Global Market Comments
January 16, 2015
Fiat Lux
Featured Trade:
(SWISS SURPRISE RATTLES MARKETS)
(FXF), (FXE), (EUO)
(FRIDAY, APRIL 3 HONOLULU, ALASKA, WASHINGTON, OREGON, BRITISH COLUMBIA, JAPAN, AND CHINA STRATEGY LUNCHEON)
CurrencyShares Swiss Franc ETF (FXF)
CurrencyShares Euro ETF (FXE)
ProShares UltraShort Euro (EUO)
It was one of those moves that appeared so gigantic and so unreal that you had to blink, while checking the cables on the back of your computer and your broadband connection.
The Swiss franc has just skyrocketed by 17% against the dollar in one tick.
First the bad news: the rent on my summer chalet in Zermatt, Switzerland had just risen by 17%.
And the good news? Holders of the ProShares Ultra Short Euro ETF (EUO), which I have been pounding the table on for the past seven months, just instantly appreciated by nearly 10%.
In a market that rarely sees moves of more than 1% a day, 17% is positively earth shaking, if not unbelievable.
A quick scan of my Bloomberg revealed that the Swiss National Bank had eliminated its cap against the Euro. Until now, the central bank had been buying Euros and selling Swiss francs to keep its own currency from appreciating.
This was to subsidize domestic exports of machinery, watches, cheese, and chocolate with an artificially undervalued currency.
The SNB?s move essentially converts the country to a free float with its currency, hence the sudden revaluation. Switzerland has thus run up the white flag in the currency wars, the inevitable outcome for small countries in this game.
One wonders why the Swiss made the move. Their emergency action immediately knocked 10% off the value of the Swiss stock market (which is 40% banks), and 20% off some single names.
I was kind of pissed when I heard the news. Usually I get a heads up from someone in a remote mountain phone booth when something is up in Switzerland. Not this time. There wasn?t even any indication that they were thinking of such a desperate act. Even IMF Director, Christine Lagarde, confessed a total absence of advance notice.
Apparently, the Swiss knew that eliminating the cap would have such an enormous market impact that they could not risk any leaks whatsoever.
This removes the world?s largest buyer of Euro?s (FXE) from the market, so the beleaguered currency immediately went into free fall. The last time I checked, the (FXE) had hit a 12 year low at $114, and the (EUO) was pawing at an all time high.
My prediction of parity for the Euro against the greenback, made only a few weeks ago in my 2015 Annual Asset Review (click here) were greeted as the ravings of a Mad man. Now it looks entirely doable, sooner than later.
The Germans have to be thinking ?There but for the grace of God go I?. If the European Community?s largest member exited the Euro, which has been widely speculated, the new Deutschmark would instantly get hit with a 20% appreciation, then another, and another.
Your low end, entry level Mercedes would see its price jump from $40,000 to $80,000. Kiss the German economy goodbye. Political extremism to follow.
There was another big beneficiary of the Swiss action today. Gold (GLD) had its best day in years, at one point popping a gob smacking $40. After losing its way for years, the flight to safety bid finally found the barbarous relic.
It seems there is nowhere else to hide.
By the way, the rent on my Swiss chalet may not be going up that much. My landlord has already emailed me that whatever increase I suffer in the currency will be offset by a decline in the cost in local currency terms.
It seems that the almost complete disappearance of Russians from the European tourism market during the coming summer, thanks to the oil induced collapse of their economy, is emerging as a major drag on Alpine luxury rentals.
That?s the way it is in the currency world. What you make in one pocket, gets picked out of the other.
That Bratwurst is Suddenly More ExpensiveGlobal Market Comments
January 15, 2015
Fiat Lux
Featured Trade:
(2014 TRADE ALERT REVIEW),
(FXE), (EUO), (SPY), (AAPL), (GILD),
?(F), (GM), (TLT), (UNG), (VIX), (VXX)
CurrencyShares Euro ETF (FXE)
ProShares UltraShort Euro (EUO)
SPDR S&P 500 ETF (SPY)
Apple Inc. (AAPL)
Gilead Sciences Inc. (GILD)
Ford Motor Co. (F)
General Motors Company (GM)
iShares 20+ Year Treasury Bond (TLT)
United States Natural Gas ETF (UNG)
VOLATILITY S&P 500 (^VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
When is the Mad Hedge Fund Trader a genius, and when is he a complete moron?
That is the question readers have to ask themselves whenever their smart phones ping, and a new Trade Alert appears on their screens.
I have to confess that I wonder myself sometimes.
