Tag Archives: sight beyond sight

ETF News, Global Macro Strategy

Greece and The True Pain Trade-A Rare Global Macro View

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The True Pain Trade in Yields and Euro…Not the Wall Street Pain Trade of Equities

Greece, Grexit and the notorious ‘pain trade’ commentary below is courtesy of MarketsMuse’s extracted rendition of today’s above-titled edition of “Sight Beyond Sight”, the global macro commentary and investment insight newsletter published by Rareview Macro LLC. Added bonus: a thesis for trading EEM.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Those like us who have been in this business for some time will be familiar with Futures Magazine, a cornerstone property of The Alpha Pages and its sister publication FINalternatives. Their new flagship publication, Modern Trader, has just been launched and hit the newsstands last week. The full publication can be viewed HERE (Password: prophets). Our article “Riding The Dollar Bull” begins on page 28. We were pleased to be a centerpiece of this inaugural issue and would like to use this moment to wish CEO Jeff Joseph and Editor-in-Chief Daniel Collins the best of success in this new endeavor.

The True Pain Trade in Yields and Euro…Not the Wall Street Pain Trade of Equities

 

The professional community is fixated on a “pain trade” – that is, a durable European equity relief rally that lifts all other risk assets in sympathy.

The “Shenzhen-style” bid in European equities this morning argues in favor of that theory and clearly validates the view that risk reduction has been thematic the past two weeks and professionals are left without enough of a position should risk assets continue to appreciate.

This is where this theory stops working, however.

We think this is the wrong way to think about what a Greece resolution means for asset prices going into the third quarter of 2015 and it also tells you why this conversation is about much more than just a 5-10% rally in the German DAX.

Now those who have followed us for years appreciate that we actually have two definitions for the widely-touted phrase “pain trade” – one for the true meaning – that is, lower prices because that leads to investors actually losing money – and one for sales people on Wall Street – that is, some terminology that makes them  sound like a “cool kid” who is “in-the-know” for their hedge fund clients who do nothing more than try to capture 60% of any market move up or down so they can justify their existence for a bit longer.

While we appreciate that the “cool kids” believe equity markets can go higher, we think real investors, ones that are not forced to be “close to the Street”, are much more concerned about a breakdown in the correlation of the European carry trade relative to the US dollar.

Let us explain what we mean…

The three drivers of global macro investing during 2012-2015 have been and still are:  the US Carry Trade (SPX + UST 10-yr), the Japanese Yen, and the US dollar.

The additional driver of global macro investing during 2015 is:  EU Carry Trade (DAX + German 10-yr BUND).

Now, let’s combine a key long-term driver with the additional driver…In today’s edition of Sight Beyond Sight, we provide our readers with an illustrative of the EU Carry Trade (DAX + German 10-yr BUND) versus the U.S. Dollar Index (DXY), and a detailed thesis as to our proposed trade idea.

Model Portfolio – New Position – Emerging Markets Book Hedge

On Friday, in the model portfolio, we spent 10 bps of the NAV and added a long emerging market volatility position in the portfolio overlay return stream to protect the existing long risk positions in the Real-Yen (BRL/JPY) and crude oil (CLX5).

Specifically, we purchased 10,000 iShares MSCI Emerging Markets ETF (EEM) 06/26/15 C41– 39.5 option strangles for $0.31. For the purposes of this model portfolio being liquidity verified, not just time-stamped, we paid $0.02 through the asking price.

Given the binary risk around possible Greek capital controls, we were genuinely shocked to see that such a trade existed in the marketplace. Additionally, the hedge was cheaper than using S&P 500-related options, and has a higher correlation to the Greek stock market. This makes EEM one of the best kept secrets in the market.

The break-even for the trade at the time of execution was 2.23% by next Friday, or exactly the historical 1-sigma move by the end of this week. On a 2-sigma move, the expected profit return is 2.5:1.

On further analysis, we discovered that about 33% of the weekly occurrences during the last 12 months (i.e. last 52 weeks) exceeded the expected 1-sigma move, and that doesn’t even include the potential Greek risk next week!

Ultimately, this means that upon entering the trade there is statistically a 1 in 2 probability that we turn a profit on the position. We like those kind of odds.

Neil Azous is the founder and managing member of Rareview Macro LLC, a global macro advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight.

