Recap 12-05-13: Marking to Market the Trade Ideas for 2013


NB: I incorrectly published the Sept New Home Sales figures instead of the Oct data yesterday, which was much better. (h/t JL)

After a number of accurate forecasts in 2012, my themes for 2013 were pretty far off the mark. In retrospect, the biggest mistake was that I wasn’t bullish enough. I changed my views (quite belatedly) by 2Q, but missed out a big chunk of the risk rally. In general, markets looked through the potential obstacles early in the year. Carry strategies was, contrary to my expectations, a pretty horrible source of return after adjusting for volatility. Also, I was completely wrong about Japan, at least until May. Nevertheless, despite being so wrong on the big picture, by blind luck a majority of the trades made money again, although the 67% hit rate is below my target. (Note that I was probably not the only macro punter that had some difficulty this year. The HFRI Macro Index is down 1.2% through Oct. and the HFRX Macro Discretionary Thematic index is up just 60bps)

Long EU High Yield

• +9.6% using the BBG HY index (BEUH <Index>)

Long Dax vs Eurostoxx 50

• +3.6% inclusive of dividends. Technically a win, but feels like a loss given the 20% gain in the EU equities

Long US Tech Sector vs S&P 500. (Nasdaq 100 is a rough proxy)

• +2.7% inclusive of dividends. See comments above.

Short AS51 (Australia) vs S&P 500, currency unhedged

• +23.0%: +25.6% on the equities (inclusive of dividends) & FX and -2.6% from the negative carry on the FX hedge

Short Nikkei vs S&P, currency hedged

• -33.9% inclusive of dividends

Long US Homebuilders vs S&P 500

• -11.4% inclusive of dividends

Receive US 5y inflation 1y forward

• 2.71 – 2.08 = +63bps

Short BAZ3 vs Long EDZ5

• -12bps


• +5.6%:+7.1% from the spot move – 1.5% cost of carry.


  • BOE left rates unchanged, as expected.
  • ECB left policy unchanged as expected. Draghi:
  1. we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on. Our monetary policy stance will remain accommodative for as long as necessary, and will thereby continue to assist the gradual economic recovery in the euro area.
  2. With regard to money market conditions and their potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments.
  3. December 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 before increasing by 1.1% in 2014 and 1.5% in 2015. Compared with the September 2013 ECB staff macroeconomic projections, the projection for real GDP growth for 2013 has remained unchanged and it has been revised upwards by 0.1 percentage point for 2014.
  4. December 2013 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation at 1.4% in 2013, at 1.1% in 2014 and at 1.3% in 2015. In comparison with the September 2013 ECB staff macroeconomic projections, the projection for inflation for 2013 has been revised downwards by 0.1 percentage point and for 2014 it has been revised downwards by 0.2 percentage point.

US Jobless Claims declined to 298k last week vs 320k exp and prev but the DoL noted that thanksgiving related seasonality likely had an impact

Canada Building Permits jumped 7.4% vs 1.0% exp and 1.7% prev

AU Trade Balance declined to -529M vs -350M exp and -284M prev

Moody’s increased their outlook on Spain from negative to stable. They cited economic rebalancing, lower market access risk and a reduction in banking sector liabilities.

Fed Paper: This paper examines consistency in the estimates of probability of default (PD) and loss given default (LGD) that nine large U.S. banks assign to syndicated loans for regulatory capital purposes… . The differences in LGDs imply that, for an identical loan portfolio, the bank that sets the highest LGDs would have Basel II minimum regulatory capital twice as large as the bank that sets the lowest LGDs. We argue that these differences in risk parameters across banks can be at least partially explained by bank behavior that complies with the Basel rules.

Upcoming Data:

  • Fri : US Employment, Canada Employment, US PCE Deflator, UMichigan Consumer Confidence,
  • Weekend : China Trade Balance
  • Mon : Japan Current Account, Eco Watchers Survey, China CPI, Canada Housing Starts, UK RICS House Prices Bal, AU Home Loans, Business Confidence
  • Tue: China IP, Retail Sales, UK IP, USDA Ag report, Japan Machine Orders
  • Wed: Germany CPI, Australia Employment
  • Thu: US Jobless Claims, Retail Sales