Moon Shot

Monday, July 20, 2009

There is perhaps an element of poetic justice that on the 40th anniversary of the Apollo moon landing, risk assets of virtually every description are attempting a moon shot of their own.

News that CIT has avoided bankruptcy appears to be the catalyst, though as Macro Man observed last week, that presents a bit of a logical inconsistency, given that CIT's woes didn't put the slightest dent in equity prices to begin with.

Anyhow, it's always dangerous to stand in front of a market hitching a ride on a rocket, and the Spoos are now quite close to delivering a new closing high.
Of course, there's the small matter of the rest of earnings season to navigate, as well as Bernanke's Congressional testimony tomorrow. Might talk of an "exit strategy", and a concomitant further sell-off in fixed income, apply a bit of pressure to risk assets? Perhaps, though 4% ten year yields are a more obvious inflection point than, say, 3.70%.

In the meanwhile, Macro Man has de-risked a lot of his portfolio after last week's trading frenzy. For choice, he's more inclined to play FX carry than equities here; USD/TRY has broken some interesting chart levels and has attracted quite a bit of interest this morning.

Now that schools in Europe are (finally) out for summer, Turkey should see the usual seasonal inflow from the tourist industry, which could provide a further fillip to the already-buoyant lira.
Whether it shoots the moon is anybody's guess; from Macro Man's perspective, he's happy to stay lightly-risked and nimble. From his perch, this remains much more of a trader's market than a macro thematic one; in that vein, a space shuttle is probably a more useful vehicle than an Apollo rocket.

Posted by Macro Man at 8:34 AM  


Oh come on, get on the HSI calls bandwagon. We've entered the Ponzi zone, and so long as your stops are tight this is going to be more of the same crazy BS that Japan went through in 86-89. What's more, vols are declining so downside protection is just getting cheaper and cheaper.

Nemo Incognito said...
9:02 AM  

Anyone got any good long term PA ideas ?

Here's what I would do/ am doing :

1) Long equities, I think we have seen a generational low in equities and if you go long now and hold for the next 5-10 years you should do pretty well.

2) Buy Silver - put a cheeky 10K/ 50K/ 100K in depending on your bankroll and watch it go up 10 times. Risk is minimal and possible rewards is huge, assuming hyperinflation eventually shows up.

what do you reckon?

Anonymous said...
10:09 AM  

You missed the news today..
AP11 astronauts are pusing for a new "race to Mars.." apparantly the moon is old territory along with recession.

Maybe AA is right, go for the long bombs to Mars and CYA with those cheap short routes out in the flat..who the hell knows?

Keith said...
10:54 AM  

China is by no means cheap, a long term bet, or good fundamentally from a structural point of view. It is however, a country with ~0 rates, lots of savings to be parked somewhere, and awash in silly money. Its hard to argue why you shouldn't be long this so long as its in a liquid format you can ditch in <24hrs.

Nemo Incognito said...
10:57 AM  

does that mean Nemo that you've blown your wad on the mainland?

Keith said...
12:04 PM  

5% of the book is generally in HSI/HSCEI calls of the not excessively out of the money variety and 2.5% in very out of the money puts. I don't like this economy on a fundamental basis as much as Indonesia (also cheap on valuations) or Brazil but that is an amount I am happy to lose on the downside for something which could do a NKY circa 85-89.

Nemo Incognito said...
12:18 PM  

Macro monkey notes currencies getting jiggy in a big way.

He also recommends agency REITs for the pa--government credit risk, agency repo leverage, big yields. NLY, HTS, MFA, and CMO would be the tickers he'd post if he really wanted to talk his book.

Macro Monkey said...
12:28 PM  

no shit monkey...REIT's hey?
you're convinced they've hit the bottom?
What's the fascination with hatteras, anyway?

Keith said...
1:11 PM  

Ah, NLY.....a fixture in the all-too-often-neglected MM PA since 2002. Hard to argue with a 15% yield these days (ephemeral is it may prove.) That's been on "auto-reinvest" in the IRA, with pleasing results.

Macro Man said...
1:27 PM  

I can tell you are bursting with confidence...

Keith said...
1:37 PM  

NI - I agree with your sentiments on the HSCI and China, but if there is some policy tightening (liquidity withdrawal) then you may have to be very quick toward the exit. Liquidity is a necessary, but not sufficient condition. Risk appetite also needs to be present, or else liquidity can leave as fast as it arrived..

Anonymous said...
2:05 PM  

Not REITs, Keith. Agency REITs. Very different risk profile. It is not at all a bet on growth or bullishness. Rather, it is a bet on US gov credit risk, no hyper inflation, and the ability of these REITs to finance their 5-6x leverage through agency repos. They used to run 12-14x leverage but no longer need to to hit their 18-20% ROEs.

In essence, it is a bet on normalization of the financial plumbing. I am willing to take this risk, relative to the returns on offer. I think of it as a conservative position, really. If you fear hyper-inflation or the meltdown of US credit risk, however, this is not for you.

Macro Monkey said...
2:13 PM  

Macro Monkey loves this blog BTW. Macro Man, as a writer, trader, and higher primate, my hat is off to you.

Macro Monkey said...
2:36 PM  

Also for those who are at all interested there's a cliff notes version of my Bali holiday reading and how it pertains to China:

Nemo Incognito said...
2:39 PM  

Macro Monkey, don'tcha mean that you're bananas for it? Thank you, I'll be here 'til Thursday, try the meatloaf.

Macro Man said...
2:40 PM  

Well, that's weird: I own NLY, too. If want to own agencies and aren't yourself an expert, the Annaly guys are the ones to hire. I am not buy-and-hold with them, though. I bought back in circa late May.

As for the risk profile, I've been around long enough to remember CMO's big blowup, not to mention their and their friends littler ones. There is a reason I would not own any of the others except as a trade. One of my first experiences on the buy side in the '90s was watching a newish analyst blow up her fixed income portfolio buying weird agency CMOs.

She's still working, of course. But then, so am I. If only I had blown up more portfolios over the years, I might be earning as much as she.

wcw said...
4:06 PM  

I am afraid that China is a bubble in progress. Of course, far we are from the place where one should play bubble bursting game, but caution is very advised from my point of view. No huge hits(indexwise) there anymore, IMO.

Stefan said...
5:05 PM  

Nice to see the Sterling bull trade is alive and well, but I'm still hitting and running. But how much is too much? AUD was a nice little shot in the arm as well.

Happy Monday lads.

Professional Gringo said...
5:20 PM  

Our shot in the arm was provided by England's win at Lord's combined with a win by the NY England team over the NY Aussies in a competitive exhibition of ex-pat cricket held on Saturday in Greenwich, CT.

Now if only we could get JPY and USD to rally......

leftback said...
6:54 PM  

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