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Publish year
Drobny: Reading Some Tea Leaves and Smelling the Coffee

Two separate (but perhaps related) puzzling events took place today. The first was hard to miss....ECB fireworks.

Drobny: Inflation Divergence and the ECB & Fed

According to the Fed Vice-Chairman, Mr. Fischer we might be starting to see the "first stirrings" of a rebound in underlying US inflation.  Yet, if asset turbulence is sustained thte Fed might be hesitant to hike. 

Drobny Quant Series: Getting Ahead of the Curve -- Financial Conditions & the Fed

Both policymakers and market participants are trying to calibrate the importance of the tightening of financial conditions.  The DGA Financial Conditions Index shows that the financial tightening began in December 2013 and is now consistent with a

Drobny: Views from the Trading Floor -- When do US treasury yields and EMFX rise in tandem?

Under what circumstances do US treasury yields and EMFX rise together?  One good reason would be if commodity prices rebound (say due to events in China). 

Drobny: Wall St v Main St and Curve Steepeners

Things are getting trickier for the Fed. While deflation fears seem to be the loudest cry of the day, inflation in the US has suddenly jumped higher.

Drobny: Views from the Trading Floor -- Gold, Negative Rates, Brexit/Gilts, FX Trades and US CPI

Some interesting discussions concerning Gold, Negative Rates, Gilts, and JPY related FX trades.  And, US CPI discussion followed.

Drobny: Gravity Might Just Matter

Core PCE inflation has started rising again, depite the renewed fall in oil.  That seems consistent with an economy that has already passed through NAIRU or full employment.

Drobny Quant Series: Risk Parity Update -- A Bulletproof Portfolio?

Over the past few months, we have received lots of comments and feedback on Nick's original piece "Risk Parity in Europe, November 19, 2015." Today's piece incorporates some of those ideas (the results even surprised us!).

Drobny: Mexico, Japan, Policy Impotence, & Secular Stagnation

The surprise hike by BANXICO sets up another test of the central bank impotence theory.

Drobny Markets Survey -- February 2016

Market moves over the course of the past 6 weeks have altered views and forecasts.  Nevertheless, forecasts on the outlook for risk assets have remain mixed with 53% forecasting higher equity prices (as measured by SP500 forecasts).

Drobny: Bank Shares, Financial Fragility, Policy Impotence & the 1937 Mistake

There is hope that some calm has returned.  Some policy makers are active, some are inactive (Fed), and CNY depreciation seems arrested for now.  Yet, an SG raises an interesting question about the massive daily moves in the Nikkei.

Drobny Quant Series: Exploiting FX Vol Curves using Regime Discrimination

This week we explore whether harvesting a volatility risk premium in FX using a regime switching model can also boost risk-adjusted returns.

Drobny: Questions from the Trading Floor -- Looking for equity bottoms, Policy impotence and Intervention

We continue to witness an unwind of the effects of QE and as some look for reasons to buy or hold equities, the dangers seem to be increasing.

Drobny Quant Series: Chinese Capital Flows -- More Push than Pull

A deep dive into the data and institutional capital flow models suggests that Chinese capital outflows are consistent with 1) historical triple boom/bust episodes and 2) emerging market outflows driven by global risk aversion/fed tightening etc...

Drobny: The Curve Steepener, Negative Rates and Equities

That was a yield curve steepener report that was released on Friday.  Employment demand weakened along with other softer demand indications recently.  Yet, wage growth was confirmed to be accelerating.

Drobny Quant Series: Harvesting FX Risk Premia using Regime Discrimination

The empirical evidence suggests that risk-adjusted returns can be signficantly improved with the use of a timing framework conditioned on measures of market turbulence like the DGA regime indicator and diffusion index.

Drobny: Views from the Trading Floor -- Negative Rates in Japan/Capital Controls in China

The drop in the USD has served to stabilize things for the time being.  Attached are several conversations as people are asking tough questions about the recent actions of the BOJ and the potential actions of policymakers in China.

Drobny: From Negative Japanese Rates to a Softer USD? - Fantasy Part II

Financial markets turbulence has spurred central banks into action.  The BOJ surprised markets with negative rates and the ECB have talked about going deeper into negative.

Drobny Quant Macro Series: And then there were two

After a period of significant adjustment in EMG markets, many are asking whether its time to start looking for value opportunities.

Drobny: Questions from the Trading Floor -- HKMA Policy, USDMXN, Brazil Inflation

Today's durable goods number was worrying and argues against the model of US economic resiliency despite "risk" vulnerability.

Drobny: From EUR/SFR to BRL/JPY -- A Fantasy!

Noone can know whether the asset price turbulence will take a break for awhile.  Perhaps a friendly ECB, BOJ and oil market stability could usher in a period of calm.  And, when do EUR, JPY and CHF typically weaken together?  When carry

Drobny Guest Piece: History tells us that a China FX devaluation is not inevitable

China's position as one of the world's largest creditors makes the probability of a large devaluation of its currency much lower than is currently priced into markets while its economic outlook will likely demand much lower asset prices.

Drobny: Views from the Trading Floor -- Swap Spreads, HKD, Peripheral Europe, BRL tensions

The group is thinking about lots of big issues here.  Lots of comments and ideas flowing.  From swap spreads to HKD issues to rates trades in Europe to QE in Emerging Markets.

Drobny: Turbulence and GBP/JPY

Many of the pieces in our inbox this morning talked about commodities/equities as being 'oversold' and therefore ripe for a counter-rally.  A lot has happened in a short period of time.

Drobny: Swap Spreads, China, Oil, Default and EMG bonds

There are many comments and questions circulating to start the year.  And, our earlier discussion about swap spreads led to several observations one of which concerns China.

Drobny Markets Survey -- January 2016

Thanks to everyone for participating in the latest Drobny markets survey.  The biggest change of views since November has been with regard to 10yr US treasuries.

Drobny: Views from the Trading Floor -- Disequilibrium and Liquidity concerns

The recent US employment report signals that the US economy strengthened, the labor market tightened and wage inflation has tentatively accelerated.  So it is surprising that yields across the US curve are generally lower, not higher.

Drobny: Questions -- HKD, Bond vol, Equity Bear Market?

Isn't the argument for buying USDHKD similar to the idea behind shorting the CHF early last year?

Drobny: Can Full Employment beat Secular Stagnation?

Happy New Year!  Though the beginning of 2016 has been quite ugly.  Hostilities in the Middle East and concerns over China have characterized the start of the year.

Drobny Guest Piece: Steepness in a Flatter World: Yield Curve Framework for Post-Fed Lift Off

Historically, shorting front-end rates has been a go to trade at the beginning of tightening cycles. Forward markets have underpriced the extent of hiking cycles in the past.  However, a review of monetary policy frameworks suggest a great deal of

Drobny: Manager Favorite Trades -- Q1 2016

These have not been easy markets but the volatility has generated both a lot of dispersion in views and several really interesting opportunities.  Thanks again to all of you for your contributions!

Drobny: Countertrades, the Fed, Inflation and Brazil Rates

There is a fair amount of turbulence in the year as we approach year end.  CNY is going down again v the USD, oil has broken lower, and equities are running into selling pressures.

Drobny Boston Manager Dinner -- December 2015

Drobny hosted a manager dinner last Thursday in Boston with partner Mike Dooley leading the discussion.  Dooley suggested a framework for thinking about the Fed policy outlook over the next 12 months.

Views from the Trading Floor: Bond vol, High Yield, and Demographics

Interest rate markets got crushed today.  And, the little noticed piece of data earlier in the week -- the German unemployment rate -- makes todays backup in Bunds look less crazy.

Drobny: Fed Tightening, Bonds, Volatility, & Divergence

The market is braced for a December rate hike from the Fed and an ease from the ECB. 3 month cash rates in the US have jumped almost 10bps in November and, at 40bps, still seem to have further to go.  And, the US/Eurozone 2yr spread has reached a

Drobny: Views from the Trading Floor -- Bund Vol, Brasil, Fed and China

The USD remains bid even at these levels as 3 month cash rates continue to climb.  But, at the same time EMG FX and assets remain resilient.  This fits the model that the USD will first rise against the majors as we head towards the initial r

Drobny Guest Piece: Risk Parity in Europe

A robust discussion of issues surrounding risk parity has featured over the past several months.  These discussions prompted one of our members to reconsider the concept from a rather unique perspective.

Drobny Markets Survey -- November 2015

Based on the results of the survey, if the Federal reserve doesnt raise interest rates in December, the market seems set up for quite a surprise!

Drobny: The Political Economy of War

War has escalated over the past few months -- the risk of fragmentation in Europe also seems on the rise.

Drobny: Questions on the Bond Bear Market

CNY has come down for several days in a row and commodities and equities have also fallen during that time.   But, there is also a building bear market in bonds that continues to unfold.

Drobny: The Phillips Curve, Fed Policy, Bonds and Asset Fragility

Things are finally starting to make some sense.  As a SG said after the payrolls number on Friday, perhaps the U.S. natural rate was at 5.5% after all.

Drobny: Views from the Trading Floor -- USD pegs, CAD curve, Swap Spreads

Sometimes things come together in unusual ways.  Included in this piece is a set of comments that arose as a result of issues raised at the London conference.

Drobny: Front end rates in the UK

There are some very big questions out there that are receiving lots of attention -- but here is an interesting observation in front end rates market in the UK.

Drobny London Conference -- 2015

If the USD starts another leg higher here, there are lots of implications.  One that received lots of attention at the London conference was USD pegs in China and Saudi Arabia.

Drobny: Questions from the Trading Floor -- Secular v Cyclical, CNY Policy

There is considerable uncertainty in the air.  The employment report in the US has produced an unwind of USD strength and the tremors out of China seemed to have quieted into the SDR decision next month.

Drobny: SWF selling, Stimulus & Canadian Bonds

SWF selling has become a feature of the recent macro/financial environment.

Drobny Manager Favorite Trades Q4 2015

I don't think I have ever seen such disagreement amongst the managers in our surverys about trades and the market/economic enviroment.

Drobny: CNY & Asian FX into the Employment Report

Why did China suddenly devalue the CNY by a token amount in August?

Drobny: CNY, Surplus Currencies & Asset Turbulence

Drobny: CNY, Surplus Currencies & Asset Turbulence

Drobny: Views from the Trading Floor -- Turbulence & the 1997/98 Analogue

Big events are unfolding and not according to expectations.  Flexible exchange rates in emerging markets were supposed to prevent a rewind of the 1997/98 turbulence.

Drobny: The Yield Curve Steepener -- Yellen and NAIRU

The Fed may have made a mistake here.  Or, at least they have introduced a new risk to the economic and policy environment.

Drobny Manager Dinner -- London

Drobny hosted a manager dinner in London Tuesday September 15, 2015 with our friends at BNP Paribas. 

Drobny: The Fed should hike

The head of Sweden's central bank issued the appropriate warning today.  in a world of zero to negative interest rates, there is too much of a reliance on macroprudential policies to counter debt-based asset bubbles.

Drobny: Tail Trades, Brazil & Risk Parity

A lively start to the discussions into the final trading session of the year. 

Drobny: The German Export Machine

The Chinese equity market didnt collapse after their long break and that seems to have calmed down conditions for now.  But there are many questions circulating amongst the group.

Drobny: Some lessons from August

Several interesting stories emerged out of the pain and turbulence in August.  The first is that China seems to have finally succumbed to an abrupt slowdown in activity.

Drobny Markets Survey -- August 2015

In light of the recent market activity, we had requests for a survey and it made sense in advance of the upcoming big central bank meetings.  The results are surprising.

Drobny Guest Piece: Brazil -- Risk Reversals v CDS

A number of factors seem to be contributing to the market disarray.  China's FX devaluation seemed to act as a catalyst...not sure.  But the dangers of illiquidity in August seem to be contributing to the severity of the moves.

Drobny: China -- from the beach and the Cape

There have been many comments on the implications of the surprise Chinese FX devaluation.  Andres and Mike provide a few comments from their vacations.

Drobny Guest Piece: Sell the Nifty

The market is bracing for a FED hike in September, which should come unless the data in August turns out to be soft.

Drobny Macro Summer School -- Class of 2015

The Third Annual Drobny Macro Summer School sponsored by BNP Paribas was held in NYC last week. 

Drobny: The IMF/Schaeuble Two Step

A quick note ahead of the publication of the Drobny summer school review from last week in NY. As the event took place, there was drama unfolding in the Eurozone.

Drobny: Questions from the Trading Floor -- Tail Risk, Odd Moves & Some Logic

What weird markets with several puzzles and seemingly odd correlations.  One observed puzzle is the unusual inverse correlation between Eurozone equities and the Euro; which is different from what occurred earlier in the year.

Drobny: Questions from the Trading Floor -- Grexit, Oil and US rate hikes

The US employment report did not expose an inflationary impulse, the price of oil is down hard again, and peripheral spreads have widened.

Drobny: Q3 Manager Favorite Trades

Today's employment report reduces the risk of a September Fed hike so now its up to the mid-month inflation report to rekindle expectations.  Fixed income trades celarly dominated the submissions for the third quarter.

Drobny: Greece -- Big Picture, Questions and Trades

Greece has taken the next step towards Grexit.  What is surprising is how many misunderstandings exist about the process and the associated big questions that arise.

Drobny: Gold v. Brazil

Gold sure looks on the precipice here though its looked that way for some time now. Ever since the taper tantrum in 2013 Q2.

Drobny: Short Term Relief; Longer Term its UK rates

Combine a friendlier than expected Fed and hopes for a Greek deal and you have the recipe for a nice bounce in equities.  The question is whether this rally can last through the summer and perhaps move onto something bigger.

Questions from the Trading Floor: EM Equities after FOMC, Grexit, Nat Gas

The market has reduced the probability of a Sept rate hike following the surprisingly dovish FOMC meeting.

Drobny: FOMC, Greece & Swissie

Buying USD/CHF was one of the consensus trades at the beginning of this year premised on Fed tightening and easy policy in Europe. 

Drobny: Making Sense of What They Say and Will Say

There has been a flurry of comments and policy actions over the last 24 hours.

Drobny: Money Market Volatility in Hiking Cycles

For a number of reasons, volatility is widely believed to be on the rise.  Yet, bond market volatility is no longer exceptionally low.  What is exceptionally low still is volatility in money market spreads.

Drobny: Questions from the Trading Floor -- QECB and Euro area vol, EUR and JPY TWI, Fed

Why should QECB increase asset price volatility when QE in the US and UK and QQE in Japan are believed to have compressed volatility?

Drobny: NonJapan Asian Exposure to Global Macro Events

The weakness in the nonJapan Asia economic data has been a highlight of the recent global data releases.  This morning's weak PMI's out of S.Korea and Taiwan reinforced this idea.

Views from the Trading Floor: Fed Hikes, Rates Trades and Secular Stagnation v Rogoff

The idea that the Fed hiking cycle is about to commence generated considerable "feedback" and comments.  And, the discussions also led us back to the issues raised in the recent guest piece concerning secular stagnation.

Drobny: Cash Rates During a Hiking Cycle

It looks like we may finally be here.  The rate hiking cycle looks set to commence.

Guest Research: Secular Stagnation -- A Simple Framework

Some of the recent market violence has settled down.  Not everwhere though.  Chinese related equities melted up and some have crashed notoriously in the past few days.

Views from the Trading Floor: Thoughts and Trades

There is a sense that the US rebound has finally commenced after the delay.  This has pulled up USD/JPY as well as other FX pairs.  And, this adds to the idea that the Fed finally pulls the trigger later this year.

Drobny Global Monitor: Some Simple Economics & Implications

The disappointing retail sales number for April has several houses reducing Q2 GDP forecasts and has led to increased suspicion that something bigger is wrong with the US economy.

Drobny Global Monitor: Correlations, Turbulence and Inflation

Concerns about increased asset price correlation seems to be growing.  Equities and bonds have sold off together recently.

Drobny Global Monitor: Trend Change -- The US, UK and Brasil?

Here we go again.  Another supposedly critical unemployment report to be released tomorrow.

Questions from the Trading Floor: Followup to SM Conference

The Greek problem seems to be getting attention finally. As I suggested at the conference, it is hard to keep a currency union together if one region or one country persistently runs a trade deficit with 25% unemployment.  Not just Greece -- also

Drobny Santa Monica Conference -- April 2015

It all came so suddenly last quarter.  QE and negative rates in Europe, a sharp melt up in assets, and a sharp devaluation of the Euro.  Meanwhile, the US is looking to exit from its ZIRP.  These are big forces at play and dominated many

Drobny Guest Piece: Swiss rates and Swiss equity risk premium

The recent guest piece by Jim Leitner generated considerable comment -- we publish two of the comments today. 

Drobny Global Monitor: Euro, Oil, Grexit and 1994 Revisited

The correlated rebound in oil and EURUSD makes selling USDNOK and its Scandi twin USDSEK look rather interesting.

Questions from the Trading Floor: QE, QECB & Permanent Monetary Policy Adjustments

The price action has gone against me, but the idea of US slowdown and lower rates, combined with QECB and QQE in Japan sounds good for EMFX.

Drobny Guest Piece: Jim Leitner

There is quite a disagreement amongst the group as to the outlook for equities with some focused on global liquidity and others on bubble-like characteristics of certain markets.

Drobny Global Monitor: The Euro and Oil

Reduced expectations for rate hikes in the US have pushed the USD lower.  The more benign rate outlook and QECB have combined to make a more friendly environment for EMG assets.

Drobny Global Monitor: Rate Expectations, the USD & some Risks

The Q1 slowdown is finally starting to be absorbed.  US rate expectations have adjusted a pretty long way and the 5yr swap...

Drobny Manager Favorite Trades -- Q2 2015

Things seem to be changing.  Manager managers nailed the directional moves the past six months since the London Conference.  But, as you will see, there is less conviction on direction in the ideas presented for the second quarter.

Questions from the Trading Floor -- Oil, Bonds, QE, Equities and War & Peace

Well, I guess the deepening and widening of the Middle East conflict is one way for the price of oil to stabilize. Meanwhile, some people seem to be building positions while others work on better understanding the current big picture environment.

Drobny: Monetary Policy Frenzy, Economic Reality & Japan

Boy, its as if a frenzy of monetary policy has emerged.  And, it seems many have suffered in reaction to the FOMC last week.

