CEE leading equities lower

Busy week last week. Prioritised other activities over updating the blog. Unfortunately have a feeling it will happen again. At least til the building project is all done and dusted. Pardon the punt. On Thursday evening my oldest managed to injure his arm while jumping trampolines. Result; Fracture. Spend all of Friday in hospital. In the end, everything went well and arm will be as good as new after 3weeks of fixation. Thanks for asking.


* Switching places
Over the last week or so, the CEE currencies have gone weaker while the equity markets have continued higher. Towards the end of last week, other currencies joined in. FX leading equities. "Normally" it is the other way around. Quants are having a difficult time. According to Barclays, only one out of eighty quant market neutral funds have made money since 9 March. Most likely not the first - or last time the quant models will be ending up in trouble. There should have been plenty of practise from the last two years. More practise opportunities to come.

*Change of quant environment
Basically, the explosive growth of quantmodels came during a period of exceptionally low volatility. Cross assetmarket volatility was then the lowest for 20 years, probably much more. No wonder correlations stabilised as leverage increased and implied vols fell to extreme lows. Quant based trading models were all the rage and became quite hyped.

Well, perhaps since this is no longer the case to the same extent, there might be a more balanced approach to it from here. Quant models are here to stay, but the instruction manual should be read first. In it it should clearly state in which environments they are to be used, since "all weather" models do not (?) exist. The vast majority of quant models are made for low volatility environments. There will now be a swift production of high volatility environment ones. Just keep them in their right environment and dont go fundamentalist on any of them.



* Awaiting further developments
Dipped my toes in buying bank puts. However, was looking to buy more but was turned off by the massive implied volatility levels. Seems a few large institutions have realised they can hedge their longs by buying puts. In any case, the implieds are very high and I guess there will be a few longs out there that will not hedge themselves via puts due to this fact. Should increase momentum on the downside when we head that way again.

* The German bank plan - a non starter
The German "toxic asset" banking plan seems to be falling apart due to the realisation that offloading "toxic assets" from the German banks into specially designed"bad assets" banks will make the German banks insolvent in the process.
As the German government is doing its utmost to protect the taxpayers (or at least that was the initial intention), they have realised it will not work. I guess eventually they will have to follow the US concept and make the monstrous wealth transfer from taxpayers to German banks and bad debt buyers. I hope not. If any government money gets involved, boards should be switched. The banks stockholders and bondholders should pay. Keep the bad assets in the original banks, start anew with the good assets. Credit will flow, private capitalisation will be 100%. Unfortunately it is more likely the fudging and investor and taxpayer scam will be the concept here as well.

* Position changes
-Long MS Call expired OTM.
- Remaining Gold puts expired OTM.
-Short PLN, HUF, TRY, ZAR, SEK.
-Increased my long Eur/Lvl fwd .
-Dipped my toes in buying bank puts with exposure to the CEE, Baltics.
- Bought Gbp puts/ Usd Calls.

As always, good luck







The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.