Thursday, March 31, 2011

End Month of March 2011

March 31, 2011

Didn't get to follow much of the day. Finishing lots of business work.

*Crude Significantly up going into Friday

*Ireland stress test well within Expectations hence the strong Euro today

*PMI ... reaction seemed muted?

*GBP was floatdown most of the day but mostly flatish

*Corn was on fire via supply news

*AUD continued its rocket ship move up

*NOK broke below support levels quite strongly following the dollar weakness trend

I kept hearing today crude oil prices can't be good for the consumer all day... to be honest there is room to 145 will we see mild effects on the consumer at these levels... but it won't show up for another few months, and will be negligible IMHO if anything.

Im getting a felling in the back of my mind a dollar correction is needed. SPX seems like its hesitating quite a bit at these levels. Will we get a break to the upside?

Probably a lot of this action will be seen with NFP tomorrow. Overall with quad witching this month, window dressing, MENA risk... this month has been wicked wild... getting any "real" solid read probably is BS. Got to go with the flow with these trades and stick them short term. Any rational has been quickly reversed and fipped and flopped. Heres to making money and being right or wrong!


I still owe the 4th week march trade summary ill have that up soon. Didn't trade this week too busy with business development. Anyway, tomorrow will be fun to watch. Darn markets been very distracting with all the action going on. Back to wrapping up this Partnership Agreement!

Alexander Lê
Managing Partner
Analyze Capital LLC

Monday, March 21, 2011

Inflation Outlook - March 21, 2011

Referencing from seeking alpha --->

Click through link above for more in-depth inflation commentary (along with monetary policy comments)

  • This is mainly commodity driven inflation (I agree)
  • Inflation is a greater central theme for central bankers (Duh)
  • Emerging Market (EM) inflation out-pacing developed economies inflation

As long as the US inflation lags its peers and EM inflation this should continue downside pressure on the dollar in the short term. The idea with EM central banks is that continued rate hikes should induce dollar selling UNLESS the higher rates are proving to being ineffective. If monetary policy in EMs proves to be ineffective this may induce dollar hoarding as we saw back in the summer of 2008. Even still, the dollar should still be pressured to the downside as long as the EU, the UK and Canada has stronger inflation expectations and hawkish monetary policy (the bigger weights in the dollar index). 

(IF)/Once this period of volatility can normalize these fundamentals should pull through. Core books  based on an inflation thesis should be in good shape longer out. 

Alexander Lê
Managing Partner
Analyze Capital

Third week Performance of March 2011

Long WTI @ 100.56 22:00 GMT Sunday - End week 102.28

Long NZD/USD @ 0.7375 March 14, 2011, 8:37 GMT - Close @ 0.72086 March 16, 2011 19:17 GMT

Long GBP/USD @ 1.6109 March 14, 2011 8:38 GMT - End Week 1.6233 March 18th close

WTINZD/USDGBP/USDTotal CentsTotal Pips
+170 cents-166 pips+124 pip+170 Cents-42 pips

The Good
  • Going Long WTI beginning week was the correct move. From two weeks ago the initial slide from 108 highs reach low as 97 by mid week. Mid week I maintained and called support at 97 which held and made a quick bounce back to end week close.
  • GBP/USD - held 1.60 even though some hourly volatility bounced below. This has been a strong key level in the past 6 months and remained. I played it and stuck through and it is paying off into this week. 
The Bad

  • Trading Technicals on the NZD/USD when fundamentals were obviously the driver. I tried to catch a short term lower high reversal, which happened end week. Entry was pre-mature and closing was pre-mature. Lesson is don't trade against the trend. Though however, my target area to buy of 0.70+ was good as the a lower high currently in play was formed. The question is if this will consolidate or we will see the down trend continue. If trend continues once it reverses on lower support, on the way back up 0.70 + will be a buy. If it consolidates long enough, 2 months +, I will consider a buy in the third month.
All in all I would say any rationale anyone could come up should be thrown out the window. The volatility has been ridiculous and moves very irrational to rational to irrational etc... Trading basic technicals helped me get through the past two weeks, while trading technicals on the NZD/USD didn't' work out since its clearly a fundamental play right now. 

Though, through this volatility my Dollar view helped give more structure to my trades. Fundamentally if the correlations were holding, If the dollar did drop it would only be natural for for major's in the basket to follow along with stronger WTI. 

Another Good view I had was on the SPX 5% plus correction that occured. 

