Yesterday, I posted about Bill Ackman's HKD trade, and mentioned that I was pretty impressed and at the same time, pretty sure he would be wrong. Yet, the idea is compelling and the trade very tempting as the risk is close to zero and the potential gain enormous.
I have been thinking — not too much but still — and I think I might have found a flow in the trade: basically, the point that Bill makes is that the HKD is undervalued due to its peg against the USD and that high inflation has been imported as a consequence. So he believes that a 30% revaluation of the HKD against the USD has a probability of 6:1.
Now, here's the flaw: what about the case where the USD rallies 30%? huh? Given that a major USD rally is in the docks — at least according to my forecast, which have been right so far — then what happens to the HKD revaluation?
In such a case, the commodities would get hammered, and inflation would drop dramatically. I am sure that you would get the results Bill Ackman mentioned the HK government should be aiming for, and this would happen without any need for difficult and dangerous revaluation. Note that if you play the FX, your loss would be minimal in this case. But if you play would options, it's likely that you would lose about 100% of your premiums. Caveat Emptor!
I will hence not consider playing this with options. I might look at playing it with FX, but will first wait for the USD to show us what it where it wants to go and whether the rally will be enough or not to prevent this revaluation idea.
What do you think?
Showing posts with label Bill Ackman. Show all posts
Showing posts with label Bill Ackman. Show all posts
2011-09-18
Bill Ackman's 40min Must-See Presentation On His HKD Trade
Bill Ackman, the well known hedge fund manager of Pershing Square, has made a great presentation during the Delivering Alpha conference available on CNBC.
As I told my friend, I am not a big fan of the stock picking strategy as those following it — no matter how brilliant they are, such as Ackman, Einhorn, Buffett... — forget the macro-economic and index speculation forces are far bigger than what a single stock can handle. During major crashes or economic shifts, no matter how great the company is and how much thought you've put into your trade, the stock is going to crash.
This is actually what happened back in 2008-2009 when Bill Ackman's Target position soured and his $1 billion Target focus fund collapsed by an amazing 90% — playing with options can be dangerous.
Nonetheless, this is a fantastic presentation — you will learn the history of monetary policy in HK, and the background analysis of his trade and how he's acting on his analysis.
The 150 slides are available on Scribd.
After doing some research, I found this ZeroHedge post which mentions that DB is actually forecasting a complete different outcome for the HKD, and the DB report is available from their post.
This looks like a very interesting macro-trade, which could be as major as the Soros' sterling bet or the SNB CHF peg: potential to create billions of dollars of gains if you plain it right. I will certainly start analysis this myself and see whether and how I would like to play it.
As I told my friend, I am not a big fan of the stock picking strategy as those following it — no matter how brilliant they are, such as Ackman, Einhorn, Buffett... — forget the macro-economic and index speculation forces are far bigger than what a single stock can handle. During major crashes or economic shifts, no matter how great the company is and how much thought you've put into your trade, the stock is going to crash.
This is actually what happened back in 2008-2009 when Bill Ackman's Target position soured and his $1 billion Target focus fund collapsed by an amazing 90% — playing with options can be dangerous.
Nonetheless, this is a fantastic presentation — you will learn the history of monetary policy in HK, and the background analysis of his trade and how he's acting on his analysis.
The 150 slides are available on Scribd.
After doing some research, I found this ZeroHedge post which mentions that DB is actually forecasting a complete different outcome for the HKD, and the DB report is available from their post.
This looks like a very interesting macro-trade, which could be as major as the Soros' sterling bet or the SNB CHF peg: potential to create billions of dollars of gains if you plain it right. I will certainly start analysis this myself and see whether and how I would like to play it.
(Thanks to my friend Mr. H. for sending me the link)
Subscribe to:
Posts (Atom)