Wednesday, April 06, 2011

High conviction losing trades

So the first thing TMM have done is tattoo their own 2011 Non-Prediction "USDJPY will not be easy" to the back of their hands...! So much for trying to do the reverse of catching a falling knife. AUDJPY started well but has since Edward the Seconded us.

To be honest, TMM are suffering from Bloggers block and are finding it hard to coherently tie all the strands of what is going on together today. Made all the harder as these strands in other markets would be considered bloody great steel hawsers. Though surviving March due to their generally constructive view of US equities, TMM cant decide whether there is a new direction in flow developing or whether we are just seeing independent eddies on a slack tide. Today's data releases form the UK and Switzerland are added twisted swirls in the patterns.

Is the DGDF uprising going to succeed? The DGDF freedom fighters are now being supported by GGUF air cover today and have pushed forward into new territory. We just don’t know if next week will see the pull back but one thing has been noted in the market's rules book: the Dollar is no longer a knee-jerk buy on global stress.

TMM are also seeing that more and more of the metals complex is being assimilated by the China negative real rates Borg - anecdotal stories of gold demand and 10 ton orders in silver are making us think we don't want to step in front of this one. It appears everyone is selling apartments to buy metals. Platinum is also remarkably robust given the weakness in auto demand in China and the interruption to 20% of global demand in Japan. But it isn't just metals, how about this for bubble mania, Stanley Gibbons, the stamp collecting company, has almost run out of Penny Blacks after a Chinese company placed an order for 10,000 of the world's first sticky stamps."We normally sell no more than a hundred penny blacks in any given year so this trade order creates a demand 100 times the normal market size," said Mike Hall, philatelist and Gibbons' chief executive.

TMM are well aware China can stay insane longer than we can stay solvent and we aren't inclined to step in front of the bus...

...and rather than ramble on, will leave today's post at that.

15 comments:

Anonymous said...

Perhaps i am mistaken,but I sense as this UK tax year opens that the message has finally arrived.Cash and low risk reward bonds are just not going to match up to higher risk investments when it comes to offsetting central bank policy.
I've noted of late more than one cautious fund manger starting to make noises that he will have to accept more risk. Arguably this to me means we will finally see the moneyflow turning to equities in a way it has not done so far. never has an equity/risk rally been so 'hated'. So this may go quite parabolic with the risk averse climbing onboard ,but of course when those new highs keep popping everyday we should be selling into them ,no?

Nemo Incognito said...

Anon for that trade I think the guy in Omaha has it right - get long monopolies which can justify price hikes but actually don't have a lot in the way of CPI sensitive variable costs. Railways and telcos seem a good idea to me.... and especially telcos in countries that are coming out of the Europocalypse (TEF US). Even the banks look cheap there - with at 10% div yield you get paid to wait for the country to rerate. The whole gold / mining thing has been great fun but feels really overextended and absurdly consensus. All it would take is China shitting the bed and you'd be drawn down 20% in a month.

Anonymous said...

Bunds look cheap?

http://globalmacrotrading.wordpress.com/2011/04/05/g3-recap-4-05-11/

FX said...

Start dusting off those pink flamingos, TMM, there'll be enough front gardens to invade in the middle of the night to appease any investment committee.....nah forgetit,it may just end up being broadlight robbery.

Leftback said...

My flamingo du jour is crude. Here is a contrarian view:

Added to crude and EM shorts this morning.

There is now a massive lake of crude in Oklahoma. Crude backs off, dollar rallies, tomorrow USD rallies some more as ECB hikes (sell the news). Euro selling, USD and JPY carry unwinds. Brazil and Russia decline on oil, more unwind, energy, miners and materials are a sell. Any more Asian tightening this week, more unwind....

FX said...

WoW!.....that's in the middle of teh night hit,LB.

Anonymous said...

I am not sure about selling on news this time, LB. Remember last Nov when Fed plans QE2, selling on news certainly was a bad bet then, probably is a bad bet now.

Bob_in_MA said...

Stocks in Cushing are actually down slightly from a year ago and way down from last fall when compared to the 5-year average.

I think the oil price rise is real supply/demand. The forward carry trade must be winding down some as the forward curve is fairly flat.

