Tuesday, November 16, 2010

The Three Wise Men

Yesterday was 13-F day in Hedge Fund land. Thus, average speculators (us included) got to peep the holdings of our more well endowed/experienced competitors. Specifically, we now know who owns what. There were no real surprises. So without further adieu let's dive in...


We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'

We surmise Mr. Buffet aimed this quote at those investment banks (Goldman ahem) whose P&L fluctuate due to a voltile revenue stream based on FICC trading.   Mr. Buffet is a man of his word and went hunting for steady revenue streams. Hence, he purchased 1.99 million Bank of NY Mellon shares. BK is a well diversified Financial Services conglomerate and does not rely on investment banking as a main stream of income. In addition, Mr. Buffet upped his stake in WFC by 16.5 million shares bringing his total to 336.4 Million. He increased his stake in Well Fargo four out of the last seven fiscal quarters. We believe Mr. Buffet is betting on WFC's traditional savings and loan franchise, borrow at 0 current rates and lend at higher rates. Meanwhile, he still holds Goldman's feet to the fire with those warrants he purchase at $125/share during the heart of the crisis.

Finally, Berkshire increased their cash position by 23% to $34.5B from $28.05 B last quarter. Mr. Buffet eliminated his stake in Home Depot, reduced his stake in Nike by 52%, and and sold nearly his entire Comcast stake, 12 million shares. Thus, Berkshire Hathaway's equity sales outpaced purchases by $1.2 billion. Let profits run and cut the losers!


An open society is a society which allows its members the greatest possible degree of freedom in pursuing their interests compatible with the interests of others.

Indeed it is. Mr. Soros exercised his right to pursue interests compatible with others in that he took some profits and diversified his Gold positions. Soros Fund Management Sold approximately 550,000 GLD shares last quarter and now hold a cool 4.7 million. This is significant in that the Soros' holdings are down from 1.5 Million GLD shares under management from the peak in December of 2009 when 6.2 million shares were held.  As we noted in our last post, the gold trade is a crowded one and the GLD is the most popular vehicle. In lieu, Mr. Soros diversified his holdings and purchased 5 million shares of The BlackRock managed iShares Gold Trust (IAU). Again, no surprises here. If we recall correctly, Soros called Gold the ultimate bubble not too long ago. Suffice it to say he still feels this way.

John Paulson

There is a chance – a very good chance – that gold will be the next NASDAQ.

Mr. Paulson shows some hubris. To our delight he puts his money where his mouth is. Paulson & CO. maintained 31.5 million shares of the SPDR GLD ETF, approximately 7.4% of the entire float, last quarter. Essentially, he must think $1500 Gold will come sooner than later. Also, Mr. Paulson was a heavy seller of financial equities. Paulson & Co. sold 1.1 million GS shares, 82.7 million C shares, 2 million JPM shares, 2 million WFC shares, and 30 million BAC shares. For what its worth, this may explain negative HF bias towards the XLF last quarter and go a long way into explaining why financials did not participate in the September/October equity rally. Though we are not conspiracy theorists here, just backward guessing speculators.


Even though we did not rigorously detail the nuances of each manager's portfolio, the major changes were noted. What do we think? Safety and profit taking were the prominent themes. Soros ensured he has more liquidity in case Gold dips. Buffet took the consumer-related risk out of his portfolio. Paulson reallocated capital and took money off the table a la profits and losses in financials. Why are these men wise? All three stuck to their principle investing thesis. In times of turbulence many of us question our positions, logic, rationale, and sanity. However, it is times like these in which we can also become wise men and clarify our unique trading styles.

-Patrick M. Ambrus


Monday, November 15, 2010

Discussion on HF's: NOV 15, 2010


*click* above
Please join the discussion on whether or not it is worth investing in Hedge Funds. Having a conversation with myself on this lately and would like to get more discussion on this highly relevant topic in todays financial market environment. My latest post on the thread is real rough and messy, I'll have to refine it with bullet points later, but you can get the jist of some the issues I am getting at.


On a side note: ill be updating soon, lots of things to consider the past week. Stale stale stale markets today… watching a slugs inch across my screen from London to now… zzzZZZzzz. This said, this is the best opportunities to structure some beautiful upcoming trades!

May the lords of trading be with you.

A. Lê

Tuesday, November 9, 2010

The Tower of Terror: Going Down?

