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
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