The document provides an investment outlook from Fasanara Capital for May 2012. It anticipates three phases in the markets: (1) short-term weakness, (2) medium-term intervention and credit expansion following a more pronounced sell-off, and (3) long-term "bursting of the bubble" leading to defaults or inflation. It argues the recent ECB liquidity is already evaporating and fresh intervention will be needed. It also discusses factors that could trigger a larger market move and the opportunities in hedging tail risks.
Fasanara Capital | Investment Outlook
1. Fake Markets: How Artificial Money Flows Kill Data Dependency, Affect Market Functioning and Change the Structure of the Market
Hard data ceased to be a driver for markets, valuation metrics for bonds and equities which held valid for over a century are now deemed secondary. Narratives and money flows trump hard data, overwhelmingly.
‘Fake Markets’ are defined as markets where the magnitude and duration of artificial flows from global Central Banks or passive investment vehicles have managed to overwhelm and narcotize data-dependency and macro factors. A stuporous state of durable, un-volatile over-valuation, arrested activity, unconsciousness produced by the influence of artificial money flows.
- Passive Flows: The Prehistoric Elephant In The Room
- ETFs Are Taking Over Markets
- The Impact of Passive Investors on Active Investors: the Induction Trap
- How Narratives Evolve To Cover For Fake Markets
- Defendit Numerus: There is Safety in Numbers
- What Could We Get Wrong
2. Be Short, Be Patient, Be Ready
Markets driven by Central Banks, passive investment vehicles and retail investors are unfit to price any premium for any risk. If we are right and this is indeed a bubble (both in equity and in bonds), it will eventually bust; it is only a matter of time. The higher it goes, the higher it can go, as more swathes of private investors are pulled in. The more violently it can subsequently bust.
The risk of a combined bust of equity and bonds is a plausible one. It matters all the more as 90%+ of investors still work under the basic framework of a balanced portfolio, exposed in different proportions to equity and bonds, both long. That includes risk parity funds, a leveraged version of balanced portfolio. That includes alternative risk premia funds, a nice commercial disguise for a mostly long-only beta risk, where premia is extracted from record rich markets that made those premia tautologically minuscule.
Covered interest parity a law of nature in currency marketsGE 94
CIP is a cornerstone principle in international finance. First described by John Maynard Keynes in 1923, the idea that FX forward rates must reflect interest rate differentials between currencies has long been considered one of the best tested theories in financial economics. If a market participant is willing to swap a higher yielding currency for a lower yielding currency over some time horizon, he must be compensated for the difference in yield via an adjusted forward price. Otherwise an arbitrage opportunity arises until prices and interest rates align again.
The financial crisis and direct aftermath revealed cracks in the armour of CIP. In a market environment with scarce liquidity and high credit risks in forward markets, dealers were constrained in their ability to profit from what was previously regarded as an almost risk-free arbi¬trage trade. But as conditions in financial markets slowly normalised after the crisis, CIP deviations remained and cross-currency basis never returned to its pre-crisis levels. After narrowing for some time, it started to widen again across most G10 pairs since approximately 2015. Increasingly, FX forward markets seemingly do not reflect what would be expected given the observed interest rate differentials. Figure 1 illustrates these dynamics by depicting the magnitude of G10 cross-currency basis over time for an exemplary three-month tenor.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
Global Macro-economics, Trends, Portfolio ImplicationsNikunj Sanghvi
My presentation to the Bombay Chartered Accountants' Society International Economic Study Circle on Global macro-economics, trends, portfolio implications
Aug 7th 2013
Mumbai, India
The paper examines neoclassical measures to evaluate government policy in transition countries: 1) marginal factor prices and the return to capital, 2) growth rates and taxes, 3) inflation rates, and 4) debt/GDP ratios, related to international real business cycle and endogenous growth theory. It further postulates a way to consider the debt/equity position of the government, related to a risk-yield framework. This gives a potentially more useful indicator than the debt/GDP ratio alone. Empirically these measures are examined in an illustrative way for a set of Central European countries plus Germany and the US for comparison, for the period of 1990-1998, using an internally standardized data set from the on-line International Financial Statistics.
Authored by: Max Gillman
Published in 1999
The global economy is improving overall, with the U.S. and U.K. leading the way. We expect higher GDP growth from the U.S. to support risk assets in the third quarter. We continue to expect a rise in U.S. interest rates in 2014, though eurozone policy may help slow a near-term increase. We favor credit, prepayment, and liquidity risks, which we express in allocations to mezzanine CMBS, peripheral European sovereigns, select EM sovereigns, and interest-only (IO) CMOs.
