Monday, November 27, 2006

Nervous markets, as Stocks sell off.

Emerging Markets led by Brazil and Mexico weaked tremendously as Stocks in the States came off to close the day down 158pts. Ecuador was a major catalist as thier bond market came off hard today (ending at a 6 week low) as preliminary results from the presidential election showed Rafael Correa , an ex-Finance monister who advocates defaulting on debt and cutting ties with the World Bank and IMF won the election. This was another insentive for markets to sell off.

Markets feel nervous and I think that being low on risk and on the sidlines is the best advise.


Friday, November 17, 2006

What is the Fed's next move

I have been watching the latest economic numbers and listening to "Fed Speak" trying to find a new direction/trend to grab hold of. "Fed Speak" has clearly been on the hawkish side. Inflation (although I do not see any) is a major concern and if push comes to shove the Fed seems to be signaling that they will err on the side of caution. But the economic numbers coming out are clearly on the weaker side. What to do, what to do. I am certainly confused. My head says that the next move by the Fed will be to lower rates (Feb-Mar 07) and I think the market will begin moving this way soon. Currently the dollar is trading at the lower end of its range against the Euro and I think it is just a matter of time before we break through lower. U.S. dollar interest rate futures have been unable to maintain a bid. I believe this is because of the conflicting story which I have stated above. I have been lightening up on me EM positions as although I believe they are correct over the medium term, the near term could be a different story.


Wednesday, November 01, 2006

Creating a trade

I was just reading an article written on, about "Theme Building". It was quite interesting as it is very similar to what I do when creating a trading Idea. I always look at an economy as an ocean liner. You cannot turn one around on a dime, rather it is a process that takes time to achieve your objective. That is the same with any economy. If a country is entering a lower rate environment it is likely to stay that way for a period of time. Also the region tends to trade in a similar fashion (although at a different timeframe and speed). Take Brazil for example. In September 2005 with their benchmark rate at 19.75% they began cutting rates. This after a runup in rates from 18.25% in January of that year to 19.75 in August. Rates remained constant from May-Sept at 19.75%. Since then rates have been in a constant trend lower (today at 13.75) with more being signaled in the future. This is a clear trend. The fundamentals for the country are strong, yield still high. To have any other position then short rates and long the Real is very costly (even if they stop cutting rates you have to fund that position at 13.75%!). I always like to find a trend (preferable with yield attached) and ride it for as long as possible. Months definitely, years in some most instances.