Drobny Global Monitor: Gold v Oil

As we are all waiting for the Fed, an SG mentioned that gold is trading at anomalously high levels relative to the price of oil.

Questions from the Trading Floor -- Euroglut, Outflows & EMG; Demographics, Savings & BWII

Both the Euro and EM deficit currencies have weakened during this remarkable USD rally leaving EUR/EM crosses relatively stable, despite widening rate spreads.

Questions from the Trading Floor -- Asia, USD rates and CNY skew

There seems to be a lot happening in Asia -- both actual and anticipated -- in response to the Euro and Yen devaluations.

Drobny Global Monitor: The Next Phase -- Dooley & Drobny

The next twist in this great monetary experiment looks set to unfold -- the real exit strategy.  The US employment report was way too strong....

Views from the Trading Floor -- Storm Brewing?

Is a test of the entire financial edifice about to unfold? The USD has broken higher again and rates markets outside the Eurozone are under upward pressure.

Drobny Global Monitor: US/UK Growth Divergence & Rate Spreads

Forecasts for the upcoming US employment report look too high.  And, the consensus prediction for another drop in the unemployment report look off.

Questions from the Trading Floor -- The End of Savings Gluts and Imbalances?

The US core CPI number this morning caused a back up in rates and pushed the USD up strongly.  I guess that is what 'data dependency' looks like!!

Drobny: Short-Term Relief v Longer Term Instability

The noises out of Greece this weekend suggest that this government will not last if it doesnt achieve meaningful relief from the austerity program.  And, even if they do achieve changes acceptable to the populace it doesnt change the underlying dy

Views from the Trading Floor -- What is wrong with Asia?

The evolving dynamic in Asia seems to be on the minds of many SGs.  And, the perceptions differ considerably.

Questions from the Trading Floor: US rates, USD and Grexit

The ingredients for at least a temporary downturn in the USD seem to be in place.  At the same time, the events in Greece seem very dangerous to me both for Greece itself and the Euro experiment generally.  Most discussions miss the main poin

Drobny -- QECB, Distortions and FX Unsustainability

Two SGs made the case last week for selling EUR/JPY vol -- one before the employment report and one after.  And, in Q4 last year EUR/JPY went up sharply on renewed JPY weakness and then came down sharply on EUR weakness.  So EURJPY vol does l

Brazil Macro Roadshow 2015

Many on the trip narrowly escaped the east coast snowstorm to arrive in sunny Brazil on Monday January 26th.  In some ways it was like landing on another planet!

Views from the Trading Floor: The USD, Asia and Negative Swap Yields

I am puzzled and confused about this new world of negative interest rates -- as are many of you.  We discuss some of the issues surrounding the new environment as well as the possibility that the USD rally could be interrupted by signs of US slowd

Drobny: Oil, Resynchronization, Deflation and Uncomfortable Truths

The drop in commodity prices and oil in general should serve to resynchronize global growth.  The only historical parallel was the first half of the 1980s.

Drobny -- Questions from the Trading Floor: EURCHF Swap Spreads, USDvEMHY and JPY

The concentration has been on the Eurozone but there are lots of moving parts globally.  Safe travels to the group in Brazil that escaped the winter weather hitting the northeast!!  Here are some of the issues being discussed.

Drobny Guest Piece: The Fed is the New Value Investor

The ECB have embarked on QE, there have been surprise rate cuts in Switzerland and Canada, and the softening of growth in the US amidst falling inflation has reduced the extent of expected rate hikes.  All of this sounds particularly supportive of

Drobny Global Monitor: The Swiss Event, ECB and the BUBA

It's not just what the SNB did, its also how they did it.  Without warning, swift and nasty.  But, why did the SNB take this action so abruptly?  What are they after?  And, what does this mean for other big hard money guys in Europe

Drobny Manager Favorite Trades -- Q1 2015

Increased volatility has created interesting opportunities as dislocations are starting to appear in a wide array of assets.  As you will see, the Managers have not disappointed in their ideas. What a way to start the year!!

Drobny Global Monitor: US Wages, Synchronization & the US dollar

Downside to the USD may be opening up here.  Gold has bounced and it looks like the ADXY Index has started to turn as well.  And, the broader USD TWI has appreciated approximately 15% since August without virtually any correction.

Views from the Trading Floor: Bond Conundrum, BE Inflation & Some Dislocations

The internal Drobny member group discussions and debate have kicked off the new year with a bang.  Discussed in the attached is the idea of an optimal level of QE in the context of the bond conundrum.

Drobny Global Monitor: Eurozone Fallout -- The Swedish Anomaly

Happy New Year!  The year has started with several 2014 trends in tact.  But there is one big change that has taken place. 

Drobny Guest Piece: Japanese Stagflation?

Japan was a big story in 2014 and our friend Peter suggests that a new phase of the recovery looks set to unfold in 2015.

Drobny: Understanding this Little Storm

The current little storm stems from three factors -- Significant drop in oil, Consensus Positions and Year-end effects.

Views from the Trading Floor: A Rush for Gamma?

A rush for gamma amidst important macro events?  Some SG's are thinking about the rocket fuel that comes from the combination of lower oil prices and easy money.

Drobny Global Monitor: The Oil Puzzle?

The property led slowdown in China and deflationary forces in Europe have proven to be lasting themes this year.  They imply lower commodity prices and pressure on emerging markets.

Questions from the Trading Floor: Lagging DM/EM trade and Swiss Yield Curve

The most recent pieces on Swiss yield curves and policy and the Lagging DM/EM trade generated significant commentary and follow on ideas.

Drobny Guest Piece: The Lagging DM/EM trade

What I liked about this trade construct is that it captures the idea of an EMG bond bubble that was raised earlier in the year by Mike Dooley.

Drobny: Red Flags, Gold and 2 Events almost noone wants

Draghi's comments this morning received all of the attention.  But it might be the comments by the ECB's Yves Mersch that may be the more illuminating.

Drobny Markets Survey -- November 2014

Thanks to all of those who participated in the survey.  Consistent with market discussions, FX is the focus of many here and risk levels remain healthy.

Questions from the Trading Floor: FX, FX and Asian FX

FX remains a dominant focus for many with diverse commentary and observations from amongst the clients.  These issues are really worth thinking about!  As always, comments are welcome.

Views from the Trading Floor: 1990s Again?: Asia, Russia and EMG Funding Flows

The late 1990s analogue has been coming up recently both in SG conversations and in bank publications (JPM Global Data Watch November 7th lead article).

Questions from the Trading Floor: Relative Rates, Trade Balances and USD

Yesterday's piece generated a lot of response as we all prepare for the big events of this week.  We are all working hard to figure out this puzzle!

Drobny: Brazil, US rates anomaly, and That Picture

The Brazilians surprised markets and post-election raised rates with the hopes of gaining credibility. 

Drobny London Conference -- 2014

The London conference took place amidst some wild market moves, especially with all of the excitement in Brazil.

Drobny IMF Forum -- Washington 2014

Drobny hosted its first IMF Forum in Washington, DC on October 9, 2014.  Dr. Ben S. Bernanke was the keynote speaker.

Drobny Guest Piece: Nominal GDP & Rates

The big news over the past week was the stronger than expected US unemployment report.  But noise and volatility have increased -- eg, the incredible Brazilian election. 

Drobny: Manager Favorite Trades Q4

As is evident from the list of favorite trades, the emphasis has shifted in fixed income and equities but perhaps not as much with regard to the USD.

Drobny: Questions from the Trading Floor -- HKD, Pimco effect?, Sloppy Trading

The story into quarter end for financial assets has several inputs: vulnerability of equities, impact of the weak Yen on FX markets globally, and the effect of the Pimco news on rates markets.

Drobny Views from the Trading Floor: Equities, Eurozone Stress Tests, Japan, EEM

Equities are starting to give in the face of higher yields and this has stalled the upward march in yields.  Yet, the underlying economic data still looks solid. 

Drobny: The Revised Bretton Woods System's First Decade -- Mike Dooley

Mike Dooley discussed the evolution of the Bretton Woods II system at the past two Drobny summer school sessions.  It's a unifying theory of the global financial system.

Drobny: US real rates, Asian FX and Emerging Market equities

Expected real rates rose sharply in the US today in both Fed expectations (those Dots) and in market pricing.

Drobny: Sterling risk and the Yen

One SG asked about Euro/Yen at the end of the last week.  Interesting question given all of the attention on the FED and the USD action recently.

Drobny Views from the Trading Floor: BRL, EM Assets and FX Trading

Sterling had a nice pop as the yield on the 2yr swap rate unwound some of the previous overshoot.  Swissie also went down, though it seems more on rate expectations.

Drobny: Sterling, Swissie and Volatility

Well, the employment report came in weaker than expected yet the trends of a stronger USD and higher long bond yields have sustained.

Drobny: US bullishness -- Then & Now

At the start of the year, the world was overwhelmingly bullish the US economic outlook.  And, there was a bullish USD, bearish US bond consensus.  That still seems to hold today.

Drobny: Secular Stagnation, Real Yields, and Inflation Expectations

Here we go again into another trading season!  A theme over the summer vacation concerned secular stagnation as the rally in bonds surprised in both extent and duration.

Drobny Markets Survey -- August 2014

Normally we wouldnt do a mid-summer markets survey but given the recent market action and interest in risk levels and positioning we thought we would give it a shot this year.

Drobny Summer School -- Class of 2014

It was a jam packed session and by the end of the day attendees were introduced to yield curve probabilities and structuring, FX option insights and examples -- think Reverse Knockouts!, Kelly optimal leverage calculations, dark risks in a portfolio, a

Drobny NY Manager Dinner

Drobny hosted a dinner for clients in NY Wednesday July 16th with Dr. Laurence Meyer as the featured speaker.

Drobny: USD/CAD Buy Point

Market expectations on the timing of the first fed hike have been creeping forward over the summer and the surprise drop in the unemployment rate on Friday contributed to this sentiment.  Yet, the USD hasn't moved much.

Manager Favorite Trades: 3Q 2014

The attention seems to have turned to opportunities in fixed income and fixed income vol.

Views from the Trading Floor: Consensus, Bank Regulations, Vols and Volumes

The issues raised in the last Views piece on Volatility, Volumes and Oil still seem fresh and evolving and generated some instructive discussions.

Views from the Trading Floor: Oil, Volatility and Uncertainty

As we all know, being early on a trade if often the same thing as being wrong especially when vol is so low and carry is the other way.  The US economy seems to be accelerating, yet the bond market continues to confound and this has reverberated o

Views from the Trading Floor: FOMC, Volatility, OIL, EMG Bonds

Vol could turn here.  Big things seem to be happening amidst selective pops in volatility and gold.

Drobny: FOMC, USD and Cable; Oil Curve

The emerging market storm could well be resuming.  It is uncanny how back in December/January, a renewed depreciation of the Argentinian Peso was associated with a generalized drop in EM deficit currencies.

Questions from the Trading Floor: QE & Collateral; Oil; US Potential Growth

Time for the World Cup!  But, the spike in oil prices here seems important.  What does it mean and what are the implications?

Drobny: Forward Guidance, the Data Anchor Moves

That was very strong US data released last week.  And, although forward guidance seems to be holding back things and keeping things calm, the next fixed income disturbance seems to be building.

Questions from the Trading Floor: ECB and Central Bank balance sheets

Thank you for all of the questions and comments received over the past week.  The ones below that are related to the ECB meeting this week seem most timely and relevant.

Drobny: Oh Canadian Dollar!

With all of the attention focused on the ECB and US data, it was perhaps easy to miss the story out of Canada.

Drobny: (Very) small ECB trades lead to one BIG one

A dream story at the beginning of the year was that ECB easing would combine with Fed rate hikes to pull down EUR/USD significantly.  The opposite occurred.

Views from the Trading Floor: Anatomy of EM bull story; US opportunities

There seems to be a growing sense that there is something positive happening with equities.  Meanwhile, others are looking for opportunities presented by the recent bond rally -- especially at the front end.

Questions from the Trading Floor: ARS and EMFX; CNH and US outlook

There is increased speculation that new US regulations are having market impacts and have resulted in weird activity.  There was a suggestion that this is behind the recent sharp decline in FX volatility. 

Drobny London Manager Dinner -- Gavyn Davies

Weird market action continues.  The bid in treasuries is still there and equities seem to be stirring with little progress in either direction.

Views from the Trading Floor: Long Run Growth, Loanable Funds and Real Rates

Here is a discussion that followed the recent Santa Monica conference on long run growth rates and real rates.  The two are related but perhaps not as tightly as generally believed.

Drobny Santa Monica Conference -- May 1-2, 2014

What a strange environment! The latest Santa Monica conference took place amidst strikingly low fx vol and low volumes.  What is that all about?

Views from the Trading Floor: Ukraine Update, Yield Curves, FX stability

While events in the Ukraine are gathering increased attention, the main focus remains on the expected acceleration in the US data.

Drobny Global Monitor: Normalization, Yield Curves and the UK

We seem to have reached an interesting junction.  US unemployment claims have moved to new lows for the recovery. 

Drobny Guest Piece: Ukraine -- IMF Bailout Insufficient

Are we about to have a repeat of 12 months ago when strong US economic data sent a ripple through markets?  At least one SG thinks so.

Questions from the Trading Floor: Inflation trades, Deflation risk and Euro CDS spreads

Well, they are starting to come out! Those forecasts for 250k employment numbers for April.

Drobny Global Monitor: Germany the Powerhouse

The March unemployment report did not rebound enough to suggest an unwind of the January/February slowdown....

Drobny Global Monitor: A Comment on the EM Crisis 'Analogue'

In a recent Drobny guest piece Nick Latinovic provides a template of how EM crisis typically unfold.  He uses the template to argue the adjustment this time around has been insufficient.

Drobny Manager Favorite Trades -- Q2

There is a sense of opportunity in the US employment report.  The 200k market forecast looks low if the economy is rebounding strongly from the weather hit.

Questions from the Trading Floor: EMG rebound, JPY v NKY and Equities

A friendlier sounding ECB hawk and renewed prospects for Chinese stimulus have generated considerable excitement and prompted an unwind of the EMG underperformance in the first quarter.

Drobny Global Monitor: No Follow Through

There has been a whirlwind discussion about whether Janet Yellen intended to bring forward rate hike expectations.

Drobny Guest Piece: The EMG BoP Crisis Analogue

By applying a wide-range of statistical comparisons, our friend Nick Latinovic argues that the EMG adjustment has much further to go.

Drobny Global Monitor: Made in the USA

The rebound in the February jobs number seems insufficient to suggest that the US economy will rebound strongly once the weather recedes.  The onus is on the bulls for a big employment number soon.

Questions from the Trading Floor: USDCNH, Income Distribution, AUD

The Chinese data release over the weekend seems to be on people's minds.  What are the market implications?

Drobny Global Monitor: EURJPY, US rates, USD

One SG asks if commodities are entering a new bull phase.  Behind this it seems is that the USD seems to be breaking lower.  Zero rates are weighing on the currency especially with rate hike expectations having been pared back since last Sept

Drobny Guest Piece: Ukraine Updates

Our friend Boris has been all over the unfolding story in the Ukraine and he has kindly agreed to publish his last two updates. 

Questions from the Trading floor: Ukraine, CNY, EMFX, EURO/USD/Bonds

Developments in Ukraine, China and EMG FX are generally on people's minds. 

Drobny Global Monitor: EMG FX v Copper/HSI

As SG complains about the consensus on EMG especially given the adjustments that have already taken place in FX and the current accounts in some of the countries.

Questions from the Trading Floor: EM, CNY and the Fed

Events in the Ukraine are getting uglier, which gives a sense that the emerging market storm has many subtexts and variations.  The reaction to the weak Chinese PMI was muted.

Drobny Global Monitor: Deflation/Reflation and Euro/Yen

For the past few years, inflation expectations in Japan have been moving higher while in the Eurozone they have been moving in the opposite direction.

Questions from the Trading Floor: USD, GBP and Commodities

The assumption is that EM currencies are where the vol and gamma are going to be, but the latest jump in Sterling suggests this might be misplaced...especially if the USD surprises us all.

Drobny Guest Piece: John Burbank

Here is a neat summary of the views and methodology of someone who has been on the markets -- John Burbank, the recipient of the Drobny Best Favorite Trade, for his presentation at the 2013 Santa Monica Conference.

Drobny Global Monitor: Consensus and the USD

Disappointing US data has certainly disturbed consensus observed at the start of the year.  First treasury yields came down.  Then the 'Japan trade' got dusted.  And, now DXY is testing its technical uptrend.

Questions from the Trading Floor: EM Liquidity & Contagion

Things in emerging markets seem to be settling down a bit after the recent large rate hikes. But what happens if the US employment report tomorrow is strong (say net 200k plus)?

Drobny Guest Piece: Japanification -- the Sequel

Remember the long USD/long bond combo recommended a few weeks ago?  Here is a justification for the bond leg from a fixed income oriented fund that performed very well last year in a tough environment for the sector.

Drobny Global Macro Roadshow -- Brasil...Yikes!

The current global capital markets systems and infrastructure are not capable of handling the size of the stock of foreign investment in emerging markets.  These foreign stocks have been built up over the course of the past decade and there i

Views from the Trading Floor: EMG, Contagion and the Japan Trade

Are the EM rate hikes sufficient to stem the tide?  Will EMG contagion affect DM in a sustained way and what about the Japan trade?

Drobny Global Monitor: The 1997-1998 Analogue; the Fed and Trouble Trades

Comparisons between the evolving EM story and the 1997-1998 financial crisis popped up over the weekend.  The exercise is instructive to consider the similarities and differences.

Drobny Guest Piece: Managing China's Infrastructure Bubble

The turbulence in Argentina and Ukraine creates the potential for emerging market asset contagion.  And, as we saw today, it is developments in China that have the potential to impact the developed market world as well.

Drobny Global Monitor: American Respite/European Action?

That long T bond/long USD combo suggested by an SG ahead of the employment report has worked reasonably well. The growth acceleration of Q3/Q4 seems to have paused, though it is still unclear the impact of weather and how long the respite will last.

Drobny Portfolio Manager Survey -- January 13-14, 2014

The results have certainly caused us to modify our views

Views from the Trading Floor: Manager Comments -- UE report, Asia, Latam

The unemployment report on Friday was a gift to countertraders -- the first in quite some time!! And, although much of the surprise is likely due to weather, these conditions may well persist into January.

