Tuesday 26 February 2008

Closing CHF/JPY long

Back on December 19th, I bought Swiss Francs versus selling Yen, with the rationale being that Swissie could outperform as it has slightly higher interest rates and some chance of growth, whereas Japan looks set for another recession (I keep my eye on Japan Economy Watch). Both countries should trade similarly on a carry trade basis, so in times of stress, neither should really outperform the other.

Well, I'd left a limit order a point and a half from where I owned it, and it hit today. I'd paid 97.17 for the June contract, and sold it today at 98.77, for a profit of $960.

I don't think much has changed to change my rationale on this trade, so any selloff and I may look to get back in.

Away from that cross, I've now got nothing going on in FX. I'm frustrated that I took off my longs in AUD against JPY and GBP. I'd even written on the GBP one on Jan 9th,
"As always, I'll try and remember and keep an eye on this one, to look for the re-entry. I still think we could have a solid break out of the long-term range as the UK economy comes to a screeching halt."

Well, what a dick I am. I even watched it spike up to 2.28, and just bottled it when I should have pulled the trigger. It's now trading at 2.12! $16k or so that I should have had in my pocket.

I'm still thinking the UK is screwed, but I now don't know what to short it against. I am beginning to think the next down leg in the dollar is coming, as the fundamentals are just terrible in the US, with no solution and no end in sight for the housing problem. I hate the Euro and just refuse to buy it here. I missed the Aussie dollar as I said. I don't like the Yen, as they hit another recession and so near-zero rates look here to stay. Maybe the Swiss Franc is the way forward, but it's had a big move at the end of last year. Might keep an eye on this one though.

Finally, I think Hungary could be the next shit-show in the markets, or at least Eastern Europe in general. Global Economy Matters has some very detailed posts on this, stating

It is unlikely that the Baltics will be the first in line in connection with a potential currency run in the context of Eastern Europe. That dubious honor seems to have landed at the front step of Hungary and Romania.

See this post for plenty details. I'll probably buy USDHUF very soon, the entry point here, around 175, looks fantastic:

In fact I've talked myself into it. Just paid 174.86 in equivalent of $500 per big figure (shorted about $87k worth of HUF).

Cool. Back in the FX game.


Monday 25 February 2008

I am bearish...really bearish...selling stocks here:

I am an avid reader of Mish, and lately Reggie Middleton's BoomBustBlog. They are probably the two most informative producers of economic and market related information anywhere, and everything I read here, and elsewhere, points me to a continuing deterioration in economic fundamentals, pretty much led by the US (although exported to Europe/Asia through risk transfer mechanisms such as CDO's).

Homebuilders look screwed, monolines seem finished, as I can't see the plan to split them into two parts, a "good" part and a "bad" part, being anything other than fraudulent conveyance, REITs look like the next crash victim as the CRE crunch hits hard and fast (lots on this posted over at Calculated Risk also), and with the housing crash in full force, bank lending taps turned off and unemployment increasing, retail looks set to get hosed also.

On that note, I've put on some more shorts, selling:

Aeropostale (ARO), a US clothing retailer, at $27.44 in ~$27k
Hovnanian Enterprises (HOV), the builder, at $10.01 in ~$20k
Centex (CTX), the builder, at $23.30 in ~$23k
Boston Properties (BXP), a REIT, at $88.04 in ~$26k
Simon Property Group (SPG), a REIT, at $85.77 in ~$25k

These all look like near-guaranteed to go down over the medium term, with fundamentally flawed businesses in this environment. I'm also looking at shorting Assured Guaranty (AGO), the monoline, and getting long Jones Soda (JSDA)...really struggling to find longs I like, but this one looks like it has potential. More later.

I'll get the spreadsheet updated in a bit, have been on the road for a couple of weeks so not been as active. Time to get back to it, I was hoping February would be a more profitable month, but the Oil short caught me out, and I didn't keep on the long AUD versus both Yen and the Pound which would have really paid out. Oh well, plenty more opportunities out there.


Wednesday 20 February 2008

Shorting US Steel again

Selling ~$18k worth of US Steel (X) at $111.72. This one is the gift that keeps on giving, I've shorted it a couple of times in the last few months, and am getting in again for the same rationale really, in that steel stocks basically get killed in a recession.