The bad views I had so far were:
  • Long Ibex/Cac on performance spreads to decrease with the Dax from 1 year ago.(Euro equities moving in tandem)
  • Trying to play a short term long NZD/USD
  • Mid Month Performance on WTI (though somewhat recovered from this)

Things to consider moving forward:

  • Softer Global Demand for crude going into Q2 and the relative supply in regards to softer demand
    • Over production from OPEC?
    • Under production due to continued MENA geo/political volatility?
  • Will the dollar continue fall on inflation based thesis? Or will risk aversion send people flooding back to the dollar?
Expectations are set at global demand softening. If this is the case (in terms of WTI $'s);
  • with softer demand if softer demand < over production  = prices probably trading in low 90's
  • with softer demand if softer demand < softer demand = prices continue above 100
However if Demand stays steady with the same level of Q1 Demand;

  • with same demand + over production will probably lead to 95+ possibly leading to a range bound Q2
  • with same demand + under production = prices continue to trend higher 100+
The dollar index is poised to break through the next level of mid term support, the big question is if longer term support of 72 is in view or will prices bottom and consolidate. 


For now I am short term biased dollar short and short term crude long. I'm looking for short term prices to get squeezed at least to 105 + and then exit for the month. I will continue to monitor Major pair positions accordingly...

Alexander Lê
Managing Partner
Analyze Capital LLC

Friday, March 18, 2011

US Direct Investment Abroad - March 18, 2011

Who does America love to throw money at? (All charts created at the

US Investment to Foreign Countries (FDI - Foreign Direct Investment):

I generally look at the world regions. Then focus on the regions where the most US FDI has been. Then pick out countries that seem to be favorites where US FDI has been higher than relative peers. I do this mostly by looking at the graph to save time, but you can double check US Foreign Investment Abroad data tables at the for accuracy if you desire. I believe the general trends already can tell us a lot about US FDI.

Lets look at all major regions:

My initial expectations were that Asia Pacific would be on top in terms of FDI flows to other countries. I was surprised that:

  1. Europe was way above any other region 
  2. Asia was actually not the highest area where FDI flowed to (well thats given via. number 1)
  3. Latin America and other Western Hemisphere was above Asia Pacific.
Intuitively I would have expected that Latin America would make up most of the bulk of FDI flows for the region. I thought a high concentration of the Spanish speaking population in the US would help foster investment to the Latin America region. 

To see what was going I chart US FDI flows by country for the Latin American and Other Western Hemisphere Region (Central America, South America, other Latin America and Other Western Hemisphere (Caribbean islands etc..):

Surprisingly my expectations were wrong again as Central and South America did not get the bulk of the FDI, but instead Other Western Hemispheres did. 
I then double check on an individual country basis.

The top two green and whitest lines are the regional trends. Right below that is Bermuda, and the bright blue trend with the positive slow was the UK Islands, Caribbean. I only examine the top two countries as a revelation hits me. I graph them below:

The two big FDI trends in the "Latin America and Other Western Hemisphere region" (LAOWH) was due to large inflows to the Caribbean Islands and not because America was investing in Latin America. 

After some thinking it hit me these trends probably explains the huge boom for offshore Hedge Funds going into the 2000's.  Bermuda has been the top place for Fund domicile for the longest time. Going into 2000's the Caymans increase regulation and captured market shares by having lower cost for market entry.  This would explain the Uptrend for the UK Caribbean and why Bermuda is still far above the UK Caribbean (Bermuda was Favorited for a long time period than the Caymans). Bermuda of course was severely hit with redemptions post 2008 crisis hence the sagging trend. 

The reason why I plot Chile up there was because it seemed to be the only other country in the whole region that enjoyed a continue positive FDI inflow trend from the US besides the UK Caribbean. Possibly a country to be bullish on?

Since I established  the LAOWH region is possibly an anomaly due to the alternative investment industry, I focused on real FDI flows that would could translate into actual growth for regions i.e. Europe and Asia. 

Europe - so which countries do Americans want to invest in. I plot all the countries in Europe

The top blue curve of course is for all of Europe. For those who are not familiar with the European region might also be surprised to find the Netherlands the top destination for US FDI in Europe. While it seems Switzerland, Luxembourg, United Kingdom and Ireland are favored destinations for FDI in Europe. Below are the ploted countires. 


I was surprised that Netherlands was a top destination for FDI flows in Europe. In fact this is the main reason why Europe was the top region for FDI flows. Of course just like Caribbean island, it becomes obvious why this is the case after a little research. I remember reading in the economist a few weeks back about Frankfurt exchange/NYSE merger and how they planned to be headquartered in the the Netherlands. I figured that this was due to tax reason as otherwise there would be no reason to headquarter there. After a bit of research the Netherlands is indeed somewhat of a tax haven for those seeking European exposure. Though EU integration mitigated the Netherlands's tax haven effect, fast tax reform has maintained its competitiveness. I believe it still remains a top choice as a gate way to European Markets for investment. 

