- Here at Archbridge Capital we are judged on our performance. We are done so continuously and relentlessly. And we exist because judgement has been favourable. In that spirit we thought it was worth tracking how we did on our published research, even though our published research occurs after we have already entered/exited into the positions we advocate.
- We have published a number of views/trades in our publications in the last few months (list and results to date below).
- Out of the six suggested trades since our last scorecard five have been profitable. One has been stopped, but we had advised exiting most of that trade already (crude oil). We are grateful for that.
- Overall the portfolio has been very profitable. Please note that it is the fact that profitable trades are much more profitable in comparison to losing trades that assures the portfolio overall to be profitable.
- "There are good trades that make money and bad trades that make money. There are good trades that lose money and bad trades that lose money. Money in the long-run is made from continuously taking the good trades." - Old Trading Adage.
THE GOOD
Short JPY long Dollars:
We have since last November recommended shorting the Japanese yen against dollars. This trade has worked very well. We had "substantially reduced" our exposure to this trade as we stated in "Take Five" June 3, 2013. due to the sharp rise in interest rates in Japan, which could have derailed the entire process. Subsequently the yen has fallen substantially until recently.
We noticed that while other rates worldwide have risen due to QE tapering the JGB rates have remained rather steady. This for us was an indication to enter into this trade again. We have decided that in the future we will publish such steps under a new and very short note called "Fast and Furious" where we will highlight some changes to existing trades and rationale rather than re-state the entire argument for a given trade. This way our readers can stay better informed and will get more timely information.
Overall we remain bearish of the yen and expect Abe's popularity to gain him the required majority in the House elections in 3 weeks or so time in order to implement real structural change. We also believe that some kind of accord will be achieved between long term bond holders and the central bank, which will substantially reduce the volatility in the JGB rates. With this notion we are happy to be in the short yen trade and expect to see new highs, especially with our stated view of a strengthening US$ ("A love supreme: The US$ is back" May 21, 2013)
We have since last November recommended shorting the Japanese yen against dollars. This trade has worked very well. We had "substantially reduced" our exposure to this trade as we stated in "Take Five" June 3, 2013. due to the sharp rise in interest rates in Japan, which could have derailed the entire process. Subsequently the yen has fallen substantially until recently.
We noticed that while other rates worldwide have risen due to QE tapering the JGB rates have remained rather steady. This for us was an indication to enter into this trade again. We have decided that in the future we will publish such steps under a new and very short note called "Fast and Furious" where we will highlight some changes to existing trades and rationale rather than re-state the entire argument for a given trade. This way our readers can stay better informed and will get more timely information.
Overall we remain bearish of the yen and expect Abe's popularity to gain him the required majority in the House elections in 3 weeks or so time in order to implement real structural change. We also believe that some kind of accord will be achieved between long term bond holders and the central bank, which will substantially reduce the volatility in the JGB rates. With this notion we are happy to be in the short yen trade and expect to see new highs, especially with our stated view of a strengthening US$ ("A love supreme: The US$ is back" May 21, 2013)
Long US$ (trade-weighted and vs EM FX):
We expect that the US$ has indeed entered an up-cycle as the rest of the world is taking the reflation burden more and more on their shoulders, which will give the USA more scope to reduce its massive QE programme within the next 12 months (and now we know that this tapering will begin probably at the end of this year!) and allow the US$ to appreciate even further. For more details please see our published article "A love supreme: The US$ is back" May 21, 2013.
We expect that the US$ has indeed entered an up-cycle as the rest of the world is taking the reflation burden more and more on their shoulders, which will give the USA more scope to reduce its massive QE programme within the next 12 months (and now we know that this tapering will begin probably at the end of this year!) and allow the US$ to appreciate even further. For more details please see our published article "A love supreme: The US$ is back" May 21, 2013.
Short US Treasuries:
We recommended in "There is treasure in those Treasuries" Thursday, April 4, 2013 to short longer term US Treasuries for the longer run (12 to 18 months), since we do not believe that negative real yields more than 10-years out are sustainable and that the US economy is recovering (despite the massive fiscal drag the US government has forced upon it...just think what would happen if that drag was removed...). This trade is working well to-date but really should be seen as a much longer term position which will come into full swing after the turn of the year and beyond. As above the tapering schedule outlined by the Fed has and should help this trade further.
