war room 25 april 2013 welcome back mr. volatility
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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 - PowerPoint PPT PresentationTRANSCRIPT
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War Room 25 April 2013
Welcome Back Mr. Volatility
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War Room•Monthly macro discussion
•Using tools in context
•Update on HiddenLevers Features
•Your feedback welcome
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Welcome Back, Mr. Volatility
I. Return of Volatility
II. Correlation Breakdown
III. Commodities Secretly Crashing
IV. Scenarios + Macro Themes
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HiddenLevers
RETURN OF VOLATILITY
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Mr. Volatility – VIX at all time lows
I’m still goingstrong
source: HiddenLevers
7 news lows in 2013
VIX spike
false sense of security
Declining VIX not a
timing tool
# trueBull moves end
with VIX at demonstrably
low levels
# falseNew lows VIX predict market
top
S&P 5% drop
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Mr. Volatility – Fake Tweet + Mini Crash
source: CNN Money
tweet = pin prick
Shows that markets are on edge
Rate of market tumble is key
Evidence of vulnerability
Nothing new about market rumors
1% dropFangs showing
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Mr. Volatility – US Equities
just chillin’
on edge
source: HiddenLevers
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Mr. Volatility – Global EquitiesVolatility higher outside US
• Peripheral EU most olatile
• Australia
• Russia
• Brazil
• India
• China
• Japansource: Barron's
Volatility higher outside US
Peripheral EU most volatile
Australia
Russia
Brazil
India
China
Japan
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Mr. Volatility - Currencies
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?
USD index could touch 90
1 USD = 100 yen again
Yen/USD - 20% drop
source: HiddenLevers
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Mr. Volatility: Event-Based News Cycle
China Hard Landing
Conflict in KoreaDomestic Terror Attack
Gold Crash
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COMMODITIES SECRETLY CRASHINGHiddenLevers
Just look the other way
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Weak Demand for OilOil 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
resistance
source: HiddenLevers
1y-15%
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Steel
Copper
Aluminum
Industrial Metals: Secret demise 1y
-68%
1y-20%
1y-11%
Wait, seriously?
source: HiddenLevers
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Gold: The Wake-Up Call
Does this guy look smell
like smart money?source: HiddenLevers
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Gold: Reasons for drop
USD inflows due to Yen
No gold pop on Cyprus
Hunger for Return/Yield
Inflation less a Worry
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-3%
-13%
-35%
Gold Miners: Adding Insult to Injury
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HiddenLevers
CORRELATION BREAKDOWN
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Oil-Gold Ratio: Short + Long Term View
I’m still goingstrong
Oil/Gold
Historically 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
Downtrend has begun
long term
Short term
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Bond Markets: Brain freeze after ZIRPee
I’m still goingstrong
Zero Interest Rate Policy
Treasury spreads dropping – sign of deflation?
Yet high yield bonds spreads have collapsed
Maybe both are impacts of QE!
source: HiddenLevers, Federal Reserve
Who knew ZIRPees could be so bearish?
High yield bonds acting like party is still going
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S&P 500: Break with USD + Treasuries
I’m still goingstrong
source: HiddenLevers
After moving inversely for most of the decade, USD + S&P moving upward together
Yields + S&P were both part of risk-on trade, but are now diverging
It’s over
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Euro + Copper + S&P 500: BFFs no more?
source: HiddenLevers
I’m still goingstrong
After moving together for most of the decade, Euro + S&P parting ways
Copper typically tracks global economic growth – it is now crashing while S&P rallies
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Which asset class is getting it right?
• Treasuries
• Commodities
• Global equities
• Dollar Up
• US + Japan Equities
• High yield bonds
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SCENARIOS + MACRO THEMESHiddenLevers
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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
• 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
source: HiddenLevers
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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
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HiddenLevers – Product Update
• Upmarket / Downmarket Analysis
• Portfolio Import – User Interface
• New Levers – CAPE, S&P PE Ratio
• Integrations – Pershing
Coming soon:1. Big announcement in early May
2. Call for feedback on Notifications