Monday, February 28, 2011

follow up on NZD comments: Feb 28, 2011

Currently NZD well within my technical considerations from last week. In the short term (the start of this week) at least, the NZD is benefiting from exports (narrowing deficit). So far the fundamental view of regional growth may out weigh the short term effects from the earthquake.

The total tab from earthquake damages are estimated to be about 15 to 20 billion NZD about 3 times the initial estimate of 5 billion NZD. The government is expected to pay for 5 billion dollars of damage. The demand factors on the NZD will continue to outweigh expectations of a interest rate cut as long as exports can continue to maintain or increase (which of course is dependent on regional demand/growth). However, this view may be more relevant to the longer term as analyst expect interest rates to be cut on March 10.

"RBNZ Governor Alan Bollard said the central bank is “ready and able to supply any cash required by banks.”

Any big short term dips to significant support levels should be seen as longer term buying opportunities as longer term demand on NZD will be accompanied with recovery growth. 

I will reiterate important support levels to:

  • 0.729
  • 0.685

High short term risk remains, however I maintain longer term bullish view.

Alexander Lê
Managing Partner 
Analyze Capital LLC


Rise and Shine: Feb 28, 2011

8:30 GMT

FX :

Dollar GMT time falling 7 straight hours and consolidating as UK/EUROPE opens up.
  • USD/CHF Feb 25, 2011 from comments on my last post; the early sell off on last Friday I amount to buyers of the CHF closing out short positions. This morning CHF sell off amounts to
    • Laggards from friday
    • increased short term risk apettite
Or some combination of the both. I will lean towards increased risk appetite as the dollar as a whole dropped significantly in the past 8 hours. However, this will only be true if UK/Euro and NY trading hours continue the trend.
  • The GBP/USD has been seeing quite a bit of volatile ranges from Asian to UK hours which is quite unusual for the pair. Uncertainty about growth probably have not been fully priced in. 
  • EUR/USD is rocketing up pairing back losses  from Friday. 
  • Stay tuned for CAD GDP
  • AUD/USD still inline with my previous comments, holding above parity as a norm, at this rate the break will be big to the upside. Hopefully fundamentals don't trump this pair. 
  • USD/JPY seems to forming a bottom. 

  • the weakness in the dollar floated April Brent up to around 115 around 4:00 GMT but as since then pulled back to 1:00 GMT levels to about 113.  
  • Currently WTI to Brent spreads have been unusually large in its historical context. As stated by the EIA, arbitrage opportunities are much easier for WTI premiums vs. WTI discounts (due to logistical supply issues in cushing). 
  • EIA cites three possible longer term arbitrate solutions that may work under much wider spreads
    •  rail shipments of crude out of the region 
    •  new pipeline links
    • higher refinery output for exports to other regions
All three solutions require market participants to truly believe the current spreads are more structural and long lasting. Each solution entails either high transaction cost, economic inefficiencies, or logistical headaches. 


This week I am looking for:

Dollar -
Crude +

10:00 GMT
Dollar Index March Contract: 76.935
ICE Brent April Contract: 113.24
WTI April: 98.66


Alexander Lê
Managing Partner
Analyze Capital LLC

Friday, February 25, 2011

2010 to into Q1 2011 European Equity Comparison

****Commentary on European equities (nothing conclusive here)****

The European Sovereign Debt Crisis dominated 2010. The equity markets show an obvious regional disconnect. Equities are showing structural differences that need to be worked out still. Perhaps for those who are bullish on the region or for those who are less risk averse may find hidden value in Spanish or French equities. What may this value be? I would love to hear the bullish arguments for such a thesis... as I currently don't have an answer.

  • The Dax, clearly the winner in 2010 of the world indices, benefited from risk aversion and being the "economic powerhouse" in the Eurozone.

  • The FTSE managed to maintain its resilience and performed on par with US equities (SPX not shown here).

  • The two laggards being France and obviously Spain one of the piigs.

Going into 2011 I am very interested to see if Germany can maintain its safe haven status or will the rest of the Eurozone finally humble the country and drag it down along with its possibly overvalued equities.

Shorting Opportunity in the Dax or buying opportunities in the CAC or IBEX for value guys???


