Return To The Carry Trade

Back to norm. Dubai World announced debt restructuring talks on (only) $26 billion debt, and the crowd has gone wild. WSJ story (with nice interactive extras): Dubai World in Talks on Debt Restructuring. The dollar is falling again, risky assets are rising and the saga continues.

New addition to the situation is The Bank of Japan surprise meeting last night and a announcement of new 10 trillion yen ($115 billion) lending program to commercial banks. Bloomberg story: BOJ to Provide 10 Trillion Yen in Emergency Credit. The market has viewed the move as a prelude to moving to real quantitative easing. As Jen is a second carry trade currency of choice this send the currency down, and all risky assets up.

On the economic data we had the Chinese PMI today coming out at 55.7 from 55.4 last month. A rather weak figure in my view, but the markets have perceived this a strength sign.

PIMCO continued with a PR efforts to bring the bond prices down. Although I agree with their economic outlook I think in short term the demand for government issues will be strong. Bloomberg story:  Pimco Says Investors to Sell Government Bonds on Record Sale.

Portfolio update: closed my USO short on Wednesday; closed my SPY short on Friday, opened  ATM call position in GLD on friday, opened ATM put FXY position on friday. The skew in  FXY options on friday was to the downside, so despite being correct on the direction of the underlying the position is not performing well.

My view on gold has changed, as it looks that the possible BOJ quantitative easing would put more pressure on fiat currencies, so at least I tried to hedge my dollar denominated portfolio exposure.

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This entry was posted on Tuesday, December 1st, 2009 at 8:31 am and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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