Best Trades of 2012 @ Wall Street

The global economy gloom is still not over but 2012 was more promising that the last couple of years after the major Subprime Crisis and the ongoing Euro Debt crisis. Here are some of the trades winning bets to be made on Wall Street in 2012. And finding some of them was relatively simple: Just buy the thing that caused—or nearly caused—a major financial meltdown a couple of years back.

1. Subprime mortgage bonds : May sound awkward they almost tanked the global financial system four years ago. But that was then. And back then, they were supposed to be “AAA” rated pieces of paper. Guess what? They weren’t. They were more like junk bonds. And when the all-seeing, all-knowing market realized that, it adjusted prices. They plummeted, driving the value of all those mortgage bonds the banks were holding down so low the losses began to eat into the capital base of the world’s biggest banks.

Now every body knows that they are not AAA so they are available at right prices if you bought them early enough this year, you made a lot of money. The Dow Jones Industrial Average of subprime debt—is the snappily titled ABX.HE.AAA.07-1, and it is up roughly 36% this year. The reason they are up Rising demand + shrinking supply = higher prices.

2) US homebuilding stocks : And speaking of housing. Just. Wow. This was the year to own homebuilding stocks. The total return—price gains and dividend payments—from investing in the S&P 500 Homebuilding sub-index was just shy of 90% year-to-date this week. In price terms alone, Pulte Homes is up 160%.

3) Short Chávez: Financial markets are thrilled that Venezuelan populist president Hugo Chávez looks to be locked in a serious battle with cancer. Prices for Venezuelan bonds have soared, and when added to the interest payments on the debt, the total return on Venezuelan government bonds is flirting with 50% this year—47% through Tuesday, according to Barclays data. Bloomberg succinctly sums up why: “In his 14 years in office, Chávez has seized more than 1,000 companies and imposed currency and price controls as part of what he says is a push to turn South America’s biggest oil producer into a socialist country.”

4) . More than a meal: As an animal feed additive, soybean meal might not be the sexiest investment you might have made this year. But with futures prices up around 43% through Wednesday, the returns on this bet weren’t too shabby. The surge in soybean meal prices reflects both the rise in demand from animal processors in Asia as well as the nasty US drought farmers faced this year in the Midwest. Earlier this year, prices were up as high as 70%.

5) Year of the PIIG : I have written a lot about them, much smaller than Spain and Italy, and without the hard feelings associated with Greece (the Hellenic Republic has had a habit of mis-stating its national statistics) Portuguese debt has quietly rallied away during much of 2012. Portugal’s economy is still shrinking, but with the country at least making the effort to meet the targets set as part of bailout deals, Portuguese banks are finding it easier to fund themselves.

The total return on Portuguese government debt is up more than 50% since the end of last year. For that matter, the rest of the so-called “PIIGS” countries—the worrisome nations of Portugal, Ireland, Italy, Greece, and Spain—have done pretty well in 2012. Irish government debt returned 26% year-to-date. Greece is the outlier, up more than 74%. Italy is up 18%. Spain looks to be the laggard, returning a mere 4% to investors.

I will try to put soon the 2012 trades for India..

Source : Quartz


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