Seeking Absolute Returns
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Seeking Absolute Returns

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As a “perception of coming inflation” play and a weaker US$, we like Gold for the longer term. We are looking for a retreat on the 10 year US Treasury yield down to 2.5% for a reversal and longer ...

As a “perception of coming inflation” play and a weaker US$, we like Gold for the longer term. We are looking for a retreat on the 10 year US Treasury yield down to 2.5% for a reversal and longer term advance. Longer term we look for quantitative easing to weaken the US$ and have set limits to sell the USD Index June futures. We are looking at a “deflation busting” countertrend rally in equities as momentum (not value) carries shares higher to resistance levels set at the beginning of January.

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Seeking Absolute Returns Seeking Absolute Returns Document Transcript

  • MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 24th March 2009 Sound Advice EquityBell Securities was set up in October 2008 by a collective of seasoned market professionals to provide outstanding investment advice to clients running non-discretionary portfolios through direct market access brokers and wealth managers. The credo is absolute returns by giving sound advice in asset classes that are individually appropriate to the risk appetite and base currency of each particular client. The EquityBell Securities leveraged model portfolio was started on 27th January 2009 as a paper trade with an initial value of £100,000. The portfolio currently has an NAV of £94,039 -5.96% in 55 days* Starting Value £100,000 Leverage 0.75 times Portfolio NAV £94,039 Loss £5,961 -5.96% Only our most robust investment ideas will be placed into the portfolio explaining the rationale, entry price with comments on reasons for holding and explanation of the exit Loss taken £4,003 and price and net profit and loss. Current Positions Open trades FX Date Asset size FX price value margin Price value £ P/L none now 26/1/2009 MRW Long GBP 258.00 25,026 7,500 252.75 24,517 -509 shares 9,700 Commodities CFD’s Long 50 ozs of Gold 26/1/2009 SBRY Short GBP 309.75 -25,012 7,500 330.75 -26,708 -1,696 shares 8,075 CFD’s Fixed Income 24/3/2009 Gold Long 50 USD 922 46,100 1,844 929.65 46,482.5 260 none ozs Equities Conclusion Food Retail Spread Long Morrison CFD 258p As a “perception of coming inflation” play and a weaker US$, we like Gold for the longer Short Sainsbury CFD term. We are looking for a retreat on the 10 year US Treasury yield down to 2.5% for a 309.75p reversal and longer term advance. Longer term we look for quantitative easing to weaken the US$ and have set limits to sell the USD Index June futures. We are looking at a “deflation busting” countertrend rally in equities as momentum (not value) carries shares higher to resistance levels set at the beginning of January. THIS IS A MARKETING COMMUNICATION Intended for information only and should not be construed as an invitation or offer to buy or sell any investment vehicle or instrument. This note has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and is not subject to any prohibition on dealing ahead of the dissemination of this marketing note. EquityBell Securities will provide extra detail on data or graphs used in this note upon requested.
  • MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 24th March 2009 Sound Advice Closed trades Date Asset size FX price £ value margin Exit Exit £ P/L date price taken 26/1/2009 EURJPY Short EUR 118.606 92,988 2,800 02/02/ 113.35 4,155 FX 100k 2009 26/1/2009 Carrefour Long €50k EUR 26.495 50,341 7,000 04/03/ 24.97 -2,580 shares CFD’s 2009 26/1/2009 LVMH Short EUR 43.42 -50,367 7,000 04/03/ 45.25 -1,890 shares €50k 2009 CFD’s 26/1/2009 June Gilt Short 1 GBP 118.71 118,710 3000 05/03/ 122.00 -3,290 Future 2009 26/2/2009 Gold Long 100 USD 913.5 91,350 1300 16/03/ 926 921 10/3/2009 ozs 2009 25/2/2009 EURUSD Short EUR 1.2786 88,152 1,763 18/03/ 1.3080 -2,113 FX 100k 2009 18/3/2009 UST 1o Long 1 US$ 121.50 121,500 2,700 20/03/ 124.875 2,318 yr June contract / 2009 future GBP 26/1/2009 MRW Long GBP 258.00 50,052 7,500 20/03/ 240 -1746 shares 9,700 2009 CFD’s 26/1/2009 SBRY Short GBP 309.75 -50,024 7,500 20/03/ 307 222 shares 8,075 2009 CFD’s *These are gross figures that do not include commissions and funding charges on some products FX US Treasury Secretary Tim Geithner and UK Prime Minister Gordon Brown have indicated they will do whatever it takes to see us through the economic downturn. The US and UK are both printing money in their quantitative easing programs which is set to devalue both currencies. Bank of England (BoE) governor Mervyn King warned today at a UK Parliamentary Treasury Select committee that “The fiscal position of the UK is not one which says, 'Well why don't we just go on another significant round of fiscal expansion'.” He effectively told Gordon Brown that the UK cannot afford further fiscal stimulus packages. The European Central Bank is also not currently planning to print Euros. Japan’s public debt is vast after 19 years of trying to stimulate domestic demand and they have little room to borrow more. This suggests the US$ and Sterling will be weaker in the longer term against the Euro and Yen. The chart below is the US Dollar Index, which is a measure of the value of the US$ relative to a weighted geometric mean basket of the EUR, JPY, GBP, CAD, SEK and CHF. The US$ has weakened from since 2002 through to recent low in July 2008 @ 72 and is currently 84.17. Data Source: Yahoo Finance During the current market volatility, it USD Index @ 84.17 is difficult to determine which 130 currency will be weaker against any other at any given time. We 120 therefore prefer to trade the NYBOT listed futures in the USD Index as a 110 basket proxy for the US$. 