Saturday, June 11, 2011

Week Review

Could it all be a case of something as simple as qe2 running out and momentum now playing a short reversal?

The easy trades are almost most definitely over, now alpha will determine most of the gains over the next qtr.

Going towards the end of the year, without a fed driven stimulus how do we create this alpha? Earnings seem to be coming in line with expectations, however gdp growth figures continue to remain revised to the downside.

All green shoot datapoint are now clearly over, with the inconsistent unemployment data in the US, the stalling employment in Aus, and the continuing Euro sovereign issues.

All global rate hikes seem to be on a temp pause right now, almost begetting the US to follow suit before they continue towards price stability.

Purchasing power parity effects and the skew of carry trades is covered in this article. Betting on carry trades is like betting on a valuation spread.
http://www.mebanefaber.com/2011/06/10/currency-carry-it-depends-on-the-valuation/

I've also been reading Invisible Hands by Drobney - a great book of interviews with hedge fund traders, and how they handled the 2008 GFC - most of the traders not having a losing year even during those horrendous downswings. It's interesting to note that most traders mention the importance of understanding the changes in liquidity during times of crisis and how to manage and position your risk as a dynamic system.

I have currently shorted the AUD/USD, added PENN to my long term shorts, and short the asx200.

My bias is now for a continued moved to the downside. I banked the sp500 1292 as my moving stops were hit, but have repositioned the other positions to incorporate my short term bear sentiments. I remain that the USD is going to bounce, how far I don't know, but I'm expecting AUD to test the 1.00-1.02 area before we see how things are shaping out around the economy.