short the dollar? a bit late but sure if you have to!

The train has left the station a bit but it would be interesting to see what other countries do.
USDJPY has sold off by 2 to 3% over the last few days. The EURUSD has also rallied similar amounts.

I would perhaps go long the momentum for a bit but not too crazily....
Will think about it more and post.

I am more worried about the long term inflation...

Money market funds are getting the money

The money market funds macro-group (+$121.6 billion) was the only macro-group attracting net flows in November, while stock and mixed-equity funds handed back $26.4 billion and bond funds
witnessed $16.7 billion of net redemptions.

- Large-cap funds (-$4.7 billion) continued to be the flows pariah of the U.S. Diversified Equity (USDE) funds group, despite posting better returns than the other capitalization groups during the month.

- In November the Mixed-Equity Funds macro-group (-$4.6
billion) suffered only its fourth monthly redemption since July 2002. The mixed-asset target horizon funds group (+$1.9
billion) could not make up for the net redemptions witnessed by the mixed-asset target allocation funds group (-$5.5 billion).

- In November the World Equity Funds macro-classification recaptured the claim to shame of having the largest net outflows of Lipper's major equity macro-classifications, handing back $11.2 billion.

Auto Companies

My thoughts are these wranglings are going on because all the parties concerned feel that the companies WILL be rescued any way....
However, investors didn't fall into as much of a panic so far today...VIX has mostly fallen today from 59 levels to 55...
Let's wait and watch...

Short BRL?

One of my friends from Brazil sent me this note on the Brazilian Real... This short BRL trade may be worth doing simply as a hedge against your long stock positions...
Capital Flows out of BRL
1. the process of portfolio realignment is not over... capital is fleeing and this process is correlated with bad news there (investors taking money out to cover theirs obligations abroad or just to buy safer assets in other places)
Commodity Prices
2. Price of commodities (main Brazilian exports) is going down, which is also reflecting on balance of commerce (this effect tends to be greater than benefits to increase the volume of goods exported - given that the world is not buying so much). This means that the adjustment on the balance of commerce will be slow, and for the next year, the balance tends to be negative...Also, the balance of commerce is sensitive to Embraer exports (aviation company), which, under the current scenario, has not received many requests.

Central Bank
3. The Brazilian Central bank has signed that it will not increase interest rates (which attract foreign investors) since inflation is under control . Although the rate is high - 13.75% - this is not historically very high (we had long periods recently with the basic rate in 17-20%). In the last meeting of the monetary policy committe the rate was mantained and the head of the Central Bank indicated that changes in the near future, if any, will be downward (also, there is a lot of political pressure from politicians afraid that we go through a recession...)
My comments: The investors may still flock to the Real for the high interest rates if they don't cut too aggressively and it seems that they will survive the crisis. My view on short Real etc. is predicated upon the slowing down of growth for the short term.

Trade: I would go short the BRL preferably thorough some sort of a barrier option which will be a cheap punt. One can also go short via regular options but that will be quite expensive with the volatility. Now is the time to go on Oanda online and bet on barriers

BAD BAD Day ahead

Today is going to be a BAD day in the financial markets…. Bail out rejected and a massive securities fraud by ex NASDAQ Chairman up to 50 Billion dollars it seems…..


Note on Market Movements

• USDJPY is close to breaking 90. USDBRL has climbed to 2.39 as opposed to 1.6 levels in September 08! ( Meaning Brazilian Real has fallen…)
• NZDJPY – the most popular carry trade has fallen from 90 this Jan to below 50… I wonder how it will do today..
• S&P futures are showing a 4% fall today… VIX is at 55.98 and I think it will go above 60 again. Expect Bond prices to rise like crazy again. Wonder where we go from 0% yields on T Bills….
• I couldn't get short financials in time... BLAH but it is a good trade if you are short!
  

Trading Performance

I will be a bit coy about the numbers. However, my portfolio is small and I have done quite well with my investments in the short market positions. The issue many people will raise is that it is not a "REAL PORTFOLIO" since I may be excessively risk taking in a bragging rights portfolio. So I won't release the exact numbers until I am able to make this portfolio into a "real one" by graduate student standards :)...
Personally, I am just trying to trade it professionally and my views are my views.

- Current views/Positions I want to have:

I am trying to buy some puts on all financials (yes, again)

I am trying to buy "cheap" Jan 20th putts and Feb 09 puts on the S&P 500 since I think this is a trending down market with nice tradable "range" it pays to enter low bids and when you get filled to trade them.

I am especially interested in buying puts on Capital One Financial, Discover and most other credit card companies- If I really believed in the position, I would sell calls on them to fund the puts but I don't want to be short vol in this market

I want to buy Walmart as I think the recovery is a long way off and all the cheap stores will do quite well.

