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Monday, 13 May 2013

Mid-May update

Trying to update every trade is too labour intensive, so I'm going to restart this with a monthly summary and occasional updates when appropriate.

First a summary since starting :

                           monthly
            date          return          NAV
Nov-1217.8%117.77
Dec-1337.4%161.78
Jan-1338.1%223.40
Feb-13-3.3%215.92
Mar-1312.4%242.62
Apr-1330.2%315.81

Current views :

The US has shrugged off the sequester and the fiscal cliff and is finding its footing. Higher US real rates in the months ahead are starting to be telegraphed by the Fed but the markets haven't yet priced this. Until this idea really sinks in (perhaps it needs a few more Hilsenrath articles or a series of speeches by Bernanke/Dudley/Yellen), equities will continue to rally on the back of QE3/BoJ liquidity. I want to remain long stocks and also have trades for higher US real rates.
Japan's recovery is still under-owned (esp by Japanese retail), and the UK economy is better than the market realises. The FTSE trades very well (retail is apparently very bearish), and I'd like an opportunity to add a position here.
Europe is a confusing mess and I'll avoid it at all costs.

I was pushing pretty hard on risk-on trades till late April, but have switched to a more balanced stance by shorting audusd (and even buying some puts on NKY and ESM3), which should work if there's a deflation scare here. I don't think there will be, and it works for many other reasons, but it's good to have that angle covered better than before.

Primary positions :

Long EDZ4/EDZ7 steepener, with covered calls sold against the EDZ4 leg (99.50 short dec calls) to improve the carry and cushion the effect of a selloff on the EDZ4 leg.

Short audusd. The main post-GFC safe havens (usdchf, usdjpy and gold) are all down ~25% from their mid-2011 peak. Audusd is down 10%, has an election this Sep (tighter fiscal policy from the Liberals ?) and the PMIs have collapsed. China appears to be switching to a less resource intensive phase of growth, and is anyway at risk of becoming credit constrained. Could audusd drop another 10-15% here ? The terms of trade are eroding, and 80% of the c/a deficit is being financed by LNG capex flows. Very unstable.

Long usdjpy - no need to spell this out in detail. Have taken profit on 2/3 of peak position, so will trade it more opportunistically now.

Long Japanese stocks. Have closed out my Nikkei position (too soon unfortunately), but still quite long the megabanks, Nomura and the shipping companies (8306, 8308, 8316, 8411, 8604, 9101, 9104, 9107). Wondering whether to buy Sony/Panasonic/Sharp too. Japanese pensioners will presumably buy the bluest of Nikkei blue chips when they are forced back into the market, and the megabanks and brokers control the retail distribution channel. Obvious.

Short gold. No need to spell this out either - the chart says it all. It looks like it's entering the second down leg after rebounding from its April collapse, which should target around 1200-1250. Took profit on half my position, but still running a reasonable 1400/1350 Aug put spread.

Long AAPL. How can it go down much when they are going to buy back 15% of the outstanding stock ?


Secondary positions :


Short JGBs - a short term trade for a few days around the auction cycle. Not wedded to this at all, but the chart does look ominous. Not a propitious sign for global fixed income.

Long some 1wk 1600 ESM3 puts. Just in case
Long some Nikkei Jun 14000 puts. All the HFs are on the same side of the boat right now.

Long gbpusd, so that some of my audusd is in fact gbpaud, but on a tight rein. No sense trying to pick a serious fight with the usd rally.

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