5.9 C
New York
Friday, March 29, 2024

Watch Out for the “Anti-Growth” Trade!

Courtesy of madhedgefundtrader

Now that most big hedge funds have completed their race to get neutral, they are holding raucous in-house debates over placing size bets on a double dip recession. This would involve reversing every trade that I have been recommending for the past 18 months, in which the hedge funds have also been running gargantuan positions, flipping from longs to shorts.

On the table are new shorts in commodities, energy (USO), emerging markets (EEM), the industrial white metals of silver (SLV), platinum, (PPLT) and palladium (PALL), junk bonds (JNK), and corporate bonds.  This view has traders going long the dollar and the yen (YCS) and shorting the euro (FXE), pound (FXB), and the commodity producing Australian (FXA) and Canadian dollars (FXC). Long positions would be established in the dollar, Treasury bonds, and volatility (VIX).

This is not exactly a low risk trade, as it goes contrary to every long term global macro trend currently in place. If you get the double dip recession that Europe, China, and more recently, British Petroleum (BP) are trying their best to deliver, they hit a home run. If the recent diabolical market action turns out to be just a vicious head fake, then they would be selling into a hole and getting killed on the next whipsaw. They don’t call these guys the Masters of the Universe for nothing.

After watching silver (SLV) and palladium (PALL) get absolutely creamed today, I just want to reiterate my warning (click here at http://www.madhedgefundtrader.com/April_28__2010.html ) the market now had vastly higher levels of risk, that there will be no place to hide in the following sell off, it is only those who believe in the Easter Bunny who think diversification will protect them, and that cash is best hedge of all. There were more 200 day moving averages broken this week that there are national Rifle Association bumber stickers at a Tea Party rally.

Stop losses and tight risk controls are the order of the day (click here for that advice at http://www.madhedgefundtrader.com/April_20__2010.html ) when “de-risking” is the dominant investment strategy, and bitter margin clerks are in the driver’s seat. For proof this is happening, you need look no further than the euro/yen cross, that great indicator of global risk taking, which has been in an absolute free fall for the last four weeks, to a gut churning ¥112. (For an explanation of why this is important click here at http://madhedgefundtrader.com/February_11__2010.html ).

It hasn’t helped that credit markets have once again ground to a halt. The IPO market has gone comatose once again. The cheerleaders at CNBC have gone back to looking like they have just been kicked in the balls.

You only need one ticker on your screen right now, and that is for the S&P 500 (SPX). There is now more open interest in the SPX puts than there was during the Lehman aftermath. Talk about closing the barn door after the horses have bolted. Technicians are talking about the first line in the sand at 1045. But I think that level offers all the support of a wet taco. If that doesn’t hold, then you can look at 950, which would give us a neat 22% pull back from the top.

To get below that and retest the 2009 low at 667, we need a second leg down in the real estate market, which would trigger a secondary banking crisis. I don’t buy the double bottom scenario, as we have still have zero interest rates, and because most of the big players who could go under are already gone. Greece and the euro crisis alone don’t have the juice to do this alone. But I could be wrong.

Suffice to say that you should only entertain the “Anti-Growth”trade if you run a global 24 hour trading desk, have a blind former frat brother for a margin clerk, and a Harvard educated legal department to make up the appropriate excuses when things blow up. Three year lock ups on client funds would also be good to have. If you don’t have all of this in place, then better to just read about it in the tabloids. The Internet is a great leveler, and enables legendary hedge fund trader, Paul Tudor Jones, and his 300 man staff to compete head to head against you. I can tell you who will win that one every time. I can’t wait to see who actually straps this one on.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments

Stay Connected

157,450FansLike
396,312FollowersFollow
2,280SubscribersSubscribe

Latest Articles

0
Would love your thoughts, please comment.x
()
x