 

ETF News, Fixed Income, Global Macro Strategy

Global Macro: Decomposing the Move in Yields-The Pendulum Swing

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Decomposing the Move in Yields…Global Fixed Income Coming Closer to Decoupling from German Bunds

MarketsMuse Global Macro and Fixed Income departments merge to provide insight courtesy of “Sight Beyond Sight”, the must read published by global macro think tank Rareview Macro LLC. Below is the opening extract from 10 June edition.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Firstly, please note this morning’s Model Portfolio Update: Crude Oil, XLU/SPY, IYR/SPY, FXI: As per yesterday’s edition of Sight Beyond Sight, we added to existing long positions in Crude Oil, XLU/SPY and IYR/SPY. The update was broadcast in real time via @RareviewMacro.

Now, on to the day’s primary talking points..

The confidence level in the professional community remains low. The attack on the Dollar-Yen (USD/JPY), which had its largest one-day drop since August 2013, was just another casualty of the search and destroy mission underway in overall asset markets. The fact is that there is no model–valuation, technical, or otherwise–that can handicap the speed and the degree of the backup in global yields. The overriding question remains: “When will global yields stop going up, and when can the rest of fixed income decouple from German Bund leadership?”

Risk-Adjusted Return Monitor Summary & Views Continue reading →

ETF News, Global Macro Strategy

Crude Oil-This Global Macro Trading Expert Says This About That

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MarketsMuse Global Macro Trading dept. merges with our ETF dept. to provide the following excerpt profiling a compelling and conservative Crude Oil-centric strategy courtesy of global macro think tank Rareview Macro LLC. The following was posted to subscribers of “Sight Beyond Sight” on Wednesday, May 27. Irrespective of subsequent three day’s pricing and trade activity across crude oil marketplace, MarketsMuse editors have determined the strategy proposed by Rareview Macro’s Neil Azous remains ‘evergreen’ (for the time being).

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Today we got long on WTI crude oil in the model portfolio. Take it for what it’s worth, but this is the first time we have traded Crude Oil during this entire corrective phase stemming back to last summer. As per the March 18th edition of Sight Beyond Sight, when we put a long crude oil strategy on our watch list for a reduction of the severe contango in the futures curve, we are finally comfortable with the risk profile, especially considering volatility has been reduced by more than half since then. Sadly we did not deploy a position on March 18th as it coincidentally was the day the “barrel” bottomed.

The reason we chose to utilize a risk reversal approach today to get long on crude oil is because of the pronounced put skew in the term structure. For example, the structure we entered captures seven volatility points of skew on the ask side.

We like the risk-reward in this position. For example, if the November 2015 crude oil future (symbol: CLX5) were to fall $6 in the next one to two months, the strategy stands to lose ~$1.4mm. Conversely, if it were to rise by $6 in the same time frame the expected profit is ~$3.2mm, which returns a profit ratio of 2.28:1.

Sidebar: A similar strategy can be employed in the US Oil Fund (symbol: USO) by buying the 10/16/15 $21.5 calls and selling the $16 puts, but the ETF position is vulnerable to the shape of the futures curve moving further into contango. Continue reading →

Fixed Income, Global Macro Strategy

Global Macro: Historical Backdrop re Yield Moves: Pre-Mature to Call Bear Market

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MarketsMuse Global Macro update is courtesy of extract from a.m. edition of “Sight Beyond Sight”, the newsletter published by global macro think tank Rareview Macro LLC and authored by Neil Azous.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

In last Thursday’s edition of Sight Beyond Sight we argued that we couldn’t work out how anyone was able to make an argument about the short-term direction of fixed income, and especially calling the end of the sell-off, with a straight face. Put another way, there were a lot of pikers out there with no accountability or transparency voicing their opinions that day. Given that any attempt at analyzing fundamentals relative to positioning at historically climactic moments is generally a very poor exercise, we refused to go on the record that day and said we would regroup over the weekend. Given the resumption of the sell-off, that patience has served us well.

At this point, just repeating that CTA/Managed futures, a strategy that makes up ~10% of hedge fund AUM but deploys the most leverage, have lost on average ~5% over the last few weeks is a waste of time. Since CTA’s apply priced-based trend-following algorithms to the trading of futures contracts what matters is that many thresholds used to trigger a stop-loss have been breached and then some.