Alexander Lê
Managing Partner
Analyze Capital LLC

Market Commentary: Feb 24/25, 2010

**skip to conclusion sections for consolidated stances/views - contact me if you feel commentary is much too "backwards trading" like and I will improve being more clear and concise on my stances and views for better accountability and performance assessments**

NZD/USD - So far my buy now rec from my last post has been right. However, I will have to take some fundamental considerations to the destruction of the economy because of the earthquake. I saw a few speculative headlines about the swap and interest rate markets pricing in cuts. This all depends on regional and domestic growth factors and the nature of the rebound. I am not well versed in the type of action the government takes in New Zealand, but if the fiscal action is lagging perhaps this monetary thesis may be true. For sure if the damage is "significant" there will be some dislocation between domestic and regional performance making room for some interesting pairs strategies or similar ideas. Look to NZD, AUD, SGD, or JPY products.

Short Targets if bearish sentiment true:

1. 0.728
2. 0.618

Such moves would take most of Q2 to play out if out right bearish.

I will have to say I am a bit more biased by the technicals and New Zealand trade ties. Strong demand from recovery of western/developed nations should give the NZD a boost in exports and help soften any economic damage the economy has suffered from the earthquake. Because of recent trade lagging, the pair has failed to enter new unexplored price territory like its counter part the AUD as of late last year.  Of course a drag to this thesis is if AUD and NZD and regional interest rates continue to increase (quite a significant risk factor). This is a matter if one believes regional monetary authorities have the power to reign in high prices.

Aside from inflationary and interest rate risks, domestic demand and growth are still a strong driving force in the Asia Pacific region.

In other words, Ill stick to the technical thesis and hope domestic growth and strong trade to help float the NZD.

Significant bullish targets:

1. 0.78
2. 0.798/0.8 (big psychological level)

Again, I reiterate to be clear - I still remain bullish on the pair despite sentiment and possible fundamental risk factors.

Side FX commentary:

  • USD/CHF talk about slight risk relief on this pair. Like in my last post I said POST this pair would get a snap back once the risk averse affects mitigated. Perhaps that day is today unless London and European traders are covering long CHF positions. We will see if this is a fake out or not when New Yorkers open up.
  • GBP/USD still trading in No Man's Land. Last night at 10:00 1.600 was taken out with tons of stops probably being triggered. causing the relief rally over Asain trading hours. Probably interbankers abusing client books to cause the move to the 00's. Im still bullish on this pair going out. 
  • EUR/USD still good on the upside. 
  • USD/JPY risk relief played out all yesterday
  • AUD still stagnant perhaps due the it's interest theme


April contract in context of rolling trend + back end contract expectations

  • Dec 2010 Mild drop in dollar mild rise in crude
  • January 2011 the trend we saw in most of 2010 (weak USD/Strong crude) broke down with big drop in the dollar followed by a corresponding drop in crude
  • Going into February it seems the correlation came back strong with the first half of feb with strong dollar weak crude and then with the Oil crisis, weak dollar big spike in crude. 

Looking at back end contracts we can see expectations are leaning towards higher crude. In the context of the rolling WTI contracts this would be inline with its long steady up trend from Jan 2009. Based off the technicals I'd say crude is in a great position to benefit for the first half of 2011. Though, there are rising interest rate risks to the correlation. However, I'd say it is more likely that interest rates may kick up in the latter half of 2011. 

*side track*
Talking about interest rates feels so nostalgic considering how many years I've blogged in an environment with unconventional monetary policy and low interest rate regimes. When I had first started back in 2006/2007 interest rates plagued headlines and carry trade arguments were all over the place. The only interesting interest rate story that didn't get much lime light in the past few years were Australia and New Zealand themes. It seems the west countries were to preoccupied with crisis after crisis as fundamentals diverged (between east and west). 

*back on track*
Anyway, if the oil crisis prolongs we may see the traditional correlation between crude and the dollar "outta-whack." Kathy Lien, director of currency research at GFT provides some insights Here as to why we may see such a divergences, and explains further why Here why eventually the traditional correlation will hold.  I will agree with most of her arguments.  However it is interesting how she spins her argument, by saying fundamentals are the driving force on crude which in turn affects the dollar, whereas I've traditionally seen it as currency drivers in turn affect crude. I will have to say in the short term the former may be more true, but eventually the latter will play out in the longer term.  

