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Crude oil has been trading range-bound for almost a year now, oscillating in a rough range between 100 and 120 $/bbl (Brent Crude front-month future, currently trading at 112 $/bbl). Despite that fact, volatility has been sticking to the mid 30s, as uncertainties pull the commodity one day up and the next one down. Hedge-funds have been whipsawed in this trend-less yet volatile environment. The forward curve is in backwardation, meaning that prices for earlier deliveries are higher than prices for later deliveries.

This constellation calls for a both conservative and high-potential investment solution: a deep barrier Bonus Certificate. Below is an example: Read the rest of this entry »

Central banks from all around the world have been printing money like there was no tomorrow for some time now. Whether it is for so-called quantitative easing, stimulating the economy or depreciating its currency to protect its exporters (in particular the USA and Switzerland), these institutions are inflating their balance sheets in exactly the opposite way they are telling the banks to reduce theirs.

Hence, the specter of inflation has returned to the mind of many an investor. Inflation adjusted yields in the USA are already strongly negative. The latest US Consumer Price Index (an index to measure inflation) was already at +3.4% year-to-year. Yet the one-year swap rate hovers around 1%, so the effective interest rate you get on your money is at -2.5%!  Do that for ten years and you will lose over 20% of your purchasing power. It’s not as bad in Europe, but with the sovereign crisis dragging on and on, it’s difficult to forecast anything on the old continent. Many investors would rather be protected against inflation, even if it ends up never showing up. Read the rest of this entry »

This is a structure that not many people like: Twin-Wins. Yet sometimes, when uncertainty has reached its peak, when an investor doesn’t know which way the markets will go, when an economist’s analysis becomes meaningless because all future developments hinge on the good(or bad-)will of a few politicians, when one might as well throw a coin in order to decide whether to go long or short, then the time is ripe for an investment that will perform well in all but the most dire market scenarios. Read the rest of this entry »

The Swiss National Bank has pegged the CHF against the EUR at a level of 1.20 and my previous blog (dated 8th of August) came back to haunt me.  Here’s why: after working on the product described in it, I fine-tuned it into a 2-year maturity term-sheet and launched a marketing campaign. With the mass-mailing system I had helped create and with the help of our client relationship managers, we sent out over a thousand letters to clients of the bank who would potentially be interested in a product with these features:

• Currency: CHF
• Capital guarantee: 95%
• Maturity: 2 years
• Payoff: 100% to the depreciation of the CHF against a currency basket composed of 40% EURCHF, 30% USDCHF, 20% GBPCHF and 10% JPYCHF

Result after two weeks of marketing (29th of august): the subscriptions were not high enough to issue the product. In other words, no one seemed to be interested. Still persuaded it was a good idea, I prolonged the subscription time for one more week, mailed, called and visited clients and relationship managers personally. Result after that week: not a centime worth of additional subscriptions. Disgusted, I cancelled the product. That was Monday the 5th of September 2011 at 15:45 and the EURCHF was trading at 1.1050. The morning of the next day, the SNB fixed the rate at 1.20. Talk about timing! The clients would have gained close to 10% overnight.

In the meantime, other banks have tried to issue similar products. On the 15th of August, ZKB tried to launch a similar, 1-year product as described above. Same basket, same weightings. Looks like somebody is reading my blogs, after all. Hello Guys!  I couldn’t find the issue in their database, though, so they must also have cancelled it because of low subscription volume. Otherwise, the product would be a good candidate for the next Swiss Derivative Awards. I recall a similar attempt by Julius Baer. On the 19th of August, that bank issued a 6-month, 94% capital guaranteed product on the EURCHF, the only one I have found in their database. At least someone managed to get this idea issued.

It looks like in these difficult market times, the clients are not easily convinced about any idea, as good as it may be. I discussed with some people and we even started to wonder whether it’s worthwhile to market anything at all until some form of stability returns. Well, we all concluded that we’d abide by the mantra “never, ever, give up!”

After all, no crisis has ever killed the market either.

At the time I write this, all major western market futures are down 5% or more for the day, the DAX Index being the worst hit with a minus of over 7%. Currencies fare no better, the Swiss Franc gaining (once more) over 2% against the Euro and 1.5% against the US Dollar. Pardon me the analogy, but it looks like the Swiss Franc has taken the role as the world’s only safe haven, becoming thus for many investors the wished-for alternative world reserve currency.  It’s quite incredible to note that this year, a USD or EUR based investor could have invested in Swiss stocks and practically incurred no loss, while an investor whose reference currency would have been the CHF would have lost over 20%. The debt crisis has raised the swings in the exchange rates to where stock volatility usually trades: EUR/CHF 30 day historical volatility is over 20% (!), where one year ago it quoted at 10% and 5 years ago at around 4%. Read the rest of this entry »

Wspaniała wiadomość! Książka “ Jak inwestować w produkty strukturyzowane” jest teraz dostępny w języku polskim!

Great News! The book “How to Invest in Structured Products” has been translated in polish!

Can be done, and not only with sugar or other strongly backwardated commodities. In these times of high foreign exchange volatility, there’s a structure that looks very attractive: the Shark Note. Read the rest of this entry »

Since the downfall of Lehman, the structured products industry has been plagued by the problem of the counterparty risk, which denotes the risk associated to the bankruptcy of the issuer an investor is exposed to when investing in a structured product. Indeed, a structured product is a security issued by a bank and as such, it ranks equal to common senior unsecured bonds of the same issuer. If the bank goes belly up, any structured product it issued will fall into the bankruptcy mass and lose most, if not all of its value. So how remote is the issuer risk on YOUR product?  how can you judge this risk? Read the rest of this entry »

Hello, long time no hear. Too much on my mind of late, so pretty few posts over the last months. Yet I’ll take a few minutes to write about the latest product we launched together with a large investment bank. It’s a 100% capital guaranteed product in Euro, based on a basket of currencies with a maturity of 2.5 years . The currencies are the Brazilian Real (BRL), the Australian Dollar (AUD), the Norwegian Krone (NOK) and the Canadian Dollar (abbreviated “BANC”), equally weighted against the Euro (EUR). It  doesn’t pay any regular coupon, but at maturity, if the basket has appreciated at least by a single pip (0.01%), then a digital coupon of 16% is paid. In addition, if the basket appreciates by more than 16%, the coupon amounts to 100% of the appreciation. If the basket has depreciated against the Euro, the product doesn’t pay any coupon and redeems at par (100%). Read the rest of this entry »

Libor Linked Deep Barrier Reverse Convertibles are financial products of the yield enhancement category similar to classic barrier reverse convertibles.  In July 2010, investment banks suddenly started to issue these products with a coupon linked to the LIBOR rate (London Inter Bank Offer Rate, the short-term interest rate) and with barriers often set at or below 50% of the current spot price of the underlying index or stock. The maturity was often set at three or four years, far longer than the usual twelve months. Read the rest of this entry »