Tag Archives: Gold

Trading Day Notes

HedgeFundLIVE.com — A few notes on today’s markets:

-The S+P started off the day in negative territory but was able to grind consistently higher and finished well into positive territory by close. The price action was very strong to the upside, with futures jumping after the close.

-Financials were mostly weak until the last half hour. MS and JPM both rose into the close to finish positive for the day.

- Oil was strong throughout the day, but some of the big oil names were extremely weak off the start and finished weak to moderate. Look at HAL, XOM, COP and CVX.

- Gold traded tightly today, basically moving sideways and finished unchanged. GLD

- The Dollar index and most major currencies was unchanged on the day and not volatile.

- Bonds were weak all day and finished lower.

All of these points combined together show that money is flowing from Bonds to Stocks, a move to more risky assets. At this point the market has digested all of the bad news - Japan radiation, Euro bank/debt crisis, Libya/Gaddafi - and has decided to move higher. The VIX was lower but did not get through the 18 support level. With all of the bad news already priced into options insurance the VIX will most likely not go much lower for the time being. Only time will erode the VIX, unless a huge piece of positive news comes out (in which case the 15 level is next for support).

Wrap-up: Gold and US Dollar stayed unchanged on the day; Oil and Stocks rose; Bonds fell. Investors are returning to risky assets and price action is very bullish.


M&A and Related 3/28/11

HedgeFundLive.com -

  • VRGY, ATE – the companies sign a definitive merger agreement – Advantest will buy VRGY for $15/shr cash. 
  • NDAQ and ICE are still talking on a joint bid for NYX; some sticking points remain, inc. how much to pay for NYX (the companies think they need to bid at least $40/shr).  Also still not decided is how to value NYX’s various businesses.  Sources say it could take some time for the remaining issues to be addressed.  WSJ  
  • Facebook may hire former White House press secretary Robert Gibbs to help manage the firm’s communications.  Facebook is seeking out Gibbs ahead of a potential IPO.  NYT  
  • BRK, LZ – WSJ discusses how Berkshire’s David Sokol was responsible for discovering LZ as an acquisition candidate, cementing in the minds of many that he is the frontrunner to succeed Buffett as CEO.  The article notes that LZ was considering making an acquisition offer of its own.  WSJ
  • T/T-Mobile – Barron’s is bullish on the deal and thinks regulators will wind up approving the combination.  Barron’s  
  • BP – the co will push forward w/its GBP10B share swap w/Rosneft despite last week’s court ruling blocking the deal.  The Independent.
  • AJG – the co is in talks to buy Heath Lambert, the Lloyds broker, in a deal worth more than GBP100MM – London Telegraph.
  • WPPGY is close to announcing a number of deals in China; the transactions are said to be small in total size but would represent a significant expansion into the Far East for the company.  London Telegraph. 
  • Glencore – the Swiss commodities trader plans on kicking off its HK listing by the end of Apr – WSJ 
  • Buffett warns that most social media companies will wind up being overpriced – NY Post.
  • Actelion – the drug firm said a hedge fund is trying to seize control and force a quick sale just as key products are approaching important milestones – Bloomberg


Barron’s Summary March 26, 2011

  HedgeFundLIVE.com -

·         Santoli – the brief set back in Feb/Mar will prob. wind up being just that – a refresh before another move higher instead of the start of a steeper downturn.  Conditions now seem similar to the middle of the ‘90s (easy Fed, improving economy).

·         Gold – Jeffrey Christian, a gold researcher at CPM Group, thinks prices are near a cyclical peak and could decline 15-20% over the next couple qtrs before resuming another rally that will take the yellow metal to fresh highs.

·         Private internet companies – Barron’s article discusses trading on SharesPost in privately held internet firms like Facebook.

·         Internet sales taxes – Barron’s says the chances of Congress passing legislation mandating the collection of state sales tax is slim.

·         Barron’s review of Feb HF returns and AUM.

·         PFE may be planning a big split-up of the business (according to a recent Barron’s profile); however, Barron’s says other pharma stocks, like NVS and MRK, may be more attractive here given their cheaper multiples and better growth prospects.

