Guest comment on 2011 so far, wih some views of where we may head..

Today I have the honour of a guest posting from someone I have known and respected for many years. He prefers the posting to remain anonymous, however I will just add that he is very good friend who is highly knowledgeable on markets having traded them very successfully for the best part of the past 2 decades. I particularly like his comments on yields. 

Feedback and commentary, whether in agreement, or with alternative views, would be highly welcomed..

Below is my data and my thoughts on the year thus far ... if , by the time you read this, new highs or lows have been made in a certain product , then that is my apology , but its a moving market....

ok , so below you will find the products i track regularly , their years highs and lows And the date these levels were made, and some short , brief thoughts from myself (all original, unless quoted) .  if you could take some time and look at the data and the dtes, you will be able to discern some patterns and events that have been major points this year...middle east ; japan and the mini crash and the subsequent jpy intervention; ecb hawkishness ; all rates relative to usa widening ; vix complacency etc....

I hope you enjoy looking at this and i would welcome all your thoughts

asset class                            years hi and date made                                        year low and date made

------------------                       --------------------------------                                       ------------------------------

dow jones                           12419  (1/4)                                                              11555  (16/3)

sp                                         1344  (18/2)                                                             1248 (16/3)

nikkei                                      10857 (21/2)                                                          8227 (15/3)

ftse                                           6091 (8/2)                                                              5598 (16/3)

dax                                            7426 (18/2)                                                             6483 (15/3) 

shanghai                                   3002 (9/3)                                                              2677 (25/1)

observations :  there was a mini crash on 15 and 16 march on nuclear radiation panic ...but clearly the dow has fully recovered . ftse in narrow range as befits a country stumbling along with a fair amount of economic issues (pure commodity inflation ,unemployment , falling wages , fiscal austerity , weak housing etc )  ; the nikkei should lag all for a while .  shanghai also narrow range as markets constantly anticipating chines RRR hikes and rate hikes and the 'pending' china slowdown or crash landing . less hot money is being drawn to chinese asset bubbles.

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vix                                              31.28 (16/3)                                                         15.46  (14/1 )    [ note a few bounces around 15.5 on few occasions]

gold                                            1447  (24/3)                                                        1308 (27/1)

WTI crude                                  108  (1/4)                                                              84.22 (15/1)

observations : Gold and Brent are having a period of high correlation , with a 1% move in Brent driving about a 0.5% move in Gold as movements have been largely driven by Middle East events.   the vix should not really go below 15 as there must be a form of fear premium in the market .  vix close to 15/16 is an alarm bell for risk assets . nevertheless , the asset markets are rising on a mixture of vapour , decent economic news, qe2 and easy money , and all bad news gets shrugged aside . this could be a problem in spurts ....but overall there is optimism out there. 

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june 2y tsy                                 109. 16 3/4  (16/3)                                            108.22 (8/2)

june 10y tsy                              121.08   (16/3)                                                    116.12 (8/2)

june 30y tsy                             122.16   (16/3)                                                     115.21 (8/2)

june gilt                                     119.46  (3/1)                                                       114.13(9/2)

june schatz                                 108.82    (3/1)                                                      107.03 (1/4)

june bund                                    124.85 (10/1)                                                     120.73 (1/4)

2y tsy yield                                0.893 (1/4)                                                        0.54 (28/1 and 16/3)

10y tsy yield                               3.766  (9/2)                                                        3.145 (16/3)

30y tsy yield                                 4.787  (9/2)                                                     4.32 (16/3)

gilt yield                                     3.912 (9/2)                                                          3.42 (4/1)

schatz yield                                 1.856  (1/4)                                                       0.817 (4/1)

bund yield                                    3.41 (1/4)                                                         2.852 (7/1)

observations :  clearly german fixed income the massive underperformer on mixture of hawkishness from ecb inflation paranoia ; good stock market performances ; higher long end global yields as BRIC countries are also raising rates and anticipation of end of QE2 and the rally thats underway in usa long yields. BUT ALSO PLEASE NOTE..the more the germans help bail out euro peripheries , then the more the bund etc become one of them!! ie the bund will be debt laden too...hence bund to underperform , anyway.   also,  note 16/3 mini stock crash and black swan event caused us yields to implode ....