The other trends for the UK, Ireland, Switzerland and Luxembourg can also easily explained:

UK - The UK is traditionally and still is a leading financial center in the world. It has maintained its dominance as a country for US FDI before the 2008 crisis, though took a huge hit in investment flows after 2008, which is when Ireland took the lead. 

Ireland - The amazing boom to bust story; however only the boom part is on this chart above. A developing technology center and favorable taxation had made Ireland a hot spot for growth, and as seen above, ideal for investment as well through 2009.

Switzerland/Luxembourg - Switzerland has always been a favorite country for HNW individuals who had nothing better to do than stuff swiss private bankers with their "tax evasive" funds. I assume due to the high concentration of wealthy people and close proximity to Switzerland, Luxembourg naturally benefited for the same reasons and enjoyed more FDI flows towards the end of the decade. 

The most interesting thing about this data is that it only goes up to 2009. Hence we miss out all the FDI changes due to the European Sovereign Debt Crisis. Perhaps the Netherlands will remain some what resilient, though I would expect that Switzerland/Luxembourg, and Ireland US FDI flows to suffer the greatest. 

With the US government raiding swiss banks and demanding greater transparency, I'm sure investments are flying away to other regions. With Ireland's great boom came its great bust with its whole banking system and sovereign debt. 

However the story may be different with the UK. If the UK's austerity has instilled confidence, perhaps FDI flows to the UK will be around the same levels (its currency has certainly been robust in the 1.60 range the past few weeks). 

Moving on to Asia

Of all the countries in Asia where has US FDI been the Favorited?

I separate 5 countries where there is the clear FDI flow gap. The top 5 countries that enjoyed the highest US FDI flows through 2009 were Singapore, Australia, Japan, China, and Hong Kong. 

Singapore - Singapore US FDI flows appear to be quite speculative as US investment were growing exponentially from the early 2000's and then stopped after the 2008 financial crisis. Singapore probably received lots of US for a number of reasons:
  1. PAP's firm control which provided favorable business environment
  2. Strong English speaking skilled work force
  3. Favorable taxes
  4. A good alternative to Mainland China + South East Asia
  5. Strong benefits to bull markets and trade flows (trade and supply chain)
  6. strong development as a financial center in the early 2000's
Japan - Japan early 2000 US FDI growth was quite strong as US investors must have been investing on better Japanese economic growth prospects. These FDI flows clearly fell apart way before the 2008 crisis due to failed expectations.Interestingly though, US investments picked strongly post 2008 crisis through 2009 as risk appetites increased. 

Hong Kong - Arguably Hong Kong benefited for similar reasons that Singapore benefited from. The main difference is that Hong Kong's markets have been saturated far longer and probably presented less investment opportunities (also less room for speculation). 

Australia - Australia benefited with overall strong growth due to high commodities and strong Asian demand. I my best guess is that US FDI into Australia would be a good option if one wanted Asia Pacific growth exposure in an English speaking country. 

Other US investments could have favored Australia for its high interest rates or for carry trade purposes. It was clear though that any of those affects probably were limited as interest rates had to peak out at some point. Whether or not this is the reason, we see US FDI strong dropping  after 2006. 

China - Ever since China joined the WTO in 2001 and opened its doors to investors it has seen very strong steady grow and US FDI inflows. 

By the end of 2009 Singapore and Japan's US FDI flows were about the same. However Singapore's peak of US FDI flows was significantly higher than its peers possibly indicating the speculative nature to foreign investment before 2008. The 2008 crisis hit export oriented countries such as Japan, Singapore, and Hong Kong very hard, which is probably why those countries saw a strong decline in US FDI during the following years. 

As economies around the world normalize we will probably see more healthy balanced FDI flows into Singapore, China and Hong Kong. It is possible the end of 2011 will present foreign investment opportunities in Japan as recovery from the Sendai earthquake crisis begins. Though, it is more likely domestic growth and continued repatriation of the Yen will out weigh any US FDI flows. 

Currently Australia's growth is questionable in the short term, however as long as the rest of the region grows, there will be plenty of US FDI opportunities in Australia.


Though a lot of these conclusions maybe intuitively obvious I will state them anyway. 

2010 FDI flows will probably be greatly mitigated in the EU region as the sovereign debt crisis continues to drag on along with EU integration issues. It is possible, however, that the Netherlands will probably remain resilient as it is still the best choice for any exposure to European markets. 

This being said, it is given that any country who has favorable tax regimes, stable politics, strong regulation,  and a business friendly environment will be key places for US FDI. 

