Fade the reflation trade
28 May 2009 1: 26 pm | Filed under: bonds, commodities, currencies, deflation, gold, inflation, short selling, silverAnother short post here.
Within a week or two I expect a correction or change of trend regarding this “reflation” theme we are seeing. The bond panic is coinciding with toppy looking activity in oil, precious metals and grains. I’m buying puts on crude today with the July contract at 65.33.
The dollar is also a buy here against the Euro, Swiss Franc and likely the Pound and Aussie. I’m long UUP, the dollar bull ETF, along with Treasuries.
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Aki_Izayoi
May 28th, 2009 at 7:24 pm
The reflation trades are overcrowded and very popular… just go to Seeking Alpha.
I hate the NZD more than the AUD.
I hate the pound as a long term and short term trade too. Euro is overvalued and I expect a correction in European equities (like DAX).
Oil and copper might sell-off, but I am not that confident. Oil, of course, is popular because of peak oil and reflation. But I think it is priced-in due to the contango.
With these trades, how will you close them? Will you be extremely defensive and pocket a short term profit by closing them when the RSI crosses 50, or you do expect them to go to an RSI of 35 and close it then?
Mike
May 28th, 2009 at 9:41 pm
Hard to say in advance — I’m not necessarily looking for new lows or highs. When to close all depends on what the rest of the market is doing.
Leo
May 29th, 2009 at 10:30 am
By being long the dollar are you short gold then? As USD denominated gold will lose value. Some think that Gold is in a n upside down head and shoulders with neck line around $1k. There seems to be consensus that Europe is 6months behind us in terms of the full effects of the recession, which supports your thesis that relative to the Euro and Pound there is room for USD to strengthen. Also if global equities start heading lower a return to the dollar is also likely.
In my opinion OIL could have a bit of room to go until it meets resistance in the high 80s (bottom of late ‘07/early ‘08 consolidation). With some retailers surprising the market with better results (J Crew 34c vs expected 11c), the thinking may be that the consumer can accept higher prices for the time being. When everyone realizes that with 10-11% unemployment people can’t go out and actually afford to buy much the market will have to do some soul searching to find a bottom.
Long GLD KGC GDX TLT and X (short term) otherwise in Cash