Conviction Index

I published those 10 views in no particular order, except that I started with BitCoin which is de facto my strongest conviction call.

However, I did feel the need to rank them - partly because I wanted to take positions based on the views and to scale the size according to the strength of my view where feasible.

So - here goes:

Rank1 -- Short BitCoin
Rank2 -- Short Euro
Rank3 -- Short Russia
Rank4 -- Short Government bonds
Rank5 -- Euro Crisis
Rank6 -- Credit widening
Rank7 -- Short stocks
Rank8 -- Short Gold
Rank9 -- Short London Property
Rank10 -- Wide ranges in Oil

#10 - Credit overdue

#10 - Credit Crisis

I find the current price of credit assets to be untenable.  The extent of recovery from the 2007/09 crisis is remarkable and although I understand the reasons why everyone is chasing yield, of course I think it will end in tears.

Call - Credit crisis
Prediction - Widening, increase in downgrades and defaults.  ITX Europe to widen above 100
Trade - Difficult to execute
Conviction - Medium
Feasibility - Low

#9 - Russia Default

#9 - Russia Default

When the pressure started to ratchet up on Russia during 2104 -- Oil, sanctions, conflict risk etc. I was surprised at how resilient the markets were.

Then - in December - the Rouble cracked and I fully expected that move to intensify into a 1998-style crisis.  Somehow, the momentum was halted but my view is that this was a temporary reprieve.

I would expect to see renewed pressure on Russia show up in the currency, bonds, equities and the sovereign rating.  I also expect real difficulties for the nearby states. 


Call - Russian crisis
Prediction - Russia downgrade below Investment Grade; 2028 12.75% Eurobond below par; Rouble to fall to $=RUB100
Trade -Sell Rouble vs USD
Conviction - High
Feasibility - High

#8 - EUREXIT

#8 - Euro Crisis to Re-emerge

In the previous 2011 iteration of the Euro crisis, I firmly believed there would be at least one Euro exit. I did not think it was possible for a solution to be found.  I underestimated the political will to save the Euro.  I was clearly wrong.

This year, although I cannot point to a specific catalyst, I do expect the problem to re-emerge and I will continue to expect an exit or a breakup of some kind.  It is just a matter of time in my view, and I'll make the bold call that it could happen in 2015.

Again, I don't really accept that political will and "all it takes" devices are ultimately enough to make the Euro work.

Call - Euro Crisis
Prediction - GREXIT, with severe pressure on Italy etc and European banks
Trade - Sell Italy (e.g.) although best target is hard to pick
Conviction - Medium
Feasibility - Medium

#7 - Oil to stay on the boil

#7 - Wide Trading Ranges to Persist

I was surprised by the extent of the move in Oil in 2014.  Admittedly, once the slide got underway I was not surprised to see it continue: I always expect large moves to overshoot.

I wanted to express a view on oil for 2015 but I found myself conflicted.  On the one hand, I see no real reason why the pain couldn't continue and Oil could continue down to $25 (say).  After all, it has been at $10 in the not too distant past.

On the other hand, it has had a proper correction and I could see a strong rally.

I just don't have a fundamental view at all.  I have historically been of the view that oil is ultimately a 1-way bet upwards as supply eventually does go into terminal decline.  I am now doubting myself on this one : I am starting to believe that alternatives could emerge in a timeframe that allows oil not to ever run out.

So, the only thing I am willing to forecast is that really large trading ranges will persist.


Call - Volatile trading for oil
Prediction - High-Low range for Crude to exceed 50% (~$25)
Trade - difficult without use of options
Conviction - Medium
Feasibility - Low

#6 - Bond Bubble --> Pop !

#6 - Bond Bubble to Burst

I am clearly not alone in thinking that rates must rise ... soon.  I do, however, expect a more dramatic decline that the common expectation.  It seems to me that most forecasters believe that "it is different this time" and that the rise in rates can be carefully managed with minimal disruption.

Admittedly, not everyone think that: there are plenty of gloomy predictions of a messy unwind in the bond markets.  I would side with the most gloomy of those forecasts.

Essentially, echoing my concerns about central banks, I think it will be hard to keep controlling the bond markets and that at some point there will be a precipice moment.



Call - Major bond markets to sell off sharply
Prediction - US10 Year > 3%
Trade - Sell US10 or US30 or Bunds, Gilts etc
Conviction - High
Feasibility - High

#5 - Prime London Property Vulnerable

#5 - Prime central London property bubble to burst

I accept the case for property (indeed, for real assets in general) to some degree.  The same reasons that offer support for equities are valid for real estate.

I also can see the point about limited supply, and in the case of London I am very happy to go along with the case for the unique appeal of London.  I am not sure this view holds on a centuries-long perspective, and I do have qualms about leasehold ownership despite apparently being in a minority of one on this point.

But I am simply not comfortable with the rate of accelerated price growth that we have experienced, and I can't share the 1-way thinking that prevails.  Admittedly, I have been notably under-invested for a long, long time and I can justifiably be criticised for simply "talking my book".

Even so, I can't leave this one out of my list.  In terms of timing, I do think there is over-supply in the prime market which at the very least must take some time to absorb, and that must surely be facilitated by some price weakness.  Even prime central London can't defy all commercial logic all the time.


Call - Prime Central London property to fall in 2015
Prediction - Prices down 15%
Trade - problematic: no clear way to set up the short
Conviction - Medium
Feasibility - Low