Asian markets will continue to grow and will continue to present foreign investment opportunities for the US. There is a strong possibility that 2010 FDI flows to the Asia Pacific region were greater than to the European region as the financial crisis effects wore off.  If that is the case US FDI flows between the European region and Asia region should have narrowed in 2010. 

All of the FDI flows of course will be facilitated as long as US domestic growth is ensured and risk appetites and pent up cash are unleashed with growing opportunities abroad. 

From the data above, we saw that European Markets were favored for FDI flows from 1982 through 2009. Though the data hints this trend is  poised to change due to current events. The Asia pacific region was the next favored region for US FDI flows, excluding LAOWH region (for cited reasons above). In Asia it is likely that China's steady growth will continue to attract US FDI and may catch up to Singapore, and Japan US investments levels.

Alexander Lê
Managing Partner
Analyze Capital LLC

Wednesday, March 16, 2011

WTI Update: March 16, 2010

Month hourly

Getting better clarity on WTI:

  • Calling support at 97.00
  • Stops at 96.00
Strong breaks below 97.00 warrant out right shorting. Short on LOWER HIGH (a.k.a < 99.00). Must be a clean break and close below 97.00 and seen on the Daily. If 97 holds for another week maintain longs.

Todays EIA status - Less production with solid demand floated Crude before the EU energy spokesman spooked the markets and the FED canceled POMO. This completely put the breaks on risk off and continued this weeks theme of risk on. A bad week to be long crude short dollar.

**side note** this has been a wild month of volatility kudos for those staying alive. Note to self K.I.S.S. less verbosity and more simple analysis, this should make everyone happy.

Alexander Lê
Managing Partner
Analyze Capital LLC

USD Update - March 16, 2011

Currently post US FOMC announcement USD has been range bound. Currently on the border deciding between risk on and risk off. A reflection of this period of uncertainty between natural disasters, EU integration/sovereign debt issues, US growth, along with slowing Asian growth and renewed fears of inflation.

The short term play from last weak into this week seemed to be risk on. Evidenced with Monday and Tuesday's one, three and six month bill auctions showed strong demand for short term bills (see kink in yield curve). TIC data showed decreases in longer term securities though with an increase in shorter term securities, however note this is lagged data, the yield curve is already starting reflect the recent current event crisis effects.

Despite short term risk, longer term expectations seems to be inflation oriented. 

USD Short Term Bearish Technical View:

The reason why the USD index hit support around 76.33 with the big recent drop from the beginning of March can be explained above. The short term bearish view is the above explanations are short term effects in the longer down trend.

Bearish evidence:

Daily 6 Month

  • Fundamental strength seems to be lacking for a full out sustained oversold USD (similar to end of 2008) via RSI; however in the short term RSI action shows room to fall further
  • Long term and Short Term trend price pressure to the downside
  • Short term candle shows a failing of bulls at short term support
  • Longer Term MACD studies will show downward momentum can fall much lower below current levels. 

Bearish Move Targets:

3 Year Weekly
  • Short term and Long term picture are in agreement
  • Given the current economic fundamentals a move to 72 is unlikely in the short term, though a break below short term support and lead to price moves between 74 and 75 easily. 

Longer Term Trends (USD safe haven):

  • 2008 USD strong flight to quality trend with risk appetite decreasing, then increasing again as the crisis unwinds significantly going into 2009
  • Towards the end where I start indicating, risk appetite decreases with the European Sovereign debt crisis as capital flows to the dollar safe haven.
  • By Mid 2010 people got bored with the sovereign debt crisis where risk appetite increased and QE2 Mania was overly rampant causing huge speculation in dollar weakness and better US growth forecast.
  • We had an interesting hiccup in the increased risk appetite trend towards the end of 2010 as short term Amnesia wore off and everyone remembered NOTHING changed in Europe (essentially people got board of the QE2 story and needed another excuse to drive markets).
  • Entering 2011 we resumed the increased risk appetite trend from mid 2010 and currently hit a wall of uncertainty (current short term support)

Two scenarios to play out:

  1. All hell breaks out; Europe implodes and US produces a series of poor economic report and more natural disasters/geopolitical risk occur or plays out causing a big run up on risk on again 
  2. MENA settles down, Europe manages to make snail pace progress politically/economically, US produces moderate economic reports; the world continues recovery mode from the past two months of volatility. 


Though I exaggerate the first scenario there is a risk that the MENA region continues with instability, while the EU fails to instill confidence. However, I tend to favor the more moderate view of scenario two with priced in expectations of the US economy (seen by the FOMC decision yesterday), and the MENA and EU story taking a backseat as events simmer down (media/investors/traders get bored easily after awhile). If the EU can manage expectations economic fundamentals should pull through with high inflation expectations and speculation of interest rates. This should help push the dollar down in the short term. If Q2 2011 does see moves in rates in the EU region, this perhaps might be a strong enough catalyst to USD index to 72. If one takes a moderate view though we can expect short term support to break and see the dollar index fall further. to 74. 

