Although the Macrotourist is a proud Canadian, I don’t stay up to date on Canadian politics nearly as much as I should.
Therefore it was a little bit of a surprise when I read about Karl Peladeau’s entrance into the Quebec Provincial election. But it was a huge surprise when I heard his ardent separatists views.
“I wish to contribute to leaving them a country for which they will proud,” he said. If there was any doubt that Péladeau had misspoken, he later told reporters: “Clearly, I am a sovereigntist.”
For those who aren’t familiar with Peladeau, he is the son of a Quebec business tycoon. There is some question whether his running will help or hinder his chosen party as he has had many run-ins with the various unions in his family’s empire. But the surprising aspect of this development was his running for the Parti Quebecois and not the nationalist Liberal party.
It has been some time since Canada has faced a Quebec threatening to leave. The last referendum was in 1995 and since then the question has largely been off the table.
Although the polls show a tight race, due to the way the ridings are distributed, the Parti Quebecois is much the forerunner. If they do indeed win a majority, there is a good chance that they will once again bring Quebec separating up for a referendum.
If Quebec were to separate, it wouldn’t be the end of the world for the Canadian dollar, but there would be a period of instability and capital flight. Therefore at the margin, in the coming months as it becomes more clear to the international community about the Parti Quebecois’ long term agenda, the Canadian dollar is going to be under pressure.
The Canadian dollar has already been suffering lately and seems unable to muster any sort of rally.
CAD Rate – higher is USD strength</a> </div></p>
Many hedge funds are short CAD as they are all convinced that the Canadian housing bubble is going to burst and bankrupt our economy. Here is the CFTC positioning for the CAD CME future.
CFTC Net Speculator Position CAD Futures</a> </div>
The speculators are basically at the shortest point they have been for the last 5 years.
I hate to climb aboard such a crowded trade, but I think that as the Quebec election progresses, the hedge funds are going to have their position move firmly into the green. There is a decent chance that they will make money – just not for the reason they thought. I have seen very little discussion about the Quebec development amongst the hedge fund community, so I think the market has not yet fully realized the political reality.
I am going to institute a small short position in CAD this morning.
In the long run, I am an energy bull and Canadian economic optimist, but I fear that in the short to medium term, the direction for the CAD is lower. I will add to the trade if it breaks above 1.12 and stays there for 2 days. I will cover if it breaks 1.09 and stays below that level for 2 days.
Things that I am watching…
The other day I watched this great Bloomberg documentary on the legendary investor Sir John Templeton.
The part of the story that I liked best was his silver investment.
Templeton was a staunch optimist. He would buy stocks in the face of maximum pessimism and firmly believed that the key to investing was to buy out of favour equities with the knowledge that in the long run, human beings innovate and progress.
However even this dyed in the wool long term equity investor felt that owning some physical silver was a good idea.
Templeton, who had renounced his American citizenship, bought an apple orchard in Ontario Canada and buried physical silver coins on his property. He then sent a map to his family members in case something happened to him.
I find it amusing (and telling) that even Sir John Templeton himself felt that owning a little physical silver was a good idea… Wise man that Templeton…
UPDATE: New Position. Short CAD. Will add through 1.12. Stop 1.09. Conviction 2
Buy TIPS short TLT spread through long dated options. Conviction 3
Short Nasdaq 100 futures and short Eurostoxx futures Fed is going to taper until something breaks. Conviction 3. No stops for now
Short 10 Year US Treasury Futures with half of position married to out of the money calls Conviction 6
Short US 5 Year Treasury Futures. I expect the Fed to continue to withdraw stimulus aggressively. Conviction 3
Short US 2 Year Treasury Futures. I think the downside is a move from 31 bps to 25 while the upside is a move up to 50 bps. Conviction 4
Short Mar and June 2016 Eurodollar vs long equivalent BAX futures. Conviction 3
Long March 2014 VIX Futures. Conviction 2.
Long a tiny position of puts on TSLA and FB. Just for shits and giggles. Conviction 1. Stop – none: when they go to zero the market will do it for me.
Short Euro. Added to this trade into the recent rally. Conviction 4
Short European stocks via ESTX50 index vs Long S&P 500. I continue to believe that the ECB is too tight relative to the Fed and the BoJ, and that this will translate into relative weakness of European equities. Conviction 4
Short Yen. Conviction 3
Short JGB futures. I can’t call myself a macro trader without this widow maker on the sheets. Small position for now, but will add aggressively at the first sign it is working. Conviction level: 1. No stop.
Long Yen volatility. I believe we are entering a period of increased volatility for the FX pair. Conviction: 3
Long 30 year US treasury volatility. Swapping half of this position into Yen volatility. Conviction 2
Long various deferred crude oil futures contracts. I own a variety of different expiries in years from December 2014 all the way to December 2020. Conviction level: 4. No hard stop.
Long precious metals smorgasbord. Long gold, silver and platinum futures. I also believe that the closed end ETFs (CEF.A CN Equity or PHYS US Equity) which are now trading at discounts versus years of trading at a premium are a good way to play this idea. Conviction level: 4. Using the year end lows as a stop for half the position.
Long grains. Long deferred corn, wheat and soybean futures. Conviction level:5. No stop period.
Long Ithaca Energy IAE CN Equity. See previous posts. Conviction level: 5
Long Input Capital INP CN Equity. I have not yet written this up, but I really like this story. More to come in coming days. Conviction level: 5