AuthorAlex Gorzelak, CIO Archives
June 2020
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WEEKLY WRAP-UP 15 - 19 June 202020/6/2020 WEEKLY WRAP-UP 15 June 2020 - 19 June 2020
Dear Inventors and Investors, With Quadruple-witching gone we have won. Gold returned to 1743 per ounce and WTI/Brent narrowed to US$40 per barrel territory, still 25% down the level that fully balances month-over-month Azerbaijan state budget. Weekly Recap: Monday - the National Salvation Day - Baku City readies for 1Y-maturity discount bond auction by the Ministry of Finance the following day through the Baku Stock Exchange (the "BSE") Tuesday - our order book gets filled completely at 8.00% YTM and all bids submitted are successful, the total value of entire auction at US$17Mn Wednesday - British Petroleum publishes 2019 annual report indicating 33% natural gas recoverable reserves spike at the Shah Deniz II gas & condensate block in the Caspian Sea off the BAKU City Absheron Peninsula Thursday - OPEC+ joint ministerial monitoring council (the "JMMC") meeting co-chaired by Russian Minister of Energy Alexander Novak confirms supply-cut truce amongst OPEC founding members and the Sovereign Wealth (Oil-)Funds, extending beyond July reductions in oil production Friday - Market close in New York confirms adequate demand-side effects of the novel corona-virus being already discounted in both spot deliveries and by major oil futures contracts: West Texas, Brent, Urals, nonetheless leaving Shanghai International Energy Exchange crude contracts relatively illiquid With Oil demand recovery on track, as well as proper hygiene and etiquette at the Oilfund.az, we do not see any far-reaching moves, such as the strategic investment by Mr. Zafer Sonmez (Turkey Wealth Fund CEO, the "TVF") into Turkcell to get the control of the Board with the goal to gain access to digital technology. Oilfund.az (the "SOFAZ") also realises the strategy parallel to Turkey's TVF.com.tr: 1. Addressing the current account deficit in the non-Oil sectors, 2. Safeguarding savings of peaceful inhabitants; ... in a very safe, conscientious and conscious matter - the principles that guide us, as the beneficiaries, to gravitate into Azerbaijani Oilfund's strategic incentives. `Most importantly - the sign-posts for a secure entry into the new market are precisely laid out for You. Willing to follow our path? Ping us for more. Feel free to ask questions directly. Not considered investment advice as your R.O.I.'s may fluctuate - historic returns are not reflective of future earning estimates. Proceed with caution and assess risks investing in Frontier Markets.
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In-line with our "Bona fide" principle, please do not panic and do not engage in excessive day-trading or un-informed bets on the shape of the yield curve ahead of clear forward-guidance & yield-curve-control characteristics in the U.S.A. Following the experience of fruitful long-term partnership between Governor Kuroda-San and PM Abe-San, we ask you to sit tight on the sidelines and join our structure. It won't take 4 lost decades to realise a profit, however we would like to welcome you as investors with proclivity to think ahead in Centuries, enabling to escape the on-going "cash flow recession" with hard-earned savings, as many of you did during the "balance-sheet recession" of 2007-09 (see: The Holy Grail of Macroeconomics, Richard Koo, the Nomura Institute).
As the equity deep-buying ride spikes up the VIX to around 40 levels, the only benefactors are large option writers who can barbell the market in a macro non-directional trading. Front-end, back-end or the 5.3/4 belly of the U.S. Treasuries curve are tradable only when inflation is well-understood. We do not have the clue what inflation expectations are and whether the Taylor rule is working at all right after NBER changes the definition of a recession. Nor we can count on proven rational-expectations principles during the protests storming around America starting with the Tulsa rally. Stay at home, be safe, capitalise on your savings and let us do our job in sunny Azerbaijan, a friendly country of calm people. The country that goes to war with nobody uninvited; Ilham Aliyev being a friend to both Vladimir Vladimirovich, Mr. Trump, as well as other major players in the Middle East, always receiving a complimentary gift from Queen Elizabeth the II on the Republic Day. Our traders in the BAKU City remain calm, cool and collected welcoming the widening spread between Brent (ICE-London) and WTI (NYMEX), as well as the "crack spread" (see: refining process), profiting from positioning as patrons of vertically-integrated E&P to downstream groups. Since we have skin in the game, we do as we tell you as we test the Caspian Sea waters and keep improving incrementally to enable compounding effects in our activities. While most-passive investors in Azerbaijani corporate dollar-denominated debt are looking to capitalise on capital gains before collecting quarterly coupons, we have already made a giant leap forward ("the Leap"). We are aligned with local banks while buying manat-denominated Treasuries, utilising the Number One position as respected European investors, able to lock the yields on par with elite regional hegemons. We do not please ourselves with such lofty statements, it's the perception of the Market that plays in our favour. Come and join. Do not forget to brace for impact or you may land either on the oil-rig, or one of the Baku finest golf courses, as the SOCAR Grand Prix is cancelled by the Formula One. It is going to be a wild ride on a convex curve all the way up the Baku Flame Towers, unless we show you where the natural gas was first discovered by the Nobel family. (for more quantitative research, glance through the market dailies we publish throughout the week - indicate you request by writing our CIO directly on Alex(at)FrontCo.pl) Feel free to ask questions directly. Not considered investment advice as your R.O.I.'s may fluctuate - historic returns are not reflective of future earning estimates. Proceed with caution and assess risks investing in Frontier Markets.
