Thailand Tanks; The Russian Connect ($RSK): A Macro-Strategy View From Rareview Reply

Below is excerpt only from today’s edition of macro-strategy commentary courtesy of Rareview Macro LLC publication “Sight Beyond Sight”

Neil Azous, Rareview Macro LLC

Firstly, the Stock Exchange of Thailand SET Index (symbol:  SET) is showing the largest negative and the Dollar-Rupiah (USD/IDR) is showing the largest positive risk-adjusted returns across regions and assets.

Of note, Thai stocks fell almost 10% at one point last night and the Indonesian Rupiah weakened by 2% to its lowest level relative to the US Dollar in 16 years. The head of the Thai bourse said no measures were needed to shore up stocks and investors shouldn’t panic and the Indonesia central bank reiterated their view that they will always be in market to stabilize the IDR currency.

 

Why do we start by highlighting Thai and Indonesian risk assets?

Because South East Asia is the clearest example we have seen of foreign investors pulling out of emerging markets and a prime example of what happens to stocks and currencies when there is a lack of liquidity.

Bomb Throwers Aim At China: ETF Fuse is Short (or Long)? Reply

Below excerpt from Dec 10 edition of global macro strategy newsletter “Sight Beyond Sight” includes insight for those tracking events in Asia and China-related ETFs. When scrolling to the bottom of this post, MarketsMuse readers will appreciate why we regularly cite the Sight Beyond Sight newsletter—the conclusion of this post displays the out-performance of SBS publisher Rareview Macro LLC’s model portfolio.

“…Using the ETF’s as a proxy for the spot currencies, the pressure point in the Currency Shares Japanese Yen Trust (symbol: FXY) is closer to 83.15 (vs. last price 81.85) and the Euro Currency Trust (symbol: FXE) is closer to ~122.50 (vs. last price 122.00).

There are three major points we would like to make after the overnight price action in China.

The first is liquidity related and what actually drives that stock market. The second is inflation related and looks at what, at least partially, drives the rest of the world. The third is a rebuttal to the “bomb throwers” who continue to suggest that China has entered a phase of deliberately debasing its currency.

At no point during the recent stock market rally has any dogmatic bear on China been willing to concede that the stock market (i.e. liquidity) and the profit cycle (i.e. deflation) during cyclical episodes, such as the one we are witnessing right now, can have a meaningful divergence.

But they should note that the last time the SHCOMP outperformed the H share index due to an A share rally was back in 2006 and came at the start of rally of more than 200% for both indices and from a PE level that was more than two times the current levels. (Hat Tip: Aviate)

Additionally, with Macau struggling, real estate still contracting on aggregate, and Gold a weak trading tool, the stock market is the “vogue thing to do” at the moment. Fashion is important in China, just like anywhere else.

Macro Trading View: Short Gold v. Long Silver; Long Euro Stoxx 50 (SX5E) versus Short S&P 500 (SPX) Reply

Below excerpt from a.m. edition of Sight Beyond Sight, is courtesy of global macro think tank, Rareview Macro LLC

Neil Azous, Rareview Macro LLC

New Strategy – Short Gold vs. Long Silver

This morning we sold 3000 GLD 12/20/14 P112 at .63 to close.

We rotated our short Gold bias using put options into a short Gold versus long Silver spread using futures.

The updates were sent in real-time via Twitter.

Below are two illustrations: A “monthly” chart of long Gold versus Silver and a matrix containing our trade construction details.

Note that this is not a short-term “tactical” trade but rather an intermediate term “strategic” trade. As such, it will be managed with greater latitude in terms of risk.

Similar to the 200-day Moving Average (200-DMAVG), we find long-term Linear Regression Channels can be a strong technical indicator.

For those not familiar with Linear Regression Lines, it is a line that best fits all the data points of interest and consists of three parts:

Global Macro Trading: Why It’s a Timeless Tactic Reply

MarketsMuse Editors Note: Giving credit when due and in connection with below excerpt, MarketsMuse extends a “shout-out” to UK-based publication CampdenFB, one of several ‘banners’ serving the family office universe and operated under the Campden Wealth media umbrella.

“….With such pitiful returns, is it any wonder why global macro investing has fallen out of favour with many family offices?…”

Indifference to the style should not translate into ignorance of the geopolitical climate and macroeconomic data, warns Steven Drobny, founder of Santa Monica-based Drobny Capital and author of Inside the House of Money.

“Global macro is the hardest strategy to understand in the hedge fund space because of its breadth of instruments, markets, and inherent complexity, but the macro world is the driver of everything,” says Drobny. “You can’t just pick a stock based on fundamentals without understanding how it can be impacted by geopolitical risk, the price of oil, interest rates and other macroeconomic issues.”

For most developed-world family offices, Drobny says if you’re looking to diversify your portfolio, there are not a lot of opportunities within the highly correlated world of fixed income and equities. You need to look at global macro exposure.

