Position update

Policy change.
I deal with my bank and use forward exchange contracts, typically rolled out at inception for 1 year. That means I don’t really worry about day-to-day changes unless the trend itself is in danger. In the past I have shown the spot rate that I have entered deals and ignored the forward points, whether they have been a benefit or cost.

But some of these carry trades have been in place a long time, and the points are getting extremely valuable. So from now on I will show the deal at the forward rate and strip out the unearned forward points for valuation.

Here are the trades I am active in:

AUD/JPY

Long AUD 3,735,990.04 short JPY at 76.69 average.

This was originally made up of two trades:
An original deal of long USD3m short JPY @103.10 (unfrozen on 5 June 2009) and a short USD3m long AUD @ 0.8030 (yes, crossing it up with the AUD has saved me!) done on 5 June 2009, creating a cross of 82.79 average.

I have not bothered with the points on the USD/JPY leg as the interest differential was so small.

The AUD/JPY deal was rolled to 7 June 2010 at a 230 point benefit and has since been rolled again at the bank to 7 June 2011 at a 380 point benefit (as AUD interest rates have climbed over the rollovers).

So the new rate due 7 June 2011 is 76.69, but only on 7 June 2011. The unearned forward points as at today are 238 points cost, so an effective spot rate for valuation purposes of 79.07. (Are ya confused yet!)

Current spot rate: 81.35

Current: Gain 228 points

Comment:

See AUD/USD comments below.

USD/JPY:
The state of Japanese government finances remains extreme. The new government will eventually break the self-imposed debt ceiling and prompt a credit downgrade by the ratings agencies. But the weakness of the USD remains paramount at this stage, especially with QE the dominant force at the Fed. The USD/JPY will eventually test the 80.00 area, and we will see the Japanese intervene below there. I am not hopeful that they will achieve anything by intervening, but the AUD upmove itself should compensate for USD weakness.

I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.

NZD/JPY

Long NZD 3m short JPY at average of 53.33.

The NZD/JPY deal was rolled from the last trade of 1m (making 3m in total at an average of 57.23) on 28 May 2009 to 28 May 2010 at a 160 point benefit and has since been rolled again at the bank to 27 May 2011 at a 230 point benefit (as NZD interest rates have climbed over the rollovers).

So the new rate due 27 May 2011 is 53.33, but only on 27 May 2011.
The unearned forward points as at today are 121 points cost, so an effective spot rate for valuation purposes of 54.54.

Current rate: 63.80

Current: Gain 926 points.

Comment:

See Yen comments in AUD/JPY above. See NZD/USD comments below.

I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.

EUR/USD

Square

Current rate: 1.3690

Comment:

The ongoing concerns in Europe over debt are not going away. But I believe that it is not the problem it was back in May. The ECB can buy bonds, but at present there is a bit of brinkmanship going on. They want to teach the politicians that they have to sort out fiscal policy. Eventually the ECB will again step in so I don’t see EUR weakness as long lasting.

In the long run, all other things being equal, the Euro Zone debt position is far better than the US. If the US does not move to reduce the budget deficit over time, then the USD will become the next Greece.

I still believe that Europe will raise interest rates before the US does. Watch the inflation readings. With Gold, oil and food all hugely higher, inflation is on its way. Have look at

Standard and Poors

then expand the agriculture icon!!!!

Agriculture is up 25%, with cotton up 90%!

GBP/USD
Square
Current rate: 1.6114

Comment:
Took a loss on my short GBP1m position at 1.5278 (short from 1.4990) of USD 28,800. Took a gain (back on 11 August) on my long GBP1m position at 1.5820 (long from 1.5278) of USD 54,200. Net gain USD25,400 (NZD35,376 @0.7180).

AUD/USD

Long AUD 2m short USD at 0.7907.
Current rate: 0.9861

Current: Gain 1954 points.

The AUD/USD deal was at spot of 0.8670 on 28 September 2009. Was rolled to 28 September 2010 at a 320 point benefit and has since been rolled again at the bank to 28 September 2011 at a 443 point benefit (as AUD interest rates have climbed over the rollovers).