I think this might be partly responsible for the WTI-Brent spread widening. Carry trade unwind is adding to supply, mainly in WTI. While Libya is subtracting from supply in Europe. I have no evidence to back that up, it's just pure conjecture.

And agriculture stocks are at historic lows.

Metals may be driven by speculation, but the Chinese market is so distorted by bizarre incentives, who knows how long it will go on?

Nemo Incognito said...

Bob I give up on metals - and as for ags its way more fun as a carry trade (cotton at 30% annualized, though for the brave its hard to be long the front end here).

In things like Gold, AUD etc it just feels like a parabolic melt up, a bit like 08 in metals etc. I'm not going to trade what I think is the last 3-4 months of insanity.

Leftback said...

FX: Shot in the dark is what I think you mean..?

To clarify, we are not bearish or short US equities, and we are bullish US dividend-paying stocks (like Anon 2:43 can't see why they are hated). However we are quite bearish emerging markups here, on concerns over inflation and increasing evidence of slower growth in China.

We also think that the DGDF/precious metals/ag trade has become entirely too one-sided, is highly leveraged and extraordinarily flamingo-laden. Nemo at 2.53 expresses my thoughts on these sectors quite eloquently.

By "Sell the News" we intended to convey "sell EURUSD and perhaps EURJPY" on the news tomorrow, as was suggested here by someone else yesterday, but not necessarily US equities.

Leftback said...

Bob, with respect, TMM have made the point here that Libya is a very small supplier on the global market.

If we allow ourselves to consider the fact that China growth may be slowing and a large part of Japan's industrial capacity is going to be off-line for a while, then what we see is slack demand meeting what is actually realatively unconstrained supply.

Now add a component of demand destruction as US drivers look at $4 $gaso and ride the bus, and there might be a surprise in store for crude bulls. If Gaddafi karks it*, you might be looking at $15-20 off crude in a week.

A more detailed discussion of dynamics of $wtic can be found here:

http://www.econmatters.com/2011/03/no-more-storage-in-cushing-wti-will-be.html

*http://onlineslangdictionary.com/definition+of/karks+it

Bob_in_MA said...

Nemo,

I generally agree. I've been wondering if we may have been headed for a downturn in 2008 just on the commodity spike, even if there had been no financial crisis. I am long commodities still, partly because I think the will run until they cause the pain to kill demand.

Michael Pettis has said he thinks China's "nine-men-in-a-room" will be stomping on the gas pedal again soon and the reckoning put off. This is the last year in power for the current regime, and they might not want to leave on a sour note.

But eventually, they will crash and metals, too.

Leftback,

Re Libya, that's just my point. I don't believe the current rise is because that 1-2% is offline. I think it's because the number of autos on the road in China (and India, Brazil, etc.) is rising at 5-10%, plus the oil produces are using an ever-increasing share of production. World GDP is growing 4%/year, and is skewed toward countries where oil consumption/GDP is relatively high. That's a lot to bet against.

The supply at Cushing is being swelled by new pipelines and a lot of oil from Canada.

To say Japan's industrial capacity is going to be off-line is a pretty silly exaggeration. And the fall-off they do have will be partly offset as oil replaces some of its nuclear capacity. Germany, too, is taking reactors offline.

Base metals may be a bubble, the case for ag and oil doesn't seem to be based on any pie-in-the-sky arithmetic.

FX said...

LB,only last week I was all for the Euro fatigue trade,that would've blended in nicely with your short Oil, I now fear that, short term EEM inflation fears may enter the same sphere of "incremental gestation",similar to the PiGS story,(working out nice there hey Porto).....UK is a different story(this time it is different!)....."shot in the dark".....not yet.

Jim said...

Don't be too aggressive with risk in here - remember the main theme that's gone unnoticed in all of this turmoil - QE 2.0 and it's end.

Anonymous said...

The 'winner' in commods of the japan nuclear disaster will be natgas. But not in the US, which natgas wise is living on an island with its own pricing dynamics. The winner is natgas spot deepsea ( aka LNG ), natgas pipeline ex-Russia and other origins and possibly even LNG carriers: the ships you need to take to Asian + other markets. So go long far down the curve anything LNG, but an international index.