November 24, 2015
As the Federal Reserve is ready to proceed to the first interest rates hike since 2006, the dollar surge has accentuated (+11% year to date) and the commodities collapse continued further (oil down 20% and copper down 27% year to date).
As showed in figure 1, there has been a significant gap between long [...]
The dollar accelerated its upward pace (figure 1), boosted by the release of the positive surprise in the Non-Farm Payroll on the 5th of November 2015. At the same time commodities dropped even further, especially precious and industrial metals (figure 2).
At a time of increased correlation between commodities and other financial markets (notably AUD/USD, Emerging [...]
Despite the sharp October rebound of worldwide equities, the distressed part of High Yield bonds went on underperforming the higher grades part of High Yield Bonds. In the US, the CCC-rated HY Total Return has been trending down since 2014 and has barely risen in October, contrary to the BB-rated HY Total Return which rebounded [...]
As a proxy for the US Minimum Variance equities portfolio, we apply a minimum variance (MV hereafter) algorithm to US equities sectors since 1993 (using a rolling 1 year covariance matrix with shrinkage). Long term performances, displayed in figure 1, show that this MV portfolio presents better risk adjusted return than the S&P 500, equalizing [...]
Financial reflation (i.e. the simultaneous rise of all assets) has resumed in October, for the first month since May 2015. Equities rebounded around 6%, commodities have been stable while yields did not rise, supporting a sharp rebound of HY debt and emerging bonds (figure 1).
This environment has been the result of a more accommodative Federal [...]
October 13, 2015
A premise on global equities’ valuation is that prices should reflect nominal earnings. The definition of earnings is however a subtle problem and many variations have been introduced to overcome the difficulties.
The trailing earnings over the past 12 months seems as an objective definition of earnings but it is very sensitive to booms [...]
Since the beginning of the year, many credit markets have deteriorated in the high yield (EUR and USD) as well as in the investment grade space. As showed by figure 1, the tightening of credit spread is more acute in the US but is also present in Europe where it has reached the highest levels [...]
The Volkswagen cheating scandal caused tremendous fallout among the auto parts industry and the German stocks market. Since last Friday the auto parts sector fell 15% whereas the DAX underperformed all other European stocks indices.
As figure 1 shows, the CAC 40 has accumulated more than 9% of performance over the DAX 30 since the start [...]
Among a universe of 50 assets consisting of equities, sovereign bonds, corporate credit debt, emerging bonds, carry trade currencies, 75% present negative year-to-date performance.
In 2015, the best risk adjusted performing assets some European equities, the USD vs. EUR and surprisingly some sovereign bonds (US and Canada). Meanwhile, the worst risk adjusted performing assets include emerging [...]
The current deflationary cycle in US financial assets: how deep is this one and how long could it last?
Since mid-May 2015, all assets in dollar have tumbled simultaneously. Although the correction was mild until May 2015, it has considerably deepened since then. This correction presently takes place after equities, bonds and commodities in dollar, experienced a 5 years of uninterrupted growth from 2009 to 2014.
We propose to build a risk balanced portfolio in [...]