Today was a wild ride. We hope most of you who were long as of this morning either own protection or had stop loss orders in place. Most asset classes tanked on the heels of a poor 10 Year Treasury Note auction at 13:00 EST. The Dollar strengthened as U.S. equities bled and Oil dipped below $85.60/barrel. On a positive note, The Ag trade remained resilient thanks to bullish data from the USDA report this morning. In particular, Raw Sugar was up almost 4% and closed at $0.3311. Yet, out of all this unexplainable excitement today's zippy price action in Gold piques our curiosity the most.

Gold traded up to new all-time highs of nearly $1425 per Troy ounce before its precipitous sell-off to $1385. Wow, a $40 range in one session! Surely, we will not take this abrupt volatility lightly. Or shall we?

December Nymex GC

Even though GC sold off materially after its morning erect, none of us should gasp in awe. Gold is everywhere. The likes of ESPN, NBC, and even NBA TV (yes) bombard us with daily commercials pedaling the 'once in a life-time opportunity' to own the not so rare/often ignored physical form of the precious metal. In addition, we watch in silence as the members of the far right such as Glen Beck hypnotize our fellow men into believing that bullion is the only asset capable of protecting us from the imminent economic collapse (Rubbish we say, moldy rubbish). Also, Gold frequently claims the front-page headlines of local, national, and international information (what really qualifies as news these days?) periodicals. In short, Gold is ubiquitous.

Regardless of Gold's correlation/pricing with/in the U.S. Dollar the precious metal has now become a speculative trading vehicle rather than an inflation/deflation/sovereign debt/economic collapse/financial armageddon hedge. Don't believe us? Let us briefly examine the SPDR Gold Shares (GLD) ETF. In the period between October 1 - November 8 on average 17.75 million shares of GLD changed hands daily. In the prior 27 trading days average volume came in at only 12.1 million shares daily. With the aid of an envelope, we calculate this increase in volume to be nearly 47%! Also, as of GLD's Q2 SEC filing approximately 96 million new shares were created. This brings the total shares outstanding to a whopping 434 million. Hence, more retail investors joined the game.

Where do prices go from here? Up, Up, and away. The Federal Reserve's quantitative easing program will most likely impede any progress the dollar makes, and thus openly encourage irresponsible commodity speculation. Also, do not let us discount emerging market demand stemming from a desire to diversify reserves away from U.S. Treasuries (yes we point to China). Finally, we will be wise and remember that a bubble only becomes a bubble once the masses are aware. This point is of critical importance to remember while prices sail to uncharted territory.

-Patrick M. Ambrus


Disclosure: No Positions

Friday, November 5, 2010

Two week Performance Update: November 5, 2010

Morning Update:

Guy Hands ... LOL. Poor guy. Talk about an ego who couldn't learn to cut his losses, and then over-leveraging on a reverse pyramid strategy, by risking his whole EMI deal + a hefty legal bill, which ended up backfiring.

On the UK open, strong financial earnings starts of the day but with overall stale price movements going into US NFP.

NFP Preview

Even with beat expectations today, it will be near impossible to makeup the past 4 negative NFP reports in one go. If NFP manages a 9% improvement from 9.7%, that is still a huge 9%!. Fundamentally that may mean nothing, but short term moves will see volatile price action either way.

NFP on Forex:

Strong US Jobs data can wipe out the weekly gains the majors made this week bringing them back to recently minted new support levels. If so, maintaining at key support levels will be necessary for continued dollar bearishness.

GBP/USD: Yesterday's Asian trading lead to very light volume and price consolidation leaving the perfect time to exit positions for the weekend. And exiting is what we saw on the EURO/ASIAN overlap. Pounds trading roughly 100 pips down from yesterdays highs. Noise Noise I say going into NFP. We are possibly seeing discounting of NFP results, just as we saw with the BOE rate decision. Currently levels bouncing off possible short term support of 1.618.

AUD and EUR: Divergence of the AUD and EURO! Yesterday, EUR/USD sold off in late US trading and slightly continued down through Asian hours.

After a big one off sell off during US late trading the AUD continued to trade up throughout Asian trading. BIG price squeeze forming,the AUD will see a big pop with NFP. Being on the right side of this trade will be very profitable.


Yesterday closed at 1221... I'm not ready to cry uncle just yet! SPX DEC10 Globex futures closed
at 1215 yesterday only reaching a high of 1218. Currently trading lower in London hours. Post NFP will definitely tell me if I've been plain wrong on my SPX thesis or if I am correct(I'm looking to see a strong move back below 1200). More focused on the futures vs the spot.