Drobny Global Monitor: USD pairs into the employment report

One SG suggests that the location for selling treasuries is poor, yet the location for buying some USD pairs is excellent.

Drobny Global Monitor: Consensus and Initial Thoughts

Happy New Year!! One of the striking things upon return from vacation is the consensus in views on several themes.

Manager Favorite Trades: 1Q 2014

As you can see in the attached piece, there is a belief of a pick-up in growth next year.  But, what isnt consensus is that this growth will place upward pressure on rates.

Drobny Global Monitor: Oddly Stable Bonds

Well that was a weird reaction to the strong employment data on Friday!  Bonds rallied and the USD dropped.

Questions from the Trading Floor: Liquidity Withdrawal

Liquidity withdrawal seems to be the theme that emerges from the questions below re commodity volatility, emerging market bonds, and US swap spreads.

Drobny Global Monitor: EURJPY, Acceleration!, US/Swedish rates

Euro Yen has been trending higher throughout the year.  But the move has accelerated recently, without an obvious catalyst.  When that happens, it often reflects something we cannot see, like an underlying portfolio flow.

Views from the Trading Floor: Equities v Commodities correlations

Yen TWI seems to have broken lower again.  Yet, the positioning into year end may limit further appreciation.  Meanwhile, Mike Dooley commented re Larry Summers' secular stagnation thesis -- these arguments have followed every recession

Drobny Global Monitor: Larry Summers' stagnation and Wicksell

A main theoretical contribution of Knut Wicksell, the esteemed Swedish/Austrian economist, was his framing of the interaction between monetary and real economic variables.

Drobny Guest Piece: Mexican Yield Curve

The Treasury spread continues to steepen, a sign that tapering is not equal to tightening.  That is allowing a respite for EMG and holding back the USD.

Questions from the Trading Floor: Europe, Japan, Phillips Curve & Wicksell

The USD rally after the employment report has been disappointing so far and the Yellen testimony has calmed things further.

The Eurozone Project: An Unstable Equilibria, Philipp Hildebrand keynote

Philipp Hildebrand, former chairman of the Swiss National Bank presented the keynote speech at the Drobny London Conference.  Dr. Hildebrand warned of the rising tide of nationalism in European countries at a time when Eurozone strategy requires p

Drobny London Conference Review

The dominant theme at the London conference was the threat of rising rates around the world.  The big Chicago Fed number reported the previous day generated quite a buzz, as it suggested that the government shutdown in October did not produce the

Views from the Trading Floor: USD, Euro peripherals, EMG FX

What if reserve managers aimed for pre-crisis Euro levels?

Questions from the Trading Floor: More Puzzles -- Bonds, Japanese deficit

That was fast and furious and it caught me by surprise.  Why is the treasury bond rallying?  Isn't the economic outlook going to feature some payback from October going forward?

Drobny Global Monitor: Revisiting some Japan puzzles

What is puzzling and interesting is that the longer term correlation between the Nikkei and Yen is a more recent phenomenon, and was much less prevalent prior to the recent 10year period.

Views from the Trading Floor: Technical v Actual Default

A short term deal on the debt ceiling in the US, though much better than an outright default, is not necessarily that good news for the economy.

Drobny Global Monitor: Default risk, Gilts and Cable

The conceptual framework is that of a binomial -- the politicians can suddenly flip the default switch "on" or "off."

Drobny NY Client Dinner -- "Can we trust the Fed to guide us forward?"

It's a binomial...unemployment claims today were strong and confirmed the strength of the latest US economic data...and the need to taper/tighten.  Yet, the political fighting threatens a fiscal tightening, or perhaps worse a default.

Drobny Manager Favorite Trades -- Q4

Several things stand out from the latest selection of manager favorite trades.  First, conviction in directional FX and bond trades seems low. Second, Japan recovery theme remains dominant.  Third, complacency regarding the Washington DC

Questions from the Trading Floor: US rates, Euro FX, USD/CLP

Watching and waiting seems to be the main theme post-Fed decision with volumes across asset classes depressed.  Yet, the initial claims figure released today has proven a reliable indicator of future employment trends.

Drobny Global Monitor: Equities, The Fed and Other Risks

The common refrain is that by holding off on tapering the Fed has muddied the waters and clouded forward guidance.  If that is correct, then the anomaly is falling implied volatility in fx, equities and rates.

Views from the Trading Floor: Interpreting the Fed

It's that other headline -- the renewed threat of a government shutdown -- that may provide a rational explanation as to why the Fed delayed the taper.

Questions from the Trading Floor: EM Equities, Tapering, Sterling

The dominant question on people's minds is whether the trend in USD, US yields and emerging markets for the first 8 months are going to continue to unwind and the impact of the imminent Fed announcement.

Drobny Guest Piece: Positive Case for GBP

The bounce back in UK activity has taken many of us by surprise.  In the attached piece, Ben explains the source of the bounce back in growth.

Drobny Global Monitor: Tapering, EMG, Yen & Swissie

The surprise rally in BRL and Brazilian assets tell a story contrary to the one we have been telling.  Its a story that suggests tapering is perhaps priced into the fixed income markets.

Drobny Guest Piece: Indonesia Turbulence

The acceleration in developed market activity is pushing up US and other developed market yields leading to widespread interest in both recovery trades and blowup trades.

Views from the Trading Floor: Initial Thoughts

After a refreshing summer break I notice two things in particular: 1) with treasury yields sitting stubbornly near the highs and emg/Europe getting hit by this, US swap spreads havent reached the highs reached in June and 2) the sustained rise in Japan

Views from the Trading Floor: US Economy, Housing and Portfolio Implications

This is getting messy and potentially volatile during the quiet summer period.  Treasury yields remain stubbornly near recent highs amidst diverging opinions of the strength of the US economy.  If tomorrow's NFP number is strong, there is a d

Questions from the Trading Floor: Rates, Spreads and USD

People are sniffing around for new ideas/trades ahead of the big data releases and policy discussions this week.  This week could well define the trading environment for the remainder of the summer.

Trades from the Inaugural Macro Summer School

The inaugural BNP-Drobny Macro Summer School was held July 18/19 in NY and was attended by more than 90 junior professionals from around the globe.

Questions from the Trading Floor: USD cracks, JPY vulnerable, and Unwind Trades

Oh my...the USD got crushed, mostly against the other majors.  It seems Euro sentiment has become a solid counter indicator correctly warning that USD positioning were exposed to a friendlier sounding FED.

Drobny Global Monitor: ECB v FED & Peripheral Spreads

The timing of BOE/ECB announcements, and the similarity of their messages combines well with sustained signs of US economic resilience and the increased likelihood of tapering by the Fed.

Manager Favorite Trades -- Q3 2013

The year has been dominated by developments in Japan, the surprising economic resilience in the US, and the mounting weakness in China.  This resulted in Yen weakness, USD strength, commodity price weakness (amidst DM equity market strength) and t

Questions from the Trading Floor: Curves and Rate Hike Expectations

Some calming in both China and the US has generated a grab for yield at juicier levels.  This provides a respite, especially for emerging markets.

Drobny Global Monitor: Enough at the Long End

US 10yr treasury yields have backed up about 100bps in about 6 weeks, a considerable move that has generated significant ripples across global financial markets.

Views from the Trading Floor: End of QE, Term Premia, Abenomics

The Fed told us that unless things change they will remove QE pretty quickly.  And, the timetable for the first hike is roughly what is in the eurodollar futures curve.

Drobny Global Monitor: Fed Tapering v Tightening

There has been a growing and widespread belief that Ben Bernanke will talk friendly this week.  The idea is that the Fed have floated the tapering idea to get us ready.

Questions from the Trading Floor: Trade Imbalances

Well, there was an attempt today to try to calm fears of higher US rates and that has allowed the bond market to rebound, the USD to move lower and EMG markets to recover.  Yet, the data today suggested precisely the opposite...that tapering and t

Drobny Guest Piece: EMG Bond Rout: A Mexican Anomaly

The Brazilians raised rates, then Chinese rates jumped.  Now Indonesia and Turkey have done it.  And, more generally there is a nasty fixed income/credit event unfolding.  It includes EMG bonds but also US munis.

Questions from the Trading Floor: China rate spike??

A new story, a new problem may be emerging....China.  Rates have spiked amidst credit strains and defaults.  And the latest economic data has been pretty soft.

Drobny Markets Survey -- June 4-5, 2013

Risk has been reduced in USD/JPY and Nikkei since the April conference.  USD positioning is interesting!

Drobny Global Monitor: This time is different?

USD/BRL held the top of the ‘range’ at 2.15, after central bank intervened around that level and after a big 50bp rate hike. And, this has taken place as a broad USD correction

Drobny Guest Piece: Enhanced Multiplier Effects

Is the renewed activity and firming of prices in the property market leading to an enhanced multiplier effect in the credit space?

More Questions: Excellent!

Many don't quite seem to believe it could happen....that super easy money policies could unwind in earnest. But they are starting to suspect it.

Drobny Global Monitor: More Normalization

Mr. Bernanke told the bulk of the story.  The US can start to unwind QE if the data confirms that the recovery looks sustainable.  Today's unemployment claims number fits that requirement and suggests that the unemployment rate will continue

Questions from the Trading Floor: German Exports, Real Yields

The uncertainty is less about policy and more about what is happening with the economies.  Its not so much about what Bernanke says this week, or whether the Yen has 'overshot' or whether the ECB will ease.  Rather its whether the US and Japa

Drobny Guest Piece: The Fed and Potential Growth

US unemployment claims have been driving markets recently and today's soft number combined with the Philly Fed gives pause to the idea that the March slowdown was transitory.

Drobny Global Monitor: Some Myths about Normalization

It is increasingly accepted that things may have changed decisively in Japan after 20 long, hard years. But if the underlying conditions in Japan have changed, the trend for JGBs should also change.

Views from the Trading Floor: "On Fire" commentary and Post-Conference Discussions

Another strong unemployment claims number was released in the US today adding to the weight of evidence that the US economy may actually be accelerating.  Combine that with the latest round of central bank easing around the world and there is a gr

Drobny Global Monitor: On Fire!

The story increasingly heard around the US is about bidding wars for property amidst low inventory.  This holds as much in places like Ann Arbor, Michigan -- where prices had apparently been falling for a decade and are now regularly selling for a

Drobny Conference Review -- Santa Monica 2013

Drobny hosted its 23rd semi-annual conference April 25-26, 2013 in Santa Monica, CA.  The keynote presentation was delivered by Dr. Lawrence Summers.  Friday April 26th was the favorite trade session.  Panelists included: John Burbank -

Larry Summers Keynote Address to the Drobny Conference

Dr. Lawrence Summers delivered the keynote address to the 23rd semiannual Drobny Conference in Santa Monica, California April 25, 2013.

Questions from the Trading Floor: Gold, Real Rates, TIPs & Asian FX

Is the drop in gold prices and commodity prices broadly a reflection of the deflationary impulse reemerging?

Questions from the Trading Floor: Gold, Real Rates, TIPs & Asian FX

Is the drop in gold prices and commodity prices broadly a reflection of the deflationary impulse reemerging?

Drobny Global Monitor: Cable, Brazilian Rates, Japan and China

The outbreak of volatility means that people need to sell positions to reduce VAR.  So USDJPY when down hard in the last storm, US equities corrected and USD broadly corrected.  But beneath these movements there are some bigger economic trend

Views from the Trading Floor: Latam, Soros on Europe, Japan

It looks like there will be plenty to discuss and debate next week at the Santa Monica conference amidst this environment of big moves, position shakeouts, higher volatility and increased uncertainty.

Views from the Trading Floor: Latam, Soros on Europe, Japan

It looks like there will be plenty to discuss and debate next week at the Santa Monica conference amidst this environment of big moves, position shakeouts, higher volatility and increased uncertainty.

Manager Favorite Trades: Q2 2013

Japan is clearly at the front of people's minds; its mostly a question of trade expression.  The biggest uncertainty now seems to center on the US economy...is the slowdown transitory or not?

Drobny Global Monitor: Selling Yen Forward

The dramatic rally in ultra long JGBs tells the story.  Although spot Yen depreciated sharply last wee, forward Yen has been appreciating against some currencies!

Drobny Global Monitor: Some Puzzles

The main action for awhile has been FX, led by Yen weakness, and in equities led by the SP500 and Nikkei.  Suddenly, commodities have started to move south on a pretty broad basis. But fixed income has been tepid and uninspiring.  One SG expl

JGB Alert!!

The amazing move in ultralong JGBs continues this evening.  And, we just wrote earlier today about how fixed income hadn't moved!!!

Views from the Trading Floor: Equity Markets Diverge, Cyprus, Global Macro Chessboard

This week has a lot of potential.  There's the Japanese announcement as well as the US employment report.  The discussions below reveal what people are thinking about heading into these events including a comment on "A Fiscal Reserve Board" g

Drobny London Manager Dinner -- When China rules the world

There seems to be a growing doubt about where the global economy is headed as we head into the end of the quarter.  Is the Cyprus issue a passing issue or something more lasting?  IS US growth acceleration on the verge of fading? In othe

Drobny Guest Piece: A Fiscal Reserve Board? by Lee Thomas

The Cyprus problem and especially Dijsselbloem's comments today, the mounting problems in Brasil and recent policy actions taken to contain property values in Asia all suggest that exit speculation is premature and stimulus will still be needed. But wi

Drobny Global Monitor: Asian FX, GCC & USD

An SG forwarded a recent piece by Russell Napier of CLSA 

Questions from the Trading Floor: Turbulence Trades?

Hard to know if this is a squall at the end of a quarter which exhibited strong trends. Or, a repeat of recent seasonal patterns where a good start to the year is interrupted by European turbulence</

Drobny Guest Research: Sell Hungarian Debt

Turbulence has reemerged in Hungary, yet the yields on the hard currency debt are near their lows.  This manager thinks the moment is right to sell the debt.

Drobny Global Monitor: Revisiting Asian Biases

Much of the discussion this morning is about the excellent US data, the USD bull trade, and the improving environment for equities.  But, developments taking place in Asia also seem important.  It's not just policy changes in Japan. And, in C

Drobny NY Dinner: High Theory

Drobny hosted a dinner for clients this past wednesday.  It was an evening of high theory.  Some of the discussion was tough going, but it got many participants excited and I am certainly one of them.

Questions from the Trading Floor: European FX, Break-Even Inflation, USD/CAD

I received many comments and questions over the weekend.  Many seem on heightened alert ahead of the ECB and big data points.  The China events overnight probably raised alertness even further.

Drobny Guest Research: Kent Janer, Nektar

Are we at an inflection point where growth acceleration is giving way to a slowdown? And, is the turbulence in Italian politics just getting started?  Politics are the danger point for the Euro project as the prolonged slump in some countries cont

Drobny Guest Research: EMG Bubble & USD

Slowly but surely the USD rebound continues to build.  Its not that the US is in such great shape, the sustainability of the US recovery may in fact be exaggerated.  Rather, its that pockets of trouble and potential distress elsewhere makes t

Views from the Trading Floor: USD rally & EMG rates

Isnt it interesting how a sniff of tightening in China or the US results in bonds in the majors actually rallying as equities sell off!! It's an odd disequilibrium and suggests the market does not believe tightening is realistic in any of the majors.

Drobny Guest Research: The Big Picture

Geoff Barker argues that stimulus in Japan is positive for global growth and, if it succeeds, recovery in Japan should place upward pressure on US treasury yields. 

Questions from the Trading Floor: Singapore & Brazil

Your recent comments on USD/SGD and SGD nominal and real rates caught my attention.  However, you missed an important element: the SGD is managed on a basket which makes USD/SGD highly correlated with moves in EUR/USD.

Drobny Global Monitor: Mexico, the UK & Currency Wars

We seem to have hit a critical juncture and that may allow us to rest and consolidate in the short term.  And, if the DGM trades above are respresentative, there's probably been considerable profit taking or stop losses triggered out there. 

Questions from the Trading Floor: Yen, Yen vol & Eurozone Turbulence Trades

Draghi's complaint about Euro strength has added to the recent shakeup on several Euro fx crosses including EUR/JPY, which has been a leading variable in the powerful Yen move.  Does it have the potential to produce a larger unwind of the Yen?

Drobny Brazil Macro Trip

The EMG story is deteriorating, at least in Latin America which nowadays looks more like an inflationary zone than a fast growth area and fabled example of convergence.  This was a dominant theme throughout the trip.

Drobny Guest Research: Si se puede Mexico!

Saludos from Sao Paulo!  In the piece below our friend Antonio emphasizes the attraction of receiving rates in Mexico, but also hints of buying USD/MXN against this.  This is similar to the CAD/$ rates trade suggested in a recent DGM.

Drobny Markets Survey -- January 23-24

The survey results show that the group is braced and positioned for improved economic performance.  And, they seem to be catching the main moves of the year with a long equity bias, short G4 bond position, short yen and long euro positions. 

Views from the Trading Floor: EMG Spreads; Eurozone Spreads; EURGBP

And now its up to the data.  Big macro policy events have passed with a lot from Japan and thankfully less in the US.  Today's U claims number out of the US certainly fits the idea that data will dominate price action.  All of this has m

Drobny Guest Research: EMG Spreads

There has been considerable speculation on the outlook for rates this year, with little actual movement.  This piece suggests something a bit different and raises the potential for an outsized move in EM spreads to Treasuries.

Drobny Global Monitor: The Canadian Anomaly

Two forces have dominated the market landscape at the start of the year.  The first is the currency action, featuring the sharp move down in the Yen.  And, the Euro recovery, especially on some of the crosses.  The other force is the ide

Questions from the Trading Floor: Rebound?

Rebound?  Well compare today's Goldman Daily and JP Morgan's latest 'Data Watch'.  GS talk of a mid cycle slowdown; JP Morgan talk of lifting global growth.  These seemingly diverging stories can be reconciled by an appeal to slow underl

Drobny Global Monitor: The Sterling Lottery Ticket

The sell off in UK gilts has been pretty brutal since the start of the year with 10yr spreads widening against Germany and the US.  Presumably this is related to fears of a UK ratings downgrade.  However, the back months of the sterling strip

Views from the Trading Floor: Initial SG Ideas

A rough macro guide to the year is that the US economy looks hopeful but is likely a source of volatility, Europe is uncertain caught between easy money and tight conditions in the periphery, while Asia looks pretty good with the main change that Japan

Drobny Global Monitor: A START

Happy New Year! There is excitement that much of the fiscal tightening from the fiscal cliff has been averted by the last minute deal.  It's a good start.

