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Mon, 05th December 2016

Anirudh Sethi Report

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Archives of “speculators” Tag

India pushes ‘shock and awe’ currency plan to save BRICS-Ambrose Evans-Pritchard

“It is going to happen in a matter of days rather than weeks, Brazil and India can start the move,” said Dipak Dasgupta, a top Indian official.

Mr Dasgputa told Reuters that China, Brazil, India, Turkey, Russia and South Africa have all been squeezed as the US Federal Reserve prepares to tighten monetary policy. Joint action would give emerging markets greater firepower, allowing them to deploy their combined $8.7 trillion (£5.6 trillion) of reserves and crush “speculators”, rather than being picked off one by one.

However, it is unclear whether such action would serve any useful purpose if the real problem is exhaustion of catch-up growth models in these countries, and boom-bust credit cycles. “This could backfire,” said Ian Stannard, of Morgan Stanley. “If they did this, they would have to sell US and European bonds and that would push up yields. It was rising yields that started this process in the first place.”

The side-effect of such intervention would be monetary tightening, pushing countries into deeper trouble. India’s growth fell to 4.4pc in the second quarter, the lowest since the post-Lehman crisis in 2009. This is eroding tax revenues and pushing the budget deficit back over 5pc of GDP, with a ratings downgrade looming. Read More 

Emerging market rout threatens wider global economy

The $9 trillion (£5.8 trillion) accumulation of foreign bonds by the rising powers of Asia, Latin America and the emerging world risks going into reverse as one country after another is forced to liquidate holdings to shore up its currency, threatening to inflict a credit shock on the global economy.

India’s rupee and Turkey’s lira both crashed to record lows on Thursday following the US Federal Reserve releasing minutes which signalled a wind-down of quantitative easing as soon as next month.

Dilma Rousseff, Brazil’s president, held an emergency meeting on Thursday with her top economic officials to halt the real’s slide after it hit a five-year low against the dollar. The central bank chief, Alexandre Tombini, cancelled his trip to the Fed’s Jackson Hole conclave in order “to monitor market activity” amid reports Brazil is preparing direct intervention to stem capital flight.

The country has so far relied on futures contracts to defend the real – disguising the erosion of Brazil’s $374bn reserves – but this has failed to deter speculators. “They are moving currency intervention off balance sheet, but the net position is deteriorating all the time,” said Danske Bank’s Lars Christensen.

A string of countries have been burning foreign reserves to defend exchange rates, with holdings down 8pc in Ecuador, 6pc in Kazakhstan and Kuwait, and 5.5pc in Indonesia in July alone. Turkey’s reserves have dropped 15pc this year.

“Emerging markets are in the eye of the storm,” said Stephen Jen at SLJ Macro Partners. “Their currencies are in grave danger. These things always overshoot.” Read More 

Apple speculators see double on iPhone date and price

So we have a date for the next iPhone event, if weekend reports are to be believed, and one analyst is already venturing prices for the supposedly forthcoming 5S and 5C.

Horace Dediu of Asymco predicts the premium version of the phone, set to be unveiled on September 10 apparently, will cost an unsubsidised $650 at launch. If the design remains the same, the iPhone 5’s successor should be called the 5S under Apple’s nomenclature.

If Apple also unveils a lower-priced version of the iPhone – the 5C it’s been suggested, as in Cheap perhaps – he sees this being priced at $500 initially.

His reasoning is based on how Apple has differentiated pricing for its iPads and assumes older iPhones – like the 4 and 4S – will be phased out. How operators will decide on their level of subsidies and price the devices for locked-in consumers is another field of reasoning entirely.

Here’s one of his colourful predictive charts to mull over:

Futures market speculative positioning data from the CFTC

SPECULATORS BET ON THE EURO

 

  • EUR net long 6k vs short 8k prior
  • JPY net short 80K vs short 82K prior
  • GBP net short 46K vs short 49K prior
  • AUD net short 77K vs short 73K prior
  • CAD net short 10K vs short 11K prior
  • NZD net short 1K vs short 1K prior
  • CHF net short 0.3k vs short 1K prior
  • Dollar Index net long 25K vs 25K prior

Speculators shift to euro net long position for the first time since late June.

Speculative positioning in the CME currency futures

1.  Position adjustments were mostly minor.  There were four exceptions.  The gross long euro position grew 9.9k contracts.  Both gross long and short Canadian dollar positions were reduced (9.9k and 13.2k contracts respectively).  The gross long peso position increased by 14.7k contracts.  
 
2.  The speculative market remains net short all the currency futures tracked here, except the Mexican peso.  A month ago, the speculators were also long the euro and Swiss franc.  
 
3.  The gross short Australian dollar position is the smallest since mid-May, and at 81.3k contracts, it remains the third largest behind the Japanese yen and euro.  
 
4.   The new yen shorts, which have grown by about 25k contracts over the course of July are in weak hands as the dollar has fallen to five week lows in the spot market. 
 
5.  The speculative market appears to have used the bounce in sterling to lighten up on longs.  The gross short position has been halved in recent weeks to 19.1k contracts, while sterling has recovered six cents sin the past three weeks. 
 