·         LINTA: Liberty Interactive is mentioned positively by Barron’s. The article highlights QVC and how some think the stock (at $16) is valued at a 40% discount of LINTA’s NAV (which may be caused by Liberty Media’s structure & tracking stock status).

·         Hyatt: Barron’s “The Trader” makes some positive comments regarding Hyatt, which has pulled back more since February than its peers (Hyatt dn 13% vs. MAR dn. 8%, HOT dn. 6%). The article points to Hyatt’s balance sheet, mix of lodging assets, and its exposure of corporate travel. In addition, the data for the lodging sector continues to improve – in February, STR data showed US RevPAR was +7.9%, European RevPAR was +8.9%, and Asian was +17.7%.

·         Towers: Barron’s “The Trader” makes some positive comments on the Towers (mostly AMT); the article cites some research across the street that defended the groups after its pullback early last week.

·         Interview w/Don Yacktman – bullish on PG, JNJ (says CLX isn’t as cheap anymore following the recent Icahn-related run-up).

·         OSK – Neg Barron’s article, saying that its dependence on military contracts won’t be enough in light of defense budget cuts. The article also talks about how their nonmilitary business continues to struggle.

·         HON – Pos Barron’s article, saying the company’s exposure to aerospace, autos, oil/gas, and energy saving consumer products should help the company “lift off.” Barron’s also said on a valuation basis HON is at a fair discount, well below the multiple of rival EMR.

·         EMN – Pos Barron’s article, saying the company’s asset sales over the past three years and valuation relative to DD, CE, and DOW should help the stock.


Global Markets Taking a Breather This Morning

HedgeFundLIVE.comMorning Notes

- No clear direction in markets this morning
- Global indexes are net lower
- Sony and Toyota announced further closures of facilities, which renewed concerns in Japan
- Also, iodine levels in tap water exceed appropriate levels for infants- additional cause for concern
- Black smoke out of reactor 3 caused evacuation of workers there
- Japan released estimate that damage could reach as much as 25TR JPY (>$300B)
- Shanghai Comp the anomaly in the overnight, closing up 1%, with property and bank stocks leading the way
- European bourses are trading down
- Portugal will vote on austerity measures today- will be a fairly major news item
- If vote is not passed, Portuguese PM Socrates believes it will force the nation to require a bailout and he will resign if this happens
- BOE Minutes out- 6-3 vote to hold interest rates unch’d; 8-1 vote to keep QE steady (same as before)
- Egyptian market re opened, but was halted soon after- was down 10%
- S&P futures are down about 3 handles from FV after a short rally earlier this morning
- In corporate news, BAC down over 2% after disclosing that Fed objected to a proposed increase in capital distributions for 2H11
- Gold and oil flattish
- Situation in Middle East still the same, with continued fighting, explosions, killings in Syria
- In Yemen, a vote is scheduled to decide whether it will continue its emergency law
- New Home Sales out at 10a ET
- Fed Bernanke speaking at noon (Independent Community Bankers of America)


Influences on the USD

HedgeFundLIVE.com — The US Dollar value can be moved by many different factors. I’ve been seeing a lot of headlines lately about the Dollar’s impact and thought it a good time to go over some issues. If I make a mistake in any of the following, feel free to comment on the article and let me know.

1. The strength of the US economy will cause the USD to increase in value. The recovery is well underway in this country, and when the jobs and housing markets fully join in the growth cycles, the USD will grind up with them.

2. The artificially low pegged Chinese Yuan will supposedly be gradually unpegged forcing it to rise in value. This will cause the USD to lower in value for many reasons. The near-term affect will be to lower the value of the USD, because currencies work inversely to each other.  The long-term effect is American exports will become more attractive due to the lower Dollar, thus creating higher demand abroad. This may decrease the trade deficit (that is a positive) which is a component of GDP. When GDP increases because on positive trade balance, the USD’s value will also move higher.

DXY near long-term support levels

3. QE2 is ending in June. The Dollar may be undervalued due to the Fed’s easing strategy. When the Fed buys bonds, the result is more cash is in circulation, which tends to dilute its value. After QE2 ends, assuming there is no QE3, the USD should rise in value.

