Friday, August 26, 2011

Long Term View: Update August 26, 2011

If this analysis provides any true insight, it would go against my current thesis (Unless my current thesis is only relevant in the short term). I have been quite bullish on risk positive correlated trades. The current huge drop in the US equities (de-leveraging of expectations), normalization of prices in WTI crude, and continued dollar weakness has led me to believe there are big buying opportunities out there to be bullish on risk. 

However, if the above analysis seems to go against risk positive trades in the longer term. Seen in the bottom chart of the EUR/USD and USDX shows that since the last corrective cross we have yet to see another cross happen. The 2008 crisis only was leading into a corrective cross but monetary policy quickly extended the trend from the last cross. 

Historically it would make sense for a need of a stronger equity crash to correct overly bullish expectations, and the dollar would have to strengthen again for US domestic consumption to pick up with increased inflation expectations and rising rates in order for a risk positive scenario. However since the early 2000's the world balance has changed further, especially through the 2008 crisis with the rise of emerging and developing Asia. 

1. The new norm may be weak dollar and strong equities around the world. As the US may grow slower than the rest of the world (assuming the Eurozone sovereign debt crisis finds a bottom).

2. Or we will see a very strong return to US growth and inflation much faster than the rest of the world inline with historical relationships. 

Scenario 1. is inline with my original thesis. Scenario 2. is inline with with what the graphs above explore. Scenario 2. would imply more corrections in financial markets are needed to happen before re-balancing can occurred followed by strong world economic growth.

Analyze Capital LLC

Friday, August 19, 2011

Energy Consumption - Taken from IMF WEO report

Demand situation is pretty clear. Though supply side scarcity? I'd be inline with IMF expectations of slow decay in the supply causing minimal effects on growth. Though by the time developing and emerging nations find an equilibrium natural gas infrastructures may be prominent.  Or maybe we will be mining for resources in space. The first outer space bank anyone? Anyone want to syndicate loans for space exploration?

Analyze Capital LLC

Tuesday, August 16, 2011

August 16 2011 - Market Update

August 2011 Update:

As you may be aware, markets have been extremely volatile from the end of July into August. From the highs to lows, the first two weeks saw an 18% decline in US equities (S&P500), a surge in longer dated US Treasuries, a 10% increase in 30 year futures bonds, and a 4.72% increase in 10 year futures bonds. Correlated to this move was a 2% price increase in the US Dollar Index and a giant 23% drop in NYMEX crude oil prices. The cause of this drop has primarily been driven from financial market uncertainties from the US debt ceiling debates, the ongoing sovereign debt crisis in Europe. and perceived economic weakness around the world. Such a move in the first week of of August reflected strong risk aversion confirmed by the surge in longer dated US treasuries and the increase in the safe haven dollar currency. The move in the oil complex primarily reflected initial moves in tandem of the financial markets, but also reflects de-leveraging from the price shock increase created due to the Middle East North Africa conflict in the first half of the 2011. Currently the second week of August showed possible bottoming as equities recovered 50% of it's losses, and the US dollar index has dropped back to the lows seen in early August (an indication of increased risk appetite). However, uncertainty still remains as US treasuries remain buoyant slightly below the highs seen early in the month. 

Overall, Analyze Capital expects continued volatility from a lack of clarity coming from European Debt crises and continued bearish sentiment revolving around weak economic growth. In the longer term however, Analyze Capital views are more bullish and expects higher prices in Equities and Crude oil from the August lows by December 2011 along with continued persistent dollar weakness. 

In the coming weeks a more formal report will be sent out expressing short and long term views in detail, and how Analyze Capital will be taking advantage of the future trends. Currently due to high volatility and uncertainty Analyze Capital remains to be aside. In the coming weeks as a more coherent thesis is formed Analyze Capital will start re-enter and position into favorable trades. 

Alexander Lê
Managing Parnter
Analyze Capital LLC

Wednesday, August 10, 2011

August 10, 2011 - Market Comments

Dollar: USX SEPT

Dollar strength today. Mid- London Hours into New York Hours strong dollar strength and by mid day a slight correction be for ending on higher highs for the day. Currently if prices breach strongly the 75 range on daily close, it's possible the dollar is forming bottom. A failure at > 75.00 should confirm a big risk on trend to come. UST treasury rally should confirm strong risk aversion with todays move on dollar up UST up and equities big time down.

Major pairs are still at significant psychological levels indicating price action can go either way. Will accommodating rumors come through or will risk aversion remain? It seems all IMF increased downside risk materialized... If 1.40 EURUSD and 1.60 GBPUSD all fail we can see the dollar rally very significantly.

Crude: WTI front month SEPT

Crude behaved counter to the typical correlation. As UK hours went to New York the dollar strength effect wore off as the EIA report sent crude from 80 to 83 within a few hours. It is likely that the petroleum status report indicated further tightening of supply. This should help buoy crude prices above 80 support. By mid New York time crude sold off but made a higher high.

