Riskelia's blog

Will commodities eventually rise following addictive monetary policy?

Posted on 02. sept, 2010 by Jean Jacques Ohana in Weekly Focus

The monetary policy in the US and in G10 countries has been complacent, driven by the purchase of Government Bonds and MBS Securities (Fed and BOE alike) or unlimited credit facilities to the banking system (ECB).

And with the Quantitative Easing unfolding, the Central Banks balance sheets are likely to rise in the US and in [...]

The future of the current deleveraging: soft landing or depression?

Posted on 01. juin, 2010 by Steve Ohana in Weekly Focus

We had signaled the expansion of massive financial bubbles on multiple risky asset classes since 2009: equities, corporate credit, depletable commodities, emerging debt and carry trades. Unsurprisingly, these dangerous patterns unfolded into a global deleveraging, as demonstrated by the chart below:

The last four instances we experienced such a deleveraging were in 2000, 2004, 2006 and [...]

Deciphering sugar roller coasters

Posted on 27. mar, 2010 by Jean Jacques Ohana in Weekly Focus

Sugar prices have gone through highly turbulent times since 2009 as illustrated by the chart below:

After a sharp rise in 2009 and Jan 2010, the sweeter reached 30 cents /lb (gaining 25% in the last six months of 2009), before collapsing to 17 cents /lb, (32% loss since February 2010).
At the end of 2009, several [...]

The breakdown of oil to gas relationship

Posted on 22. mar, 2010 by Steve Ohana in Weekly Focus

From 1998 to Jan 2009, oil and natural gas long term prices have moved more or less in tandem. Heating oil and natural gas are indeed substitutes in electricity generation and certain industrial uses, which induces fuel switching and price correlation in the short or medium terms. Yet, since January 2009, natural gas prices have [...]

Does oil respond to speculation or fundamentals?

Posted on 17. mar, 2010 by Steve Ohana in Weekly Focus

The energy complex seems to go through a highly interesting new period accumulating several bullish signs. From the beginning of 2009 onwards, the oil curve has been flattening consistently, meaning that the harm inflicted by the contango to long investors has considerably decreased over time as exhibited in the chart below:

Sources : Bloomberg, Riskelia’s estimates, the [...]

Do commodities represent an asset class?

Posted on 28. fév, 2010 by Steve Ohana in Weekly Focus

Commodities imposed themselves in the investment arena in 2004, when emerging countries and specifically China started deeply changing commodities’ long run fundamentals.
An annual consumption growth of more than 6% on many depletable commodities (energy and base metals markets) fostered a major bull run on commodities. The fundamentals are indeed preoccupying: China alone will consume 9 [...]

Why commodity prices rise together with inventories?

Posted on 18. fév, 2010 by Jean Jacques Ohana in Weekly Focus

In traditional commodity cycles, commodities prices tend to rise when inventories decrease and conversely drop when inventories increase. This mechanism is highly intuitive since when inventories are rising (resp. declining), we can infer that the supply is large (resp. low) in face of demand, which translates into a downward (resp. upward) pressure on prices.
The traditional [...]

Commodities network and investors’ behavior

Posted on 02. fév, 2010 by Jean Jacques Ohana in Weekly Focus

Riskelia has analyzed the commodities network since 2000. The graph is based on the correlations between the diverse components of the commodities asset classes representing base metals, precious metals, agricultural and energy markets and the dollar.
When a correlation in a pair of variables stands between 0.25 and 0.5, the two variables are linked by a [...]

Beyond VaR, the stress tests illusion

Posted on 25. jan, 2010 by Jean Jacques Ohana in Weekly Focus

The failure of VaR as a risk measure
The Value at Risk has been subject to growing and legitimate criticism among bankers and academics. Indeed, the VaR represents a quantile of the distribution of losses related to a financial asset or a global portfolio for a certain time horizon. For instance, the daily VaR 95% represents [...]