Tuesday, March 15, 2011

SPX Update March 15, 2010

  • Got my 5%+ correction I was aiming for with a High to Low range currently at -6.17%
  • Currently from high to close we are seeing -4.7% 
  • However, Strong and Clean closes under 50 SMA means free falling inbetween. 
  • Strong volume confirmation - my RSI and MACD read were good 

Side Notes:
  • Ending up even on energy trades for this month so far (lets hope a longer term trend can establish)
  • Locked in some FX positions but risk on is making for more interesting range bound trades, I will have to wait it out

Alexander Lê
Managing Partner
Analyze Capital LLC

Thoughts on Asymmetrical Risk - March 15, 2010

Interesting article from BKForex on- "Asymmetical Risk"

Though I don't completely agree with his subway metaphor ...

I would  leave before hand in advance and take the 1 train. I've been an experienced commuter from the Bronx to NYC for a number of years and was able to get on all a points and meetings via local or express with wait times of 45 minutes to over an hour.

I guess that can translate into improving market time and leave room for margins of error.

However, at times even that is not enough as the article points out. And the longer I trade the more I would agree with getting approximate targets. So many times I have seen my targets reach within  a few cents or pips only to have the trend completely reverse. Of course this style of approximate targeting should only apply to short term trades. Each scenario will be different but there should be signs of reversals to help in ones decision.

If one were targeting much longer trends short term noise will have to be taken into consideration with taking on much more risk. Though once in reasonable territory longer out, I guess approximate targeting could also apply.


Alexander Lê
Managing Partner
Analyze Capital LLC

Monday, March 14, 2011

Indices Updates: March 14, 2010

February 25, 2011 - I suggested

"SHORT Dax  Long CAC/IBEX" as a value play."

Results of my suggestion (rougly) Feb 25 to March 14, 2011:

Dax CAC 40 IBEX 35 Net Dax/CAC Net DAX/IBEX
plus 3% minus 3.5%minus 3.9%minus 0.5%minus 0.9%

It looks like the answer to my question from my Feb 25th post is that the whole EU is now moving in synch and that outright shorts on these indices would have been much more profitable. Dax lost its safe haven value. Value plays long IBEX and CAC will only work once the region goes in recovery mode and risk comes back to equities. I still think the Dax can continue much lower considering its "OVERLY" stellar performance last year.

If recovery does come I would expect the Dax to stagnant and the CAC to catch up. If Spain can fix its sovereign debt issues it should follow. I'd put more money on the latter...


From February 23, 2011 I wrote that I was bearish short term SPX expecting at least a 5%+ correction (click through to see rationale). I follow up on the 25th with consistency in my view. I have continued to maintain this view. 

The test did indeed come of the 50 day SMA and now we have finally broken through with a high to low range from the top of about 4%. 

  • If prices can close strongly below the the 50 day SMA this week
  • RSI maintains below 50
We can see prices go further below. If this trend reverses this can me RISK on strongly for whatever reason and has implications of USD strength which would completely kill my bullish crude thesis. 

Key levels will likely be:
  1. 1275
  2. 1250
  3. 1230

If these targets are hit I will have to scale out or hedge accordingly if the markets are correlated the way I suspect. Of course I can check this with short term correlations. I will have to do this later. 

Either way it is good to see my short term bearish thesis on the SPX coming to fruition. 


Alexander Lê
Managing Partner 
Analyze Capital LLC

NZD Update: March 14, 2010

Feb 28th my last big comments on the NZD:

My arguments for Pre-RBNZ rate decision echoed many of Kathy Lien's argument's here. Its good to know someone like Kathy lien laid out the same logic as I did.

I was all for the growth story and playing down the need for a rate cute. Unfortunately I was wrong about the cut which sent the NZD/USD to its current lows. Despite the short term playing out its risks I'm surprised to see today long term 0.73 support holding.

Post RBNZ announcement the initial reaction led me to think the fundamental pull of the interest rates would continue to drag on this pair. So far this had been the case all last week. However the start of this week seems to be interesting as we are getting a moderate price bounce of support 0.73+

I will be very keen to watch this level, based of fundamentals such a bounce warrants a short term short to my previously stated target 0.693 ( stated 0.685 for my previous post but I meant 0.693). However, I still believe as growth efforts get underway buying the NZD for a long term up trend will be more profitable.