TERRIBLE. Wrong on dollar strength (Though I've a somewhat adjusted view HERE)... so far wrong on SPX. The positive side to this is we made strong postive P&L for the first week of November despite being wrong :)

Expectations for today:

Sector wise what has been driving the SPX in 2010? Industrials, Utilities, and to an extent Consumer staples. Strong expected private Sector growth... 60K, I say neigh!

From a contrarian perspective I will have to say there is not enough confluence among all the SPX sectors and job growth cannot be supported by such a scenario. I expect inline to missed expectations. Which would mean continued dollar weakness here on out... and most likely would mean I am wrong on the SPX.

Watch the BIG noise today a.k.a financial gymnastics, shooting video games, or riding or drowning in the price tsunami.

May the lords of trading be with you today.

A. Lê

Thursday, November 4, 2010

Yesterdays GBP action and Skeleton GBP Update: Nov 4th, 2010


" FIN. MIN. NODA: Wont tolerate excessive currency moves, ready to take bold action. "

Tweeted Coverage of Japan's finance minster. I can't help but chuckle every time I see the Japanese keep on barking with no bite (I believe this to be the 3rd or 4th time he has stated something similar). Don't get me wrong, they may bite soon and bite hard, but they keep loosing face and credibility the more they bark and more biting will certainly aggravate their situation... unless they bite hard enough!

Morning Update:

For the LAST WEEK of October, I was proclaiming short dollar strength and long term dollar weakness. I will have to say for all the majors the last weak of October (except the Pound), experienced range bound dollar strength. I had expected more of a trended correction, but at least I was semi correct...

Going into this week we (AC) definitely have benefited from sticking to our fundamental and technical view of the pound despite our overall short-term bull thesis on the dollar. The firmness in the pound with its fundamental divergence from the strong dollar last week was a good confirmation for our positioning on the pair for this week.

Another good call would be the NZD, bullish from 76 to 80, the technical landscape and regional benefits and lagged performance all leads to an undervalued pair for the NZD/USD. Unfortunately we had our resources focused energy and indices research. Though, on the risk side, its probably better that we took no action as we understand the structural nature of the pair relative to its peers with more continued ongoing resources.

This week I will have to call a foul call on expecting a trended dollar strength for this week. I was wrong in thinking we would see a bigger correction on the dollar. My thinking now, is that the dollar correction happened, but in a sideways formation, the range trading extended the major pairs enough to allow continued prolonged trend upside strength (the very volatile narrowing range environment starting from about three weeks ago). At least this wrong view, hasn't affected short term performance.

The EUR and GBP vs USD has now broken out of its ranges to the upside. QE2 has been the big driver and yesterday's 600 Billion announcement helped fuel the fire. Though, I will argue that the pound's move was more fundamental (not too much QE2 driven), as pre-FOMC announcement, the pound broke strong above its 1.60 resistance on PMI data. Going into the FOMC announcement, traders were pricing the news in as it took back all the daily gains. Upon the announcement we saw a 130 pip range, but only a 30 pip candle body on the hour, and then Asia brought it back up to yesterday Daily highs. With todays London open we are seeing strong buying power going into the BOE announcement.

Since I know I just barfed up a bunch of data I will summarize for clarity.

1. True move: Yesterday's morning London trading; fundamentals pop above strong 1.60 resistance,from UK PMI along with past days of strong econ data, indicative of the true trend.
2. Post PMI announcement strong sell off pre-announcement = the announcement was discounted.
3. Strong 1.605 support holds (around previous high seen in mid OCT).
4. During FOMC annoucment BIG noise as seen by large range. We know this is noise as the open close spread is small (30 pip hourly candle body).
5. Overnight Asian trading traded it back to the previous day highs = canceling any discounted FOMC news and noise
6. Big break out above yesterdays highs with Todays London open = continuation of fundamental trend (Currently reaching 1.61864 on the 4:00am hour EST)

I will also have to state that the UK GDP surprise is encouraging for the Feds to have a soft QE program continuation or have more arguments to start exiting all together. Additionally, Exiting the program would be inline with the political austerity measures in place.

However, the risk of UK QE still remains as TRUE underlying fundamentals such as weak housing, deflation risks, and questionable sustained long term growth remains. At least for today, QE expansion may be avoided, but may be noted the program will still be in place as a cautionary measure.