6.  At 63.1k contracts, the gross long euro position is the largest among the currency futures we track.     The last time the euro was trading near current levels, in late June, the gross long position was nearly a quarter larger.  
 
(spec position in 000’s of contracts)
Net Prior Gross LongChangeGross Short Change
Euro-27.9-37.263.19.991.00.6
Yen-87.5-85.822.52.3110.04.0
Sterling-49.7-37.419.1-5.568.86.7
Swiss Franc-5.4-5.06.3-4.411.8-4.0
C$-16.8-20.022.3-9.939.0-13.2
A$-64.0-70.717.3-1.981.3-8.6
Mexican Peso19.811.455.514.735.76.3

Time for the Fed Chairman speculators to take a vacation

A ‘senior White House official’ quoted by Reuters says no announcement about a Federal Reserve Chairman is imminent and likely won’t come until the fall. They also say Obama has not made a decision on a candidate.

Translation: There will be an announcement tomorrow.

Separately, Senate Democrats are writing a letter in support of Yellen for the nomination.

Speculative positioning in the CME currency futures

1.  The net position swung from long to short in the euro and Swiss franc in the reporting week ending July 2.

2.  The general pattern was for the gross long positions to be reduced and the gross short positions to increase.  There were a few exceptions.  Speculators slightly added to their long Swiss franc, Canadian dollar and Mexican peso position.    Short Australian dollar and Mexican peso positions were reduced. 

3. In the five sessions prior to Bernanke’s speech on July 10, there were minor position adjustments in the currency futures (less than 10k contract adjustment in gross positions).  The only exception was 17.7k contract expansion of gross short euro position.  Nine of the 14 gross positions we review here changed by 5k or few contracts. 

4.  However, this obscures the large change in positions over the past few weeks.  The late shorts were in weak hands.  We suspect that Bernanke’s remarks triggered a short squeeze, which, coupled with the thin markets at the time helps explain the dramatic price action.    Gross euro shorts had grown by more than a third over the past two reporting periods.   Gross yen shorts had expanded by 25%.  Gross short Canadian dollar futures rose by two-thirds. 

week ending July 9              Commitment of Traders
(spec position in 000’s of contracts)
Net Prior Gross LongChangeGross Short Change
Euro-40.9-16.052.2-7.193.117.7
Yen-80.3-70.725.1-2.2105.47.4
Sterling-34.3-31.331.3-1.365.61.7
Swiss Franc-1.8-0.112.33.414.15.0
C$-23.8-16.237.31.961.19.4
A$63.2-70.520.9-0.684.2-7.8
Mexican Peso8.02.831.33.823.2-1.4

Speculative positioning in the CME currency futures

1.   The past reporting period was largely characterized by the reduction of speculative positions than taking on new risk.  There were a few exceptions.  Gross long and short yen positions grew, though minimally.  Together they rose by less than 2.5k contracts.  Gross long Canadian dollar positions were extended, practically doubling to 27.2k contracts.  Gross short peso positions were grew by a minor 4k contracts.
 
2.  The other main characterization of the position adjustment was that it was largely minimal.  There were 8 of 14 gross positions were track that changed by 5k or less contracts.  There were 4 gross position adjustments that of above 10k contracts.  These include gross long and short sterling positions were cut, the gross long Canadian dollar position, as we noted, was increased, and the gross long peso position was pared.  
 
3.  There has been a dramatic clearing of positions in the peso.  It had been the largest gross long speculative currency futures position.  For most of the last several months, it has been the only currency futures we track that remained in which speculators remained net long.  The overcrowded positioning has now been alleviated.  The net long position was 121k contracts in late May.  At the end of the most recent reporting period it stood at 5k contracts.  
 
4.  Part of the sell-off in the euro since the reporting period ended likely reflects speculative longs liquidating. At the end of the last reporting period, the gross long euro position was more than twice the size of the gross long position in any of the other currency futures.   Read More 

AN 1873 LETTER ON LUCK VERSUS SKILL

We often confuse luck with skill, especially in the stock market.  In fact, Michael J. Mauboussin has written a worthy read on separating the two in his newest book The Success Equation:  Untangling Skill and Luck in Business, Sports, and Investing.  But long before the contemporary discussions of luck versus skill, ancient speculators were enthralled by luck’s deceptive ways of making mere mortals feel godlike.  However, that sense of omniscience, just like a string of luck, is fleeting and continues to lure modern speculators into a trap today just like it did Saxon-les-Bains, a man of culture, almost 150 years ago.  In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.

And what was my experience?  This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me.  But this illusion followed me throughout.  I had a sense ofdeserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed.  When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause… Read More 

Hugh Hendry: Investing Amidst Crashes, China & Speculators

Hugh Hendry, of Eclectica Asset Management, takes the long view on investing at The Economist’s Buttonwood Gathering on October 25th 2012. He was interviewed by The Economist’s Philip Coggan.

Listen to his comments at the end to regarding uncertainty:

Hugh Hendry: God is dead, China will follow