I primarily use Adler for his liquidity and Bubble/monetary tracking work and data, which I consider first class. I'll let him speak to how he interprets it right now, although I'm not aware that he is calling for a major USD rally, or even higher rates? Higher rates in what exactly? , as I draw big distinctions, which I will explain.
I tend to develop my trades anymore off of what I perceive to be offsided or extreme spec (often translate hedge fund) positioning. In fact if you were reading me late last year, I grew very concerned about anti-USD trades, because of this spec positioning. I put on a good sized long corn trade (requiring some patience before it worked) based on this. The toughest part of any bet against offside specs is the tail period, when they just pile into trades and go crazy. They did it in anti-USD trades and now they are doing it in USD trades, borrowing (shorting) in low interest rate currencies to buy US junk primarily. I think they are also borrowing in ED and various Treasury notes to buy this crap also. Included in this are various naked options strategies. That's why the market looks so bizarre right now, because this crowd is taking huge risk, to scalp a few extra bp here and there.
So what I see being set up now, is a giant flight to quality or safety trade. Much of the borrowing these wild men are doing in Yen, Euros, Swiss Franc, ED will be unwound, as they will buy back their borrowed positions, and sell all the garbage (ABS, MBS, spec grade junk, equities, etc, etc) they filled up on. In otherwords this will be a credit spread explosion trade (short term Treasuries yield could drop, but almost all other yields will skyrocket) corresponding almost exactly with a housing and economic bust. It will be show time, and I have no interest in being exposed to any financial institution, even the survivors. Most people should run, not walk to the bank, get their money out, and just load up on 3 month to 1 year Treasuries (directly with the Treasury),
publicdebt.treas.gov
or British gilts, plus some gold for this particular phase, and then watch closely for helicopters.
This will hurt the USD against those particular currencies. I don't especially have bets on commodities (except two small polymetallic nearly free juniors MRB and NTO) anymore now either, they just look largely neutral to me. I'm friendly toward gold, mostly because it will get a safety play, more so than a spec cover position play (so far). |