So I thought I would run my 2014 numbers to find out when I was a hero, and when I was a goat.
The good news is that I was a hero most of the time, and a goat only occasionally. Here is the cumulative profit and loss for the 75 Trade Alerts that I closed during calendar 2014, listed by asset class.
Profit by Asset Class
Foreign Exchange 15.12%
Equities 12.52%
Fixed Income 7.28%
Energy 1.4%
Volatility -1.68%
Total 37.64%
Foreign exchange trading was my big winner for 2014, accounting for nearly half of my profits. My most successful trade of the year was in my short position in the Euro (FXE), (EUO).
I piled on a double position at the end of July, just as it became apparent that the beleaguered European currency was about to break out of a multi month sideway move into a pronounced new downtrend.
I then kept rolling the strikes down every month. Those who bought the short Euro 2X ETF (EUO) made even more.
The fundamentals for the Euro were bad and steadily worsening. It helped that I was there for two months during the summer and could clearly see how grotesquely overvalued the currency was. $20 for a cappuccino? Mama mia!
Nothing beats on the ground, first hand research.
Stocks generated another third of my profits last year and also accounted for my largest number of Trade Alerts.
I correctly identified technology and biotech as the lead sectors for the year, weaving in and out of Apple (AAPL) and Gilead Sciences (GILD) on many occasions. I also nailed the recovery of the US auto industry (GM), (F).
I safely stayed away from the energy sector until the very end of the year, when oil hit the $50 handle. I also prudently avoided commodities like the plague.
Unfortunately, I was wrong on the bond market for the entire year. That didn?t stop me from making money on the short side on price spikes, with fixed income chipping a healthy 7.28% into the kitty.
It was only at the end of the year, when the prices accelerated their northward trend that they started to cost me money. My saving grace was that I kept positions small throughout, doubling up on a single occasion and then coming right back out.
My one trade in the energy sector for the year was on the short side, in natural gas (UNG), selling the simple molecule at the $5.50 level. With gas now plumbing the depths at $2.90, I should have followed up with more Trade Alerts. But hey, a 1.4% gain is better than a poke in the eye with a sharp stick.
In which asset class was I wrong every single time? Both of the volatility (VIX) trades I did in 2014 lost money, for a total of -1.68%. I got caught in one of many downdrafts that saw volatility hugging the floor for most of the year, giving it to me in the shorts with the (VXX).
All in all, it was a pretty good year.
What was my best trade of 2014? I made 2.75% with a short position in the S&P 500 in July, during one of the market?s periodic 5% corrections.
And my worst trade of 2014? I got hit with a 6.63% speeding ticket with a long position in the same index. But I lived to fight another day.
After a rocky start, 2015 promises to be another great year. That is, provided you ignore my advice on volatility.
Here is a complete list of every trade I closed last year, sorted by asset class, from best to worse.
|
Date |
Position |
Asset Class |
Long/short |
? |
? |
? |
? |
? |
? |
|
7/25/14 |
(SPY) 8/$202.50 - $202.50 put spread |
equities |
long |
? |
? |
? |
? |
? |
2.75% |
|
10/16/14 |
(GILD) 11/$80-$85 call spread |
equities |
long |
? |
? |
? |
? |
? |
2.57% |
|
5/19/14 |
(TLT) 7/$116-$119 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
2.48% |
|
4/4/14 |
(IWM) 8/$113 puts |
equities |
long |
? |
? |
? |
? |
? |
2.38% |
|
7/10/14 |
(AAPL) 8/$85-$90 call spread |
equities |
long |
? |
? |
? |
? |
? |
2.30% |
|
2/3/14 |
(TLT) 6/$106 puts |
equities |
long |
? |
? |
? |
? |
? |
2.27% |
|
9/19/14 |
(IWM) 11/$117-$120 put spread |
equities |
long |
? |
? |
? |
? |
? |
2.26% |
|
10/7/14 |
(FXE) 11/$127-$129 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
