Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Macroeconomics

Australia's December quarter CPI confirms that inflation remains benign and that the inflation outlook does not pose an obstacle to further monetary stimulus.  The RBA's preferred measures of underlying inflation increased by 0.5%-0.6% during the quarter and are now around 2% higher than a year ago, which is at the bottom end of the RBA's target range of 2%-3%.  The disinflation in the underlying measures has persisted now for around two years (see chart).<figure class="editor-figure"><img src="https://static-prod.smartkarma.com/images/media/000/005/237/original/CPI-20160127-Underlying.jpg?1453856005" class="editor-image img-responsive" data-smartkarma-image-id="5237"></figure>The 10% plus depreciation of the…

Australia's December quarter CPI confirms that inflation remains benign and that the inflation outlook does not pose an obstacle to further monetary stimulus.  The RBA's preferred measures of underlying inflation increased by 0.5%-0.6% during the quarter and are now around 2% higher than a year ago, which is at the bottom end of the RBA's target range of 2%-3%.  The disinflation in the underlying measures has persisted now for around two years (see chart).The 10% plus depreciation of the…

Tame CPI Data and Market Volatility Unlikely to Sway the Reluctant Rate Cutter

FX Strategist

Greg Gibbs

Fundamental analysis of topical themes in FX

Amplifying Global FX Capital

Amplifying Global FX Capital was founded in 2015 and is fully owned by Greg Gibbs. It is a registered company both in Australia and Colorado, USA and is a licensed in Australia to provide financial services.

We are producing a regular trading view orientated macroeconomic analysis of topical themes in global financial markets, with a particular focus on foreign exchange. We invite you to view an “executive summary” of these reports in “AmpGFX Reports” under our “Research” menu.

These reports are drawn from the analysis of Greg Gibbs and inform the capital management he undertakes on behalf of the company. The trading performance is posted periodically on our website. We aim to build our company into both a research and capital management business. We are currently in the planning phase for managing capital for wholesale customers.

Greg Gibbs has spent his working life of more than 26 years in financial markets, beginning in 1989 at the Reserve Bank of Australia, after completing a Bachelor of Economics Degree (Honours) at the Australian National University. He has been a CFA Charterholder since 2005. He has worked in Sydney, Singapore, New York and London for major global banks and presented on foreign exchange markets to major financial institutions and companies around the world, and maintained a high profile in the financial media.

Before Amplifying Global FX Capital, Greg was the Head of Asia Pacific Market Strategy at the Royal Bank of Scotland based Singapore. He now resides in Breckenridge Colorado.

Oil has plunged further this year, adding to the weaker trend since November last year.  Many analysts are now arguing that this is not sustainable, but the supply over-hang is severe and unlikely to be resolved for a long time.  Broader commodity prices have also fallen to new long-term lows; outside of the 2008/09 GFC, industrial metals and agricultural indices are at their lows since the first half of the 2000s.  Weaker commodity prices are contributing to higher global risk premiums.  US corporate IG CDS has widened further than the peak at end-Sep last year, to a wide since 2012.  The USD/CAD has risen sharply recently, remaining highly correlated with oil prices.  However, compared to oil prices, the trade balance and economic growth momentum, CAD does not look cheap.  AUD also looks vulnerable, especially if Chinese trade data reveal further weakness in commodity demand and the recent ebbing in Australia’s growth momentum extends to the Australian labour market report.

Oil has plunged further this year, adding to the weaker trend since November last year.  Many analysts are now arguing that this is not sustainable, but the supply over-hang is severe and unlikely to be resolved for a long time.  Broader commodity prices have also fallen to new long-term lows; outside of the 2008/09 GFC, industrial metals and agricultural indices are at their lows since the first half of the 2000s.  Weaker commodity prices are contributing to higher global risk premiums.  US corporate IG CDS has widened further than the peak at end-Sep last year, to a wide since 2012.  The USD/CAD has risen sharply recently, remaining highly correlated with oil prices.  However, compared to oil prices, the trade balance and economic growth momentum, CAD does not look cheap.  AUD also looks vulnerable, especially if Chinese trade data reveal further weakness in commodity demand and the recent ebbing in Australia’s growth momentum extends to the Australian labour market report.

