Aly-Khan Satchu

T-Bills: Bubble, Bubble, Toil and Trouble

I beg to differ. Many years ago, when I ran an Interest rate trading desk in london, one of my Traders lent a Japanese Bond [on repo] on the basis that rates could not go negative. They did in the very short end of the curve because it was against the Law to FAIL TO DELIVER. The FED has already put everyone on notice that there are ready to reduce penalties for a failure to deliver and this will launch the curve through 0%.

Secondly, i think Japan is the precursor. We are in an unprecedented situation. We are moving from a situation where credit was the oxygen and now there isn't any. This is not a small thing. Its a tectonic shift. We are in a process of asphyxiation. The FED will certainly loosen the taps but unless Bernanke is set to put his Helicopter thesis into action, I think the bias [many of us are too young to recall a bear market depression] is towards an elongated L and not a V. We live in an instant gratification world but this time its going to take a lot to resuscitate the patient.

finally, i think you entirely underestimate, the ability of bernanke et al to discipline the curve and keep it bid buy deploying outsize buying at various points in the curve, as and when desired. We have a Bernanke PUT on the bond market as oppose to the Greenspan PUT on the equity markets.

I reckon the 30 year will trade a 2% yield and I am selling PUTS [and have been doing for some time].

Look at japan post bubble.

The world has changed.

Aly-Khan satchu
rich.co.ke

happy Christmas.

If you have the inclination, you might go here
www.rich.co.ke/rctools...

and play with the calendar to see comments from the beginning of the year.

Seismic Geopolitical Events Have Little Effect on Markets

Dear Matt,

A very interesting piece. May I challenge a couple of your conclusions.

The blow off top to $147.00 was substantially driven by fears that the US or Israel was readying an attack on Iran. Quite properly, the consequences of such an attack were impossible to model. Iran is not Iraq. It is a materially different proposition. Once the President ruled this out the market slipped into free fall.

Re: Gaza

The Gaza strip is best characterised as a prison. Therefore, besides lobbing a few totally ineffective rockets, there is no risk of reaction or contagion. Therefore, Gold and Oil were unable to rally. It hardly compares with the toppling of the Shah [for example] when Gold surged last time around.

Re: India and Mumbai

The Sensex is one side of the coin. Have you had a peek at the Karachi stock Exchange? Thats certainly reacted. The Sensex had already tumbled from over 20,000 to below 10,000. The attack whilst alarming was not material.

Re: Russia and Georgia.

Putin certainly served notice of a sort but within a few weeks, the Economy cratered world wide. Had that episode occurred in the early months of the year the reaction would have been entirely differently.

I wish you a wonderful new Year.

Aly-Khan Satchu
rich.co.ke

I have written a commentary all year here
www.rich.co.ke/rctools...

Please use the calendar to see comments and when.

Commodities Volatility Indicate Firming Demand, Rising Prices

I think the Equity markets might have found a bottom.

The only reason Oil has bounced is because of the Contango and a misperception that Gaza carries geopolitical risks.

You might care to look at the Baltic Dry Index. It has been a near perfect forward indicator.

Aly-Khan Satchu
rich.co.ke

AIG's Bold Move and Why I'm Shorting the Long Bond

I would take the other side of your Trade. I feel we live in simply unprecedented times and the reversion to the mean idea is a mistaken one in this context. We are asphyxiating asset prices via the withdrawal of credit. This is not a small one time thing but a major long term one.

I would urge you to look at Japan post bubble as the precursor to what will eventually play out. Moreover, the only real tool in the tool box for resuscitating the Banking sector is going to be via a steepish yield curve, a positive carry environment [and the carry will get a lot juicier when Fails are punished which I am sure is imminent] and ultimately via a Bernanke put. By that I mean Bernanke will have to underwrite the yield curve via outsize buying [as and when required].

I think the tectonic plates have shifted in this regard and very little can jolt this trend.