The takeaway at this point is that CTA’s/Managed futures strategies are way passed working through large offsides positions and many of them have now flipped their strategies to go the other way. Along those lines the positions that have flipped are more acute so far in Europe than the US.

That is very important to recognize because that position building is still in the early stages and as/if the new trends extend those positions will grow and grow given this is the most levered strategy within hedge fund products.

The big out-trade at this point is that asset managers still hold structural long US dollar and Treasury curve flattening positions and have yet to adjust them in the same way as the CTA’s. Why? Because their threshold for pain is a lot greater and they are not reactive to priced-based trend-following algorithms.

What does this mean? It means that the risk from here is that as CTA/Managed futures strategies ramp up new positions that will begin to force the hand of asset managers who have yet to be really reactive.

The new leverage being applied to the counter-trend on the hedge fund side plus the liquidation of structural position on the asset manager side is the point we think we are at now in terms of overall market positioning.

So what is most at risk now? Continue reading →

Fixed Income, Global Macro Strategy

Global Macro: Selloff and Noise Level Around European Fixed Income Reach Historic Levels

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MarketsMuse Global Macro update is courtesy of opening extract from today’s a.m. edition of “Sight Beyond Sight“, the global macro newsletter published by global-macro think tank Rareview Macro LLC and authored by Neil Azous, Rareview Macro’s Founder and Managing Member.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Forgive our saucy tone today, but this has been a long week. That is not because we were long European bonds, but because we provided a lot of free therapy to people who were. In the last two hours we have received way too many communications around today’s events.  At one end of the spectrum there are those arguing that Fixed Income has crashed, the bond bull market is over, and this is reminiscent of US Treasuries in 1994 or the Japanese JGB move in 2003. And at the other end, today’s reversal off the extreme yield levels seen just a short while ago is leading many to call the move finally over, arguing that supply/demand and the search for income are once again set to take over and force global yields much lower.

We don’t know how either side is able to make either argument with a straight face. Put another way, there are a lot of pikers out there with no accountability or transparency in their views voicing their opinions today. The attempt to analyze fundamentals relative to positioning at climactic moments historically is a poor exercise, especially considering the UK election is today and the US employment number is not released until tomorrow.

Instead, you might be able to make a better argument that the European Central Bank (ECB) was able to meet its bond buying quota very early in the month, and at choice prices and it is best for everyone else to wait until next Monday to go on the offensive. That just seems more rational. Just because we write a newsletter doesn’t mean we have to go on the record today. So we will not and instead regroup over the weekend and come back Monday refreshed.

To be clear, we are not “off-side’s.” We are just more interested in where Global fixed income will be over the next two to three months rather than getting caught up in the next two to three hours. In that spirit, for those who want to fall back on something more fundamental or process oriented instead, the below observations may be of interest.

US Fixed Income Observation

Below is a snapshot of our internal model for US interest rate hike probabilities over the next 18 months. The top graph looks at the total probability of a hike BY a certain meeting, whereas the bottom graph determines the probability of a hike AT a certain meeting. Beyond that, the very affordable cost of Sight Beyond Sight ® newsletter prohibits us from sharing any additional methodology with you. So please don’t ask us. Let’s just say we utilize this tool frequently in our internal process and we place a lot of weight on it. Continue reading →

Global Macro Strategy, People Profiles

Global Macro Trading: Why It’s Time to Stop Hating Apple Inc

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MarketsMuse.com Global Macro update necessarily touches on the hyperbole and couch quarterbacking connected to yesterday’s earnings announcement from Apple Inc ($AAPL), which included a big bump in planned corporate share buyback and increased dividend.

Our editors were particularly entertained by below extract from today’s edition of global macro trading commentary produced by Neil Azous, the Founder and Managing Member of Rareview Macro LLC and publisher of “Sight Beyond Sight”. During the past year, and notwithstanding a focus on thematic, macro-style strategies, Azous has published a selection of comments re $AAPL which have proven remarkably prescient. Below snippet is merely a teaser to a more detailed defense of Apple, and the same edition includes a Rareview look at “Gold Terrorists.”

(LATE POST:CNBC staffers were apparently so tickled by the Apple comments from Azous (and specific recommendation below), they demanded that Azous share his tongue-in-cheek comments on air…the video clip is below)

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

“…On a personal note, we would encourage those professionals who love to hate AAPL to book themselves a series of therapy appointments. It is ok to spend $10,000 and tell a stranger that you are “angry”.

