Global Tactical Asset Allocation - Fixed Income, Second Quarter Update

From Damien Cleusix, Second Quarter Fixed Income update.

After having covered our short risk asset position (equities) and taken a long position at the end of January and early February, we have started to sell our long position and build a short position 10 days ago. By this Tuesday our position was finalised with a net 60% short position.

We can only stress that there have rarely been as many hidden headwinds and that a bad surprise is almost certain in the days to come. Be prudent.

We would be extremely prudent on commodities and commodity related currencies, sell the remaining high yield and emerging market bond positions. It is a very hard decision to take but, often, hard decisions are those who pay off.

The cyclical models remain in buy so the short position will be covered when breadth become very oversold and investors fearful. A new short position will be entered if we rebound and the circumstances are similar to the current one or if the markets fail to rebound from oversold and our cyclical models turn negative.

The quantitative models (asset allocation and stock portfolio with tactical overlay) have continued to perform well in the current environment.

Comments

[-1Delta]

U R THE MAN TYLER- I can never find these as fast as you... Ok so maybe I will donate more (depends on margin calls... ) 

[sola]

Headline of the day comes from CNBC after close:

"Stocks Snap Losing Streak"

Yup. They finally snapped that 1 day losing streak. Thank goodness...

[Mr Lennon Hendrix]

hahaha!

[Al Huxley]

Yeah, it was a brutal day.  Thank god its over.

[Edna R. Rider]

In 08 I watched the bulls go long and wag their heads at the bears.  I simply could not believe anyone wanted to be long the market for more than a few days.  In 09 I came a little late to the Bernanke protection team party.  In 10 I am not long or short but I wag my head at anyone going short in these markets.  Nobody is trading the markets.  The largest money center banks are very long the liquid ETFs.  They are obviously defending the ETFs at even the slightest sell off.  Are you people saying that these banks (and hedgies) won't defend them?  Seriously.

[Fish Gone Bad]

I am waiting to see if our government can actually push the VIX down below 10.

[Bear]

10 ... why not 8 ... or why not just say to everyone that the market will go up .1% per day for the next 20 days and then sell off .3% on day 21. 

[Al Huxley]

I have to agree.  I have some short positions that I'm getting killed on, and long positions that are almost offsetting.  There's very little in the way of serious structural weakness in the market right now.  Some negative divergences are starting to show, but I'm thinking this rally could go on for at least another month, maybe more.  Which just proves the point that timing is everything.

I have a friend who's of the (very mainstream) opinion that paper currencies can't fail because there's too much vested interest in the current system.  This seems to me to be on par with the idea that the Titanic couldn't sink because the passengers had too vested an interest in making it to New York, and there weren't enough lifeboats.  But for now, this seems to be the argument that defines the system.  Greece is broke?  Print some money and give it to them!  While we're at it, maybe the Germans would like to retire at 61 instead of 67 - lets give them some money too!  1 billion chinese still dirt farming - print some money and hand it over! They can move into all those empty buildings.  India in the same boat?  Nothing another trillion won't fix!  Americans suffering a big of a debt hangover? States and cities running into budget crises?  Print up a few more trillion, more the better!  While we're at it, lets print another trillion or two to bring Africa out of the dark ages.

Actually I've had my eye on this place down in Wailea on Maui - Benny, print me up an extra few million to buy it!  And a few million for anybody else who wants to live there!

No visible flaw in this argument, no wonder its working so well.  I can't believe nobody thought of it sooner.

[Entremanure]

You wanna talk getting killed on short positions?

I've held DXD since Oct/2008.  Should have sold when I was up boatloads but I got greedy.  Everyday I say, "...'Manure, my man...today is the day the markets wake up to the scam."  And everyday I lose more cash.

Now I hold out of sheer (stupid) principle.  It would hurt a lot more if it wasn't offset by massive profits in oil.

[Al Huxley]

Don't fight the market - makes so much sense, except when you're holding the wrong side of a trade.