Stock up a lot over the last 2 days after a UBS upgrade, but I'm gonna just use that to get this great entry point. UBS may be right in that higher iron ore settlements should cause price rises, but I still contend that lower demand will hit margins.

Portfolio all looking good except my oil short...down something like $13k on it...pretty frustrating, I still don't mind being short, but I even thought that the timing of my entry was poor. Will see how it unfolds over the next few days.

Friday 15 February 2008

Covering FTSE and S&P 500

Just bought back the short I put on the FTSE and S&P 500 yesterday. Paid 5785 on the FTSE (having shorted at 5922) for a profit of £1,370 (~$2,700), and paid 1345 on the S&P, having shorted it at 1371.5, for a profit of $1,325.

It's all too easy, just fade the rallies.

Thursday 14 February 2008

This market is gifting you money

This market is practically giving money away. Trading from the short side, I can barely see how you can go wrong. Adding to shorts here:

Selling ~$69k of S&P 500 June futures at 1371.5

Selling ~£13k (~$25k) of HMV.L at 128.9p. HMV is a large specialist music/DVD retailer in the UK...any slowdown that hits discretionary spending will hit these guys early...combine that with increased music and video piracy (everything is available illegally for free with the simplest of internet searches), and this company should fundamentally struggle.

And finally, selling ~£59k (~$116k) of FTSE June futures at 5922. UK slowdown is coming, but is not being fully recognised in equity prices yet. It's a gift.

[Admin note: new trades will go into the spreadsheet over the next few days, I'm travelling at the moment so unable to keep it fully up to date.]

Wednesday 13 February 2008

Profit taking on Goldman

On the road travelling, but just posting I am buying back my Goldman Sachs (GS) short here. Profit ~$2,300.

Have an eye on shorting some more retailers, maybe ANF next.

Monday 11 February 2008

Taking my profits on COF, KMX, FED

Buying back Capital One (COF), FirstFed Financial (FED) and Carmax (KMX) today. Making ~15% on COF and ~10% on the other two. Easy easy money to be made in this market.

I was just thinking about a quote from Reminiscences of a Stock Operator (probably the best book on trading you'll ever read), where (and this is from memory) Livermore says "in a bull market, be long or flat, and in a bear market, be short or flat"...certainly rings true with me, every time the market rallies, I'm just picking out the stocks I fundamentally want to be short and selling them, buying them back when they have dropped a decent amount. Certainly feels easy at the moment.

Bought back COF at $47.88 that I'd sold at $55.44 on Feb 1st, profit $2,268
Bought back FED at $35.35 that I'd sold at $38.94 on Jan 30th, profit $718

[Something doesn't look right with Carmax, I think I forgot to report my opening of the trade and forgot to put it on the spreadsheet...will investigate...profit was $2,043]

Whilst I still think these stocks can fall from here, by taking profits it leaves me able to reset shorts if/when the market rallies.

Friday 8 February 2008

Shorting GAP

Just sold ~$20k of Gap (GPS) at $19.93.

Shorting retail in the US is a GIFT. Every single store is going to see falling revenues this year, falling margins as competitors aggressively price to shift stock, etc etc. With Gap only ~10% off it's 52-week high, today is a great entry point.

Another $3,800 to the good guys

Well, my GBP/USD 1.95 straddle just rolled off, and I covered the outright short I had on as well.

I'd sold the 1.95 straddle back on January 22nd for 417.1 cents, in £5/cent or £2,085.50 in premium. It just expired for 52 cents, giving me a profit of £1,825 = $3,550.

I'd also took 24 cents out of my outright short, for a profit of £120 = $233.

Sweet. After my 1.98 straddle expired at a great level last week, the market then sells off down to my level for this week's expiry! Doesn't get better than that.