Fasanara Capital | Investment Outlook
1. Fake Markets: How Artificial Money Flows Kill Data Dependency, Affect Market Functioning and Change the Structure of the Market
Hard data ceased to be a driver for markets, valuation metrics for bonds and equities which held valid for over a century are now deemed secondary. Narratives and money flows trump hard data, overwhelmingly.
‘Fake Markets’ are defined as markets where the magnitude and duration of artificial flows from global Central Banks or passive investment vehicles have managed to overwhelm and narcotize data-dependency and macro factors. A stuporous state of durable, un-volatile over-valuation, arrested activity, unconsciousness produced by the influence of artificial money flows.
- Passive Flows: The Prehistoric Elephant In The Room
- ETFs Are Taking Over Markets
- The Impact of Passive Investors on Active Investors: the Induction Trap
- How Narratives Evolve To Cover For Fake Markets
- Defendit Numerus: There is Safety in Numbers
- What Could We Get Wrong
2. Be Short, Be Patient, Be Ready
Markets driven by Central Banks, passive investment vehicles and retail investors are unfit to price any premium for any risk. If we are right and this is indeed a bubble (both in equity and in bonds), it will eventually bust; it is only a matter of time. The higher it goes, the higher it can go, as more swathes of private investors are pulled in. The more violently it can subsequently bust.
The risk of a combined bust of equity and bonds is a plausible one. It matters all the more as 90%+ of investors still work under the basic framework of a balanced portfolio, exposed in different proportions to equity and bonds, both long. That includes risk parity funds, a leveraged version of balanced portfolio. That includes alternative risk premia funds, a nice commercial disguise for a mostly long-only beta risk, where premia is extracted from record rich markets that made those premia tautologically minuscule.
Covered interest parity a law of nature in currency marketsGE 94
CIP is a cornerstone principle in international finance. First described by John Maynard Keynes in 1923, the idea that FX forward rates must reflect interest rate differentials between currencies has long been considered one of the best tested theories in financial economics. If a market participant is willing to swap a higher yielding currency for a lower yielding currency over some time horizon, he must be compensated for the difference in yield via an adjusted forward price. Otherwise an arbitrage opportunity arises until prices and interest rates align again.
The financial crisis and direct aftermath revealed cracks in the armour of CIP. In a market environment with scarce liquidity and high credit risks in forward markets, dealers were constrained in their ability to profit from what was previously regarded as an almost risk-free arbi¬trage trade. But as conditions in financial markets slowly normalised after the crisis, CIP deviations remained and cross-currency basis never returned to its pre-crisis levels. After narrowing for some time, it started to widen again across most G10 pairs since approximately 2015. Increasingly, FX forward markets seemingly do not reflect what would be expected given the observed interest rate differentials. Figure 1 illustrates these dynamics by depicting the magnitude of G10 cross-currency basis over time for an exemplary three-month tenor.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
Global Macro-economics, Trends, Portfolio ImplicationsNikunj Sanghvi
My presentation to the Bombay Chartered Accountants' Society International Economic Study Circle on Global macro-economics, trends, portfolio implications
Aug 7th 2013
Mumbai, India
The paper examines neoclassical measures to evaluate government policy in transition countries: 1) marginal factor prices and the return to capital, 2) growth rates and taxes, 3) inflation rates, and 4) debt/GDP ratios, related to international real business cycle and endogenous growth theory. It further postulates a way to consider the debt/equity position of the government, related to a risk-yield framework. This gives a potentially more useful indicator than the debt/GDP ratio alone. Empirically these measures are examined in an illustrative way for a set of Central European countries plus Germany and the US for comparison, for the period of 1990-1998, using an internally standardized data set from the on-line International Financial Statistics.
Authored by: Max Gillman
Published in 1999
The global economy is improving overall, with the U.S. and U.K. leading the way. We expect higher GDP growth from the U.S. to support risk assets in the third quarter. We continue to expect a rise in U.S. interest rates in 2014, though eurozone policy may help slow a near-term increase. We favor credit, prepayment, and liquidity risks, which we express in allocations to mezzanine CMBS, peripheral European sovereigns, select EM sovereigns, and interest-only (IO) CMOs.