So the new rate due 28 September 2011 is 0.7907, but only on 28 September 2011. The unearned forward points as at today are 393 points cost, so an effective spot rate for valuation purposes of 0.8300.

Comment:

Unchanged really. I believe the Australian economy remains extremely well placed to benefit from ongoing commodity demand, especially with China still growing strongly. I expect ongoing interest rate increases from Australia. I still believe that the AUD/USD has a long way higher to go yet. My new target is now 1.0500.

Happy with the current exposure.

NZD/USD

Long NZD 2m short USD at .6745.

Current rate: 0.7730
Current : Gain 985 points.

Comment:

The NZD/USD deal was at spot of 0.7160 on 28 September 2009. Was rolled to 28 September 2010 at a 190 point benefit and has since been rolled again at the bank to 28 September 2011 at a 225 point benefit (as NZD interest rates have climbed over the rollovers).

So the new rate due 28 September 2011 is 0.6745, but only on 28 September 2011. The unearned forward points are 207 points cost, so an effective spot rate for valuation purposes of 0.6952.

The NZD/USD is still looking very positive, with commodity prices still driving the NZD higher. There is also some pressure from the Canterbury earthquake offshore flows. As the re-insurers offshore pay out on the claims they have to buy NZD’s. The sums involved are large and that is driving the NZD/EUR and NZD/GBP higher, as the re-insurers are in the UK and Europe.

The NZD/USD is still following the AUD/USD, which is driven by Asian developments. The NZD/USD has not really had the benefit of rising interest rates, but this cannot be too far away now. Inflation pressures are strong in China and Asia and we need the higher NZD to insulate us from imported inflation. When the RBNZ begins to raise interest rates in March 2011, the NZD/USD will begin to test the post float highs around 0.8250. Target remains the highs of 0.8250, but we may see the 0.9000’s before this trend finally tires.

Happy with the current exposure.

Unrealised gains NZD1,174k (AUD/JPY +134, NZD/JPY +435k, AUD/USD +404k, NZD/USD +201k).
Previous realised balance: NZD2,344,360.38

Plus GBP/USD realised gains of NZD35,376

Total gains banked since August 2007:

NZD2,379,736

So if I cashed up the whole lot right now I would have made over NZD3.5m since August 2007 or slightly over 3 years.
If you don’t believe me, scroll back through all my posts to see how I did it!!

GBP position update

Took profits on my GBP 1m long postion. This was enterered at 1.5278 and took the gain at 1.5820. So 5 pence gain, not too shabby.

Other positions unchanged, will do a position update later in the week.

Position Update

Have not changed any of my positions.

So still long NZD/USD, AUD/USD, NZD/JPY, AUD/JPY and GBP/USD.

Have some more grey hairs over all the positions, but am hanging in there at this stage.

I like the AUD and the NZD, I think they still have legs to recover back to 0.9000 and 0.7500 respectively.

I like the carry trades. But have been beaten up hard in May. The trick with carry trades is to hold on to them. They return between 4 -5 % pa. The rate has to fall that much every year to lose out. That has never happened. Some years down, some years up, but never down every year. So as long as you can afford to wait, you cannot lose. If you can wait 10 years, the rate has to fall 50% for you to be behind. So the secret is to hold them until the rate recovers again. It has worked for me many times.

I'm not so in love with being long GBP. But I think the budget will lift the GBP. So I will wait a while yet.

I also like the euro. The worst of the sovereign fears are now priced in. The fall post creation of the euro was close to 35 cents. The fall post GFC was close to 35 cents. This move started down from 1.5000, so I figure between 1.2000 and 1.1500 there will be a base found. That may have already happened.

France and Germany will make serious money over the summer months with the euro at these levels. France especially, as they are agricultural exporters and their exporter season starts now. I expect the data from these two countries to improve dramatically over the next 3-4 months.

So I like the euro, and I see it back towards the 1.4000 area by Christmas.

What else...