Drobny Guest Research: Japanese Monetization Effects

What if Japan monetized 100% of the outstanding stock of JGB's? Perhaps nothing?? I have just read the Kyle Bass piece on Japanese monetization and your comment from November 26th.  Here is how I approach the issue.

Manager Favorite Trades -- Q1 2013

As you can see below, there is a fair degree of optimism in the air.  The question is whether any fiscal cliff resolution will be sufficient to clear the decks for 2013 or if there will be additional issues that need to be addressed early next yea

Questions from the Trading Floor: GBP Competitiveness, European Equities

A friendlier ECB sounds good, but the story out of Italy today has the potential to be the bigger issue.

Questions from the Trading Floor: ANB and AUD TWI

The Aussie rate market has rallied further in the past few days, as a rate cut tonight by the ANB is increasingly expected.  And, as you can see below, there has been considerable interest in these developments.

Drobny Global Monitor: AUD, Rates and US Fiscal Policy

It's been a rather remarkable period of low volatility amidst low trading volumes.  An excellent environment for carry trades.  Like the AUD. It has rallied recently as Asian growth took a turn for the better and commodity prices rebounded.

Questions from the Trading Floor: Deficit Finance?

What is your comment on the Kyle Bass piece?  It apparently received a ton of interest. A: This piece restates and brings up to date the thesis he presented at the Drobny Santa Monica Conference in 2010.  He has a dual thesis: high gover

Drobny Global Monitor: A Hopeful Fiscal Cliff Outcome?

The noises on the fiscal cliff are sounding more optimistic, with a two stage compromise widely discussed.  So, ahead of a traditionally bullish equity season, it makes sense that some are reducing short exposure or buying ahead of an anticipated

Questions from the Trading Floor: Growth, Oil Constraint & Policy

The idea that the Yen and equities are inversely correlated is a popular concept and may work on a day-by-day correlation basis.  But, as we noted at the Geneva conference, it is inconsistent with the trends.  From 2009-2012 both the Yen and

Views from the Trading Floor: FX Gamma, NOK, CNY & 2013 Outlook

There is a sense that short term turblence may emerge here, even while longer term solutions to the US fiscal and Euro crises become more apparent.  This leads to ideas regarding vol curve flattening in equities and FX and discussions concerning y

Drobny Global Monitor: On Taxes

Big things are happening out there my friends.  Japan's move to a persistent trade deficit was further confirmed by the current account deficit announced last night.  These flows should, with the help of the BOJ, halt the trend appreciation o

Questions from the Trading Floor: Oil, Inflation Expectations, China

I was struck at the latest Geneva conference how Peter Thiel appealed to his longstanding bullishness on oil prices (first presented at the 2004 Santa Monica conference) as a supplementary reason why he expects real yields to stay low for a prolonged p

Geneva Conference Review

Perhaps the strongest conclusion to be drawn from the latest Geneva conference is that positions have been reduced.  A second conclusion is how mixed perceptions are generally regarding the growth outlook.

Drobny London Dinner

The Yen is starting to perk up and Korea/Yen is a good one.  If things are ok with the global economy, then this cross looks way out of kilter and has substantial upside.

Guest Research Report: Buy EMG Front Ends

A few months ago our friends at Trend Capital were emphasizing carry trades as a reduction in Euro area blow up risk and easy money in the major countries amidst slow growth was reducing generalized volatility.  In their latest piece, their emphas

Questions from the Trading Floor: USD/Europe & Slow Growth

Was this all a false rally based on central bank liquidity with still weak growth?  Some equities have given up all of the post QE3 and OMT gains.  If yes, some are thinking about USD calls.  Others are thinking about winners and losers

Drobny Manager Dinner -- NY

Perhaps the most striking feature of the favorite trades below is the bullish consensus of the participants. This is a savvy crowd and typically one you don’t want to countertrade. Yet, as discussed below

Manager Favorite Trades: Q4 2012

Check out the diversity of strongly held views and the bias towards buying vol in equities.  And, the popularity of gold within the group.  There is also a lack of strong directional trades in the FX majors and rates.

Guest Research Report: Lee Thomas -- Greece & T Bonds

There has been increased discussion in recent DGA pieces about higher long-dated Treasury yields.  Yet, the next determinate of US Treasury yields may well come from an unexpected source -- Greek politics.