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Dear Inventors and Investors,
Post-POTUS run-of-the-mill victory-swing alongside Mr Steven Mnuchin, touching bases of stimulus-spending, as well as moderately-positive job's report, the London Rates Desk has slightly less-rosy outlook for us. Fortunately, we had Larry Kudlow explaining mid-April epidemic struggle, which corresponds to a successful, just-in-time Frontera EM's portfolio rebalancing process starting in the late March. Have a look on the front-end of the steepening yield-curve through 2-10s spread, wink on the stop-and-go duration, fix your smart and savvy eyes on convexity, ride the yield-curve backwards. From the dynamic cash-flow perspective, there is a sign of a run on the U.S. long-term outlook to position our focus on quick V-shape gain in equities, forcing us to turn a blind eye on a beautifully-proclaimed equality in the POTUS speech. Is the situation as good as pictured in the White House Rose Garden up-beat speech? We would all love to hope so, as we all hold the policy of never betting on the moral hazard. If you happen to struggle under lock-down in California, the anti-Minsky moment is just around the corner. We strongly advise the Broad Beach Bankers Group to focus on 2Y base-line strategy in case of proclivity in global economic recession (APAC & Europe). Regarding the worst-case, price in the what-if of the second wave of the sneaky malaise, as it may drive the most-transparent economies around the World into the 4Y socio-economic decay. Our advice is to look on theta as the stress test, while black pools may sit on the sidelines laughing upon the less-fortunate with delta and gamma models, enjoying the CBOE/CBOT and VIX (iTraxx) options-arbitrage opportunities. We sincerely hope it is not the issue in the most transparent market of the Number-One Economy in the World in terms of PPS per capita GDP in real terms, in line with the highest velocity of money, ensuring transparency and faith in the U.S. $ deflator data-sets. In the London-desk opinion, this is the precise time to look back into the First-to-Default model and Survival-Time Correlations, for which we internally lack adequate man-power, yet. Not an easy task in the zero-sum World with finite resources of time, however ORC Advisors "Research Division" are here to help with out-of-the box ad-hoc solutions. Ride the curve elsewhere, pre-empt the late-movers and surprise yourselves before the market wakes up over-surprised, ready to join the game and take over, then overtake. In the BAKU CITY information surfaced Monday post-market hours that Tuesday T-bond auction is cancelled along the entire curve, including our access as the early-movers. Not-so-hidden State-guardian, i.e. OILFUND.az took away all the burden of sterilising the Azeri New Manat "M2 money supply" and did their job peacefully, while Russia lagged waiting for the prospective decision to cut the fed-funds' base "discount window" rate to 3.5% due to plausible weekly action on MOEX.com and stronger Russian Ruble (FX: USDRUBx rubble revaluation dynamics while China devalued the renmibi, confirmed in Ozzie-Yen up-tick). On Wednesday we took fast, decisive action to seize the opportunity we have positioned ourselves for since April portfolio rebalancing and locked the most plausible 2Y+ (840D) T-note yield on the secondary market at 8.50% through the strong OTC position of our primary dealership network. Frontera Emerging Markets is happy to inform Broad Beach Capital LLC that our joint strategy of studying the Norwegian "Oljefondet" is the way to go also in Azerbaijan. Further down the week back-end, the dynamics in Azerbaijani Capital City BAKU, enabled local Merchant Bankers to focus on strategic joint ventures and private-equity deals starting off since Thursday, incl. securing the Water Supply in the hot, yet humid region (See incumbent President Ilham Aliyev strategic fresh-ink action in Terter region: https://ona.az/en/sosi%CC%87al/azn-147-million-allocated-to-azerbaijans-land-reclamation-and-water-management-ojsc-14452, Source: ONA News Agency). Stay tuned for hands-on, no-holds-barred reporting next week and recharge your batteries the coming weekend. Sleep, nutrition and sport is the immunologic system. Come back healthier, as more action is expected in the "Land of Fire", brough to you by Frontera Emerging Markets and our Strategic Partnerships around the globe. |