snb, trader of the month ! the charts that matter

The Charts That Matter SNB, The Trader of the Month

February 2, 2015

Investir.ch powered by SEQUOIA Group – Loïc Schmid – 02.02.2015

1

2

Views in a nutshell

Assets 02.02 S/T view

02.02 L/T view

15.01 S/T view

15.01 L/T view

Comments

Cash Keep cash for opportunities

Investment grade bonds Bubbly, buy on dips

High yield bonds Only special situations

Sovereign bonds Bubbly in Europe, US OK

Convertibles bonds Buy on dips

European equities Short term overextended, long term looks ok

US Equities Stay away

Japanese equities Long term trend is positive

Emerging equities Buy Chinese stocks on dips

Precious metals Attractive levels

Oil End of capitulation phase?

Hedge funds CTAs and Macro strategies continue to be attractive

Volatility Buy volatility on dips

USD Looks stretched short term

Negative Positive No view


Previous views Current views

3

Central banks have created artificial growth QE has created deflation not inflation Are central banks long Wall Street / Short Main Street?

Artificial growth The beginning of the end?


4

The richest 80 people own has much as the 50% of world’s poorest ! HELLO??? If situation does not improve, social unrests will be unavoidable Is wealth confiscation down the road?

Bankable assets? Real Estate? Gold?

Wealth inequality A growing problem


5

January 15th, 2015 – The Swiss National Bank shocked the world (not us) by removing the 1.20 EUR/CHF peg and wiped-out many on-line forex accounts >> 35 big figures move that day (1.20-0.85) >> UNREAL !

According to a survey that we performed on investir.ch, EUR/CHF should sit around 1.03 (weighted average of answers) … (total votes: 510)

EUR/CHF

SNB – 1.20 PEG death They did it!


6

Huge balance sheet for a small country … Draghi’s QE was imminent = drag on the EUR Huge quantities of EUR were bought late December and beginning of January to keep the

PEG alive By the way, huge quantities of EUR were bought after the de-PEG… … that probably means that they have made a couple billions trading between 0.85

– 1.05 …

Swiss National Bank Status quo was not an option for them


SNB Trader of the Month

7

Swiss equities Good buy or goodbye?

It is very tempting to go shopping for Swiss stocks however, one must not underestimate the negative impact on margins and order backlog of the strong CHF

Swiss stocks remain expensive relative to European stocks especially Nestlé, Novartis and Roche

Have Swiss stocks just topped again after nearly reaching +2 standard deviation?

Eurostoxx50

SPI index


8

Swiss yields 5Yr government bond yields at -0.53%

-0.53% Great, can they go lower? You pay to lend money, great concept!

By the way, Switzerland is not the only continental country to have negative yields however, ours are really negative…

Eurostoxx50 Swiss 5yr yields


Japanese model?

9

European QE Done. Finally. And now?

Too late? Too small? Already partially or totally priced into bond markets? Will it work? Will it save or destroy Europe? 10Y Spanish bond yields are yielding less than US 10s >>> seriously?

Spanish 30Yr bond yields



“Whatever it takes” Mario Draghi, July 26, 2012


10

EUR/USD Is anyone long?

1.1192 is the 61.8% fibonacci retracement level (2000-2008) USD is overbought, EUR is oversold, BUY EUR/USD at current levels ? Current level seems to be a great support zone !

61.8% retracement level Bottom of the regression range (-2 standard deviation)

EUR/USD


11

The dollar New paradigm or END-OF-QE-rally?

Bear market is 30 years old It might have ended Recent breakout might signal a huge rally on the USD in the coming years!

Must wait for confirmation though If the FED starts QE again, the USD will fall…

Dollar index


12

Short term : stretched, take the profits on the way up to 3500 Medium term : potential negative comments on QE and Greece saga could be a drag Long term: if we manage to close above 3500-3520 (weekly close) expect 4500!

Eurostoxx50 3500 is a given

Eurstoxx50


13

Oil slump Traders are enjoying a contango curve

8 USD difference between Feb and Dec 2015 contract >>> spread widening Floating storage, what else? Will Saudi’s (new) King Salman be a game changer?

WTI DEC15

WTI FEB15


14

S&P500 stalling? Ego trip ending

US stocks have stalled, are they priced for perfection? Due to high valuation? PE 2015e = 17.00x Long Europe/Short US?

S&P500

EUROSTOXX50

100 = 1 year ago


15

Dow Jones 12% correction seems fair enough

Feels, looks, smells like a [rounding] top US equities seems priced for perfection Everybody is overweight US stocks Watch the 200 day moving average (blue line)

Dow Jones


16

Copper slump Buy Freeport McMoran?

Copper slump is hitting Freeport McMoran (66% of total revenues) Bonds attractive? coupon 3.55% - 5.4% YTM – maturity 01/03/22 Stock attractive? Recent analysts upgrades on the stock suggest optimism … with 67.8%

return potential! Bad news seems priced-in now…

Freeport McMoran – 3.55% - 01/03/22 – corp. bond

Copper

Freeport equity

Freeport CDS


17

Gold / S&P500 ratio Change of regime?