$CAD Is Still Not Cheap Vs Oil, Trade Balance and Economic Activity

Despite another bad day on the Chinese stock market on Monday, China used its currency fix, jawboning and possibly intervention to calm volatility in the CNY exchange rate.  This provided some calm to global markets.  A statement by a PBoC official discussing CNY policy appealed for calm but also highlighted a more flexible approach to currency management.  Below we look at the parallels with the Australian experience in the late 1970s and early 1980s as it moved from a peg to the USD to a crawling peg guided by its trade-weighted index and market forces, and eventually to a floating regime in 1983.  Financial and capital control deregulation go hand in hand and once started create their own-momentum.  China’s policy actions over recent years have illustrated this self-perpetuating catalytic effect.  China is likely to continue its reform process and experiment with increasing currency flexibility over coming years, even if at times it may appear to take backward steps to cool depreciation pressure and calm its own and global financial markets. While this is a sensible policy to put the economy on a path to longer term stability, in the meantime it is likely to add to global market uncertainty and a weaker growth path for China.

Despite another bad day on the Chinese stock market on Monday, China used its currency fix, jawboning and possibly intervention to calm volatility in the CNY exchange rate.  This provided some calm to global markets.  A statement by a PBoC official discussing CNY policy appealed for calm but also highlighted a more flexible approach to currency management.  Below we look at the parallels with the Australian experience in the late 1970s and early 1980s as it moved from a peg to the USD to a crawling peg guided by its trade-weighted index and market forces, and eventually to a floating regime in 1983.  Financial and capital control deregulation go hand in hand and once started create their own-momentum.  China’s policy actions over recent years have illustrated this self-perpetuating catalytic effect.  China is likely to continue its reform process and experiment with increasing currency flexibility over coming years, even if at times it may appear to take backward steps to cool depreciation pressure and calm its own and global financial markets. While this is a sensible policy to put the economy on a path to longer term stability, in the meantime it is likely to add to global market uncertainty and a weaker growth path for China.

Parallels with China's Currency Regime and Australia Before the AUD Float in 1983

Thematic (Sector/Industry)

<ul><li>Drawing on the burgeoning field of behavioural finance, this post investigates the behavioural trap of over-confidence and suggests ways in which portfolio managers can reduce the prevalence and costs associated with over-confidence. </li><li>Researchers have explored the effects of over-confidence in financial market settings and discovered that over-confidence hurts portfolio performance.  Over-confident individuals tend to trade more on their signals and incur higher trading costs.  Indeed, female portfolio managers have been found to have superior track records than their male counterparts thanks to lower churning of their portfolios because they are less prone to suffering from over-confidence. </li><li>The literature on over-confidence in financial markets suggests that PMs ought to be more humble and trade less. Even when investors believe that they have access to superior information, they should be cognisant of the limits and costs to arbitrage, which can cause mispricing to persist for an extended time.  Heads of equities should encourage a collaborative and collegiate team environment, while PMs should document their views rigorously in real time, to ensure that over-confidence does not also morph into hindsight bias.</li></ul>

Drawing on the burgeoning field of behavioural finance, this post investigates the behavioural trap of over-confidence and suggests ways in which portfolio managers can reduce the prevalence and costs associated with over-confidence. Researchers have explored the effects of over-confidence in financial market settings and discovered that over-confidence hurts portfolio performance.  Over-confident individuals tend to trade more on their signals and incur higher trading costs.  Indeed, female portfolio managers have been found to have superior track records than their male counterparts thanks to lower churning of their portfolios because they are less prone to suffering from over-confidence. The literature on over-confidence in financial markets suggests that PMs ought to be more humble and trade less. Even when investors believe that they have access to superior information, they should be cognisant of the limits and costs to arbitrage, which can cause mispricing to persist for an extended time.  Heads of equities should encourage a collaborative and collegiate team environment, while PMs should document their views rigorously in real time, to ensure that over-confidence does not also morph into hindsight bias.