Aly-Khan Satchu
rich.co.ke

How OPEC Can Support Oil Prices - UBS

It is far easier to play at the Three Musketeers [One for all and all for one] in a bullish market. Conditions are bearish and there is a gulf between the rhetoric and the reality. The marginal overdemand meant in the go go expansion phase, the ultimate Price setter was that 3% who need to cover. With demand cratering [see Baltic Dry Index and has been an excellent lead indicator], supply is overwhelming and enforcement discipline 0 or very near there. We are headed to $32.50 and then below.

Aly-Khan Satchu
rich.co.ke

All Eyes on the U.S. Dollar

Good Grief.

Very bright eyed and bushy tailed? I have tended to find that Patriotism whilst a laudable emotion, is entirely useless when it comes to investing.

The $ rally has ended this morning as the United States deploys the Zimbabwe monetary strategy which is to print notes and hyperinflate.

The US Government has had to intervene because the Global Free markets are not prepared to pony up any more risk capital for those who have so patently diplayed an ability to lose it.

The response is correct but lets not kid ourselves that it is the best response in a truly abject position.Transferring as yet unquantifiable losses from a defunct Banking Sector to the Taxpayer is not an act of muscularity, I am afraid. Its a last resort.

Aly-Khan Satchu
rich.co.ke

Gustav and the Oil Volatility Index

IEA have tried to cap the price but its effect has been fleeting and confirms that Oil has based out now. Putin has the oil market by the proverbial cohones and I refer you to the following;\

Russia may cut off oil flow to the West
www.telegraph.co.uk/mo...

It seems sensible to be long now.

regards
Aly-Khan Satchu
rich.co.ke

Contrarian Trading Tips: Gold, the Dollar, Energy and Financials

Nearly every commentary I have read today is suggesting the same strategy so perhaps the real contrarian would buy the $ and sell Gold and Energy.
Aly-Khan Satchu
rich.co.ke

Is the Dollar Rallying on Realigned Expectations?

The dollar is rallying because nearly all the bad news is in the price. The bad news is not in the price elsewhere. I think this rally will gain real traction and that the ascendancy of Barrack Obama will completely change the way that International Investors look at the US. The US Real Estate market has already adjusted with a vengeance, the others [especially in Europe] are still playing at the edges. I like 1 year calls 1.40 strike versus Euro.

Aly-Khan Satchu
rich.co.ke

Is It Time to Bet Against Oil?

Oil is the most accurate barometer of Geopolitical risk, especially in the Middle East. Sabre rattling by the Israelis first and now the Iranians will keep the market on the boil until Bush and Cheney exit the White House. I would err on the side of buying PUTS [1 year expiry] on a 'black swan' event that drives us upto the $170.00 area, if that happens.

Aly-Khan Satchu
rich.co.ke

Oil Price Implications of a Strike on Iran

I wrote this Friday.

US says Israel exercise seemed directed at Iran: report
afp.google.com/article...

US officials say a major military exercise carried out by Israel
earlier this month seemed to be a practice for any potential strike
against Iran's nuclear facilities, US media reported Friday.

More than 100 Israeli F-16 and F-15 fighter jets took part in
maneuvers over the eastern Mediterranean and Greece in the first week
of June to gear the military for long-range strikes and demonstrate
Israel's serious concern over Iran's nuclear ambitions, the New York
Times cited US officials as saying.

A Pentagon official briefed on the exercise said a goal of the
practice flights was to send a message that the Jewish state was
prepared to act militarily if diplomatic efforts failed to halt
Tehran's production of bomb-grade uranium.

"They wanted us to know, they wanted the Europeans to know, and they
wanted the Iranians to know," the Pentagon official was quoted as
saying.

"There's a lot of signaling going on at different levels."

