Redux Friday

There comes many a time in a Macro Boy's life where there is not much to do and no new ideas come immediately to mind. 


During these times, one can trade tactically or just sit back and keep hoping that core positions keep working. So Let's take this Friday to review some core positions.


Short CAD:

• The short CAD trade got a bit too crowded. 
• Crowded positioning doesn't automatically mean there will be a move in the opposite direction. But it does mean we are in for some chop even if we are right.
• We saw some unwind during the week. I took the opportunity and actually put on the bulk of my position two days ago. I will be curious to see where the upcoming CFTC positioning show at the end of the week.
• I keep wondering if CAD is the best way to express this housing bubble trade - I don't know...We shall see.

• Canada (British Columbia) has elected to move very far left politically Read It Here
• What does this mean? Well for starters, spoiler alert to what the world would be like if Bernie Sanders or Elizabeth Warren gets elected in this country. *shudder*
• How does the political far left feel about housing bubbles? Clue: like a teenager with an itchy zit. Read It Here
• This should be interesting. We might come back and discuss this on a later date.

Crude Realities (Short Crude):

• Crude was chopping around when I last wrote about it. But any chartist would see that it was making lower highs and lower lows.
• We had the OPEC meeting where they officially announced an extension of production cuts. Markets got slammed by 5%. Oops.
• I put on a sizable oil short during that session
• Market share, market share, market share...
• I wrote it before and I will write it again. OPEC, who by the way is infamous for internal cheating, cannot sustain cuts (at least that's my bet) because of market share.
• Then, Libya production was the news du jour - crude proceeds to sell off
• Then, huge crude inventory draw - crude first gets bid but ends the session lower 
• When price and headlines diverge, it's the market Gods' way of telling you that something greater is at work
• This is where I should be stepping on the gas, but my position is already big enough.

• Just for kicks and giggles, there's a demand side of the story too for crude. Has anyone seen these auto sale numbers (last printed a couple of days ago)? And this is before I massage the data to adjust for vehicle fuel efficiency. 

Carney The Cable Guy (Long GBP/Short Sterling Steepener):

• Bottom caught that one and it has worked out well. 
• The last couple of days GBP has slipped on election worries, as the market thinks Theresa May's party will be winning less of a majority than previously anticipated.
• To me, that's all noise. If you're feeling a little bloated from this position, cap some profits. If not, probably better not to mess with it. 
• If GBP falls, I see that as a buying opportunity. (Unless something unfathomable happens, election or otherwise)

Food For Thought (Long Wheat/Soybean Ratio, Long Grains):

• Direction bet has not done well. Brazil's currency shock from a few days back really hurt the beans market. 
• Weaker currency allows them to export more. 
• Political uncertain somehow is also incentivizing farmers to sell more? (not sure if that makes sense, but definitely remember reading that somewhere...)
• Looking at stockpiles/production/etc. for beans - although it's already extended, we can still easily go higher (there is even historical precedent)
• Overall, grains going nowhere - maybe even slightly lower

• I'm still a believer in the big move in grains (especially in corn and wheat). But the timing was definitely wrong. Maybe next year's crop.
• The spread has worked. I am a believer here, but a bit concerned about the cost of blindly rolling. But in the meanwhile, there are probably a few hundred more bps that can be squeezed out of this position.

Long US Duration (Long End):

• Thank you, Mr. Leftback
• I was originally a major proponent of the reflation mega-theme (something that I used to think (and maybe still do) that we were at a starting point and would transpire over the next 20 years)
• Covered my UST short back in mid-March. 
• Was too shocked to go long. 
• Went long duration in early May and then covered 3 weeks later
• Put on another long position a couple of days ago
• Chart-wise, it looks really good to be on the long side. Regardless of the upcoming jobs number.
• A hike in June is all but a done deal, yet long end keeps getting a bid? Hmmm.

• 2s10s keeps flattening - if the Fed stays pedal to the metal on the short end, are we going to go inverted? I think very possibly.
• I think 2s10s flattener and 2s5s vs 10s30s box can both be chased here. Something I'm keeping an eye on.
• US BEI curve is also flattening - another thing that I'm keeping an eye on, waiting to see if this thing goes inverted again.

Long Equities (Long Turkey, EM, Europe, Some US Equities):

• Small positions for me, so kind of a yawner
• China is rolling. Both equity index and currency. The currency move was interesting - noted by our very own Macro Man, it was a record move since the RMB reference basket mechanism was introduced in 2015.
• Macro Man says he needs more data. Personally, I smell policy move.
• Turkey continues to be rolling as well. 
• Think Brazil in beginning of 2016 and Argentina in the beginning of 2013. 
• The market is often early to discount. Buy when there is blood in the streets.
• Brazil is really interesting to me - I have strong feelings about meaningful reform taking place - I think this is could be a tantalizing chance for you to go long BRL and Bovespa - No dire rush yet, will do more work on it and discuss this in the future.

• Merkel talking up the Euro economy, while everyone is underweight Europe
• Same concept as going long EM. This will probably be a big long-term theme. Need to get more long.
• The underperformance in the US has not materialized much against EM but should occur in the second half of this year. The US has started to underperform Europe.

• Underweight the US, but still long some stocks out of general obligation.
• Really liked the price action yesterday in Russell - seems like it's going to break out a long-term consolidation
• Another market/chart truism: The market doesn't give you this much time to sell the top. We've been floating around for awhile, we are probably going higher. 

Wow. That took longer to write than I thought.

Well, TGIF guys. Good luck with the jobs and trade numbers.