rob zdravevski's blog

Macro Extremes (week ending December 30, 2022)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

Cocoa

Overbought (RSI > 70)

German 2 and 5 year government bond yields

Cattle

Istanbul’s BIST Index

The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Japanese 10 year bond yield

Extremes “below” the Mean (at least 2.5 standard deviations)

U.S. 10 year bond yield minus German 10 year bond yield spread

AUD/JPY

Oversold (RSI < 30)

Chilean and Turkish 10 year government bond yields

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

None

Notes & Ideas:

’twas the week following Christmas and equities had a benign and solemn week. 

The Dow Jones Industrials, S&P MidCap 400, Nasdaq Biotech, SOX and S&P 500 all fell either 0.1% or 0.2% for the week. 

Once again, Bond yields mainly rose and overall they remain notably above their 200 week moving average.

This includes the widow-maker Japanese 10 year bond yield.

Amongst currencies, the AUD/EUR jean reverted to its 200 week moving average, while generally the AUD strengthened against all FX crosses.

Last week, I highlighted that the AUD/GBP posted a bullish outside reversal week. It rose 1% this past week.

The USD continues to weaken against currencies such as the Yen, the Won and many others as it moves towards the other side of the extreme pendulum along with the gravitational pull of the 200 week moving average.

In commodities, the larger moves were seen amongst the Platinum group of metals. Readers will recall that Palladium was mentioned in the last 2 editions of ‘extremes’ as visiting the lower end of its range along with registering new 52 week lows.

Those gas prices (Henry Hub and Dutch TTF) continue to decline and mean revert. More on those later.

While the biggest news was that U.S. Midwest Hot Rolled Coil Steel rose 13% and is no longer Oversold.

The larger advancers over the past week comprised of;

Australia Coking Coal 10.2%, Hot Rolled Coil Steel 12.6%, JKM LNG 5%, Nickel 5%, Palladium 3.8%, Platinum 5.2%, Gasoline 4%, Corn 1.8%, Wheat 2.1%, KBW Banking Index 1.6% and India’s Sensex rose 1.7%.

The group of decliners included;

Rotterdam Coal (19.5%), Baltic Dry Index (2.9%), Coffee (2.7%), Natural Gas (11.9%), Sugar (4.5%), Cotton (2.2%), Dutch TTF (8%), AEX (1.7%), KOSPI (3.3%), while Australia’s ASX 200 fell 1%.

Incidentally, the ASX 200, the S&P 500 and the Nasdaq 100 & Composite have all fallen now for 4 consecutive weeks. Albeit, this past week was quiet, they have declined a respective 3.7%, 5.8%, 9.1% and 9% over the past 4 weeks.

I wish readers of my notes, a wonderful 2023.

December 31, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Distressed debt isn’t born that way

What can go wrong?

Don’t worry about a thing….

Fuhgeddaboudit….

This article prompted me to write……

https://www.bloomberg.com/news/articles/2022-12-28/credit-market-cracks-widen-as-distressed-debt-nears-650-billion?sref=qLOW1ygh

On top of corporate borrowing and lending amongst public companies, many folks embraced lending their money to ‘private lending’ causes and products.

Maybe they thought if using the word ‘private’ in the descriptor, then it may have an air of exclusivity, perhaps like being with a Private Bank. Regarding the latter, ask how some of those Swiss types are performing lately.

I noticed a large amount of interest and participation (particularly in Australia) in more creative and opaque forms of lending, where impatient and bored capital was seeking a better return than, the then prevailing 1% cash rates.

Just like other times (perhaps when they were called CLO’s or Second Mortgages), I bet that we don’t know much about where the loans are, what they are secured against, who they have lent to who and who owns and has claim over them.

But if that is the case, all of that falls into the category that investors simply didn’t do any ‘work’ or research.

By the way, do distressed loans commence life ‘distressed’ or do we call them that, once they start looking a little less stellar than when they were first issued?

Amongst many things, you need to remember regular people don’t get the same terms as those names appearing in the newspapers who are touted as the cornerstone investors or those promoting this common and not so new thing which espouses the prospects of alternative, uncorrelated and less riskier ‘mark-to market’ returns.

p.s. it was torturous thinking up all of those jargonistic adjectives.

December 29, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 23, 2022)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

Cocoa

Sugar

Overbought (RSI > 70)

German 2 and 5 year government bond yields

Cattle

Istanbul’s BIST Index

The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Japanese 10 year bond yield

Extremes “below” the Mean (at least 2.5 standard deviations)

U.S. 10 year bond yield minus German 10 year bond yield spread

Palladium

AUD/JPY

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

None

Notes & Ideas:

We saw a sensible (all things considering) week for equities.

In last week’s edition, I wrote “I’m watching the Bovespa and the weaker Real”…

The Bovespa bounced 6.7% for the week, following last week’s Oversold reading and the Brazilian Real rose 2.8% over the week versus the USD.

