Five Hundred Words 12/20/2018

Thursday, December 20, 2018

Daily Writing

 

Housekeeping

As I mentioned in a previous post I will be in China from December 25th to January 15th.  My intent is to continue updating the blog while I am there, but I cannot guarantee that I will be able to post every day.  One factor I cannot control is the quality of the internet connection.  I don’t plan on using a VPN, so if WordPress doesn’t function well in China, I’m going to be forced to deal with the consequences of that.  Even if I can’t post while I’m away I will continue writing and I’m sure I will have many stories to share by January 15th when I return.

 

 

Things I am thinking about today

  • Find software I can use to analyze my writing empirically (e.g., word usage rates, typing speed, etc.)
  • How can I keep track of major announcements made by the Chinese communist party?
  • What is the best way to map historical events into a framework?
  • For example, when Xi Jinping gives a new speech, how can I readily incorporate that information into my central China framework

 

 

Things I was thinking about yesterday

  • What key economic metrics am I overlooking?  Especially regarding China?
  • Chinese internal crisis of confidence.  Are Chinese elites losing faith in Xi?
  • The empty promises of Xi Jinping.  What promises specifically?  “Reform”?
  • The Federal reserve is scheduled to raise interest rates 0.25% today.  How will the market respond?
  • Where can we find opportunities in this environment?
  • What is ‘open interest’?
  • Why is it significant if LIBOR moves higher (or lower)?
  • How to improve my technical analysis?
  • How can I improve the structure of my days?

 

Trading Log

9:48 AM

Today I spent most of the day casually observing the market and listening to an audiobook by George Magnus titled Red Flags: Why Xi’s China is in Jeopardy.  It is an interesting book focused on understanding China’s current problems in 2018 while also examining the historical context behind China’s interests as a modern superpower.

Market Observations

I find it quite interesting how briefly the yield on the US 10-year stayed above 3.00%.  The idea that the Chinese were actively selling US treasuries in October and November doesn’t really seem that ridiculous.  I don’t understand bonds quite as well as I would like, but I’m having trouble understanding most asset classes in this market environment.

I’m also drawn to the rapidly declining yields of the Brazilian Government Bond.  What is the reason behind this?  In October the yield on the BGB was almost 11.00%, now it sits at 9.41% as accelerating downward.

Market Data

Resource Commodities

 

December 20, 2018

December 19, 2018

December 18, 2018

December 17, 2018

Gold Spot

NA

1249.00

1245.20

1238.10

Silver

NA

14.600

14.65

14.535

Platinum

NA

789.00

792.00

785.00

Copper

NA

2.6825

2.7040

2.7200

Crude (WTI)

NA

47.00

48.64

50.53

Global Government Bond Yields

 

December 20, 2018

December 19, 2018

December 18, 2018

December 17, 2018

US 10 year

2.79%

2.82%

2.85%

2.86%

US 30 Year

3.02%

3.06%

3.10%

3.12%

UK

1.26%

1.28%

1.28%

1.27%

Germany

0.23%

0.25%

0.24%

0.26%

Brazil

9.41%

9.56%

9.67%

9.67%

Italy

2.73%

2.78%

2.93%

2.95%

Japan

0.02%

0.02%

0.01%

0.02%

Major U.S. Indices

 

December 20, 2018

December 19, 2018

December 18, 2018

December 17, 2018

VIX

NA

25.15

24.68

22.36

DOW

NA

236.93

237.70

239.86

S&P 500

NA

255.18

257.19

259.39

NASDAQ

NA

6741.80

6812.51

6864.23

Currency Cross Rates

 

December 20, 2018

December 19, 2018

December 18, 2018

December 17, 2018

USD/JPY

NA

112.450

112.500

112.9200

EUR/USD

NA

1.1392

1.1369

1.1344

GBP/USD

NA

1.2628

1.2650

NA

AUD/USD

NA

0.7141

0.7175

0.7181

USD/MXN

NA

20.068

20.066

20.223

USD/CNY

NA

6.894

6.896

6.905

USD Index

NA

97.03

97.02

97.15

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Five Hundred Words 12/19/2018

Wednesday, December 19, 2018

Daily Writing

 

Things I’m thinking about

  • What key economic metrics am I overlooking?  Especially regarding China?
  • Chinese internal crisis of confidence.  Are Chinese elites losing faith in Xi?
  • The empty promises of Xi Jinping.  What promises specifically?  “Reform”?
  • The Federal reserve is scheduled to raise interest rates 0.25% today.  How will the market respond?
  • Where can we find opportunities in this environment?
  • What is ‘open interest’?
  • Why is it significant if LIBOR moves higher?
  • How to improve my technical analysis?
  • How can I improve the structure of my days?

