We Give XieXie
We Give XieXie
Plus: A New Contrarian Play & A New Boss Level
Two weeks ago, just as we were resting cosily in the “Fetal Position” of a 40% cash balance, we took a view that it was time to allocate a significant portion of our capital to “bombed-out large-cap companies in Energy and Commodities before a Rate Cut Cycle kicks in” ("What If" .... it's Time?).
A week ago, following the Fed’s 50bps rate cut, we bought calls in Chinese equities because we had “this sneaky conspiracy theory that China was waiting for the US to start cutting rates before they went bigger in their own monetary and fiscal stimulus”.
I love it when a Plan Comes Together! We Give Thanks. Or should I say…We Give XieXie (Translation: "We Give Thanks" in Chinese…).
The Commodities & Energy Basket we put on 2 weeks ago performed strongly with Anglo / Glencore / TECK up +20%, Seadrill +9% and OXY…flat. Single name calls were up 2-3x. We closed the Basket and gave thanks.
The single names in the China Call Basket we put on just a week ago were up FXI +20%, BIDU +20%, JD+40% . We closed the FXI / JD calls up as much as 5-6x and the BIDU calls up as much as 7-8x and we rolled them up to higher strikes to keep upside (and I wish I thought about doing the same with JD/FXI. I’m just a beginner, bear with me. Live and learn!).
I don’t think I’ve seen a Major Index like the FXI be up +20% in a week like that, since 2009. In fact, Chinese equities had their best week since 2008. We give Xie Xie!
Summary for Traders with ADHD on the events of last week:
China launched an “unexpected” stimulus package (“unexpected” at least for those who don’t read Shrubstack) that some call a Bazooka and some are trying to fade as “not enough”.
The danger of fading this is very simple: When Draghi uttered the words “Whatever it takes” in 2012, in reality he didn’t do “whatever it takes”…he just said it.
The most important comment of the PBOC Governor last week was this:
"We could consider unleashing a second round of 500 billion yuan, or the third batch of 500 billion yuan if the plan were enforced well enough…We are taking an open attitude towards the new policy."…
…which sounds like the Chinese version of “Whatever it takes”. It’s almost like comparing Chinese Noodles with Italian Pasta: they look different but ultimately achieve the same end goal!