Drobny Global Monitor: Stalemate?
The battle in markets is still liquidity versus growth. And, after the powerful market reaction to OMT followed by QE3, we seem to have entered a consolidation period, waiting for the next catalyst. In the meantime, Bernanke has hinted that the FED has
Drobny Global Monitor: Currencies and Growth
It was noted in a recent DGM that EUR/PLN was going the 'wrong way', as PLN appreciated in the euphoria that followed the ECB announcement of the new OMT plan. This was a general point about Eastern Europe. Reduced tail risk within the Eurozone may attr
Drobny Markets Survey -- Sept 18-19
Central bankers have certainly prompted a market response. Gold...66% of respondents are either very long or long. And, no respondents are short gold. 60% were also very long or long commodities while only 7% were short.
Drobny Global Monitor: The Monetary Theory -- Part II
In reality, monetary policy works indirectly, not by throwing money to final purchasers, but via financial institutions and essentially through its effects on interest rates and financial assets. As we all seem to understand now, QE in its various forms
Views from the Trading Floor: Reflation, Growth Expectations
What really stands out to me...is the big move in US inflation expectations post FED. We are now in the upper range of various measures....more importantly, conditioned on growth, expectations seem even higher in the context of weakish/weakening growth.
Guest Research Report: Impact of Higher US Treasury Yields on Emerging Market Assets
We address the consequences of a prolonged and acute US Treasury selloff to the emerging markets fixed income space. Historically, EMG fixed income performs well in a risk-on environment but the compression of yields has left external and local fixed inc
Questions from the Trading Floor: Surgical Strikes? Unintended Consequences?
The US employment report was weak and the data out of China didn’t show signs of a bounce. Yet, there is increased speculation that a year end pick-up in global growth is coming amidst a thaw in equity market bearishness. The idea is that lower rates ge
Drobny Global Monitor: ECB Policy in Context
Remember the discussions in earlier DGMs and DG Guest Pieces which considered the Eurozone sovereign spread issue in terms of implicit currency forwards? The idea was that peripheral yield curves would flatten when tensions emerged, as near term devaluati
Drobny Global Monitor - Stimulus vs Biz Cycle
One SG sent a note during the August break suggesting that the big question ahead was whether the market would concentrate on upcoming stimulus in September or on the business cycle which he thinks doesn’t look good.
Drobny Global Monitor - Election Fever, Fiscal Policy, and Q4
It’s the last week of vacation and time to start to catch up on events ahead of the busy Sept/Dec trading season. And, apart from the Olympics, perhaps the most captivating story of the August break was this outbreak of US election fever amongst some o
Guest Research Piece: The Incredible Shrinking Crop
There has been plenty of excitement in the agricultural space the past couple months. Our friends at Galtere have taken advantage of the opportunities.
Guest Research Piece: Omni Macro Fund, London
In their latest monthly, below, Omni present a practical and up to date thought process, strong views, and position expression that is diverse and rather precise. That seems an important element in their generating consistent returns in a tough market.
Guest Research Report: Nektar Asset Management
Volumes and volatility are depressed. Nevertheless, the steepening trend continues. And today USDJPY is the notable mover. One of the choices people will face as they return from holiday is whether this is the beginning of something bigger or just another
Guest Research Report: MaxQ Fund, London
Our friend George has had a very solid year following his outstanding performance in 2011. The analysis below is still relevant despite recent developments.
Views from the Trading Floor: BUBA/ECB Compromise; Sterling, UK/Spain comparison
Here are some comments on the latest developments in the Eurozone, as well as on a few other issues. The summer sequence of policy actions have failed, so far, to generate the waterfall event I was looking for. Instead we have a kind of disequilibrium typ
Guest Research Report: ABD Investment Management, London
The USD rally today suggests the market was braced for surprise FED action. Now, as we wait and churn ahead of the ECB and US employment figures, take a look at this report, which presents a different perspective than yesterday’s letter.
Guest Research Report: Grant Capital Partners
Euro/HUF has come down very hard since the Draghi remarks last week, as the prospect of a friendly ECB combined with reduced risk premia made it seem less vulnerable. Buying it here seems to provide a decent bet should the ECB disappoint this week. Meanw
Drobny Global Monitor: Cable Puts
Has the Bank of Italy taken over the ECB? The comments by Mario Draghi today which got everyone excited certainly sound like it. We’ll have to see what he will actually do that is novel here, and what the BUBA think about it.
Guest Research Piece: Gold Volatility
We are seeing gold pop up increasingly in discussions amongst Drobny members. In fact, one of our readers asked specifically to hear from the anonymous manager who wrote a ‘Gold- Change of View’ Guest piece early last November. Here is the exchange.
Drobny Global Monitor: The Forward FX Framework
A piece by GS this morning captures a very important issue, and an emerging danger (‘Global Markets Daily’). They note that the front ends (what we’d typically call money market curves in most countries) in Italy and Spain have been steepening.
Guest Research Piece: Sell French Government Bonds?
Our friend in Brazil has long been advocating a long position in Brazilian rates. This is the first time I’ve seen him go negative rates in quite a while, which is why his idea, and analysis, caught my attention. - Andres Drobny
Views from the Trading Floor: Swedish Anomaly; LIBOR Issue Implications
The current pattern is reminiscent of the summer of 2008. Many suspected something ugly was unfolding, yet a vicious short covering rally took a lot of scalps. The S&P climbed over 100pts trough to peak. The 10yr Treasury yield rose by 50bps. And, USD/Yen
Drobny Global Monitor: The Monetary Theory
If debt is denominated in nominal terms, the monetary theory says that all the authorities have to do to accommodate deleveraging without generating an economic slump is to ease monetary policy and promote reflation. However, as we’ve learned since earl
Questions from the Trading Floor: EUR/SEK; Palladium; Chinese rate liberalization?
The current round of policy activism helped forestall a waterfall event with equities, but failed to ignite anything more than a minor correction in recent trends. And, with the heightened potential for a global downturn building, there are many actual an
Guest Research Piece: The Fiscal Cliff & Defense Spending
The US fiscal cliff issue has various elements. I’ve emphasized how, as we approach the election, the prospect of tax hikes and spending cuts will likely weigh on durable goods expenditures by households, serving to undermine growth. At the SM conferenc
Manager Favorite Trades: Q3 2012
There’s one more set of policy hurdles to go in this current sequence of activism, and this can help hold things up or, looking at the equity trades below, it could also produce another squeeze. But, little has changed with all these policy moves. The b
Views from the Trading Floor: Policy vs Trajectory; Equities vs USD & gold: Correlations again
Keep an eye on the prize: the big chasm between policy activism and a generalized downtrend in global economic activity. We start this week with diminished expectations of what can be achieved at the Eurozone meeting. Yet, these guys know the stakes and c
Guest Research Report: The Eurobond
The Philly FED index out this morning suggests a US economy that has slowed sharply. The extent of the fall is now more than in the summer of 2011, though it came from a higher base. And, there is little reason to expect any rebound this time around...
Drobny Global Monitor: Intervention?
A quick additional note late in the day. One thing that wasn’t discussed much at all today was why USD/Yen jumped up as equities went down. No one seems to have a good answer. Well, one SG asked around and got an answer that rings true.
Drobny Markets Survey -- June 18-19
As you can see below, there are some interesting results. Most notably, USD longs have increased since the Drobny Conference in late April. At the time, 48% were either very long or moderately long USDs versus 62% today. Risk levels remain low with 62%
Drobny Global Monitor: Sequence of Hope
The hope train has been allowed to proceed to the next event. This one will be in the US and it, too, carries with it some dangers. But, first Europe. The vote in Greece reduces fears of immediate catastrophe.
Views from the Trading Floor: Bunds and Eurozone bond correlations; Greece; Oil
A big weekend is coming up, although there is a growing sense that little will be resolved. But there are all sorts of undercurrents and odd price movements, especially with bonds. Nobody, frankly, seems to offer a clear and convincing answer...
Guest Research Piece: Boiling Point -- On the ground in Greece
Things are supposed to be happening behind closed doors in Europe. Big decisions are about to be made. Big things are also happening on the ground, and they are equally if not more important.
Questions from the Trading Floor: French Bonds; Gold/Equities?
The moves in China and reduced default risk in Spain add to hope, and the expectation that more policy moves are on the way. The thesis is that the action, once it materializes, and if there are no big (fiscal) surprises, will prove a big disappointment.
Drobny Global Monitor: Anticipatory Behavior
Remember that big bounce in equities back in December? That was a really good month for stocks, when policy innovations came at a time of widespread fear and despair about Europe. And amidst concerns about a looming fiscal tightening in the US.
Drobny Global Monitor: High Hopes and Expectations
There’s a sense of anticipation in the air. That some big coordinated policy action is about to be unveiled, and this at a time when assets have cheapened up considerably. The problems are enormous. But, that also means the policy response can be substa
Views from the Trading Floor: Crisis, Equity and FX Vol; Euro/Gold; Eurozone Money Supply
There’s a sense that we could be at a waterfall moment, especially if the US data continues to deteriorate. Yet, take a look at the vol story…is it still early in the process, or is there something very different this time around? Also, it’s interes
Views from the Trading Floor: Liquidity Provision, Asset Values and EMG
The current process of decay may be pausing ahead of big data releases. But, the reasons it hardly seems over are nicely captured in this week’s Economist Magazine in 3 contradictory articles on Greece and the Eurozone. In #1, (p28), they fret about the
Guest Research Report: Paradigm Shift: Emerging Market FX
Market liquidity seems to have suddenly dried up. Just look at the violent moves in US high yield, some commodities, equities or FX. Greece, the US fiscal cliff and fears of economic slowdown have combined to make for a dangerous environment.
Questions from the Trading Floor: Dalio's World? Keynes v Hayek?
We seem to be only part way through this latest and very serious storm. But, market expectations have adjusted, with widespread talk that a near term Greek Euro exit is now a 50/50 bet. So, this pause and rebound is probably not unexpected.
Drobny Global Monitor: Yen Flows, Greece & the US Fiscal Cliff
Excuse the short termism. But, examine the behavior of a large swath of financial market variables over the past 6 trading days as the dramatic events in Greece and the Eurozone have unfolded. It may well reveal something bigger.
Views from the Trading Floor: More on Eurozone Bonds; Cross Market Configurations
The comments out of Germany and the BUBA continue to flow in the right direction: stimulus and faster demand growth in Germany and France is the right match for austerity in the periphery. This is too late to save Greece, but may have something to do with
Drobny Global Monitor: Dangerous Moments
What a subdued reaction to the events in Greece! Maybe it’s because the UK is closed today. Or, more likely, it reflects improved odds that Hollande’s victory in France will lead to less austere policies in the core countries. And, rather remarkably,
Santa Monica Conference Review
The big controversy of the day concerned China. Is the slowdown the start of something much bigger and darker? Some on the panel clearly think so. They expressed concern about the rule of law and property rights generally, but the near term concern is tha
Views from the Trading Floor: Keynes and Hayek
The write up of the Conference is in process, but I couldn’t help myself and had to publish this little discussion regarding Thursday’s Presentation on Keynes and Hayek that emerged during the conference. It’s a little detour into theory. – Andres
Views from the Trading Floor: On Greece; Eurozone exports to Asia
Things for the SM Conference next week are setting up nicely. Several interesting themes and some hotly contested issues are likely to emerge. In this spirit, an SG has been questioning consensus views on the Euro area. The discussion below should have be
Drobny Global Monitor: The USD and Yen TWI
The weekend news that China expanded the USD/RMB band seems to have pulled USD/HKD down towards the bottom of its band (below). This presumably has something to do with the HK version of the RMB, and the arb trade that has become increasingly sizeable. Th
Questions from the Trading Floor: US Employment? EMG Surplus v Carry?
I have been surprised by the powerful reaction to the recent data and thus use your ideas to drive my thought process as I close out positions and rethink. - Andres Drobny
Manager Favorite Trades: Q2 2012
Shhh….don’t tell anyone, but the SNB may not be around during this holiday weekend. And, there are huge stops below 1.20 on Euro/SFr. People could get slaughtered. At least according to the story making the rounds today. Isn’t it interesting how the
Questions from the Trading Floor: EMG FX and Equities? Yen's Looming Day of Crisis?
A new quarter begins, there are dangers ahead, but from the look of the pieces and commentary I’ve received many seem to be looking for trouble; if it’s not Europe, then its China, or a disbelief of the recent run of US data. I suspect that things wil
Drobny Global Monitor: Mr B Disrupts the Trends
The trade has been to buy the USD against countries that are easing policy (either via direct rate cuts or intervention). The surprising strength of the US recovery has been in direct contrast to weak growth abroad.
Questions from the Trading Floor: ADXY; Kalecki Model; Italian Yield Curve?
SG’s seem concerned about Asian growth, the potential for NJAsian currency weakening, and now Asian equity markets. I don’t share this concern and instead am focused on Yen weakness and this durable goods cycle in the US as the macro drivers. - Andres
Guest Research Report: Opportunities in the Italian Bond Market
This little trade idea makes sense on its own, but also seems likely to perform well should Euro area turbulence re-emerge. One question that emerges is how this fits in with the idea of Eurozone breakup and devaluation. - Andres Drobny
Drobny Global Monitor: Juice
This really got going in December, with that liquidity injection by the ECB. It served to reduce default risk in the Eurozone. Then there were the Yen/BoJ events, which certainly seemed to have a powerful thrust. Now it’s the US data surprise.
Questions from the Trading Floor: Chinese Exports Falling; USDBRL?
The US employment report wasn’t as strong as some of us may have been hoping, but it was strong enough to keep the USD recovery going and rates under upward pressure even though there are, or perhaps because there are, lots of questions and denial out t
Drobny Global Monitor: Testing the ‘Boom Times’ Theory
Is this a simple correction after a nice and powerful recovery in equities based on falling default risk in Europe? Or, are we witnessing the start of a renewed period of turbulence as Greek issues regain prominence, first with this PSI and then with the.
Drobny NY Client Dinner
Our client dinner Tuesday evening produced a lively dialogue about the controversy surrounding Iran’s nuclear weapons ambitions and the implications for global oil prices. Below is a brief summary of the discussions. - David Berry
Questions from the Trading Floor: Greece; Mexican Swaps; DAX?
The ECB eased, the Japanese are in a new easing process, and Bernanke and a UK official weren’t too friendly. And, sterling and the USD rallied nicely while the other two currencies went down. That’s consistent with a rather ‘normal’ FX market dri
Drobny Global Monitor: Greece and the DAX
The talk in Europe is about the positive outcome stemming from the upcoming LTRO combined with the completion of the latest bailout for Greece. The concern is not just about avoiding a Greek default and ‘incalculable damage’, but also preventing anoth
Questions from the Trading Floor: How can Treasuries sell off with Fed on hold? BOJ Policy Move?
The danger is that, in a world of limited commodity resources, monetary stimulus leads to higher commodity prices, which then has the potential to choke off growth. Many are concerned about the growth retarding aspect of the jump up in oil prices. But, th
Guest Research Report: Jared Diamond
US economic acceleration has the potential to create an old fashioned rates-led USD rally and, combined with the little BoJ ease, its possible this could be led by USD/Yen. That sure could surprise the risk on/risk off folks.
Questions from the Trading Floor: Boom Times?
My recent piece on 2yr Bunds and US/Euro rate spreads generated several responses; two of those are presented below. Please keep those comments coming….I am happy to accept I am wrong, especially if I learn it early enough! - Andres Drobny
Drobny Global Monitor: Euro vs US Interest Rates
An increasingly popular concept is that the US economy is strengthening but Europe will remain weak. The recent US employment data gives support for this as does the jump up in consumer credit. Europe is seen as languishing under the weight of austerity p
Views from the Trading Floor: Yen and Asia; Gold, Volatility and CNY
The US employment data was strong and the Canadian data was surprisingly weak. That suggests the drop in USD/CAD is wrong, unless the USD continues to trend downwards. Also notice the comments on the Yen by the BoJ head, which suggests that the Yen issue
Drobny London Client Dinner
A quieter day today, as many pause and reflect ahead of tomorrow’s employment report. Here are the notes from a recent manager dinner, and the trade ideas participants have been working on. - Andres Drobny
Drobny Global Monitor: The Yen Debate & Asia/Yen
There’s an interesting split within our circles regarding the Yen. The bears site the move to a trade deficit and an improved global risk climate as a good reason why the Yen TWI should start to depreciate on trend. And, for them, the location is especi
Guest Research Report: Booking Profits on US Front-End
It’s clear as mud. Is the latest out of Euroland brinksmanship, or an increased signal that the Germans want to push the Greeks out of the system? That’s a cliff edge, all right. Meanwhile, a battle between the markets and the central banks of the wor
Views from the Trading Floor: Treasuries, Yen, Gold and Equities
Default risk is down, and this has resulted in outperformance by high yielders like BTP’s and European banks. Increased hope that all is going to be OK has also allowed equities to look like they could break higher, gold has jumped up, and even the Auss
Guest Research Report: The Big Picture
Our friend Geoff has a bearish reputation, and he nailed the rally in the Aussie bond market last year. That’s why his contrarian bullish story to start the year, with a bearish commodity twist, caught my attention. - Andres Drobny
Drobny Global Monitor: Aussie Dollar
It’s very early days, but so far 2012 has started reasonably well. The policy measures taken towards the end of last year combined with growth upgrades in the US for Q1, and some better looking data elsewhere, have served to dampen the widespread sense
Questions from the Trading Floor: EUR & SPX correlation; 2012 surprises?
Happy New Year. A big question is whether 2012 will be like 1932, when the second and decisive leg of the deflationary spiral post 1929 took hold. Many of you hold strong views in both directions on these sets of issues. I have been more agnostic, not sur
Manager Favorite Trades: Q1 2012
In an interview today, the head of the IFO in Germany got the situation in the Euro area exactly right. He believes that the Eurozone needs a currency realignment since some countries have become way too expensive. These countries need to depreciate in
Drobny Brasil Manager Dinner
The 'headline risk' issue discussed at our recent manager dinner in Brasil captures the essence of the moment. The data doesn't seem to matter all that much. The global economy has been held up by easy money policy and fiscal stimulus but is buffeted by
Views from the Trading Floor: Gold Standard, Euro and Deflation
My complaint is not that there is something intrinsically wrong with the concept of a gold standard or that of a fixed, pegged, or floating peg currency system. All systems have their deficiencies. Fiat currency systems and flexible exchange rate system
Drobny Global Monitor: Euro/Asia and Correlations
Just look at those European sovereign bonds fly and spreads to Bunds narrow! Whether all of these policy moves solve the Euro area crisis, it should increase the potential for a break in Euro/Risk crisis correlation. East money/tight fiscal might be see
Questions from the Trading Floor: Central Bank FX Swaps??
Wow, what was that? A fierce reaction to a policy move on instruments (currency swaps) that haven't been used much recently. The move with currency swaps reduces the risk of bank defaults arising from a lack of liquidity. But, the events of today sugge
Drobny Global Monitor: (Not) Saving the Euro
These are very treacherous waters. Yields in Spain and Italy have remained too high to achieve stability and the spread of the problem to core Europe is making matters worse. This leaves European financial institutions facing increased risk of default.
Questions from the Trading Floor: Sell Bunds? CDS correlations?
I'm thinking its time to sell Bunds. Any resolution of the Euro area problem should involve either 1) ECB easing and/or 2) some kind of federalism and joining of fiscal policies. Neither of those sounds Bund friendly.
Drobny Global Monitor: More on Liquidity
An SG points out the problem of rising US 3 month libor. That's a sign of contagion. If it continues, it should test the Fed's ability to hold down yields. The Fed should be able to, but if they can't t would threaten big trouble. It would be the 1931
Drobny Global Monitor: Lack of Liquidity
The lack of liquidity out there is becoming an increasingly important issue. Its impacting the Eastern European countries whose exports depend on the performance of the Euro area economy and whose currencies depend on the liquidity provided by Euro area b
Questions from the Trading Floor: HUF Trade position? Short Gold = Deflation?
Commodities and the Euro area issues seem to be dominating the attention of many. I keep ending up in Eastern European FX as a way to play these pressures without getting too entangled in Euro area policy decisions.
Guest Research Piece: Gold -- A Change of View
The most compelling ideas sometimes come from those who have changed their view. They can see both sides of an argument. That holds here; the author has been bullish gold for the past two years and recently changed his view and is now short.
Drobny Global Monitor: Wrong, Wrong, Wrong
Oh boy. There suddenly seems to be a lot of hope out there. This seems questionable, especially given the NEW news suggesting that the Euro storm is deepening. It's not just the idea of government's falling, its the idea that one of those big political
Drobny Global Monitor: Danger for HUF rates
It's been real choppy. Risk off, risk on, risk off. No hope for Europe, then a solution, then renewed troubles. Well, they warned us at the Geneva conference that things could move viciously. And, now we have been reminded that the Greeks might well d
Drobny Global Geneva Conference
Are things set to get worse in 2012? Several panelists believe global GDP will be close to zero next year and some are concerned that a nasty downturn in economic activity and asset values will occur. The experience of the 1920s and 30s came up several
Questions from Geneva: What sequence 3 months from now sees a higher Euro?
Euro Fx is a simple beast...if you just track 3 month Euro cash you get a decent predictor of Euro (even better as a spread to US 3month cash, especially late 2009-mid 2010). The basic point is that the Euro area crisis has little to do with Euro Fx unles
Questions from the Trading Floor: Euro Policy Credibile?
I'm not sure how concrete or tangible the promises have been, but I do think there is now an increased probability that a genuine and reasonable plan is in place. And, we have some ideas -- Find ways to protect the banks and protect Spanish and Italian b
Guest Research Piece: Plate Tectonics -- Global Implications of Inverse Stagflation
