How About that Bond Market!

adios · #1 08-08-2004, 02:58 AM

Decent rally in treasuries after they bottomed in price-topped in yield shortly after the 4/1/04 jobs report. Looks like Greenie's "in a box" and will have to hike the Fed funds rate next week. A slow recovery in employment but a recovery nonetheless. Equities getting clobbered. Multiples on tech stocks seem high to me still though. High oil prices should persist IMO although many are predicting a moderation in oil prices short term.

playerfl · #2 08-09-2004, 12:01 PM

u.s. dollar bonds look pretty scary to me, at least longer term. you long bonds or interest rate futures ?

adios · #3 08-09-2004, 11:41 PM

No just interest rate sensitive stuff.

Ray Zee · #4 08-10-2004, 03:06 AM

i would think betting on dollar movements might be easier than picking interest rates.

MMMMMM · #5 08-10-2004, 10:04 AM

I like the idea of trying to guess currency better than the idea of trying to guess interest rates.

I did like long USD, especially long USD/JPY, until recently when it crashed due to the payroll report. Still kinda like it short-term, but betting on USD is very risky right now.

So I started looking for another way to bet against JPY (since it suffers so much due to high oil, and since BOJ has a zero interest rate policy).

Almost a week ago I came up with the idea of long EUR/JPY as the best-looking spread for the purpose of shorting JPY.
Then a few days ago I read that long EUR/JPY is considered the new "oil currency", which was surprising and gratifying and kinda fun since I picked that spread on my own for that very purpose.

While typing this, EUR/JPY has risen by 26 pips (pips in forex are like ticks or 1/100ths of a basis point). At 20-1 leverage that is nice, though my account is small as I am just learning and I'm not rich like some folks around here;-).

I paid a tuition a few weeks ago screwing around with this stuff this as I attempted to get a handle on what was going on, and learning how to identify good entry/exit points. Another mistake was overbetting which caused me to react instead of being able to play it cool and detached. Sort of like playing too high in poker that way.

Over the last few weeks I picked the right direction on most trades but due to jumping in and out and picking poor entry/exit points, I actually lost money overall on most of those trades. If I had just sat tight I would have done very well on those directional trades. Live and learn.

The spread and commission didn't kill me as it would have years ago because the spread is only like 3 pips on entry, and no commission; and any size account or position can be traded, even very very small. During high volatility times (like approaching news market data releases, or weekends), they do raise the spread substantially, though. They will no doubt greatly widen the spreads shortly before and after the FOMC rate announcement this afternoon. The site I am learning/trading small on is www.oanda.com

I have spent too much time studying and playing with this stuff the last few weeeks and need to get back to the poker grind full-time again for a while.

I am still stuck overall but I can identify at least twenty specific errors I made, just as if if I were watching a newbie play poker. That is important. In the last few days I have reduced my losses of the last few weeks by about 70%, by being long EUR/JPY. Of course there is still a great deal to learn.

The forex has recently become increasingly dominated by hedge funds and institutional players, making it a tougher game than it was years ago. Still I think one could catch a trend or two and do well, if one only bets when all things line up.

Fascinating stuff, really.

MMMMMM · #6 08-10-2004, 11:04 AM

"Then a few days ago I read that long EUR/JPY is considered the new "oil currency","

Make that "EUR/JPY" not "long EUR/JPY" is considered the new "oil currency".

Interestingly, just a few minutes ago I read that this morning, a large U.S. investment house was aggressively buying EUR/JPY at 136.10

Last night I read that Warren Buffett had bet 19 Billion against the U.S. dollar in the first quarter of 2004 using a selection of 5 major currencies. 19 Billion! Could it be BerkHath was buying EUR/JPY this AM at 136.10?