We recommend one session each for the following 10 “issues” for you to work through. In fact, see if you can haggle yourself a discount for a pre-paid 10-pack of therapy sessions.

1. You are “angry” about the fact that their China revenues went to $17 bln from $10 bln and sales in China surpassed the US.

2.You are “angry” about the 70% year over-year growth rate in a country that is supposed to be in a hard landing.

3.You are “angry” about the China stock market impact, i.e. the $4 trillion in new market cap that could be put towards a new iPhone or Watch, and that AAPL is now geared to China.

To read the entire a.m. edition of “Sight Beyond Sight”, including commentary focused on “Gold Terrorists” and the outlook for yellow metal within the context of a sensible investment portfolio, please click here. (Subscription is required; Free Trial is available)….

Strike Price

AAPL in Advance of Earnings: A Truly Smart Options Strategy

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MarketsMuse.com Strike Price update takes a swipe at the plethora of sell-side analysts already dueling on air in advance of Apple Inc.’s April 27 quarterly earnings release (folks who will be proffering their respective EPS outlook post mortems and assortment of “consensus” talking points and take-aways after Tim Cook steps away from the conference call microphone). Instead, our MarketsMuse Option mart experts decided to share a uniquely thoughtful trade strategy for those fluent in options and agnostic as to the short-term stock price impact of mundane metrics that include a fresh look at Apple Watch orders and backlog of orders, or whether revenue reported conformed to the general consensus of Wall Street researchers.

The thoughtful idea is only for truly macro-friendly traders and professional investors, not for those who maintain “a longer-than-before-lunch-but before-the closing bell” approach to investment management. The AAPL  options idea in question (based on and intended to express a positive view on the company’s share price over medium-to-longer-term) is rare, as it is exclusively focused on a thesis that is driven by intellectual, macro-style rational reasoning, which requires one to embrace a disciplined approach to the overall investment process.

In the case of the noise already surrounding AAPL earnings, the idea is courtesy of widely-cited-by-mainstream media (and frequent MM contributor) Neil Azous, the principal of global macro think tank Rareview Macro and publisher of the investment newsletter Sight Beyond Sight. It starts with distilling the jibber jabber that is typical to CNBC guest bloviators and pontificaters and discounts the emotions of momentary price ticks  based on whether the Apple Watch will soon be followed by an Apple Car. Instead, the Alpha capture Apple of an idea is based on expert fundamental analysis, a global perspective that is very similar in style to the 2 prior Apple Inc-related ‘calls’ that Azous advanced in Feb and March of this year  (re: Apple Swiss Franc bond issuance and March (AAPL / GOOG options trade).

Without further ‘background’, the trade idea makes for great reading by option market intellects, especially when considering that the expert in question is considered to be a Hedge Fund Industry Rising Star (nominee for Institutional Investor’s 2015 award), via a $300mil model porfolio, he is outperforming the leading global macro strategy investing peers, and within the context of this post, an expert who is batting 1000% and is 2:2 (as in home runs) when it comes to taking a bite out of and best leveraging the action in Apple Inc.

The fresh-off-the-press (April 21) AAPL options-centric trade idea is easily-accessed via the archives section of the Rareview Macro website (subscription required, Free Trials are available to newbies). For Twitterites, Rareview Macro updates can be followed via @RareviewMacro.

Global Macro Strategy

Global Macro Angle: The Range Trade and Dow Theory

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MarketsMuse.com Global Macro update is courtesy of opening excerpt from 14 April a.m. edition of “Sight Beyond Sight”, published by global macro trading think tank Rareview Macro LLC and authored by Neil Azous.

The Range Trade in US Equities, Fixed Income, and Dollar Continues

SBS Model Portfolio Update

April 10, 2015 COB:+0.72% WTD, +1.04% MTD, +0.71% YTD

We walk in today with little inspiration and struggle to see where a fresh appetite for risk will come from.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

The US dollar is back in its trading range relative to the euro. US fixed income is back playing ping pong between October and December for the first rate hike. A lot of bears want to argue that a trade below 2079 in the E-mini S&P 500 Futures opens up 2% more downside. We have sympathy for that view, especially considering that would be a very early referendum on earnings, and likely impact sentiment further. Our first thought is that we may just be incrementally re-pricing the very low index volatility backdrop seen at the end of last week which was highlighted by so many.

