Tag Archives: US Dollar

global macro stock conflagration
Global Macro Strategy

Global Macro Guru: Simmering Stock Conflagration?

Leave a comment

MarketsMuse Global Macro curators, like many across the hedge fund complex, have attempted to decipher an investment thesis that can prove itself without being hijacked by short-term volatility. Deflation, Inflation, Oil, the Dollar and bets being made in advance of the Fed’s widely-expected interest rate adjustment are talking point ingredients that are potentially leading to a stock conflagration–according to global macro guru Rareview Macro LLC.

In the firm’s a.m edition of “Sight Beyond Sight”-the top bullet point “Top 10 SPX stocks on Alert” evokes a view that may not be rare, but the underlying premise is certainly worth contemplating….Thanks to Rareview’s top gun, Neil Azous, below is the opening extract..

Deflationary Impulse Spreading Beyond Inflation Levered Plays…Top 10 SPX Stocks on Alert

  • Getting from A to B
  • Canada and Crude Oil
  • South Africa and Metals & Mining
  • The Top 10 Stocks in the S&P 500
neil azous
Neil Azous, Rareview Macro

To get on the front foot today, we hope that you have an appreciation for how acute the pain is around the world on account of the latest downward price adjustment in crude oil.

There is no question that the latest 10% move lower (and counting) in the barrel has led to an “acceleration point” in various asset prices, corporate decision making, and countries.

The trade-weighted US dollar is making new highs (JPMQUSD) and the CRB Commodity Index (CRY) is making new lows today. Asset prices across Asia are once again feeling the reverberations rippling out from the latest weakness in the Chinese yuan (CNY) as fear builds of another devaluation. This is once again shining the spotlight on emerging market currencies, especially the Mexican peso (MXN) where the weakness today is a result of it being the main source for liquidity for emerging market proxies.

In equities, the alarm on the carbon monoxide detector for the Top 10 stocks in the S&P 500 is now at risk of going off more than at any other point since the October recovery. Some are noticing the two main symptoms of that – a headache and stomach nausea – but can’t seem to smell anything because they live in a world of isolation and only care about something else when they are forced to. And some of the longs we speak to who are more mindful of the top-down backdrop are almost as nervous as a long-tailed cat in a room full of rocking chairs.

Given the degree of concentration or narrow breadth, does crude oil weakness ultimately matter to these stocks? We may be close to finding out the answer to that.

Rareview Macro updates its views, along with trade ideas in real time via Twitter. To read the entire edition of the Dec 8 edition of Rareview Macro’s “Sight Beyond Sight, please click here

ETF News, Global Macro Strategy

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

Leave a comment

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.

 

Global Macro Strategy

Global Macro Angle: The Range Trade and Dow Theory

Leave a comment

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 →

Global Macro Strategy, People Profiles

Global Macro Trading: The Trend is Your Friend, Until It’s Not

Leave a comment

MarketsMuse.com global macro trading snapshot is courtesy of excerpt from 7 April edition of macro strategy commentary from “Sight Beyond Sight”, a publication of Rareview Macro LLC and authored by 20-year industry expert, Neil Azous.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Over the past two trading days, three major trends that have been the backbone of asset markets over the past 9 to 15 months have come under attack. As highlighted in yesterday’s edition of Sight Beyond Sight, and despite our call for an immediate reaction lower in risk assets turning out to be wrong, we are now working under the assumption that a larger corrective event in key investment themes is underway.

To be clear, just because we are working under this assumption does not make us feel comfortable about going against the grain as trend-following pays better and is more scalable than counter-trend trading

The first, and most prominent, trend shock is the shift in the US dollar. The uptrend that has been in place for the last nine months is in jeopardy.

The second is the US Treasury curve.

The third is the downtrend in crude oil. Whether it is the trades of commodity exporters against importers, problems surrounding capital account deficit countries with large levels of commodity-dependent debt, or the shale oil-based capital expenditures decline in the United States, there are quite a few negative narratives linked to the decline in crude oil prices.