Gold is moving north Gold / S&P500 ratio suggests that the regime is changing in favour of Gold By the way, gold does not depend on a central bank like the… CHF (random example )

Breakout?


18

US rates are still falling 30Yr yields dropping the fastest Where is the bottom?

US rates Falling inflation forecasts

30yr

10yr

5yr

5Yr inflation swaps


19

Greek saga Monitor the Greek CDS

Default risk is moving north post-elections Default risk rising since last summer Will Apple bailout Greece ?

Greek CDS


20

Nikkei The big breakout?

It is hard to believe, but Japanese stocks still have room for improvement JPY continued weakness is positive for Japanese exporters and earnings Long term economic perspectives look dreadful however, in the meantime, current

economic stimulus programs should be supportive for Japanese stocks…

61.8% fibo retracement = 26’784 Nikkei


21

Bonus chart List of other currency PEGs, just in case…

Country Region Ccy Name Code Peg Rate Peg Ccy Rate Since

Benin Africa West African CFA Franc XOF 655.957 EUR 1999

Bermuda North America Bermuda Dollar BMD 1 USD 1972

Brunei Asia Brunei Dollar BND 1 SGD 1967

Burkina Faso Africa West African CFA Franc XOF 655.957 EUR 1999

Cameroon Africa Central African CFA Franc XAF 655.957 EUR 1999

Central African Republic Africa Central African CFA Franc XAF 655.957 EUR 1999

Chad Africa Central African CFA Franc XAF 655.957 EUR 1999

Dijibouti Africa Franc DJF 177.721 USD 1973

Equatorial Guinea Africa Central African CFA Franc XAF 655.957 EUR 1999

Eritrea Africa Nakfa ERN 15 USD 2005

Gabon Africa Central African CFA Franc XAF 655.957 EUR 1999

Guinea-Bissau Africa West African CFA Franc XOF 655.957 EUR 1999

Ivory Coast Africa West African CFA Franc XOF 655.957 EUR 1999

Lesotho Africa Loti LSL 1 ZAR 1980

Mali Africa West African CFA Franc XOF 655.957 EUR 1999

Namibia Africa Dollar NAD 1 ZAR 1993

Niger Africa West African CFA Franc XOF 655.957 EUR 1999

Republic of the Congo Africa Central African CFA Franc XAF 655.957 EUR 1999

Senegal Africa West African CFA Franc XOF 655.957 EUR 1999

Swaziland Africa Lilangeni SZL 1 ZAR 1974

Togo Africa West African CFA Franc XOF 655.957 EUR 1999

Hong Kong Asia Dollar HKD 7.75-7.85 USD 1998

Nepal Asia Rupee NPR 1.6 INR 1993

Cuba Central America Convertible Peso CUC 1 USD 2011

Panama Central America Balboa PAB 1 USD 1904

Bosnia and Herzegovina Europe Convertible Mark BAM 1.95583 EUR 2002

Bulgaria Europe Lev BGN 1.95583 EUR 2002

Denmark Europe Krone DKK 7.46038 EUR 1999

Latvia Europe Lats LVL 0.702804 EUR 2004

Lithuania Europe Litas LTL 3.4528 EUR 2005

Bahrain Middle East Dollar BHD 0.376 USD 2001

Jordan Middle East Dinar JOD 0.709 USD 1995

Lebanon Middle East Pound LBP 1507.5 USD 1997

Oman Middle East Rial OMR 0.3845 USD 1986

Qatar Middle East Riyal QAR 3.64 USD 2001

Saudi Arabia Middle East Riyal SAR 3.75 USD 2003

United Arab Emirates Middle East Dirham AED 3.6725 USD 1997

Venezuela South America Bolivar VEB 6.3 USD 2013

Source : http://www.investmentfrontier.com/2013/02/19/investors-list-countries-with-fixed-currency-exchange-rates/


22

Key takeaways

Switzerland is still digesting the Swiss National Bank’s “panicky” decision

Long Europe / Short US

Stay away from US stocks

Add Freeport McMoran to your watch list

EUR/USD could rebound soon

The Nikkei could leap

Will the USD/HKD peg be continued, changed, stopped?

Did you like the ideas? Contact us for our solutions >>>


mailto:[email protected]?subject=Investment Ideas

Disclaimer

ECB

23

The information contained in this material should not be construed as a recommendation or solicitation to buy or sell any security, or to participate in any investment strategy. It does not take into account the specific investment objectives, financial situations, or the particular needs of any specific entity or person. Investors should make their own appraisal of the risks and should seek their own financial advice regarding the appropriateness of investing in any securities or participating in any investment strategy. This material should not be construed as legal, business or tax advice. While the information (including any historical returns) in this material has been obtained from sources deemed reliable, SEQUOIA Asset Management S.A. does not guarantee its accuracy, timeliness or completeness. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. Past performance is no indication of the future return. This information document or any part of it should not be copied, reproduced or distributed to anyone without the prior written approval of SEQUOIA Asset Management S.A.


snb, trader of the month ! the charts that matter

Economy & Finance

sequoia group loc schmid

swiss yields

swiss equities good

european stocks

negative yields

swiss national bank

st view

strong chf swiss stocks