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.

Upside:

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.


Conclude:

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.


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Alexander Lê
Managing Partner
Analyze Capital LLC
analyzecapital@gmail.com

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. 

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Alexander Lê

Managing Partner

Analyze Capital LLC

analyzecapital@gmail.com

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.

Results:

End week

WTI

-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.


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Alexander Lê
Managing Partner
Analyze Capita LLC
analyzecapital@gmail.com

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:

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Dollar	-
Crude	+

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

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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


Results:

Dollar Index	ICE Brent April 11	WTI April CME	Total 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.

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Alexander Lê

Managing Partner

Analyze Capital LLC

AnalyzeCapital@gmail.com

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!

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Alexander Lê

Managing Partner

Analyze Capital LLC

analyzecapital@gmail.com

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!

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Alexander Lê
Managing Partner
Analyze Capital LLC
analyzecapital@gmail.com

Market Comments March 1st 2010

A great day for ADMIN tasks:


FX:
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

Energy:

• 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. 

SPX: 

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. 

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Alexander Lê

Managing Partner

Analyze Capital LLC

analyzecapital@gmail.com