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* this is not a trade recommendation and for educational purpose only. please do your own research.

THIS WEEK:

Wake Up, Neo ! Retail vs Wall Street
Macro Indicators recap
Global Multi Assets performance
Current Portfolio themes

Wake Up, Neo !

The r/WSB saga has reached the global stage.

A short squeeze is the oldest game in town, but this one got global attention. Everyone is talking about it and has an opinion, outcry, anger, “rigged game”, lawsuit against online brokers, trolls and memes. everything. Politicians, regulators, social media. Front page of the Icelandic Viðskiptablaðið and probably also on mentioned on the ISS.

“Have you ever had a dream, Neo, that you sure was real ? What if you were unable to wake from the dream, Neo ? How would you know the difference between the dream world and the real world ?”

“You take the blue pill – the story ends, you believe whatever you want to believe. You take the red pill – you stay in Wonderland…”

Well, you really can’t have it both ways.

For years, “activist” hedge fund managers used CNBC, BBG TV etc as a platform to basically drive the price of a specific idea. Smart money = smart manipulation allowed ? Now, with social media and online trading platforms / chatrooms, retail replicated the very same idea. But dumb money = dumb manipulation not allowed ? Clearly, in recent event, GME, AMC etc the r/WallStreetBets cornered the market which led to a massive short squeeze, which then led to power houses Citadel bailing out HF even though Citadel is frontrunning Robinhoodlers as they bought their orderflow.

The “wolves pack” as I named them in the other blog recently, have power. No question. Relentless gamma hedging and short squeeze led to a chain reaction and eventually someone must bleed or worse.

But there is something really not right in the system.

a) A large group of retail traders should not be able to corner a market. They did it with a single stocks, and they just testing the system now with SLV ETF, hoping to force a physical shortage and squeeze the Silver market. What’s next ? It does create an unusual risk for any “normal” trader, portfolio manager who do incorporate VaR management under normal volatility, but what happened this week is not normal at all.

b) Hedge Fund managers are pros and can’t cry wolf now. But in some cases it could lead to a system risk, e.g. Barings (though not a HF), LTCM, internal subprime HF at Bear Stearns etc etc. Depending on the size as here with Melvin Capital, they can be bailed out. But what if the underlying assets affected start a true chain reaction ? Remember March 2020, the CV19 sell-off and gold tanked too. Why ? because raising cash to fulfil margin calls on other assets. This week brought volatility across the board, VIX up, ES, NQ, RTY benchmarks futures wild swings. Partly due to previous overbought situation, partly some earnings, but liquidation risk can elevate in this scenario too. People tend to forget this. If volatility rises, positions tend to be reduced. Either on net or gross basis. Fact. And if HF blow up, it could create credit risk chain reaction all the way up to the prime brokers.

c) Online trading platforms need to protect themselves too, can restrict trading of course. That itself is not illegal, in fact the other way around. Basically as I see it, the enforced rules this week to have 100% margin requirement on longs, 300% margin requirements on shorts etc is also a protection for other customers. A margin call on positive P&L before a potential margin call on negative P&L so to speak, before it is too late. Remember EURCHF ? And a few online shops went belly up. Small individuals retail accounts always blow up, but that isn’t a risk for the system. A broker blows up could be. A HF blow up could be. A prime broker or bank is a different matter.

So, this was a crazy week, but I am sure this will have larger consequences. For everyone involved. Retail and pros.

MACRO

COVID

Quite a debacle how the EU handled their vaccine stock and roll out
German minister sees CV-19 vaccine SHORTAGE well into April
also: Germany recommends AstraZeneca CV-19 shot ONLY for 18-64 years old
EU briefly sets vaccine export controls until March which triggered outrage in UK
J&J said vaccine was 72% effective, but in South Africa, a variant was only 57% effective, in Latin America 66%. BUT, apparently prevents severe cases 85%, showed 100% efficiency in preventing hospitalisation or death, no need for a second shot and can be refrigerated for 3mths.

But regarding Europe (and the global recovery then e.g. lockdowns) the big hope priced in the market, one doesn’t have to wonder about the current market reaction.

US

The FED – did nothing. Nothing new at least. Interest rates remain at zero, $120bln/mth TSY + MBS etc. 100% committed until further notice. No hint of yield curve control, no hint of taper. Old news.

Soft data, business and consumer confidence releases this week for the month mostly positive, although both UoM and CB surveys basically stalling / sideways since 2020 drop.

House Price Index +11.0% ! (+10.3%)
S&P/CS HPI composite-20 Nov +9.1% (Oct +8.0%)
CB Consumer Confidence 89.3 (87.1)
KC Fed Manufacturing Jan 22 (12) 3M high
KC Composite Jan 17 (14) 26M high
Chicago PMI 63.8 (59.5) 30M high
Dallas Fed Manufacturing 7.0 6M low
Richmond Fed Manufacturing 14 (19) 6M low
Uni of Michigan Consumer Confidence 79.0 (80.7)

EUROPE

Disappointment from German IFO survey (see the German Market update blog), but ESI was a mixed bag. To sum it up: Manufacturing strong, Services/Retail weak. Euro area ESI slightly lower at 91.5, while manufacturing new orders in Germany, France, Italy, Spain soared, it was the very weak Services industry, consumer confidence and retail which drove down the overall ESI indices.