2.22% |
|
9/26/14 |
(IWM) 11/$116-$119 put spread |
equities |
long |
? |
? |
? |
? |
? |
2.21% |
|
4/17/14 |
(TLT) 5/$114-$117 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
2.10% |
|
8/7/14 |
(FXE) 9/$133-$135 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
2.07% |
|
10/2/14 |
(BAC) 11/$15-$16 call spread |
equities |
long |
? |
? |
? |
? |
? |
2.04% |
|
4/9/14 |
(SPY) 5/$191-$194 put spread |
equities |
long |
? |
? |
? |
? |
? |
2.02% |
|
10/15/14 |
(DAL) 11/$25-$27 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.89% |
|
9/25/14 |
(FXE) 11/$128-$130 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
1.86% |
|
6/6/14 |
(JPM) 7/$52.50-$55.00 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.81% |
|
4/4/14 |
(SPY) 5/$193-$196 put spread |
equities |
long |
? |
? |
? |
? |
? |
1.81% |
|
3/14/14 |
(TLT) 4/$111-$114 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
1.68% |
|
10/17/14 |
(AAPL) 11/$87.50-$92.50 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.56% |
|
10/15/14 |
(SPY) 11/$168-$173 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.51% |
|
7/3/14 |
(FXE) 8/$138 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
1.51% |
|
10/9/14 |
(FXE) 11/$128-$130 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
1.48% |
|
9/19/14 |
(FXE) 10/$128-$130 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
1.45% |
|
10/22/14 |
(SPY) 11/$179-$183 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.44% |
|
5/29/14 |
(TLT) 7/$118-$121 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
1.44% |
|
2/24/14 |
(UNG) 7/$26 puts |
energy |
long |
? |
? |
? |
? |
? |
1.40% |
|
2/24/14 |
(BAC) 3/$15-$16 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.39% |
|
6/23/14 |
(SPY) 7/$202 put spread |
equities |
long |
? |
? |
? |
? |
? |
1.37% |
|
9/29/14 |
(SPY) 10/$202-$205 Put spread |
equities |
long |
? |
? |
? |
? |
? |
1.29% |
|
5/20/14 |
(AAPL) 7/$540 $570 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.22% |
|
9/26/14 |
(SPY) 10/$202-$205 Put spread |
equities |
long |
? |
? |
? |
? |
? |
1.22% |
|
5/22/14 |
(GOOGL) 7/$480-$520 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.16% |
|
5/19/14 |
(FXY) 7/$98-$101 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
1.14% |
|
1/15/14 |
(T) 2/$35-$37 put spread |
equities |
long |
? |
? |
? |
? |
? |
1.08% |
|
3/3/14 |
(TLT) 3/$111-$114 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
1.07% |
|
1/28/14 |
(AAPL) 2/$460-$490 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.06% |
|
4/24/14 |
(SPY) 5/$192-$195 put spread |
equities |
long |
? |
? |
? |
? |
? |
1.05% |
|
6/6/14 |
(CAT) 7/$97.50-$100 call spread |
equities |
long |
? |
? |
? |
? |
? |
1.04% |
|
7/23/14 |
(FXE) 8/$134-$136 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
0.99% |
|
8/18/14 |
(FXE) 9/$133-$135 put spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
0.94% |
|
11/4/14 |
(BAC) 12/$15-$16 call spread |
equities |
long |
? |
? |
? |
? |
? |
0.88% |
|
4/9/14 |
(SPY) 6/$193-$196 put spread |
equities |
long |
? |
? |
? |
? |
? |
0.88% |
|
7/25/14 |
(SPY) 8/$202.50 -205 put spread |
equities |
long |
? |
? |
? |
? |
? |
0.88% |
|
6/6/14 |
(MSFT) 7/$38-$40 call spread |
equities |
long |
? |
? |
? |
? |
? |
0.87% |
|
10/23/14 |
(FXY) 11/$92-$95 puts spread |
foreign exchange |
long |
? |
? |
? |
? |
? |
0.86% |
|
7/23/14 |
(TLT) 8/$117-$120 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
0.81% |
|
3/5/14 |
(DAL) 4/$30-$32 Call spread |
equities |
long |
? |
? |
? |
? |
? |
0.76% |
|
4/10/14 |
(VXX) long volatility ETN |
equities |
long |
? |
? |
? |
? |
? |
0.76% |
|
1/30/14 |
(UNG) 7/$23 puts |
equities |
long |
? |
? |
? |
? |
? |
0.66% |
|
4/1/14 |
(FXY) 5/$96-$99 put spread |
foreign currency |
long |
? |
? |
? |
? |
? |
0.60% |
|
1/15/14 |
(TLT) 2/$108-$111 put spread |
equities |
long |
? |
? |
? |
? |
? |
0.47% |
|
3/6/14 |
(EBAY) 4/$52.50- $55 call spread |
equities |
long |
? |
? |
? |
? |
? |
0.24% |
|
10/14/14 |
(TBT) short Treasury Bond ETF |