Downside Risk:

Much downside risk is coming from growth and trade expectations along with general Macro considerations (crude + inflation etc...). The US economy tripped up on jobless claims last weak and still has anemic housing. Along with high unemployment will force imports to be suppressed along with a weak exports boosting US exports. If the USD index remains below 80 we can see this continued effect. This will naturally weigh in on the NZD/USD. The situation in Europe isn't looking better, though that has limited effects for the pair.


Asian demand for commodities will still remain which should help float the pair as growth comes back with rebuilding efforts. Low interest rates can spur back investment and growth opportunities.


Towards the end of the second quarter should prove better for this pair, as long as western economies can stabilize with risk coming back into the markets.

Strategy - If short term 0.73 won't hold (which I don't think it will) look for buying opportunity 0.70 +  this may take two to three months to play out. Short term risks weighing heavily in the coming weeks still.

If 0.73 holds I would trade break outs of 0.78 - the in-between is too risky  due to fundamentals.

Personally I think think this pair should be trading about 0.80 in new uncharted territory like the AUD. Will have to watch closely.


Alexander Lê
Managing Partner
Analyze Capital LLC

First Half of March WTI - March 14, 2011

*disclosure will be limited to performance numbers by end month enjoy for now*

The Past Months of WTI:

1 Month - Hourly

1.) the onset of the Libyan protest (first move up)
2.) Consolidation period interim government claiming control
3.) Consolidation breaks down as Civil War irrupts (second move up).
4.) Speculation of OPEC relief + US relief of excess reserves. The announcement occurs price tumble.

At Point 4. I expected wedge formation to upside break-out just like consolidation point 2. See HERE - for my rationale. My biggest fault was not weighing in supply considerations strong enough in light of OPEC's seriousness. I was lulled in to an "economist's " comments on the unlikely chance OPEC would intervene so soon. More reasons to why economist shouldn't be trading (and to my stupidity for believing it).

Looking at a Daily Chart one should have seen how the up move from week to week basis was unsustainable. The double top higher lows should have been indicative.

My trades accordingly for March: 

Two Week - Hourly

Complete utter destruction for week two on paper. Week I had a higher concentration with more trades, so  the two weeks were pretty neutral. 

From here on out:

Ok bullish or bearish in terms of trend I won't say. However with this BIG drop I expect a decent sized relief rally. The danger of such trades is they will ALWAYS move against you. Typically not a good idea to trade such a big move down.

Despite this, I'm stickin' to my guns and relying on longer term support and short term expectations not being met in supply numbers. We should get some upside volatility. To make up such a large deficit in a short term may not be possible depending on the efficiency of OPEC. A contrarian play if you will... 

Risks to upside: 
  • OPEC over producing
  • Slow Asian Growth (AUD rate hold, Slower regional trade etc...)
  • Questionable US economic data on growth prospects 
Possible Drivers to upside:
  • Growth prospects of New Zealand and Japanese growth prospects
  • Continued Chinese Demand
  • Missed Supply Expectations
  • Growth surprises

I have been bullish on crude since second half 2010 mainly on technical trends and fundamental underpinnings. I believe those have not changed, the recent moves up were on speculative geo/political risk sentiment moves (of course directly tied to supply). However ask the risk comes off we will get a return to fundamentals. It is not a bad idea to hold Crude LONGER term out. 


Alexander Lê
Managing Partner
Analyze Capital LLC

Second week of March Performance (March 07 - March 11)

Last week I stayed out of trading for the first half. I didn't like what I was seeing in terms of action so I opted this week considering Crude didn't seem to be a clean trade for a third run up. Instead I decided to paper trade an idea.

The trade Idea:

Long @ 104.7 (averaged) March 9

1. Supply disruption continuation
2. OPEC would hold out on making up the Libyan deficit
3. Consolidation to break out to the up-side like the past two moves up from February
4. We would see a retest of 107 Monday highs.

Essentially Brent would maintain its highs above 113 and consolidate as WTI would play catch up and narrow the spread.


End week
-420 cents

Proper risk management wasn't employed since this was on paper, I was being sloppy. A theoretical stop should have been placed @ 102.5, the previous break out resistance. However there is no point in back trading this. This was a poorly managed sloppy trade overall.

My thesis was completely wrong as OPEC(supply) > geo/political risk... Both Brent and WTI fell drastically.

As mentioned above this would have been improved on proper risk management. Or active management on closing out on the Saudi Unrest spike (unfortunately I slept through this).

In the end after seeing my sloppy move I decided to play this out longer term as I expect a re-test to the 104 level again. In regards to my Trading Guideline, on a real trade, this would Never be done since it breaks a rule of changing the strategy in th middle of the trade. Closing out and re-entering under new analysis would be required.