I don't like the USD. I don't like their debt load. I don't like the way Obama is demonising BP.
I think US politics is going to be paralysed post mid terms. So doing an austerity package a la Europe will be difficult, if not impossible.

I don't like US bonds as a result.

Thats about it. Sorry for the lack of posting, but haven't been really inspired.
Anyone missing the blonde of the month yet?

GBP position update

Took a loss on my short GBP1m position at 1.5278 (short from 1.4990) of USD 28,800.

But went long GBP1m also at 1.5278.

I figure that enough bad news is already priced in. We'll see.......

Long-term investors unfazed by close-run UK election

07 Apr 10 08:30:41

By Jeremy Gaunt LONDON (Reuters)

Long-term investors do not appear overly concerned about Britain's election delivering an inconclusive result despite market wobbles about a "hung parliament". Analysts who track institutional investor flows report strong inflows into UK equities, steady demand for British government bonds and caution, rather than flight, when it comes to sterling. Fund managers, meanwhile, say investors are taking decisions on a broad range of issues, not just on the immediate potential for political uncertainty.

In short, what has been a fixation in UK media and political circles -- the rare prospect of a hung parliament in which no party has an overall majority or a strong mandate for painful measures to cut Britain's bloated debt -- is not resonating loudly with longer-term investors. "The elections are just a small part of how investors look at the UK," said Emiel van den Heligenberg, head of tactical allocation at BNP Paribas Investment Partners. "You could argue that a hung parliament is difficult ... but it should only be one of many factors. I don't see people strategically moving away from the UK."

That is not to say there will not be short-term market wobbles were a hung parliament to result from the May 6 poll. But institutional decisions -- by contrast with short-term trading -- are being driven more by issues such as euro zone weakness, the quality of UK stocks and the rise of the dollar as the U.S. economy rebounds. There is also a strong view that Britain is better placed to work itself out of economic trouble than, say Greece or Portugal, no matter what colour of government is formed.

"The UK is one of the few countries where you can expect something (in the way of austerity)," said Kommer van Trigt, bond fund manager with Robeco Group. In Reuters' late March asset allocation polls, U.S. and Japanese institutional investors actually increased their exposure to UK stocks and bonds, while continental Europeans slightly trimmed their exposure. British investors, perhaps more tuned in to domestic events, stepped back more firmly from UK assets in March. In a Reuters poll last week economists saw a median 55 percent chance of a hung parliament.

GLOBAL REACH
On the whole, investors do not appear as concerned about the election creating political stalemate as might be expected. Nowhere is this more evident than on the British stock market. The FTSE 100 is up 6.75 percent this year, outperforming most U.S. and European bourses and hitting a fresh 21-month high as Brown was preparing to call the election. A lot of this has to do with the non-UK sensitive nature of the index, which incorporates many of the world's largest and most dynamic multinationals, those most likely to benefit from a global economic recovery.

But further down the scale there have also been impressive gains that belie suggestions of concern about political uncertainty. The FTSE mid-cap index is up nearly 12 percent for the year, one of the world's best performers. The small-cap index has gained 4.6 percent. The main reason is that large investors are focusing on what they see as good value in UK stocks, not on short-term worries about politics. "We think that UK equities are very appealing," said Franz Wenzel, senior strategist at AXA Investment Managers. "Their earnings multiple is extremely low, in particular compared with the earnings growth forecasts for the next couple of years."

SHORT VS LONG
Other UK assets are not quite so immune from election jitters but still do not appear to be overcome by fears that a weak government would be unable to tackle Britain's huge debt. The 10-year UK government bond yield is higher than it was during the height of the credit crisis, but it is still relatively low given concern about a burgeoning government debt and increased supply. Simon Derrick, chief currency strategist at Bank of New York Mellon, said that flow data within the $22 trillion his bank holds as custodian or administrator, showed that far from deserting UK fixed income, investors were warming to it. "Net holdings are moving back to levels they were at in 2007," he said. "The fixed income story is pretty positive." Part of the reason, he said, was that for many investors British bonds looked a better bet than U.S. or euro zone debt.