If the February correlation holds I see the dollar index falling to 75 which would mean higher oil going into march. Longer term out I will go with crowd expectations and say crude is still bullish.


End of day SPX close yesterday saw a triumph for the bulls and a decrease in the VIX. Is this indicative of a the correction being over or is this just a hiccup in a bigger downtrend. To be consistent, I expect the spx to consolidate and drop further to its 50 day SMA. Short term bear still.

Wednesday, February 23, 2011

February 23, 2010

Progress Update:

A hell of a day . . .

Compliance, Regulations, and Law are making my head spin. Good news is AC Federal taxes were accepted. Hopefully no red flags from the IRS. Since tax accountant services can cost a small man a fortunate I had to do the self route. Luckily 2010 trades were not complex.

Next business in order, Delaware LP incorporation; Quite a bit complex and costly for a start-up vehicle, but I can manage. I was doing some "rough" calculations, and I estimated that a fund would need USD 1M to USD 1.5M in order for a 8-12 month track record to be taken seriously.  This is assuming no performance considerations. Perhaps you are thinking, "no performance considerations? ... but that is all you need to consider!" Well unfortunately even a start-up fund with a perfect track record won't be able to get a well-balanced diverse stable client portfolio without the necessary infrastructure (a balance between institutional, High Networths, and HFs/HFoF/Seeders). The considerations assumes a 1% to 1.5% management fee, depending on the AUM,  which would be barely sufficient enough to  pay off annual infrastructural cost. This also assumes a fund with USD1M to 1.5M  would be using boutique Administrators, Auditors, and Legal Advisors only. Of course if we now throw in performance considerations the fund would have have to at least return 1% - 1.5% annually to break even. Naturally, breaking even definitely wouldn't hold for a whole year for investors...

Due to investor due diligence awareness, institutional bias as HF clients (though this trend is reversing to an extent), obsessions of ill defined risk characteristics, the financial crisis causing huge regulation changes, our good friend Mr. Maddoff and Co. (all other schemers)... causing even more regulation scrutiny... the HF world is not longer a economically feasible endeavor for the average Joe (oh yea lets not even mention Dodd Frank and I won't even get into EU regulations...)

Once again I am stuck to paving the odd way through... by in large, I will be able to fly under the radar through exemptions due to my teeny tiny size for now. When, or shall I say "if" AUM does grow, I will build the proper infrastructure accordingly. I already have some mechanisms in mind to help facilitate a make-shift Administration process that is transparent and relatively unbiased. Which will hopefully legitimize any audited track record post LP Fund creation/launch.

I will comment that the boom of the hedge fund industry surely has been accompanied by the boom of institutionalized tool makers of the trade (Administrators, brokers, market makers, auditors, consultants, and lawyers). Looks like I'm trying to dig for gold in this rush, while everyone is shoving levis' and pick axes down my throat without an alternative option.


6 month SPX - Bearish Considerations

As I  mentioned in my last POST the SPX was indeed due for a correction. I expect a few more %'s to get knocked off.

For bulls trying to buy in on a pull back I would be careful with volume considerations. The yearly chart shows an extended SPX in a very healthy up trend (August 2010 to Feb 2011). My qualm is that it is "too" clean/healthy. The daily ranges are suppressed with  a very long period of low volume.  A vix comparison (though not the best indicator of volatility) + BB analysis shows less volatility on thinning price ranges. Subtle bearish indications to me.

WITHOUT fundamental considerations I am biased short on the SPX to the end of march mainly on technicals. 