Lots of opportunities in FX. I missed shorting some HUF (Hungarian Forint) since I kept waiting for a better entry, and I didn't put the GBP/AUD short back on, and I didn't put an outright Euro short on or sell some more calls. But once I stop being such a f*cking bottler, I'm going to nail a few more of these. I think the USD is the one to think about. I could see a big rally against the major currencies, but the US really does have some major problems. The biggest issue in the relative housing markets between the US and Europe is that it is SO easy for people to walk away from homes in the US. Ever since that mortgage relief act was signed last year, you can now walk away with no tax liability. So all the banks are going to get royally f*cked. There is just no avoiding it. So if we really think currencies will move based on relative growth differentials and interest rate differentials, it would suggest that the dollar is set to deteriorate further.

Against that, I think the optimism in the UK and Europe over the last year has been unjustified, so these currencies could do with getting a bit of a kick-in.

I'll probably still be a seller of EUR and GBP on rallies, but I'm having a good thing about changing that plan.

Stopped out of the S&P short

Well, having increased the S&P 500 short yesterday at 1317.5, and moving my stop-loss to the breakeven level of 1334, I got stopped out. Shame. Maybe I should have been less greedy and just chucked some of the profits into the pot whilst it was up.

Oh and just an admin note, I closed out my Johnson & Johnson short back on January 24th, I'd forgotten I even did it at the time, it's in the closed trades section now (profit $689).

And fingers crossed for GBP/USD to expire at 1.95 at 10am NY time today, that's where my straddle is struck.

Thursday 7 February 2008

Closing the Dow straddle and the delta hedges

Back on January 24th, I bought a Dow 12100 March straddle, and tried some volatility trading. I wasn't exactly delta-hedging, but instead for every 100 points I was selling 10% of the exposure, so if the market had moved 1000 points either way from the straddle, I would have the same notional on for my hedge as I did for my straddle.

So as the market went up from my strike of 12100, I was selling at every 100 points, then each of those trades was bought back when it dropped back 100 points. I realise this is not very clear! But here's what I ended up doing:

Opening Closing P+L
12200 12159 $82
12300 12200 $200
12400 12317 $166
12500 12400 $200
12600 12500 $200
12700 12600 $200
12400 12300 $200
12400 12300 $200
12500 12400 $200
12600 12500 $200
12270 12100 $340
12300 12200 $200
12416 12300 $232
12400 12300 $200


So I made $2,820 on my hedges. Well, I bought back my straddle for 822 points. I'd sold it for 911 points, in essentially $20/point or $18,220 premium, this lost me $1,780. So net-net, I made a profit of $1,040.

Not bad, and certainly better than a kick in the teeth, but it was a pain in the ass keeping all the orders up to date, and also was tricky to keep track of in real-time in my spreadsheet. So out it goes.

Increasing S&P 500 Short Further

Increasing my S&P 500 Short, selling another ~$26k worth at 1317.5 on the March future. That gives me a short of nearly $80k now at an average of 1334, so I'm putting my stop loss in at that level.

The US is a mess, the rest of the world is following, I want a big short, and I'm willing to take a risk on timing and getting stopped out to get that short on.

Away from that, my GBP/USD trade is working out well, I have a 1.95 straddle expiring tomorrow, and am also outright short from around the same level. Following the Bank of England cutting 25bps as expected, Sterling has dropped about 1.5 points today to 1.9450. I'm up around $3,000 on this trade, and ideally it will expire bang on 1.95 tomorrow at 10am NY time.

Wednesday 6 February 2008

Actually pulled the trigger on Mohawk

As I mentioned in my previous post, I had my eye on Mohawk (MHK)...well, I just shorted about $16k worth at $78.43.

I'll be honest here...I know jack sh*t about this company...but looking at its profile from Yahoo, I don't see how any company in the carpet/tiling sector can do well in a severe downturn:

Mohawk Industries, Inc., together with its subsidiaries, engages in the production and sale of floor covering products for residential and commercial applications in the United States and Europe. It operates in three segments: Mohawk, Dal-Tile, and Unilin. The Mohawk segment designs, manufactures, and distributes floor covering products, including carpets, rugs, ceramic tiles, hardwood, resilient, and laminates. It markets its products through independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers, and commercial end users, as well as through private labeling programs. This segment's products are offered under the Mohawk, Aladdin, Mohawk Home, Bigelow, Durkan, Helios, Horizon, Karastan, Lees, Merit, and Ralph Lauren brand names. The Dal-Tile segment engages in the design, manufacture, and marketing of a line of ceramic and porcelain tiles, and natural stone products. Its ceramic tile products are sold through independent distributors, home center retailers, tile and flooring retailers, and contractors. The Unilin segment produces and sells laminate floorings, as well as insulated roofing and other wood based panels. Mohawk Industries also provides wood flooring products, which include hardwood and laminate flooring. The company was founded in 1988 and is headquartered in Calhoun, Georgia.

