Divergent cyclical assets… until when?

Posted on 11. jan, 2012 by Riskelia in Weekly Focus

We have been observing since December 2011 a set of important disconnections among cyclical assets:

The cost of risk in equities markets shows signs of easing while the strain on banks’ funding remains unchanged (Figure 1)
Emerging and European currencies are in negative spirals against the US dollar while oil products display strongly positive trends (Figure 2)
Some [...]

2011, a year without trends? Not so sure…

Posted on 04. jan, 2012 by Riskelia in Weekly Focus

Record of 2011’s successful and aborted trends

As showed in figure 1, the 19% return of our « best-of » portfolio in 2011 has been made mostly in the three months of July, August and September, with more than half of the performance generated in the sole month of August. This asymmetric behavior is characteristic of trend-following strategies: [...]

Not yet the time for re-risking

Posted on 15. nov, 2011 by Riskelia in Weekly Focus

For sure, the trends of some cyclical assets have notably improved over the recent weeks. This improvement is noticeable at the US sectors levels (Nasdaq 100, Utilities, Consumer Staples and Health Care) in Figure 1 and in the oil complex (Brent, products and even WTI) in Figure 2. The dynamics of the oil curves [...]

After the fall of equities, corporate credit and base metals, will carry trades ever sink?

Posted on 17. août, 2011 by Steve Ohana in Weekly Focus

Last week, we reviewed the survivors of a deadly week for risky assets: carry trades, emerging bonds, corporate credit, with a bunch of equities and commodities were the last to stay afloat after the worst week the markets had experienced since 2009. Today, we inspect last week’s survivors, reaching the following conclusions:

Some emblematic equities have [...]

Three reasons to worry about the short-term financial outlook

Posted on 05. août, 2011 by Jean Jacques Ohana in Weekly Focus

The financial system faces the threat of an imminent breakdown. As usual, the PIIGS’ sovereign debt and the euro zone banks are at the heart of the storm. The recent statement of the German Finance Minister rejecting a « carte blanche for the widespread purchases of sovereign bonds by the EFSF on the secondary market » [...]

What does the current dry up in the wholesale funding market mean for cyclical assets?

Posted on 28. juin, 2011 by Jean Jacques Ohana in Weekly Focus

Over the last three weeks, the wholesale funding market has considerably deteriorated on several accounts:

The USD, GBP and EUR 2 years swap spread has widened

The EUR/USD 1 Year Cross Currency Basis Swap, reflecting the price to exchange dollar for euro has started to rise, reflecting increased tightening in dollar funding.

Similarly, the Euro Dollar, Short Sterling [...]

Revisiting the anti-euro crisis portfolio

Posted on 22. juin, 2011 by Steve Ohana in Weekly Focus

Despite the agreement reached on a « voluntary participation » of private creditors to the Greek debt refinancing, the solvency risk stays intact. Absent a comprehensive debt restructuring, the euro zone debt problem will not find a definitive resolution.
In this context, instability in the euro zone has resurfaced. The wave has started from OECD Sovereign debt and [...]

Short Dollar vs. Long Bonds: which theme will prevail?

Posted on 14. juin, 2011 by Steve Ohana in Weekly Focus

Grouping Riskelia’s best recommendations by cluster of correlations help to clarify the most salient themes. As of today, two main themes emerge:

The short USD against European currencies and Asian currencies associated with a short yen positioning. This theme has been in action since August 2010 and has been rotating from AUD, CHF and emerging currencies [...]

The renewed increase in financial integration: what to do?

Posted on 17. mai, 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 [...]

Will the sell-off spiral be short-lived?

Posted on 10. mai, 2011 by Jean Jacques Ohana in Weekly Focus

We emphasized last week the risk of a sharp deleveraging in the commodities complex, noticing the offhand proliferation of overheated bubbles (8 in the complex). A massive joint move such as the one observed over the past week was hence to be expected, though the timing of the fall was not predictable. Notwithstanding these recent [...]

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