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War Room 25 April 2013 Welcome Back Mr. Volatility

War Room 25 April 2013 Welcome Back Mr. Volatility. War Room. Monthly macro discussion Using tools in context Update on HiddenLevers Features Your feedback welcome. Welcome Back, Mr. Volatility. Return of Volatility Correlation Breakdown Commodities Secretly Crashing

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War Room 25 April 2013 Welcome Back Mr. Volatility

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  1. War Room 25 April 2013 Welcome Back Mr. Volatility

  2. War Room • Monthly macro discussion • Using tools in context • Update on HiddenLevers Features • Your feedback welcome

  3. Welcome Back, Mr. Volatility • Return of Volatility • Correlation Breakdown • Commodities Secretly Crashing • IV.Scenarios + Macro Themes

  4. HiddenLevers Return of volatility

  5. Mr. Volatility – VIX at all time lows # true # false S&P 5% drop Bull moves end with VIX at demonstrably low levels New lows VIX predict market top VIX spike I’m still going strong false sense of security source: HiddenLevers Declining VIX not a timing tool 7 news lows in 2013

  6. Mr. Volatility – Fake Tweet + Mini Crash tweet = pin prick Shows that markets are on edge Rate of market tumble is key Evidence of vulnerability Nothing new about market rumors 1% drop Fangs showing source: CNN Money

  7. Mr. Volatility – US Equities on edge just chillin’ source: HiddenLevers

  8. Mr. Volatility – Global Equities • Volatility higher outside US • Peripheral EU most olatile • Australia • Russia • Brazil • India • China • Japan • Volatility higher outside US • Peripheral EU most volatile • Australia • Russia • Brazil • India • China • Japan source: Barron's

  9. Mr. Volatility - Currencies USD index could touch 90 Japan QE = Hopium Japan - decisive break with past is reason for USD strength USD strength means anything priced in USD goes down USD rising in weaker markets… and stronger markets? source: HiddenLevers Yen/USD - 20% drop 1 USD = 100 yen again

  10. Mr. Volatility: Event-Based News Cycle China Hard Landing Gold Crash Domestic Terror Attack Conflict in Korea

  11. HiddenLevers Just look the other way Commodities Secretly crashing

  12. Weak Demand for Oil Oil has been below 100usd since April 2012. New oil discoveries Commodity funds and Exxon are not participating in S&P rally USD up = oil down source: HiddenLevers resistance 1y -15%

  13. Industrial Metals: Secret demise 1y -68% • Steel • Copper • Aluminum Wait, seriously? 1y -20% source: HiddenLevers 1y -11%

  14. Gold: The Wake-Up Call Does this guy look smell like smart money? source: HiddenLevers

  15. Gold: Reasons for drop USD inflows due to Yen Hunger for Return/Yield No gold pop on Cyprus Inflation less a Worry

  16. Gold Miners: Adding Insult to Injury -3% -13% -35%

  17. HiddenLevers Correlation breakdown

  18. Oil-Gold Ratio: Short + Long Term View long term Oil/GoldHistorically this ratio doesn’t stay above 20 for long YTD trend brings us back to average Trend rarely stops there, has fallen to 10 many times 20 10 I’m still going strong Downtrend has begun Short term

  19. Bond Markets: Brain freeze after ZIRPee Zero Interest Rate Policy Treasury spreads dropping – sign of deflation? Yet high yield bonds spreads have collapsed Maybe both are impacts of QE! Who knew ZIRPees could be so bearish? I’m still going strong High yield bonds acting like party is still going source: HiddenLevers, Federal Reserve

  20. S&P 500: Break with USD + Treasuries After moving inversely for most of the decade, USD + S&P moving upward together It’s over I’m still going strong source: HiddenLevers Yields + S&P were both part of risk-on trade, but are now diverging

  21. Euro + Copper + S&P 500: BFFs no more? After moving together for most of the decade, Euro + S&P parting ways I’m still going strong source: HiddenLevers Copper typically tracks global economic growth – it is now crashing while S&P rallies

  22. Which asset class is getting it right? • Treasuries • Commodities • Global equities • Dollar Up • US + Japan Equities • High yield bonds

  23. HiddenLevers Scenarios + Macro Themes

  24. Gold Scenarios: Isolated Crash or a Harbinger? • This scenario is 94% priced in • Recent crash (S&P up, gold down) played out according to scenario • Little incremental impact if this is bottom for gold source: HiddenLevers • A further crash in gold may represent coming deflation • Silver more volatile and at-risk than gold • A mild deflation pulse (even absent recession) could lead to normal S&P correction ECONOMY

  25. Commodities Crashing – China? China GDP Growth has fallen below 8% Scenario is currently 36% priced into market Copper and Chinese shares moving down in tandem China contributes 50% of world GDP growth – cooling there is difficult to ignore source: HiddenLevers

  26. HiddenLevers – Product Update • Upmarket / Downmarket Analysis • Portfolio Import – User Interface • New Levers – CAPE, S&P PE Ratio • Integrations – Pershing • Coming soon: • Big announcement in early May • Call for feedback on Notifications

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