Bubbles on High Yield and Emerging debts on the verge of bursting

Posted on 04. Feb, 2013 by Jean Jacques Ohana in Weekly Focus

We raised an alert on growing mimetic buying behavior on high yield debts in November 2012. These insatiable flows towards risky debts were reflected in Riskelia’s bubble indicator above 60%. The bubble indicator scores the regularity of price moves over various time frames. When it is approaching 100% on specific assets, their prices dynamics are [...]

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 [...]

Inflation and deflation altogether: how to invest in a quantum economy

Posted on 06. Nov, 2012 by Jean Jacques Ohana in Weekly Focus

From 2010 onwards, the European investor has been facing a lasting financial insecurity. Peripheral Eurozone countries may default on their debt, as illustrated by the Greek debt restructuring. More worryingly, their sovereign debts have turned into risky assets, with a positive correlation to stocks. European banks are still undercapitalized and doubts persist on their solvency. [...]

Portfolios to hold for the long run

Posted on 11. Jul, 2012 by Jean Jacques Ohana in Weekly Focus

In times where extreme financial scenarios become possible, balanced portfolios can be built with the objective of capturing diversified risk premiums in diverse macroeconomic configurations. As shown in figure 1, there are 4 categories of assets in financial markets:

Equities represent the most risky assets, with a positive loading on each of the first two [...]

Are safe havens still safe?

Posted on 27. Jan, 2012 by Riskelia in Weekly Focus

The risky assets revival may be good news for markets as a whole… certainly not for safe haven sovereign bonds…
In figure 1, we have represented a bond total return index since 2000 (composed of Gilt, T Notes of different maturities, Bund, Bobl, Schatz) together with the average bond bubble on the same basket of sovereign [...]

Improvement in oil and US equities but new worries on euro sovereign debt

Posted on 19. Oct, 2011 by Riskelia in Weekly Focus

The latest rebound has been strong enough to modify the landscape of cyclical assets. In particular, the oil markets together with the US assets emerged as clear leaders, specifically the Nasdaq and other defensive sectors (Utilities and Consumer Staples). Meanwhile, the euro sovereign debt risk has deteriorated, specifically the French and Italian debts in the [...]

A visit to h(e)aven

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

After cyclical assets last week, we turn today our attention to the haven society.

Havens are defined as assets positively or mildly impacted by sharp equity sell-offs. They are characterized by a positive or mildly negative liquidity beta (we define the liquidity beta as the mean asset return conditional on a 10%-probability equities drop; it is [...]

Three reasons to worry about the short-term financial outlook

Posted on 05. Aug, 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” [...]

Financial crash probability has receded

Posted on 29. Jul, 2010 by Jean Jacques Ohana in Weekly Focus

Banks stress tests have proved to be a non event. Everyone knew the results in advance: overall the solidity of the banking sector has been supposedly established and only seven banks out of 91 failed the exam. The stress tests were not too stringent as sovereign bonds held to maturity have been excluded from the [...]

The new face of safe havens

Posted on 01. Jul, 2010 by Jean Jacques Ohana in Weekly Focus

We have predicted market vulnerabilities since the end of April. And as market dislocations materialize, let us tackle the issue of hedging the risk of future rounds of defiance towards risky asset classes.
The answer can be inferred from a proprietary indicator called the “crash risk beta”. The latter expresses the sensitivity of an asset class [...]