Serendipity or extremes detection

Chart: Brent oil futures vs "context model"

I've been experimenting with context models for financial assets today, when by serendipity discovered potentially very interesting method for detecting market extremes.

Above you see the chart presenting the price of the Brent oil futures versus some context model.

This was an experiment, since the model was designed to asses prices of some other assets. Brent oil was originally a part of the context. Then I turned the model around.

Nevertheless, the experiment clearly shows that the price of Brent oil extremely diverged from the context in February 2009. Or rather the opposite happened - the context strongly diverged from the Brent.

It would be an interesting indicator for buying context if only I was using this model in 2009...

Hopefully the method will be ready soon for other extremes :)

Zero x2

S&P500 has just finished the 2011 at 1257.60, nearly perfectly +/-0% from the beginning of the year (1262.82 at the open on January 3rd, 2011, i.e. -0.0041% to be precise).

It also means that the index virtually didn't move from June 1st, 2001, or 10 years and 7 months before, when it closed at 1260.67.

Welcome to the new brave world of ZERO ;)

Source: Google finance

Still. ZERO is better than BEAR MARKET declared by Reuters at the beginning of October this year...

Source: Reuters 2011-10-04

Since the low of 1099.23 on October 3rd, the market rallied 11.15%.

Dot.com 2.0 - opportunity or bubble?

Zynga Inc. debuted on NASDAQ, yesterday. The company shares felt by -5.00% to $9.50 from the IPO price.

Zynga is the fourth high profile internet company that offered its shares to the public this year - after LinkedIn, Pandora and Groupon.

So what the performance of these companies have been so far? Mixed.

• LinkedIn  +46.31% from $45 IPO price
• Pandora   -34.05% from $16
• Groupon  +15.20% from $20

In total, the portfolio comprising of equally weighted four internet companies bought at IPO would bring +5.61% till yesterday. In the meantime, S&P500 lost -9.22% and NASDAQ -9.49%.

So, do we have a new buying opportunity of a life time or the next dot com bubble?

Commerzbank jumps, but will it last?

Chart: Commerzbank vs DAX and Deutsche Bank, 2011-12-14, source: stooq.com

Commerzbank's shares jumped by more than 5% today on news of  the reactivation of the German bank rescue fund and some increase in the planned purchases of highly discounted hybrid securities by the bank.

Despite today's rally, Commerzbank is still -78% YTD, -79% 1 year and astounding -95% 5 years.

According to Financial Times:

Officials in Berlin are privately sceptical that Commerzbank can keep to its pledge to shore up its capital without using more state funds.

The rescue fund, could allow Commerzbank to get rid of its Eurohypo division. However:

Chintan Joshi, analyst at Nomura, said that transferring bonds to the government at above market value would be a “straight bail-out” and therefore unlikely. “We do believe that a bail-out will come with pain attached ... we do not think Germany can provide a lucrative bail-out to Commerzbank in the current climate,”

Also (Wall Street Journal):

On the downside, selling these assets to the SoFFin would come at the expense of hefty write-offs as they would have to be transferred at lower market values.

And this leads us to (FT again):

Officials in Berlin are privately sceptical that Commerzbank can keep to its pledge to shore up its capital without using more state funds.

While:

Among the measures in the bill are provisions for BaFin, Germany’s financial regulator, to force banks to accept state help if it thinks a bank’s plans to raise capital are insufficient. 

According to EBA, Commerzbank need 5.3 billion EUR of fresh capital. It's current market cap is 6.28 billion EUR. It can get some 700 million EUR from the purchases of the hybrid debt. Some more from savings. 

Let's assume, the state bail-out will inject "only" 3 billion EUR of the fresh equity. It would mean, that the current shareholders would be diluted by some 66%.

Under such scenario the price of Commerzbank shares can quite easily go under 1 EUR.

More news about Commerzbank: https://pinboard.in/u:mjaniec/t:Commerzbank/

Let's Occupy Wall Street?

Screenshots from Modern Warfare 3

I wonder whether the Occupy Wall Street movement was inspired by Modern Warfare 3 or the other way around.

Nevertheless, MW3 is definitely my favorite installment is the series so far :)

200 billion EUR without the UK = 170 billion EUR

At the recent EU summit, politicians declared "up to 200 billion EUR" loans to IMF to strengthen the defense of the Euro.

150 billion EUR should come from the eurozone member countries, and 50 billion EUR from the other EU states.

It's quite easy to find out where these numbers come from: 150 billion EUR / (eurozone GDP / EU GDP) = 202.45 billion EUR.

However, the UK veto changes slightly this calculation.

First some basic statistics (source: Wikipedia):

EU GDP = 12,268,387 million EUR
EU GDP less UK = 10,471,804 million EUR
Eurozone GDP = 9,089,966 million EUR
non-eurozone GDP = 3,178,421 million EUR
non-eurozone GDP less UK = 1,381,838 million EUR

non-eurozone GDP less UK / non-eurozone GDP = 43,48%

Hence, the 50 billion EUR non-eurozone contribution, will most probably be reduced by some 57%:

50 billion EUR * 43.48% = 21.74 billion EUR

Assuming no other country backs off from the plan, we should expect that the IMF loans will total:

150 + 21 = 171 billion EUR

BTW: A Polish newspaper "Gazeta Polska codziennie" suggests the Polish contribution to the IMF loans will equal 100 billion PLN or 22.22 billion EUR. I don't understand where this number comes from. I'd assume, Polish contribution would be equal to 21.74 billion EUR * (Polish GDP / non-eurozone GDP less UK) or 5.57 billion EUR * 4.50 EURPLN = 25.08 billion PLN.

A day at the races

Fig. S&P500 futures, 2011-12-08 / 09; source: XTB

The S&P500 futures have fallen from 1270 to 1222 yesterday (i.e. -3.8%), to bounce back to around 1250 today (+2,3%).

"The European Union will die - SELL, SELL, SELL!" - suggested reaction to the yesterday's ECB announcement. "The European Union is saved - BUY, BUY, BUY!" - declared investors after the summit.

I have seen quite similar behavior somewhere, some time ago...