This is the 3rd day since last Wednesday that the sellers have surprised me a bit. I am now mostly flat and with some positions in commodity related names. I also went short housing stocks as a partial hedge to be long tradable goods against versus the U.S. housing market. The short is quite a bit smaller than the longs just because there are obviously some large hedging issues trying to use producers as a proxy for home prices (same problem but to a lesser extent on the commodity side). I will probably end up treating commodities and homes as two separate trades but for now I think it makes sense.
With the poor jobs showing again this morning I really see two scenarios for inflation and rates: One, weak growth reverses inflation trends and interest rates stop rising. And two, cost push inflation leads to higher interest rates slowing growth. I am leaning towards the second. In the first housing and commodities go down together but in the second my trade should make money on both sides.
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