Italian PM Conte resigned as govt crisis intensified. It’s Italy’s 66th government since WW2.
German IFO Sentiment 90.1 6M low
German IFO Expectations 91.1 7M low
German GfK -15.6 8M low
Belgium NBB -7.5 11M high
Germany Manufacturing new orders and prices 12M high, Consumer confidence and employment 6M low

UK

Claimant Count change Dec +7.0k (+38.1k)
Employment change 3M/3M Nov -88k (-144k)
UE rate Nov 5.0% (4.9%)
CBI Trade Survey Jan -50 (-3) 8M low

Lagging data: UK Sep-Nov2020 employment situation release was just awful. Redundancies soared from 13290 to 14170 (peak GFC was 12210). Unemployment rate moved from 4.94% to 5.04% (highest level since Jan-Mar 2016).

TECHNICALS

RiskOFF Week

RATES – steepening in LIBOR curves, roundtrip yo-yo in US bonds, BTPs friendly
CREDIT – wider 2-3bp, HY 14bp = RiskOFF
FX – USD slightly better, TRY +1.3%, NOK/AUD/KRW -1%, MXN -3%
COMDTY – Lumber, Grains again rally, Silver +6% (r/WSB ETF squeeze), IndMetals -2/-5%
STOCKS – weak across the board, JP/EU/US/CH -3%, HK/UK -4%, KR -5%
SECTORS – SLVP +3%, defensives o/p, banks/industrials u/p

As mentioned in the intra-week blog, the Creditspread widening and rising stock volatility – also due to r/WSB “system breach” – triggered a RiskOFF signal for now = wider trading range and possible weaker market.

weekly performance

monthly performance

January 2021 results: Here is the overview. And despite all the hype around some former penny stocks and Retail mob vs Wall Street establishment, global local currency stock market were mixed, USD denominated global stock ETFs in majority weaker, credit spreads wider, bonds sell off in bear-steepening mode, lumber rallied due to Canada supply issues, grains performed well due to South America supply issues, energy up on strong manufacturing recovery.

outright Momentum/Trend/Exhaustion

spread/ratio Momentum/Trend/Exhaustion

RATES

US yields bounced back up… tbh, with VIX so high and stocks correcting, I was expecting better bids in Bonds.
US yieldcurves – driven by long end – also yo-yoed this wk, half wk bull-flattening, 2nd wk bear-steepening
also some bear-steepening in the USD LIBOR curve
IT10Y almost as expected -11bp tighter, but the daily momentum is still BTP short.

FX

EURUSD is consolidating, but seems to set up for a “moment of truth” test at Futures 1.2060
JPY actually weakened nearly -1%, despite the RiskOff week. USDJPY broke out (for now)

COMMODITIES

Hi Ho Silver, r/WSB spooked the next asset: large Silver call buying to corner Silver futures delivery and SLV ETF. SLV vola spiked. Silver spot break out of 28 resistance would face 30 major resistance.
Gold and GLD ETF next ? Gold itself remains in this very large corrective pattern since August with twice strong resistance around 1960
Crude Oil consolidating between 51.75/54.00, but potential DXY break out (EURUSD break down) could lead to WTI profit taking of longs. Long term still bullish IMHO given global M.PMI
Grains still on the run, Corn +9% and new 52wk high, Wheat +4.5%, Soybeans +4.4%

VIX

VIX spot was as high as 37.5, settled the week at 33, and term structure is still inverted. VIX at 33 reflects +/-80 points or 2% daily range, or +/- 174 pts or 4.6% weekly range. This could be short lived spike as from the economic front there is absolutely no new development. Under normal circumstances I would expect VIX to calm down again very soon.

STOCKS

with all the GME and AMC focus, market tend to overlook other things…
IBEX -8% since Jan7th
Italy MIB lost -7% in the same time
EU Banks in that time frame: BBVA -14%, Santander -16%, ISP -11%, BNP -15%, SocGen -17%, DBK -16%
Nikkei -4.4% [after +76% since Mar2020]
NQ -5.4% since 26Jan [ +103% since Mar2020]

SECTORS

the r/WSB effect. I don’t know about fair valuations, but some technical charts are just nuts. “too fast too furious”. And besides some selected short squeezes, greed.

XRT currently at +3.3z (after +275% since Mar2020, +100% since end Oct2020)
TAN Solar Energy biggest loser this week -10% (after +480% since Mar2020, +93% since early Nov2020)
LIT ETF -9% this week (after +305% since Mar, +100% since Sep)
COPX Copper Miners -8% this week (after +246% since Mar, +71% since Sep)