I’m going to add a short USDRUB position with tiny notional. This is a semi-short-term trade… might exit any moment.
1) Russia has reserves to cover M2 at the ~60 USDRUB. Back in 98, they had roughly 1/3 of M2.
2) O/N rates are around 26% (around 16% on interactive brokers for smaller amounts).
3) Oil / gas is a real asset, despite the drop in price.
4) Russia will probably get Yuan financing on its ~170BB rollover private external debt?
Also went long GILD a tiny amount at 94.20 (lost money already).
OK, the crude flow-through seems real…
And wage inflation around the corner? (courtesy of @esoltas)
So we need to ask ourselves:
1) Is the doom & gloom market-top view justified? Is the contrarian view a bullish view?
2) Can the governments/central banks of the world sufficiently shield us from negative shocks (EM crisis)?
3) Will the Chinese government end up easing (Western-style money printing)? Or will they continue a slow targeted restructuring of the economy?
I think the Russian worst-case is off of the table (default). Venezuela is probably in a bind though.
These are my Hail Marys. All trades subject to change based on fear, greed, ignorance, hope, or margin calls.
1) Long USD in massive size (short JPY / Euro)
2) Long ES straddle
3) Short Crude
4) Long Nikkei (BOJ buys equities — yea… really).
5) Long BIDU
In Kuroda I trust. Maybe Abe too. Please don’t burn me bros.
* 12/12/2014, 7:20 AM EST – After some reading, thinking, and praying… I’ve decided that we’ve bottomed. I took off the crude short, cut some puts on my straddle. I cut Long Nikkei for now, but will reenter closer to EOD.
Posting these quick changes is getting semi-tedious… so maybe tweeting is better realtime (@lrzhou)
WTI Crude is now below $65. I attempted to catch the knife on Friday, but ended up losing a hand. I’m a bit disturbed at the implications and potential for collateral damage. High Yield? Margin Calls? What about a recognition of a potential hard-landing in China? Is the commodity glut really a supply story? Or a demand one?
I’ve cut most of my long-beta position. I might be the fearful fool, though. Maybe the “oil stimulus” story is real, but I’m skeptical for now.
Edit: I put my beta exposure back on this morning (12/1/14, 10:17AM). Markets don’t care about cracks… we’re going higher.