Additionally, we have seen these prices and that range many times in the recent past, so for today it’s the same thing as saying “My aunt has a cat.” By which we mean, ”Who cares?” Continue reading →

ETF News

ETF Land: Its All About the US Dollar

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MarketsMuse ETF update profiles the most talked about topic: the US Dollar courtesy of extract below from March 25th coverage from Todd Shriber of ETFtrends.com. Here’s the snippet:

For over a year, exchange traded funds tracking the U.S. dollar have been the stars of the currency ETF group, but recent weakness in the greenback could prompt some investors to assess other currency opportunities.

Todd Shriber, ETFtrends.com
Todd Shriber, ETFtrends.com

Since topping on March 13, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the U.S. Dollar Index tracking ETF, and the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) are off 3.6% and 3%, respectively.

The much maligned CurrencyShares Euro Currency Trust (NYSEArca: FXE) is up nearly 4.7% over that period and recent dollar weakness has gold ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), on six-day winning streaks. None of that means the dollar’s run is over. In fact, some market observers believe the recent pullback in the U.S. currency presents a buying opportunity. Continue reading →

ETF News, Fixed Income, Global Macro Strategy

A Euro-Surprise Is On The Way..A Rareview Global Macro View

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Marketsmuse.com blog update courtesy of extract from a.m. edition of Rareview Macro LLC’s “Sight Beyond Sight”, the global macro trading investment newsletter favored by the industry’s leading hedge funds, investment managers and the world’s most savvy self-directed investors.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro
  • -FOMC Meeting: Best Wishes
    -Swiss National Bank (SNB) Meeting
    -Singapore: The First Derivative of China and Crude Oil

Firstly, FINalternatives was kind enough to publish our thoughts on what we believe are the main forces driving the economic cycle in Europe right now, the supply/demand conundrum in European bond markets, and why Bund yields could rise even while the Euro exchange rate falls. This is not a trading piece or a recap of recent events but an analysis to show how a mix of history and the implementation of monetary policy will combine to generate accelerating growth in Europe. It is basically the culmination of the views that we have been outlining to you since mid-January. If you’d like to read it, you can find it here: A Euro-Surprise Is On The Way And It Is Not What You Think It Is. Continue reading →

ETF News, Fixed Income, Global Macro Strategy

Global Macro Strategy: Get Short-y

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MarketsMuse global macro strategy insight courtesy of extract from today’s a.m. edition of Rareview Macro LLC’s “Sight Beyond Sight”, which includes references to the following ETFs: EMB, HYG and LQD.. For those already subscribing to “SBS”, you already know that this market strategist incorporates a cross-asset model portfolio that has outperformed a significant number of those who oversee billions of dollars on behalf of the world’s most demanding investors.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

New Tactical Trade – Short German DAX…Model Portfolio -33% Net Short Equities

US Dollar Input – Not Just “Patient” and “QECB” but also Balance Sheet Management

Credit – Watch EMB, HYG, LQD Today

Model Portfolio Update – March 6, 2015 COB:  +1.04% WTD, +0.89% MTD, 0.00% YTD

This morning, in the model portfolio we sold short the German DAX. Specifically, we sold 200 GXH5 (DAX Mar15) at 11485. This is a short term directional trade. The notional equates to 20% of the NAV. The update was sent in real-time via Twitter.

All in, between the S&P 500 and DAX, the model portfolio is approximately-33% net short equities. To put it in simple terms, there is an opportunity right now to short the market. Why? Because, either the FOMC Committee blinks, and you get paid until they do, or they do not blink and you get paid as risk assets discount further interest rate normalization. Either way, your short position will make you money.

Here is the best way to describe our sentiment at the moment: Continue reading →

Global Macro Strategy

Global Macro: Can You Say Eurozone?

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MarketsMuse.com update courtesy of extract from a.m. edition of “Sight Beyond Sight”, one of the most widely-followed industry newsletters courtesy of global macro strategy ‘think tank’ Rareview Macro LLC.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Today is About the Forest…Not a Tree

Market Watchers & Worker Bees
Risk Takers
L/S Hedge Funds (Dumb Money) vs. Long Only Funds & Retail (Smart Money)
Model Portfolio Update – February 20, 2015 COB:  -0.76% WTD, -0.32% MTD, -1.19% YTD

We return from our vacation re-energized and looking to provoke some strong emotions among the professional investment community.