Fundamentals have begun to matter again. Our view is that inflation and deflation can coexist, a concept that is central to an economic paradigm we have dubbed Inverse Stagflation. We expect inflation in real assets and deflation in paper assets.
Questions from the Trading Floor: Sell bonds? M2 data in US?
The ECB surprised me by not cutting, but did seem to hint that the cuts are coming. More surprising was the reaction of markets. I would have thought that no ECB action would have led to renewed fears of default and more turbulence.
Manager Favorite Trades: Q4 2011
Actual inflation is a lagging indicator. That's probably why the ECB can look past the latest figures and still ease on Thursday. As you can see from the favorite trades buying gold and selling Euros remain popular ideas.
Views from the Trading Floor: Greece, Contagion and a leveraged EFSF
Recent pieces in these pages have centered on Euro breakup issues. Today, I take a different tack having been impressed by the ideas around this leveraged EFSF vehicle. I talked to several SG's about it, and the response was unanimous....it can't work.
Guest Research Piece: Kent Janer, Nektar
A few of our members were able to get through the August turmoil and post a profit. Most did it through interest rate trades. One was the Nektar fund and, in typical fashion, our friend Kent Janer succinctly explains how they are approaching the current
Drobny Global Monitor: Go Fiat
It's almost cute. Those recent stories about how leaving the Euro would cost Greece more than staying in. And, how legally, it isn't easy to split the Euro system up. The Economist in a recent leader editorial and Martin Wolf of the FT yesterday both s
Drobny NY Client Dinner
It is obvious that the Germans are pissed, but it isn't so clear whether they want the Greeks out or some more countries out of the Euro. And, the path to resolution is ugly, even if the eventual outcome could well provide relief from deflationary forces
Views from the trading floor: Euro breakup dynamics and aftermath
Another round of policy action, with more expected next week. Hence the short covering. But, even if the policy materializes and is robust, I'm not sure it'll be helpful to the European currencies. Rate hikes are not on the agenda and the ECB now look
Drobny Global Monitor: Copper puts & Deflation
Global growth has weakened and the pressures in Europe are making matters worse, not better. in response to this, equities are down sharply over the past 7 weeks. And, now the Asian currencies have started to give.
Views from the trading floor: Euro/Swiss forwards and Implied Volatility
SNB action can work to tame CHF even with a Euro area crisis. It's much easier for a central bank to resist upward pressure on a currency rather than to try to figh downward pressure. With the latter, they typically have to raise interest rates, and, in
Drobny Global Monitor: What's next after a crazy August?
The cat is out of the bag. It became increasingly recognized over the summer break that many countries would do better getting out of the Euro area than staying in. There has been increased resistance by the Euro debtors to austerity measures required.
Drobny Global Monitor: Policy Action
Even on the beaches of California, the China stuff and SNB action caused the sand to move a bit. Especially after the big FED news earlier. A global policy response may now be setting up. All this at a time that the US employment data has been improvin
Drobny Global Monitor: Euro turbulence, the ECB and the DAX
There seems to be increased hope that the Euro area policymakers will come to a solution on Thursday. The hope may not be seen in European bank shares or European peripheral bond spreads, but there is certainly hope in the DAX, which is one of the few eq
Guest Research Piece: Comac Capital
The strongest driver of markets last month was once again confusion and speculation around the path of the European sovereign debt crisis. Our long-term analysis of this theme continues to be that the market significantly underprices both the likelihood
Manager Favorite Trades: Q3 2011
There has been considerable volatility in several FX parities recently, especially EUR/USD. Yet, notice the sudden drop in the USD against CHF, JPY and several of the Asian currencies. That seems to fit well with heightened default fears in both the Eur
Drobny Zurich Client Dinner
After a turbulent few weeks in markets, where commodities (led by crude) and equities sold off, a heated discussion ensued. The room was hardly constructive global markets. Bearish sentiment dominated. Are we at a 2008-like inflection point? The crowd
Drobny Global Monitor: Canadian Yield Curve
The Greek defaul risk seems to have passed....for now. But this time we got very close to the cliff, it felt real and everyone knows the problem wont go away easily. The next problem may well be the US debt ceiling negotiations.
Views from the Trading Floor: USD/Oil; Operation Twist
There is some excitement about what's going to happen this week with a potential USD rebound a seemingly popular idea. Surprisingly, the potential for the Yen to join in such a move doesnt seem to be high on the radar now.
Drobny Global Monitor: Many questions, Very few answers
The Greek saga continues amidst these rather extraordinary comments by Trichet. His comment a few weeks ago about how the Greeks lied to get into the Euro seemed to suggest that Greece is different from the other debtor countries and might be excusably s
Questions from the Trading Floor: US economy rolling over? Chinese banking system?
We seem to be near an inflection point with lots of things to worry about. Concerns about the US economy, the Chinese banking system and European crisis.
Drobny Global Monitor: Divergence & the Pay Asian Rates Trade
High anxiety again dominates the Euro area and Spanish bond yields look to be breaking higher. US growth has slowed suddenly and this trumps the lousy core CPI release yesterday. The fear is that we are creeping towards the second phase of the financial
Drobny Global Monitor: Spain, Europe and the Euro
Selling IBEX seems like a neat way to play things here. If the global slowdown proves to be longer lived than generally expected and a growth rebound doesnt emerge, then it sure looks set to move lower. And, if things get worse in Europe and this Greek
Questions from the Trading Floor: ECB Tightening?
There is a lot of attention to the ECB meeting this week. But the German orders data are released tomorrow and could well prove to be the big leading indicator. After a big drop last time, another soft number would confirm a growth pause and might give
Drobny Global Monitor: The Asian Anomaly
The big trends in Asia are: 1) narrowing of trade surpluses in China and Japan; 2) Rising inflation at a time of extremely low interest rates.
Guest Research Piece: Passport Capital
John Burbank's latest piece reveals deep analysis combined with excellent trading. He bought Saudi equities and the Nikkei after big drops. And, he's right....long dated JGB puts offer a great way to express an old/popular trade idea especially since vo
Views from the Trading Floor
Buying the Euros on the crosses has so far worked nicely, and it might be the start of a nice move if the latest inflation figure sets the stage for another bout of ECB rate hike fears. Others are looking elsewhere -- the Lennar/US housing trade from the
Questions from the Trading Floor
Pretty high inflation numbers were just released in the UK and Euroland. This adds to to the case for tightening in those countries and adds to the recent bout of 'bad' news. It can help sustain the market correction, though it should mean the Euro is s
Drobny Global Conference -- New York
Liquidity was a recurrent theme at our first NYC conference. Poor liquidity was behind the appeal of two esoteric trades -- ISK and Iraqui equities. The potential withdrawal of liquidity played a prominent role in 2 other trades. One had to do with the w
Guest Research Piece: A Royal Crisis?
The City of London breathed a sigh of relief (although one that had become anticipated) a week or so ago when the Vickers report was finally delivered; a 9 month inquiry on how to control British banks. How on earth can the city that was proclaimed by th
Drobny London Client Dinner Notes
Favorite Trade presented: Long term (2-3 years), bullish on peripheral Europe (Baltics, Ireland, Greece, Spain, Portugal) and Eastern Europe. It is crazy that Ireland is trading above Belarus, Pakistan and Lebanon. Short term -- long the Euro against GB
Drobny Global Monitor: Canadian inflation shock
Canada is an intermediate type country, between booming Asia and the constrained Anglo Saxons and European peripherals. There is some excess capacity around, so the central bank has been slow to tighten. Yet, like Asia, it has less overall debt and lever
Questions from the Trading Floor: 5yr/5yr AUD bonds; 10yr US BE Inflation
There is a new threat in the air. It's this debt/deficit reduction debate and the ugly turn it may take. And, if no deal is struck and we continue with this political brinksmanship into the debt ceiling issue, then the risk premium on the USD should ris
Manager Favorite Trades: Q2 2011
Fiscal tightening in the US is starting to capture the attention of some SG's. In FX, the short Yen trade is unsurprisingly popular. But perhaps the big surprise is how few chose to sell the USD.
Drobny Global Monitor: 1973 Meets the 1930s
There are many ways in which the events unfolding today resemble what happened in 1973. Middle East turbulence, supply scarcities and globally accommodative monetary policy have combined to push commodity prices sharply higher. At the same time, many west
Views from the Trading Floor: Yen Weakness, Carry Trades, Volatility
Structurally there is no reason KRWJPY shouldnt go back to 9.0. This seems an environment for potential extreme Yen weakness given the catastrophe and the impact on their trade balance. At the same time, a possible increase in demand for Korean goods as
Guest Research Piece: Hugh Hendry
It is my assertion that US monetary easing is the equivalent of Roosevelt's devaluation of the dollar in 1931. By this, i mean that it could mark the moment when modern American policymakers rejected globalization.
Drobny Global Monitor: Euro, Gold & the USD
3 month Euro cash rates have resumed their uptrend after a short pause presumably due to Japan. But, strong US data, higher global yields, a USD rebound and ECB tightening seems a particularly bad combination for gold.
Guest Research Piece: QE2, Volatility and CDS
What happens when QE2 ends? Is it going to be like the end of QE1 when risk assets fell sharply? Whether the end of QE2 produces another turn in risk assets or not, it does seem likely to produce a rise in generic volatility.
Drobny Global Monitor: Anomalous Mexican Rates
USD seems to be breaking down again, virtually across the board. The model is that, in a world of rising rates outside the US, the pressure will be downwards on the USD and upwards on US rates. And that takes us to Mexico.
Guest Research Piece: USD/BRL trade idea
The threat of a further fall in the USD and the lingering threat of higher rates outside of the US, raises issues in many areas. One of those places is Brazil where authorities have taken unusual policy action to combat currency strength.
Drobny Global Monitor: The Supply Shock Hypothesis
The catastrophe in Japan has ushered in a different kind of crisis. This is not like the financial crises of 2008 or 1929 when there was a sharp contraction in final demand and financial market liquidity. This is a supply shock. Like 1973.
Drobny Global Monitor: Aussie, Korea & China
The sharp drop in equities and commodities has a few SG's looking at AUD, especially after the weak employment data released there overnight. Yet, against this view is that the US dollar has yet to recover any lost interest rate support.
Guest Piece: Bernanke and the Renunciation of US Financial Exceptionalism
Chairman Ben Bernanke has recently delivered a very significant series of speeches that have largely been ignored by the markets. We would characterize the remarks as reflecting a remarkable degree of comfort with a diminished role for the US dollar as t
Drobny Global Monitor: State of Denial
As with equities, the FX market seems to be assuming that recent low volatility market behavior will continue. Both markets seem to be in a state of denial, unprepared for any change of regime that may be coming.
Drobny Global Monitor: The US on its own & the Employment Report
One way to look at the world is that Europe is accelerating and Asia is slowing. That suggests that policy tightening in Europe is currency positive, while tightening in Asia may not be.
Questions from the Trading Floor: Saudi social programs; Chinese inflation; PHP rates
There seems increasing evidence that the Chinese labor pool is shrinking. Migrant flows are drying up, leading to wage inflation. Pettis and other Chinese experts see a 5% growth rate in the next few years. How do you think Chinese policymakers will re
Drobny Global Monitor: Political Puzzles
The unfolding drama in the Middle East is starting to affect the economic outlook and financial markets. It had already started with stories of drying up of physical gold supplies in the Far East as silver prices soared. Now, with oil prices jumping equ
Questions from the Trading Floor: Sell Asian FX?
The big question in the short term is whether US core inflation turned higher in January, as in many other countries.
Drobny NY Client Dinner
The Euro-zone’s first real crisis should actually be seen as the last part of the introduction phase of the Euro. This is an opportunity for policymakers to cure the visible defects of the original Euro. The reforms are aimed at addressing these problem
Views from the Trading Floor: Core inflation and rates in EU, US, and Asia
Could "deleveraging headwinds" be a stale term now? Deleveraging, when accompanied by a rising savings ratio, is a powerful headwind. But, deleveraging with a high and stable savings ratio, is not necessarily a headwind. We can observe both a falling deb
Manager Favorite Trades: Egypt Trades/Niall Ferguson comment on Egypt
History is complex system in action, but one or two things are quite simple. One is that if food prices double, you tend to get revolutionary situations in middle- to low-income countries. France 1789, 1830 and 1848 provides the best examples, but there a
Guest Research Piece: Grant Capital Partners
Important themes: Policy activism in Europe; Optimism regarding global economic activity; Food price inflation; Federal Reserve easy money/weak US dollar policy; and problems with U.S. state budgets.
Drobny Global Monitor: Inflation, the USD and Equities
It is still not clear if the events in Egypt will spiral out of control. And, all of this is unfolding as a global economic acceleration is taking place. But, interest rates are still very low.
Drobny Global Monitor: The Generic Egypt Trade
Several SG's suggested Egypt trades recently. The ideas ranged from buying oil on potential supply disruption or buying Saudi CDS to buying equities on an unwind of fears.
Drobny Global Monitor: Treasuries at a Critical Juncture
The market likes the sounds coming from the European authorities on EFSF, etc...The Euro TWI bounced smartly, Euro bank shares have moved, and peripheral spreads vs. Bunds have jumped nicely.
Guest Research Piece: Jim Leitner -- Themes for 2011
G3 on hold; Core European Issues; Poland, China, Something brewing in Japan; Fiat Currency Risk; Urbanization; Inflation/Food Prices; Ireland and European Senior Bank Debt Issues
Questions from the Trading Floor January 18, 2011
Inflation is rising and monetary policy is easy. As a result, the ECB are now talking tough...
Drobny Global Monitor - Asian/Korean Rates Alert
The ECB are talking tough. The credit rating of Germany has come into question due to potential co-mingling with peripheral sovereign credit risk.
Questions from the Trading Floor January 11, 2011
Here we go again. As you can see below, most of the early questions so far surround the US and European outlook. Please send in more questions. - Andres Drobny
EUROSKEPTICS, EURODOLLAR AND EURO/SWISS
Happy New Year! The first thing an SG asked this year is whether Euro/USD is headed a lot lower this year. He’s a Euroskeptic and thinks a lot of trouble still lies ahead, and that this will weigh on the Euro.
Manager Favorite Trades: Q1 2011
The year ends with a bear market in bonds, as US growth expectations are being revised higher. The surprise to many is that, despite this, the US recovery has stalled. Several favorite trades are USD bullish, but also bullish equities and commodities.
Guest Research Report: Hugh Hendry -- There are no Policy Remedies for Debt Deflation
The analysis below is almost pure Austrian; a crash is virtually inevitable because the authorities can simply not do enough to avoid the inevitable. That's a bit different than suggesting that they haven't done enough.
Drobny Global Monitor: Grand Compromise, Round 1
2011 was always supposed to be a year where the recovery would get seriously tested. Austerity in Europe would begin to bite. China and other EMg locomotives would be tightening. And, stimulus in the US would be waning.
Drobny Global Monitor: Interest Rate Spreads and Recovery
The banks are raising their forecasts for US and global growth. And, the Fed's recent forecasts on unemployment also sound hopeful. What if these guys are correct? Two trade combinations come to mind. Start with 5 year Treasuries.
Drobny Global Monitor: Turbulence, Optimism and Interest Rates
One SG noted over the weekend that Eurozone problems are putting risk under pressure, but the real world data is doing fine. What is going to give? Will higher yields and fiscal tightening cut off the recovery, or will policy support and turbulence fatig
Questions from the Trading Floor: Emerging Markets/China - phobia?
China has become the most important growth engine for the world and the PBOC easing or tightening gives a signal to buy or sell stocks and commodities. Do you agree? It depends on the pace of tightening relative to growth.
Guest Research Report: Nektar Asset Mgt, Stockholm
Fixed income markets have sold off across the board, though the reasons vary. In Euroland, funding concerns...in Asia, it's about growth and inflation. Nektar highlights what can happen in the happier case when tightening seems warranted on economic gro
Views from the Trading Floor: Front End Back Up; Sterling Swiss
There is QE2 hysteria out there. The key to any genuine unwind of the front end is when a generalized locking in of short rates by corporates and entities takes place. News, rather than price action, is likely to dictate that decision.
Drobny Global Monitor: High Stakes
There sure seems a lot of potential here before year end. There's a sense that 1-2 month low deltas are going to pay out decently, once direction becomes clear. It seems that without higher rate support the USD has little upside and considerable potenti
Drobny Global Conference -- London
Are equities amazingly cheap or dangerously exposed? It seems to turn on whether the surprisingly strong productivity in the US is a sign of sustainable growth and low inflation. The last panelist warned darkly that the trend in profits and growth will
Questions from the Trading Floor: 10s/30s Flattener; Deleveraging Myth; BRL overvalued?
The flaw with the 'Deleveraging Myth' thesis is the idea that housing in the US is now cheap. This reflects a classic aggregation problem -- most measures of house prices are based on actual sales. But the market is bi-furcated; there is a flex priced s
Drobny Global Monitor: China Rates and the USD
The currency markets are starting to rattle and shake. USD/CAD and AUD/USD bounced strongly off of 1.0 and cable and Euro/USD also seemed to reject psychological levels as well. What's confusing is that equities and commodities have joined them today.
Drobny Global Monitor: USD, Turbulence and USDJPY vol
The pace of the USD drop could be set to accelerate here. But, there seems a lot of reasons to think of the USD countertrade here. The stop is tight. And, more fundamentally, there's a growing perception that the downward pressure on USD will be resist
Drobny Global Monitor: A Rally for Sanity
There is a need for a Rally for Sanity to bring some sanity back to the discourse on economic and financial markets. There is some crazy talk out there. The Brazilian FM who stirred things up with his comment about 'currency wars'. Then Alan Greenspan
Manager Favorite Trades: Q4 2010
This survey shows excitement in commodities, currencies and to a lesser extent equities fostered by expectations of monetary easing, sustained USD weakness, and rising hopes that growth in China will be sustained. Against this is the idea of using fixed
Views from the Trading Floor: USD, Correlations; A New Fed Policy?
In your piece of September 23, you talk about the FED's new emphasis on inflation and the monthly releases, but I think what they have communicated is that they will look more closely at the inflation FORECASTS. For me that was a big change.
Drobny Client Dinner -- NY
As one participant remarked after the dinner: "QE2 of about $1Trillion or higher seems almost baked into expectations. Actually feels like if that is representative of market views, we are susceptible to sudden reversals."
Drobny Global Monitor: Fiscal Matters
The excitement yesterday was all about the Fed and monetary policy. But, the real drama that is unfolding, and the one with more lasting consequences for the economy and markets, is what will happen with US fiscal policy. This is also hugely controversi
Guest Research Report: The Big Picture
Here's a puzzle. Long EMG as an asset class is a very popular idea amongst economic optimists and, as argued in this piece below, it seems popular with pessimists as well. One important question -- where does this theme go wrong?
Views from the Trading Floor: Intervention, Monetary and Fiscal policy in deflation
What the SG has pointed out is a subtle interaction between monetary and fiscal policy. QE is monetary stimulative, but has a fiscal side effect which is anti-stimulative. The solution: use QE but generate more fiscal stimulus simultaneously.
Drobny Global Monitor: Healthier Europe
The latest USD drop could be the start of something big. The traditional trouble currencies, USDJPY and USDCHF, are already trading near all time lows. But, its the Europeans where the surprising action may lie. The deficit countries are retrenching an
Guest Research Report: Lower for Longer; Slow Steady Risk On; Differentiation of Risk Assets
The guest piece below is both rich in ideas and especially thoughtful. A stalemate between monetary stimulus and deflationary pressures seems consistent with a period of reduced volatility and yield convergence, until something new gives.
Guest Research Report: Brazilian Interest Rates
The remarkable summer rally in Treasuries has placed generalized downward pressure on global bond yields and has eroded rate support for the USD. This suggests a trade structure which is long foreign bonds, short USD, short treasuries.
Drobny Global Conference -- Hong Kong
Unanticipated Yen strength could be the catalyst for the next twist in the deflationary process. That was the message from the last speaker of the day, who warned darkly that a break down in USD/JPY below the 80 level would prompt widespread defaults in
Questions from the Trading Floor: Andy Xie -- Chinese Yuan is a Sideshow to Looming Wage inflation??
Today's questions piece raises the crucial difference between real and nominal adjustment. Many real variables seem misaligned, but it is important to remember that nominal adjustment can go always in two directions and this depends crucially on governme
Manager Favorite Trades: Q3 2010
Bimodal! That's roughly how i read the trade ideas presented below. Combine the first set of trades below and you end up with lowish delta calls on fixed income, exploiting cheap vol and big potential if trouble reemerges. You lose if rates end up only
Questions from the trading floor: Richard Koo -- Learning the wrong lesson from the crisis in Greece??
Oh boy, this is a really good piece. It is popular to look at the European periphery as a set of dominoes, caught up in a game of contagion due to the credit crisis. And, indeed, some take this further and think it is only a matter of time when such cre
Questions from the Trading Floor: USD; Treasury Rally?
Bonds are setting up for a huge rally from here. There is once again causal talk of hyperinflation and gold is going bananas. I think it may be harder to generate inflation than generally realized. Prechter said psychologuy would change and the public
Guest Research Report -- Does USD/CNY have nowhere to go but up?
One argument that emerged at the Santa Monica conference was that if China moved the CNY target to a basket system this might prompt a reversal of the Euro as the Chinese might need to buy some to reflect the Euro's share of the basket.
Drobny Global Monitor: ECB, Euro spreads and Euro/JPY
The SNB eased last week. The Bank of Canada hiked minimally and talked about hiking less due to recent market turbulence. And, the ANB are now in a pause. More important, 3 month USD libor has stabilized.
Questions from the Trading Floor: Michael Pettis -- Don't Misread the Trade Implications of the Euro Crisis for China??
This is a really good piece. It's so much more valuable when people use facts and figures rather than speculation, assumption, and views to make a point. If Euro-area deficit countries fail to obtain capital inflows, which regions are likely to bear the
Drobny Global Monitor: SNB; Unemployment Claims; Libor
