Saturday, January 06, 2007


As I wrote yesterday, these markets have me a bit confused. On the close yesterday Stocks were under pressure, U.S. Interest rate futures were bid and Emerging Market currencies were being sold off. The easy trades in 2006 were Yield baskets. As I have written in the past I am a big believer in positive carry trades. Over the holidays and into the New Year everyone I talked to and everything I read talked about them. Trouble on the horizon, maybe. This week EM currencies (the highest yielder’s) began selling off. I received many calls from market participants asking me “What do you think”. In my experience most people ask “What you think” only when they have the wrong position and are looking for re-enforcement.

The employment numbers only added to this confusion. To me the number’s themselves were very strong. But as the day wore on, U.S. interest rate futures grinded higher, as stocks sold off and EM currencies continued to sell off. The Bovespa (Brazil Stock Exchange) was off 4% yesterday!

After the numbers I initially thought that we had some direction. Strong U.S. number good for the dollar, good for EM currencies, I sold Usd/Mxn, Usd/Brl, Usd/Ars and sold forward FX contracts in Brazil and Mexico (looking for lower rates in both countries). By the end of the day I am not sure I have this right. I almost never trade short term. My normal time horizon is 2-4months, but these trades do not feel right from the beginning (a former manager of mine used to say those are the best position…hhmm). I am glad it is the weekend as it will let me get away from the markets for a short term and let the markets digest what occurred. BUT, in my gut I think that:

Dollar interest rate futures could rally
EM currencies could come under pressure
Stocks (globally) have some problems ahead
The “big” dollar could be in trouble.

Please remember that I have been very unsure of my trading positions this week. A lot of people piled into the market so as not to miss the move. This people usually have a very short pain threshold. I have most of my firepower on the sidelines and suggest everyone do the same.



Anonymous ~ Nona said...

Thanks for the suggestion about having sideline firepower -- and for your overall frankness. Refreshing!

2:52 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home