Results are February 14, I can't wait. If you need more convincing on this sector, read this recent post by Mish, including the comments section. Lots of negatives on homewares/furniture etc.

Commodities and portfolio update

Well, my Copper short that I'd entered yesterday hit its stop loss of 324.95, so I'm out of that for flat. Oh well, it was worth a try to try and get the position larger as the market fell. I'll sit out of this one for a few days and re-assess.

My Crude Oil short is finally back to flat following a large increase in inventory's. Perphaps my timing on this trade wasn't ideal, but I think it's inevitable that oil falls substantially from here, so I just plan to leave this trade alone for now.

Away from that, I'm still tempted to enter some new equity shorts. Currently I have my eye on Mohawk Industries (MHK), a carpet and tile supplier. This is exactly the sort of industry that will get hit from the fallout from housing and a slowing economy. They report results on February 14, so I plan to be short by then. As for my current shorts, I love them all. I feel extremely confident sitting short the market just now.

One thing though...if anyone has any ideas of some stocks to get long, please mention them! I've only got 3 on (HLYS, BID, IACI) and I don't particularly like them. IACI is off 3% today after posting a large quarterly loss. If I didn't have so many shorts on, I'd let some of the longs fly.

Tuesday 5 February 2008

Increasing the Staples short

Last Monday, I'd shorted some Staples, about $23k worth. I'm doubling that up today at roughly the same price, selling it at $22.95.

The way I look at it, this stock's 52-week high was $27.66, back before the crunch had started and whilst the economy was chugging along OK. Also, private equity were lurking in every sector, so I suspect a lot of stocks had an LBO premium attached. All those positives are now gone, so the chance of seeing those prices in the near future look slim. So, selling today at $23, with the economy going down the tank and deflation about to rear it's head, looks like a fantastic trade to me. One of my biggest concerns is that I won't be short enough when the meltdown arrives, which was a problem last month.

Trading on a P/E of 15, when Office Depot is trading at 10. Wait for the "E" and the P/E to fall. Let's say earnings drop 20%, and the P/E moves from 15 to 12. That implies a 36% drop in the stock. Looks pretty feasible to me. Book it.

Doubling up the Copper short

I'd sold some Copper earlier today at 329.35. It's off around 3% or so from there, and I've just sold some more at 320.55 and stuck a stop-loss in the middle. So now I can't lose anything, but I've got a ~$65k short here. I just need it to start heading down without bouncing.

After a horrible ISM number earlier, I think even the MSM will realise that the US is heading into an UGLY recession. Stocks and commodities are going to get crushed, putting on shorts is like shooting fish in a barrel.

Selling Copper again

Selling around $33k worth of Copper at 329.35.

Same old story really. A US slowdown, soon be hitting Europe and the UK, will reduce demand for industrial commodities. The entry point here looks pretty good, about 15% off the lows of December.

Sunday 3 February 2008

Cable option expiry on Friday

Back on January 17th, I sold a 1.98 straddle on GBP/USD and at the same time sold some FX outright...I'd sold the straddle for 291.9 cents (ie. 2.919 big figures) in £5/cent, and it expired at 84 cents on Friday at 10am NY time (market was at 1.9714).

That's a profit of £1039.50 = $2,050

At the same time, I'd sold some GBO outright, and I closed it out at the same time for a profit of 90 cents, so making £450 = $887.

Option premiums remain high on this cross, and I think it may do nothing for a while. Whilst the US has taken the brunt of the bad publicity in this credit unwind, the GBP is actually pretty sh*tty as well, actually performing WORSE in 2007 than the dollar on a trade-weighted basis (no link as I can't remember where I read it). So we have two crappy currencies battling it out, and whilst I think on a valuation basis the pound will eventually fall substantially against the dollar, in the near-term I think the newsflow and economic picture coming from the US will remain grim.