Even when it comes to sterling -- which has been volatile as talk of a hung parliament has grown, falling 1 percent against the dollar on Tuesday -- there is more evidence that it is short-term investors at work than longer-term ones. While trading data shows many hedge funds are short sterling, fund flow analysts say the currency is holding up. "There is a recognition that sterling remains competitively priced," Derrick said. "Sterling clearly looks like a long-term relatively good buy."

Unfortunately I am starting to agree. Um......shame I am short pounds lower down. I think I will look for a dip to get them back in and actually go long, as I agree with the thrust of this story. - KT

Updated positions

Here are the trades I am active in:

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

Current rate: 86.80
Current: Gain 401 points

Comment:

See AUD/USD comments below.

USD/JPY: The state of Japanese government finances is extreme. The new government will eventually break the self-imposed debt ceiling and prompt a credit downgrade by the ratings agencies. The recent strength in the USD will continue, pushing the USD/JPY back up towards the 100.00 area in the months ahead.

Still have a longer-term target in the AUD/JPY cross of 105.00. I am happy with the current exposure.

NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 65.70
Current: Gain 847 points.

Comment:
See Yen comments in AUD/JPY above. See NZD/USD comments below.
I am happy with the current exposure.

EUR/USD
Square

Current rate: 1.3402

Comment:
The ongoing concerns in Europe over debt will not go away. Their basic problem is that they have no central authority that funds the Euro Zone. Each government has its own finance department. Result: chaos when debt becomes unmanageable. Until sovereign debt concerns abate, the euro will remain on the back foot against the USD.

But in the long run, all other things being equal, the Euro Zone debt position is far better than the US. If the US does not move to reduce the budget deficit over time, then the USD will become the next Greece eventually (after the UK!).

I still believe that Europe will raise interest rates before the US does. Watch the inflation readings, Europe is already seeing some inflationary pressures in some German states.

GBP/USD
Short GBP1m long USD at 1.4990

Current rate: 1.5150

Current: Loss 160 points.

Comment:
The UK election has been announced. This will be a volatile time for the GBP/USD. The UK debt load is staggering, with a credit downgrade only a matter of time. Whoever wins the election it will be a poisoned chalice. It may be that the IMF is eventually called in as well. Either way the pound is under steady selling pressure, with my longer term target 1.3000.

Will review on a break above the 1.5500 level.

AUD/USD
Long AUD 2m short USD at 0.8670.

Current rate: 0.9250
Current: Gain 580 points.

Comment:
I believe the Australian economy remains extremely well placed to benefit from ongoing commodity demand, especially with China still growing strongly. I expect ongoing interest rate increases from Australia. I still believe that the AUD/USD has a long way higher to go yet.

My target remains1.0000.

Happy with the current exposure.

NZD/USD
Long NZD 2m short USD at .7160.

Current rate: 0.7000
Current : Loss 160 points.

Comment:
The NZD/USD has lost its way somewhat, with the RBNZ tardy in raising interest rates. They will eventually regret this.

The NZD/USD is still following the AUD/USD, which is now driven by Asian developments. The NZD/USD has not had the benefit of rising interest rates, but this cannot be too far away now. When the RBNZ begins to raise interest rates in June, the NZD/USD will begin to see higher levels again. The NZD/USD still has a long way higher to go yet. Target remains the highs of 0.8216.

Unrealised gains NZD710k (AUD/JPY +227, NZD/JPY +387k, GBP/USD -23k, AUD/USD +165k, NZD/USD –46k).

Total gains banked since August 2007:
NZD2,344,360.38

Position changes

Got cold feet on my long EUR short USD trade and closed it out today at 1.3590 for a small gain.
But decided I hate the pound, and so sold GBP1m and bought USD at 1.4990.

Will update more tomorrow.

EUR/USD new deal

Bought EUR1,000,000 sold USD at 1.3570 on Friday morning.

Tough decision, given that so many are convinced that the Euro is toast. But I think that the fall from 1.5100 to 1.3445 levels is probably enough. Everyone is short the Euro, with the result that there are no more serious sellers left.

