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Current Market Opinions and Trading Ideas Victor Adair Senior Vice President Derivatives Portfolio M


Wait for bargains. Risk is another BIG leg down in asset prices. 2. Disclaimer ... Be cautious things have changed wait for bargains. ... – PowerPoint PPT presentation

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Title: Current Market Opinions and Trading Ideas Victor Adair Senior Vice President Derivatives Portfolio M

Current Market Opinions and Trading Ideas Victor
Adair Senior Vice President / Derivatives
Portfolio Manager MF Global Canada Co.
  • Vancouver Resource Investment Conference
  • January 26, 2009
  • .

Program Outline
  • Current Market Opinions
  • How I Trade / Manage Risk
  • Current Trading Ideas
  • What I am Doing With My Own Money Cautious.
    Savings. Trading. Income. In cash too early. No
    leverage. Wait for bargains. Risk is another BIG
    leg down in asset prices.

  • This presentation is for information purposes
  • Trading derivatives (futures, options, foreign
    exchange) involves risk of loss
  • Investments can go up as well as down and involve
    the risk of loss
  • Past performance will not necessarily be repeated
    in the future
  • MF Global Canada Co. is a member of the
  • Investment Dealers Association
  • Canadian Investor Protection Fund
  • Toronto Stock Exchange
  • Montreal Exchange
  • Winnipeg Commodity Exchange

Macro Market Opinions
  • THEN
  • Credit Boom Asset Boom High Risk
  • Many years of low interest rates / easy money /
    rising asset prices fuelled a consumer spending
    boom and an attitude
  • Reaching for yield / dont want to be left behind
  • Borrowers and Lenders - pushed the envelope on
  • NOW
  • Lenders less willing or able to lend
  • Borrowers less willing or able to borrow
  • Risk being avoided not embraced
  • What effect will the Authorities actions have?

Macro Market Opinions
  • Asset price gains from 2001 to 2007 were
    extraordinary not normal
  • Buy and hold is not good advice
  • Throw away your previous ideas about valuations
    and risk this is a different world
  • Dont buy something today because it is ½ price
    compared to what it used to be
  • Inflation is history for now deflation is the
    worry for now
  • Inflation will come back
  • Be prepared for a lot more government in your
  • Stress whats the next shoe to drop?
  • Something BIG will break…Euro? Country default?

Macro Market Opinions
  • Real estate prices will continue to soften
  • Unemployment will rise
  • Previous economic growth came from rising
    consumption based on rising asset prices,
    borrowed money and leverage. Thats over.
  • Expect a L shaped economy
  • Expect real interest rates to rise
  • Financial markets will have relief rallies but
    a weak real economy will keep a lid on gains
  • Demographics Boomers will try to save more,
    spend less
  • China the risks grow

Marco Market Opinions
  • Commodities bull market is over until the last
    Johnny-come-lately bull throws in the towel and
    promises to never return. Speculators fuelled
    most of the 2002- 2008 price increase
  • Currencies incredible barometers of capital
    flows 40 declines - will the Euro hold US
    wins the least ugly contest
  • Stocks a slow-motion (and sometimes not-so-slow)
  • Bonds great battle ahead…Supply Vs. Demand
  • Volatility new highs as a result of stress
    opportunity. Learn option writing strategies

Macro Market Opinions
  • Inflation / Deflation?
  • Credit crisis induced recession deflationary
  • Monetary reaction inflationary
  • Credit tightness deflationary
  • Fiscal action bigger budget deficits
  • Rising unemployment deflationary
  • Demographic trends in West deflationary
  • Rising US deflationary
  • Weakness in global economy deflationary
  • Competitive currency devaluations inflationary

Macro Market Opinions (Cont.)
  • We are all currency speculators now
  • 6 years of US weakness 6 years (2002-2008) of
    commodity gains
  • Currency trends overshoot and make V shaped
  • Currency flows are now from risky to less risky
    from the periphery to the center - as the market
    seeks to avoid risk
  • The US is the least ugly
  • Years of miss-matched currency assets /
    liabilities will be reversed
  • European banks with massive (and bad!) emerging
    market loans
  • Watch the lesser currency pairs