Greece's race to default and european banks' recapitalizationMarkets Beyond
Greece will default by end of October and the ECB will dramatically expand its balance sheet to provide liquidity to banks and buy Spanish and Italian sovereign debt in the secondary market to maintain financing costs at acceptable levels.
‘Deflationary Boom Markets’
‘Deflationary Boom Markets’ is the name of the game. Deflation forces Central Banks into action. Central banks to push Bonds and Equities higher, inflating the bubble some more, although on a rougher path and with higher volatility than we got accustomed to in recent years.
This paper investigates the barriers to innovation perceived by Polish manufacturing firms. It refers to the heterogeneity of innovation active firms. We introduce a taxonomy of innovative firms based on the frequency with which they introduce commercialised innovations using data from both CIS4 (for 2002-2004) and CIS5 (2004-2006). Two groups of innovation-active firms are distinguished: those which introduced innovation in both periods covered by both CIS (which we call persistent innovators) and those which introduced innovation either in CIS4 or CIS5 (which we call occasional innovators). We use a four step analysis covering binary correlations, Principal Component Analysis, probit model and correlations of disturbances. Two types of explanatory variables describing firms’ characteristics and innovation inputs used are considered. The paper shows that there are considerable differences in sensitivities to the perception of innovation barriers and in complementarities among barriers between persistent and occasional innovators. In the case of occasional innovators, a kind of innovation barrier chain is observed. This has an impact on differences in the frequency of innovation activities between the two groups of innovators and results in a diversification of innovators.
Authored by: Ewa Balcerowicz, Marek Pęczkowski, Anna Wziatek-Kubiak
Published in 2011
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
Deloitte 2014: Global Powers of Luxury GroupsDigitaluxe
Deloitte presents the first annual Global Powers of Luxury Goods. This report identifies the 75 largest luxury good companies around the world based on publicly available data for the fiscal year 2012.
Similar to Fasanara Capital | Investment Outlook May 2012 (20)
Fasanara Capital | Investment Outlook
1. The Future Is Wide Open: Avoid The ‘Illusion Of Knowledge’ Trap
The single most dangerous thinking trap / optical illusion for investors today is to look at Trump, Brexit and Italy Referendum as non-events, buried in the past. We believe that 2017 may likely be driven by the same factors that failed to shape 2016. The non-events of 2016 are likely to be the drivers of 2017. Finally, we will get to find out if Brexit means Brexit, if Trump means Trump, if a failed Italian referendum means early elections and a membership of the EMU in jeopardy down the line.
2. Structural Shift: These Are Transformational Times
The macro outlook of the next years will be influenced the most by these structural trends:
› Protectionism, De-Globalization & De-Dollarization. In Pursuit of Inclusive Growth
› End of ‘Pax Americana’. The ascent of China. Geopolitical risks on the rise
› End of ‘Pax QE’. Markets without steroids, but still delusional.
› 4th Industrial Revolution: labor participation rate falling from 63% to 40% in 10 years?
3. Our Baseline Scenario: Bubble Unwind, Equities and Bonds Down
Starting this 2017, our major macro convictions are as follows:
› Global Tapering to progress
› US Dollar to keep grinding higher
› European Political Instability to worsen
› US Equities to weaken
1. Reflation Phase To Be Temporary, More Downside Ahead
Earlier on in 2016, ‘random and violent markets’ went off to panic mode out of (i) fears over China’s messy stock market and devaluing currency, (ii) plummeting oil price, (iii) strong US Dollar. Today, we believe complacent markets are similarly illogical and over-shooting, this time on the way up. As we re-assess the validity of the underlying risks, we expect a shift in narrative in the few months ahead and a sizeable sell-off for risk assets.
2. Four Key Conviction Ideas
We analyze below our key ideas for the next 12 months:
Short Chinese Renminbi Thesis. In Q1, China only managed to keep GDP in shape by means of graciously expanding credit by a monumental 1 trn $. Unsurprisingly, at 250% total debt on GDP, you cannot borrow 10% of GDP per quarter for long, without a currency adjustment, whether desired or not.
Short Oil Thesis. Long-term, we believe Oil will follow a volatile path around a declining trend-line, which will take it one day to sub-10$. Within 2016, we expect global aggregate demand to stay anemic and supply to surprise on the upside, inventories to grow, primarily due to the accelerating speed of technological progress.
Short S&P Thesis. To us, the S&P is priced to perfection, despite a most cloudy environment for growth and risk assets, thus representing a good value short, for limited upside is combined with the risk of a sizeable sell-off in the months ahead.