fixed income |
long |
? |
? |
? |
? |
? |
0.22% |
|
3/28/14 |
(VXX) long volatility ETN |
equities |
long |
? |
? |
? |
? |
? |
0.20% |
|
7/17/14 |
(TBT) short Treasury Bond ETF |
fixed income |
long |
? |
? |
? |
? |
? |
0.08% |
|
3/26/14 |
(VXX) long volatility ETN |
equities |
long |
? |
? |
? |
? |
? |
0.06% |
|
7/8/14 |
(TLT) 8/$115-$118 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
-0.18% |
|
4/28/14 |
(SPY) 5/$189-$192 put spread |
equities |
long |
? |
? |
? |
? |
? |
-0.45% |
|
3/5/14 |
(GE) 4/$24-$25 call spread |
equities |
long |
? |
? |
? |
? |
? |
-0.73% |
|
4/28/14 |
(VXX) long volatility ETN |
volatility |
long |
? |
? |
? |
? |
? |
-0.81% |
|
4/24/14 |
(TLT) 5/$113-$116 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
-0.87% |
|
4/28/14 |
(VXX) long volatility ETN |
volatility |
long |
? |
? |
? |
? |
? |
-0.87% |
|
6/6/14 |
(IBM) 7/$180-$185 call spread |
equities |
long |
? |
? |
? |
? |
? |
-1.27% |
|
9/30/14 |
(SPY) 11/$185-$190 call spread |
equities |
long |
? |
? |
? |
? |
? |
-1.51% |
|
10/9/14 |
(TLT) 11/$122-$125 put spread |
fixed income |
long |
? |
? |
? |
? |
? |
-1.55% |
|
9/24/14 |
(TSLA) 11/$200 call spread |
equities |
long |
? |
? |
? |
? |
? |
-1.62% |
|
2/27/14 |
(SPY) 3/$189-$192 put spread |
equities |
long |
? |
? |
? |
? |
? |
-1.67% |
|
3/6/14 |
(BAC) 4/$16 calls |
equities |
long |
? |
? |
? |
? |
? |
-2.01% |
|
10/14/14 |
(SPY) 10/$180-$184 call spread |
equities |
short |
? |
? |
? |
? |
? |
-2.13% |
|
11/14/14 |
(BABA) 12/$100-$105 call spread |
equities |
short |
? |
? |
? |
? |
? |
-2.38% |
|
10/20/14 |
(SPY) 11/$197-$202 call spread |
equities |
short |
? |
? |
? |
? |
? |
-2.72% |
|
7/3/14 |
(GM) 8/$33-$35 call spread |
equities |
long |
? |
? |
? |
? |
? |
-2.91% |
|
3/7/14 |
(GM) 4/$34-$36 call spread |
equities |
long |
? |
? |
? |
? |
? |
-2.96% |
|
11/25/14 |
(SCTY) 12/47.50-$52.50 call spread |
equities |
long |
? |
? |
? |
? |
? |
-3.63% |
|
10/20/14 |
(SPY) 11/$197-$202 call spread |
equities |
short |
? |
? |
? |
? |
? |
-4.22% |
|
4/14/14 |
(SPY) 5/$188-$191 put spread |
equities |
long |
? |
? |
? |
? |
? |
-6.63% |
What a Year!
?The central bank put is alive and well in Washington, Brussels, and Tokyo? said Michael Block, from Rhino Trading.
Global Market Comments
January 14, 2015
Fiat Lux
SPECIAL SHORT SELLING ISSUE
Featured Trade:
(SHORT SELLING SCHOOL 101),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
ProShares Short S&P500 (SH)
ProShares UltraShort S&P500 (SDS)
ProShares Short QQQ (PSQ)
ProShares Short Dow30 (DOG)
ProShares Short Russell2000 (RWM)
ProShares UltraPro Short S&P500 (SPXU)
Apple Inc. (AAPL)
VOLATILITY S&P 500 (^VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
Renaissance IPO ETF (IPO)
iShares MSCI USA Momentum Factor (MTUM)
PowerShares S&P 500 High Beta (SPHB)
AdvisorShares Ranger Equity Bear ETF (HDGE)
Global Market Comments
January 13, 2015
Fiat Lux
Featured Trade:
(A DAY IN THE LIFE OF THE MAD HEDGE FUND TRADER),
(SPY), (SPX), (QQQ), (AAPL), (VIX), (FSLR), (SCTY), (TLT), (TBT), (FXE), (GLD), (GDX), (USO)
SPDR S&P 500 (SPY)
S&P 500 Index (SPX)
PowerShares QQQ (QQQ)
Apple Inc. (AAPL)
VOLATILITY S&P 500 (^VIX)
First Solar, Inc. (FSLR)
SolarCity Corporation (SCTY)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
CurrencyShares Euro Trust (FXE)
SPDR Gold Shares (GLD)
Market Vectors Gold Miners ETF (GDX)
United States Oil (USO)
Global Market Comments
January 12, 2015
Fiat Lux
Featured Trade:
(THROWING IN THE TOWEL ON THE BOND MARKET),
(TBT), (TLT), (LQD), (MUB), (ELD),
(THE 1% AND THE BOND MARKET),
(TLT), (TBT), (MUB), (LQD), (ELD), (JNK)
ProShares UltraShort 20+ Year Treasury (TBT)
iShares Trust - iShares 20+ Year Treasury Bond ETF (TLT)
iShares Trust - iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
iShares National AMT-Free Muni Bond (MUB)
WisdomTree Trust - WisdomTree Emerging Markets Local Debt Fund (ELD)
SPDR Series Trust - SPDR Barclays High Yield Bond ETF (JNK)
Here are the long-winded, feeble bunch of excuses I promised you.