 

Trading Log

9:48 AM

From a trading standpoint, shorting S&P Futures has been an effective strategy since the beginning of the month of December.  Today’s FOMC meeting will shed light on the Federal Reserve’s stance on interest rates moving into 2019.  Will the Fed hold off on raising rates next year if they feel global slowdown is becoming increasingly imminent?  We currently sit on 100% cash headed into the FOMC meeting today.

In yesterday’s letter we noted that it would be an historical aberration for the Fed to raise rates when the probability of a rate hike falls below 75.00%.

The entire trading day is being dictated by the outcome of the FOMC meeting.  We will know the Fed’s guidance for 2019 by 2:00 PM today.  At that time, we will also learn whether the Fed has opted to raise its overnight rate by another 0.25%.

2:13 PM

After the fed announced its rate hike at precisely 2:00 PM the market started to drop considerably.  The adage “buy the rumor, sell the news” seems especially appropriate in this case.  The SPY fell more than 1.00% following the release of the fed announcement.  The Fed also outlined its plans for 2019, and the message I took away from it was that they are just going to observe the market on a quarterly basis and make their decisions from there.  I can’t reiterate this enough that the Fed absolutely needs to get rates back up to at least 4.00% or 5.00% to have baseline ammunition to counter ever a moderate economic slowdown.

Market Observations

Why is the price of copper falling so drastically?

US Treasury yields continue to move lower, which is surprising considering how many bond bears there are out there.  The yields on the 10-year and 30-year US Treasuries are 2.82% and 3.06%, respectively.  Overall treasuries were stuck in a holding pattern today.

The major news today is the Fed’s 0.25% rate hike that many pundits view as dovish.  I find it unusual that the market is paying so much attention to this bit of news.  That fact alone tells me that the market may not be healthy.  The market is desperately struggling to eke out whatever good news they can find.  Our view is that the Fed must find a way to bring rates back to a normal level that can sustain the next downturn.  If we are currently in the next downturn then we could be in big trouble.

Market Data

Resource Commodities

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

Gold Spot

1249.00

1245.20

1238.10

1241.70

Silver

14.600

14.65

14.535

14.715

Platinum

789.00

792.00

785.00

794.00

Copper

2.6825

2.7040

2.7200

2.7590

Crude (WTI)

47.00

48.64

50.53

51.10

Global Government Bond Yields

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

US 10 year

2.82%

2.85%

2.86%

2.89%

US 30 Year

3.06%

3.10%

3.12%

3.14%

UK

1.28%

1.28%

1.27%

1.24%

Germany

0.25%

0.24%

0.26%

0.25%

Brazil

9.56%

9.67%

9.67%

9.61%

Italy

2.78%

2.93%

2.95%

2.93%

Japan

0.02%

0.01%

0.02%

0.02%

Major U.S. Indices

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

VIX

25.15

24.68

22.36

21.57

DOW

236.93

237.70

239.86

244.08

S&P 500

255.18

257.19

259.39

262.92

NASDAQ

6741.80

6812.51

6864.23

6961.86

Currency Cross Rates

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

USD/JPY

112.450

112.500

112.9200

113.2900

EUR/USD

1.1392

1.1369

1.1344

1.1306

GBP/USD

1.2628

1.2650

NA

NA

AUD/USD

0.7141

0.7175

0.7181

0.7178

USD/MXN

20.068

20.066

20.223

20.2528

USD/CNY

6.894

6.896

6.905

6.9049

USD Index

97.03

97.02

97.15

97.42

Five Hundred Words 12/18/2018

Tuesday, December 18, 2018

Daily Writing

 

 Things I’m thinking about

  • It seems like we could be in a bear market, but what statistics can we use to back up this kind of claim?
  • Xi Jinping speaks on 40th anniversary of reform.[1]
  • What will the world start to look like in the event of a liquidity crisis?

 

Market Observations

Major indexes traded higher at the start of the day.  S&P and NASDAQ are both up 1.00%.  However, the VIX [2], which is a gauge of fear in the market and trades inversely to the market, is only down 1.84% at the time of writing.

US Treasury yields continue to plummet.  The yield on the 10-year Note sits at 2.85% while the yield on the long-dated 30-year Treasury Bill is 3.10%.  WTI crude is down another 2.61% after dropping more than 3.50% yesterday.

The yield on the 10-year Japanese Government Bond (JGB) is threatening to move negative.  The yield on 10-year JGB is now 0.01%.  The Yen has also strengthened over the past few days.  The USD/JPY cross-pair now trades at 112.500, 100 basis points off the highs a few weeks ago.

