Close to the bottom

The dramatic equity pricing gyrations, the spike of VIX (briefly broke 30 intraday on 7/15) and heavy trading volumes on Friday just might be the early signs that the market is inching closer and closer to the near term bottom, if not the bottom, many have been waiting for or expecting in the last few months. If there is any bright spot in this seemingly dismal markets from a contrarian perspective, then looking no further than the equity futures markets.

Even the market looks and feels horrific, the smart money has significantly reduced the bets on declining S&P500. This Thursday's (7/10) release of the exchange short interests shows that short sales on both NYSE and NASD declined in the late June. And most importantly in the futures market, the non-commercial users, or so-called speculators, have significantly increased their wagers on the S&P 500 turn around, at least in the near term. The speculators have maintained net long positions on S&P500 index since 6/24 for 2nd consecutive weeks. In the latest CFTC filings, speculators have increased net long positions from 5,320 to 17,372 contracts. The last time that the speculators were in net long positions on SPX is exactly 13 months ago, 5/22/07 (see attached chart, the red line represents the weekly historical SPX closing price and shade column is speculators' SPX futures net positions).

Chaos creates opportunities and 24/7 real-time media and "marketing" certainly make any good news a great news and bad news would be close to the end of world. It can not get any better than this.

Michael Masters - The Commodity Speculator Crusher?

Michael Masters , the hedge fund (Masters Capital Management LLC .) manager, made some headlines in the Hill and markets for his champions that speculators cause skyrocket high prices for commodities from agricultural grains to metal zinc. Media has raised the questions regarding Mr. Masters's motive because of his investments concentration in transportation. I pull out the his q2 13F regulatory filings via Bloomberg (see the chart below from Bloomberg ), it is interesting to note that he increased weights on industries and utilities, two sectors by 6.1% and 5.8% respectively over 1st q this year. Not surprisingly, two of his top 5 holdings, Delta and US Ariways , make up 33% portfolio. During the quarter, US Airways positions were increased from 2 millions to 4 millions shares, and Delta was almost double the positions too (from 1.05 to 2 millions shares.) I guess the pain must be unbearable when the benchmark crude rocked to over $140 from less than $100 during the quarter. Cer

MBS spread widen at historical levels

The turmoils at FNM and FRE created great anxieties and opportunities for both equities and debt TRADERS. The newly passed housing rescued packages by the Congress and signed the President essentially changed the "implied" to "explicit" US government backings on both quasi agency's outstanding debts. Their spreads to US treasuries have tightened in last few weeks. However, the most liquid 15 yr and 30 yr fixed MBS from Freddie and Fannie were under great pressures in last few days. Using 10 yr swap rate as benchmark, FNCI (15 yr Fannie MBS TBA) was priced to 5.50% with spread of 78 bps, that was 4 times of historical 10 year average (see the first chart). FNCI was traded at the cheapest level since 1998. The 78 bp spread to the swap was about four sigmas of the mean. FNCL (30 yr Fannie MBS TBA) was also trade at the lowest level that we have not seen in the last decade (second chart). Comparing to other investment alternatives, current fixed MBS prov

Speculators still negative on crude oil

Speculators held net short positions first time last week since March, 2006. According to this Friday's CFTC data, speculators were still leaning on the bearish side in crude futures markets. The speculator's overall positions were net short of 660 contracts (see chart below). The chart shows that speculator's long (green line) and short (red line) positions as well as light crude futures prices (shaded column) since Jan/06. Speculators build the second highest long positions (263,300 contracts) two months ago (5/13), just 1,000 shy from the all-time high (264,400) reached exactly 1 year ago (7/310/7). However, the long positions never broke out above 264,500 even though crude reached all time high of above $147 in early July. In fact, speculator's sentiment became bearish (or most likely locking-in gains and off to summer vacation) since reached the second highest level and began to close out their long positions and accumulated short position bets about 2-3 months a

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