Germany ratified the Greek deal, which takes another lingering risk of default and calamity down another notch. And, the SNB intervened late last week. The combo produced a nice bounce in EUR/CHF. But all this also has the potential to send the CHF TWI
Guest Research Piece: Nektar, Stockholm
The IMF/Euro version of TARP has preempted a Lehman-like collapse. And, although the ECB insist they will sterilize the monetary effects of the fiscal bailout, they are providing unlimited funds at exceptionally low rates.
Questions from the Trading Floor: Chinese property; Shanghai A shares; Copper
Relatively fast domestic demand growth in China is a substitute for nominal currency appreciation. And, 10% plus wage growth means that strong China productivity growth will no longer produce big drops in unit labor costs and thus trend gains in Chinese
Drobny Global Monitor: ECB Quasi-QE and Front Ends
The ECB/Euro government action has successfully pulled down the risk premium attached to Euroland. Hence, the Euro has bounced, intra-Euro spreads have narrowed, Euro yield curves have steepened/normalized and European equities have roared.
Guest Research Report: Physical Gold
Passport Capital: John Burbank and Sid Mitra -- There is a meaningful disconnect between the supply of physical gold and the amount of paper-based instruments that derive value from gold. The potential for a short squeeze looms.
Drobny Global Conference -- Santa Monica
An uneasy tension was evident at this year’s SM Conference. We met in the midst of the Greece/Euro crisis, and at a time of mounting fears that the trouble is spreading. Naturally, this issue featured prominently throughout much of the day. Yet, at the
Views from the Trading Floor: Debt, Growth, Austrians and Bernanke
The amazing insight of Bernanke in 2002 is that he saw how a central bank could mimic a negative real rate of interest by undertaking QE. It is almost a literal representation of Milton Friedman's helicopter drop.
Drobny Global Monitor: EUR/USD/CHF
We seem to have reached a crossroads. The Euro TWI has held the trendline that has defined its recovery that started back in 2001-02, and which contained the Euro TWI during its big collapse during the worst days of the financial crisis in 2008.
Views from the Trading Floor: Spanish yield curve flatteners; BRL/JPY
Well, it seems the US data came as no surprise and was widely anticipated. That would explain the recent sharp drop in bond yields and the corresponding drop in USD/JPY.
Manager Favorite Trades: Q2 2010
The RBA meets tonight amidst widespread uncertainty as to whether they will hike or not. And, perhaps because of this the Aussie markets have failed to respond to the strong data released out of the US towards the end of last week.
Drobny Global Monitor: Yields and Rate Spreads
A lot of attention has naturally been given to the dramatic drop in 10yr swap spreads in the US. Is it an anomaly, as many believe? Or is this like Japan, where such events have persisted for considerable periods? The simplest explanation lies in suppl
Questions from the Trading Floor: Commodities and Commodity FX?
The market is building in the expectation of a strong employment report out of the US next Friday. This means the USD rally and bond market sell-off can extend at least through to mid-next week, with USDJPY likely leading the way.
Drobny Global Monitor: Euro, USD, GBP
Euro TWI seems to be at a rather critical point. Yet, the Euro is trading at historic lows against some currencies. EUR/CHF has broken down below 20 year lows and EURAUD has come crashing down.
Views from the Trading Floor: Trade Ideas on Greece and the Euro
I've been woefully slow to recognize the underlying structural problem facing Greece. As such, it seems dangerous to get involved late in the game...unless there is something really big coming.
Questions from the trading floor: Canadian yield curve; EUR/SEK
Isn't it interesting that to varying degrees front end rates have jumped up in most of the major countries as default risk in Greece and other constrained entities (including California) has come down?
Guest Research Report: The Case for a Durable US Recovery
A burst of growth seems set to commence, especially in the US. But, a crucial question is if this can be sustained or whether we lapse back again after 6 months or so. Today's guest piece explains why the recovery can last.
Guest Research Report: Dawn of the Era of Austerity
The 1931-32 scenario. In the piece below, it comes from a popular uprising. A premature withdrawal of fiscal stimulus could well push the world economy back towards the abyss.
Guest Research Report: A Deflationary World Bias?
In the period prior to World War II, the probability of deflation was almost as great as the probability of inflation. Since that time, most advanced economies have shifted to an undeniable inflationary bias, born of universal suffrage.
Drobny Global Monitor: Rate Expectations and South Africa
Turbulence in the Euro area and the threat of sovereign default. Fears of a hung parliament in the UK. China tightening. All seem like threats to the recovery. As a result, the market has been braced for trouble with equities trading nervously and bond yi
Views from the trading floor: Sovereign risk/Rogoff and Reinhart
The Rogoff and Reinhart paper (Jan 2010) is dreadful and misguided. The key distinction between true con-convertible fiat money regimes and all others is fundamental to analyzing and modeling outcomes. A deficit in US (or UK) doesnt cause a crisis until
Drobny Global Monitor: USD Laggard and US rates
It is widely believed that the US discount rate hike is a technical adjustment and won't have much of an effect on markets. The modest widening of the discount rate/Fed Funds spread might push cash rates up a bit. And, it could also produce a little mor
Questions from the trading floor: USDJPY?; Niall Ferguson/Greece?
The strong employment report out of Australia may have helped the AUD rebound, but the more profound story may be about economic acceleration. China is booming, and tightening. ...US economic rebound is still only building.
Drobny Global Monitor: USD Forward Outright
The markets are nervous. A new round of debt defaults are increasingly feared; another potential spanner in the works. Whether it's Greece in Euroland, or increasing talk about California in the US, CDS rates are rising.
Questions from the trading floor: USD? Sell Bunds?
Well, if all of those PMI's were weather affected, then the global economy sure seems to have accelerated again. And, if equities and EMG continue to recover, then the recent rally in bonds leaves them exposed to a potentially strong US employment report
Drobny Global Monitor: Discount Rate Hike?
The durable goods number tells a lot of the story. An inventory adjustment process, by definition, is transitory. And, from the look of things, the direct spending part of the fiscal stimulus may well come to an end in 2010.
Guest Research Report: The Big Picture
My own emphasis has been on the potential for further stimulus-led recovery in the US. Here is a rather different view, premised on the idea that continued synchronized global growth can derail the entire recovery project.
Drobny Global Monitor: Confidence, Bonds & Copper
Things suddenly got messier. The Greek default risk is now pretty well known. China is tightening, but that was also pretty well telegraphed. What's new is the latest US political stuff which adds a new layer to the mix.
Invisible Hands: Family Office Manager, Jim Leitner
Jim Leitner's unorthodox thinking has turned investment truths on their head time and again. How do you value cash? The prevailing wisdom looks at cash on a historical basis, which completely neglects the inherent opportunity costs associated with a lack
Drobny Global Monitor: Recovery Postponed and EMG
The US employment report disappointed. And, the lousy weather in much of the US and Europe could result in softer data for December and possibly January. Add to that the tightening announced in China...
Questions from the Trading Floor: RMB Peg?
How do you get USD/EMG to head higher? A strong US employment report matched by rate hikes in china! The former would push up USD, while the latter would act to dampen growth for EMG countries.
Drobny Global Monitor: Initial Thoughts
The year starts with mounting hopes of recovery and a return to normalcy. Equities are testing recent highs and look poised to break up. There may be some sticker shock with long dated bond yields.
Invisible Hands: Andres Drobny -- The Great Macro Experiment
The Great Macro Experiment is an attempt to use aggressive reflationary policies to overcome the effects of debt deflation after the equity bubble burst. The Experiment started with Greenspan, who preemptively and aggressively cut interest rates to head o
Manager Favorite Trades: Q1 2010
The year ends with the US economy finally joining the global recovery as the slowly evolving fiscal stimulus starts to take hold. This means the US can take over as growth leader in 2010 as the full effects of the stimulus are felt. This can produce a s
Drobny Global Monitor: Sea Change
It now looks like the effects of fiscal expansion in the US are taking root. This has the potential to change several things, most notably the trend in the USD. Sentiment is bearish and the much reduced trade deficit means there is a smaller USD financi
Views from the Trading Floor: BOJ Emergency Meeting
The BOJ emergency meeting last night created quite a stir, but ended disappointingly. Could there be more in all of this? There have increasingly been intervention noises recently and the BOJ event adds to suspicions that something is up. I'm buying ch
Questions from the Trading Floor: Dubai??
Dubai has captured everyone's attention, but it's the employment report on Friday that seems likely to dominate things this week and going forward. Any sign that the recovery in the US is gathering pace could sharply impact rate expectations for 2010.
Questions from the Trading Floor: Warning from the Fed?
The monetary authorities seem well aware that the USD has reached a critical juncture. The unusual USD comment by Bernanke, supported by Trichet and then repeated by the FED's Lacker a few hours ago represents a warning as we head into the end of the yea
Drobny Global Monitor: Unemployment Claims and the USD
The Australian labor market data was pretty strong, yet the AUD today is lower. The US unemployment claims were also strong and the USD rallied. That's almost all we need to know. There is a bearish consensus, and short USD position out there. It is p
Views from the Trading Floor: Default, Creditors and Currencies
My friend can you tell me why JGB yields have suddenly jumped up recently? I really don't know, but notice Japanese CDS has likewise jumped recently. There is the new 1/2 year, a new government and a few pundits warning of a fiscal crisis. But, don't k
Views from the Trading Floor: Gold priced in Euros
You know this 'risk on/risk off' stuff drives me crazy. And, its particularly odd when applied to currencies. Today, the assumption is that its risk off, so the USD rallies. If this concept holds true and lasts, it would imply a negative correlation be
Drobny Global Conference -- London
Amidst a world of gloom and doom back in late April, the panelists and audience at the 2009 Santa Monica conference were almost universally bullish equities and commodities. Those were more extreme times. Things now are a bit trickier. Asset markets have
Guest Research Report: China, its Good Enough!
For Chinese people born after 1976 -- the year Mao died -- life has improved month on month, year on year. These younger people have lived normal, predictable lives. How many people? 100 million internet users, 168 million credit card holders...the rea
Guest Research Report: China revaluation surprise?
One lesson from the Drobny London Conference is the ever growing impact China is having on so many macro themes. All too often the discussions circled back to the main "blocked artery" being the USD/CNY fixed exchange rate. Consensus does not think we s
Views from the Trading Floor: 2 year forward 2-10s steepener in the US
Rationale: Fed will overstay their welcome in terms of easy money. Bernanke's underestimation of the subprime problem and the Lehman failure led to a large rise in unemployment. His quick action helped to limit the magnitude of the problem. The exit pr
Guest Research: Mongolian Equities
The Mongolian stock market was hit hard by the global liquidity crisis, crashing 65% from its peak in 2008. The currency, Tugrik ("MNT"), also crashed 17% compounding the losses in USD terms. The stocks failed to participate in the China rally earlier t
Manager Favorite Trades: Q4 2009
The growth rebound seems to have reached a plateau. Perhaps its not surprising after forecasts have just been revised upwards. And, after a really good bounce in virtually all asset prices. The result is a correction and a further rally in developed ma
Guest Research Report: Niall Ferguson -- Too Big to Live
Why We Must Stamp Out State Monopoly Capitalism
Drobny Global Monitor: Taxing Banks
The G20 have been discussing caps on banker bonuses. But, as many have noted, that hits the symptom not the cause. The cause is high profits and a better solution would be to tax bank profits directly.
Questions from the Trading Floor: Agricultural Commodities priced in Euros
I am watching agricultural commodities depreciate while the USD depreciates. Looking at commodities priced in foreign currencies shows they are trading at levels very close to the trough reached just post to the Asian crisis.
Drobny Global Monitor: The Euro and Asia
The least likely currency to outperform from here is the Euro. Signs of a potentially big further appreciation in the Euro could produce a strong policy response. And, the sharp recovery in the Aussie, for example, has taken the TWI to a level about 10-
Questions from the Trading Floor: Japanese elections; Real yields in EMG countries
Are EMG currencies exposed with real yields at such low levels? Just the opposite. I'd argue they are going to surprise on the upside...the next bubble could well be EMG. We could be on the verge of a nice melt up. The Fed are likely to stick with low
Drobny Global Monitor: Volatility and Exit Strategies
The market has been braded for typical September trouble. But, the data continues to support the idea of a gradual return to growth in the US, buttressed by a pretty good acceleration of growth abroad.
Guest Research Report: Rain, Rain, Go Away
Hugh Hendry: The one constancy is that unbalanced world trade has a tendency to pit domestic monetary policy considerations against international and, as a result of this tension, credit is created which fuels asset price bubbles. Weakness in global econ
Questions from the Trading Floor: Euroswiss curve
I return from August break to find a curious anomaly. The data releases have been pretty strong, virtually everywhere. Forecast upgrades seem likely. Yet, bonds have rallied and the equity/commodity rally seems to have stalled. Chinese equities cracked
Questions from the Trading Floor: Summer Thoughts
I still don't know how it is all going to work out. The stimulus around the world is working and, in the US, there is a good deal more to come. That has the potential to produce a surprise on the upside as cyclical momentum builds. Yet, some of this is
Views from the Trading Floor: European Trade Ideas
Long Ireland v short Spanish government bonds (10yrs). This trade offers more than 100bps of carry and in principle you could hold it for 10 years and just earn carry if the markets were to permit this. If Ireland doesn't default, but gets crushed more,
Drobny Global Monitor: China, Asia, and the US
An SG in the group questions the value of all of this 'risk on/risk off' stuff. Admittedly it can pay to capture cyclical developments. Yet, its not so easy. The underlying question today isn't so much cyclical. Even if a decent recovery lies ahead, t
Questions from the Trading Floor: Oil, Gilts, MXN
We've been consolidating for a few weeks now. Stronger looking data released in May and early June fueled recovery hopes, and prompted another leg up in commodities, equities and bond yields. But, since then, disappointing figures especially from the US
Drobny Global Monitor: Forward Dollars and Growth
Forward USD's vs most other currencies enjoyed a decent jump higher. Spot USD went up and Treasuries outperformed most bond markets. All this seems to fit the idea that when US recovery hopes fade, the long term outlook for the US trade deficit moves to
Drobny Global Monitor: California, the Vigilantes and Obama
The next twist in the California budget saga seems to be unfolding as the new fiscal year has commenced. State workers must now take 3 unpaid leave days a month, which amounts to a 15% wage cut. Other cuts are starting to filter through, though obviousl
Manager Favorite Trades -- Q3 2009
Well, this makes for an interesting market! At the Santa Monica conference, the group was pretty unanimous....long commodities, long equities, long front ends of fixed income markets. Now, views/trades seem much more mixed -- though front ends remain po
Drobny Global Monitor: Surviving the Trauma
Some things changed during the crisis, and these changes look likely to be long-lasting. First, US Household savings behavior. Second, Japanese HH savings ratio has been falling for 15 years and is now, perhaps for the first time ever, running below tha
Views from the Trading Floor: Savings Rates, Currencies and Commodities
The essential point is that changes in savings ratios are powerful forces. It's in part what got us into this mess since the mid-1990s. Asia moved to a policy of increased savings (and low exchange rates after the Asian financial crisis. This occurred
Drobny Global Monitor: Trade, Inflation & South Africa
Many things changed during the financial crisis. The US trade deficit narrowed sharply, as did Japan's trade surplus. There were some spectacular falls in exports out of many EMG countries. One country where virtually no changes has occurred is South A
Views from the Trading Floor: SNB, QE, Policy Ineffectiveness and the USD
That trade of being short bonds has worked so far, but to be short here is equivalent to thinking a really strong recovery will emerge. And, if you believe that there are much better trades since many equities have only recovered a small portion of their
Questions from the Trading Floor: German 30yr bunds trading above 30yr Euro Swaps?
Interesting. And, notice that this is a broader phenomenon problem....it also holds for the US, UK, and Japan as well. The US picture has the spread narrowing sharply in June, but this seems to have reversed sharply in recent days. Credit and BE inflat
Drobny Global Monitor: Disrupting the Consensus
'Monetary policy is likely to remain exceptionally easy for a considerable period of time.' This is perhaps one of the most popular views out there. And, with good reason. So, the nasty sell off at the front ends of the US, UK, and Euroland yield curve
Drobny Global Monitor: Recovery, Deflation and the SNB
What are the SNB to do here? Like several other central banks, they too introduced extraordinary policy measures in March with a unique kind of FX intervention QE. Swissieland is of course a uniquely open and currency sensitive advanced country.
Guest Research Report: The Dark Side of the Conundrum, Alan Boyce
It is now plainly obvious that the mortgage markets are being governed largely by Federal Reserve policy. The Fed has targeted mortgage rates/spreads driving spreads to historical tight levels. In the past month or so, the Fed has purchased $70 billion
Guest Research Report: The Case against Bonds and the Dollar
Milton Friedman famously proclaimed that inflation is "always and everywhere a monetary phenomenon" but perhaps it could be equally said that (hyper)inflation is always and everywhere a fiscal phenomenon. Keynesian economic theory plays down the role of
Guest Research Report: Deflation v Reflation
In prior months we have highlighted increasing evidence that incoming activity data was moving from uniformly bleak to indications of stabilization. But, we have to admit to being surprised at the speed with which activity data has improved. Developments
Drobny Global Monitor: Leverage and the USD forward outright
There is something puzzling about the USD falling as US bond yields rise. The two events are part of an unwind event, as crisis fears ebb. But, USD down and bonds down means the USD is going down pretty hard on a forward outright basis. That used to wo
Questions from the Trading Floor: Fiscal plus monetary stimulus unambiguously positive?
The US stimulus is just coming online and this should help ensure that inventory destocking is largely over. And, this, combined with signs of a decelerating downturn, has led to widespread upward revisions of growth forecasts. What might falsify recove
Drobny Global Conference -- Santa Monica
Events of historic proportions are taking place. A severe credit contraction threatens a deflationary spiral; the unprecedented stimulus raises fears of an eventual lurch to inflation. A bi-polar environment of fat tail views, said one panelist. People te
Guest Research Report: Buy Argentina GDP Warrants
The G20 decision to increase IMF funding has reduced tail risk in EMG countries. The result has been a recovery in some of the most vulnerable EMG country currencies accompanied by a reduction in CDS.
Drobny Global Monitor: Bond Bears, the ECB and SNB
The introduction of QE was an unambiguous positive. It reduced the risk of a big bond sell-off at a time when other stimulus measures were being announced or enacted. That in turn allowed spreads to narrow, mortgage rates to drop, and equities to bounce
Manager Favorite Trades -- Q2 2009
A lot of things seem to be turning a little better -- equities, commodities so-called risk currencies have bounced. The pictures in so many places are similar. The rebound in part reflects economic stabilization in China and elsewhere, and also is in an
Guest Research Report: Hugh Hendry
It is commonly held that equities are cheap, commodities are on the cusp of a huge gain and the dollar is on the verge of a big drop. We disagree...this is not 1974. As the world adopts Milton Friedman's monetarism, and the adage that inflation is and w
Questions from the Trading Floor: Deficit country currencies
You are confusing me on the USD. You have always argued that deficit country currencies go down when that country goes into a downturn. Why, then, shouldn't the USD be an obvious short here now that short covering during the initial deleveraging seems t
Drobny Global Monitor: QE, Bond Spreads & Currencies
By going to QE, the Fed are pulling down real interest rates from both sides of the equation. Nominal rates are down. And, the stimulus effect of printing more money could push inflation expectations higher. This combo can make all sorts of interesting
Drobny Global Monitor: Two Asian Stories
The first story is about JGBs, which are in a precarious balance. And, talk about the BOJ possibly announcing a buying programme later this week sure looks like a catalyst. The second story is the growth of broad money in China.
Drobny Global Monitor: Two Asian Stories
The first story is about JGBs, which are in a precarious balance. And, talk about the BOJ possibly announcing a buying programme later this week sure looks like a catalyst. The second story is the growth of broad money in China.
Questions from the Trading Floor: Global Monetization = Hyperinflation?
I think of the environment differently. As a process, rather than in terms of outcomes. The fiscal and monetary boost is coming as a downturn is unfolding. Rather than after it has worked through the multiplier process. A way to think about this is th
Drobny Global Monitor: Bonds & Austrian Theory
The Austrian theory was perhaps best elaborated by a guy named Knut Wicksell. His analysis of business cycles was premised on the relationship between the cost of money, the real rate of interest, and the rate of return on physical capital, the real rate
Drobny Global Monitor: ECB, the Euro & the Long Run
There is increased hope that the ECB will surprise on Thursday. Euribor contracts have jumped up again. And, there's a general sense that FX ranges are set to remain in tact. But, all this may actually be simply holding back the next move up in the USD
Questions from the Trading Floor: Yen Weakness; BRL??
The brisk move of the Yen on the crosses means that there has been some buying of the Euro and AUDs. Does the Yen weakness point to some revival of the FX carry trade? Is it time to revisit high yielding emerging market currencies like BRL?
Drobny Global Monitor: Short Equities, Short Yen
The DOW and several other equity markets have hit new lows. It all looks pretty awful. Yet, it somehow doesn't seem like such a dramatic event. The VIX is elevated but it sure seems relatively calm as new equity lows are reached. Conditions are terribl
Questions from the Trading Floor: KRWJPY; Sell Aussie Bonds?
I don't love the SGD/JPY trade. It's nice and contrarian, and sounds like a great way to play for a global recovery. But, although Korea is a basket case, I would argue that the KRW is a better asset currency in an improved scenario. And, I don't think
Guest Research Report: Macro and FX Outlook
The Yen has reached interesting levels on the Asian crosses as the SG below notes. This leaves the Japanese export industry especially exposed in the current downturn, serving to undermine the trade position and produce a relatively weak economy.
Drobny Global Monitor: Healing and the USD