Despite the guideline I will treat the continuation as a new trade for this week (Entry on open assuming pre-market order @ 100.56 22:00 GMT). Again I am finishing up Administration duties before getting back fully into the game. I expect by the end of this month I can stop posting paper trades and start the real books soon.


Alexander Lê
Managing Partner
Analyze Capita LLC

Friday, March 4, 2011

Weekly Performance March 4, 2010

I made a call on the dollar and crude February 28, 2011 <--, when the week started...

From the 28th of Feb:


Dollar -
Crude +

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


As of today 11:38 GMT March 4, 2010

Dollar Index March Contract: 76.400
ICE Brent April: 115.99
WTI April CME: 104.91


Dollar IndexICE Brent April 11WTI April CMETotal Value
+54 cents+275 cents+625 cents+954 cents

So the net week gains would be 954 cents. Not bad, but could have been much better if:

  • gotten better USD exposure via forex
  • Closed out brent when it spiked to 117 mid week, would have been up at least 100 cents more
Spreads between WTI and Brent reached all time historical highs this week of about 16 points. This gap closed at the peak mid week the next day. Spread plays would not have been as profitable as much as out right longing crude positions as I had done. However, I could have maximized the big spread gap-up by closing out brent and letting WTI run. In the end, I decided to let it play out as I believed in longer term potential. 

The dollar was hugely a mix bag this week due to Trichet. I would say I observed mostly dollar strength tendencies across most majors but the GBP and EUR held ground based of inflation/interest rate plays the whole time.  As we know the EUR is a bigger weight in the dollar index this made my call stagnant. Post NFP again was a mixed bag too with initial dollar weakness then a turn around with dollar strength seeming to take hold for the day. However 2 -3 hours in the EURUSD reversed and almost broke 1.40. However, volume died and everyone went home. 

All in all a decent week, stay tuned for next weeks action.


Alexander Lê
Managing Partner
Analyze Capital LLC

Thursday, March 3, 2011

Market Brief: March 3rd 2010

- 7:11 GMT
  • Choppy day post ECB decision. EUR/USD was sent flying through the rough and helped float the dollar index today. 
  • Most of the major pairs went straight to dollar strength. 
  • Oil saw geo/political risk relief as Brent fell from its three day high (117 to 113). 
  • Gold Currently down about 1.7% from yesterdays high. 
  • SPX in consolidation right above support levels 
  • NZD continuing to fall from and right above my first target for support levels. My long term view as stated beore is bullish... does this mean to buy in on this dip? I will wait into next week to make a better call. However, the past 6 months + I've found the 0.73 to 0.74 range attractive buys. 
  • CHF unwinding a lot with people covering short USD/CHF or buying EUR/CHF. EUR/CHF price spikes such as today are quite common for that pair.

Kinda exciting earlier in the day with FX but on the whole not much action from what I'm seeing. IMHO - US CPI/PPI plays are going to get a lot more interesting. I would also warn on ECB reheotric ... ECB more likely to raise rates before the BOE? I wouldn't necessarily jump the gun on that one. Either way inflation plays for the UK and Euro economy seem to be good ideas.

Huge admin tasks ahead: Revising legal documents for investor subscriptions the next few days. Polishing infrastructural well under way now. Being under staffed really is not easy, but got to keep going!


Alexander Lê
Managing Partner
Analyze Capital LLC

Wednesday, March 2, 2011

Banking and Diminishing Glory Days...

CLICK HERE --->; Sauros writes about the realities of being a banker in London and his own philosophy on prop trading. (I will respond to his prop philosophy in a separate post)

The Lord of Trading Blog is always a great read and highly suggested. One of the latest post, Feb 28, 2010, discusses the reality of being a banker and how the media misconstrues the whole industry based off a handful of individuals.

From my own experience ...The alluring mystique and Aura of "front office" and "Investment Banking" never failed to allude the young and clueless students during my Uni years. I say "mystique" because I'll wager that over 90% of the students interested, do not know what it means to be a front office Ibanker (and I say 90% generously). I myself,  am still quite clueless pertaining to many investment banking activities. Which is why I fancy conversations from first-handers who can tell me about the inner workings of the industry.

In one of my recent soirees I gained some info on Goldman Sachs' (GS) infamous/famous equity prop desk from one of their employee's This is the same prop desk that had stellar returns in 2009 post financial crisis, and the same model that every Ibank envied and attempted follow (often to their future dismay). Unfortunately, the models used by these desk are nothing more than copycat models from Long Term Capital Management days, and are probably not too far different from Event Driven/Market Neutral Hedge Fund (HF) guys (correct me if I am wrong). Though Id say the latter can be more innovative and flexible and more interesting on the whole. Probably, the LTCM models used by banks are now on steroids with "nano quantum particle split second flash light speed trading," (or something like that…?) but in all honesty the same idea… find relations between asset classes and exploit deviations from the relationship in whatever time frame one pleases.

