Thursday, 29 January 2009

NZD Update

Cut the long NZD position.

Sold NZD4m at 0.5150, thus taking the long position out and taking the hit and turning it into a NZD2m short position.

I don't like the NZD, just too much bad news and offshore investors taking fright. Export interest has not assisted the NZD, and if it can't rally in January, it can't rally at all.

I have a target now of 0.4500.

Will review if we see a break above 0.5500.

Wednesday, 28 January 2009

Position update

Still in all open positions...none of them making any money.....yet!

At least vols continue to drop. As one trader said markets today are "mountains up and mountains down"

Oh well, patience is meant to be a virtue!

Tuesday, 20 January 2009

NZD/USD update

Getting worried about the EUR/USD slipping lower, with 1.3000 a big level, and looking to test lower. This may drag the NZD/USD and the AUD/USD lower. My position in the NZD/USD is not looking good, and I am unhappy with the reaction to the S&P comments last week.

So may cut position out if we move below 0.5200 in next few days.

The NZD does not look like a winner now, and when I feel this way, it is usually best to cut and run.

We'll see......

Thursday, 8 January 2009

More in-house financing next year, say CFOs at manufacturers

This is interesting data - KT

Recession? What recession?

Half of the CFOs at manufacturing companies recently surveyed said they expect their company’s revenues to go up in 2009, while nearly four in ten said they were predicting increased earnings.

Remarkably, over half of the finance chiefs said that the current state of the economy will have no impact on their growth plans. In fact, nearly seven in ten CFOs said they expect to boost the price of their products in 2009. That’s a fair jump from the 56% predicting price hikes last year.

The survey, conducted by Granite Research Consulting for Bank of America Business Capital, elicited responses from some 600 finance chiefs at mid-size and large manufacturers.

“Overall, these results reflect the severity of the current economic downturn and the uncertainty about how long it will take to work our way out of it,” said Mickey Levy, chief economist for Bank of America. “But, CFOs are taking necessary steps such as trimming inventories and operating costs in order to remain competitive, as they try to weather the storm.”

Indeed, only about a fifth of CFOs indicated that their capital expenditures for next year will be higher. Last year, about a third expected an increase in capex.

Meanwhile, 40% of finance chiefs expect to spend less or refrain from making capital expenditures altogether in 2009.

Nevertheless, about 80% of the CFOs surveyed said their company’s borrowing needs will either increase or stay about the same in 2009. While half of the finance chiefs indicated that credit availability has remained steady over the past twelve months, about a third said their lender has restricted credit availability. Last year, only 10% said they were expecting a shrinking of available credit.

And while nearly 60% of the respondents are considering financings next year, over half plan to use internal means to raise the cash. The most likely type of capital-raisings? Cash flow financing, asset-based financing, and leasing.

Given that response, it’s not overly surprising that CFOs said cash management (63%) and letters of credit (59%) remain the most commonly purchased services from banks.

John Goff, Financial Week, 11 December 2008.

Friday, 2 January 2009

Position update

Here are the trades I am active in:

Long USD 3m short Yen at 103.10 average. (reopened again at 89.63 after freezing at 96.97)

Current rate: 91.10

Current: loss

See today’s post on Yen thoughts.

Short USD3m against JPY taken at average of 96.97 closed at 89.63, generating gain of USD245,676.67, NZD423,580.47 (not counting carry interest).

Long NZD 2m short JPY at average of 54.54
Current rate 52.70
Current: loss

I am increasingly comfortable with NZD/JPY carry trades. Will add more if a solid break above 0.6000 is seen in the NZD/USD.
Review at 41.87, being long term lows.

Current rate 1.3844
I can’t make my mind up on EUR/USD. I could see it go either way, so best to stay out of it.

Anyway I have enough up elsewhere to cope with!

Current rate 0.6930
I am watching the CRB index closely, and if this starts to point higher, I will add a position in the AUD/USD. But needs to break up through 0.7100 and sustain it to be more confident.

Long NZD2m short USD at average of 0.5668.

Current rate:0.5780

Current: gain

I have posted before my reasons for the NZD/USD testing higher over the summer.
See here.

Previous balance: NZD1,051,735.00
Plus JPY gains of NZD423,580.47 above

Total gains banked since August 2007:


Thoughts on trading and the Yen.

OK, some thoughts on my trading generally and the USD/JPY.

I am long 3m USD against the Yen again, after taking positions at 103.10 and then taking counter trades (freeze trades see here) at 96.97, which I then closed out at 89.63.

Taking a profit of USD245,676.67 (@0.5800 NZD423,580.47) and leaving an unrealized loss of USD410,143.33, NZD703,504.85, at current rates of 90.70 and 0.5830. Net unrealised loss at present therefore NZD279,924.38.

But first some stuff on trading style.

