Saturday, 27 June 2009

Farrah Fawcett

The original Blonde Angel has died.

Rest easy Farrah

Hat Tip: Yes Minister

Sunday, 21 June 2009

Outstanding positions update

Here are the trades I am active in:

Long AUD 3,735,990.04 short JPY at 82.79 average.

Current rate: 77.60

Current: Loss by 519 points.

By buying AUD I have converted this trade from a crappy USD/JPY deal to a AUD/JPY deal. See post here. Now waiting for the AUD to react to commodity moves. Target is 85.00 enroute to 105.00.

Extra background:
Sold USD3m and bought AUD at 0.8030, thus making the USD/JPY trade long AUD3,735,990.04 short JPY at 82.79.

Long NZD 3m short JPY at average of 57.23.

Current rate: 61.82

Current: Gain 459 points.

I remain comfortable with carry trades with the NZD/JPY up over 40% this year! Happy with the current exposure.


Current rate: 1.3940

Overall I see the USD weakening considerably due to quantitative easing pressures. So if pressed I would go long euro. But see more profit in other trades at present, so will not commit the capital.

Back to square

Current rate: 1.6504

Cashed out:
Long GBP1m (1.5050) short USD at 1.5690, for a gain of USD64,000 (at 0.6150) NZD104,065.04 (not counting carry interest).

Definitely took profit too early, but I needed my limit resources elsewhere.

Long AUD2m short USD at 0.7312.

Current rate: 0.8060

Current: Gain 748 points.

With oil in demand, and commodities generally pressured higher, I remain comfortable being long AUD. Happy with the current exposure.

Long NZD2m short USD at .6241.

Current rate: 0.6422
Current : Gain 181 points.

Now that the downgrade is off the agenda, and interest rates look to have stopped falling, there is nothing holding the NZD/USD down. Target 0.6500 enroute to 0.7000. Happy with the current exposure.

Unrealised gains NZD200k (AUD/JPY –312k, NZD/JPY +223k, AUD/USD +232k, NZD/USD +56K).

Previous balance: NZD1,638,800.86
Plus GBP/USD gains of NZD104,065.04
Total gains banked since August 2007:


Saturday, 20 June 2009

My trading style, a repeat!

I get asked a lot about my trading style. To be honest I haven’t really set out to develop one specifically at all, but after 30 years trading markets, I have realised a lot of what not to do.

First I tried fundamental trading, poring over statistics, money supply, interest rates unemployment numbers etc etc. When the Berlin wall fell, every economist predicted that unifying East and West Germany would cost billions and take decades. This was bad for the Deutsche Mark, and so on the fundmentals anyway the DEM was a sell. And yet we saw a huge and prolonged rally in the DEM, purely on the exuberance of the reunification of Germany. So fundamentals clearly did not always work, and emotions sometimes do.

Then I switched to charting and did the lot. Point and Figure, Moving averages, Stochastics, Momentum, Elliot wave, Fibonacci, you name it, I tried it. Bought the books, did the studies, bought the models etc etc. Sometimes they worked, sometimes they didn’t. Sometimes the pattern was so clear after the event, and rarely did it repeat.

Then I tried money management, and stop loss orders, take profit levels, risk analysis etc etc. I followed the reasoning that it was better to run your profits and take losses quickly etc etc.

But it was when I was watching really rich people in the markets that I realised the real truth:

It’s best not to care about the trade at all.

I have seen people with bad positions. They don’t panic. They don’t get out. They just wait. If the reason for doing the trade is still valid then they just wait. If the reason is not valid then they get out, whether a profit or a loss is realised or not.

The old adage still works: Money makes money. If you don’t care about it then you are unlikely to panic and get out at the bottom or the top . You just wait.

So I started out with small positions that I could ignore, and built up from there. I realised that all the styles are only tools to help you make a decision, and that it was my own fears that I had to understand really.

My style is to decide a trade and take a position and then just wait. I decide on fundamentals, charts, gut feeling, and a mixture of all the above. But I only get out when it feels wrong, not when some specific chart or fundamental stat starts going the other way. And even then I am reluctant to quit a trade quickly. I have seen people get very rich just by waiting for the cycles to turn again, and they do eventually.

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.

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, Reuters, CNBC, CNN, 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 the trading since August 2007, 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.....

....and in between watch a lot of cute blondes!!

Tuesday, 16 June 2009

Is the USD doomed?

Reserve fear a distraction for dollar watchers

By Mike Dolan
LONDON, June 16 (Reuters) - The raging debate about the future of the U.S. dollar's reserve currency status may be masking the real drivers of its near-term direction.

Even as Russia, China and Brazil ratcheted up rhetoric about a new global reserve currency and diversifying their huge foreign currency stashes away from dollars, the U.S. currency has staged a remarkably healthy rebound this month.

Against the world's most traded currencies, the dollar <.DXY> has clawed back a quarter of the losses it has suffered since March -- losses that were driven by growing confidence in financial and economic recovery.

