The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
Hugh Hendry's latest. Have a cup of coffee beforehand and eliminate distractions. Not the easiest read in the world. No real surprises to anyone whose been following his public comments over the past months. He thinks the world is due for one more big deflationary shock and then he will start worrying about inflation. His fund has also begun building a long position in corn.
http://www.marketfolly.com/2010/05/hugh-hendrys-eclectica-fund-sees.html
http://www.marketfolly.com/2010/05/hugh-hendrys-eclectica-fund-sees.html
I've been thinking about what has happened in the markets the past couple weeks and I'm amazed by how our biases hurt us even when making a windfall profit. The Oz 90 day futures have gone through the roof, and while I'm pleased with that, I'm dumbfounded by how much trouble I went to for this trade.
I spent all of this time developing a scenario for Oz - China slow means commodity volume and prices drop, means Oz slows, means lower rates for Oz. Toss in a housing bubble in Oz rivaling the US and UK circa 2006 and you have the recipe for sharply lower money rates in Oz. So I spent months figuring out a way to buy call options on Oz rates, which never came to fruition. Then I finally just started buying the futures outright, which has worked out well.
This is where our biases come into play ... if my scenario about Oz was to be correct, then its pretty clear that the $Aus is going to go to zero, which is where its headed. Why spend all that time dealing w/other brokers and trying to find a way to deal w/90 day bill futures, when I just could have logged on to IB and shorted the $Aus or bought puts on their currency on the CME. I actually almost pulled the trigger on the Sept 72 put on Monday - its sextupled in value over the 4 days since.
Because I'm much more comfortable dealing w/interest rates than currencies, I almost kind of had blinders on and never thought about the currency. Then on Monday, when I finally did look at the currency, I didn't pull the trigger on a clearly undervalued put because a currency option is not something I've ever bought before. Cost me a small fortune even on a winning play.
Tough game.
FWIW, I just got filled and now am completely out of my Jun 11 GE calls.
Still long Sep 11 and Dec 11 GE calls and Jun 11 and Sep 11 Aussie 90 day bill futures.
I spent all of this time developing a scenario for Oz - China slow means commodity volume and prices drop, means Oz slows, means lower rates for Oz. Toss in a housing bubble in Oz rivaling the US and UK circa 2006 and you have the recipe for sharply lower money rates in Oz. So I spent months figuring out a way to buy call options on Oz rates, which never came to fruition. Then I finally just started buying the futures outright, which has worked out well.
This is where our biases come into play ... if my scenario about Oz was to be correct, then its pretty clear that the $Aus is going to go to zero, which is where its headed. Why spend all that time dealing w/other brokers and trying to find a way to deal w/90 day bill futures, when I just could have logged on to IB and shorted the $Aus or bought puts on their currency on the CME. I actually almost pulled the trigger on the Sept 72 put on Monday - its sextupled in value over the 4 days since.
Because I'm much more comfortable dealing w/interest rates than currencies, I almost kind of had blinders on and never thought about the currency. Then on Monday, when I finally did look at the currency, I didn't pull the trigger on a clearly undervalued put because a currency option is not something I've ever bought before. Cost me a small fortune even on a winning play.
Tough game.
FWIW, I just got filled and now am completely out of my Jun 11 GE calls.
Still long Sep 11 and Dec 11 GE calls and Jun 11 and Sep 11 Aussie 90 day bill futures.
Here's a report about the Aussie housing bubble. Its a bit histrionic, but is pretty much on point. The more I think about it, shorting the Oz currency may work out much better than being long their interest rate futures. I plan on getting short soon in addition to that trade ...
http://www.scribd.com/doc/29520921/...ming-Aussie-Property-Crash-and-Banking-Crisis
Also, if I may add to my previous post regarding blinders. We have our own Australia in this hemisphere just a few hundred miles north of where I sit. Its called Canada. Their BAX futures are easily available on IB, not to mention their currency. If I'm correct about the China slowdown and the fall in commodity volumes and prices, Canada will take it on the chin almost as much as Oz. Canada has its own screaming housing bubble as well. As recently as a few weeks back, the Mar 11 BAX futures were calling for about 150bp of tightening over the coming 9 months. Obviously, that's been greatly reduced over the past 2 weeks and now expectations are for 100 bp of tightening. Still seems way high, if my scenario plays out.
http://www.scribd.com/doc/29520921/...ming-Aussie-Property-Crash-and-Banking-Crisis
Also, if I may add to my previous post regarding blinders. We have our own Australia in this hemisphere just a few hundred miles north of where I sit. Its called Canada. Their BAX futures are easily available on IB, not to mention their currency. If I'm correct about the China slowdown and the fall in commodity volumes and prices, Canada will take it on the chin almost as much as Oz. Canada has its own screaming housing bubble as well. As recently as a few weeks back, the Mar 11 BAX futures were calling for about 150bp of tightening over the coming 9 months. Obviously, that's been greatly reduced over the past 2 weeks and now expectations are for 100 bp of tightening. Still seems way high, if my scenario plays out.
Thanks for your post ralph, and for posting that link to the Scribd document (have not started reading it yet).
Have you read many articles written by Steve Keen?
http://www.debtdeflation.com/blogs/
To paraphrase Mish Shedlock (and I notice that on the scribd document, "mikeshedlock1399 read this 32 minutes ago"), Steve Keen will be proven right, but just very early in his analysis of the Aussie housing bubble.
edited to add:
While I agree that Aussie house prices are high by a variety of measures, one thing that may provide *some* kind of floor under the housing market is the tax treatment of investment properties in Australia.
Specifically, it is possible to make a loss on the operating costs of housing investment (eg. rent received less interest paid on loans less maintenance expenses), in the hope of making a capital gain.
So let's assume that the RBA cuts interest rates to 0.25%. In this situation there will still be demand for housing (and those who won't sell) given this generous tax treatment.
Have you read many articles written by Steve Keen?
http://www.debtdeflation.com/blogs/
To paraphrase Mish Shedlock (and I notice that on the scribd document, "mikeshedlock1399 read this 32 minutes ago"), Steve Keen will be proven right, but just very early in his analysis of the Aussie housing bubble.
edited to add:
While I agree that Aussie house prices are high by a variety of measures, one thing that may provide *some* kind of floor under the housing market is the tax treatment of investment properties in Australia.
Specifically, it is possible to make a loss on the operating costs of housing investment (eg. rent received less interest paid on loans less maintenance expenses), in the hope of making a capital gain.
So let's assume that the RBA cuts interest rates to 0.25%. In this situation there will still be demand for housing (and those who won't sell) given this generous tax treatment.
Martin Armstrong sees the AUD reaching 1AUD = 2USD by 2015!
http://www.martinarmstrong.org/files/An Outlook For The Land Downunder 5!2!10.pdf
http://www.martinarmstrong.org/files/An Outlook For The Land Downunder 5!2!10.pdf