If you are a long/short equity hedge fund this edition is going to bother you a lot. Why? Because you are NOT long European risk assets.

If you are a long-only equity manager this edition is going to make you even more confident. Why? Because you are long European risk assets. Continue reading →

Global Macro Strategy, Strike Price

A Safer Options Bet For Arbing $AAPL and $GOOG : Think “Dividend Strategy”

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MarketsMuse update profiling a very intriguing options strategy for professional traders is courtesy of a.m. edition of “Sight Beyond Sight” , the global macro strategy-centric publication from Rareview Macro LLC. The MM editors include former option market-makers and we’re reasonably confident that the following idea has not yet been considered by those who pride themselves on innovative, yet low risk option strategies. Caveat: for professionals only.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

New Idiosyncratic Situation in Apple & Google…Avoiding the Mainstream Noise

There is no overnight recap today. Instead, we are going to present an equity idea on Apple Inc. (symbol: AAPL) and Google Inc. (symbol: GOOG).

If a discretionary money manager looks at their portfolio construction through the lens of “return streams” one such bucket would be called “idiosyncratic”. It is debatable what type of investment qualifies as “idiosyncratic” but we would argue “option conversion arbitrage” falls into this category nicely.

Option conversion arbitrage does not typically find its way into books about options trading. That is not surprising, given that the term alone would prompt most eyes to glaze over. With a little extra effort, however, this stock and options combination strategy should not be too difficult to fully understand.

Furthermore, demystifying conversion arbitrage does not require an advanced degree in finance or being a veteran market maker. All it will require is a basic understanding of put and call options (both buying and selling), familiarity with stock buying/shorting and knowledge of the stock dividend process. Conversions incorporate these elements, and a few others, in their cost and profitability structures and in the dimension of risk assessment, so you should brush up on them before getting started. Continue reading →

Fixed Income, Global Macro Strategy

$AAPL Swiss Bond Deal-Slicing Through the Jibber Jabber With a Rareview

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MarketsMuse update profiling Apple, Inc. ($AAPL) Swiss bond issuance is courtesy of extract from a.m. edition of Rareview Macro LLC’s “Sight Beyond Sight.”

The commentary on Apple Inc. (symbol: AAPL) and Swiss franc (CHF) below is certainly a rare view, simply because most professionals are still trying to decipher the impact of this morning’s Swiss bond deal.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Given the focus on the world’s largest company and Switzerland in the aftermath of the shift in central bank policy in January, one would think there would be a lot more discussion about the debt offering described below. It is not happening. That is not because professionals or the media are not interested in the deal. It is, instead, largely because this offering is intellectually challenging to first analyze and second, to report on.

Apple Inc.: To Sell CHF750M Bonds in 2-Tranche Offering; Scheduled To Price Today.
o Tranche 1: CHF500m 11/2024 at MS +27bps area
o Tranche 2: CHF250m 15Y at MS +37bps area
o Lead managers: CS, GS
So let’s analyze this together through our lens. Continue reading →

ETF News, Global Macro Strategy, Strike Price

Global Macro ETF: A Rareview- Look No Further and Look Down Under $MVMVE

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MarketsMuse global macro trading insight courtesy of extract from 4 Feb edition of Rareview Macro LLC’s “Sight Beyond Sight” with reference to $MVE and $MVMVE

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

There are a lot of moving parts overnight, including the continuing debate on whether crude oil has bottomed or not. But if we had to focus on just one part of the narrative it would be Australia – the tentacles of which stretch out all the way to basic resources, yield, beta, deflation, and sentiment.

Now before dismissing any read through from this antipodean nation as not as relevant as other indicators, we would argue that what is happening there may well have more meaningful ramifications for global risk assets than most realize.

Firstly, the Market Vectors Australia Junior Energy & Mining Index (symbol: MVMVE) is showing the largest positive risk-adjusted return across regions and assets for the second day in a row.