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eurusd                                        1.4248  (22/3)                                                  1.2863 (10/1)

cable                                           1.6400 (22/3)                                                    1.5406 (6/1)

eurgbp                                         0.8852 (31/3)                                                   0.8283 (7/1)

usdjpy                                       84.73 (1/4)                                                        76.25(16/3)

eurjpy                                        119.78 (1/4)                                                     106.81 (16/3)

aud                                           1.0395 (1/4)                                                      0.9708 (16/3)

euraud                                       1.4337 (16/3)                                                   1.2930  (7/1)

audjpy                                        87.59 (1/4)                                                       74.57 (16/3)

usdchf                                        0.9785  (11/1)                                                   0.8862 (16/3)

eurchf                                        1.3204  (11/2)                                                    1.2414  (31/1 and 16/3)

usdcad                                        1.0030  (23/1)                                                   0.9627  (1/4)

nzd                                               0.7816  (2/2)                                                    0.7120  (16/3)

eursek                                         9.0321 (16/3)                                                     8.6993  (16/2)

eurnok                                         7.9715   (28/1)                                                    7.6825 (3/3)

observations....clearly the jpy intervention has been the driver form 16/3 lows to 1/4 highs seen above as the carry trade was given license to print as the speculators were completely flushed out after 16/3 flash crash....   its hard to ever imagine the 16/3 lows will be seen again ... but how haigh can the carry trade go before it buckles under its weight ? who is not long aud, nzd, cad , sek , nok etc?? 

it definitely feels that a carry bubble is being made as aud makes new highs every day , despite softer economic data . (aud pmi dropped 4 points this week).

-------------------------------------------hi's                                                                      lows

euribors 

 jun11                                         98.92 (3/1)                                                              98.345 (3 and 4 march) 

 sep 11                                       98.83    "                                                                  98.045            "

 dec 11                                       98.705  "                                                                   97.785           "

 mar12                                        98.57    "                                                                   97.575            "

jun12                                           98.40   "                                                                    97.375    (3 and 4 march and 1 april)

 sep 12                                         98.175 "                                                                    97.19           (1/4)

observations ... there are enough hikes priced in here .... totally and i would go as far as saying we could be seeing the interim bottoming of the european fixed income curve , both short end and long end ...as one GS observer put it : 3 month Sharpe ratio’s above 4 are often indicative of a “micro bubble” in terms of market psychology. Currently European front-end  has one of 4.4 for bearish positions indicating such positioning might be vulnerable to even modestly bullish catalysts in the near term.
i toltally concurr ... maybe trichet , after hiking on thursday , disspells market view of continuous hikes ??

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short sterling

 jun11                                        99.13 (3/1)                                                               98.77 (7/2)

 sep11                                        99.00   "                                                                   98.49    "

 dec11                                        98.79   "                                                                    98.20   "

 mar 12                                       98.55  "                                                                     97.87  (15/2)

 jun12                                         98.28   "                                                                    97.55   (15/2)

 sep12                                        98.02    (16/3)                                                           97.30    (15/2)

observations :  in a holding pattern , awaiting for  the 'to hike or not to hike' debate to unfold.... again , i believe a lot priced in , given the fragile economy . commodity inflation , with non rising wages , is demand destructive ... its a portend to a disaster ifrates are hiked aggressively .

a token 'regain our credibility hike' by the BOE has no place in this economy at moment.

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eurodollars

 jun11                                       99.66  (1/4)                                                               99.475  (6/1)

 sep11                                      99.61 (15/3)                                                               99.315   (6/1)

 dec11                                      99.50  (16/3)                                                             99.09     (6/1)

 mar 12                                    99.35   (16/3)                                                              98.825 (6/1)

 jun12                                       99.11  (16/3)                                                                98.45 (6/1)

 sep12                                      98.82   (16/3 )                                                             98.09  (16/2)

observations : totally slave to feds QE2 and if it will end on or before june .. we see all the differing opinions between the hawks and the doves out recently.  my view is it goes on till june , then end .... i think the us rate curve is massively underpriced , relative to europe and uk , so there is a call by me that we are close to big turn in the rate differentials between the us and all europe . close could mean a week or a couple of months....but not more. this ties in with my view of carry trade being in danger and european yield curve too high .

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1y eurusd                               -146  pips (1/4)                                                          -23 pips (3/1) .....

1y usdjpy                              -52 pips  (5/1)                                                             -37 pips (3/1)

1y cable                                 -124 pips (23/2)                                                          -67 pips (3/1) 

observations .... from above , it is clear my view is that forward eurusd and forward cable go back to right eventually and hard .. and forward jpy to left ....