I have also heard rumours that Chinese and Russian central banks are buyers of Euro in the 1.3400-1.3500 area.

Anyway, we will see what happens over the next few weeks.

Anyone agree with me? Or are you all convinced that I have finally lost it?

Position Update

Have been away on leave in Australia, and have been very slack about updating...apologies!!

Here are the trades I am active in:

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

Current rate: 79.64
Current: Loss 315 points

Comment:
See AUD/USD comments below.
USD/JPY: Japan is set to again increase quantitative easing, especially with the Yen strength in recent weeks. Given the overall USD weakness, the Yen will settle in the 95-100 area, with the Euro itself making all the longer term gains against the USD.

Still have a longer-term target in the AUD/JPY cross of 105.00. I am happy with the current exposure.


NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 63.28
Current: Gain 605 points.

Comment:
See Yen comments in AUD/JPY above. See NZD/USD comments below.
I am happy with the current exposure.


EUR/USD
Square

Current rate: 1.3880
Comment:
I must admit I have been surprised by the USD strength in recent weeks. Euro money supply is shrinking. US money supply is expanding. The USD must weaken against the Euro in the long run as a result. Overall I see the USD weakening considerably due to ongoing quantitative easing pressures. Remember Europe is not in a QE stance. Europe will raise interest rates before the US does.

I will add a new position EUR1m long if we see sub 1.3600.

AUD/USD
Long AUD 2m short USD at 0.8670.

Current rate: 0.8820
Current: Gain 150 points.

Comment:

I believe the Australian economy remains extremely well placed to benefit from the commodity demand, especially with China still growing strongly. I expect an interest rate increase from Australia, either tomorrow or in March. I still believe that the AUD/USD has a long way higher to go yet. Target remains 1.0000.

I will add to positions if AUD/USD 0.8600 is seen.

NZD/USD
Long NZD 2m short USD at .7160.

Current rate: 0.7010
Current : Loss 150 points.

Comment:
The NZD/USD is following the AUD/USD, and to some extent the EUR/USD moves. As we are now in the export season for New Zealand, upward pressure will intensify. This will compound when the RBNZ raises interest rates in April this year. The NZD/USD still has a long way higher to go yet. Target remains the highs of 0.8216.

I will add to positions if NZD/USD 0.6800 is seen.

Unrealised gains NZD130k (AUD/JPY -148, NZD/JPY +287k, AUD/USD +34k, NZD/USD -43K).

Total gains banked since August 2007:
NZD2,344,360.38

No Change

Have not altered positions at all at this stage.
Still happy with all positions.

Position Update - Finally!

Here are the trades I am active in:

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

Current rate: 84.88
Current: Finally!! A Gain by 209 points.

Comment:
By buying AUD I have converted this trade from a crappy USD/JPY deal to a AUD/JPY deal. See post here. Target is 85.00 enroute to 105.00.

I remain comfortable with carry trades.

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.

NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 69.42
Current: Gain 1,219 points.

Comment:
I remain comfortable with carry trades with the NZD/JPY up over 56.5% this year!
Happy with the current exposure.

EUR/USD
Square

Current rate: 1.5000

Comment:
Overall I see the USD weakening considerably due to quantitative easing pressures. Recent data, especially in housing and unemployment indicates there is no pressure to change monetary policy, and easy conditions in the US will be the norm for a considerable time yet to come.

Cashed out: Way too soon!
Long EUR1m (1.4465) short USD at 1.4550, for a gain of USD8,500.00, NZD12,142.86 (not counting carry interest).

AUD/USD
Long AUD2m short USD at 0.8670.

Current rate: 0.9222
Current: Gain 552 points.

Comment:
I took profits (see below) at 0.8610, but then reinstated again, as it is clear that the AUD/USD has a long way to go yet. Target is now 1.0000.

Cashed out:
Long AUD2m (0.7312) short USD at 0.8610, for a gain of AUD301,509.87, NZD369,950.76 (not counting carry interest).