Conclusions

This is lifting crude prices higher. It is curious that it was nearly
30 years ago that the Ayatollah was swept into power. I remember
watching the revolution unfold on the TV. I had gone to study at
Westminster School that very same year. The catalyst for the
revolution was best captured by
www.randomhouse.com/ac...
The Ayatollah was in France and as the Shah become more repressive,
every Friday he would send a tape which would be played in the
Mosques. The Shah began to feel very threatened especially when
Worshippers left the mosque of a Friday and one Friday, he sent the
hated Savak into the Mosques. The next Friday he was gone. The tape
said,
'He is an Infidel, he does not respect the holiest of places.'
The Peacock throne fell and on such seemingly trifling mistakes, Regimes fall.

The Iranian version of Shia Islam is deeply rooted in the idea of
Martydom and sacrifice. Millions of Iranians went to their deaths
against Saddam. The West still sees Iran through the Pahlavi prism,
because so many of them are in LA.

My point is this. It might make great TV lobbing a few well directed
missiles at the Iranians and my concern is that a President who sees
so much in a stark black and white, good and evil prism, nearing the
end of his tenure, it might seem a great exit option. It really might.
This would not be taken lying down by the Iranians and I think they
could really hold our feet to the fire in Iraq.

How Iran would retaliate if it comes to war
www.csmonitor.com/2008...

"If you attack Iran you are unleashing a firestorm of reaction
internally that will only strengthen revolutionary forces, and
externally in the region," says Ranstorp. "It's a nightmare scenario
for any contingency planner, and I think you really enter the twilight
zone if you strike Iran."

So what does such a scenario do to the Crude market? It creates a
potential super spike. How to exploit this? ONE TOUCH.

Aly-Khan Satchu
rich.co.ke

Go To Africa, Young Investor

The African renaissance started some years ago. The clearest evidence of this is given by the returns that have been generated in SSA post 2002. Kenya has returned [and this replicated across the entire Continent] near enough 600% in $ terms. Crude Oil has returned 697% from trough to peak! Clearly, this is something that cannot be ignored.

Some of the comments above also touch on what I call the 'Bob Geldof Live Aid discount'. For many, Africa will always be the Dark Continent. This too is an opportunity. When I look at something, I dont have 1000s of MBA graduates doing the same. I consider that an advantage. This discount is narrowing.

The big picture is that Africa is undergoing a late stage Industrial revolution. In the 21st century, it can all happen in a very short space of time, as if it were on 'steroids'. Businesses are relatively straight forward and not over complexified with assets that no Management or employee understands. The greatest opportunity lies in finding businesses that are creating scale out of previously fragmented markets.

Its a no brainer.
Aly-Khan Satchu
rich.co.ke

US Dollar: 5 Reasons It Will Not Hit a New Low

If I might throw in my cents worth. I tend to agree with the Author. I know Bernanke's nickname was 'Helicopter Bernanke'; he proposed a theory that in intractable recessions, monetary policy would be helped by throwing money from the sky!

Having said that, the US real curve is now steepening. This will add some spine to the $. Short term rates currently are subsidising the Banks thats for sure but long term rates are taking cognisance of the more hawkish rhetoric.

Sentiment [as witnessed by the other comments] is so utterly negative that purely on that basis, the elastic is stretched way too far.

Aly-Khan Satchu
rich.co.ke

Oil ETFs: What if the Dollar Strengthens?

It is highly unusual for The Fed to comment on the $ and I think it reflects a degree of concern that $ shorters need to take notice of.
Paul Volcker also recently broke with form to say that there was a $ crisis. So I feel that the $ can rally substantially from here. In that context, it would be a little foolhardy to stand in front of what might very well become a freight train in the Crude markets.

This is not the time to be limit long Crude.

Aly-Khan Satchu
rich.co.ke

Weekly Market Commentary: May 19th - May 23rd

Matthew,

Very enlightening. I have a strong conviction about the softs and was keen to make a leveraged investment via Options. From your piece, its clear that you trade them. Is there a liquid market for options two years out in the softs? Is this the way you would reccommend the play, out of the money calls or are there other structures you can reccommend?

Aly-Khan Satchu
rich.co.ke