4. The Dollar Index, DXY, which is a basket of major currencies against the USD is near long-term support levels. Technical analysts would say the USD is primed for a jump higher if it respects the support level. A good ETF to look act for this is UUP.

5. The debt crisis in Europe is coming back to the spotlight. Spain has been downgraded recently, problems in Ireland are not going away (Greece either), and there are many other systemic risks. If the Euro begins to depreciate, the USD will rise.

6. Problems in the Middle East and North Africa persist, if you watch the news you know that. The risk to the USD is through it’s relationship with oil. When oil rises, the buying power of the USD is diminished, though it may not have a exact affect on the DXY.

7. As conflicts continue to escalate in the Middle East and around the world, investors tend to use risk on/risk averse strategies. When risk is on, value moves from the USD to risker assets such as equities markets. When investors are risk averse, value moves from equities to the USD, gold and bonds. These situations have obvious and near-term effects on the value of the dollar.

8. Commodity prices around the world, including in the US, continue to increase. This is a similar to the relationship with oil. When the price of wheat and cotton rise, the buying power of the USD drops. Although it may not show in the DXY, a $5 bill will not buy the same that it did a month before.

9. The FX market is the most-traded market everyday, in every country. It can cause values of currencies to increase or decrease very quickly, especially when large banks/companies are able to use 400/1 leverage.

These are some of the possible factors that influence the value of the USD and DXY. I hope this was a helpful explanation.


The effects of oil prices on the Markets:

Oil prices closed around the $100 per barrel today and this was part of the reason why the market’s strong opening gains were slowly eroded. Bloomberg reports NYMEX crude futures were trading at $100.27, up marginally by about .64% and gasoline prices in certain parts of California were more than $4 a gallon.
In his statement to the Congress, Fed president Ben Bernanke said the surging oil prices would not cause a permanent increase in broader inflation and is “unlikely to detail the economy… but investor confidence was not helped as fears of the Middle-East unrest could soon hit Saudi Arabia, the world’s largest exporter of oil” – Reuters.
While the political turbulence in Libya has caused oil traders to err on the side of caution, the fears of unrest in Oman, Iraq and Iran were also being factored into the outlook going forward.
Reuters also reported that rising oil prices caused investors to continue selling shares and look for new hedges to safeguard against further declines. Marathon Oil Corporation was one of the few gainers today, up 2.3%, while most other stocks closed in the red.
While the S&P closed 0.2% down, the Nikkei closed 1.63% down and the DAX and the FTSE were trading close to 1% down. Overall, most developed markets were in the red, due primarily to the rising oil prices.
Traders also hedged with Gold, closing near the highs.

Market Analysis - Can the Flash Crash happen again and can it be predicted?

HedgeFundLIVE.com -

The Flash Crash (FC), May 6th 2010, is the biggest one-day point drop in the history of the DJIA (998.5 points) and the third highest volume  day ever (but one of the most illiquid). Studies conducted by the SEC and other private groups have shown the FC was caused by a multitude of factors, which can be understood simply as a snowball effect. Factors, such as liquidity consumption, high-frequency trading, normal market action, and a lack of retail trading all played into the historic move. Contrary to popular believe the FC was not caused by a “fat finger” or one single High-Frequency Trading firm (HFT). This article will attempt to clarify the confusion, discuss the use of the VIX as a hedge, and how another FC can potentially fit into our market conditions.

In a study conducted by David Easley (Cornell), Marcos M. Lopez de Prado (Tudor Investments), and Maureen O’Hara (Cornell), some of the major causes are identified (link to the study Study). What they found is that the ratio of informed trading volume to total volume had been elevated for days prior to the FC. The metric they used to measure this, also developed by the group, is called the VPIN or Volume-Synchronized Probability of Informed Trading. There are of a lot of ways to define the VPIN, here’s the way I find easiest: It is a ratio; the numerator is the absolute difference between buy-volume and sell-volume which is basically a measure of toxicity for maker makers*; the denominator is the total trading volume. The intriguing part about the VPIN is that it displayed elevated levels for a couple days before the FC occurred and ultimately peaking on May 6th, which means its predictive not reactive. When the VPIN is increasing, one to several things may be happening, here are a few (these reasons are FC specific):

-Total trading volume may be falling; this decreases the denominator and increases the ratio.

