocalypse before demand recovers? how willing is anyone (consumers/companies) to spend given the volume of outstanding debt? what if stimulus/QE effects work off before the patient has recovered? if commods spike up too far then they'll ruin the party. Howvever right now you can get cheap money, commod prices are reasonable, PEs on equities are balanced and there are still some great value plays out there - all the conditions for this bounce to go further. And long the VIX as a hedge - not expecting Sept to be a smooth ride.

Currencies: harder to call. Long sterling???? ( against EUR??/) The yen ought to be tumbling right now but it's been remarkably resilient. If this bullish thesis is right then EM currencies vs US and long AUDJPY could be the way to go. BUt right now that's difficult. Perhaps JPY will resume normal service after the election.

Anonymous said...
10:16 AM  

It may be a coincidence, but the global industrial production growth momentum (3mth % ann) is likely to peak around September or October. That will probably signal the peak in the re-stocking trade, in my view. Equities, particularly global cyclicals, have rebounded hard on the inventory cycle (the same thing occured in the early 1930s) but will probably correct sharply once momentum fades again. Particularly if end-demand remains weak.

On currencies, the GBP appears to be on the knife-edge of a major move down agianst the dollar (I guess that may depend on your dollar view). Sterling has broken the recent uptrend (there was also confirmation in a MACD divergence). The fundamentals are also clearly poor and there is no interest rate support relative to the dollar.

The view has nothing to do with our loss in the cricket by the way :)

Skippy said...
10:30 AM  

I can only speak technically but I agree with anon ... short sterling vs CHF (to 1.64) and vs USD (to 1.52) and Yen to weaken.

Nic said...
10:35 AM  

buy european small & mid cap shares. the level of exposure to european market is extremely low at retail and institutional level (not as much the case in US and UK i don't think). Allianz had 300bn Assets under management. 30bn is exposed to equities. not nice to be in fixed income/money market when ECB says it has to raise rates. European stock market on one of biggest to US market in 20 years. and the socialist european model (ex out the smaller spain, ireland, portugal, greece mess ups) seems to have worked well. Europe the first to emerge from recession? there's even some positive stories coming out of Eastern europe now.....

Anonymous said...
11:05 AM  

Buy plastic pint producers and short uk healthcare

Anonymous said...
11:12 AM  

Buy EUR/CAD on the reversal in crude and the BoC starting to jawbone against currency strength.

Anonymous said...
11:23 AM  

Long vol in stocks.

Crisis Management said...
11:25 AM  

China comments on curbing excessive investment might spark these mkts into some life

Anonymous said...
11:29 AM  

Long japan steepener short euro steepener

Anonymous said...
11:43 AM  

short strangles in wti, sort of $20/bbl otm each leg. Put skew still holding while vols firm in high 40's till mid nxt year. Scenario: wti to trade range bound for a good while.

Anonymous said...
11:48 AM  

Anon at 1148 - selling vol in quite a few things looks sensible.

Nemo Incognito said...
11:54 AM  

MM,

I also have the full remit of Dec 09/Mar 10 on hold plays.

Waiting for better levels to reinitiate flatteners / midcurve upside.

Base metals a complete crapshoot to be avoided - should be lower on current fundies but peeps nervous that we see a restocking/inventory-led squeeze higher.

I want to be short crude s-t, long crude m-t, have quite a nice structure on here.

Equities - currently flattish. Thinking lookback puts could be interesting but haven't checked pricing.

Something always turns up!

Bonne chance.

Anonymous said...
11:55 AM  

Re: TSE

Once with my own eyes I saw a British pound hanging in a cage in the City. When the traders asked it, "Pound, what do you want?" It said, "I wish to die."

August is the cruelest month.
Breeding stop hunts out of the low volume

Not up to your usual standards, MM, but perhaps a start

But What do I Know? said...
11:58 AM  

Not original but...
US bond yields definitely seem to be falling.  This contradicts the "feel good" mood in the Dow.  If equities swoon the Dollar would probably rise, along with the Yen. 

A stronger Dollar and lower bond yields helps the US Treasury sell their debt, and they have bucket loads of Treasuries to sell.  

Given that the markets are being manipulated this scenario would seem to suit them best so they might be quite prepared to let equities go hang.  And of course GS et al would be ahead of the game.
Just a thought..

Donlast said...
11:59 AM  

I like USDZAR as alternative to crude ... ZARUSD and crude very correlated.

Nic said...
12:15 PM  

Equity indices: long gamma. Very very long gamma.

Anonymous said...
12:22 PM  

asian stock markets rolling over, been on an aggressive bull market in the likes of taiwan, korea, india, china over past 6 months. Most of them rallying longer than developed as bottomed last year. Rallied enough, look rich, will take yrs to reach former peaks in revenues as exports weak, 30-40% drop would be par for the course based on past

Anonymous said...
1:13 PM  

long CAD (probably AUZ too) on the dips

nice trend in the dailys... CAD aint going below 85 cents again for a while

Anonymous said...
1:26 PM  

I expect the dollar to start its strengthening period in the next few months. I think euro is ridiculously overvalued.

Anonymous said...
1:46 PM  

Hmm. Nothing has changed my deflationary view, in that case I look for setups to:

long TY or US
short commodity currencies
short sterling
long gold/short silver/base metals
long gold stocks
and maybe short equity indices

Anonymous said...
1:47 PM  

Pay Brazil. You could also tag on a USDBRL short if you think the FX risk-on has been a bit overdone and want to hedge out of some of the debris.