In terms of UK QE the strong GBP may take a blow from the noise and news coming in, but ideally not strong enough to break below strong 1.60 support levels, especially with todays early morning gains.

Take Away (a.k.a. what I am held accountable for):

From here out will see continued dollar weakness with lots of noise.

  • Target high 1.63 on the GBP
  • Target 80 on the NZD
  • Dollar weakness continuing with interim dollar strength noise.

Market Correlations:

I expect front month WTI to trade on the high side of its range of 86.

Unfortunately, this may mean I maybe wrong if the weak dollar/Strong equity correlation is strong. So far the SPX 1200 level has held and I expect noise possible up to 1210 - 1215. Beyond that point I will have to say I am wrong on the bearish SPX view.

**on a side note: the EUR/USD is finally trading in the 1.42 region. Amazing how volatile that pair is. The NZD is about to break its pre crisis highs like the AUD has been, if dollar strength continues into next weak!

-A. Lê

A Central Banker's Cocktail Party: Tequila or Water?

What is Quantitative Easing? A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

Now that's out of the way we can dissect the size, announcement, and long-term affects of the easing on the Global Financial System.

First let us say congratulations to the United States Federal Reserve, in eight months time you will maintain a $3 Trillion balance sheet. The Central Bank is now the largest Hedge Fund in the World. Kudos, no really. Let's take a few moments to put this number into perspective. In, 2009 the U.S. GDP was $14.25630 Trillion. The IMF forecasts growth in 2010 of 2.6%. A back of the envelope calculation puts 2010 output at 14.627. Thus, in June 2011 the Federal Reserve will control assets worth 20-21% of 2010 Gross Domestic Product. In 2007, The Fed's Balance sheet was worth only 6.4% of Gross Domestic Product. All we can say is Kudos.

Consequently, the NY Federal Reserve has a tall glass to fill:

The FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase an additional $600 billion of longer- term Treasury securities...Taken together, the Desk anticipates conducting $850 to $900 billion of purchases of longer-term Treasury securities through the end of the second quarter 2011.

I expect on-campus recruiting to increase at the next NYU career fair. Anyone want to take the opposite side of this trade?

Looking Back,today's market action after the FOMC announcement was incredibly entertaining. We observed The S&P 500 oscillate down to 1183 and then rocket back to 1199 to close the session. The EUR/USD fluctuated 190 pips, a range that would make any Black Box trader proud. Gold dropped from 1348 to 1327 and now trades at 1355. Ironically, Natural Gas was unchanged throughout. The fourth of July came late this year, hope you did not miss it!


Dollar Index

Moving forward, Quantitative Easing will surely inflate Global Asset Markets. Will it? Regardless, this is the current thesis the Fed operates with. The goal of 'QE II' is to re-inflate the U.S. economy. Specifically, the Federal Reserve desires an asset re-allocation trade. The FOMC hopes to push investors out of 'safe-haven' Government Debt instruments and squeeze them into more risky asset classes such as equites, commodities, junk-bonds, and real-estate. Why would the fed want to turn the proverbial risk switch off? Don't jump to conclusions, keep reading!

The second leg of this trade hinges on the 'wealth effect', The premise that when the value of stock portfolios rise due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more . Miller Tabak estimates this effect will carry a multiplier of 3x. Hence, the $600 B of Quantitative Easing will create new consumer wealth of $1.8 Billion. The Fed supposes a multiplier of this magnitude will allow consumers to feel comfortable parting with their hard earned Dollars and spend without discretion. Therefore the economy will grow, inflation will rise, unemployment will fall, and The 'Red, White, & Blue' will flourish in economic and financial prosperity once again.

Personal Savings Rate

Even Though The FOMC's policy makers and economists are a collective of the smartest and brightest in the United States of America, Quantitative Easing II sounds too good to be true. Why you ask? First, any good trader knows timing the market is nearly impossible. Second, who is to say consumers will look at their 401k statements, feel wealthier, and decide to spend. Lastly, 'QE II'has never been done before. The original U.S. Quantitative Easing was executed during the heart of the credit crisis. The impetus for the current version is plainly different. Also, Japan's attempts fell flat and failed miserably. In short, we are critical here because we are uncertain of the outcome. The Fed should be too.