-Retail investors are trading less. This increases the numerator, because the population of active traders in the market then contains a higher percentage of informed-traders overall, such as hedge fund traders. Retail investor trading decreased due to the market crash a year earlier and the economic downtown. This will also decrease the denominator, thus elevating the ratio dually fast and consuming liquidity.

-HFTs, which actually act as market makers due to their low profit targets and extremely high number of actual trades, leave the market because of already existing liquidity problems. When this happens the HFTs consume liquidity that is already at low levels. This decreases the numerator but drastically decreases the denominator as well because they represent roughly 70% of total trading volume in US equity markets.

-Market makers leave the market, caused by a rise in toxicity*, this absolutely decreases the denomitor.

The VPIN displayed a rise due to all these factors and more. Although May 6th was one of the highest volume days ever, the actual liquidity was extremely low. This low liquidity (measured by the VPIN) can have a downward spiraling effect. The Flash Crash can be understood to be caused by low liquidity in an already nervous market, which results with investors essentially being hand-cuffed to cascading stocks. The VPIN, hypothetically could have predicted the FC and given regulators time to take precaution or at least give market makers a chance to be proactive.

Grown-up "Kevin McCalister" during the first #Flash #Crash

Can the VIX safeguard your portfolio from another Flash Crash? Unfortunately, the answer is no. The VIX, which is based on the expected 30-day volatility of the S&P 500 options, is only able to be reactionary to a crash, not predictive. The VIX is mostly misunderstood by the people looking at it, it is important to note that it is reliant on humans due to its use of option implied volatility, not directly of the S+P500. The VIX does not always rise due to panic, it can rise for many reasons, this is why it does not perfectly correlate with the S+P 500. Specifically, the index is based on volatility and that is what the index is used to hedge against, the FC was caused by low liquidity. Obviously these are two different market components.

So the questions are, can another Flash Crash happen and what may cause it. The answer to the first half is simply and sadly, Yes. The answer to the second half of the question is that commodities, economic unrest, political unrest and many more factors could trigger it, particularly oil. Commodities which have grown in the retail investing spotlight, can potentially take small amounts of volume away from equities markets. If you are familiar with the term risk aversion, you understand that when people want to hedge their overall investment risk they leave equities and turn to commodities such as the US Dollar,  gold, silver, etc. Economic unrest could trigger similar risk aversion strategies, with volume consumption and asset flights away from equities. It is possible the problems in the Middle East (political problems) could initiate huge increases in the price of oil, which will adversely effect the equity market. When oil prices rise investor-spending rises which causes less savings, i.e. spending more on gas or groceries instead of buying their favorite company’s stock. Oil price increases also cause companies to have higher expenses, which lowers fundamental worth in terms of investing, this can lead to lower stock valuations, which can lead to lower trading volume. Just because oil is rising, doesn’t mean everything is going down, some investors who are wise enough will hedge their lives by directly investing in it; this will also create a lower liquidity situation when people take the money they had in Ford and buy oil futures with it.

It should be understood that these reasons mentioned in the preceding paragraph will most likely not cause an FC on their own. They simply create an environment in which, another crash could occur. The Flash Crash is somewhat comparable to a perfect storm, a lot of bad elements that combine to create something much larger and much more dangerous.

Again the point of this article was to attempt to clear some confusion about the Flash Crash and discuss the current market we are trading.

*Toxicity: for market makers is basically they’re expected loss from transactions.


Thursday Market Expectations - Reasons why the market doesn’t go down, for now.

NFLX - "Is it time to buy?"

Is this the beginning of the small correction I have been looking for?  Probably, but given the fight the bulls put up yesterday, they are not going to back off quietly. One might argue, buy the dips but sell the rallies more aggressively. I do not have the patience for that. I have too many other things to focus on. Either I am right and we will test 1300 in the coming days or I am wrong and we are in a fever driven hyper bull cycle that refuses to be broken.

But why? What are the positive catalysts? An improving economy. Yes things are slowly getting better. Perhaps you believe that there is still a great deal of cash to be put to work. I am not sure I agree with that one. Last I heard hedge funds were at near pre financial crisis levels of leverage and no matter how hard I try I cannot seem to get my credit card bills paid down, it is something that my wife and I are forever battling over. So near term, the catalyst for moving up is simply greed. “It worked yesterday, so I will try again today” seems to be the motto for the bulls.