Brief on FX:

  • Pound still holding its ground - my skew is bullish on GBP/USD (mainly fundamental and technical reasons - time frame on a week to week basis)
  • USD/JPY is getting benefits from risk averse flows - again very similar to early 2010 thesis on Japan. Getting positive sentiment for the country.... I still can't figure out why its skewed this way.
  • USD/CHF - CHF benefiting from risk averse flows as well, but will unwind once negative sentiment reverse in the UK and EUR region (i see it sooner than later)
  • AUD/USD - I believe due to structural/geographic/fundamental reasons will comfortable trade above parity form now on - possible down ranges to 0.95 range worse case scenario (poor growth prospects in asia) and ill weigh a heavier probability to 0.98 on downside action. Though, I reiterate, I believe it should trade above a parity hear on out.
  • NZD/USD - Fundamentally in awesome position to rebound once this short term sentiment earth quake trade wears off. Buy now.
17:41 EST Wednesday 2011

It would seem I am more skewed toward dollar bear going into Q2 2011. Ill have to take fundamental and sentiment considerations before making a full out thesis on Forex however. 

Again, no recaps on 2010 yet, ill try to get them in when I can. Good luck trading to all. 


Alexander Lê
Managing Partner
Analyze Capital LLC

Thursday, February 17, 2011

February 17, 2010

Progress Update:

Almost done with AC taxes for 2010. Should be done by end week if I can get appropriate advice and help on time. Currently evaluating all documentation and reorganizing. Once that is done It will be onto polishing the appropriate infrastructures. More importantly, developing consistent income generating strategies will be underway once the short term goals are tackled.

In terms of markets, I've been following loosely since the start of the year and have many notes that I wish to update later. However, its hard to figure out where to begin I guess the best way is to dive right in.

Many of my ideas from the end of 2010 have come to fruition i.e. Mainly

1.) The rise of WTI from low 80's
2.) Short Chinese Equities
3.) The Pound Remains fundamentally resilient
4.) 0.74 to - 0.75 Great buy-in/support levels on the NZD/USD

In Regards to . . .

1.)  I have been long since the technical consolidation seen in October 2010.

2.) I was painfully wrong for the last two Quarters of 2010 as Equities strongly rallied across the board. However, from a sentimental stand point I knew Asian equities was to break at some point. This came with the rise of Chinese interest rates. Prices reverted back to fundamental factors; relative world equities analysis indicated this back in mid 2010. Unfortunately technicals and sentiment can cause long periods of speculation. On the whole, I believe Chinese equities to be still good for more shorting opportunities in Q1 '11 (arbitrary time frame since I haven't analyzed or looked into this issue for awhile).

3.) Despite short term correlations, regionally the GBP/USD  held wide trading channels that I drew in June 2010. Whereas the volatility in the EUR continued to be ridiculously wide.

4.) Historical technical/fundamental studies showed the NZD was set to breach into a new frontier like the AUD, however regional correlations didn't hold as Q4 '10 showed high correlations between the AUD and the EUR while the NZD remained lagged in performance. However, eventually the NZD correlation strengthend with the majors and by early NOV and tested low 0.73's. In my notes, I've marked 0.74 -0.75 support levels for short term (week to week) plays. Though I was wrong on the upward breakthrough of .80 (which I know is still coming), I was at least right on the short term support levels in this time frame (end of Q4 '10 into Q1 '11).


The end of 2010 correlations and relations have broken down (which is quite surprising IMHO). The high correlations amongst major assets classes seen in 2010 have changed going into 2011. Asian majors are seemingly inverse to western majors due to fundamental divergences (interesting the swiss franc seems to exhibit this inverse behavior as well). Dollar oriented thesis's are not enough to explain traditionally correlated assets. Gold fever seems to have subsided and people seem to be doing new home work AND/OR now having a new sickness of US equity mania. Some claim risk aversion, though to be honest, I see capital flows  to the US region as a fundamental reversion via sentimental catalyst of herd mentality (strong US economic expectations vs Questionable Asian economic expectations) . Even if it is speculation/sentiment is driving Q1 equities up in the US it perhaps can be for bullishly extended for the next few quarters as we saw with Asian equities second half 2010.

*side note*: despite bullish US equities Q1 '11, SPX technicals are showing a short term correction is needed for the health of the bull trend to remain. Daily price ranges are thinning out with volume consolidation. Look for 50 RSI support formation and a 5%+ correction if bullish.


Apologies for my long absence as I needed much time to recollect my thoughts and get back in the game. Though I am not fully back as business operations are not fully restructured. I haven't talked about my bad calls made in 2010, hopefully I will cover them in my next post along with more updates.

Alexander Lê
Managing Partner
Analyze Capital LLC
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