So my plan is to stay net short Sterling, but also take some risk selling options. I have another identical trade expiring this Friday coming. My straddle strike here is 1.95, so a small fall would help me here.

Friday 1 February 2008

Shorting Real Estate

Just shorted:

~$6k worth of Lennar (LEN) @ $19.75

~$8k worth of Downey Financial (DSL) @ $33.95

~$8k worth of General Growth Properties (GGP) @ $37.92

~$6k worth of Vornado Realty Trust (VNO) @ $90.70

What a rally some of these have had from the lows. Well, homebuilding is still a f*cked sector, and Commercial Real Estate is set to join it. Just read Calculated Risk and Mish to see the CRE disaster coming.

DSL has been posted a few times over at CR, and has an unbelievable growth rate on delinquent loans...GGP and VNO I read about over at Reggie Middleton's BoomBustBlog. Some fantastic analysis on a number of companies, I am pretty bearish already and naturally predisposed to that way of thinking, being generally skeptical, but wow this makes me think some of these companies are on the way to zero.

I've done smaller size than I usually would, as I've just got a LOT of shorts on, but if they start moving my way, I may increase the size and just put some stops in around my average price.

I'm pretty confident on these...literally, if I just leave them 'til Xmas, I don't see any way they can be higher.

Selling some Capital One

Selling just over $15,000 of Capital One (COF) at $55.44. The stock is up from lows of $37, and the 52 week high is ~$83...last time the stock was at $80 was in the first half of 2007. Now, it's clear that the world has changed, so I don't think we'll be even getting close to those levels again. So selling at ~30% off the highs doesn't seem to bad. Let's target low 40's on this one as a level to consider profit taking, although as always it depends on the newsflow. I think credit card companies will get hit eventually, and that could REALLY mark a change in their stock values.

Taking profits on my Treasuries

Just sold my 10y Treasury futures position at 117.33, for exactly a 1 point gain and $2,500 profit. I'd bought it 2 days ago with the 10y around 3.69%, today it is in to 3.56% following the weak payrolls number. Whilst I still think we could have a lot lower to go on treasury yields, it won't be in a straight line, so I'll try and capture some volatility in it. Plus I'm just a sucker who can't resist booking profits (I'd call it one of my weaknesses...hey there's worse things to be bad at!).

January P+L recap

Well...I think all in all, that was a pretty disappointing month. I've taken the P+L from just this morning, before the US open, but a rise overnight in some of the futures I am short means the actual Jan P+L was maybe a little higher, but lets go off this number.

Up $14,000, compared to up $10,000 in December.

I'm really gutted by this. I've been so bearish, and I managed to mostly miss all the equity falls last month. I didn't cover as much as I should of on the morning before the Fed cut rates the first time, although I had planned to as soon as the market open, but the f*cking Fed bailed out the longs by cutting before the open, scuppering my gameplan. I also stupidly shorted som Eurodollar futures, although managed to get out for ~$3,000 instead of the over $10,000 I was down at one point. And I've handed some money back being short oil as well.

I think some of my trades have been too short-term, so I'm going to try and hang on to stuff for longer going forward, so the stuff I am short, I am pretty comfortable being short for several months if necessary. No plans to particularly change the shape of my portfolio, although if we saw the carry currencies sell off (mainly Aussie), I'd maybe look to put some of that on. I also may get involved in some commodities from the long side, looking at livestock and cotton at the moment, and may short copper. Away from that, I'd like to have a larger equity portfolio, although I could do with finding some stuff to get long. I want to short some homebuilders and some REIT's I think.

Away from all that, I think the next shoe to drop in the markets will be the real pain in the European economies. There is no way they avoid the US-style housing-led economic pain, it's just a matter of time. So...I'm watching the UK market in particular with a view to getting short. Maybe I'll sell some June FTSE calls this month if the market rally continues.

That's about it. Like I say, an annoying month, I was up $35,000 at one point, so gave a fair bit back. I'd like to take some swings and try to push the P+L up to $70,000 by the end of February, so that's my mental target. Need some share falls, a rally in Treasuries, and a fall in the oil market to make that happen. Not unrealistic, me'thinks.