Time to load up on haven assets

Posted on 14. Apr, 2014 by Jean Jacques Ohana in Weekly Focus

We have documented here and here the progressive decoupling of risky assets, as well as the breakup of the traditional negative correlation between equities and safe haven bonds. These two phenomena marked the end of the so-called “risk on/risk off” paradigm which characterized the post-2008 world until Draghi’s “whatever it takes” speech in 2012.

What we [...]

Financial integration, safe havens and diversification

Posted on 17. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

We have already highlighted the paradox of the sharp decrease in correlation combined with the waning of diversification within asset allocation portfolios.

As the systemic decreases, risk premiums get less integrated and returns of assets get more diversified. As showed by figure 1, Riskelia’s Financial Integration indicator has sharply decreased which foretells a decrease in systemic [...]

Why Japanese markets are still worth the while

Posted on 16. Sep, 2013 by Jean Jacques Ohana in Weekly Focus

We had warned that a speculative bubble was building on the short yen and long Nikkei bets since March 2013. As showed in figure 1, the bubble has landed and is now back to more neutral level. Therefore, the threat of a brutal reversal is less acute as investors’ expectations are less consensual.

The short yen [...]

What are the implications of the commodities’ debacle?

Posted on 15. Apr, 2013 by Jean Jacques Ohana in Weekly Focus

Commodities have been the poorest performer of all assets classes since 2009 which marked the recovery from the Lehman crisis.

This lackluster performance was first attributed to the persistent steep curve (contango) which penalizes the so called “commodities’ passive investors” rolling over long positions in baskets of commodities futures contracts.

Now, the poor performance is due to [...]

Another S&P 500 flash crash: how excess liquidity kills the financial system

Posted on 24. Dec, 2012 by Jean Jacques Ohana in Weekly Focus

Last Thursday, the S&P 500 Futures price fell by 3.23% in just 15 minutes following the decision of Republican House Speaker John Boehner to call off a confidence vote on a compromise on the fiscal cliff. The S&P 500 recovered subsequently 2% and ended the day only 1% lower.

The event was singularly followed by declines [...]

Why passive investors have so far taken the upper hand… and why this is not sure to last

Posted on 26. Nov, 2012 by Jean Jacques Ohana in Weekly Focus

The rationale behind volatility-weighted allocation strategies is to allocate risk evenly across a diversified set of assets in order to make the strategy robust to various macroeconomic configurations. As showed in figure 1, the assets may be classified into four main clusters:

The risky assets represent equities and assets linked to global growth.

The inflation-protecting assets consist [...]

Increased diversification and de-risking of the EURUSD parity

Posted on 12. Mar, 2012 by Steve Ohana in Weekly Focus

As reflected in figures 1 and 2, the global integration factor has subsided on several parts of the financial system. The global integration factor corresponds to the proportion of global asset prices variance explained by the first common risk factor. This decrease in integration translates better diversification prospects within the financial system. Besides, we can [...]

The euro devaluation process has started

Posted on 06. Dec, 2011 by Riskelia in Weekly Focus

It is often said that the EURUSD is a “risk on” asset. When looking for assets that are the most explanatory of EUR/USD returns, we find in decreasing order the World Inflation Bonds, the Crude Oil WTI and the spread Euribor vs. Eurodollar (figure 1).

The first two factors represent monetary effects characterizing the well-established inverse [...]

Review of the troops after the storm: have cyclical assets capitulated yet?

Posted on 09. Aug, 2011 by Steve Ohana in Weekly Focus

The long haven/short cyclical assets stance gained more clarity last week after the rally of OECD countries’ bonds and the slump of European equities. However, it is too early to declare the victory of the haven assets over the cyclical assets army. Indeed, although the recent storm has claimed new important victims among cyclical assets, [...]

The renewed increase in financial integration: what to do?

Posted on 17. May, 2011 by Jean Jacques Ohana in Weekly Focus

The last two weeks have shown an increase in the financial integration (or global correlation) among cyclical assets (namely equities, corporate credit, commodities currencies, emerging currencies, energy and base metals).
Technically, the financial integration is the explanatory power of the first factor in the Principal Component Analysis of the global variance. This increase reveals a rise [...]