Huge policy decisions are currently taking place. And this, combined with more stable trading conditions, gives a sense that maybe there's a change of trend underway. Maybe things are on the mend. Much calmer trading conditions have allowed for a recov
Drobny Global Monitor: Bonds, Deflation & Stimulus
US mortgage rates have jumped up again. That's dangerous, and it seems highly likely the FED will want to prevent Treasury yields from rising much further.
Guest Research Report: Hugh Hendry -- Three Peaks in Society's Embrace of Leverage
Most of you know Hugh Hendry, he has never been shy at conferences! I first noticed Hugh back in early 2003 when the Nikkei was trading at around 8,000 and he was making the case to buy it. He is rather too modest, he is no perma-bear. But, last year h
Drobny Global Monitor: Bond Supply & Aussieland
Boy, that was a nasty sell-off in Government bonds! Yet, it seems to happen around every government bond auction these days. Yields rise hard, amidst fears of an inexhaustible supply of paper. And, after the auction, there's often been a pretty good ral
Guest Research Report: Lansdowne Macro Fund, London
It sure seems like things are breaking down again. And, one SG notes that implied vols are only starting to perk up again. That's a sign of new found complacency. Given all this, perhaps the most striking thing today was the big sell-off in long dated
Drobny Global Monitor: FX Intervention Warning
As is well known, the ECB cut rates today. But, less noticed yet potentially important were comments in a speech by SNB member Jordan. He discussed 'alternative tools' available to the SNB to counter a looming recession.
Questions from the Trading Floor: BKX?
The SG who went for the long credit/short equities trade for Q1 seems to have nailed the process. Liquidity has eased, and combined with te Treasury rally, this has helped pull down yields across most of the credit spectrum.
Questions from the Trading Floor: False Hope?
There may be hope now, but I think by April the world is going to look dark and bleak and I suspect fear will hit. The best trade on the planet is to buy November 09 FED FUNDS at 99.35. It's like the Swiss rates trade since there is no chance the Fed wi
Drobny Global Monitor: European Crosses and Rate Spreads
The trade structure seems to be to sell the Euro or Swissie TWI's and buy fixed income in those countries either outright or relative to other countries. The idea is that if the Euro or CHF continue to rally, the ECB and SNB will have to pull rates down
Manager Favorite Trades: Q1 2009
There is a sense of a thaw emerging, and perhaps that's why there was a pretty good response to the survey. It seems managers are getting ready to trade more aggressively again. There is, however, another default domino that has been quietly brewing ove
Drobny Global Monitor: Long Asian Equties
One of the big surprises this year has been about liquidity. And, equities? Asia seems to scream out on a relative basis because they have gone down a lot an commodities have gone down a lot. There is also an increased sense China will stimulate.
Drobny Global Monitor: The Flight to Duration
It's the second derivative. The change in the rate of change. Start with the economy. October was simply awful. But the November data looks even worse. That's also why forecasts of job losses of 300-350k, looks modest.
Drobny Global Monitor: EUR/CHF and Swiss Rates
Well, that didn't last long. Equities might well be breaking down again. The MBS market has crashed again, the likelihood of an auto bailout in the US seems to have diminished and the CPIs around the world are giving a whiff of deflation ahead. One int
Drobny Global Monitor: Volatility, Currencies, EMG & China
It may not feel that way, but this was probably the least volatile day in quite awhile. The process is probably not over, but a period of calm might well emerge before the next phase unfolds. Now, if the idea of an unwind is wrong and things deteriorate
Drobny Global Monitor: Rate Cut Expectations
The deleveraging process is being met by substantial policy measures. The central banks brought out the big guns and cut rates aggressively last week. A central question is how far rates will come down.
Drobny Global Conference -- Budapest
An SG at the conference perhaps said it best….’it’s the end of the world as we know it’! Big changes are afoot and the result is the violent deleveraging and unwinds that we have been witnessing. And, the dramatic policy changes that are now unfol
Drobny Global Monitor: HKD Alert
Take a look at the HKD. It is down near the peg again. And, unlike other episodes of moves like this, HKD doesn't look overbought. Could it be that it breaks this time with such a general FX mess on our hands? Could HKD be an asset currency during str
Drobny Global Monitor: A Libor Anomaly
Ok, so now 3 month libor rates have been coming down over the past few days. And, that may have helped prompt that big equity rally. Take a look at the December 08 Euribor, Short Sterling, and Eurodollar contracts -- which price in sharp drops...sounds h
Drobny Global Monitor: Rate Cuts, Libor & Bonds
The central bank cavalry came and cut rates. And, with all of the other policy actions that have been announced, this seems to have spooked bonds. Especially with the ECB tough guys joining in. Yet, 3 month Libor hasn't come down and is still moving hig
Guest Research Report: Alan Boyce -- Covered Bonds v Securitization
What if we, instead of having the taxpayer buy the mortgages via the FED, had a system in place that allowed borrowers to repurchase their "distressed" mortgages on the open market and to refinance them at much lower principal amounts?
Guest Research Report: Policy Tools
We are firmly of the view that the only thing that will solve this crisis is when central banks effectively start to target Libor. They have various tools to do this: Rate cuts, Quantitative Easing -- expand balance sheets without sterilizing, Inject cap
Views from the Trading Floor: Crazy FX Forwards
In 1992, the Exchange Rate Mechanism (ERM) in Europe fell apart and a currency crisis ensued. In 2000, equities collapsed and business spending was crushed. This time around it is primarily a fixed income crisis. It started with mortgages but is now pr
Drobny Global Monitor: The Theory of Pre-emption
The 'Great Experiment' seems to be failing. The idea driving US policy through this decade has been to avoid a repeat of the mistakes of the 1930s and more recently with Japan in the 1990s. The ideas stems from Milton Friedman, who argued it was the pol
Drobny Global Monitor: Bonds and the Crisis
What seems wrong here is that overseas bonds are selling off. Perhaps it reflects a liquidation of positions. Yet, if the sell-off is in response to a $700bn fiscal boost in the US, then that's a mistake. This is better understood as a cushion, rather
Drobny Global Monitor: A Macro Turn
Common folks! There is much we don't and can't understand here. We don't have the facts of the new 'comprehensive' plan. Nor do we know if the plan will pass without political turbulence. What we do know is that US unemployment is rising rapidly.
Drobny Global Monitor: USD and Canada
The crazy illiquidity in fixed income makes it hard and dangerous to trade that stuff. And, equities are moving wildly. That's why FX is where a lot of the interesting and liquid action lies.
Guest Research Report: Kent Janer, Nektar
What is your current view/current portfolio? What worries you? In general, a lot fairly safe relative value trades have become unusually attractive because banks do not have balance sheets and cheap enough funding to arbitrage it. Those trades would no
Drobny Global Monitor: Asian Currencies, Singapore Dollar
The GSE news may have prompted a good final move into the USD. And, with the US economy looking lousy and still dependent on foreign inflows, the potential for a return to weakness seems to be increasing. Yet, one of the biggest problems in selling the
Drobny Global Monitor: USD shorts and FX Volatility
The USD has enjoyed a ferocious move up. It's gone on and on. Relative rates have moved in the dollar's favor, the current account deficit has been contracting, and US policy seems much more pro-growth than anywhere else.
Drobny Global Monitor: Tail Risk into Autumn
The trend at the summer's end looks pretty clear. The rest of the world is catching up to the sluggish US. Now, some of this seems in the price. But, the VIX is trading near recent lows despite equity markets also trading near their lows. Also many yi
Questions from the Trading Floor: FED Easing periods?
The financial crisis seems to be deepening, with equities breaking down again as commodity prices fell hard. Yet, oil still at over $100 is hardy low and global growth is still slowing.
Guest Research Report: Global Slowdown and USD Bounce
There is a popular story that both the USD and equity markets hit medium term floorsin mid-July. Here is a simple alternative view from a manager who found some success trading during a rough July. And, as you can see, he was prepared for the USD rally
Questions from the Trading Floor: European Economic Deterioration -- EUR/JPY
Euro/Yen broke t new highs during the spring as hopes for ECB rate cuts faded and rate hike fears emerged. A moderation in ECB hawkishness can send this cross back down. The data out of Germany suggests a sharp deterioration is developing.
Views from the Trading Floor: AUD crosses, Aussie rates and AUD/JPY
There was a nice dump in the CRB index during the month of July and look at the normalization of the Kiwi and Aussie curves. And, look at AUD on a trade-weighted basis...it sure looks exposed. And, it seems decently correlated with the shape of the yiel
Inside the House of Money: Jim Leitner Interview Part 2
Central banks globally are in the same boat and would clearly prefer a little extra inflation to avoid a real depression. if the choice is between people in bread lines and 3.5% inflation, central banks will choose inflation every time. So I think centr
Manager Favorite Trades: Q2 2008
Two things bug me right here. First, several pieces over the weekend suggested that financial markets are braced for a 1973-75 stagflation event. That seems wrong. BE inflation is still within ranges that have held for several years. That suggests the
Guest Research Report: European Bonds & Equities -- Why the Consensus is Wrong
The FED passed, but talked tough. And, now its up to the ECB who are much more likely to act tough. As a result, the Euro is making a pretty good move higher. One question is whether the SNB join in or take a pass this time.
Questions from the Trading Floor: If the Fed raised rates, would you buy or sell long bonds?
I would buy bonds. So, why don't they raise rates here? They would gain credibility and any long bond rally would temper a sell-off in equities and credits. It also might be seen as reducing the need for the ECB to hike a lot if it results in commoditie
Questions from the Trading Floor: ECB more credible than the FED?
It sure seems as if a waterfall in equities could emerge here. They have been dripping lower for around a month now and with food, energy and global rates higher, the pressures are building. Especially with the ECB rate hike coming.
Guest Research Report: Buy Forward US Natural Gas
Many seem to believe that the rally in Euro/JPY is consistent with an improved outlook for so called 'risk assets'. But that isn't likely the case when the catalyst for the move in the cross is a more hawkish ECB. That's harmful for growth.
Drobny Global Monitor: Anomalous Money Market Curves
Look at FED FUNDS contracts! A decent amount of hiking is already in the price. The July 08 contract at 97.95 builds in a 20% chance of a Fed move at the June meeting. More striking perhaps is the Sept 08 FFs contract which builds in more than 25bps of
Questions from the Trading Floor: $120 oil = Game Changer for US business?
My contacts tell me that activity in the US has dropped sharply in the past few weeks. 120+ oil is a game changer for many business models. Large industrials are seeing cost pressures that will severely erode cash low and profitability. Autos and Airli
Drobny Global Monitor: Gold, Yen & the Tough Guys
The central banks are suddenly getting tougher. The Fed started it earlier in the week. Yet, with mortgage rates already going up and spread pressures starting to emerge again it seems unlikely they will raise rates a lot more than already priced in. A
Drobny Global Monitor: Bernanke, Yield Curves and Aussieland
Global growth is slowing, yet inflation is rising. That should imply steeper yield curves. That's where Mr. Bernanke's comments today mentioning the US come in. He has joined the G7 chorus warning about USD declines. If talk is genuine, its bad for eq
Guest Research Report: The Great Unraveling? How emerging markets are exporting inflation and exacerbating the credit crunch
Emerging markets collectively are the most important source of global inflation pressure. Its not an issue of manufactured export prices, it is about commodity prices. Unlike advanced economy central banks, emerging market policymakers are not being tru
Questions from the Trading Floor: Bill Gross says sell bonds, isn't he missing the point?
Bill Gross suggests selling bonds is a no brainer. Isn't he missing the point that the US economy is addicted to low interest rates? Higher rates mean additional pressure on credits and asset valuations. The trade is to sell US REITs -- much better ris
Drobny Global Monitor: Some Juicy Yield Curves
DOW transports are near their highs despite the sharp move in oil prices. Technically, it looks like if we close lower on the week we could be poised for a big and fast breakdown in the index. What does seem clear is that recent curve flattening creates
Guest Research Report: Inflation and the Bretton Woods II System, Mike Dooley
We have recently focused on concerns that the subprime mortgage crisis could derail the Bretton Woods II international monetary system because of reduced willingness of private and public investors to lend to the United States.
Drobny Global Monitor: Tighter Monetary Policy?
The UK news today was pretty crummy. Weak growth and higher inflation. Even worse, the Gilt curve flattened (and swap curve inverted further). The high inflation figure produced a sharp unwind in rate cut expectations for the rest of the year. Yet, FT
Drobny Global Monitor: Beneath the Surface -- Short SP500, Long 10yr Bunds
Despite strong Aussie data, AUD bonds rallied overnight. The biggest move occurred on the Yen crosses v European and Asian FX. What may be behind all of this? Mounting signs of an emerging manufacturing downturn. The latest orders data from Germany su
Questions from the Trading Floor: Inverted Oil Futures Curve?
The oil curve is inverted one year ahead. But, supply projections are pointing lower, so over time supply decreases. There is apparently plenty of spot oil. Carry costs are expensive and very little storage available. So are oil prices building in dem
Drobny Global Conference -- Santa Monica
Food inflation is the new hot topic. It is squeezing consumers around the world. And, the resulting jump up in inflation is forcing central bankers to tighten. That isn’t helping the growth outlook. And, it doesn’t seem to be the kind of stuff that so
Views from the Trading Floor: US/Germany CDS spreads
Well, the Treasury bears are getting some satisfaction here, but a relevant question is whether a new downleg in the global economy is about to emerge. One issue being discussed is the rate moves in LATAM, with the Brazilians having just hiked, the Mexic
Drobny Global Monitor: The Cliff Edge -- Long Bunds, Short Copper
The economy is starting to resemble what it looked like in late 2000. That's when unemployment claims jumped up and the unemployment rate started to rise in earnest. And, then in early 2001, the economy fell off a cliff. A genuine US contraction would
Manager Favorite Trades -- Q2 2008
It is unsurprising that the majority of the trades below are in fixed income. This is largely where the biggest dislocations have taken place, and where the biggest moves have taken place over the past 6-9 months. There seems to be an assumption that th
Guest Research Report: Discussion with Kathleen Kelley, Kingdon
My favorite trade right now is short ZAR. I'm very bearish South Africa, our people on the ground tell us that the power authority is in a very tough spot. They have started rolling blackouts. I've bought dual digitals on aluminum and ZAR because of ty
Drobny Global Monitor: Hope and Turmoil
Man, what a crazy time! Libor has been moving up again pretty strongly in many places, and many RV/basis type trades have gone bezerk recently It's hard to know where the deleveraging storm is going to hit next or whether, as some suggest, these storms a
Views from the Trading Floor: Unwind/Reversals?
It's multi-faceted, fast and furious...the squeezes/reversals in the markets, growing evidence of US recession, and all of the policy actions just announced. It becomes had to separate noise from real signals; thus reducing exposures makes sense.
Views from the Trading Floor: Disequilibria
There's a great piece by Credit Suisse which captures the essence of the current environment...disequilibria. The argument is framed around an inventory crisis. In commodities, inventories are low...yet, in housing supply is excessive and in credit, the
Guest Research Report: Discussion with Colm O'Shea, Comac
Right now I think the pressure is back on the banks and libor can go higher from here...bank balance sheets are deriorating fast. We have libor v OIS spreads in USD, GBP and EUR. The latest BOE bulletin suggests that the entire libor spread is explained
Drobny Global Monitor: Money, Liquidity & Income Distribution
'Liquidity' seems such a vague and thorny concept. Yet it also seems so important these days. The concept is often closely tied to the equally tricky notion of 'broad money.' The two are related since neither is easy for central bankers to control. Ec
Views from the Trading Floor: Deteriorating Situation
Well, I think you are right about the economy and the stock market and I am getting on board and looking for stocks to sell here. The US data suggest the economy has continued to deteriorate and there are growing expectations of a negative employment rep
Drobny Global Monitor: Implications of a USD Free Fall
Well, it took longer than expected, but the USD has started breaking down in earnest. And, without any rate support it can go into free fall. It seems reckless to underestimate just how far and fast the USD can go. This has several implications -- Euro
Drobny Global Monitor: Hungarian Tricks -- Argentina Results?
The Hungarians pulled quite a trick today by dropping out of the currency band. In the short term, this migh work. The new FX regime might prompt a further squeeze of HUF shorts. This can also take the pressure off of interest rates. But real rates ar
Questions from the Trading Floor: HUF, ZAR, TRY -- weak growth plus current account deficits?
To be prolonged and sustained, a stagflation episode needs accelerating wage inflation, even into a slowdown. Workers demand compensation for rising costs of living. It's still unclear whether a housing crash/1930s type of deflationary environment or a
Drobny Global Monitor: An Accident Waiting to Happen?
What would make all this worse? Where does it really go wrong? if safe yields start to go up. If long-dated T-bond yields break higher, as they seem to be threatening to do, then all these 'relatively cheap' assets would likely get even cheaper.
Drobny Global Monitor: JGB's ready to move
Long-dated US yields, especially swaps, have started going back up over the past week. And, now Bund yieds may be starting to move higher as well. But, look at Japanese 10year swaps. Yields have been in a 1.50-2.25% range but are now testing the lower
Questions from the Trading Floor: AUD front ends; SEK yield curve?
Amongst the various issue we have been discussing, Mexico is on my mind this morning. Very surprisingly, th latest inflation rate was down. That's prompted a furious rally in fixed income and rate hikes are no longer priced ino the 2 year swap. But, per
Drobny Global Monitor: A Friendly ECB?
The ECB are talking friendlier than some of us expected. But, will they take the plunge and join the BOE, the BoC, and FED and actually start cutting interest rates soon? Either way -- receiving 2 yr Euro swaps at 3.81% and selling June 2008 Euribor (im
Questions from the Trading Floor: Why haven't equities sold off hard after the jobs report?
My initial reaction to your question is that a super easy Fed and fiscal policy would serve to counteract downward pressures. What I have missed is that a housing crash can produce a services-led recession. That's what the data in the US and EU suggeste
Drobny Global Monitor: Credit and a USD crisis
The USD seems capable of falling quickly here. The Fed have now cut 125bps rapidly. And, the statement made it clear that they did it moredue to financial fragility than economic pain. In fact, the data doesn't look that awful, certainly nothing like 2
Questions from the Trading Floor: Long Fed Funds/Euribor?
There's always been this sense of unfinished business from the 2000-2003 crash. That the housing bubble/refi boom helped pull us out of a seemingly inevitable slump but that this is over and we now have downturn of the US consumer.
Guest Research Report: Discussion with North Asset Mgt, London
The biggest news seems to be the unwind in rate cut expectations in Europe. The ECB seems less likely to be as friendly until the data out there genuinely turns south. But, notice the big drop in Icelandic 2yr swap yields as inflation expectations drop
Guest Research Report: Peter Thiel -- Inflation or Deflation = Deleveraging
How do you invest a portfolio in a way where you do well in both inflationary and deflationary environments? This is a nontrivial thing, since these are very different. The idea we came up with, was that in either scenario, leverage has to go down.
Questions from the Trading Floor: US slowdown/Asian FX
Things can get real interesting when expectations diverge from reality. In such circumstances, it is typically expectations that adjust. Hence, the weak ZEW index out of Germany shows big concern about the economic outlook, yet real economy indicators s
Drobny Global Monitor: ECB and Turbulence Trades
The USD looks capable of falling sharply...again. It is losing interest rate support at a time when US-based risk seems to be growing. And, remember that the size of the US funding requirement means there must be a big USD long out there. The USD needs
Views from the Trading Floor: EUR, Bunds, and turbulence
Buy EUR/USD and buy Bunds against it. Some would call this a classic 'risk aversion' trade but I think it fits nicely with the idea that rates are still pretty high in Europe. Buying the Euro here sounds crazy; it looks expensive and is exposed to seaso
Drobny Global Conference -- Stockholm
Something big seems to be unfolding. There’s the tension between the housing crash/credit crunch story and the aggressive FED cut. But, perhaps more important, all this is happening in a broader global environment of ample liquidity and rapid money supp
Drobny Global Conference -- Las Vegas
The cycle is looking rather mature. Several of the trades presented by the panel had a ‘special situation’ element to them. After a long bull run in risky assets, it seems harder and harder to find genuine value, even with interest rates still disturb
Drobny Global Conference -- Reykjavik
Low volatility was perhaps the underlying theme of the conference. Assets are performing nicely, real rates are still low, and carry has been working. A few nice and calm trends - especially in equities - seem in place.
Drobny Global Conference -- Santa Monica
Perhaps the most striking feature of this conference was what wasn’t discussed. And, what happened while we were out. There were interesting noises about the USD and a pretty good move down as well. Yet, audience polls taken during the event revealed fe
Drobny Global Conference -- Milan
‘Central banks are behind the curve’. That was how one participant summarized the themes of the conference. Especially in Japan and the US. Europe, interestingly enough, was barely touched as a subject. And, generally flat yield curves means that forw
Drobny Global Conference -- Santa Monica
This was the most controversial Drobny conference so far. And, interestingly, many veterans felt it was the most interesting of all. Not because of the trades per se, which were generally interesting, well received and looked profitable. Instead, it was t
Drobny Global Conference -- Barcelona
The USD was the elephant in the room at this conference. Short the USD was the favorite trade in the audience poll taken at the start of the conference. By far. Yet, when a hand poll of the group was taken during the event, maybe 2/3’s claimed to be sho
Drobny Global Conference -- Barcelona
A striking feature of this conference was the diversity of macro views and the widespread sense of uncertainty. Most panel members seemed wary of taking strong directional views on the biggest issue that has dominated markets for several years now: the re
Drobny Global Conference -- Santa Monica
It was striking that the trades this year concentrated on specific markets or specific countries rather than on big macro themes. That’s in sharp contrast to last year, where big picture/G3 macro trades dominated the proceedings.
Drobny Global Conference -- Santa Monica
Lee Thomas from PIMCO, Newport Beach CA favorite trade was to ‘buy Junk bonds and sell US equities against it. A profitless recovery is still a recovery. And, that should be associated with a reduced incident of default.