It seems Buffett has been doing a lot more than just buying stocks lately;-)

According to the article, Buffett's net worth has risen to 42.9 billion; he was in second place on Forbes list after Gates. I do not recall if BerkHath is up or down this year so far though.

adios · #7 08-10-2004, 01:42 PM

Yeah treasury rates are inherently volatile. From my perspective the market has built in this bias that longer term rates have to rise due to the growing economy. However, my perception is that growth in the economy is decelerating due to higher energy prices. Natural gas has not followed suit with oil prices to be fair. Here's a take that I thought was interesting about natural gas that I read today:

<< Some market observers blame a lack of sufficient storage capacity that will keep supplies tight in the winter. "Even if we have storage completely full," says Andy Weissman, an energy hedge-fund manager, "it may well not be adequate." >>

bingo !

storage of NG has been static at just over 3tcf since the mid 1990's .......... our population has grown about 50mm over that time , our economy really has expanded as well and new home building over that period of time has been done at a torrid pace (with NG heating getting the lion's share of new construction) ............ never mind the dozens of NG burning power plants built over the same period .

why would we ever assume that total 3tcf storage of the mid 1990's was adequate today ?

along with the fact that the summer of 2004 is looking to be one of the coolest in many years (poor Al Gore , another spike to the head of the global warming folks) , we also have a greatly ramped up NG exploration business in USA the last 12-18 months as predictions of NG shortages have been headline news for ages even drawing in Al Greenspan comments .........

thus with heavy focus on finding more NG , we ignored oil assuming we could buy all we needed from various foreign sorces only to run into huge demand spikes from China ruining our plans .........

thus plentiful / cheaper NG vs record high oil being the exact opposite of what the experts (and me , to be fair) would have expected a year ago .........

as an aside , i see AECO NG plunged yesterday to $4.66 USD .....lowest in 3+ months ....... i'd think you see noticeable differences between oil heavy CanRoys and NG heavy CanRoys in Q3 ........... just musing aloud .

ironically , if NG falls to say $5 on NYMEX , it will lose the focus of the markets obsessed with oil and if we have a colder than normal winter to accompany the cold summer of 2004 , we'll get caught off guard again .......

Anyway I see a lot of risks to economic growth with the biggest being high energy prices. I think that the market is anticipating a 90's style economic expansion again, one that was prolonged and very strong with lot's of jobs being created resulting in low unemployment rates resulting in strong consummer demand. Thus the bond market IMO has overreacted to some economic data like some of the non farm payroll reports that showed a spike in jobs growth. Could definitely be wrong though about that. I think for many reasons that the 90's expansion was abnormal rather than normal. Now the Fed is raising short term interest rates at the "measured pace" they stated towards a "neutral" and monetary postion from "accomodative" and if businesses aren't creating new jobs, looks like at best very modest economic growth to me. Doesn't seem like an environment for higher long term rates to me.

adios · #8 08-10-2004, 01:51 PM

So what's your take on what will impact the value of the US $ ? I assume the US $ sold off against the Euro and the Yen due to the prospect that the Fed may not be as aggressive in raising short term rates as many had thought.

As an aside I've found the financial markets to be fascinating and challenging. From my perspective gaining knowledge about fundamentals is marginally helpful but essential i.e. knowledge of fundamentals won't guarantee success but is more or less essential for success. Each bit of knowledge is marginally helpful. Kind of like adding a plays to your poker playing repetoire FWIW. Each indivual play adds slightly to your EV but in the aggregate your EV is increased a lot if that makes any sense. Definitely post what your take on the markets you're following.

playerfl · #9 08-10-2004, 02:38 PM

Globalization is evening out wealth and per capita income around the world, as it was designed to do from the beginning.

NO country has ever consistently endured the types of trade/current account/government deficits that the U.S. has without a significant drop in the currency.

nicky g · #10 08-11-2004, 05:56 AM

"So I started looking for another way to bet against JPY (since it suffers so much due to high oil, and since BOJ has a zero interest rate policy). "

M, I don;t know much about this kind of thing but wouldn;t conventional economics tell you that this kind of thing should already be priced into the yen? I mean, Japan;s had zero interest rates for a long time; people aren;t going to start selling now because of it. Further more, Japanese interest rates have only one way to go - up. Thoughts?