I take long-term currency positions on a whole raft of factors. It is a little bit like Lonely Traders Knotty Warhol stance, see here. But he is much more detailed and technical than me. If asked I can’t really point to why I like a trade, it is really a whole range of factors, of which sometimes none of them stack up on their own.

But after more than 30 years in the markets I take great care not to get fixed on one school of thought. If I have learnt anything, it is that once I have worked out what is driving the markets, it isn’t happening anymore because others have worked it out too, and the drivers have therefore changed as a result.

So I keep shifting what matters to me, and I don’t get too hung up on any one thing, be it technicals or levels or even fundamentals, it is really a cooking pot of ideas and out of that I get a “sense” of what to do. My view if you like. I read a great deal, many newspapers, magazines, blogs, websites and my “world view” is something I tend 24/7 with great passion.

It drives my trading and it also drives my advice to my private client base. I guess I can sweep a lot of articles, given that I could actually write some of them. I guess that is why I dislike many articles out there as rubbish.

But this blog was never about giving advice to anyone. It is all about making me write stuff about my views to sort out my own mind. I really don’t care if no one reads it or many do. I rarely react to other market views, but they do go into the pot and sometimes may colour the thought process.

I am not interested in what is going on right now. That is the bulk of commentaries. I am interested in what is going to happen next, which is much harder to do, with any commentaries on that non-existent. After all, if you could do that regularly, why work anywhere, and even less, why tell anyone?

My track record over many years has been a good one. But again I don’t feel the need to justify myself…I ain’t selling anything! On this blog I have traced just the last years trading, as it has happened, and you can follow all the posts if you want or if you care, I’m not fussed either way. I rarely make a long-term loss, although I can be and have been in the crap for some months at a time over the years. Strong capital base is key!

In the past I have traded all time frames and hate day trading, although I was a currency spot trader at a bank once, didn't like it, with my style much more comfortable with long term strategic positions taken over weeks and months. This means that fundamentals will always have a higher weighting in my thinking. I generally (but not always, see rule above) have a dim view of charts as most chartists that I have met over many years have crashed and burned eventually and gone back to working for someone somewhere or left the markets entirely.

So that means that any charts used will be dailies or weeklies, and maybe an hourly to finesse adding to a position. But my basic stance is if you have decided to take a trade, and are looking for 10 cent moves then the level on the day is really small beer.

So I always take a long, long, long term view.

Anyway the Yen, and sorry if this is generalised, but I’m just not going to write a book or do detailed analysis, you can easily find that elsewhere.

In the past the Yen has generally traded strong when Japan is in recession because their exporters do so well. The golden rule has been that China and Japan make it, and the US consumer buys it. This drives demand for Yen.

They don’t import much during a recession because domestic demand is weak and so the trade flows favour a strong Yen because there are more buyers than sellers of Yen due to the trade surpluses. The capital markets tend to weaken the Yen as funds flow out, but even that has not been a given, as foreign funds have bought into Japan and these can offset the outflows on Uridashis, and the carry trades.

But over time the carry trades became huge and I was caught in the wave of repayments as these trades reversed, hence my “lock up” between 96.97 and 89.63.

Japan is in a recession, but the key difference is that so is the rest of the world, with the US consumer, the main proxy buyer of Yen absolutely stuffed, both from an asset (property and shares) and credit (ability to borrow) perspective.

I believe that the capital markets are stuffed as well, with raising funds in Yen and buying international assets much more difficult to do, and the major players, the investment banks, are either gone or shadows of their former selves. Japan Inc is the only player left.

I am comfortable at being long USD/JPY again because I think that with the US and the world slowing, the demand for Japanese (and Chinese, which sources stuff from Japan) goods globally will be abysmal and will take years to pick up to where they were, if they ever do.

If you scroll back some posts you will see the disastrous affects that the strong Yen is having on Japanese industry, with Japan now running trade deficits for the first time in many years, and production collapsing.

So with sellers of Yen outweighing buyers on the trade front, and the bulk of the carry trades repaid (buyers of Yen), what happens if funds full of cash step out from Japan again seeking a higher global yield?

The Yen must weaken.

Two more factors.

Firstly Japan Inc can buy stuff cheaply. With record lows in global shares and a strong Yen, they can buy market share at a fraction of the prices 12 months ago. Once they see that markets are stabilising (have a look at the TED spread and the VIX), then they will venture out of the fox hole again. Japan Inc are probably the only players who can actually borrow Yen in size now anyway.

Secondly the Bank of Japan. They are under huge pressure. To lower interest rates. To lend to their under pressure corporates. To weaken the Yen by intervention. To do some and all the above… and they are, with heavy pressure coming from the Finance Ministry.

The Yen will weaken in the months ahead, with my initial levels 96.00, 101.70 and then key at 104 enroute to the 120.00 area.

Then it will be overdone!