[Al Huxley]

Addendum.  Its one thing to lose when you're plain wrong, its worse to lose when you're opponent's cheating, and not only are they cheating, but they seem to be actually pushing the envelope, to see how outrageous they can be without being held accountable.  I have this vision in my head of traders at the GS or JPM prop desks, making bets with each other about how far they can push the envelope -'Bear Stearns is going down next week.  Yeah? I'm going to buy 1m short-dated $5 puts.  Are you nuts? They'll call you for sure on that!  Fuck 'em, I'm doing it.  Shapiro will be all over you...  Right, the SEC's going to be all over me, here we go, 1m and... DONE.'

[Marc45]

That was the one thing that really irked me last year.  Watching the powers that be say "fuck you, we'll just change the rules..."

[Fritz]

Tomorrows headlines today:

China deems US a Currency Maniplulator, Greece, Spain and UK default, US Equities Skyrocket.

or:

Sun Explodes, US Stocks RAMP 15%

[plocequ1]

Thats nice to know..Market still goes up

[TroyMcClureRIP]

Anyone want to shoot me an e-mail as to some of the better ways to obtain physical gold?

[e-mail]

TIA

[Seal]

Dow 36,000! How about 36,000,000! “an index of German share prices (1913 = 100) rose from 126 in January 1918 to 531,300,000 in September 1923, and to 23,680,000 million in November 1923 amidst extremely high volatility. (In dollar terms, because of the currency depreciation, the same index (1913 = 100) fell from 101.55 in January 1918 to 2.72 in October 1922, before recovering to 39.36 in November 1923.) The extremely high volatility of the stock market is a typical feature of hyperinflating economies.” Constantino Bresciani-Turroni, The Economics of Inflation, as quoted by Marc Faber, Reflation, June 2003

[gerriek]

On asset allocation. Be careful of the carry trade countries.

http://www.brisbanetimes.com.au/business/why-our-foreign-debt-is-a-taboo...

[37FullHedge]

The feds zero IR rate for an extended period, This cant be ignored, Clearly this is bullish and explains the markets moves over the last year, The amount of bugs itching to find a windsheild states go leveraged short, For me the trend is very bullish and its best to wait for the bug to hit before going short for me, Cash is probably best and wait in this market, Phillip Gibbs the fund manager of Jupiter financial opps for me the best fund manager on the planet, It is reported he has moved 50% of this fund into cash, not bonds as I understand, This is worh noting he is smart but this fund dosnt allow shorts so its unclear if he would go short, I think the markets will tank but when, nobody knows.

[plocequ1]

Thats terrible news. Time to buy Google

[Richard Weed]

A very smart friend of mine today wrote:

Last week I spoke to some brokers at leading real-estate management/brokerage companies and to management at several publicly traded REITs in order to get a bead on the nonresidential New York City office market.

In terms of categories:

• The "A" buildings have been able to raise rents by a reasonable amount.
• The "A-" buildings are able to get slightly higher rents.
• Meanwhile, "B," "C" and "D" buildings/locales are still problematic. (The older buildings in the Wall Street area are particularly weak, reflecting new space coming on stream and the fact that the older buildings are archaic and not up to date technologically.)

Several large leases at "A" buildings have recently been contracted in the GM Building ($115 per square foot) and Seagram Building ($105 per square foot).

Interestingly, hedge funds appear to be partly responsible for the uptick in commercial space. For example, Och-Ziff Capital Management (OZM), which is located at 9 West 57th Street, is taking an additional floor, and SAC is negotiating for a huge space (100,000 square feett) in the same building. I think the firm is currently at 540 Madison Avenue, where it has vertical space (several floors) but is now seeking a more horizontal (one floor) plan.

SL Green (SLG) has announced a 2% increase in new rental rates effective this Monday. My contacts in the management companies didn't have a sense as to whether this is achievable, but they all agreed that it was a sign that things had bottomed and/or stabilized.

Merrill Lynch makes similar comments this morning on the NYC commercial real estate market:

Our NYC channel checks and brokerage contacts support our view that the market is not only bottoming but tenant activity is starting to pick up. Midtown occupancy has stabilized, and there is even talk of slight increases in asking rents. Proskauer Rose and BBDO are in talks to fill a portion of the two largest vacant blocks in NYC Midtown, which should help alleviate some of the strain on the office market.