Global Macro View: The Best Bet Based On Mid-Term US Elections, Traders’ Pattern Recognition and Plain Smart Thinking Reply

Global macro trading perspective courtesy of Rareview Macro Nov 3 edition of Sight Beyond Sight. MarketsMuse Editor Note: Rareview Macro’s model portfolio has gained 16.5% YTD, during which time the majority of macro-style funds have returned less than 5% on average, illustrating why this newsletter is more than just a newsletter.

Neil Azous, Rareview Macro LLC

We start with the global benchmark for beta and risk – the S&P 500. The debate amongst professionals is focused on two big issues:

1.  An expectation that seasonality will override any negative factors.

2.  There is historical precedent for consolidation and/or weakness. If weakness were to become the overriding theme, then it could be longer and deeper than expected because a series of market studies that looked at the speed and degree of the recent gains show a poor risk/reward profile in the near term.

So which is it?

After speaking with 10 investors in our circle, all of whom we respect, the current score is that 7 would side with seasonality being the overriding factor and 3 are calling for a 5% pullback in the S&P 500 and expect the market to remain range bound for the remainder of the year.

Personally, we struggle with this debate and the 7-3 scorecard. We pride ourselves on not being dogmatic in our views, especially around bulls, bears, inflation, deflation or simplifying our model portfolio into two polar viewpoints. This is particularly true given this stock market is well-known for behaving in unprecedented ways.

What we would say instead is this:

To Russia With Love: Market Vectors Russia ETF RSX:US Reply

MarketsMuse update courtesy of extract from Bloomberg LP Elena Popina and Jackie Klauberg

Что ты собирáeшься дéлать с таки́ми больши́ми деньгáми?

(translation: What are you going to do with all that money?)

Investors are piling into the biggest exchange-traded fund tracking Russian equities at a record pace as the cheapest valuations in emerging markets and easing tension in Ukraine spur bets stocks will rebound.

The number of outstanding shares in the Market Vectors Russia ETF (RSX:US) has soared 59 percent since early August to 94.5 million, the highest level since April 2011. The demand is building after the fund tumbled (RSX:US) 12 percent in the last three months to trade near a five-year low.

The ETF is swelling as investors speculate that Russian stocks, which have dropped the most in the world this year as international sanctions curbed growth, will recover amid signs the seven-month conflict in Ukraine is easing. Foreign Minister Sergei Lavrov said yesterday the country will recognize the results of parliamentary elections in the former Soviet republic as a cease-fire entered its eighth week.

“Waning geopolitical tensions and low valuations could be a good reason to invest and then cash in, once the valuations go up,” Ivan Manaenko, head of research at Veles Capital LLC in Moscow, said by phone on Oct. 27. “Any absence of fighting and any evidence of dialog is seen by investors as positive.”

To continue reading the story from Bloomberg LP, click here

Rare Events Taking Hold: Macro View Looking for Upside By Reading The Chinese Fortune Cookie Reply

Below excerpt is closing conclusion courtesy of Oct 28 edition of Rareview Macro LLC publication “Sight Beyond Sight”

Neil Azous, Rareview Macro LLC

The Federal Reserve (FED) will make its policy announcement tomorrow. The Bank of Japan (BoJ) will make its statement at the end of this week. The European Central Bank (ECB) meets next week. All three of them will be dovish at the end of the day.

Additionally, Jean Claude Juncker begins his presidency of the European Commission next week and that should embolden the call for fiscal help, which is required even more now that both Italy and France have changed their budget plans (see details below in Top Overnight Observations). There is no question that professionals we speak to are warming up to the idea of a larger fiscal announcement and this is tempering their bearish view on Europe to a degree.

Finally, with a positive US employment report, expectations of a Republican win in the US Mid-term Elections, and the positive seasonality associated with the start of a new month, it can be easily argued that the theme for the next two-weeks is global policy support.

The worst part of it is that everyone who was forced to reduce risk in October, and then missed the move back up, knows this is the market’s support structure regardless of the fact that QE finally ended yesterday.

This is not us being overly constructive on US equities or risk assets. After six weeks of one-way negative news flow and the sentiment shifting to extreme levels, there are now three weeks of events that should be supportive for risk. This is just the start of week number two in that period.

And that, combined with the lagging performance in the professional community, is enough to walk sentiment back even further, especially when countries like China and Sweden move out of nowhere to support the market on the upside.

MarketsMuse Editor: For the reader who requires further context re: above, the preface to above-noted thesis is…

Blood On The Streets; Buy The Bounce? A Sensible View… Reply

Below extract from this a.m. edition of “Sight Beyond Sight”, the global-macro strategy insight courtesy of Stamford, CT-based, macro strategy “think tank” Rareview Macro LLC

Blood on the Streets Provides Counter-Trend Trading Opportunities
• Our 30,000 Foot Takeaways
• Model Portfolio Update: Closed EUROSTOXX and Dow Jones Index Short
• Model Portfolio Update: Opened Long S&P Structure
• Model Portfolio Update: Opened Eurodollar Interest Rate Steepener
• What Makes the Bounce Durable?
• Trading the Bounce
• US Equities Risk Profile for Next 48-Hours
• Watch List: Sugar, BRL/JPY and Nickel

Blood on the Streets Provides Counter-Trend Trading Opportunities

Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that “The time to buy is when there’s blood in the streets.” Since he ended up as one of the wealthiest men in the world at that time, he probably knew what he was talking about.

