Global Macro Trading Journal

[ralph00]

Quote from Specterx:

Well I've just shorted EWA, not bothered to research individual issues etc.

I guess what I'm saying is that if AUDUSD falls by 20% then the USD value of any AUD-denominated asset also falls by 20%. Therefore it's the same as shorting the currency (though in EWA's case not 100% since some of their holdings are probably ADRs) with potential extra return should Aussie shares get hit as well.

Doesn't compute. You should pick individual stocks/sectors to short. There will be many struggling companies in Oz that take off if the currency weakens.

BHP and WBC are two of the big holdings of EWA - you should just short these individually.

EWA is heavily composed of banks and miners, but there are retailers, farms, tourism ... these guys are going to make a lot of money as the aussie falls.

Shorting EWA seems lazy.

 

[darkhorse]

Quote from ralph00:

Doesn't compute. You should pick individual stocks/sectors to short. There will be many struggling companies in Oz that take off if the currency weakens.

Exactly -- legwork, due diligence etc

 

[Specterx]

Quote from ralph00:

Doesn't compute. You should pick individual stocks/sectors to short. There will be many struggling companies in Oz that take off if the currency weakens.

BHP and WBC are two of the big holdings of EWA - you should just short these individually.

EWA is heavily composed of banks and miners, but there are retailers, farms, tourism ... these guys are going to make a lot of money as the aussie falls.

Shorting EWA seems lazy.

Not worth the effort to make a few extra basis points. If the China commodity bubble pops and the Australian economy and currency go in the tank, any reasonably broad basket of Australian stocks is very likely to decline as well.

 

[Daal]

Quote from Specterx:

Not worth the effort to make a few extra basis points. If the China commodity bubble pops and the Australian economy and currency go in the tank, any reasonably broad basket of Australian stocks is very likely to decline as well.

I agree with this method. I see a big difference between stock picking and HAVING to stock pick. Stock picking is already hard enough, odds are totally against you. I let the picks come to me(shooting fish in a barrel) and stay with the index if I'm don't have obvious picks that I have strong reasons to believe the stock market is mispricing

 

[darkhorse]

Quote from Daal:

I agree with this method. I see a big difference between stock picking and HAVING to stock pick. Stock picking is already hard enough, odds are totally against you. I let the picks come to me(shooting fish in a barrel) and stay with the index if I'm don't have obvious picks that I have strong reasons to believe the stock market is mispricing

Though with ETFs index quality can vary widely. EWA is massively weighted towards a handful of names -- and does it make sense to passively short 4x as much BHP as RIO etc:

BHP BHP BILLITON LTD 13.05 $332,599,768 AU000000BHP4 XASX Materials 0.99

CBA COMMONWEALTH BANK OF AUSTRAL 9.62 $245,148,725 AU000000CBA7 XASX Financials 0.99

WBC WESTPAC BANKING CORP 8.11 $206,624,595 AU000000WBC1 XASX Financials 0.99

ANZ AUST AND NZ BANKING GROUP 7.14 $181,839,155 AU000000ANZ3 XASX Financials 0.99

NAB NATIONAL AUSTRALIA BANK LTD 6.36 $162,122,985 AU000000NAB4 XASX Financials 0.99

WOW WOOLWORTHS LTD 3.81 $96,959,861 AU000000WOW2 XASX Consumer Staples 0.99

WES WESFARMERS LTD 3.57 $90,861,286 AU000000WES1 XASX Consumer Staples 0.99

RIO RIO TINTO LTD 3.18 $81,020,843 AU000000RIO1 XASX Materials

 

[ralph00]

Quote from Daal:

I agree with this method. I see a big difference between stock picking and HAVING to stock pick. Stock picking is already hard enough, odds are totally against you. I let the picks come to me(shooting fish in a barrel) and stay with the index if I'm don't have obvious picks that I have strong reasons to believe the stock market is mispricing

It's illogical to depend on some index to bail you out of not having enough knowledge or not wanting to do the work.

If shorting BHP or WBC isn't an obvious pick to you (or scares you), why the hell would shorting EWA be a good move?

 

[Specterx]

Quote from ralph00:

It's illogical to depend on some index to bail you out of not having enough knowledge or not wanting to do the work.

If shorting BHP or WBC isn't an obvious pick to you (or scares you), why the hell would shorting EWA be a good move?

I could make the same argument about shorting the currency versus the shares (or the index).

 

[Daal]

http://paulmasonnews.tumblr.com/post/22662269568/greekonomics-blog-preview-8-may-2012

This article raises interesting points. Unless the ECB/EU come to the table offering something(Public Sector Involvement through haircuts) they simply don't have any way to mitigate the situation in Greece as the political end point gets closer and closer. In my view
if they are smart they will voluntarily accept some decent sized haircuts and keep Greece in the EUR, if they are not smart and decide to go populist, Greece will do a full default, then they could be banned from using the TARGET2 system and ECB funding for their banks(These 2 are the tricky part that I'm trying to figure the probability of) which means they would have to drop EUR

 

[jj90]

Anyone do the DD on WestPac? I looked at it briefly and with some back of envelope calcs off their annual report, they are looking at round 1/4 conservatively to 1/2 aggressively dump with the exposure they have. They do have significant LVL 2 assets worth 20% of total assets and long term loans are 60% of assets. I couldn't find when those loans were originated though.

 

[Specterx]

Quote from Daal:

if they are not smart and decide to go populist, Greece will do a full default, then they could be banned from using the TARGET2 system and ECB funding for their banks(These 2 are the tricky part that I'm trying to figure the probability of) which means they would have to drop EUR

It's not necessary to posit this kind of ECB action to see how Greece will be forced to drop the Euro. If the flow of bailout money is stopped then the Greek government won't be able to pay for anything - salaries, procurement, pensions and other benefits, the military and police. The only options are to do triage and try to keep bare-bones essential services going - basically dismantle the entire post-WW2 welfare state and bureaucratic apparatus literally overnight - or drop out and print.