Tuesday, September 12, 2006

Is a Recession in the future?

The U.S. Economy is clearly slowing. Housing prices are on the declineand interest rate hikes always have a lagging effect. The FED should remain wary of overshooting and hence should be allowing time for the past hikes to take effect. The FED remaining in a holding pattern in regards to rates is a given. The risk of a recession grows as the economy grows at a slower pace we would be more vulnerable to unforseen shocks. I do not think we will have a recession, rather a cyclical slowdown in growth.

I continue to look for carry trades. UsdJpy has been great, and should continue higher as Jpy is used to fund other positions and breaks to new highs as it just has 117.95).

Short UsdBrl. This trade gets better the slower the U.S. Economy grows. Stick with it, it can get scary from time to time but will be well worth it by year end.

Mexico: Headlines out yesterday that the Mexican Economy was not growing as fast as the government would like. Can anyone say RATE CUT...... Look out on Septt 22 which is the next time the Mexican rate committee meets. If not then Oct 27 seems like a realistic time to see rates move lower.

Let me know what you are thinking.


Monday, September 11, 2006

Markets not cooperating

The markets have been backing up abit with Higher yielders taking it on the chin at U.S. rates creep higher. This is a healty correction and one that I do not think will last. With no significant numbers due out in the near term I can see us range bound with a higher bias. Stay lose and nimble and do not fall in love with any trade (specifically a Dollar stronger trade against EM)


Wednesday, September 06, 2006

Patience,patience, patience......

I have been witnessing some profit taking in the markets the last two days. This makes some sense as we had a substantial move last week. Also I believe we could have more backup as the week progresses. I think a few weak positions have entered the market. Dealers coming back from vacation and not wanting to miss a trade have piled in. I would think that these dealers will be "aqueezed" out quickly. I still think the bigger picture stuff is in play. I would look for

Usd/Jpy to gind higher (116.70 current level). A big strengthening earlier in the week should be hard to maintain. Using Yen as a funding instrument against other currencies is a very attractive play. That is one of the reasons a strong Yen is hard to come by.

U.S. rates to continue a lower trend (June 07 94.865 Currenct level). In the coming months I am looking for weaker numbers and no sign of higher inflation (look at the price of oil) and this should continue to keep the FED on hold.

Carry trades. As anyone who is a regular reader knows, I am a big fan of carry trades. Any trade that gives you a positive carry gives you an extra opportunity to make money (market stays the same but you still make money on interest rate differential).

Remain patient, these markets can get you tossed around abit. Pick your levels ans ride out the storms.


Sunday, September 03, 2006

Slow and Steady

Friday's numbers were clearly taken by the market in stride, and why not they were just about what was expected and inflation seems to have crested. I am pretty firmly in the camp of the FED looking for any excuse to hold tight with Monetary policy. These number allow them to do just that. Now of course the inflation number that will be coming out over the next week or so can change all that, but the last time I checked gas prices had dipped below 3.00 dollars a gallon and there are more "Back to school sales" then I can count. Therefore I am going to attack the market from a carry perspective. Any trade that I like, that provides positive carry I will put on. Currently I am:

Long Usd/Jpy
Short Usd/Brl
Short Usd/Mxn.

I also have interest rate plays where I am looking for rates to remain steady to lower in Brazil and Mexico. Last week the Central Bank of Brazil cut rates 50bp. Most of the market was looking for 25bp. This signals to me that there are more cuts to come (2 25bp cuts before end of the year). Looking at what is built into the curve we have more room for rates to go lower. This week can be slightly eratic as dealers will be returning from vacations and may want to jump back into the market so be carefull. But I think if you trade looking at the next 2-4 month senerio the above trades should work out.