Maybe time to look at infrastructure etc.

in 6 months time, we start buying financials and Gold...

in 6 months/12 months, I start going long India massively...as I have said before, great exchange rate and great prices. When the world economy recovers, India and China will be ahead....

Bailing out Detroit SUCKS - Welcome USSA

USSA?
I understand the political need to get reelected. However, Hayek, the famous political economist would turn in his grave to watch the USA get back to pre Thatcher Britain. The Govt. will manage car companies, banks, decide the products, decide the pay and so on and so forth. These actions, are even more quickly marking the "top" of the American supremacy.... What has made us great is fostering competition and innovation. The United States of Socialist America is a terrible idea- it has almost never worked.

Bailing out financial institutions, I understand- else the rest of the economy grinds to a halt as financial intermediation is stopped and the risk premium really shoots up. If all the mortgage, credit card and other financial companies fail then innovation is stifled. However, TAKING our money and putting it in a place not known for innovation is quite counterproductive. Interestingly, we are not treating the other car companies (BMW, Toyota etc.) as the "same"- something we punish Japan for.
Managing Detriot's "bankruptcy" such that none of the bond holders would be hurt, in my mind would have been wort considering. Let the equity holders decide who runs the company- stop the CDS market from freezing if you want by protecting the bonds (if we are being consistent with let's protect financial intermediaries....).
Now there will be unusable DEMOCRATIC cars....


Blah....

Hedge Fund Performance- Managed Futures is doing well

Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index (“Broad Index”) will finish down approximately 0.71% in November (based on 69% of returns received).

The overall hedge fund industry is expected to post modest losses in November, which is welcome news after two of the lowest months of performance on record. Continuing downward trends in US Treasury yields, commodity and currency markets led to positive performance for the Global Macro and Managed Futures sectors and helped mitigate the losses from other sectors. While several sectors capitalized on the month-end equities rally in which the S&P saw its largest weekly gain since 1974, the move does not appear to have been a main driver of performance due to its short duration.

Managed Futures was the best performing sector in the Broad Index, finishing the month up an estimated 3.21% (with 90% of funds reporting). In addition, three other sectors appear to be ending the month in positive territory, including Dedicated Short Bias, Equity Market Neutral and Global Macro.

Commodity and Interest Rates Head Lower

The continued commodities bear market benefited the Global Macro and Managed Futures sectors as short positions in the commodities sector led to gains for the month. Oil prices dropped below $50 a barrel from October highs, and were down almost $100 a barrel from previous levels this summer.

Yields on 10-Year Treasury Bonds dropped to record lows, falling below 3% in November. Some analysts currently forecast a further decline in yields if the U.S. Federal Reserve lowers interest rates in December as expected. If Federal Reserve efforts to improve market conditions by providing liquidity for asset-backed securities through the Term Asset-Backed Securities Loan Facility (TALF) are successful, a possible investment shift from treasuries to other securities could begin to create opportunities in the Relative Value sectors as well.

Next 6 months view- still short

Recently my view on the S&P had been that it
would bounce around between 800 to 1000 with some downside drift. I still hold on to that view except I am a bit more bearish now. The other shoe consisting of the real side of the economy hasn't dropped.

More gloomy views

I expect anybody competing with Home Equity Loans lines of credit, student loans, credit cards, Installment loans to post much bigger defaults numbers since credit was so cheap over the last few year and the lenders must have lent to the same group of customers with the same reckless abandon.... 0 % financing etc.

Credit Cards: I expect more credit card firms to go bankrupt. When I scan the credit card firm numbers it seems there are "trading losses" that are quite large in magnitude... for example it seems Capital One Financial had losses on the order of 3 Billion this quarter from trading but overall made 1 Billion dollars... this is worrying...

Commercial Real Estate: Dennis Gartman, in his letter, talks about how he expects bad times to come for commercial real estate... malls etc. and I agree. With many stores closing a lot of the malls will become unprofitable and commercial real estate will suffer tremendously.

Private Equity: A lot of private equity funds will have problems raising money, or closing, or even GETTING the money they have been promised. Additionally, the portfolios they had with high leverages and high multiples on these land deals- hotels, entertainment, restaurants etc. are all rapidly becoming worthless. These are the "shadow lenders" in the economy. When the cheap credit goes away they will suffer a lot and it will take time before the extent of suffering is made public and known.

So I expect some sort of a meltdown from the real recession on the above mentioned parts of the
economy...

However, let's hope I am totally wrong....
My trading Performance:
I am toying with putting up my trading performance for this year on the web. My positions are small but I run them seriously. If anyone's interested or has a view on if I should put up my trading numbers please let me know via the comments section

cheers