To clarify we will attempt to explain our thoughts in a simple thought experiment:

Suppose you are two hours late to a cocktail party. There is food, drinks, and irresponsible adults galore. You head to the bar for your first drink of the night. The bar tender informs you the only beverages still available are water and tequila. At the same time you approach the bar an irresponsible adult, who consumed five beverages prior to your arrival, also approaches. You think, I hate tequila because it makes me sick. Instead you decide to drink water and enjoy the experience without alcohol. Meanwhile, the irresponsible adult orders another drink. Mind you this is his 6th drink and first of tequila. You think, 'I wish I was indulged in his level of intoxication'. Though, your next thought is 'I am so happy I am not that guy, he won't be able to get out of bed tomorrow'.

Is the Fed an irresponsible adult or a water drinker? Take from this simple thought experiment what you will.

Undoubtedly, we are entering uncharted territory. Here's to watching and waiting for events to unfold. Hey, if you get bored check the BOE decision at 08:00 EST and the ECB decision 45 minutes later. Surely the ECB won't surprise!


--Patrick M. Ambrus

Sources:, The Gartman Letter,,,

Disclosure: We are Long the GBP and short the USD.

Monday, November 1, 2010

The Pursuit of Happiness

U.S. midterm elections for Senate, House of Representatives, and governors will take place tomorrow.  Right about now many promises are made, favors  traded for, and double-talking politicians are ubiquitous.  The general consensus of the outcome, stemming from various pre-election polls (i.e. Quinnipiac, Rasmusen, Zogby), is the GOP will claim The House in dominant fashion.  The Senate race remains clenched and may result in favor of the right.  How did this happen?

In order to answer this question we would best serve ourselves by putting voters on the psychiatrist's couch and asking.  However, in order to collect a data set of this magnitude copious lots of time would be needed.  Hence, we will generalize for time's sake. In short,  unemployment remains high and will not budge; fiscal stimulus plans did not create the level of job growth tacitly implied by the large $787 B amount.  Also, credit is scarce.  Any citizen whom sought credit in the last two years for an auto loan, mortgage loan, or business loan was condescendingly rejected.  Lastly, Pension funds, 401k's, retirement plans, and household net worths lack robustness.  Hence, the general public embodies feelings of anger, remorse, regret, and unhappiness towards the politicians elected in November 2008.  As a result, the right will most likely sweep the competition.

Times are tough.  Many of us do not posses jobs that were promised too us.  Many of us were tricked into leveraging our futures for a four year liberal arts education.  A vast majority of us are wasting talent and skill at 'Starbucks' or 'Walmart' in order to pay next month's rent, buy groceries, and purchase discretionary items that bring us temporary satisfaction.  Many of us are cynical and believe the 'American Dream' is dead.  Many of us choose not to make good on our mortgage obligations and ignore 'hate mail' from malicious financial institutions.  Will a right led House of Representaties and Senate change any of this?

Maybe. Though, I am empirically skeptical.  The U.S. Declaration of Independence promises us "Life, Liberty, and the Pursuit of Happiness." Over the last decade, an abundance of 'new wealth'' created by low interest rates, lax regulation, poor leadership, and misallocations of human capital skewed our expectations for happiness.  Happiness became directly linked with monetary gains.  This needs to change.  However, it will not be our Political elect who shift our emotional imbalances from negative to positive.  This paramount change needs to come from within.

Undoubtedly, unless our politicians can find it in their respective 'best interests' to work together, political and economic malfeasance will persist.  Our leaders need to stop managing our expectations and account for their own.  The right, left, and tea-partiers may forever lack fundamental acceptance of the other party's founding principles.  However, this does not mean team-work and collaboration should be kicked to the curb.  Governing from the center means synthesizing the ideas from all directions and manufacturing those ideas into fair, beneficial, and prosperous policies for the majority.  If we are ever to recover from the 'Great Global Contraction' governing from the center will be of utmost importance.    Thus, we must learn to manage our own expectations with humility, clarity, and modesty in order to prosper.  We cannot rely on our political elect to source our pursuits happiness.

--Patrick M. Ambrus

This Blog has been developed by Analyze Capital LLC, and as an independent organization we provide “AS IS” information without warranty. The ideas and opinions expressed by the contributers of this blog are personal and do not represent the actions or policies of Analyze Capital LLC. The contents of this blog do not intend to assert recommendations or to offer advice of any kind. We are not responsible the consequences, be they gains or losses, that may result from using any of the information from this blog.