Quick thoughts

Been very busy lately but will be back soon with regular posts. Just a quick update here on my thoughts on the market. Posting quickly on my phone in a car so no charts and just going off the top of my head. Forgive the stream of consciousness ranting.

Aussie dollar is beginning to look tired and after another rate hike, the hidden fragility in the Australian financial system (particularly its housing/real estate industry) may be increasingly exposed soon. At least at these levels, I like the AUD as a short against some other currencies. I’m short AUD/USD and I like EUR/AUD for an intermediate term play.

EUR & GBP have been getting pounded lately on (very legitimate) fiscal concerns from PIIGS & UK, respectively. The euro remains a good long term short in my opinion (though oversold bounces can be very volatile) as the Greece situation is still not wholly resolved, the Italy, Portugal, & Spain crises barely priced in, and the Eastern European cataclysm all but forgotten about. I’m short EUR/USD and holding. Also short GBP/USD but have taken some profits off the table– may add back in later. Gold priced in EUR & GBP making new all-time highs almost by the day.

Japan is still weak and 2010-2011 might be the beginning of the plunge in JGBs people have been predicting since the Nikkei crash in the late 80s. Private & financial sector debt crises tend to be BULLISH for the associated nation’s sov bonds, contrary to popular conception, so long as the nation’s fiscal state is relatively healthy. It’s the common safe haven play. But now with a global credit crunch, tanking export revs, increasing protectionism, and an aging workforce, crisis is back on the table at no-growth Japan. And this time the sovereign sector is levered up (as a consequence of Keynesian policy in response to the Nikkei crash and corresponding financial crisis). This is bearish for JGBs, as well as the yen, particularly as a safe haven. Yen carry trade should resume until rising costs of capital and inflationary pressures cause rising rates, which will lead to a positive feedback inflationary crisis, imo. I’m long USD/JPY and consider it a steal of an intermediate- to long-term play below 90.

The Nordics have massive CEE exposure, and the funding currencies vs the euro & domestic currencies only further complicate the issue. Bearish on Norwegian Krone, especially at these levels. I’m long USD/NOK and will add in size on a 200DMA breakout. Terrific historical moving average confluence.

Equities look tired and I’ve unhedged my short book (which meanwhile has decreased in size as I take profits/cut losses to raise cash into this mkt bounce that I actually called to the day in my last post). Expecting further USD strength from here and tomorrow’s jobs report may catalyze the beginning next wave down, like in late Jan I believe, but I’m not positioned for the NFP one way or another. USD edging higher ahead of report as I type this, conensus is -50k NFP. Mutual fund cash levels at historic postwar lows seen only at 1973, 2000, & 2007 market highs, so expecting resumption of equity decline from here. Carry trade unwinds are to be watched for, as well. More importantly, QE ends this month (Tsy portion ended in Oct 2009, MBS portion in Mar 2010), while TALF’s non-CMBS ABS-secured lending expires on the 31st. This is a significant liquidity drain that should be substantially bearish for equities & risk assets, while bullish for USD and the short end of the curve. Random note: lots of big-name hedgies been reporting stakes in Citi common equity in 13Fs, including Soros. Take that for what it’s worth. Unsure of any note/pref/CDS/short exposure so may be an arb or hedge play. Would love reader’s thoughts. Also, I’ve recently been recommending a DV01-neutral 3s5s flattener in the intermediate term for risk asset decline, though I’m bullish steepener longer term.

Tishman Speyer’s foreclosure on its ill-fated Stuyvesant Town/Peter Cooper Village property will hit CMBS prices next month. Expect the real estate double dip to blatantly manifest before summer arrives. Insurers like HIG & quasi-financials like GE have large CRE exposure. Expecting surprise writedowns in Q2-Q4 2010 in those firms. BBVA recently had a 96% (+/- 2%… My mind’s drawing a blank on the exact figure) drop in earnings YoY in its Jan earnings report, partly due to American CRE.

China bubbles in property & equity are running out of steam and may be unwinding as we speak. HSBC out with poor earnings, substantially due to Chinese investment losses. Copper (bubbled up via China) appears to be analogous now to oil in summer 08. Big declines could be in store for /HG.

Speaking of oil, the contango trade has now matured and the tankers full of crude in the Pacific can’t be rolled over with contango spreads normalized and significantly lower than cost of carry. This is huge supply that should drive down crude prices significantly. Bullish for USD, bearish for commodity currencies like CAD & AUD. Also support for my short AUD/USD thesis.

Net-short riskies, like USD, like Tsy flattener (esp 3s5s) in short/intermediate term, bearish on /HG /CL, bearish AUD GBP EUR NOK. Also probably will enter long SPY/short IWM short-beta trade soon. Stay posted.

And soapbox time: enough with the EUR shorts/Greek CDS scapegoating! Those long RMBS during the bubble weren’t probed! Shorts & CDS players don’t cause weakness, they expose it and profit off of it. As if Greece & the Eurozone don’t have enormous structural problems!

The anti-shorts remind me of how insecure high school girls often complain of bullies/antagonists causing low self-esteem in them. As Katt Williams best put it, “it’s SELF esteem– esteem of your goddamn SELF”. No one lowers your self-esteem but you! Self esteem goes down because of 1. insecurity or 2. exposed flaws/faults/weaknesses. Either way, the underlying problem is with YOU. Not the people exposing it. And the quicker it’s exposed, the quicker it’s acknowledged, and the quicker the self-denial delusions make way for positive self-improvement that raises self-esteem!

Same thing with those short EUR (me included) and long various sov CDS. The underlying problem is Greece’s/Eurozone’s. All euro shorts/sov CDS longs do is EXPOSE that weakness. Which forces acknowledgment, catalyzing change & reform, permitting malinvestment purging, sowing the seeds for ORGANIC & SUSTAINABLE growth. Jim Chanos was right. Or are you going to try to tell me the shorts killed Enron & not their SPVs and accounting fraud?

/end rant. Regular posting (and updated trades & PnL’s) resuming soon.

PS I’m soliciting names for my hedgie… Send all submissions to naufalsanaullah@gmail.com. Winner gets $5000. Winner announced July-Aug sometime.

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