Short Gold:
We remain bearish gold for the long run (though that is the consequence of the two above and hence not in our previous scorecard, since it would have, in effect, increased our position due to correlation risk. A lot of our readers have asked us for a more thorough analysis on gold and we will be publishing this in the next few days. We have, however, talked about our bearish view on gold a number of times in our past reports:
"Since QE is probably not going to be increased in the US it is reasonable to assume that real rates will begin to become positive over time and herewith ending the 10-year gold bull market. We, here at Archbridge Capital do believe that this will indeed occur and that rates will begin rising as we have discussed in "There is treasure in them Treasuries" Apr 4, 2013. We also believe that inflation will not pick up in the foreseeable future and hence we do expect that real rates in the forwards will begin to turn positive as the economies gradually strengthen. We would expect that gold does not see the previous highs in a very long time, perhaps even in this decade." from "Is there Method in the Market Madness?" April 23, 2013.
Most explicitly in our report "A love supreme: The US$ is back" May 21, 2013 where we stated in our headline: "For all the same reasons that the US$ will gain strength we should see pressure on gold". Enough said.
Longish US Equities:
We have in "Is there Method in the Market Madness?" April 23, 2013 recommended to be 'longish' the US equities market and that the next equity wind will come a.) from a rotation out of bonds into equities - which has not happened yet, instead we saw money move from cash into equities, the great rotation is yet to come, and we believe it will in due course. b.) from lower input costs due to commodity prices re-aligning themselves to their new marginal cost price. This part is already underway and we are seeing this especially in industrial metals like copper.
We mentioned "longish" equities due to two reasons: 1.) a large margined presence in the equities space via investors which has often signalled exhaustion and 2.) an already large move where the underlying fundamentals are not able to keep up and an overcrowding of this trade - though overcrowding is perhaps a little misleading since hedge fund beta on equities is one of the lowest and there may eventually be a chase for the missed return in equities...we sustain our relatively small exposure to US equities and as described below have added to it.
Together with start of month and start of quarter inflows into equities we should see a strong and quick rally in equities this month. To this effect we have added a little to our long equity positions. Please also note that a normalisation process in longer term interest rates has commenced. A steeper yield curve will help financials and at the same time assist in the workings of the monetary transmission mechanism via more bank lending that will occur, as banks earn more money with a steeper yield curve. This will assist economic growth in the US going forward. History shows us that equity markets react negatively at first to real rate rises but that is swiftly followed by a 5-10% rally...
THE BAD
Not this time and for that we are grateful
Overall, we had a good period with most of our recommendations bearing fruit and making substantial gains, even when published after we had already entered into the trades ourselves ahead of time.
Short Crude oil outright or via spreads: We recommended shorting crude outright or crude spreads and have done so near 110 US$ for Brent. We then recommended substantially reducing the position while it was trading around 100US$ in "Is there Method in the Market Madness?" Tuesday, April 23, 2013
As we have gone on public record via interviews or publications we do believe that the brent crude price will eventually end up trading below 100US$ but as we had stated we have only a very small position on this view via spreads at the moment. We have since exited the trade completely.
THE UGLYNot this time and for that we are grateful
Overall, we had a good period with most of our recommendations bearing fruit and making substantial gains, even when published after we had already entered into the trades ourselves ahead of time.
Disclaimer: This report was prepared and distributed by Archbridge Capital AG, a company regulated by the Swiss Financial Market Supervisory Authority FINMA via VQF. The report was prepared and distributed for information purposes only. It contains information and opinions, which may be used as the basis for trading undertaken by Archbridge Capital AG and its officers, employees and related associates. The report should not be construed as solicitation nor as offering advice for the purposes of the purchase or sale of any asset, security or financial instrument or provide any investment advice or service, nor is it an official confirmation of terms. All information, opinions, estimates, forecasts, technical levels and valuations contained herein, are subject to change without notice. The report also contains information provided by third parties. Whilst Archbridge Capital AG has taken all reasonable steps to ensure this information is correct, Archbridge Capital AG does not offer any warranty as to the accuracy or completeness of such information. Any views or opinions expressed do not necessarily represent those of Archbridge Capital AG. The assets, securities and financial instruments discussed herein, may not be suitable for all investors, depending on individual needs, objectives and financial conditions. Any person placing reliance on the report to undertake trading does so entirely at their own risk and Archbridge Capital AG does not accept any liability whatsoever for any direct or indirect loss arising from any use of this material. You should be aware that returns can be volatile and you may lose all or a portion of your investment. Past performance of any investment or trading tool or strategy is not necessarily indicative of future performance or results. This information is not intended tax or legal advice. Unless otherwise stated, any pricing information given in this posting is indicative only, is subject to changes and does not constitute an offer to deal at any price quoted. As electronic publications are subject to alternations, Archbridge Capital AG shall not be liable for the improper transmission of this message, including the completion of information contained herein, the delay in its receipt, any possible interference, any possible damage to your system, or transmission of viruses.