Luca Avellini

Momentum, short-term horizon, currencies, portfolio strategy
Luca Avellini
Momentum, short-term horizon, currencies, portfolio strategy
Contributor since: 2008
Company: JCI Capital
Larry made a good point. We are in a largely government-manipulated market. The government itself is on one hand issuing new debt to attract the liquidity it needs to finance the various packages, and on the other is buying back its own debt to keep interest rates artificially low. It's like borrowing cash with a credit card to deal with its monthly minimum payment. In my opinion it is not a question of if the bubble will pop, but - Larry says - when.
As per AustinESW's comment about EDV, be wary of that EFT's very short history (it was launched only 1 year ago) and very poor liquidity.
Brian, after reading your article, I'm left with the same question you asked at the beginning: why would anyone - particularly foreigners - buy debt for a 0% return? Particularly when we consider that dollar-denominated assets are losing value because of the currency depreciation. What sense would it make to buy short-term paper from a government with exploding deficit, denominated in a falling currency, and with a 0% yield to maturity?
But the most worrisome point however is this: the US debt is not $11 or $11 trillions. That's the on-balance sheet portion. Over the last few years the government has started to keep new debt off balance sheet, resulting in a real deficit closer to $55 trillion. At least according to David Walker, former U.S. Comptroller General. In the long run, who is going to finance that in exchange for a 2% or 3% return?
Be very cautious using options on TLT as, pasrticularly puts, are very illiquid and you risk to be at the mercy of the market maker when you try to get out. March 09 110P has only 836 contracts in open interest and quotes with a 12% bid/ask spread.
I agree with John. This administration is buying time until the elections. Should the market truly collapse, the Republicans would be in a very difficult position.
Interestingly, if you look at Friday volumes for some ETFs, they are all much lower than Thursday. And a short selling ban is a desperate measure that could potentially increase instability, and not reduce it.
Most of all, whatever the plan is, it will do nothing to address falling consumer spending, falling housing prices, and higher unemployment. Banks are not going to rehire those who were laid-off over the past few months and manufacturers are not going to see a surge in demand. Ultimately, in my opinion this is why the market has been falling. The collapse of part of the banking system is only part of the bigger picture
The plan only needs to support the market until the elections. Each time the market drops, Obama gets closer to McCain and of course Bush is not happy about that.
The question is: what are the consequences of this huge liquidity injection? Inflation. We are already in a global inflationary environment and this will just make it worse. High inflation + flat salaries + increased unemployment = depression?
The plan only needs to support the market until the elections. Each time the market drops, Obama gets closer to McCain and of course Bush is not happy about that.
The question is: what are the consequences of this huge liquidity injection? Inflation. We are already in a global inflationary environment and this will just make it worse. High inflation + flat salaries + increased unemployment = depression?
Salman, you make some valid points. However, I believe it's important to differentiate among commodities. In my article Not All Commodities Are Created Equal (the link is: seekingalpha.com/artic...), I point out that people need to eat, and gold and copper cannot be eaten. Population is growing, and that's a fact, while arable land remains basically the same. Moreover, climate changes affect agricultural commodities and such a way that the increase in production simply cannot meet additional demand.
I got hit by Natural Gas like many and can only blame myself for holding on way too long. I agree with the call about a stock market on the edge of the abiss, but then again the timing is hard to pick. Funny how the less people make and the more jobs are cut, the more those same people spend.
I'm long SPY 2010 puts and planning on adding more as soon as November comes.
The point about the impact of the leak is valid: it was announced on April 7 and it wasn't until June 16 that production reached again 900 mill cubic feet/day. In that period price went up by roughly 35%. However, in the period Jan 1-April 7, before the leak, price had already increased by 25%. In my opinion, the leak doesn't seem to explain the whole story.
Great article. Well worth reading from start to finish.
Here're my two cents: if you don't have time to investigate single stocks, don't rry to guess: futures or ETF can do the job pretty well. With declining oil supply, eventually there will be a shift: probably from oil to gas, perhaps from oil to nuclear.
Great heads up on PKN.
Thanks.
I didn't know about it.
On May 15 10:06 AM lminsky wrote:
> I'm starting to hear more about nuclear energy. I see that Invesco
>
> has a new ETF, PKN - a global nuclear energy fund. Any chance you
> could give us a sense of where we are with nuclear and potential
>
> future profit directions?
UNG and GAZ have been walking hand in hand, but UNG has much better liquidity.
3M average volume on GAZ is about $1.5M vs. UNG $65M.
On May 15 10:40 AM Tomas T wrote:
> Check ticker GAZ, I did very well for the past 2 weeks (10% +), (from
> user 193917)
Interesting articles, as most of the comments it triggered.
However, I think as the conversation progressed some lost sight of the point the author was making.
In my view, this is not about how large potential oil supplies might be. As all the above comments suggest, people have different, often conflicting opinions. The truth is that we don't really know, not does it matter. What does matter is the perception that the (negative) spread between supply and demand is widening. But even that is not really the point. The issues, I think, are:
1- At what price are we going to see a real shift from traditional to new sources of energy?
2 - Who is going to pay for the research?
3 - How long will the entire process take?
Question 1: At what price? Europe has been paying for decades almost four times what we pay in the US, and still not that much has happened there in terms of a serious changes
Question 2: Who is going to pay? Well, not the oil companies, who would have the resources, but not the interest. Not the auto industry, which might have the interest but not the resources. And not the governments, at least until they are buries under a pile of debt.
Question 3: How long? Your guess is as good as mine.
On one point I think most of the above comments seem to agree: natural gas looks like a good bet.
Richard,
Thank you for your comments. You are absolutely correct in pointing out the importance of current stockpile levels. I have gathered the following data: At the end of 1999 the world grain reserves covered 119 days of consumption. Today, we are looking at 50 days for corn and 70 days for wheat. During the period 2000-2005 cereal reserves covered 18 weeks on average. Today we are at 12 weeks, with corn at 8 weeks. The most striking aspect of these numbers is, in my opinion, the velocity at which reserves are contracting despite slightly increase in production.
As far as the relationship between foodstuff prices and commodity prices, it was my intention to point out that the correlation is less intuitive than one may expect due to a variety of factors, such as labor and transportation costs. Thus, commodity prices are not always a satisfactory leading indicator of where Food CPI inflation is headed.