The predictable high yield debt meltdown…

Posted on 05. Aug, 2014 by Jean Jacques Ohana in Weekly Focus

The recent events on the US high yield debt market are the occasion to show Riskelia’s bubble indicator at work. This indicator is a price-based indicator of herding, rating the regularity of the price signal over different time frames ranging from 3 to 24 months. A high indicator reflects the presence of overcrowded leveraged positions [...]

Time to fear the bubble on EU risky debts

Posted on 20. May, 2014 by Jean Jacques Ohana in Weekly Focus

May 20, 2014

We had recommended long positions on EU sovereign debts on several key occasions since April 2013. Their trends have increasingly grown mature and our bubble indicators have significantly expanded since the start of 2014 onwards. All the most significant investment bubbles are now concentrated in the euro zone, either in peripheral or high [...]

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 [...]

The FOMC will not suffice to provoke a global interest rates rise

Posted on 24. Mar, 2014 by Jean Jacques Ohana in Weekly Focus

As analyzed by the Fed watcher, Tim Duy, the FOMC was perceived significantly more hawkish than expected. The unemployment trigger (6.5%) was dropped but the FOMC has also renounced to accept an inflation rate 0.5% above the long term objective of 2%. Tim Duy thinks that the 2% inflation level is no longer a target [...]

Long Bonds and long Equities altogether

Posted on 10. Feb, 2014 by Jean Jacques Ohana in Weekly Focus

As liquidity comes back to risk seeking territory (figure 3), equities are likely to rise again but surely less than in 2013.

Nevertheless, the uncertainties about the emerging countries’ outlook will weigh on financial markets and deteriorate the global economic outlook. As a matter of fact, Chinese authorities will maintain a tightening mode in liquidity so [...]

Risk comes back in force

Posted on 27. Jan, 2014 by Jean Jacques Ohana in Weekly Focus

The contagion of emerging markets woes to other developed markets has changed the course of the financial system. The equities’ slide is not only the effect of the unexpected contraction of the Chinese PMI data. It also reflects the forced unwindings of overcrowded speculative equity positions. Riskelia’s bubble score indeed exceeds 70% on several US [...]

The People’s Bank of China is playing brinkmanship with its own banks

Posted on 23. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

December 23, 2013

China is experiencing a second dry up of interbank liquidity in 2013. Chinese banks hoard cash in a context of increasing defiance over the Chinese banks’ access to liquidity.. As showed in figure 1, the Chinese repo rate is nearing the level reached at the climax of the turmoil in June 2013. Nevertheless [...]

Why active risk balanced strategies make sense

Posted on 02. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Risk Parity strategy or more accurately risk balanced allocation is a methodology which consists in allocating risk to assets classes rather than capital.

An example is presented below for an unleveraged portfolio. A leverage (for example multiplying all allocations by a factor 2) may be used to match the performance of traditional asset allocation portfolios.

Risk allocation

Capital [...]

Italian Government bonds: Cosa succede esattamente?

Posted on 19. Nov, 2013 by Jean Jacques Ohana in Weekly Focus

Italy is the clearest loser of the euro zone crisis. Since 2010, the country has suffered from an overvalued currency and absurdly high private and public debts’ interest rates given its positive primary fiscal balance (before payment of interest rates).

As showed in figure 1, the borrowing costs of Spain and Italy depend much more on [...]

Deciphering carry trades

Posted on 12. Feb, 2010 by Jean Jacques Ohana in Weekly Focus

Carry trades have been made popular in the past decade due to the stellar performance registered in this type of strategy. Basically, it consists in borrowing in low yield currencies and investing in high yield currencies, in order to exploit interest rates differentials between currencies.
What is more striking is the diverse business interest in this [...]