Despite practically every other central bank in the developed world
looking for ways to further loosen monetary policy, BoC Governor Mark
Carney is preparing to increase interest rates. While holding rates
steady at 1% this morning,
Carney noted that economic expansion is increasing, and stated that he
expects momentum to pick up through the end of the year, with inflation
to reach target levels sometime in 2013—at which time, he stated, it
would be appropriate to gradually withdraw some of the current monetary
stimulus measures.
The Loonie is actually mildly weaker this morning
as short-covering versus the Sterling and the Greenback, as well as a
broad-based euro rally, has created downward pressure on the currency.
Given that financial markets are collectively holding their breath until
tomorrow’s ECB event,
muted activity in currencies, the Loonie included, looks to be the
modus operandi for the day. Look to recent historical ranges as a guide
for immediate trading needs.
There was no shortage of data last night, any one piece of which, on a normal day, would be headline worthy. However, with tomorrow’s hotly anticipated ECB Press Conference, markets seem to be too preoccupied to pay much attention to anything else.
Australia’s quarter-over-quarter GDP growth printed 0.6% last night,
missing expectations of a slightly better result. Last night’s number
is a bit of a contrast to the last GDP report, which put economic
expansion for the island nation at 1.4%. While the overnight number is
only a single data point, given the instability in Europe and the USA,
the cooling Chinese economy, and the potential impact on commodity
prices, policymakers are sure to be nervous. This put the Australian
unit on its back foot through the Asian trading session, primarily
giving up ground to the Greenback, euro, and yen. The AUDUSD hit an
eight-week low after breaching the 100-DMA near 1.0200, though rumours
of stops in the 1.0150 area and speculation about the ECB seem to have
stemmed the tide for the moment.
Turning to Europe, a host of Service PMI numbers were released, all
of which were sub-50, indicating a state of contraction in the services
industry. The common currency largely shrugged this off, with traders
instead focusing on tomorrow’s
ECB announcement. While it’s unlikely that the PMI results are likely
to change Draghi’s mind about whatever he has planned for tomorrow’s press conference, they do add weight to the argument that it’s time for the ECB to step in.
And finally, Switzerland’s August CPI read flat. While Swiss CPI has
been erratic over the last couple of years, oscillating regularly
between positive and negative results, this is the third month in a row
that the country has exhibited deflationary pressure. This fact eases
some of the pressure on the Swiss National Bank and validates their
interventionist policies to stem the flight-to-safety rally in the
EURCHF. The 20% rally in value that the Swiss franc experienced as the
situation in the euro zone deteriorated could mean a major economic drag
for the landlocked nation, due to its goods becoming relatively more
expensive abroad. The floor at 1.2000 instituted earlier this year by
the SNB seeks to stabilize the Swiss economy and prevent runaway
deflation.
Excitement over expectations that an ECB bond-buying programme will be announced tomorrow
have reached a boiling point, pushing the euro to broadly outperform
other currencies overnight as well as in early North American trade.
In equities, Asian indices were down as disappointing Australian
data and China worries weighed, and European equities were mixed as weak
PMI data squared-off against ECB expectations. Given activity in the
last 18 hours, a classic “Buy the rumour, sell the news” pattern looks
to be forming.
Meet the CTA – GrowthPoint Investment, LLC—Index Condor Program
In this issue we talk to Nathan Lee Gantt of GrowthPoint Investment, a registered CTA, NFA ID #357618.
To see the performance sheet for the GrowthPoint Investment—Index Condor Program, please log on to our Managed Futures Database for IBTRADE.
Name of Program
GrowthPoint Investment, LLC- NFA ID #357618. 
Name of Principals
Nathan Lee Gantt
Name of Principal with Trading Authority
Nathan Lee Gantt
Q: Can you give a brief description of your program?
This is a premium selling strategy which is a combination of vertical
credit spreads and butterfly spread. It is a three-strike credit
spread.
Q: What is the average holding period for each trade?
It Varies based on market conditions, but currently between 7-15 days.
Q: What is the capacity of your program at present? Do you intend to significantly raise this number this year?
We have easily traded as much as $10 million and expect we could trade as much as $100 million without difficulty.
Q: The chart of “VAMI vs. S&P 500” is pretty choppy, is there any intrinsic factor leading to this huge volatility?
Until the “flash crash” in May 2010, we managed our risk based on the
distance between the market and our short strike. We no longer use
this technique. Instead, we now manage our stops and risk based on
profit/loss in the position. We expect this to reduce the volatility
and dramatically decrease the likelihood of such a large draw-down.
Q: How to discover or predict those targeted trades which have an expected annualized rate of return of 30% or greater?
We use a combination of trade delta, standard probability
calculations, % return on cash, technical analysis and fundamentals to
determine strike placement.
Q: We’ve noticed that 2010 was an overall poorly performed
year, in which the program presented a large negative figure in the
history records. Huge drawdown occurred in May. Can you briefly describe
why there was a comparatively large volatility at that time?
This was caused by a single trade that was entered days before the
flash crash. Our new risk management strategy is expected to greatly
reduce the possibility of this happening again.
Q: In what types of market environments does your trading program do well and /or struggle?
It does well in low volatility markets (such as 2004-2005) and can do
well in high volatility environments (such as 2008) but environments
where volatility frequently spikes – going from high to low, then back
to high volatility proves more of a challenge.
Q: How to hedge the risk of index increasing or decreasing in
value and moving into the money faster than positions can be
liquidated?
Our positions are traded as a block and can be liquidated very
quickly as most of the trading is done in the S&P options pit.
Q: What’s your opinion on current markets and how do you prepare against the volatility?
The markets are extremely choppy right now and are difficult to
trade. We attempt to offset this by making our trades as short as
possible to decrease the market exposure to volatility spikes.
Q: What are your investment goals for this year (i.e. annual returns on performance)?
In February, 2012, we once again began sell calls as well as puts.
So, instead of a max of two trades per month, we can have four when you
consider the call and the put side. In addition, we started trading
weekly options. Due to our short trade duration, this allows us more
flexibility getting trades on. Based on these changes, we hope to earn
over 20% this year.
Q: What are the specialties of your program?
Two things set our trading program apart. First, our configuration
of 3-strike spreads provides a hedge against the market moving against
the position in the last week of the trade. This gives us some
protection that a typical vertical credit spread would not have.
Secondly, it benefits the brokers because of the high trade volume.
Each spread consists of 8 options (4 long/4 short). We trade one spread
per $16-20K. We typically have 3-4 trades per month. This yields an
average of about 13,000 RT/Million/Year. At $20/RT, this yields the
broker a gross of 26%/year.
There is a substantial risk of loss in trading futures and
options. Past performance is not indicative of future results. The
information and data in this report were obtained from sources
considered reliable. Their accuracy or completeness is not guaranteed
and the giving of the same is not to be deemed as an offer or
solicitation on our part with respect to the sale or purchase of any
securities or commodities. IBTRADE, its officers and directors may in
the normal course of business have positions, which may or may not agree
with the opinions expressed in this report. Any decision to purchase or
sell as a result of the opinions expressed in this report will be the
full responsibility of the person authorizing such transaction.
September is the month of the Central Banker. We were ushered
in on Friday by Ben Bernanke and his speech from Jackson Hole, in which
he once again pledged to increase monetary stimulus should economic
conditions warrant. He also fired a firm shot over the bow of those
doubting the effectiveness of his policy actions to date. Bernanke
believes that the persistently high unemployment rate in the US has
little to do with structural changes within the economy (a mismatching
between job openings and skills that must be addresses by fiscal
policies) and everything to do with monetary conditions that he can
affect, such as credit conditions and a subdued housing market. Given
that interest rates are at zero and he has already bought $2 Trillion
worth of assets from the open market, one wonders what he can possibly
do next to stimulate a stubbornly slow recovery. The latest FED
decision will be announced September 13.
Not to be out done, ECB
Chairman, Mario Draghi, has been talking tough for weeks as to how he
will save the euro zone from itself by doing “whatever it takes”. The
ECB meets this week and will announce its latest policy decision
Thursday September, 6th. Leading up to the meeting the market has
received all sorts of rumours of possible action. The latest version is
that the ECB is looking into buying short-dated sovereign government
bonds that expire within three years. Now in strict terms, this is
outside of the ECB’s mandate as it amounts to monetary financing of a
sovereign country. However, Draghi believes that such action would help
to stabilize the euro, and since a stable euro is within his mandate
such action would be warranted.
These two meetings will have
significant impact on financial markets and currencies. If policy
makers do follow up on their tough-talk then look for the USD to lose a
bit more value and for the EUR to continue its recent rise.
Source: Sungard MarketMap 2012
The major economic data release of the day came from the US, as the ISM
index of manufacturing output was released this morning. The index fell
to 49.6 for the month of August, indicating a contraction in activity
for the month. This received muted reaction from markets as equity
markets traded slightly to the downside and the USD remained relatively
flat versus it major counterparts.
The euro zone as a whole had
its credit rating outlook downgraded this morning, as the impact of
strong countries such as Germany and France put their balance sheets
behind Spain, Italy and Greece continues to weigh upon the region.
Investors may become less willing to fund Germany and France at these
low yields should they pledge to support the tattered balance sheets of
the EU’s weakest nations, however the EUR largely ignores the news and
continues to trade higher in the market on the hopes for central bank
intervention.
The Royal Bank of Australia kept interest rates
unchanged at 3.5% in their latest decision. The central bank remains
cautious in its outlook for global growth and the market anticipates
that this view will likely mean a decreasing chance of near term hikes
in the overnight rate, which is positive for a currency. The AUD
continued its recent decline and hit a low of 1.0220 versus the USD
today.
Chart of the Week: Volatility Rises (CBOE VIX OPTIONS INDEX)
The
chart below is the markets expectation of future stock market
volatility as measured by the CBOE VIX INDEX. Higher expectations for
volatility are usually associated with USD strength as traders get out
of riskier currencies and assets that may experience wild swings in
valuation. The index has clearly risen from recent 4-year lows and this
should be an indication that markets are expecting larger moves across
assets this month. During such times the USD tends to have broad
outperformance versus commodity linked currencies such as the AUD and
CAD. Talk to your account manager to discuss the tools available to
protect your exposures.
Source: Sungard 2012
The USD is stronger compared to most of its counterparts this morning
as a weaker reading of manufacturing activity in the US pushes equity
markets and commodities lower. However the theme of the day remains the
anticipation surrounding upcoming central bank meetings this month and
the expectation that they will act to support global growth going
forward with a new round of asset purchases.
Gold is flat on the day at 1691.40 while oil is down by a 0.5% at 96.70 in New York.
