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Cagdas Ozgenc's  Instablog

Cagdas Ozgenc
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Bank executive, individual investor.
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  • Buy Europe, Short TRY To Hedge

    Yet another denied article. These SA editors are plain idiots.

    What a wonderful year...Mouth watering trades one after another.

    My first recommendation was Japanese equities. Up 30%. The trade lost its excitement recently. There may be future upside, but I bailed out to allocate capital to Apple (NASDAQ:AAPL) stocks. I have been buying since it touched 400.

    http://seekingalpha.com/article/1110771-triple-whammy-in-investing-in-japanese-equities

    Second recommendation was to long AUDJPY. That trade made 15%. I hope you were also trading with trailing stops and bailed out before trend reversed.

    http://seekingalpha.com/article/1114641-australia-japan-trade-balance-and-the-aud-jpy-trade

    Finally last week I was trying to alert everybody for the absolute best timing for Apple stock, but was unfortunately not published, I had to post as an instablog.

    http://seekingalpha.com/instablog/4845251-cagdas-ozgenc/2097082-is-europe-dead-is-apple-a-hedgefund

    What now? I have two planned trades for Autumn. First one is to invest in European equities. Specifically in France and Italy. I briefly mentioned about this in the last article above. The European stock markets other than UK and Germany are at extremely depressed levels. For sure there will be some volatility due to FED tapering and other austerity related issues in US during September. Nevertheless the rotation from already peak US equities towards European stock markets has started. European markets are already up 15% since beginning of July. Don't worry you haven't missed anything. There is much more to come. Recent upswing in EURUSD and general weakness in USD confirms that some investors are shifting money out of US. I also investigated emerging markets to figure out where else this money is going. It seems investors are avoiding emerging markets other than South Africa. I personally invest in country indices because I can use tons of leverage on my bets compared to single stocks. If you would like to be selective and avoid the kind of volatility and gambling spirit I have, then I recommend buying the financial sector. Finding the right banks may be problematic. Some of them will go sour. There are a few European financial sector ETFs however. You have to do some Googling and look at the list of holdings to figure out what kind of country exposure you are taking.

    About those emerging markets... Up until the tapering discussions emerging market currencies were doing good. At least they were stable with respect to USD. The reason was that interest rates in US were artificially too low compared to interest rates in emerging markets. After 2009 crash all that liquidity flew to emerging market stock and bond markets to capture higher yields with huge returns up to 250%. Investors were quite comfortable about the FX risk they were taking because emerging market currencies devalued drastically during the 2009 crash as well. USD gained against almost all currencies. Probably after all that devaluation they did not even bother hedging the currency risk. Now the tables have turned. Interest rates are rising in US due to tapering talks. Investors are frontrunning FED by dumping the US government bonds causing an increase in rates even when FED hasn't started tapering. The relative risk/return is probably not justified for some investors anymore. If they start to get higher yield on US bonds, why would they risk going to emerging markets? The money is not going to US bonds yet as investors are dumping them at the moment. This period will be good for European equities as I mentioned above. Once the interest rates go high enough, bond dumping should be countered by bond buying hence should stabilize. I just don't know when.

    All these mechanics will cause a shock on emerging market currencies. Money will leave the emerging markets and the respective currencies will lose value. Among many emerging markets there is one very crucial country: Turkey. Turkey has a large current account deficit, mostly due to energy imports, so far covered by the pumped liquidity by FED, ECB, and other central banks. Moreover the recent social unrest and deteriorating relations between some large business owners and the government are making things worse. Government is also stubborn to raise interest rates to counteract the pressure as part of their Islamic agenda. As Bernanke will open his mouth in September and utter the words "Tape....", USDTRY currency pair will devalue 10% before he finishes his sentence. It has already devalued 10% since the last 3 months. These days I will start allocating capital to USDTRY pair long position as I see some pullbacks (if there will be any). Also let's not forget the classical December effect of position closing of US investors in emerging markets causing further pressure. Hopefully everything resets in January and we start by new ideas.

    Long USDTRY will be an exremely low cost hedge against tapering noise and pullback in equities. As always I put my money where my mouth is. Long European equities and USDTRY!

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Long Italy, France, USDTRY

    Aug 16 12:46 PM | Link | 4 Comments
  • Is Europe Dead? Is Apple A Hedgefund?

    Another denied SA article becoming a blog post. I should be writing garbage that loses investors a lot of money but causing big flame wars and lots of page hits. Well, never mind.

    European equities lagging their US counterparts for sometime now, especially those in problematic countries like Spain, Italy, Portugal, and Greece. Germany, UK, and France are doing better. Recent economic indicators are signaling positive developments in the Eurozone in general. Unemployment finally ticked down, confidence ticked up, and some signs of inflation albeit quite small. Banking system is still fragile. Nevertheless in my opinion Europe has bottomed, and it is not dead. My plan is to invest in France as it relatively is better than Italy, Spain, Portugal and Greece, but prices are still beaten down unlike Germany and UK. Recent earnings surprise of Societe Generale is also a positive sign. As a macro investor I usually go with the indexes. I believe for someone with a 1-2 year investment horizon it is a good bet. Downside is limited to 10% with the Draghi put and strong resistance line.

    Europe train is not as pressing as my next topic. You still have time to follow the economic indicators and delay the decision of buying European equities to a more favorable time.

    Apple (NASDAQ:AAPL) had the biggest non-bank private debt issuance a few months ago. I was talking about the need for such a move way before that and been grilled by some SA contributers. 17 billion dollar bond issuance (14bln with a fixed rate, 3bln with 2043 maturity) when the interest rates are their lowest levels was plain genius. Many people were focusing on tax repatriation issues, but in fact the whole thing is a hedge-fund move. Apple is at the moment one of the biggest hedge funds in the world (you thought it was a hardware/software/media company?) with hundreds of billions of dollars of cash. As US government rates will edge higher and higher, private sector bonds will follow. The Apple bonds are now trading up to 12% discount depending on their maturities. I conjecture that in a few years Apple will buy back its debt from the market for half the value. I invite you to calculate the PNL effect. Thanks to FED who pumped so much free money in the market, enabled an environment so that companies like Apple could replace their expensive equity base with a once in a life time dirt cheap debt, letting dollar holders/suckers to hold the bag when the interest rates edge up.

    Apple has very solid financials and it has been covered way too many times in SA, so I won't repeat that. I just would like to mention one thing that is overlooked. Many people are focusing on earnings growth. Yes, earnings growth is very important, and if earnings are growing it makes your decision to buy easy. Nevertheless many people are ignoring the fact that the liquidation value of this company is rising every day. I think we are on the verge of Apple's new massive bull run. The probability of positive surprises in the next 3 months is so high that one should be invested now in order to enjoy the initial sweet jump. New product cycle, Christmas, China Mobile deal possibility, together with the massive share buyback program will be great catalysts. Of course the important point is that these catalysts are very near, and it is always a good idea to buy the stock close to positive surprises so that you will not sit on the stock for years before anything happens like a chicken sitting on its egg. To summarize: new product cycle, holiday season, China deal, stock buy back, dividend, profit from hedge-fund activities, day by day increasing liquidation value. Go for it.

    Disclosure: I am long AAPL.

    Additional disclosure: I am long Nikkei.

    Tags: AAPL
    Aug 05 3:58 AM | Link | 4 Comments
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    May 15, 2014
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    May 13, 2014
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