Short European Banks Thesis. We believe that micro policies at the local level, while valid, are impotent against heavy structural macro headwinds, and only the macro environment can save the banking sector in its current form in the longer-term. Macro structural headwinds for banks these days are too heavy a burden (negative sloped interest rate curves, deeply negative interest rates, deflationary economy, depressed GDP growth, over-regulation, Fintech), and will likely push valuations to new lows in the months/years ahead.
Fasanara Capital Investment Outlook | February 1st 2015
1. Seismic Activity On The Rise
2. No Volatility No Gain
3. The Role Of Optionality
4. Crystal Ball
5. Deflation Is A Multi-Year Process
6. Three Big Trades for 2015
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
The new type of smart, sustainable entrepreneurship and the next day | Europe...
Fasanara Capital | Investment Outlook May 2012
1. Fasanara Capital | May 2012 Investment Outlook
Investment Outlook
As presented two weeks ago, we anticipate three consequential phases to play out going
forward: Phase (1) Short-Term, within the next few weeks: ‘Deflating Further’. Phase (2)
Medium-Term, within the next few months: ‘Reflating Back, following new intervention’,
and Phase (3) Long-Term, within the next few years: ‘Busting of the Bubble, to the left tail
(Defaults) or to the right tail (Inflation) of the distribution curve’. Please refer to this link for
a detailed rendering of the market phases we expect.
A few comments may be added to what previously presented. Short term market weakness
first, in a wide range bound, with downside risks and digital sell-off paving the way in the
medium term to fresh intervention and more credit expansion. Such view lies on three basic
assumptions: (i) We believe the liquidity provided by the ECB on LTRO2 is insufficient to
justify a structurally higher market than we have today. (ii) We also believe that a new
fresh intervention by monetary engineers is likely at some point in the months to come,
and (iii) We finally believe that a more pronounced sell-off and a resurgence of risk off
markets will be needed to build the political support behind a fresh new intervention.
First of all, the liquidity produced by the ECB’s LTRO operations is insufficient, as most of it
has evaporated already: it served the purposes of a re-allocation of capital amongst
countries and amongst investors’ classes, whereby public funds have substituted the private
sector whenever possible, so as to prevent a disproportionate impact on the economy of
the (dis)orderly deleverage in the private sector currently underway. Rephrased, banks in
peripheral Europe have already exhausted most of the extra liquidity (Read), when taking
into account withdrawn deposits and exited Repos, government bond purchases and
refinancing debt (even after accounting for the net positive effect deriving from the
anticipated reduction in loan portfolios). They might be forced soon to desert public
auctions or sell some of their holdings outright. On the other hand, banks in core Europe
have kept their money comfortably at the ECB, where the Deposit Facility is a most un-
volatile figure of Eur 780 bn, in what is a capital destructive market practice (contributing to
the vivid picture of a Liquidity Trapped economy), as opposed to lending that to other banks
(reinstating normal funding market conditions) and to businesses and households (re-
2. igniting growth). It makes you wonder, as the fresh liquidity provided by the ECB (after
stripping out the value of maturing repos) was even lower than that, at Eur 500 bn. And the
anomaly of the monetary trap gets perpetuated by the constant inability of banks to fund
themselves in the capital markets at any usable rates: it was best put by the CEO of Garanti
Bank this week, as the bank will avoid the Eurobond market given their ‘’inability to create
assets that yield higher yields than Eurobonds’’ (no one’s is going to borrow money from
them at that rate).
Interestingly, the evaporation of LTRO money may also be cross-checked by the changes in
the term structure of volatility in Europe this week, where we saw spot volatility (V2X)
going up markedly and closing the gap to forward volatility, at times even inverting
(differently and disconnecting from the US, were the vol curve is still quite steep). Recent
history has shown an high correlation between volatility shifts and money printing, with
volatility shrinking during monetary expansion phases.
Furthermore, the IMF reminded us that European banks look set to shrink their balance
sheets by Eur 2 trillions in the next 18 months (Read). Consequentially, credit supply should
contract further, together with the disposal of securities/inventories, driving feverish
markets into even thinner volumes and increased hecticness. By the same token, this week
we saw, somewhat of a resurgence of high frequency trading systems and algorithmic
trading strategies, with yet more volatility potentially generated by them.