“You don’t need to be a ‘macro guy’ trading fixed income arbitrage opportunities or frontier market sovereign bonds – or even put all your money in macro hedge funds. But you do need global macro exposure, as well as an understanding of what implicit macro bets you have in your broader portfolio,” says Drobny. “You need to look forward, not backwards, which means maintaining a strong understanding of how the world may evolve.”

The entirety of the article can be found by clicking this link

Wisdom: Is $HEDJ The New Vogue Trade? Reply

Below extract courtesy of a.m. edition of “Sight Beyond Sight”, the global macro trading commentary published by Stamford, CT-based macro strategy think tank Rareview Macro LLC.

“…For most of the second half of the year we have seen a surging dollar, and a falling euro.  Nothing seems to be coming that will disrupt that.

Now a lot of US investors have asked why the WisdomTree Europe Hedged Equity ETF (symbol: HEDJ) performance has been sub-optimal. Specifically, why isn’t this “strong dollar/weak euro” play not playing out much like last year’s Japan trade (strong dollar/ weak yen) as we saw with WisdomTree Japan Hedged Equity (DXJ)?

As a reminder, DXJ is a portfolio of Japanese stocks with a currency hedge overlay (i.e. 100% of assets is hedged). So HEDJ is the European version of DXJ. The underperformance therefore is simply stock-related.

For example, HEDJ is a basket of European stocks (i.e. 100% of assets is FX hedged). The underlying basket is a Wisdometree dividend weighted basket. It does not quite have the same weightings as the iShares MSCI EMU ETF (symbol: EZU) which is market cap weighted & large cap equivalent or the iShares Europe ETF (IEV) or any other standard index, but it does have a very high correlation.

If you compare HEDJ vs. EZU (i.e. use Bloomberg COMP function, HEDJ in line one and EZU in line 2 and then change the currency next to EZU to EUR instead of USD) you will see performance come back in line with HEDJ as it displays the effect of the FX hedge.

So HEDJ is working exactly the way it should given how it is constructed and using HEDJ to get long European stocks and a weaker EUR is correct instrument for that view.

So the question becomes, how do you gain using HEDJ?

The US Dollar – Novus Ordo Seclorum Reply

Below excerpt courtesy of Hedge Fund Insight

Nov 17 2014 by Neil Azous Managing Member of Rareview Macro LLC

Most of us hand over dollar bills every day without ever really looking at them very closely. They are too familiar. But if you pause to look closely at the one dollar bill, you will see, right below the one-eyed pyramid, the Latin phrase “Novus Ordo Seclorum”.

The literal English translation of that is “a new order of the ages.” Taken from a book by the Roman poet Virgil, it first appeared on the Seal of the United States, and made its way onto the currency in 1835, where it has stayed ever since. Virgil was not a man to use words carelessly, so when he wrote it, he must have intended to emphasize “new” and, therefore, put it first in the sentence and in front of “ordo.”

A few readers might find that a slightly esoteric digression into Roman and monetary history, of little relevance to the markets today. In fact, they would be wrong. We started with that overlooked phrase because, over the second half of 2014, the professional investment community has come to believe that the US Dollar has indeed established a “new order” and the trend is now here for “the ages”.

China Marts Open For Lunch & Dinner: ETFs Hot Menu Item; Fortune Cookie Reviews Say: “Sweet, Sour & Soggy” Reply

A MarketsMuse special update, courtesy of compiling various columns from Bloomberg, ETF.com, Fortune and a special treat: this piece was sponsored by Mr. Chow’s! (see below)

After much fanfare, the “Shanghai-Hong Kong Stock Connect” is officially connected and ostensibly, this will be the link between brokers, dealers, ETF Issuers and global investors seeking access to a menu of mainland China stocks and bonds, whose market value is more than $4.2tril (if anyone knows another acronym for ‘Trillion”, please email us or simply comment below!). Even if trade volumes during the first 2 days appeared soggy (which some attribute to aversion to MSG, not China stocks or ETFs), this is a story that, according to many experts, is a watershed moment.

Noted Neil Azous, principal of global macro strategy think tank, Rareview Macro LLC,  “This is a transformational event. Though the first day ‘scorecard’ indicates that retail/local investor support in Shanghai has proven successful out of the gate, institutional interest is still nascent, as evidenced by the big drop in Hang Seng share prices yesterday.” Added Azous, “Because the liberalization of markets is 1 of 4 key anchors to China’s long-term game plan, it is easy to expect that the opening of China markets to foreign investors might be incremental, but also integral to the evolution of the global financial marketplace.”