The billions parked in U.S. money market funds and Treasury securities during the worst of the credit crunch streamed out to seek higher returns in riskier plays such as equity, often outside the United States and significantly in emerging markets.

Fund tracker EPFR estimates that $104 billion has left money market funds since the start of the year and almost $30 billion flowed directly to emerging market equity, mostly since March.
But as the stock market rally has stalled, or at least taken a breather, the dollar has bounced more three percent.

And this bounce came in the face of persistent Russian and Chinese reserve warnings and ahead of Tuesday's summit between these two emerging giants and their new-found economic allies from the BRIC grouping -- Brazil and India.

So why has talk of diversification by the world's biggest reserve holders not weakened the dollar further?After all, China and Russia hold more than a third of the $6.7 trillion global reserves stockpile and at least 50-60 percent of their combined holdings is denominated in dollars.

For sure, it was cited as a contributory factor as the dollar skidded through April and May. And data released on Monday showed public and private holdings of Treasuries held by Russian and Chinese names fell by $6 billion in April alone.

But analysts reckon this is small compared with the massive private sector investment swings in and out of the United States in recent months and probably for several months to come.

With equity and bond markets still torn by uncertainty about the next leg of the post-crisis economic story, the dollar's negative correlation with stock market nervousness appears to be re-establishing itself.

As stocks look to lurch lower again, the dollar may well attract another "safety" bid -- just as in the earlier part of the year.Against that, central bank reserve shifts are unlikely to be either sudden or in great size.

For a start, major central banks from Moscow to Beijing or Brasilia would have as much as anyone to lose from any sudden or prolonged loss of confidence in the dollar, given they still hold hundreds of billions in dollar securities. Neither would they want to precipitate a financial crisis that could shock the consumers of one of their biggest export destinations.

Also, whenever the dollar weakens, central banks that fix their currencies at least partly to the dollar are forced to buy at least some dollars to maintain that peg. Periods of dollar weakness are therefore met with official dollar purchases -- even if the proportion is gradually less over time.

Analysts at Goldman Sachs point out that global reserve accumulation, which peaked about $7 trillion last summer, has resumed as the dollar has weakened since March and as crude oil prices surged.

Others point to the more recent debate about emerging countries switching U.S. Treasury holdings for bonds from the International Monetary Fund -- bonds that would be denominated in the IMF's basket currency, the Special Drawing Right.

However, this flow too may prove more marginal in the short run than it first seems.

Dollars already make up some 40 percent of the SDR basket, limiting the drop in dollar allocations from about 60 percent dollars at present.

As commitments to date from China, Brazil and Russia to the proposed IMF bonds amount to about $70 billion, that would involve a reduction in dollar holdings of $14 billion at most.

The IMF itself is adamant there is no risk the dollar's dominant status for some time.

"The dollar is the principal reserve currency in the global economy and will remain so for as far as we can see," IMF First Deputy Managing Director John Lipsky said on Monday.

So is this is a story for another day?

"The prospects of an aggressive change in the U.S. dollar allocation in the Russian foreign reserves remains very low," Commerzbank analysts told clients on Monday.

"But it is also worth stressing here that the secular move away from the U.S. dollar into other regional bellwether currencies in the emerging markets space is still on, and will probably intensify over the next many years."

Goldman Sachs takes a similar view: "We do believe that the dollar will effectively remain unchallenged as the main reserve currency for a long time but there is also little doubt that the constant reserve diversification talk creates uncertainty."

Time to buy in the Hamptons??

NEW YORK (Reuters) - New York City real estate prices are looking increasingly shaky as instability in two of the city's sexier submarkets -- second homes in the Hamptons, and new condos in Manhattan -- register the latest signs of a housing downturn.

Property prices in the Hamptons, a fabled playground of the rich on nearby Long Island, rose steadily for almost two decades, but the prices on almost 1-in-3 of current listings have been cut an average 11 percent from the initial asking, said Sofia Kim of real estate website

Back in town, the number of sales in new developments dropped a whopping 71 percent in April from a year earlier as condo developers enmeshed in complicated financing arrangements have been slow to slash prices even as the market corrected all around them, Kim said.

But if prices on these new condo towers do not fall to match the rest of the market and stay empty as a result, then it could eventually trigger foreclosures of entire properties, forcing much bigger price cuts as lenders seek to reduce their liability.

"If you have a property not priced at market, is it going to sell? Something has to give," said Jonathan Miller, author of real estate broker Prudential Douglas Elliman's market reports.

The intensifying of the malaise afflicting New York City comes as housing in parts of the country that got hit hardest by the bust are showing signs of life. Home sales in California, Arizona and Nevada -- states known for risky lending and speculation during the boom years have risen as foreclosures and short sales lure buyers into the market. In New York, it's the opposite.

When the rest of the country was watching new neighborhoods begin to disintegrate into foreclosure ghost towns in 2007-2008, Manhattan landlords would still publicize new buildings by hosting parties featuring pop stars, sushi and girls twirling hula hoops in a bid to convert still-airborne Wall Street bonuses into down payments.

Today, that bonus pool has dried up amid job and compensation cuts in the financial services sector that drives the city's economy. "Things are much more subdued," Kim said. "There's no money for parties."

The elite in the real estate industry had once hoped Manhattan could escape relatively unhurt as other housing markets suffered. But the collapses of financial powerhouses such as Lehman and Bear Stearns destroyed such thinking.

"What ended up killing us was the foreclosure crisis because that's what killed Wall Street," said Rick Hoffman, a regional senior vice president in the Hamptons for the Corcoran Group, a high-end brokerage. "It bit us in the end."

Glass towers designed to appeal to finance industry hotshots had been shooting up across Manhattan as Wall Street's bonus boom powered a surge of new development, said Barry Hersh, a former developer and a professor of real estate at New York University's Schack Institute of Real Estate.

Now many developers are struggling to secure lender approval to cut unit prices, he said. Without that, they could face foreclosure and bankruptcy, he said.

Some lenders, wary of an announced foreclosure's negative effect on sales, might opt for a more subtle scenario in which they quietly take control of a property.

"You walk in there as a potential buyer and there's still a developer and a broker and a marketing person but in reality the developer has been eliminated from the equation and the bank is deciding whether or not to accept your offer," Hersh said.

Of course, some condo developers are doing what must be done and lowering prices either in consultation with lenders or behind the scenes with buyers.

The developers of the Georgica at 305 East 85th Street, for example, in Manhattan went so far as to address its disappointing sales by relaunching the building in mid-May with a revised marketing and pricing plan, said Beth Fisher, a director at Corcoran Sunshine Marketing Group.

Her group advised the developers not to move forward until they had negotiated the necessary price adjustments with its backers, who agreed to a range of cuts, some as much as 20 percent.

"You're not going to outsmart the market," she said. "You have to give buyers what they want."Others maintain appearances but lower the real price -- often about 5 percent -- by using concessions such as extra storage or the payment of transfer fees as bargaining chips, said Brown Harris Stevens broker Elaine Clayman. "They just don't want to look like the prices are going down," Clayman said.

Hamptons owners cannot hide that. The blood out there may be blue, but Wall Street's bite is still spilling it.

The average sales price in the Hamptons and in the nearby North Fork market plunged 36 percent from a year ago and 25 percent from the fourth quarter to $1.1 million in the first quarter, and the number of sales were down by half year-over-year, according to Prudential Douglas Elliman.

"We track bonuses pretty closely in the Hamptons," Hoffman said. Fat bonuses whip up the market; skimpy ones flatten it.

Take one Southampton property: It offers 13,500 square feet on five beachfront acres, a pond out back, nine bedrooms, a "wine cellar/grotto" and a $20 million discount to $60 million from a previous price of $80 million, according to

As of late May, another house was on the market for $2.6 million, which was down 40 percent from $4.4 million. And the price of a third was reduced 34 percent to just under $2 million.Hamptons owners holding out for higher bids can rent their trophy homes instead of selling them. But because so many people are opting to do that, the rental market is weak too, Prudential Douglas Elliman's Miller said.

Sellers loath to lower the price are putting more property on the rental market. Tenants smelling blood are demanding lower rents. "It's a double hit," Miller said.

Thursday, 11 June 2009

NZD/USD Update

Added another long 1m NZD short USD at 0.6320 post the decision from the Reserve Bank this morning to leave NZ interest rates unchanged.

Total position now long NZD2m short USD at an average of 0.6241.

I think NZ interest rates will plateau for a while now, but no further moves lower.
The NZD will gain over the next 24 hours, especially tonight, with the target 0.6500 initially, enroute to the 0.7000 area this year.

I will update on all my positions later in the week, or at the weekend, but suffice it to say, they are all going brilliantly, and it will be time to buy a new jag soon!!

Friday, 5 June 2009

USD/JPY position update

The position is: Long USD 3m short Yen at 103.10 average.

However I am not comfortable being long USDs, as I believe the USD has some serious weakness ahead in the next few years. However I am happy being short JPY.

Sooooo, I began discussions with my bankers. If I went long AUD and short USD3m would they offset the USD3m long/short and treat it as a AUD/JPY deal for limit purposes?

Essentially doing another 3m USD and marking the position to limits on a gross basis would mean I would not have enough capital to do this and my other trades as well, or at least not comfortably.

I got an agreement today that they would net the trades and treat it as a AUD/JPY deal if I added the AUD/USD leg.

So sold USD3m and bought AUD at 0.8030, thus making the trade long AUD3,735,990.04 short JPY at 82.79. Given that the current spot is at 78.00 I still have a long way to go, but at least I do not have a USD exposure, which is what I wanted to move to.

And I haven't impacted on my limits at all!