ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Tuesday, March 03, 2009


correlation changes

noted in barron's and macro man and zero hedge last week -- and again by zero hedge in yesterday's aftermath -- a number of correlations which dominated the first part of the crisis are breaking down, most motably the carry trade unwind that rocketed the yen as equities collapsed.

A reversal of the yen, from strength to weakness, will have "major global implications," according to [SocGen strategist Albert] Edwards. Perhaps beleaguered Japanese authorities already have begun reacting to the "carnage" the yen's rise has wrought. There is no better time to intervene than when a trend is beginning to reverse, he adds.

The "huge global consequence" of a slide in the yen to properly reflect Japan's dreadful fundamentals, Edwards concludes, is that "pressure for a Chinese devaluation will surely rise to the breaking point."

maybe it is BoJ intervention, and maybe it is what frank veneroso was talking about. in either case, periods of shifting correlatives often are marked by difficulty as repositioning by levered players has to be rapid and ruthless. witness the break in oil back in july2008. it's best just to be out of the way in such periods until a tradeable paradigm is re-established. macro man:

Now, Macro Man isn't sure what all of this means, other than that he has to be very, very wary of other correlation breakdowns, which could potentially submarine a previously smoothly-running portfolio mix. Correlation breakdowns are among the most difficult and frustrating things to trade from an established book of positions, so Macro Man is trying to keep an especially close eye on his assumptions...which will hopefully save him another frustrating March.

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