Cornelius said...
1:49 PM  

€/£ parity - UK VAT raised to 20%, base inc tax rate to 24% and still only raises £25 billion of the £80bn needed to restore sobriety - summer of limey discontent ahead great shorting opps

German co's embark on wave of corp layoffs that boost 2010 eps to the upside

RUR devaluation to drive competitivenees in Q4

INR convertibility mooted and huge wave of IPO issuance by New Delhi about to leave the starting blocs

Anonymous said...
2:34 PM  

Long USD:GBP, USD:AUD and USD:CAD
Short EUR:JPY.
Long TLT and SHY.
Short GLD and SLV.
Short wtic, XLF and OIH.

A pure deflation/deleveraging trade, an echo of 2008. Nothing clever here.

Anonymous said...
3:12 PM  

honestly if spoos can't rise much off the back of that housing data it is not going to take much to pull it down. Selling calls.

Nemo Incognito said...
5:16 PM  

Buy RMB NDF straddles. Vol has collapsed, but RMB may not stay pegged forever...

Ian said...
5:44 PM  

sell sterling - The BOE have highlighted exports as the only glimmer of hope - in this intervention world it will weaken - hook or by crook.

Anonymous said...
5:47 PM  

Housing data in the US - big surprise it beat expectations. Amazing what $8000 handouts do.

Anonymous said...
5:59 PM  

all aboard the end of summer pain trade ...
ust's sub 3.40% and usd breakout rally ... bouyaaaaaaaaaa!

art vandelay said...
7:30 PM  

i like
uyg oct 6 call
and
uyg oct 5 put

Anonymous said...
7:36 PM  

i like
uyg oct 6 call
and
uyg oct 5 put

Anonymous said...
7:36 PM  

I can't believe you have been bored the last times - you should trade more Emerging Markets!! I haven't had such fun and action trading in a couple of months as the last days. Bank of Israel hiking interest rates, 5v10 curve flattening by 50bp in 2 days and USD/MXN plunging 2% on the day are just some of the moves that have happened. After a really boring months I have seen hedge fund activity picking up like crazy (I am an EM trader in a London bank). Really can't believe you are bored, especially now when it is so uncertain if we will see a crash or another crazy rally in Sep.

Anonymous said...
9:15 PM  

- 1 year out calls on select grains
- short 10yr gilt (eventually attention will shift to public deficit & smaller than thought output gap, rising inflation)
- gamma (as somebody mentioned). calendar spreads to get long gamma and short long vol.
- short JPY.

I'm a newbie. hello and thanks for listening.

Deniz said...
9:35 PM  

long Aussie Bank Bills end 2010/early 2011

You have some RBA rises priced in there. If we get another leg down in 2010 and/or the China bubble gets pricked one could make a bundle.
Downside: I am curious to see how far up they raise rates without the Western World joining them. Aussie Dollars would go above parity to the US one.
Some liquidation selling Friday and Monday for timing.

H for today said...
9:37 PM  

Bought a Turtle pie at Wal-mart yesteday, 5.36 USD. Pretty happy with that.

Other than that still sticking with my post Green Shoots positions of short long treasuries via TBT, and relying on Templeton Global Bond Fund to pick thru global currencies and soveriegn bonds. That happens to be mostly BRICs, other Asian places, I think still Sweden and Norway, nothing British, and short the Euro.

Was feeling pretty good about these positions the past few months, but a double dip and/or return to risk aversion will toast this portfolio as well.

Still have cash too, so I may diversify into a Key Lime pie towards the end of the week.

Thought about shorting the yen, but it is 94 to the dollar, along with a yield curve flatlined near zero, a new trade deficit, and a recent pronouncement by the IMF that they will be technically insolvent by 2014 with a debt/gdp ratio of 240%. Presumably the massive personal net worth of Japan is still huddled safely at home in a checking account. This convinced me that whatever I thought I new about economimcs must be wrong, so now I'm afraid to do anything.

Cedric Regula said...
10:44 PM  

Deniz, ouch. Short gilts, short yen? I suppose the trend is not your friend.

Crisis Management said...
2:33 AM  

mm- u know im young... but this fucker has got to crack right?!...
like look at euro yen... crude
comeon

mpm

Anonymous said...
5:23 AM  

For those who have not seen today's news out China. The State Council has decided to take measures to control overinvestment in selected industries. In my view, this is significant and negative for Fixed Asset Investment (commodity demand). It appears that the strong growth in FAI and loan growth has spooked the authorities' and led to concern about over capacity.

There has not been too much impact on local equities or commodity-linked equities and currencies as I write, but there probably will be after the news sinks in.

Nemo may have more colour, but a short AUD looks like the right trade in my view.

Skippy said...
5:42 AM  

Skippy - correct. In addition, if they are particularly referring to the steel and ali sectors the following shorts look good:

Chalco: See the blog. I hate this company.
China Steel Cos: Same reasons, overcapacity, yada yada.
Vale: Iron ore and nickel. Short short short.
Xstrata: Coal, nickel, random other. Short.

Metals:
Nickel: primarily used in stainless steel and hardened steels.
Iron: Maybe you can get some sexy otc action but hard to short. Ditto coal.

And of course, AUD, the currency that rides no more on the sheeps back, more a bulk cargo carrier filled with met coal and iron.

Nemo Incognito said...
6:44 AM  

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