As I write this it is 7:45am on Thursday and while futures indicate a negative opening on the heals of CSCO’s earnings (CSCO is trading down 10%) AKAM’s earnings (AKAM is trading down11%) TQNT’s earnings (TQNT is trading down 14%), I am amazed that the futures are not down more significantly. We await a weekly jobless claim number that should not move the needle. So here is my thesis, people have very short memories. I for one do not remember what I had for dinner when I came home last night, though I do remember polishing off a bottle of cabernet at the wine bar with a buddy, before I headed home for dinner. For some reason I think it was lasagna, but I really don’t remember. We as a species have short memories. Our memories are even shorter when it comes to recalling pain. Pain is the memory we most often repress, very logical. The traders, investors and financial spectators of the stock market, the greatest arena since the Roman Coliseum have repressed their fear, they trade with abandon as they rip the futures up 5 handles in the last 5 seconds of a day. They ignore the fact that we have not even tested the breakout “psychological levels” as support.

But I believe the time is upon us. The catalysts are not to be ignored. As I said earlier this correction will be a battle between two strong opposing forces. Leverage vs. Common sense. Fear vs. Greed. And finally a battle between the lessons of history vs. a brave new world where there is a new playbook, and perhaps my copy got lost in the mail.

Negative catalysts continue to be those I mentioned in yesterday’s Market Expectation blog. But let me add a few more. Unexpected developments in Ireland and Portugal. Forex spread gouging by major institutions. Bernanke under further attack over QE2. Our municipal bond infrastructure in jeopardy as the ratings agencies were once again, late to the game. I believe yesterday was the first right-handed body blow to the feverish bulls. Today will be a follow up cross to the left side of the jaw, the type where you hear a slight crunch, and tomorrow will be a right hook that will for the first time in months put raging bull to the mat, even if it is short-lived, at least he will remember that lost feeling of pain and markets will have an opportunity to normalize.

By the way my Aunt Beverly called me again last night, she wanted to know if i thought NFLX was cheap, needless to say i will be shorting NFLX.

Seeing a Lift Across the Board- Manufacturing Data the Highlight

Morning Notes

- Global indices are up this morning, a nice recovery perhaps led by yesterday’s action in the US markets
- Eurozone PMI came in better than expected- it was actually the highest level since April 2010
- UK PMI also came in solidly at the highest level since 1992
- However, China PMI showed a small downtick as did the German PMI
- Crude oil down small
- Gold and silver are both strong ahead of the open, trading near their highs
- Dollar showing weakness while the euro is up
- On tap for today in terms of economic data: Construction Spending at 10a; ISM Manufacturing at 10a
- S&P futures are up 7.5 handles from FV, trading on the R3 sell signal
- Spooz have been on an uptrend in the overnight session

Futures Are Up in the Pre, Friday Repeat Possible?

Morning Notes

- Egypt continues to dominate the headlines, and the country received a downgrade on its debt with a negative outlook from Moody’s, suggests another downgrade is quite possible
- Uncertainty and turmoil in Egypt is adding pressure in global markets, with most major global indices trading down
- One exception is the Shanghai Comp which closed up 1.4%, no particular catalyst, but utilities, industrials, and materials led the way
- Yen strengthened, adding further pressure to the Nikkei, which closed down 1.2%
- Gold and resource stocks trading higher, may be a flight to safety move
- Prelim eurozone CPI number came in higher than expected inflation, contributing to the weakness in European bourses today, though they have recovered off their lows
- Crude oil continues to show a bit of strength
- December Personal Income: +0.4% vs. +0.5%; prior revised up to +0.4% from +0.3%
- December Personal Spending: +0.7% vs. +0.6%; prior revised down to +0.3% from +0.4%
- We have Chicago PMI data out at 9:45a ET
- S&P futures are up 6 handles from FV, which is good to see after Friday’s ugly action
- Spooz are technically on the S3 buy pivot signal and currently trading between S3 and R3 pivot levels