Since I am no equity analyst, and for those savvy to GS, please bare with my ignorance if I am writing nothing new. I had found it most interesting that the equity prop desk post-2009, quarter after quarter kept on experiencing write down after write downs. The model that propelled GS to the headlines during 2008, and and led to some calling GS a HF Ibank, is now hurting its bottom line. So whats been causing the margin squeeze? It seems that lots of alternative players (HF and PE etc...) got tired of trying to innovate alpha and were sitting on loads of cash and thought getting beta was easier. Throughout 2010 more and more new big alternative players entered the market-making game. This has been and is killing GS's market shares with just as fast, nimble, well equipped, and intelligent players in the game. This is also not to mention how terribly flat volume was for equities in 2010 along with Dodd-Frank reform constrictions.

Goldman Sachs is just one example, but I am sure other Ibanks with similar models are dealing with similar and/or different problems themselves. Despite such troubles within Ibanks, the exterior and the context that the media frames these banks are akin to god-like entities that continually and exponentially thrive and grow on opulence and greed. Unfortunately for bankers… as Sauros does point out, front office opportunities are shrinking (such as trading imo), and those with mega 7 figure bonuses are relatively far and few. The reality is far from what is perceived, as perhaps, the majority of front office bankers slave at relative modest compensation for as long as they can before burning out or moving on.

 Despite some bleak aspects in front office I do not feel all the opportunity is gone, at least in the short run (a few years?). M&A and to an extent underwriting presents many growth opportunities outside the "developed" nations. Lack of expertise and immature capital markets in emerging countries present limited opportunity for international investment banks to benefit. Unfortunately this is fast fleeting, as seen with the trend in international corporate bank's margins getting squeezed due to increasingly competitive domestic banks.

On the US/Eurozone domestic side, perhaps longer term growth can be sustained in M&A and underwriting as economies turn around and corporates unleashed pent up cash. The extent of such sustainable growth depends such deals being able to truly add value and are not done purely for short term $$$$$ gains. Further more there is risk of tighter regulation and financial reform which may mitigate these opportunities further.

Despite big hurrahs about "fat cat greedy bankers" coming from the media and public, the truth is perhaps much different. International Banks have become giant monolithic elephants with diminishing opportunities for the average wannabe or current workaholic driven bankers.

Now is the time to move from yesterdays story and start focusing on the next big bubble!


Alexander Lê
Managing Partner
Analyze Capital LLC

Tuesday, March 1, 2011

Market Comments March 1st 2010

A great day for ADMIN tasks:

Had some real time new tweets about some brief thought on forex, on the whole today though FX was DEAD ... zzzZZZzzz

  • CAD paired back most of its losses
  • I see the EUR/USD and GBP/USD consolidation as bullish
  • NZD still within my bullish technical considerations with high short term risks
  • Has the CHF bottomed or is it in breather mode? If the risk is back on we should see a big break to the upside
  • Just like the NZD the AUD is stagnant
  • USD/SGD looks like its loosing steam to the downside as well. 
  • USD/HKD looking at some serious long term resistance
  • The Brent/WTI spread 16 pts apart crude continues to rise despite mild dollar strength today
  • Nat Gas front month still stuck below that 4 range... 
  • Heating Oil front month really took off with seasonality and seems to have legs up, but I can't help but feel its way over extended.
  • Crude Oil Volatility still at all time highs (though slightly down from its peak)
At least for crude things are panning out the way I expected them to so far. 


Continued consolidation, some will say candlestick reading shows bearish moves on the SPX. Today's intraday was unnerving for some. I will point out that recent volume action would complement any further downside moves, as compared to the last 5%+ downside correction which  lacked volume confirmation and lead to a continued uptrend. The current move we see has much more bearish volume conviction. Again despite a bullish pattern picture still being in tack I still maintain my short term bear view. 

My Feb 23, 2010 post gives better explanation of the short term bear view. Click HERE (scroll to equity section)

I haven't digested mainstream headline news in awhile. Look like my read isn't too bad so far. Today was mostly a catch up day on Admin work. Waiting for response from the Delaware department of state, and will be getting legal documentation for the structures tomorrow. Furthermore, the strategy testing account is now funded and locked and loaded. Ill be updating on the account as it develops. In the mean time there are tons of other infrastructural matters to attend to. 


Alexander Lê
Managing Partner
Analyze Capital LLC

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