The objectives we laid out for risk assets have largely materialized. We would humbly point out that we were able to navigate these waters in the model portfolio fairly successfully, losing less than ~35 basis points on the week so far. With our large outperformance it is our intention to take advantage of the blood on the streets, as Rothschild would have done.

We wish we could say the same for others but our conversations are plagued with horror stories. Now, if we rub salt in someone’s wound or pinch the nerve of an investor that is just too bad. If that is you, then don’t read this edition. This is not us being cavalier. If we are wrong on some views or ideas we will keep an open mind and change our opinion, and will then simply reduce risk and move on.

Macro View : Bears & Bulls & Sheep; The Pain Trade: Risk Reduction Reply

MarketsMuse Editor Note: At risk of pounding the table too frequently by pointing to global macro strategy think tank “Rareview Macro” and their high-frequency of prescient postulating…the below excerpt from this a.m.’s edition of Rareview’s Sight Beyond Sight illustrates why this analyst is become the analyst ..For those confused by our use of ‘high frequency’, please note that we’ve filed a trademark for a new label “HFP” aka high-frequency prescience; and not to be confused with HFT aka high-frequency trading!. Premium merchandise including t-shirts, ball caps, and other items will be on sale soon!

“…The “True Pain Trade” Now Underway…Only Defence is Outright Risk Reduction”

Neil Azous, Rareview Macro LLC

Yesterday, our main argument was that US equity investors needed to be mindful of chasing higher prices as that was a “bull trap”. We specifically said:

“The key point here is that the S&P 500 finally closed below the 200-day moving average after almost two years and the bounce off the break of that record streak can be large enough to make professionals believe that the weakness is now over.

Make no mistake that is the formula for how we get to 1800 in the S&P 500 next. You suck investors back in only for them to have to liquidate all over again. This time, however, the losses are too great and the even lower prices force them to sell the positions they held onto all the way down in the first place and were not willing to relinquish that time around.

The sentiment is no longer about whether this is a correction or not. It is now about whether it is a 10% or 15% correction.”

At some point our microphone may be louder than it is at the moment, but for now this warning was dismissed by the bulk of investors. At the time of writing the S&P futures (symbols: ESZ4) are down -1.8% from yesterday’s highs. That is the very definition of new longs being trapped at higher prices.

Before dismissing this view we would remind you that the majority of professionals in this business are sheep, and to remain part of the asset gathering business they have to always put themselves in a position to capture ~60% of any market move. And, as sheep would, that is what they tried to do yesterday.

Now most participants who use a Bloomberg terminal just walk into the office and look at the World Equity Index (WEI) screen. This is a lazy exercise as it only provides updates for the major developed markets. The point is that a smart investor should also look at the markets not included on the WEI screen (i.e. Greece) and the Emerging Market Equity Indices (EMEQ) and World Bond Markets (WB) pages.

Why?

Junk Bond ETFs: SOS for HY Sector ($USO, $XOP, $JNK, $HYG) Reply

Below extract is courtesy of Oct 13 edition of ETFtrends.com and senior editor Todd Shriber

The United States Oil Fund (NYSEArca: USO) is off 6.4% in the past month as West Texas Intermediate, the U.S. benchmark oil contract, ominously descents to $80 per barrel.

Oil’s slide has wrought havoc for futures-based ETFs, such as USO, as well as scores of equity-bae funds with energy sector exposure. After a 9.5% third-quarter loss, was once the top-performing sector in the S&P 500 earlier this year has now turned into one of the worst groups. [Dour View on Energy ETFs]

Of the 25 worst-performing exchange traded funds over the past month, 12 are equity-based energy funds. However, weakness in the energy sector could be problematic for some an asset class some investors may not be overlooking as a victim of energy’s slide: High-yield bonds and the corresponding ETFs.

Booming production at the Eagle Ford Shale and other shale formations has helped make Texas the envy of large state economies. That same theme has also been viewed as one of the more favorable long-term catalysts for ETFs ranging from the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) to the Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK), but oil’s decline is threatening producers ability to profitably tap North American shale plays. [Fracking ETFs Foiled by Slumping Oil Prices]

“Texas is the anchor to shale production, employment growth, positive real estate trends, and overall positive moral. With Crude Oil at or below the cost of production for many project, the State with the highest economic multiple needs to contract,” said Rareview Macro founder Neil Azous in a research note.

But there’s more, including the threat falling oil prices pose to the high-yield bond market.