NZD/USD
Long NZD2m short USD at .7160.

Current rate: 0.7542
Current : Gain 382 points.

Comment:
I took profits (see below) at 0.7010, but then reinstated again, as it is clear that the NZD/USD has a long way to go yet. Target is now the highs of 0.8216.

Cashed out:
Long NZD2m (0.6241) short USD at 0.7010, for a gain of NZD219,400.86 (not counting carry interest).

Unrealised gains NZD886k (AUD/JPY +112k, NZD/JPY +527k, AUD/USD +146k, NZD/USD +101K).

Previous realised balance: NZD1,742,865.90

Plus EUR/USD realised gains of NZD12,142.86
Plus AUD/USD realised gains of NZD369,950.76
Plus NZD/USD realised gains of NZD219,400.86

Total gains banked since August 2007:

NZD2,344,360.38

AUD and NZD trades

I re-established my long NZD and AUD trades yesterday.

Bought AUD2m sold USD at 0.8670.
Bought NZD2m sold USD at 0.7160.

Target 0.9000 and 0.7500.

Review at .8000 and 0.6800

Have booked profits on some trades today.

Have taken profit as follows:

AUD/USD Long AUD2m short USD at 0.7312.
Closed at 0.8610

Gain of 1298 points.

NZD/USD Long NZD2m shortUSD at .6241.
Closed at 0.7010

Gain of 769 points.

EUR/USD Long EUR1m short USD at 1.4465
Closed at 1.4550.

Gain of 85 points.

Still have AUD/JPY and NZD/JPY carry trades.

Will update on gains to date etc tomorrow if I get time.

EUR/USD position

Added a new position.

Bought 1m EUR at 1.4465 sold USD.

Did this yesterday on the break higher. Was doubtful whether it would go on , so have a stop on it at 1.4450.

We will see how weak this USD really is.

No change to positions

Left all current positions in place, as the correction lower I was looking for remains elusive, with more and more evidence pointing to stronger AUD and NZD against both the USD and the YEN.

So, steady as she goes!

Here are the trades I am active in:

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

Current rate: 81.65
Current: Loss by 114 points.

Comment:
By buying AUD I have converted this trade from a crappy USD/JPY deal to a AUD/JPY deal. See post here. Target is 85.00 enroute to 105.00.
I remain comfortable with carry trades.

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.

NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 65.50
Current: Gain 827 points.

Comment:
I remain comfortable with carry trades with the NZD/JPY up over 44% this year! Happy with the current exposure.

EUR/USD
Square
Current rate: 1.4185
Comment:
Overall I see the USD weakening considerably due to quantitative easing pressures. But would not be surprised to see the USD strengthen over next few weeks.

AUD/USD
Long AUD2m short USD at 0.7312.

Current rate: 0.8370
Current: Gain 1058 points.

Comment:
These rallies have probably done enough for the minute, so will be taking profits at some stage this week.

NZD/USD
Long NZD2m short

USD at .6241.

Current rate: 0.6715
Current : Gain 474 points.

Comment:
These rallies have probably done enough for the minute, so will be taking profits at some stage this week.

Unrealised gains NZD770k (AUD/JPY –65k, NZD/JPY +379k, AUD/USD +315k, NZD/USD +141K).

Previous balance: NZD1,742,865.90
No changes realised.
Total gains banked since August 2007:

NZD1,742,865.90

Outstanding positions update

Here are the trades I am active in:

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

Current rate: 77.60

Current: Loss by 519 points.

Comment:
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.


NZD/JPY
Long NZD 3m short JPY at average of 57.23.

Current rate: 61.82

Current: Gain 459 points.

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


EUR/USD
Square

Current rate: 1.3940

Comment:
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.


GBP/USD
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).

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


AUD/USD
Long AUD2m short USD at 0.7312.

Current rate: 0.8060

Current: Gain 748 points.

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


NZD/USD
Long NZD2m short USD at .6241.

Current rate: 0.6422
Current : Gain 181 points.

Comment:
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:

NZD1,742,865.90

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!!

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!!

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!