Thursday ECB decision, July Preview

Today we stayed on the sidelines, a specatator to robust asset trading (equities/corp bonds/periph sovs all catching a bid) and some abnormal correlations... Read on.

Active trading Resumes: Silver, CEDC

Thanks for bearing with us. The cogs are turning again and JF is admin 'light'. So we turn back to our mission statement - trades, analysis, discussion.

June sees us up a modest 6% with gains in Silver and a small MTM loss on our CEDC position. Read on for more, including how we will be positioned as markets open tomorrow.

Welcome back! JF hits the ground running with long Silver

As any trader will know, a 2 month hiatus from the markets always has a 3-4 month footprint. As I get back up to speed with the changed technicals and inter-asset correlations across the markets we invest in, watch this space for news on our latest brainchild - a set of twin funds that take similarly themed positions but at different amounts of "risk" or "leverage".

One of our key discoveries from speaking with prospective investors is that there is no one-size-fits all product. Indeed, there tended to be two distinct schools of thought - investors that desired capital preservation and investors that desired capital appreciation. We intend to cater to both camps but without sacrificing the key strategies that make JF Capital successful on an absolute return basis. 

Put simply, whilst we could comfortably create a diverse portfolio of assets for the risk averse investor that would safely return ~4% per year, we feel this model drastically reduces any added value that a money manager can impart. We, alone, should be responsible for the success or failure of a trade.

This philosophy justifies hedging versus a benchmark or currency so that every idea is crysallised down into its purest form - a refined strategy that succeeds exactly under a forecast set of conditions and under nothing else. In this way, successful trading is not dependent on a "bull market" nor does it require "risk-on sentiment".

Having said that, clearly technically motivated trades require the exposure to one market alone and therefore shouldn't be hedged. In other words, if you are speculating on the actions of other traders in a particular market then it is only the price action of that one market alone that should be traded. 

For example, in this period of high volatility, surrounding political risk in Europe, we have been all but on the sidelines as typical trends and correlations have fallen apart. One key exception however, which we have managed to trade profitably, is Silver (XAGUSD).

Our view, voiced in this blog previously, is that Silver has a practical lower bound (around $26) justified by industrial uses, finite supply, aesthetic value and lastly as a safe-heaven (a function of the previous three).

It has been a very profitable strategy to trade this support, buying in size as the price approaches $26 and averaging out up to $30. Volatility has been sufficient that this cycle has repeated several times, however, each repetition brings lower-lows and higher-highs typical of any up-trending security that is exposed to this kind of convexity (confidence in a "floor level" price causes incremental buying pressure).

We continue to hold a large position in Silver as a base, high conviction trade. A key aspect alongside the skewed Risk/Reward is also the protection from inflation and high payoff in a cross-border QE3 scenario.

More on our Macro views later in the week - tomorrow I take stock of the Greek Election and position the JF portfolio as one more piece of the puzzle is revealed.

JF pays down 2.8% to Investors over 2 months

Whether it be a curse or a blessing, JF Capital is again having to close its doors to trade in order to reorganize and recapitalize in the face of strong demand for the 'main fund', which will also undergo rebranding over the next few months.

 

Our final position was harvested in keeping with JF's investment philosophy - averaging-out and taking chips off the table when a trade yields a measured profit and not allowing the archetypal vice of a trader, greed, to interfere in decision making. Evidently our 1.31 EURUSD put expired worthless and thus taking profits when sentiment appears overdone has deftly captured nearly 1 percentage point for the team.

 

Future ideas remain under-wraps currently, save for those already published e.g. our desire to build a Silver position into the lows. It would be disloyal to our new fleet of investors to reveal how we will continue to navigate the ship across the ever turbulent asset markets.

 

Indeed, it is the house view that the worst of the crisis is still to come. Don't be fooled by the relative calmness, European solvency problems are yet to be dented by the current splurge of liquidity.

 

Expect the main fund, and timely blog posts, to relaunch around June.

Greek Debt Swap: Week Round Up

(3rd March to 9th March 2012)

On the 3^rd of February 2012 we were sitting on MTM value on the EURUSD put of 7%, by the 6^th March we were looking at a bid offer of 99/101, this gave way to locking in some profit. As one of our philosophies is playing the average this seemed like a good idea especially as news coming out of Greece was becoming more and more positive.

JF’s thinking lead to options, as previously written, because a positive LTRO followed by a Greek bailout would have lead to a large spike on any EURUSD rate therefore the put option was limiting us to one sided risk.

As we moved to the latter part of last week and it became obvious that the CACs (collective action clauses) will occur and the debt haircut swap will go ahead our option’s value moves closer to 0, reinforcing our profit seize as said above, although the position will still stay open as it seems pointless to close due to the nature of options- it cant get worse. The position therefore makes a total minimum gain of 10.22%, although more would have been nicer we cannot complain.

While all of this was happening JF did some P&L doctoring, or the "P&L mechanic" as our trader called it, using some intra day trades in AUDUSD (sell on 7th), EURUSD (sell on 7^th and 8^th) and XAGUSD, silver in USD, (buy). As Thursday drew to a close XAGUSD was up, see trend lines below for entry and exit positions.

This trend and the other currency trades, as above, meant loses suffered in changes of EURUSD on JF’s put option due to such a positive Greek bailout and with limited affect on bank balance sheets of the haircut and a limited affect on insurance groups (CDS were activated as a credit event was determined) were limited. So in summery an interesting week both for the EZ and JF, watch this space......




Author Details


This report was written by a JF contributor not directly involved in placing any of the trades/actions listed above for the aim of trying to objective. To raise any issues or ask any questions please feel free to get in contact with the team by commenting or emailing JFCapitalUK@gmail.com