Positions : Reshuffling the Deck

1. Core Book main theme : Inflation. = Higher Commodities. Expressed here via long Gold, Copper, Brent + CAD. Equivalent (almost) to being short USD.
2. Secondary theme : Fed will not act anytime soon as clearly indicated by Bernanke. Any need for higher rates will come via market pricing (steeper curves) and not Fed action. Am long EDM1/Z1 and US10YY, as an extension of 1 (originally).
3. Price action of last 2 days suggests that the interest rate positions in 2. will probably not pay off soon.
4. However, what has become apparent is that markets are now (a) selling USD in tandem with (b) lower rates ie looking at interest rate differentials. Thus, positions in 2. have now become an automatic hedge for 1. Current ratio after reclassification is 1.8 : 1 (core : hedge).
5. Result : Instead of viewing 1+2 as complimentary, will treat 2. as a hedge for risk management purposes. Minimal damage to P&L after last night's move to lower rates indicate that this is probably not wrong (up day if not for Soybean).
6. Instead of running big outright position, back to relative value trading core vs hedge now, which is the way I prefer it
7. Absolute risk case : USD/FX up and USD rates down eg flight to quality scenario.