With this in mind, not only the current liquidity provided by the ECB is already insufficient,
but a fresh new intervention is made probable, and can be assumed to be on the European
policymakers minds as the crisis unfolds. As discussed in our previous Outlook (link), various
forms of intervention are plausible in the short term, although we tend to believe that
increased SMP activity by the ECB would be the most effective (as an alternative to LTRO3
or fiscal firewalls), despite Draghi’s lack of enthusiasm for the programme thus far. Nor we
believe the US can come to the rescue with QE3, as rising inflation expectations (differently
than in Europe) have prevented such intervention by the FED this week, and the next
available meeting is only on June 20th (if anything, the market may react to the end of the
FED’s Operation Twist in June).
Determining the timing of such intervention is determining the timing of a more
pronounced market sell-off, in our eyes. At a minimum, we see few catalysts at play:
3. (i) We expect rising yields on 10yr government paper to fail to cause the downside
shock we anticipate. To trigger such larger move we suspect that a flattening of
the government bond curve on rising short end rates will be necessary. Front
end rates could drift upward on failed auctions (or lower than consensus cover
ratios) following local banks getting short of ammunitions (see recent noise from
BBVA/Santander/MPS). Such drive up in short term rates can be expected to put
the same local banks out-of-the-money on the supposedly risk free carry trades
on government paper established in the last couple of months (around the
LTRO2 liquidity event) at yield levels not far from today's rates. Such dynamics
may be reflected and confirmed by rising margin call accounts at the ECB. Carry
trades may not be MTM accounting-wise, but they may be margin called by the
ECB itself at right the wrong time, creating cash extraction from local banks
balance sheets, and exacerbating then the sovereign pressures and increasing
the momentum and the odds of digital equity downside. One of the unintended
consequences of Central Bank’s activity.
(ii) Most obviously, May 6th may pose a threat, with the combination of Greece
and France exiting elections. With Greece risking to produce a modern times
remake of the Weimer Republic, and Hollande in France radically disagreeing
with both Merkel and Draghi simultaneously, over the most appropriate recipe
for Europe’s woes, the stage is set for potential volatility there.
(iii) Velocity of Money is often understated, and is assumed to be close to zero in
modern advanced economies. Conventional wisdom rules out the possibility of
market participants giving up on capital destructive markets and running for the
exit in any significant amount. So far, such behavioural economic dynamics have
held, with outflows from Italy and Spain, for example, at low levels. Whilst we
believe that 30 years of declining rates, credit expansion and generalized welfare
have created the premises for such market resilience, we also think that market
status could shift promptly and unexpectedly. Capital mobility is the highest in
history and the velocity of money could resurface abruptly. If history is any
guide, in several instances in the past velocity has proven lethal, especially in
the presence of fixed exchange-rate regimes, like the Euro. (Read). If anything,
capital mobility together with the risk of contagion is higher now than it has ever
been: one element amongst many that is often overlooked is the derivatives
exposure of major banks, for instance. Please have a look at the attached
thought-provoking visualization of it for a self-explanatory argument.
4. In the Long-Term, we prepare for what we called ‘’Bursting of the Bubble Phase’, as we
advocate for such renewed government intervention (maybe the last one, maybe not) to
inflate the bubble even more and set the stage for one of two events under our Multiple
Equilibria Markets theory: Inflation Outcome (Nominal Defaults, Debt Monetization and
Currency Debasement) on the one hand or a Default Outcome (Real Default and Debt
Rescheduling/Haircut) on the other (see our March Outlook for how we define them). We
still doubt we will manage to stay in the middle of the distribution curve and avoid tail
scenarios, as another month has gone by and we saw further deterioration of the economic
environment, as reflected by data on GDP, Unemployment, Productivity, Imbalances across
Europe. GDP in particular, the only factor which could represent a game-changer, is the only
certain casualty of Eurocrats’ policymaking. As Soros intelligently encapsulated it in a recent
interview ‘’you can grow out of excessive debt, you cannot shrink out of excessive debt’’.