Below please find a collection of excerpts and ETF mentions that MarketsMuse has ‘cherry-picked’ from news outlets:

Global Macro Trading Update: Euro Short-Covering Inspires US Dollar Profit Taking Reply

MarketsMuse coverage courtesy of out takes from a.m. edition of commentary produced by global macro trading guru Neil Azous, principal of macro-strategy think tank Rareview Macro LLC.. Editors Note: Aside from the prescience of “Sight Beyond Sight” outlooks throughout the past year (including select/specific and since successful trade ideas i.e. FX, Commodities (e.g. gold) and equities, Rareview’s process is uniquely aligned with the fundamental thesis embraced by the very smartest investors re macroeconomic investing: “mitigate exposure to risk, capture alpha in a conservative way, and never stay married to a position, particularly when the herd of wannabees comes to the party just when it seems like the main course has been consumed and coffee and desert are just starting to be served. 

Risk in Very Near-Term is a Euro Short Covering Rally…Closed Core Long US Dollar Positions

 A Lot of Importance Being Assigned to this Weeks US Inflation Data
 Federal Reserve Following Bank of England a Clear Talking Point
 Model Portfolio Update – November 14, 2014 COB: +0.27% WTD, +0.70% MTD,+17.57 % YTD

A Euro exchange rate short covering rally is the greatest risk going into the end of the week. The speed and degree of that is yet to be determined but our expectation is the Euro-Dollar (EUR/USD) will trade above 1.27 and if the US CPI on Thursday disappoints many investors will find themselves in a very difficult position.

After getting long on the US Dollar before the consensus on July 3rd we have reduced 100% our long exposure this morning. The following updates were sent in real-time via Twitter:

 Sold 1180 DXZ4 at 87.61.

 Sold 100% of USD/CHF at .9590.

The combination of our outperformance, lack of inspiration and our confusion over where the market will go next are the main reasons for that decision.

US Equities: Lower Is More Likely Than Higher: A RareView Global Macro View Point Reply

Below is excerpt from opening lines of today’s edition of “Sight Beyond Sight”, the macro-strategy commentary courtesy of Stamford, CT-based think tank Rareview Macro LLC. Our thanks to firm principal Neil Azous for the following observations.

Neil Azous, Rareview Macro LLC

Model Portfolio Update:   Significantly Reduced Equity Net Long Exposure

Our inspiration level today is almost as low as the price of gold – that is, close to touching a low for the year.

We are struggling to find a meaningful macro catalyst or new top-down theme. None of the specific ideas we have analyzed recently are an “A Trade” and we will not deploy them ourselves, or ask you to either. The risk-reward in the short-term in many consensus themes are up 1 and down 2, not the profile of up 3 and down 1 that in the past we have always looked for.

In fact, we are finding that the psychology that has driven us all year is dissipating and for the first time we are more concerned about giving back performance in the model portfolio than generating further profits.

In the absence of a new opportunity, and following a period of healthy outperformance, a dilemma has arisen for us – markets/positions by nature mean revert. Now everyone has their own metric they watch for,  and their own threshold for the mean reversion in their portfolio to start with. But let us just say that ours has been breached and it has served us well in the past to pay attention to that.

Now that may not be the case for many of you, and if we were in your position there is little question we would be pursuing the same ideas/themes in order to catch up with our benchmark. For today, we have little to offer you. However, like the Homebuilder seasonality and beta observation made yesterday (reminder BZH reported this morning and is in small cap basket we presented), we will continue to highlight ideas as and when they arise.

So in that spirit, we significantly reduced our net long equity exposure.

Professional Traders Lining Up to Sell SPX For the Wrong Reasons: Be Wary of the Good Idea Fairy: A Rareview View Reply

Below commentary is courtesy of extract from a.m. edition of today’s Rareview Macro’s “Sight Beyond Sight”

A Simple View:  US Dollar, Gold, SPX, UST’s

Neil Azous, Rareview Macro LLC

The objectives we have laid out continue to materialize across the themes we are focused on.

The Q&A session with President Mario Draghi following today’s European Central Bank (ECB) meeting has concluded. We will leave it to the people with PHDs to debate the intricacies of what he had to say. But if price is the voting machine that always tells you the truth, then the weakness in the Euro exchange rate highlights that the press conference was simply dovish. Expect these same PHD’s to keep chasing as they lower their price targets again.

As evidenced in our most recent editions of Sight Beyond Sight, there was little doubt that Draghi would not strike a dovish tone. With his emphasis on a unanimous vote for further action if necessary and formally adding in the notion that the ECB’s balance sheet will return to 2012 levels (i.e. ~1 trillion higher), Draghi did a good job of walking back the negative tone that the media have tried to portray over the last 48-hours, especially the speculation about an internal battle/dissent/revolt building up against Draghi.

For us, it was never about whether the professionals sold the Euro after the event. They were going to do that anyway as the trading dynamics continue to point towards the Euro buckling under its own weight regardless of what Draghi says. Instead, we were more focused on a short covering event not materializing ahead of tomorrow’s US employment data and that has been largely removed for today.

So those bearish have to contend with the following factors: