Wednesday, March 16, 2011

Global Macro vs. CTA's.

Also known as Commodity Trading Advisors (CTAs), managed futures are a pool of futures or forwards contracts managed by professional money managers. They are similar to a mutual fund, in that individual or institutional investors have a share, only the investments in this case are mainly futures contracts. Unlike fundamental securities such as stocks and bonds which are held within a mutual fund, a future is a derivative instrument, one whose value depends on the value of an underlying instrument.
Today, managed futures provide direct exposure to international financial and non-financial asset sectors. Trading advisors have the ability to trade in over 100 different markets worldwide. These markets include interest rates, stock indexes, currencies, precious metals, energies and agricultural products.

Features of managed futures
Because the margin deposit needed to buy or sell a futures contract is only a portion of the current market value of the contract, managed futures have an inherent degree of leverage. Any change in the price of a security can consequently result in a much larger percentage gain or loss on the funds deposited as margin. A proficient use of leverage can result in desired levels of return for the amount of capital employed.
The trading is based on the systematic application of quantitative models that use moving averages, break-outs of price ranges, or other technical rules to generate buy and sell signals for a set of markets. This tends to be automated, particularly with the emergence of electronic trading systems

In general, most managed futures managers tend to view price trends as a function of supply and demand for a particular commodity or financial instrument. As the interaction of these elements form continuous market movements they try to capture profits. In short, managed futures managers attempt to identify the beginning of a trend, take a position and exit it as it ends.

Managed futures investments can benefit from the application of a range of trading systems or investment strategies, such as systematic, arbitrage, and spread trading strategies. Investment approaches can also be differentiated by trading frequency and duration.
Exposure across the full range of market sectors helps to smooth out peaks and troughs in performance due to the tendency of markets in each sector to display broadly different behavioral characteristics. For example, the factors affecting world commodity markets frequently differ from those influencing traditional asset classes. Like capital markets, global commodity markets tend to move in cycles - with periods of price strength usually associated with growth and stability in the world economy and periods of weakness with recession - but within these broad cycles there are often seasonal and sharp price movements prompted by a sudden change in the supply picture as a result of environmental or political factors. Trading commodities using futures, it is possible to reap gains from the sometimes fervent upward and downward price movements that result from the uncertainty that frequently drives these markets.

Futures funds themselves can be structured with a high level of diversification. The significant growth in the number and diversity of futures markets in recent years has facilitated a broadly diversified approach across geographical regions and asset classes, avoiding over-concentration in any market or market sector.

Friend’s American market started falling as soon we gave a sell on it during last blog.
Dow till date has fallen from 12200 to 11750 levels.

Thanks for all your trust and Faith.


Atul Sikrai.
Sr Vice President & Head of Equities
wiTdom investment advisory.

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Thursday, March 10, 2011

Sell Tail Starts

Sell Tail Starts:
We are Pleased to inform all our reader that popularity of our blog is growing day by day. We are getting thousands of hits .Geographic details of statistics reveal that we have conquered about 70% of globe. After predicting crash in Indian stock market correct we are getting many inquiries about our outlook for rest of the markets. Especially from smart money group like hedge funds are curious to know our out look for American Markets.
Now predicting global markets is like committing suicide i.e. if something wrong goes then people laughs at you if you are survived after suicide due to some reasons. On a lighter part
let us put our neck out and try to predict for them. Let’s talk about Dow & S&P.
Dow is already 87% up from its 2009 low. My gut feel say that Dow is going to fall from here. Worst case scenario I see Dow now falling from these 12100 level to 9990.We are first to give short call to these American markets. Let me give you rational for this fall that I am predicting. And rest of world will fall too.
During the October 1987 and October 1929 stock exchange crashes, the Planet Saturn was in the Astrological sign of Sagittarius. The significance of this is that Sagittarius, the combined horse/man, with Saturn having a connection in Greek / Roman / Etruscan mythology to agriculture as well as weights and measures and coins, means that Saturn in Sagittarius represents the third Horseman of the Apocalypse, economic depression. When Saturn is in Sagittarius you may get the trigger event, such as a stock market crash, that begins an economic depression. Saturn will not be in Sagittarius for many years, but you can still expect great economic chaos in 2011-2012.
Fundamental Bear points :
.Tension in Libya and crude may shoot to 130$ per barrel.
• The good news is all factored into prices. Investors, with optimism at a 10-year high, are too confident.
• A fresh boom in China helped pull the world economy back from the brink. That economic charge may be slowing - the jury is out;
• A recovery in house prices has ended. A second wave of falls, leading to more bad debts, could spark other waves of bank failures or another credit crunch;
• Governments took on too much debt in the boom years, and bad debt from banks, and some could fail to meet repayments;
• Spending cuts in the UK could hamper demand, if creates greater unemployment;
• Deflation may take hold, leading to a falling spiral of consumer and asset prices, including shares.
We see very interesting formation of Sell Tail within the charts of various developed markets. Now let’s see are we able to predict this so called giant fall or it’s just a correction that time shall tell. We suggest all our reader to temporarily quit their equities positions and you may invest in fixed maturity plans.
Always happy to help you all,
Atul Sikrai
Sr Vice President & Head Equities
wiTdom investment advisory

Tuesday, March 1, 2011

Band Baaja Budget .

Investor sentiments have improved after the FM did not propose a hike in excise duty in the Budget. The FM has also proposed to cut the surcharge for domestic companies, which is a positive. The target of 4.6 per cent fiscal deficit by FY12 had the markets happy. The FM has not proposed a hike in excise duty on cigarettes. Infra spending going up 27% is a big positive booster. We are expecting positive impact of 50-60 bps on earnings.
The move to allow foreign individuals to invest in domestic mutual funds is positive.
The increased allocation through the Bharat Nirman program to provide rural broadband connectivity to all 2,50,000 panchayats in the country in three years should bode well for more inclusive and sustained growth. Also stress on reforming education, healthcare and general administration are healthy indicators of future growth.
In the Union Budget 2011-12, the Finance Minister articulated its commitment to fiscal consolidation, infrastructure development, agriculture growth and enhancing governance standards. The Finance Minister has done a credible job in not just over-delivering on fiscal deficit target in FY11, but also clearing demonstrating his commitment towards fiscal prudence by laying down the fiscal deficit target of 4.6%, which is even lower than FRBM mandate of 4.8%. The Budget is also very aggressive in its 9% economic growth target for FY12, given that the economic growth momentum is gradually moderating.
Overall, the budget has laid down a constructive road map for Economic growth and has taken steps to align the existing tax structure with the proposed GST & DTC framework. It is heartening to see that the increase in allocation to infrastructure and education sector has been higher than that in social sector spending. The move to cash subsidy for petrol & kerosene to BPL families is a bold move. Amidst these positives, the key disappointment from the Budget has been very nominal hike in IIFCL’s disbursements targets in the light of our humungous infrastructure funding requirements & lack of focus on attracting FDI, which could have really spurred such inflows in the current environment of easy global liquidity.
The Union Budget 2011-12 has pleasantly surprised market since expectations were at the nadir. Enhancing FII investment in infrastructure bonds will also help in deepening the corporate bond market and will provide a hedge against the more volatile FII equity inflows. Lower than expected government borrowing program of Rs 3.43 trillion (expectations of Rs3.7-3.9 trillion) positively surprised the bond market and provided a much needed sigh of relief. This will not just help the GoI in better managing its borrowing program but will also ensure that there is no crowding out of private capex plans at this juncture which requires pick up in private investment to sustain the economic growth momentum & contain inflation. It is also positive for the banking sector as it will ensure that the upside to the long-term interest rates gets capped. At the same time, the short-term rates will also ease in the first quarter of FY12 with increased government spending & easing liquidity.
Nifty expect to cross its 200 DMA of 5630 and move towards 5700 .
Warm Regards
Atul Sikrai
Sr Vice President & Head Equities
wiTdom investment advisory.