PLEASE Rate my trade Idea for my upcoming interview
Hey everyone !
I have an interview coming up at a HF so I just wanted to get some feedback on my trade idea.
Hypothesis: Going long the dollar or Yuan
With oil prices rising to possibly 100 per barrel by the end of the year, we will see oil importers need to purchase more dollars or yuan to purchase oil because of the petrodollar/yuan. Artificially creating stronger demand for each currency appreciating the dollar/yuan. And you would short the currency of any country converting their currency into dollars to buy more oil because the dollar would appreciate against there currencies.
Please all feedback and questions are welcomed !
cooreyfeldman, bummer your thread hasn't had a response yet. Sometimes bots are smarter than humans anyways:
More suggestions...
Fingers crossed that one of those helps you.
I don’t know if it helps to be multidimensional, but you might want to consider how inflation in the US compares to to other countries and also consider whether or not you expect the fed to raise rates, as inflation erodes the dollars’ purchasing power while higher rates tend to increase the price of the dollar.
I say it’s an interview, flex your muscles and show that you are thinking about all the variables.
Interesting thesis! I'm curious, why not go long CAD with the Canadian economy having such a big focus on oil + higher CAD rates?
Also agree that you absolutely need to mention inflation if you want to pitch a macro trade in the environment.
(Btw take what I say with a grain of salt, I literally got zero experience doing that)
Hey so I refined it even more, but I went with a country that has decreasing oil production and heavily relies on oil imports. So there demand for oil is in elastic and they are more likely purchase oil at any price. Canada is an oil exporting country I’m pretty sure, so they wouldn’t work atleast for my thesis.
I'm not sure I follow you correctly: Canada exports oil, so whenever oil price increases the CAD appreciates against other currencies. Seems to fit with your thesis of oil prices @ 100$.
Also, you thesis is basically saying "go long USD and short any country that buys oil". It think it mst be more precise than that. Especially since most investors manage money in USD, saying go long USD doesn't mean anything. You need either to go long another currency. (Or saying what would you short against the USD)
BTW when is your interview?
Hey so I refined it even more, but I went with a country that has decreasing oil production and heavily relies on oil imports. So there demand for oil is in elastic and they are more likely purchase oil at any price. Canada is an oil exporting country I'm pretty sure, so they wouldn't work atleast for my thesis.
you are thinking 2nd order...if you think oil will go from current price ($80) to $100....then shouldn't you just be long crude oil futures?
isn't that less risk?
It would be less risky but I really wanted to impress my interviewer. And I believe this replicates that sentiment but this play could be a trade that no one would expect, and beats the market.
I agree with the above, for sure you will get asked why not just go long oil? Also what makes you so confident oil will go to 100? I think you should try to be as clear as possible about what the market is missing or misunderstanding in the current price of oil.
Because of the oil crunch in Asia and Europe + the initiative to move towards esg and disinvestment towards oil, coal + Plus a very cold winter, would hypothetically increase oil demand. I also think this is a unique trade that when put together is amazing I can send it to you
Always good to go through the process of idea generation, but I would not recommend it. Simplistically, oil prices matter less for importers than exports given as a % of GDP oil imports are typically low single digits while they can be 20% plus for exporters. Said differently there are many other (more impactful) factors that will likely drive $ or RMB (Yuan) movement.
Not to be picky, but given where gas futures a cold winter is arguably already "priced in" and there is a significant amount of incremental gas to oil switching that has already occurred. There are other reasons why I think oil could go to $100, but this is not the main one. As others have alluded to are the FX plays cheaper on a risk adjusted basis than the commodity.
Finally, just trying to offer some critique without knowing your experience level- if you are an undergrad/fresh grad that's one thing, but if you are for example an associate on a macro desk interviewing for a macro HF that's different. As a general rule more fundamental leg work has to be done to pitch a trade.
Wait so why are they purchasing more oil in the first place? I thought demand and price were inversely related?
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