What we are now considering is this: If crude oil is able to sustain a rally or has finally “found a bottom” then what the consequences are of all of these release valves being opened at once?

To read the finer points of this morning’s edition of Rareview Macro LLC’s “Sight Beyond Sight” inclusive of a detailed distillation of the above talking points and a view of Rareview’s model portfolio, please visit this global macro strategy think tank’s website via this link

ETF News

Investors Reach For Euro ETFs as the US Dollar Recovers

Leave a comment

MarketMuse update courtesy of MarketWatch’s 12 March article, “Dollar surge has investors scrambling for a piece of this European ETF”. From the National Swiss Bank’s huge announcement in January to Greece’s continued demise, the European market has seen better days. While the US market continues to recover, the US dollar has almost completely recovered to the being equivalent with the Euro which is making investor grab at Euro ETFs. 

Back in 2008, $1.60 bought one euro EURUSD, -1.10% Fast forward to today, and the U.S. dollar is surging toward parity with the hobbled currency. Just a few more ticks to go.

Of course, the huge currency shake-up is bad news for U.S. exporters but it’s great for investors in the WisdomTree Europe Hedged Equity fund HEDJ, +0.19% And they are throwing gobs of money at it. Read: 4 stock plays that are attracting investor dollars this year.

In the past year alone, $12 billion has flowed into the fund, a more than tenfold increase. The ETF is now the biggest covering Europe with almost $14 billion in assets, according to ETF Database. That’s enough to displace the Vanguard FTSE Europe giant VGK, -0.85% as the region’s top dog.

Olly Ludwig, managing editor for ETF.com, points out that the dollar’s rise has turned a neutral investment into a world beater.

“There’s an elegant mirror-like quality to the chart that isolates the currency factor rather cleanly,” Ludwig said. “Were it not for the currency hedge, HEDJ would be about flat.”

Investors have obviously been taking notice, and currency-hedged ETFs, in general, have seen spikes in asset growth. Ludwig pointed out that, on Monday alone, HEDJ and the WisdomTree Japan Hedged Equity fund DXJ, -0.39% combined to attract $1 billion. In a single day.

For the entire article from MarketWatch, click here.

Global Macro Strategy

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

Leave a comment

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 →

Global Macro Strategy, slider

Most Professional Investors Headed The Wrong Way First: A Global Macro Strategy View

Leave a comment

MarketsMuse editor note: below insight courtesy of Rareview Macro LLC’s global macro strategy newsletter “Sight Beyond Sight” is a great read for investment professionals who want to start off 2015 on the right leg.

 

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Wrong Way First (“WWF”) Trading

An astute market practitioner that we are fond of once coined the trading phrase “Wrong Way First” (“WWF”). WWF refers to the risk the professional investment community is exposed to at the beginning of every New Year – that is, the first trade will be a reversal in the consensus positioning and inflict severe PnL duress.

While it is true that substantial wealth is only really created over time (i.e. by investing), the money management business is beholden to the Gregorian calendar and that means performance resets at the close of business on December 31st. Put another way, if you manage money for a living you’re only as good as your last best trade.

Therefore it should be of little surprise that professionals begin each January more focused on not getting caught up in a New Year’s malaise rather than trying to take advantage of opportunities by adding new risk or pressing 2014 positions. The memory of last January, a month which included the unwind of the long Japanese Nikkei and Chinese Yuan carry trade strategies and inflicted severe PnL duress, is still too fresh to forget. This is especially true considering it took the macro strategy six months to climb out of its negative PnL hole and it was only saved when the US Dollar theme sent down a ladder to climb up.

While there are many key discussions underway to start 2015 it is important to highlight that the dominant theme emerging from our discussions with any risk takers is concern over a WWF trading theme materializing. Such is the nature of this business, especially for absolute return strategies.

Our interpretation of these conversations is that the tolerance level to withstand PnL duress around any theme that is currently at a momentum and sentiment extreme – such as long Equities, fixed income duration, and the US Dollar, short Crude Oil, and underweight Emerging Markets – is very low.

As way of background if you apply this theme to actual positioning it reveals that the top WWF candidates across the major asset classes are: Continue reading →

Global Macro Strategy

The US Dollar – Novus Ordo Seclorum

1 Comment

Below excerpt courtesy of Hedge Fund Insight

Nov 17 2014 by Neil Azous Managing Member of Rareview Macro LLC

Most of us hand over dollar bills every day without ever really looking at them very closely. They are too familiar. But if you pause to look closely at the one dollar bill, you will see, right below the one-eyed pyramid, the Latin phrase “Novus Ordo Seclorum”.

The literal English translation of that is “a new order of the ages.” Taken from a book by the Roman poet Virgil, it first appeared on the Seal of the United States, and made its way onto the currency in 1835, where it has stayed ever since. Virgil was not a man to use words carelessly, so when he wrote it, he must have intended to emphasize “new” and, therefore, put it first in the sentence and in front of “ordo.”

A few readers might find that a slightly esoteric digression into Roman and monetary history, of little relevance to the markets today. In fact, they would be wrong. We started with that overlooked phrase because, over the second half of 2014, the professional investment community has come to believe that the US Dollar has indeed established a “new order” and the trend is now here for “the ages”. Continue reading →

ETF News, Global Macro Strategy, People Profiles

Puzzle Palace: What’s a Smart ETF Investor Supposed To Do Now?? Here’s a Rareview..

Leave a comment

If this week’s volatility has unnerved you, take a deep breathe, sit back and consider the following assessments courtesy of global macro strategy think tank Rareview Macro and extracts of this a.m. edition of “Sight Beyond Sight.”

The Puzzle

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Today’s edition is not meant to be read as us preaching a gospel. Instead it is a collection of the thoughts we have gathered through a number of recent meetings/conversations with investors who take plenty of risk, and it has served us well in the past to just write down what people we respect are saying. Therefore, if at times the opinions below come across as too skewed one way or adopt the tone of a “bomb thrower” just take them with a grain of salt.

In the end, our biggest issue is that it is just a matter of a few hours to a couple of days before all investors catch up and put together a similar puzzle.

That is why you should read this entire edition even if it is lengthy and the only morning note you read. Continue reading →

ETF News, Global Macro Strategy

Black Gold v. Yellow Metal: Macro-Strategy Perspective

Leave a comment

As if it were a segment in “Orange is the New Black,” the price correlation between Crude Oil (aka Black Gold) and the Yellow Metal continues to swing like a chandelier in a windy mansion. Below extract courtesy of Neil Azous, from today’s a.m. edition of Rareview Macro’s Sight Beyond Sight summarizes the current correlation in a crisp way…

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

There are two assets being watched closely right now – Brent Crude Oil and the Euro Exchange Rate.

Firstly, Brent Crude Oil is showing the largest negative risk-adjusted return in Commodities. This morning, the “barrel” has broken through yesterday’s low and overall has now retraced over 50% of the Iraq/ISIS move higher seen in June. Below is a regression analysis between Brent Crude Oil and Gold for three time periods related to Iraq/ISIS: Before, Height, and Current.

Gold was trading at its lower point on June 2nd and the correlation (i.e. red asterisk on chart) to Brent Crude Oil was negative. On June 19th, the correlation was the most positive when Brent Crude Oil was at its highest level. Today, the correlation is on the cusp of swinging back to negative territory. We highlight this because the same pattern has been seen before, with the height on March 14th and after the Ukraine-Russia crisis. And what happened next? Gold dropped by -10% over the next 45 days.

By the way, it was reported that assets in the SPDR Gold Trust (symbol: GLD) rose +1.4% to 796.39 metric tons in the two sessions through yesterday. To put that in context, that is the largest two-day gain since November 2011 and it is just one example of the new found retail length in Gold. The other was in CFTC futures positioning which professionals use to gain exposure. Continue reading →