Bond yields mainly rose and overall they remain notably above their 200 week moving average.

For some context (of the losses which have occurred in the bond market), the 200 week moving average for the German 10 year bond yield is 0.04%, while the bond is today trading at 2.41%.

Mean reversion predictions aside, this means that for a few years, the mean yield was hovering around 0.00% (and negative). The magnitude of the drawdown of capital is extraordinary.

The U.S. 5 year yield minus U.S. 3 month bill yield spread isn’t oversold anymore.

In commodities, gases were down and the petroleums were up, in size.

The Baltic Dry Index continues its rise, now up 34% in the past 5 weeks.  

Coffee has climbed 11% since the 6 weeks it appeared as oversold in this periodical.

Palladium hits a new 52 week low, again.

Hot Rolled Coil Steel remains Oversold for the 26th consecutive week,

The CRB Index still has more downside work (or convergence) towards reverting to its mean.

And the AUD/GBP posted a bullish outside reversal week.

The larger advancers over the past week comprised of;

Baltic Dry Index 5.8%, Brent Crude 6.7%, Cocoa 6.2%, WTI Crude Oil 6.9%, Gasoil 2.4%, Lean Hogs 2.4%, Heating Oil 4.7%, Coffee 4.6%,  Platinum 3%, Gasoline 11.8%, Sugar 4.4%, CRB Index 2.5%, Cotton 4%, Silver in AUD 1.8%, Silver in USD 2.2%, Corn 2%, Oats 7.4%, Rice 8.1%, Wheat 3%, S&P GSCI 3%, KBW Banking Index 1.7%, IBEX 1.9%, BOVESPA 6.7%, Helsinki 2%, FTSE 100 1.9% and Istanbul’s BIST climbed 4.5%

The group of decliners included;

Rotterdam Coal (2%), China Coal (3.9%), HRC Steel (2.1%), JKM KNG (21%), Natural Gas (23.1%), Orange Juice (2.9%), Rubber (2.7%), Dutch TTF Gas (28.1%), Urea (5.5%), Shanghai (3.6%), CSI 300 (3.2%), Nasdaq Composite (1.9%), Nikkei 225 (4.7%), Nasdaq 100 (2.3%), Nifty (2.5%), SOX (3.8%), TAIEX (1.8%), while the S&P 500 eased a mere 0.2%, the ASX 200 retreated 0.6% and the ASX Small Caps declined 1.2%.

December 24, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Potential ‘lower lows’ in big U.S. Oil stocks

As I seek lower prices across the energy complex before being interested in re-entering long positions…..

I’ve posted a chart of Occidental Petroleum (OXY:US) which broadly illustrates the pattern recognition amongst a host of stock prices related to this sector.

It’s a story of ‘higher highs”, ‘higher lows’, ‘lower highs’ and ‘lower lows’.

At this moment, if OXY breaks below $57.43, then the $54’a are tested and below that, the $43 region becomes in play, if not $39.

That’ll upset those who followed in behind Warren Buffett’s news or acquiring OXY shares in mid August 2022, but you need to research the terms which he was buying.

December 23, 2022

by Rob Zdravevski

rob@karriasset.com.au

Identifying parabolas and then mean reversion – the story of 2022

The most dominant words in my posts throughout 2022 were “parabola” and “mean reversion”.

Perhaps they appeared ad nauseam but it was were the action was……and the action was to recognise them and stay away.

The skilled (and brave or stupid) may have chosen to see them as shorting opportunities.

None of these calls and warnings will show up directly in anyone portfolio performance. It’ll just be something that we just wink at each other acknowledging that we saw what has going on.

An addendum to my studies covering this broader theme included references to the percentage an asset’s price was trading above its 200 day or 200 week moving average.

It all helped identify the rare air where prices were flying up to.

Since then, there has been much damage to investors, speculators and corporations.

Stay tuned for some examples of damage and mean reversion.

In the coming months, I think we will see prices continue to digest recent moves, produce a few more spikes and head fakes dragging in new participants while incumbent holders cling to new hope of breaking even.

Any new waves of weakness in prices (because markets are cruel) will see various speculators throw their weak hands in.

December 22, 2022

by Rob Zdravevski

rob@karriasset.com.au

Oversold AUD/JPY equates to buy signal for S&P 500

Another study to watch when looking for a notable low in the equity market.

When the AUD/JPY touches oversold on a weekly basis, ’tis tends to be an attractive accumulation moment in the S&P 500.

Perhaps we are approaching the 6th occurrence to be seen over the past 30 years.

December 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

In focus – Copper/Gold Ratio

Time to watch the Copper/Gold Ratio again and how it relates to the stockmarket and invariably the health of the economy, the direction of GDP, bond yields and even the price of Copper.

The chart below overlays the Copper/Gold Ratio with the S&P 500 along with a couple support and resistance lines thrown in.

December 19, 2022

by Rob Zdravevski

rob@karriasset.com.au