After what has been a bad July for Dighton Capital, and anyone else long the US Dollar, Dighton’s head trader, Alex Moiseev, is out today with the following ‘defense’ of Dighton’s long U.S. Dollar/ short Swiss Franc positions (view the full release here).
“The Fed has confirmed it will not launch QE3 any time soon and that supports a stronger Dollar. The Euro has become stronger due to speculation that the short term situation in Greece will improve but the fundamentals are still bearish for the Euro. The second main component of the USD index, the Yen, will suffer in the medium term from the effects of the earthquake, the huge debt/GDP ratio and the printing of money by the bank of Japan. For these reasons we are convinced that in the coming months the Dollar will strengthen significantly against the major currencies.
“The Swiss Franc has appreciated 40% over the last 14 months and 20% over the last six. This bullish trend is losing steam and many technical indicators signal an imminent turnaround. Technically speaking, the Swiss Franc is very toppish and a ‘double top’ has developed versus the Dollar. The strong appreciation of the currency is affecting the Swiss economy, prompting companies to officially complain to their government. The Swiss government has reduced its growth forecasts for 2011 and 2012. Therefore on both the technical and fundamental side we believe this position will pay off soon. It is indeed a highly appealing period for currency trading.”
It would normally make us nervous to hear a trader defending his position, thinking back to the old investment axiom that the market can remain irrational longer than you can remain solvent; but Dighton is a different sort of bird in this regard.
Dighton likes to buy into weakness in markets in hopes of the market snapping back sharply after they have scaled fully into positions at successively lower levels. This is in stark contrast to a trend following type manager who buys strength in hopes of the trend extending further. Dighton is trying to catch the falling knife, versus other managers running alongside a thrown knife for as long as possible before it falls to the ground.
So Dighton will have periods like this where the whole world seems stacked against them. That is, indeed, the kind of scenario they wait for in order to get the most ‘value’ out of what they are buying or selling.
The danger, of course, is that the knife cuts right through your hand and crashes to the floor, providing no bounce higher and a nasty wound. With the end game for this trade likely to be over the next few days as the debt ceiling debate is either solved or not – we’ll see soon enough whether Dighton is able to catch this knife, or if they get cut.