Friday, 22 January 2016

16 hours early

Though we all like to pretend we are cool unemotional system and process driven investors, even the hardiest algorithm driven fund management company has the WTF moment when the algorithm or process results in losses that ultimately interact with the most crucial human resultant  - the take home pay of the fund employees. The only difference between dropping  15% of your clients money in a macro, algorithmic or passive fund rather than just spending it on a fund manager holiday in the Maldives is the excuse. 15% is gone no matter what else. I don’t actually know which I would prefer. If I HAD to lose 15%, which fund manager would I most respect. The one whose investments were flat and he blew the 15% on himself, or the one who was so rubbish at their job they lost 15% in the markets.

Why do I mention emotions? Because although the mnemonically challenged  'Polemic Investment Services Strategic Offshore Family Fund’ is meant to be a balanced portfolio designed to weather storms, this week it has been far from that. Feelings and beliefs have been backed to the extent that nights have been sleepless and calls for new underpants regular.

Regular readers will know that I have been touting the 19th of Jan as mythical turn date since the end of last year. So I am hoping that, with the longevity of the call having been so long, I will be forgiven for being out by 16 hours on the base of the markets. Now if I was writing a fund manager letter I would of course adjust that to the latest time benchmark possible. So applying a Pacific time zone I reckon I can explain my miss down to 6 hours.

Of course the greatest debate is ‘is it a turn, is it a correction or is it superman’? A superman being one of those V shaped ballistic take offs that leave the world with a post party paranoia wondering if perhaps someone dropped Rohypnol in their drink, rogered their longs senseless, stole their money and threw them on the street positionless and penniless on a rising market wondering if any of their strange dreams of a mass global financial panic had actually occurred.

Now I don’t know, but my money is on a continued grind higher in risk stuff from the panic lows. My normal indictors of excess doom are pinging warnings (the Peston Bollock-o-meter hit 100 this week) and I haven’t been let down by my prediction of Davos stories of fear, though to be honest I was pleasantly surprised to see bit of temperance with regard to excess China concern. At this point I am going to hand over the reins of the bull cart to my old Team Macro Man compatriot ‘Global Macro Trading’ and ask you to
read this --https://globalmacrotrading.wordpress.com/2016/01/21/its-time-to-start-building-exposure-to-risk-assets/

I do hope your really did read it

But back to price action.

-Oil is up 12% in a couple of days. But don’t be fooled by percentages. That’s only 4 bucks, which in old money (pre oil crash) is 4%.
-FTSE is up 300 pts (5%) from it futures low on Wednesday as mining stocks are all roaring
-Ruble is up nearly 10% from its lows of the last couple of days.
-Long Nikkei short JPY has done a “Watanabe bounce’
-All other risk assets are up accordingly.

Yet there are areas of worry that haven’t done their bit. China stock price are decidedly ‘Meh’ and even US stocks haven’t caught the blast that the Europeans have - (Hat tip @Draghi). So though I am delighted that we have a powerful turn, I can't believe that we are out of the woods until all the ‘sell the ralliers’ have sold and been stopped out and all the ‘this time it is differenters’ have found that it isn’t. So shall we say SPX back to 2080?

One last point, t"he amount of debt in the world". Something I hear more and more, especially when markets are falling as it’s a great back fitting reason and the "We are about to see the biggest biggest round of default the world has ever seen and the central banks have no ammo left to counter it". Of course they can. They can monetise it. And if you think that’s a sin because it causes inflation then just rethink that thought.

A shame that you cant buy 'fuel card' from BP or Shell that you top up as you would a travel card. Only you don’t top it up in monetary terms instead you add in volume of fuel terms. If they did I’d be putting 10,000 litres of diesel on mine right now. Hmm.. The thought has some interesting optionality to it - much like postage stamps, but I have never known the cost of postage to fall.

3 comments:

Unknown said...

Congrats on an amazing call and enjoy your profits!
Regarding your "fuel card" wish, you can buy oil majors instead of that card and you would arguably have better total return in the end (after you have consumed the 10k litres).
I think I had mentioned the same thing before (buy oil stocks as opposed to oil the commodity, or even better buy oil stocks and sell the commodity with appropriate beta weighting). The carry is huge with stocks paying divs and sitting on inventories (real options) whereas the commodity suffers from steep commando costing every month to roll. It has worked and will probably continue to do so. The only scenario where it won't work is if oil goes close to zero, oil companies go bust, and then oil recovers.

-theta

Unknown said...

Congrats on an amazing call and enjoy your profits!
Regarding your "fuel card" wish, you can buy oil majors instead of that card and you would arguably have better total return in the end (after you have consumed the 10k litres).
I think I had mentioned the same thing before (buy oil stocks as opposed to oil the commodity, or even better buy oil stocks and sell the commodity with appropriate beta weighting). The carry is huge with stocks paying divs and sitting on inventories (real options) whereas the commodity suffers from steep commando costing every month to roll. It has worked and will probably continue to do so. The only scenario where it won't work is if oil goes close to zero, oil companies go bust, and then oil recovers.

-theta

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