And another humiliating notch on Goldman's "client facing" FX team's bedpost... And another win for the firm's prop desk.
Recall from June 29: Goldman Tells Soft Dollar Paying Lambs To Go Long AUDJPY With A 90 Target:
With Goldman having recently downgraded its outlook on China, it was only a matter of time before its FX team came out with a completely nonsensical and inverted call on the first derivative of a Chinese slowdown: the AUD. As of tonight Goldman is advising clients that its prop desk has a lot of AUDJPY to sell up until 90, and will buy everything below 84, in other words Thomas Stolper says to go tactically long the AUDJPY until 90, with an 84 stop. Of course, this makes all the sense in the world if China is slowing down. As a reminder, Stolper is the same guy whose call track record in 2010 was about 0 out of XXX. On account of it being a long day we refuse to even attempt to deduce how many level of reverse psychology are involved in this call. Needless to say, any time a hedge fund tells you to buy a bridge it probably has one to sell.
Well, it didn't even take three full weeks for our cynical and jaded outlook on life to once again be validated. As of 5 minutes ago:
Trade Update : Stopped out of long AUD/JPY with a potential negative return of 2.3%
On June 29, 2011 we recommended clients go long AUD/JPY on a normalization of rate expectations in Australia and a recovery in risk appetite, part of a broader shift in our trading stance that saw us take more directional risk, including via our short 5-year UST recommendation and long position in the GS Wavefront Growth basket.
Yesterday we were stopped out of our recommendation, with the AUD/JPY trading below our stop of 84. The trade idea suffered as rate expectations in Australia were pared back even further from when we initiated the trade (from 9 bp in cuts over the next year as of June 29 to 53 bp in cuts as of today) and as the risk appetite deteriorated on further spread widening in the Euro periphery, notably in Spain and Italy in recent days. Macro data has remained mixed as well and disappointed relative to our expectations. The potential loss on this trade idea is around 2.3% including carry.
2.3% in 3 weeks. That's, uh, carry the four.... 40% annualized, which incidentally is the P&L that Goldman's head FX prop, pardon flow, trader just booked on his P&L. Why, you didn't think Goldman wasn't on the other side of the trade now did you?