Back on November 19 of last year, we laid out Goldman's Top 6 trades for 2016 (read the full list here) for the benefit of "those who can't wait to take the other side of Goldman's clients, and thus the same side of Goldman's prop desk." We also noted the 3 big risks which Goldman said could lead to its forecasts crashing and burning, namely "a further fall in commodity prices, in particular crude oil, a devaluation of the Chinese Yuan, and bond yields rising faster than we already anticipate."
We concluded by saying that "something tells us the best trades for 2016 will be to go short the Yuan, go short Oil, and short TSYs, while doing the opposite of the Top 6 trade recos. We will CIX this "basket" and revisit one year from now."
It looks like we won't have to wait nearly that long.
Recall that it was just last week, just 11 days into the year, when we reported that Goldman was already closed out of one of its top trades of the year, namely "Top Trade #6: Long large-cap US Banks relative to the overall S&P500 - Go long large-cap US Banks through the BKX Index relative to the S&P500, indexed at inception to 100, with a target at 110 and stop loss at 95."
This is what Goldman said:
Close long large cap US banks through the BKX Index relative to the S&P500 on 11 Jan 2016, opened on 19 November 2015 at 100, with a potential loss of 5.4%.
11 days later we followed up how the remainder of Goldman's top 6 trades are doing and to our amazement we find that Goldman is about to set a new record: barely three weeks into 2016, and Goldman has already been stopped out with substantial losses on three, or half, of its six trades for 2016!
Here is Top Trade #3:
Close long an equally-weighted basket of MXN and RUB versus short an equally-weighted basket of ZAR and CLP on 21 Jan 2016, opened on 19 November 2015 an entry level of 100, with a potential loss of 6.6% including carry.
And Top Trade # 2:
Close long 10-year US break-even inflation (USGGBE10 Index), opened on 10 November 2015 at 1.60%, with a target 2.0% and a stop on a close below 1.40%.
The reason: as of this moment, the USGGBE10 is trading well below the stop level of 1.33%:
And just like that, simply by doing the opposite of what Goldman's top trades were, we have outperformed about 98% of the market so far in 2016. As for Goldman's clients, you know the token picture by now...
Finally, here are the three Top Trades which Goldman has not been stopped out of just yet:
- Stay long USD against an equally weighted basket of EUR and JPY, opened on 19 November 2015 at 100, with a spot target of 110 and a stop loss of 95, currently trading at 97.44.
- Stay long a basket of 48 non-commodity exporters (GSEMEXTD Index) and short a basket of 50 EM banks stocks (GSEMBNKS Index), opened on 19 November 2015 at 1.12. We will monitor this trade as the ratio between the two indices, with a target of 1.30 and a stop-loss of 1.04, currently at 1.17.
- Stay long 5-year 5-year forward Italian sovereign yields vs short 5-year 5-year forward German yields, opened on 19 November 2015 with an entry level of 160bp, target of 100bp and stop loss of 190bp, currently trading at 143.9bp.
It will be soon enough.