By way of background, MVMVE covers the largest and most liquid Australian and offshore small-caps generating 50%+ of their revenues from energy & mining and listed in Australia. This basket of securities is not only highly geared to capex, utilities, infrastructure, and engineering but it is the poster child for Australia-Asia commodity speculation. Put another way, it has been the worst-of-the-worst and a favorite proxy to watch for those who hold the dogmatic view that China and Australia are both zeros.

We do not want to overemphasize the importance of just one index, so we are highlighting it more as a starting point than anything else. It is not uncommon for this index to show up on our equity monitor but it is rare for it to take the leadership across all regions and assets, and very rare for that to happen on back-to-back days. For that reason, it has prompted us to do some further analysis on that food chain.

Model Portfolio Update – Increased S&P 500 (SPY) Short Position Continue reading →

Global Macro Strategy

Confused About Crude? You’re Not Alone; Global Macro Traders Tongue-Tied

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MarketsMuse excerpt from Feb 3 edition of Rareview Macro LLC’s  Sight Beyond Sight global macro commentary..

Professionals Not Discussing Crude Oil Strength…Short Euro Put on Hold

This is simple.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

WTI crude oil is now up ~18% from the January 29th lows. It is not a question of whether the bounce continues or worth debating whether a V-shaped or U-shaped recovery is materializing. What is more important is whether a low was made and a new medium-term range is now being carved out.

Now anyone who monitors cross-market correlation will understand that the price of a barrel of Brent crude oil is highly correlated with the inverse of the trade-weighted dollar. Therefore, if the price of oil is stabilizing there is a quantitative argument that the dollar will stop rising, at least in the short-term.

Professionals are highly sensitive to pattern recognition and the last two times the Euro-Dollar (EUR/USD) corrected (i.e. Oct & Dec 2014) the currency cross appreciated by 2.5-3.2%. This is in line with the current bounce off the low price (i.e. 2.6%) following the ECB meeting in January.

So the question is why is it that those who never participated in the first place or those that reduced their long dollar exposure at the end of 2014 and missed the January QE move, but believe the currency cross will trade down to parity (i.e. 100) by the end of this year, have not used this bounce to get short of EUR/USD, especially considering you now have policy confirmation from the ECB? Continue reading →

Fixed Income, Global Macro Strategy

Crude Oil, Contango and Confusion; Global Macro View

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MarketsMuse provides below extracts from Feb 2 edition of Rareview Macro’s Sight Beyond Sight as a courtesy to our readers. The entire edition of today’s SBS newsletter is available via the link below.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Professionals Taking Move in Crude Oil Seriously…Concern Over Deeper Move Lower in Risk

  • No One Prepared for Deflation Risk to Subside
  • Left Tail Risk:  Removing Two Key Peg Break Conversations (for today)
  • China-Korea-Japan Battle – KRW/JPY Hedge
  • Switzerland – Update
  • Model Portfolio Update – January 30, 2015 COB:  -0.33% WTD, -0.88% MTD, -0.88% YTD

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CDS Market Says: “How Crude” 1:3 Chance of Russian Default; Mining For Gold ETFs in Them Thar Hills

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Below extract courtesy of global macro trading think tank Rareview Macro LLC ‘s  Jan 13 edition of daily commentary via “Sight Beyond Sight”

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

To Russia Without Much Love: Crude Catalyst and Credit Impact

With another day of lower Crude Oil prices, the vice-grip on the Russian Federation continues to be tightened.

The 5-year credit default swap (CDS) spread has widened out to a new high today and the default probability has increased too slightly above ~34%. In November, there was just a 1 in 5 chance of default. In December, there was just a 1 in 4 chance of default. In January, there is now a 1 in 3 chance of default. The Rubble Basket (symbol: RUBBASK) is above 70.00. It has only traded with a “70 handle” during the height of the December 15-18th currency crisis.

With interest rates above 17% and a continuing effort to defend the Rubble exchange rate, the Russian credit market remains the release valve for stress. This should not be a surprise given that Fitch joined S&P last week in lowering its credit rating to BBB-, the lowest level before junk.

As a reminder, at the end of December, S&P put the country on credit watch negative and has 90-days to act. However, in its press release on December 30th the ratings agency said that it aims to resolve its corporate debt ratings by the end of January, after it makes a decision on the sovereign grade. Given the continued breakdown in the Crude Oil price, speculators are increasingly sensitive to the fact that S&P could very soon be the first rating agency to lower Russia to high yield.

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