Thursday, July 17, 2008

Just when you think you have it figured out....

OK, today was the feel good reversal day. The kind of feeling I get when sitting at the beach at 6pm. A total opposite of yesterday and one more reason I am glad I am keeping positions small and timing short(er) term. Stocks reversed themselves hard led by financials which were tremendously over sold.

U.S. stocks rallied after higher- than-estimated profit at Wells Fargo & Co. sparked the biggest- ever gain in financial shares and a two-day tumble in oil prices brightened the outlook for transportation companies

Is this a bottom or just a temporary lull before another storm, i really do not know.
The economy will dictate this and currently I do not see any reason for the economy to stop its slide. There is still high unemployment, high inflation and a general lack of confidence running through the markets. I certainly hope I am wrong but I think we have more downside in our future.

In spite of all the trouble Emerging Markets have held up tremendously well. I was spooked out of my Short Usd/Ars position earlier this week by a fellow trader talking about a Devaluation in the future. I have talked to a few economist Friends in the market and they do not see a reason for this to happen. But I have decided to take a more Conservative approach to this position and cut it down to see how the spot reacts short term.

Brazil. I went home short dollars today. This is not unusual in that I have been set up this way for years now (no kidding). The thing that is different this time is the size of my position, approximately 5 times my normal amount. This position is short term as I think we will open lower tomorrow and make a push lower. Usd/Brl really lagged the "feel good" move today and I think it will play a little catch up tomorrow. Either way I will be out (or have a substantially reduced position) tomorrow.

Colombia, was basically unchanged today. I remain small short dollars in this currency pair. This currency has seen greatly reduced liquidity of late. FDI money is still there, therefore I think we have a downside move in the next few days.

Chile, was on holiday today. In spite of that the dollar traded lower. This trend will probably continue. Rates are on the rise and copper is expected to make new highs. Yield is adequate so I think staying short here will not hurt you.

Mexico. A big mover today, and why not. Decent yield and an economy not slowing as much as people feared. Sure inflation is a problem, but where isn't it? I think Mexico will run a similar course to the U.S. in terms of rates ( but not quite for as long)and that is to stay steady for a few months.

Euro. Good question. We tested the old high and came off pretty quick (kind of what I was expecting, but I didn't have any position in it). From here I am not sure. I hope it continues lower as that would help with the price of crude and therefore inflation, but as I said earlier I see no reason for things to change near term on the economy and by default the dollar should remain weak.

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