MORE OF THE SAME…

Published on: February 18th, 2020

This month Raoul takes a closer look at the coronavirus narratives and how they may affect his positions. He also takes profits in one of his trades which has run far in recent weeks…

Comments

  • JV
    Jaco V.
    29 February 2020 @ 06:02
    0 0
    oh my goodness the Chinese economic data is horrific
  • BS
    Bevyn S.
    27 February 2020 @ 22:28
    0 0
    Dollar drops clearly correlated to risk off here... Look at the jumps at US open. Not what I was expecting...!! Thoughts anyone?
    • BS
      Bevyn S.
      27 February 2020 @ 23:19
      0 0
      Come to think of it, I got burned Nov/Dec 2018 during a similar episode. Should've learned my lesson then. Kinda supports the theory that global savings glut / reach for yield is what is propping the dollar up NOT necessarily dollar shortage from outside external USD denominated debt. Shoulda just bought bonds. Lol!
    • CS
      C S.
      28 February 2020 @ 16:04
      1 0
      Brett Johnson's impression in his latest interview was that with the expectation of a decline in US interest rates leading to a weakening of the USD was being front run, but unlikley to lead to anything material medium term, though of course who knows for sure.
    • BS
      Bevyn S.
      28 February 2020 @ 17:45
      0 0
      Right. If you're referencing the interview with Jon Turek, I'm in Jons camp. I think they're both right, really. It seems like there's been a reach for yield into the US with not enough return on investments locally (due to QE driving down yields and reducing bond float, as well as loose fiscal AND monetary policy in US). I immediately went short USD/JPY after posting this last night and it's starting to pay off nicely. I think as long as we're in this risk off episode in the immediate term, it's dollar negative. Whether or not the dollar spikes due to shortages from slowdown in trade, i think is TBD (but likely).
    • BS
      Bevyn S.
      28 February 2020 @ 18:26
      0 0
      Correction: meant to say loose fiscal and (relatively) tight monetary policy in the US
  • CH
    Corey H.
    28 February 2020 @ 08:35
    2 0
    I would like to know if Raoul has any comment regarding the ED trades and the impact of "surprise" cuts on the performance of the trade. Eg. if EDZ20 is priced at 3 rates cuts by year end but the Fed does a surprise 50bps cut by Monday followed by more cuts in June how has this scenario historically affected long ED positions?
  • SH
    Stu H.
    28 February 2020 @ 08:14
    0 0
    Raoul, Any update on our ED trades? Now ITM on the Dec 20 90 calls and rapidly closing in on the Dec 21 99.325 and 99.5 calls. Time to trim back or double down?
  • ED
    Etienne D.
    22 February 2020 @ 14:00
    5 0
    All the roads lead to a HIGHER dollar and LOWER Us rates. As Asian central banks are cutting rates in a effort to curb the devastating effects of COVID 2019, the USD strength will INEVITABLY import RoW deflation. The Fed will have no choice to CUT rates this year, which will provide relief to risk assets and strengthen even further the USD in a feedback loop. Déjà vu... Now while the market is JUST starting to realize that China’s “closure / embargo” needs to be seriously taken into account, the focus turns indeed to OUTSIDE China : North Korea / Japan / Thailand look extremely vulnerable to supply chain disruptions, not to mention tourism. I fully subscribe to Raoul’s view and hold the same investment themes + large short of the Thai BATH and HK USD as i think the peg is going to BREAK. Happy to discuss !
    • JI
      Janne I.
      22 February 2020 @ 14:33
      1 0
      Hi Do you believe kyle bass's theory that HSBC is going bust soon and can central banks stop this from escalating to total disaster? Meaning that if one goes all of them will go. I have been thinking that the biggest problem this time around is going to be the hatred towards the system making it super hard to provide the necessary help towards these institutions in case if they need some 2008 type of help. Would love to get some thoughts on these topics. Thank you!
    • CS
      C S.
      22 February 2020 @ 14:40
      2 0
      How do you trade a peg-break and expect to get paid? Btw, I've just ended a 14 year residency in HK and have been surprised how robust business (street level) remained through the protests into the viral outbreak. A lot of fat in that economy, though I suspect it is about to change. Missing many friends there.
    • ED
      Etienne D.
      22 February 2020 @ 15:29
      2 0