How I trade
  • I develop Global macro opinions
  • I may be100 in cash or up to 4x leverage
  • I read a lot of different research to form my opinions
  • Im not a day trader but I watch the markets all
  • Opinions necessary (you have to have the
    courage of your convictions) and dangerous (you
    have to give up quickly when proven wrong)
  • I try to anticipate a trade before it is time to
    make the trade then Im ready when its time to
    pull the trigger
  • I need a technical confirmation that my opinion
    may be right before I execute

How I trade (cont.)
  • I trade like a mercenary (Dennis Gartman) when
    markets change I change
  • I challenge consensus what if the popular
    idea is wrong, has run its course?
  • I try to judge the mass psychology who has a
    weak / strong position in the market?
  • Changing psychology not math moves markets
  • All markets are spreads try to think like a
    spread trader what is X worth relative to Y?
  • Markets are inter-related but relationships
  • Options Current I.V. relative to history - Use
    alone or in combination with futures

Managing Risk
  • I know practically nothing and cannot predict the
  • Most likely risk my opinion is wrong
  • Anything can happen
  • Patience sitting in cash is OK
  • Add to winners, never add to losers
  • I know where I will get out (if Im wrong) before
    I get in
  • Write down my reasons

Managing Risk (cont.)
  • Max loss 1 2 per trade / use low leverage
  • Accept that most of my trades may lose money
  • No big losses, occasional big wins
  • Relationships between markets change, but markets
    always influence one another
  • Be aware of my prejudices foundation of all
  • Without risk management the road to the Poorhouse
    is paved with fine opinions
  • See How To Be A Better Trader

Options trading ideas
  • Option volatility is extremely high. Learn option
    selling (writing) strategies
  • 1) you like a stock/commodity at todays price.
    Write a put option on it, collect the premium. If
    you get put you own the stock/commodity at a
    better price, if you dont get put you keep the
    premium. Repeat.
  • 2) you like a stock/commodity at todays price.
    Buy it and write a call against it. if you dont
    get called you own the stock/commodity at a
    better price, if you get called you make a short
    term profit. Repeat.
  • 3) Write both calls and puts at the same time
    look for the market to trade sideways. Repeat.

Falling Interest Rates Helped Boost Asset Prices
Dow Jones Industrials Stock Index (Falling
Interest Rates Helped Boost The Stock Market)
Average US Real Estate Prices (Falling Interest
Rates Helped Boost Real Estate Prices)
US Dollar Index not always a bear market!
Commodity Index 6 years of a bear market in US
6 years of a bull market in commodities until
Summer 2008!
Commodity Index Vs. US Dollar Index
Euro Currency Vs. US A Major Turn?
US Dollar Index Psychology was extremely negative
Euro Vs. Japanese Yen Risk thermometer, week to
week ups and downs very similar to ups and downs
of G7 stock markets
New Zealand Dollar Vs. Japanese Yen another risk
Canadian Dollar and Commodity Index
Gold / Crude Oil At least a 25 year low this
past summer all markets are spreads. What is X
worth in terms of Y?
Copper Does copper have a Phd in economics?
Base metals have been weak (no kidding!!) lately
(Speculators exit stage left??)
Crude Oil Did Investors pile into the energy
markets? Did rising global demand account for a
tripling of prices in 18 months?
Corn global demand for better food, ethanol,
funds prices hit all time high prices what
changed to cause prices to fall 50?
Deere Company Another way for the public to
play the Agricultural boom Yikes!!
Potash Corp of Saskatchewan WOW!!
Philly Bank Share Index started to fall from all
time highs before the credit crisis became
front page news
Philly Housing Sector Index The top was made
well before the problems of the US housing market
became front page news
Starbucks Is the consumer cutting back on
non-essentials? Duh!!
Harley-Davidson Necessities not Accessories
Vix CBOE Volatility Index Ultra-high option
volatility creates new trading opportunities
Chicago Mercantile Exchange it was a triple
play on rising stocks, commodities and exchanges
what happened?
  • The Credit Boom produced an Asset Boom a great
    Appetite for Risk This fuelled a Global
    Economic Boom driven by Consumer Spending the
    markets are now reversing this trade!
  • Big Risk another major leg down in asset prices
  • How I trade / manage risks
  • Ultra-high option volatility creates
    opportunities to write options
  • Markets I am watching now looking for trading
  • Be cautious things have changed wait for