Portfolio post-mortem

The good news:

Trimming short equity and short dollar risk was the right thing to do.

The bad news:

The remaining equity longs aren't big enough to offset the losses from short equity and dollar positions, taking the since inception P/L fairly deep into the red.

Why has the dollar strengthened so much today? The simple answer is the market has digested the last week's worth of data and concluded that maybe the sky isn't falling after all. Of course, if Voldemorts of the world has decided to pay 1.32 or 1.33 for an infinite amount of euros, this wouldn't have mattered. However, it looks like the sinister bid has been pulled for the time being, and weak dollar shorts are getting chucked out.

Is this the big turn? It's too early to say. It's worth noting, however, that the Citibank technical analysts have gone long EUR/USD again today- given their red-hot performance of the past several months, Macro Man is inclined to follow along by maintaining short dollar risk here.

Adding to a losing position is not Macro Man's cup of tea, so he won't be doubling down on short dollar risk. Nevertheless, he has a sneaky suspicion that there remains a spurt higher in EUR/USD before the end of the year and wants to be along for the ride.

Elsewhere, Goldilocks appears to have the three bears in some sort of figure-four submission hold. Equities are roaring, bonds drifting lower, and FX carry remains uber-bid.

The SNB cut its inflation forecast today but then moaned about CHF weakness. Uh...fellas, do you think there's a correlation there? Tonight's Tankan survey in Japan could prove to be either gasoline or a wet blanket on the en fuego FX carry trade. Tonight will tell the tale.

The sooner Macro Man finishes his work on the 'beta-plus' FX carry basket, the better. However, December means Christmas lunch season, and Macro Man's presence on the desk will be spotty ove the next week, after which he retires for a well-deserved year-end break. Hopefully the carry study can be completed and posted by then. If not, at least it's something to look forward to in the new year!

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December 15, 2006 at 9:50 AM ×

circulating today..

Twas the night before Christmas
And all through the land
The euro was bid
By an invisible hand

The bids were all layered
A bit lower with care
In hopes that BOK, Russia,
And SAFE would be there

The carry trades nestled
As snug as could be
Why worry with VIX
Single digits, can't you see?

But then on the desk
There arose such a clatter
I answered the phone
To see what was the matter

When what to my wondering
Eyes should appear
But an FX broker
And two pints of beer

I could tell from the motions
And gestures he made
He didn't just want to talk
He wanted to trade

More rapid than eagles
His ideas they came
And he whistled, and shouted
And called them by name

"Now Nokky! Now Stocky!
Now sell dollar yen!
The pound's overvalued
I'll say it again!

The dollar is toast!
There you go, now I've said it!
So buy RKOs
And I'll get sales credits!"

And then, in a twinkling
The phone rang some more
The broker that called
Was, quite frankly, a bore

As I started to yawn
And was looking around
Down the phone his ideas
They came with a bound

They were rubbish, each one
Because he didn't know
That the only important thing
These days is the flow

Central banks- where they bidding?
And please- no more games.
Can we quit calling these guys
By ridiculous names?

"Long term real money"
Or "Quadruple A"
We get a new nickname
Just about every day

The broker was plump
And one of those dudes
Who spends most of his nights
Getting stuck into the booze

A wink of his eye
And a twist of his head
When I asked for a price
Soon filled me with dread

And then, sure enough
His offer had shifted
And when I asked why
He said "we just got lifted"

So I thanked him (politely)
And hung up the phone
(But only after I'd had
A sixteen minute moan)

And so, there you go
There's '06 in the bag
A year that's seen
Very few customers brag

Let's hope that '07
Brings a better day
And that all of the central bank
Guys go away

To give us free markets
And more volatility
Is it just a dream?
Or a real possibility?

And so let me wish you
'Ere I start drinking beer
Happy Holidays, all
And I'll see you next year

Macro Man
December 15, 2006 at 10:31 AM ×

Yes, I got that too. Very amusing...think I will just use that as today's entry.