100 We suggest selling 1 contract of the June NYBOT USD Index futures at a 90 limit of 84.85 with an initial target of 80.5 and longer term target of 74. 80 We would also suggest setting an 70 87.85 stop loss. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 24th March 2009 Sound Advice Commodities The US and UK quantitative easing package has encouraged investors to believe that inflation will return in late 2009 or early 2010. Longer term we still support Gold rallying above US$1,000, but Middle East Sovereign Wealth Funds and Asian individuals still appear to be selling. A weaker US$ should also support Gold prices. Today we bought at our previously stated limit of US$922 for 50 ounces. Longer term we look to add Source: Saxo Bank another 50 ounces at some time in the future. Fixed Income Central Banks around the world are providing liquidity by bringing short term rates down close to zero. The US and UK quantitative easing programs are buying longer dated government bonds to provide liquidity further out on the yield curve. The US and UK know from Japan’s bad example that keeping longer term rates close to zero for extended periods does not incentivise inter-bank lending as there is no reward for increased risk. Governments are likely to follow the Robert Rubin’s (Clinton’s Treasury Secretary) path of taking new government borrowing under three years into the short end of the curve. Demand for longer term money from corporates is likely to push 10 year rates significantly higher as cash holders will demand extra compensation to discount quantitative easing, resulting in a steep yield curve. At some time this year, longer term interest rates (over 10 years) should start to rise. 10 yr US Treasury Note yield currently very low @ 2.72% 16 When 10 year US Treasury rates come down to 2.5% 14 (from the current 2.72%), we will consider another short 12 term long position if the 10 year UST June future or buy 10 the CFD of the UltraShort 20+ yeras US Treasury Bond 8 ProShares ETF (code TBT) 6 4 2 0 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Data Source: Yahoo Finance
  • MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 24th March 2009 Sound Advice Equities Source: Saxo Bank The S&P500 index (chart right) has th rallied 21% from the 6 March low of 666.79 mainly on short covering. Commentators are saying many investors want to buy on any pullback as they believe the economy will be better over the next couple of years and want to grab a bargain now. We are highly aware that the primary trend of equity markets is lower. The current fiscal stimulus packages are designed to halt deflation and inspire inflation as politicians and central bankers throw money at the economy until they perceive the “green shoots of recovery”. As markets nearly always overshoot during times of turmoil, the current S&P 500 “counter trend” rally is likely to continue through the 930 resistance line to approach 1,000 during the spring, despite gloomy economics. We would expect equities to decline and technical charts suggest 750 on the S&P 500 would be a good support level. Given the pent up buying, we would consider buying the CFD’s on the ProShares Ultra S&P 500 ETF (code SSO) when the S&P 500 reaches 772 (which should be US$19.0 on the SSO). The SSO delivers twice the gains on the S&P 500 index. We re-iterate that this is a risky, short term momentum trade as the scale and duration of the current counter trend rally is an unknown risk. Food Retail Spread Morrison Supermarkets 252.75p on a 14.50 PE and a 2.29% div yield, 2009 est EPS 17.40p Sainsbury 330.75p on a 17.00 PE and a 3.81% div yield, 2009 est EPS 19.10p The spread between Morrisons and Sainsbury widened out to 78p today ahead of Sainsbury’s results tomorrow. We continue to hold the position. Conclusion As a “perception of coming inflation” play and a weaker US$, we like Gold for the longer term. We are looking for a retreat on the 10 year US Treasury yield down to 2.5% for a reversal and longer term advance. Longer term we look for quantitative easing to weaken the US$ and have set limits to sell the USD Index June futures. We are looking at a “deflation busting” countertrend rally in equities as momentum (not value) carries shares higher to resistance levels set at the beginning of January. EquityBell Securities Dowgate Hill House, 14-16 Dowgate Hill, London, EC4R 2SU Tel: +44 (0) 20 3189 2108 www.equitybell.com Risk Warning Notice: Equity Bell Securities is a trading name of Equity Bell Limited (registered office: Talbot House, 8 – 9 Talbot Court, London EC3V 0BP. Registered in England and Wales No. 6725781) is an Appointed Representative of London Islamic Investment Bank Limited, which is authorized and regulated by the Financial Services Authority. Whilst every attempt is made to ensure the accuracy of the information provided, no responsibility can be accepted for any inaccuracy. The information provided cannot be relied upon as constituting a recommendation, nor construed as any offer to sell, or any solicitation of any offer to buy investments. No liability is accepted for any loss whether direct or indirect, incidental or consequential, arising out of any of the information being untrue and / or inaccurate, except caused by the wilful default or gross negligence of EquityBell Securities, its employees, or which arises under the Financial Services and Markets Act 2000.