European planners have taken the route of quantitative easing and money printing, financial
repression, market manipulation and stock prices levitation, zero interest rate policy and
negative real yields. Japan has attempted a similar strategy for the last 20 years, resulting
in two lost decades and an equity market 70% off its highs. At the time, at least, the rest of
the world was healthy and growing (under the powerful drive of lower and lower-able
interest rates and expanding leverage): today such buffer is unavailable. Indeed, in the past
week, 2yr German Bund yield was lower than Japan’s equivalent for the first time in
history (also indicating a potential further rally of 10yr Bunds of 80bps before going flat on
JGBs). Similarly to Japan, Europeans are attempting at reducing an unsustainable chronic
level of debt by driving aggregate demand to grow less than income and productivity for
many years in a row. But such adjustment may become growingly unbearable to specific
classes of market participants, who may then trigger the bust of the bubble: EUR holders
and taxpayers have multiple elections this year to manifest their discontent and attempt
to change the course of action. Such awakening would increase the odds of our Default
Scenario. On the other end, should they not awake from their deep-sleep, our Inflation
Scenario would then be made more probable, as money printing is a finite resource itself
and not one without unintended consequences.
Critically, market levels and market depth for positioning for such Tail Scenarios are
available and cheap. For both events we see the market supply of deeply asymmetric
profiles, making their risk/reward ratios overly appealing. The market does not price in as
yet such extreme outcomes, in what we believe is a replica of an hard-to-die irrational
5. exuberance, except for VIX and most celebrated ‘fear factors’ which are therefore over-
crowded and over-priced. As long as you can look beyond the VIX, which does not represent
a viable instrument at current rates in our eyes, into what we call Embedded Options and
Dislocation Hedges, you are off to a successful hunting season on Tail Risk Hedging.
What I liked this week
Must Read, Ed Nolan: What Happened When Poland’s Fixed Exchange Rate Experiment
Failed: Lessons for a Euro Divorce. Poland’s experience with its crawling band provides a
practical example of that strategy: a gradually widening corridor that created room for two-
way movement of the exchange rate and, eventually, an uneventful exit to a free float.
Read
Egypt announced that it is cutting off its natural gas supplies to Israel, which just so
happens relies on Egypt for 40% of its energy needs. Read
Spanish property crisis will require Ireland-style banking system recapitalization. There are
at least 21,000 "zombie [property developers] companies" in Spain that owe banks 126
billion euros Read
W-End Readings
Jeremy Grantham Explains How To "Survive Betting Against Bull Market Irrationality" Read
Navigating the channel is treacherous for to err too far to one side and your ship plunges off
the waterfall of deflation but too close to the other and it burns in the hellfire of inflation….
Our fear of deflation may damn us to hyperinflation. Even if we fall over the waterfall of
deflation first at the very bottom of that abyss may be the hyperinflation fire. Read
Interview with Jim Grant: he goes on to discuss the hypocrisy of Bernanke (noting the
importance of free market prices to his students and yet controlling interest rates overtly in
the market-place) and highlights interest rates role as the traffic light signal in a market
economy providing a critical input to our perception of value in stocks, bonds, real estate,
6. Silicon Valley Startups, and so on and because these rates are manipulated we live and
invest in a hall-of-mirrors leaving us with a distorted vision of the real-world. Video
China’s Numbers are Unreliable: Dr. Chovanec points out that the official numbers for
inflation, the GDP growth, and corporate earnings may all be misstated to look materially
better than reality. Video
Porsche Mongolian Push Shows Chinese Wealth Heading West Read
Hans Rosling on Global Population Growth: new facts and stunning data visuals Video
Francesco Filia
CEO & CIO of Fasanara Capital ltd
Mobile: +44 7715420001
E-Mail: francesco.filia@fasanara.com
16 Berkeley Street, London, W1J 8DZ, London
Authorised and Regulated by the Financial Services Authority
“This document has been issued by Fasanara Capital Limited, which is authorised and regulated by the
Financial Services Authority. The information in this document does not constitute, or form part of, any offer to
sell or issue, or any offer to purchase or subscribe for shares, nor shall this document or any part of it or the fact
of its distribution form the basis of or be relied on in connection with any contract. Interests in any investment
funds managed by New Co will be offered and sold only pursuant to the prospectus [offering memorandum]
relating to such funds. An investment in any Fasanara Capital Limited investment fund carries a high degree of
risk and is not suitable for retail investors.] Fasanara Capital Limited has not taken any steps to ensure that the
securities referred to in this document are suitable for any particular investor and no assurance can be given
that the stated investment objectives will be achieved. Fasanara Capital Limited may, to the extent permitted
by law, act upon or use the information or opinions presented herein, or the research or analysis on which it is
based, before the material is published. Fasanara Capital Limited [and its] personnel may have, or have had,
investments in these securities. The law may restrict distribution of this document in certain jurisdictions,
therefore, persons into whose possession this document comes should inform themselves about and observe
any such restrictions.”