US Equities:

Post FOMC rally has been completely erased with today's risk aversion. It seems that SPX cash and ES SEPT are finally lining up. Heavy pressure forming for further bearish moves. Heavy volume tends to confirm bearish sentiment. If correlations hold we should see the dollar rally. However the USDX is still at a tipping point.


Mania.... enough said.

Analyze Capital LLC
Alexander Lê
Managing Partner

Tuesday, August 9, 2011

Growth of World Economies - IMF April 2011 Econ Outlook

Taken from April 2011 IMF Econ Outlook

I am expecting to see a lot more countries with revised downward growth expectations by the end of 2011. Probably we will see more yellow on the flag or dark blue turning to light blue (Above potential to below potential).

Analyze Capital LLC

August 9, 2011 - Some market thoughts

Markets from the beginning of August have been in panic selling mode. Most of the moves of risk aversion have been largely exaggerated and knee-jerk reactions. Algorithms creating biased momentum. The move is not very characteristic of strong risk aversion with UST rallying negating their double top formations, however with the dollar remaining relatively under pressure. True risk aversion should see strong dollar rally, the move in the dollar has been very subdued in trend but very volatile in price action.

Crude oil markets have almost completely deleveraged from the early 2011 (FEB) oil shock highs and subsequent correction from the 90-100 range. Fundamentals and prices are finally aligning more sensibly. The move in itself in the 90-100 range made no sense, but from here out price action should be much more clear. IEA estimates in early oil outlook reports along with OPEC reports have been far off for an annual average of 103. If prices continue to print in the 80 - 90 range for the rest of the year this average will be significantly lower. Contango has massively come off as demand normalizes prices. The USA weekly petroluem status should have hinted in this move to come as lower imports and continue stocks falling were consistent week to week.

Equities across the board have finally hit strong technical support post FOMC meeting. The big question is if a temporary floor of support forms only to lead to another drop further or are QE3 rumors and speculations enough to drive prices back to the 1300 range on the SPX.

Again, I've been aside through this period but risk positive biased. I rather be looking for buy entries at these lows when the whole market can only see fear and panic. Either way the bears and bulls and everyone else are between a rock and a hard place.

Analyze Capital LLC
Alexander Lê
Managing Partner

Monday, August 8, 2011

August 8, 2011

Good quote, the heart of being tactically oriented:

  "True edge doesn’t come from good accounting or actuarial practices. It comes from being able to accurately read the mind of the market. That’s why true edge is so elusive and ephemeral.It changes constantly."

Markets are indeed raw human emotions. It's a melting pot of all the practices of all the participants going from extreme to extreme.

Analyze Capital LLC

Tuesday, August 2, 2011

August 1, 2011

US Equities big drop today as UST rally. I haven't followed the news closely on knowing the debt ceiling issue would be very transient. It seems though weak growth and possible buying of treasuries is causing the 2.4% drop we saw in the S&P500.

The USDX view from June remains bearish. After finally breaking below its lower support on the its rising wedge it remains under pressure, but largely being supported by risk aversion in the markets. As long as it stays below the lower wedge resistance dollar weakness is still in play and now would present a great buying opportunity. The volatility is going to be very rough in the markets, it would be safe to be financials will be weak H2 2011.

Crude Oil somewhat of a puzzle is now much more clear confirming a previous conviction of prices remaining under pressure at 100. A very nice wide range is established from 90 to 100. A very mixed supply demand situation is also arising.

Time to look at:

  • New Projected Econ Growth
  • Updated Supply/Demand situation in Crude
  • Update chart outlooks 
  • Expectations and sentiment
Some Shallow thoughts. Long term picture perhaps still in tact for risk on. Equity picture way out of line, which could possibly mean short term deviation. 1200 becomes extremely important. Possibly short higher lows below 1350 before the test of 1200. UST ignored double top... maybe an outlier situation due to the whole debt ceiling decision... 

USDX picture sitll in tact. If the above scenario between UST and US equities is not a short term deviation (despite its large volatile move) USDX can be forming a bottom and is ont a continuation to the downside. Position for strong reverals USD/CHF become ideal candidate or USD/JPY. If that is the case where does this leave more volumous pairs such as EUR/USD or GBP/USD? This would leave a very wide band for the EUR/USD below 1.45 and the pound to be continued to be pressured below 1.64. My end year targets are much higher biased with risk on, so far the Sovereign debt situation has been weighing heavily on the pair while the spoty data with the UK economy has been bouncing the GBPUSD in wide ranges but overall inline with my analysis. 

Crude: Fundamentals maybe very relevant. Long term picture inline with analyst forecast with biased average to 100 - 103 end year. Wide range established between 90 and 103. It will be spotty trading the range. Possibly setting up structural long is the best strategy for crude. 

Short term thoughts for now, more indept look tomorrow.

Analyze Capital LLC
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