      @C.S : thanks for your question Let me explain what I meant : the HK Monetary Authorities (HKMA) are untitled to DEFEND the currency inside a VERY TIGHT range vs the USD . A BREAK of the peg would happen if HK falls SHORT of US dollar and under extreme circumstances and becomes UNABLE to buy HKD to support the exchange rate... So basically you just sell the HKD vs USD through an Fx Forward contract / swap. You can opt for the premium to be paid / received in USD or in HKD The trade can also be done through CFDs... Happy to discuss the rationales of the trade. : name of the game is « the IMPOSSIBLE TRINITY »... E de Marsac
    • ED
      Etienne D.
      22 February 2020 @ 15:35
      1 0
      @Jeanne : indeed, Kyle Bass « investment case » has been spot on but HK issues are even bigger than the collapse of HSBC. Can I come back to you on DM ? Otherwise happy to discuss here KR EdM
    • JI
      Janne I.
      22 February 2020 @ 16:14
      1 0
      @Etienne D: What do you mean "HK issues are even bigger than the collapse of HSBC"? Just how bad is the situation? Will mainland China be affected somehow?
    • CS
      C S.
      23 February 2020 @ 06:30
      0 0
      Etienne, Thanks for your reply. Do you think these HK issues, that are bigger than the collapse of HSBC as you describe, are likely to lead to global/systemic effects or will it predominantly be a HK/China +/- Australia/EM issue? Youre above my paygrade with forwards/swaps/CDS's. I've also always been concerned, in extremis, these contracts will not pay out because of potential counter-party risk, force majeure clauses, and the like. Do you have any thoughts on the timing of these stresses becoming manifest? They are overdue.
    • HM
      Harry M. | Real Vision
      24 February 2020 @ 19:13
      2 0
      Hi Etienne, The breaking of the peg would be a very large loss of face for the Chinese authorities, which itself would seriously damage the Party's prestige. Surely the authorities would prioritize defending the peg, and just allowing the Yuan to depreciate instead? Of course, Yuan deval is gonna have a lot of side effects. But if the pressure was sufficient isn't it the first step before they allow the peg to break?
  • am
    alexander m.
    23 February 2020 @ 03:33
    0 0
    Hi, are there any idea to capitalise on the very low implied vol in the FX markets?? it seems like a very easy opportunity, am I missing anything here? What sort of calls and pairs would work well in this setup? Thanks
    • CS
      C S.
      23 February 2020 @ 06:29
      0 0
      Etienne, Thanks for your reply. Do you think these HK issues, that are bigger than the collapse of HSBC as you describe, are likely to lead to global/systemic effects or will it predominantly be a HK/China +/- Australia/EM issue? Youre above my paygrade with forwards/swaps/CDS's. I've also always been concerned, in extremis, these contracts will not pay out because of potential counter-party risk, force majeure clauses, and the like. Do you have any thoughts on the timing of these stresses becoming manifest? They are overdue.
  • JL
    Jack L.
    20 February 2020 @ 18:29
    4 0
    Raoul's fear thesis on coronavirus is starting to play out. Regardless of the disease's actual lethality or transmissibility (which could indeed be high,) the mass fear reaction is beginning to build its own powerful momentum with cascading knock-on effects. Travel steeply constricted, supply chain disruption is occurring, etc. Perhaps COVID-19 will turn out to be the agent that catalyzes the strangeness of the last ~3 to 4 years of market psychology from by turns grudging, complacent, or madly enthusiastic "buy the dip forever" bubble mentality into "sell the top, get out, run away." The TLT trade looks like it's starting to produce.
    • BS
      Bevyn S.
      20 February 2020 @ 19:19
      0 0
      And how about the dollar squeeze Raoul and others have been talking about for years now... I've been waiting for this for nearly 3.5 yrs now... Always have to be wary of confirmation bias, but these past few weeks have been very interesting! We'll see if this is the match that lights some form of an EM currency crisis.
  • DD
    Daljit D.
    20 February 2020 @ 08:38
    0 0
    Thanks for the links Raoul, very helpful!
  • BS
    Bevyn S.
    20 February 2020 @ 02:23
    1 0
    Been keeping my stop loss pretty tight on EUR/USD but not out yet... Can't help but feel like this is one of those moves that cuts through resistances like butter... Taking profits is always the hardest. Ugh. Thanks for the update Raoul.
  • FO
    Frederic O.
    19 February 2020 @ 10:58
    0 0
    In FX I’m looking at SEK/JPY, that looks very vulnerable with a support at 10.5 that’s held up until now. It’s just that if we have a major move in the EM market, the Swedish krona isn’t far off of breaking that support. I wouldn’t have spotted this without these brilliant reports. Keep up the good work!
    • HM
      Harry M. | Real Vision
      19 February 2020 @ 14:18
      0 0
      Thanks Frederic!
    • HM
      Harry M. | Real Vision
      19 February 2020 @ 14:18
      0 0
      Thanks Frederic!