Behavioural Traps for Active Funds: In Praise of Humbleness

Equity Bottom-Up

iShares MSCI Australia / Equity Bottom-Up

<ul><li>In May, I published a report citing recent journal literature that sought to decompose Buffett&rsquo;s Alpha.&nbsp; The authors attribute Warren Buffett&rsquo;s long track record of strong returns not to luck but to reward for leveraged exposure to safe or low beta, quality stocks that are cheap.&nbsp; I applied these principles to the ASX200 stocks and constructed long and short portfolios of around ten stocks each.</li><li>Given the passage of over six months since the initial&nbsp;report was published, this note is designed to report on the performance of the two portfolios as well as expand and update Mr Buffett&rsquo;s investment methodology as applied to the ASX200 stocks.&nbsp;&nbsp;The strategy has been impressive,&nbsp;with the long portfolio yielding an equal weighted return of around 3%, well above the ASX200 (-10%) and short portfolio (-20%).&nbsp; Thus the strategy has produced a long-short return of +23%.</li><li>Evidente has made a number of enhancements to the methodology, including the addition of a market sentiment measure to assist with market timing.&nbsp; The updated&nbsp;long portfolio represents a diverse mix of sectors while energy stocks&nbsp;are still&nbsp;dominate&nbsp;the short portfolio.&nbsp; Thus the key macro risk for the shorts&nbsp;is&nbsp;the prospect of renewed strength in&nbsp;global oil prices in 2016.&nbsp;&nbsp;</li></ul>

In May, I published a report citing recent journal literature that sought to decompose Buffett&rsquo;s Alpha.&nbsp; The authors attribute Warren Buffett&rsquo;s long track record of strong returns not to luck but to reward for leveraged exposure to safe or low beta, quality stocks that are cheap.&nbsp; I applied these principles to the ASX200 stocks and constructed long and short portfolios of around ten stocks each.Given the passage of over six months since the initial&nbsp;report was published, this note is designed to report on the performance of the two portfolios as well as expand and update Mr Buffett&rsquo;s investment methodology as applied to the ASX200 stocks.&nbsp;&nbsp;The strategy has been impressive,&nbsp;with the long portfolio yielding an equal weighted return of around 3%, well above the ASX200 (-10%) and short portfolio (-20%).&nbsp; Thus the strategy has produced a long-short return of +23%.Evidente has made a number of enhancements to the methodology, including the addition of a market sentiment measure to assist with market timing.&nbsp; The updated&nbsp;long portfolio represents a diverse mix of sectors while energy stocks&nbsp;are still&nbsp;dominate&nbsp;the short portfolio.&nbsp; Thus the key macro risk for the shorts&nbsp;is&nbsp;the prospect of renewed strength in&nbsp;global oil prices in 2016.&nbsp;&nbsp;

Lifting The Lid On Warren Buffett's Investment Secrets (Update)

Australia

iShares MSCI Australia ETF is an exchange-traded fund incorporated in the USA. The ETF tracks the performance of the MSCI Australia Index. The ETF holds predominantly large-cap stocks from Australian companies. The ETF weights the holdings using a market capitalization methodology and rebalances quarterly.

iShares MSCI Australia (EWA US)

Tame CPI Data and Market Volatility Unlikely to Sway the Reluctant Rate Cutter

Australia's December quarter CPI confirms that inflation remains benign and that the inflation outlook does not pose an obstacle to further...

Sam Ferraro

$CAD Is Still Not Cheap Vs Oil, Trade Balance and Economic Activity

Oil has plunged further this year, adding to the weaker trend since November last year. Many analysts are now arguing that this is not...

Greg Gibbs

Parallels with China's Currency Regime and Australia Before the AUD Float in 1983

Despite another bad day on the Chinese stock market on Monday, China used its currency fix, jawboning and possibly intervention to calm volatility...

Greg Gibbs

Behavioural Traps for Active Funds: In Praise of Humbleness

Drawing on the burgeoning field of behavioural finance, this post investigates the behavioural trap of over-confidence and suggests ways in...

Sam Ferraro

Lifting The Lid On Warren Buffett's Investment Secrets (Update)

In May, I published a report citing recent journal literature that sought to decompose Buffett’s Alpha. The authors attribute Warren Buffett’s...

Sam Ferraro