I have broken every rule in my trading book hanging on to my position in the (TBT) for the past four months. I ignored my own stop losses. I listened to the morons on TV saying interest rates were about to spike up. I took the pile of charts that were telling me there was no bottom in sight, and deliberately lost them behind the radiator.
I even listened to the Fed signaling me with an emergency flare gun that they would raise rates in June.
As a result, I have been punished. Not too severely though, for I did follow one cardinal rule: I kept the position small. I did not double, triple and quadruple up, as many in the hedge fund industry have done.
As a result, I am merely suffering a thrashing in the woodshed, the kind my grandfather used to give me when he caught me shooting out the lights with my .22 rifle on our ranch in Indio, California. This is not a beheading, nor even a water boarding, and not a scintilla of an existential threat.
Still, a $14, 25% loss on a single position is no laughing matter. It?s about as welcome as a slap in the face with a wet mackerel. This is all proof that after 45 years in this business, I can still make the mistakes of a first year intern that was only hired for her good looks, shapely figure and loose morals.
If you told me that US GDP growth was 5%, unemployment was at a ten year low at 5.6%, and energy prices had just halved, I would have pegged the ten-year Treasury bond yield at 6.0%. The US economy created 2.9 million jobs in 2014, the most since 1999. Full employment is now almost a gimme.
Yet here we are at 2.00%.
You might as well take your traditional economic books and throw them in the trash. Apologies to John Maynard Keynes, John Kenneth Galbraith, and Paul Samuelson. It is yet another indication that this market has an insatiable need to teach an old dog new tricks.
After turning a blind eye to the writing on the wall, it?s time for me to read it out to you loud and clear.
The collapse of the German bond market is the big deal here. With the European economy in free fall, and doubts remaining about the ability of quantitative easing to work there under any circumstances, investors are assuming the future demand for money on the beleaguered continent will be zero.
German 10 year bond yields at 0.45% and still falling make 10 year US Treasuries at 2.00% appear the bargain of the century. Governments and hedge funds alike can buy US paper, sell short European paper against it, hedge out the currency risk, and lock in a risk free 1.55% a year for ten years. Sounds like a deal to me.
Multiply this by trillions of dollars and you can see what the problem is.
The other big deal here is the price of oil. I will reiterate my belief that if Texas tea stays down at the $40 handle, it is worth not just a 10% gain in stocks, but a double. The flipside is that interest rates stay far lower for longer than anyone expects, even including the Fed.
People just don?t understand how far reaching the impact of oil prices is. This heralds an entire new leg in the deflation story, one that could continue for years. It completely rules out any chance of a hike in interest rates this year. It is also fantastic news for the US bond market, and terrible for the (TBT).
If you want to add a third strike against continuing with a short bond position, look no further than the string US dollar. Investors around the world are pouring money into the greenback for a host of reasons. What do they do with the dollars when they get here? Buy bonds.
For more depth on why I totally missed the boat on bonds, please click here for ?10 Reasons Why I Am Wrong on Bonds?.
There are also opportunistic issues to consider here.
With implied volatilities on options sky high here, I can slap on almost any other options position and make back my 2.5% loss on the (TBT) in a couple of weeks. So there is no point in tying up 10% of my portfolio in a position that is dying a death of a thousand cuts.
Also, If you have been short the Euro (FXE), (EUO) and the Japanese yen (FXY), (YCS) after the past seven months, as I begged you to do, you have already more than made back the money.
Global Market Comments
January 9, 2015
Fiat Lux
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