torsdag den 26. april 2007

Ground hog day ? Personal thoughts from very tired fund manager......

This market reminds me of the movie: Groundhog day!

Every morning I wake up and wish for today to be different from the day before!

No such thing! It also turns out that the only destruction of capital going on right now is in my P&L - everyone else seem to be on board the 'carry trading' trade.

Someone trying to tell me this morning that 70 pct of mortgages in Hungary is financed in CHF! Supposedly it's a 'safe bet'.

Reminds me of a young man, me, who in the late 1980s figured out I could finance my car for free by funding myself in CHF and then buy some AUD on a forward trade to pick up... .yes carry. The car a Daihatsu, it's final price? The equivalent of a Porsche!

Then again don't listen to old hand like me - there is a new game in town: the blind leading the blinds and with all things being sooooooooo damn good.. there must be more of this for next week which includes Golden Week in Asia. (

It can't be a huge surprise that I had a horrible week of trading - all our model' and analysis' pointed to extreme valuation in pretty much all markets....but instead we had more of the same. Had I been an equity analyst' I would argue that the trades have just become EVEN better....but unfortunately I live from trading not giving advice (Which I probably everything being equal is the best for me....)

Tomorrow sees the release of the Japanese CPI expected to drop 0.2% this mornings market indicates there is firm believe in weaker CPI leading to non-action from BOJ. The data is mixed but facts will tell the real story.

I can't help thinking myself back to 2000, sitting in UBS' huge trading room in Stamford, Connecticut and having FX sales people walk up to me ALL the time telling me how much they made buying IT-stocks on Mondays selling them on Fridays.

I had several colleagues leave the business because working took their time away from their true call: trading stocks.

I am also reminded of how, probably one of the best stock traders ever, Julian Robinson of Tiger Management in March 2000 threw in the towel only to see his core view: internet stock valuation having no connection with reality being vindicated inside two months!

My point here: Sometimes you have to take a stand as a fund manager, most of the time the markets demands our TOTAL flexibility and at other times we have to stuck in.... which is which right now?

As per usual I have no idea, listening to my "body" or in more structural form: behavioural science, its clear to me we are right in front of major infliction point.

The catalyst? No idea! Researchers are still looking for why the internet bubble of 2000 got defused, and as far as I know they are looking!

So... for now the only right thing to do is to sit back for a while and figure out what I missed on this move....

Strategic views:

FX: Maintaining some JPY strenth calls through short-dated options. Bought some GBP/USD downside earlier in the week based on market looking for 50 bps hike. Short EUR/CHF still despite the pain of funding the Hungarians!

FI: Bought some Bunds upside. Looking at 1 year forward forward making new highs, the contrarian in me MUST react .......Slightly long 10y notes, our model is long with stop out below 108.00

Commodities: Still long Wheat, had some Crude overnight, but considering medium-term view is one of risk aversion coming into play the position makes no sense plus our models are agnostic at best at these levels.

Equities: Stopped once again. Our models shows stock extremely expensive on our mean-reversion models. Reversal is close.


Carry on carriying says the market, but..... watch the close in GBP/USD today. .below 1.9930/40 could become major indicator of high yielders top in place. I also note, trying to be confident, that despite hike in NZD, the 3 years swaps came of, seems inflation in control and that the Central bank wishes for lower NZD. + 700 bps of carry hard for the Japanese to ignore but as they said in Hill Street Blues after morning roll call: ...and be careful out there.

Nice weekend


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