Ultimate 2010 Trade

[MarkMMckenzie]

I myself use a complicated mathematical model based on Newtons second law and combining this with some crosses in simple MA curves. But I often think fundamentally and have thought about what trade I will make in 2010 that I really do think could make my year. (@mrkmchlmcknz on my twitter it clearly states my prediction when i posted it, follow me!)

I mean in 2009 I predicted that the S&P500 would finish on 1120 I wasn't far off the actual close of something like 1124, this as you can imagine made me some nice gains. But this was using my model and I've now decided to use this on a intra day basis. So this got me thinking.

I have decided that shorting cable will be the ultimate trade.(GBP-USD) Many have you have stated this as the perfect trade but why? You have so many reasons but no one has outlined what I believe to be the 2 most important; the strength of recovery in the perspective country and the UK general election.

The strength of recovery in the US as we know has been rapid for evidence of this you only have to look at 2009's stock market returns. The data we receive from the US is continuing to show improved economic conditions even slightly so in the lagging job releases. I fully expect companies to also start hiring more and more importantly showing sales growth. Whereas the UK economic environment seems to be lagging just about everyone. We are still in a recession, unemployment is still terrible and it looks like the governments answer seems to be a boiler scrappage scheme.

Then we have the general election, All I'm going to say here to keep my political views out of the picture is that a hung parliament is likely. This will be disastrous for the UK currency, a horrific sell off sign.

All this combined makes for a nice cable short. What do I see cable dropping to? $1.40. What does my model tell me? $1.31!!!

 

[Martinghoul]

Hmmmm, strange... I hear these two reasons for shorting cable offered several times a day, every day. Surely someone must have outlined them before now? For the record, I respectfully disagree, but that's an entirely different story.

 

[MarkMMckenzie]

What are your reasons for disagreeing? When people usually state that they are referring to the 'relationship' between the USD and the stock markets in general. One goes up one goes down. I don't think this will continue. As I said Technical analysis of indices futures are my strong point.

But nowhere better then here for advice on shorting cable.

 

[Martinghoul]

What are your reasons for disagreeing? When people usually state that they are referring to the 'relationship' between the USD and the stock markets in general. One goes up one goes down. I don't think this will continue. As I said Technical analysis of indices futures are my strong point.

But nowhere better then here for advice on shorting cable.

Mainly, I disagree because, as amply demonstrated by the fall in the GBP trade-weighted index that's already occurred, the weaker the pound gets, the better it is for the UK economy. The beauty of having your own ccy is that it can act as a self-correcting mechanism. There's a few other things that you mentioned that also don't sound right, but those are minor.

I don't know anything about technical analysis...

 

[MarkMMckenzie]

For once I'm happy that someone disagrees and actually puts forward solid reasoning. Forum activity can be skewed at times.

 

[Trader333]

Mainly, I disagree because, as amply demonstrated by the fall in the GBP trade-weighted index that's already occurred, the weaker the pound gets, the better it is for the UK economy

In my view this would only be the case "if" we had a positive balance of exports to imports which we don't. As such it costs us more for all the key imports we have such as oil, gas, food, cars, electronic goods etc. If anything the weaker the GBP gets the worse it is for the economy. We saw the GBP drop from around $2 to $1.60 in the latter part of 2008 and with that we also got a 4.5% contraction in GDP which was more than most economists had predicted. If we were a manufacturing nation then I would agree with you but we are not and an economy based on house price inflation and financial services just doesn't work in my view. We are now seeing this with our inability to get out of the longest and deepest recession in history partially caused by us not making anything any more and with debt levels that our great grandchildren will be paying off.


Paul

 

[Martinghoul]

In my view this would only be the case "if" we had a positive balance of exports to imports which we don't. As such it costs us more for all the key imports we have such as oil, gas, food, cars, electronic goods etc. If anything the weaker the GBP gets the worse it is for the economy. We saw the GBP drop from around $2 to $1.60 in the latter part of 2008 and with that we also got a 4.5% contraction in GDP which was more than most economists had predicted. If we were a manufacturing nation then I would agree with you but we are not and an economy based on house price inflation and financial services just doesn't work in my view. We are now seeing this with our inability to get out of the longest and deepest recession in history partially caused by us not making anything any more and with debt levels that our great grandchildren will be paying off.


Paul

Yes, but surely you'd have to agree that the dynamics of the UK's balance of payments benefits from the depreciation in GBP TWI. Specifically, as the ccy weakens, there's an incentive to retool the economy towards sectors that become more competitive.

Also, how do you define the UK as "not a manufacturing nation"? For example, where do you think UK stands, ranked by manufacturing output?

If you like, I can run some numbers tomorrow and we can examine the specific costs and benefits of a GBP depreciation that we have experienced.

 

[Martinghoul]

In my view this would only be the case "if" we had a positive balance of exports to imports which we don't. As such it costs us more for all the key imports we have such as oil, gas, food, cars, electronic goods etc. If anything the weaker the GBP gets the worse it is for the economy. We saw the GBP drop from around $2 to $1.60 in the latter part of 2008 and with that we also got a 4.5% contraction in GDP which was more than most economists had predicted. If we were a manufacturing nation then I would agree with you but we are not and an economy based on house price inflation and financial services just doesn't work in my view. We are now seeing this with our inability to get out of the longest and deepest recession in history partially caused by us not making anything any more and with debt levels that our great grandchildren will be paying off.


Paul

Yes, but surely you'd have to agree that the dynamics of the UK's balance of payments also may benefit from the depreciation in GBP. Specifically, as the ccy weakens, there's an incentive to retool the economy towards sectors that become more competitive.

Also, how do you define the UK as "not a manufacturing nation"? For example, where do you think UK stands, ranked by manufacturing output?

If you like, I can run some numbers tomorrow and we can examine the specific costs and benefits of a GBP depreciation that we have experienced.

 

[Black Swan]

Strangely enough I was thinking this through over the weekend and came to the conclusion we'll be looking at close on 2 dollars per pound at some stage this year...the US is in ruins. IMHO a lot depends on the action/reaction the US (and the wider markets) take v the Yuan...and the Yen for different opposing reasons

I only trade my currency pairs based on TA so (although fascinating) the longer term view/fundamentals do not affect any decisions I make/take...

btw 2 good articles on the desperate US domestic situation and the Japanese by AEP in the Telegraph over the past few days...

http://blogs.telegraph.co.uk/financ...00002951/a-global-fiasco-is-brewing-in-japan/
http://www.telegraph.co.uk/finance/...er-into-depression-as-Wall-Street-revels.html

 

[MrGecko]

CS had a piece out recently that put forward a short GBP/USD view, based on:

• presently overvalued on a PPP basis
• problems looming wrt g'ment bond funding (many and varied)
• consumer indebtedness
• expensive housing