Puzzle Palace: What’s a Smart ETF Investor Supposed To Do Now?? Here’s a Rareview.. Reply

If this week’s volatility has unnerved you, take a deep breathe, sit back and consider the following assessments courtesy of global macro strategy think tank Rareview Macro and extracts of this a.m. edition of “Sight Beyond Sight.”

The Puzzle

Neil Azous, Rareview Macro LLC

Today’s edition is not meant to be read as us preaching a gospel. Instead it is a collection of the thoughts we have gathered through a number of recent meetings/conversations with investors who take plenty of risk, and it has served us well in the past to just write down what people we respect are saying. Therefore, if at times the opinions below come across as too skewed one way or adopt the tone of a “bomb thrower” just take them with a grain of salt.

In the end, our biggest issue is that it is just a matter of a few hours to a couple of days before all investors catch up and put together a similar puzzle.

That is why you should read this entire edition even if it is lengthy and the only morning note you read.

Crude Oil-The Russian Calculus; Deciphering The Macro-Strategy Tea Leaves Reply

Below commentary is courtesy of Oct 8 a.m. notes from macro-strategy think tank Rareview Macro LLC’s “Sight Beyond Sight” and is provided as a courtesy to MarketsMuse readers who embrace smart insight.  For those with interest in or exposure to the assortment of globally-focused ETFs across asset classes, we think you’ll welcome this content…If subscribing to newsletters from leading experts is not your ‘bag’ (regardless of how fairly-priced Rareview’s is), you should want to follow Rareview Macro’s twitter feed

Growth Scare Expanding Now…Large Cap Equity Indices Most at Risk
• Russia Enters the Vice-Grip
• EU Growth Profile: Cross-Asset Correlation to Reconnect & Lead EURO STOXX 50 Index Lower
• US Growth Profile: Pillars of Housing, Autos & Texas to Lead S&P 500 Index Lower
• China: H and A Share Markets Continue to Diverge…A Share Market is Correct
• Model Portfolio Update: Taking Profit or Restructuring Brazil (EWZ) Equity Position

Overnight

Right now everyone has a favorite metric that points to further disinflation. But, at the end of the day, the real world only really cares about one – Crude Oil.

Brent Crude Oil has made another new low and WTI Crude Oil has taken out the January low.

We are highlighting this first today for a number of reasons.

Macro-Strategy Insight to Latest Events in Hong Kong and..”What about $GLD?” Reply

MarketsMuse Editorial Note: Below is extract from Oct 1 edition of macro-strategy commentary courtesy of Rareview Macro LLC’s daily publication “Sight Beyond Sight”..We often profile this content from macro strategy expert and author Neil Azous, simply because since we first started following SBS commentary, it has become one of those most highly-regarded independent research pieces subscribed to by more than a few of the “sharpest knives in the drawer.”

Neil Azous, Rareview Macro LLC

“….One simple way to measure the market impact of the growing pro-democracy protests in Hong Kong is to look at future assumptions for corporate dividend streams.

Specifically, we are watching the HSCEI Dividend Point Index Futures (symbol: DHCZ5) that trade on the Hong Kong Futures Exchange.

Because most of the “terminal outcome” is already in the price of the futures contract, based on the modeling of expected dividend payouts, the front-month futures contract should generally show the most acute reaction to a fast-developing live event. Put another way, the “gap risk” is much higher at the front versus the back of the futures curve.

Now, to be fair, this product is generally used by regional investors with $50-300 million in AUM as the futures are not liquid enough for the larger players. However, the fact that smaller is at times synonymous for “weaker hands” highlights that the local and small player is not yet really concerned by the protests. And what that tells us is that the possible contagion from these protests is actually lower than most people think, at least for today.

9.7% YTD Return for Macro-Strategy Portfolio v Industry Avg 4.1% Reply

 MarketsMuse Editor Note: We tip our hat to the folks at Rareview Macro LLC, whose ‘sightings’ we have been allowed to cite courtesy of extracts from that global macro strategy think tank’s daily newsletter Sight Beyond Sight… Why? When eyeballing the 18 Sept edition, our staff noticed that Rareview’s model portfolio has, on a YTD basis, produced a 9.7% return vs. a 4.1% average return YTD for hedge fund managers according to HFR’s 8 September report, considered a leading source of hedge fund industry analytics.

For those following only the best strategists and analysts, below are extracts from yesterday’s Sight Beyond Sight:

Neil Azous, Rareview Macro LLC

“……So while the strategy will be to remain long the US Dollar vs. the G5-G10, it will also be to take profits on emerging market and commodity currencies, including short-term and option gamma related positioning. The carry trade will return to being protected because the slope of the curve in the US Dollar move will be measured for the time being. It is important to note that many emerging market risk assets have already been though a 5-10% correction leading up to the FOMC meeting and many commodity benchmarks have broken down to new lows, including the ones with the riskiest and highest beta profile (see below Top Overnight Observations)….”