Time to short the Swiss Franc?

Posted on 04. Aug, 2015 by Jean Jacques Ohana in Weekly Focus | 0 comments

After the currency peg was suddenly given up by the Swiss National Bank, the Swiss Franc became by far the most overvalued currency among G10 currency as illustrated by the deviation from Purchasing Power Parity valuation presented in figure 1.Over the last 25 years, the Swiss Franc has presently a record positive deviation of more [...]

Equities smart beta in Europe: the sector perspective

Posted on 28. Jul, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

July 28, 2015

The purpose of this study is to run smart beta portfolios on European Stoxx 600 Sectors (EUR) and compare them to a market weighted stocks index (Stoxx 600 Europe).
All sectors are dividend-reinvested. We consider the following smart beta portfolios:

Minimum Variance (using shrinkage methods on the covariance matrix to improve conditioning, limit portfolio concentration [...]

A correction in financial reflation: all assets are challenged simultaneously

Posted on 13. Jul, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

After a sustained rally of equities and bonds since mid-2013, a simultaneous drop of assets representing all macroeconomic themes, i.e. inflation (commodities), disinflation (bonds) and growth (equities) has unfolded.

As represented in figure 1, Riskelia’s long only strategy on a universe of equities, commodities and sovereign bonds is experiencing a drawdown similar to the ones of [...]

Greece will surely default but is likely to stay in the Eurozone

Posted on 29. Jun, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

As Greek PM Alexis Tsipras decided to submit the last proposal of its creditors to a referendum next Sunday 5th July, the Eurogroup has responded by stopping the aid program as of 30th June. As a result, Greece will be in arrears regarding the payment of its debt to the IMF but it will not [...]

How the EUR/USD could resume its downward trend just when Greece is “bailed out”

Posted on 23. Jun, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

It is often thought that an agreement over a Greek bailout would bolster the euro, thanks to an increased confidence in the stability of the euro zone. Conversely, a default of Greece or an accidental Grexit is expected to cause a decline in the euro.

The euro has nevertheless become one of the main funding currencies [...]

Financial indicators of the Greek crisis

Posted on 15. Jun, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

Time is running out for Greece and its creditors (IMF, euro zone countries) to find an agreement, at least one which could enable euro zone creditors to pursue the strategy carried out since 2010: “extend and pretend”. Extending the problem, by lending new money to Greece just to enable the country to pay back its [...]

June 2015: an air of June 2013 déjà vu?

Posted on 09. Jun, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

 
Since Mid-April, all asset classes fell simultaneously: a basket of equities indices fell by 2%, a basket of sovereign bonds fell by 3.5% (i.e. a surge of 50 bps in yields) and commodities were just flat as illustrated in figure 1. An environment where all assets tumble at the same time translates a break in [...]

Index Volatility futures: tactical strategy and use for asset allocation

Posted on 02. Jun, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

June 2, 2015

The VIX index is calculated as the weighted average of options on S&P 500. In March 2004, the CBOE introduced VIX futures contracts to facilitate volatility trading and encourage investors to use volatility to hedge equity portfolios, given the strong negative correlation between equity returns and implied volatility.

Reflecting the demand of markets participants, [...]

Where are we in the debt deleveraging process and what are the consequences for interest rates?

Posted on 25. May, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

Apart from Germany, none of developed country is going to reduce the Government Debt/GDP ratio in 2015.

The Government debt dynamic depends on growth, inflation, leverage and primary balance. As a matter of fact, the variation in the debt ratio is given by the following relationship:

Therefore, the required primary balance to stabilize the Debt/GDP ratio is: [...]

Deleveraging on sovereign bonds and the dollar: what’s next?

Posted on 19. May, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

Two major investment bubbles have landed since mid-April 2015: investors rushed to exit herding positions on long bonds and long dollar. For example, Bund yields increased by 60 bps and EUR/USD rose by 6% in a single month.
Both bubbles have moved in synch since 2011 and convey investors’ anticipations of a deflationary trend. The major [...]