Despite heavy criticism from President Donald Trump, the Fed still intends to raise interest rates tomorrow (December 19).  There are two key things to note here:

1)       It is not normal for the US President to openly attempt to influence the interest rate policy of the Federal Reserve.  The Fed is intended to exist as an independent body immune from political sway.

2)      It is unusual for the Fed to raise rates in an environment where global growth appears to be slowing

 

China: Forty Years After Economic Reforms

Today Xi Jinping spoke on 40th anniversary of reform.[3]

Why is this significant?

Confidence in Xi, the regime, and the principles of “socialism with Chinese characteristics” are under threat.  Chinese elites are really the only ones aware of this.

China’s leadership tends to be extremely cautious when making any public statements, so whenever a Chinese President makes an address like this, it tends to be big news.

The 40th-anniversary speech is especially significant because Xi Jinping revealed some revisions to his core position on two fronts:

  1. Internal Chinese Communist Party politics and Chinese domestic policy
  2. Foreign policy, especially regarding its stance toward the United States and on-going trade tensions between the two superpowers.

 

Internal Communist Party Politics and Chinese Domestic Policy

Xi Jinping has been transparent in his intention to consolidate both his power as General Secretary of the CCP along with his place in the history of communist China post-1949.  In October of 2017, President Xi eliminated Presidential term limits and pushed to include his own version of Chinese socialism into the official party canon.  Now he’s looking to overtake the legacy of revolutionary hero Deng Xiaoping.  Deng Xiaoping is widely regarded as the father of modern China, as his reforms in the late 1970s and early 1980s are the catalysts behind China’s massive economic expansion over the past forty years.

 

Foreign Policy

Because the 40th anniversary of reform speech is one of Xi’s most high-profile public addresses since his meeting with President Trump at the G20 Summit in Buenos Ares at the beginning of the month, China watchers and analysts are following Xi’s speech closely, seeking clues into potential shifts in China policy.

One thing that’s clear is that China intends to maintain its bottom line regarding its domestic sovereignty.  “No one is in the position to dictate to the Chinese people what should and should not be done,” he said in apparent reference to demands from Washington and other capitals that China undo some of its protectionist economic policies (even as Chinese negotiators have quietly offered concessions).[4]

 

Summarizing China

Our view is that China doesn’t have as much flexibility as it seems.  China is dead-set on a shift toward re-orienting its economy to one based on consumption instead of investment.  This means China would experience substantial growing pains even within an ideal economic climate.

Now, in the face of what could be a severe global economic slowdown, China has no choice but to capitulate to the demands of the Trump administration on trade in the short term.  It’s doing this because it doesn’t want global attention toward the real problem, the fact that China is currently operating on an economic model that is no longer sustainable; namely, a model driven by export-led growth, infrastructure development, and massive imports of raw materials from developed neighbors such as Australia.

Can China fix its domestic problems before the next global slowdown really begins to take hold?  According to my sources in China, the central government is facing a true crisis of confidence.

 

Market Data

Resource Commodities

 

December 18, 2018

December 17, 2018

December 14, 2018

December 13, 2018

Gold Spot

1245.20

1238.10

1241.70

1245.00

Silver

14.65

14.535

14.715

14.720

Platinum

792.00

785.00

794.00

802.00

Copper

2.7040

2.7200

2.7590

2.780

Crude(WTI)

48.64

50.53

51.10

51.41

 

Global Government Bond Yields

 

December 18, 2018

December 17, 2018

December 14, 2018

December 13, 2018

US 10 year

2.85%

2.86%

2.89%

2.91%

US 30 Year

3.10%

3.12%

3.14%

3.16%

UK

1.28%

1.27%

1.24%

1.26%

Germany

0.24%

0.26%

0.25%

0.27%

Brazil

9.67%

9.67%

9.61%

9.86%

Italy

2.93%

2.95%

2.93%

2.93%

Japan

0.01%

0.02%

0.02%

0.05%

 

 

Major U.S. Indices

 

December 18, 2018

December 17, 2018

December 14, 2018

December 13, 2018

VIX

24.68

22.36

21.57

21.00

DOW

237.70

239.86

244.08

245.76

S&P 500

257.19

259.39

262.92

266.45

NASDAQ

6812.51

6864.23

6961.86

7096.00

 

Currency Cross Rates

 

December 18, 2018

December 17, 2018

December 14, 2018

December 13, 2018

USD/JPY

112.500

112.9200

113.2900

113.6700

EUR/USD

1.1369

1.1344

1.1306

1.1355

GBP/USD

1.2650

NA

NA

NA

AUD/USD

0.7175

0.7181

0.7178

0.7223

USD/MXN

20.066

20.223

20.2528

20.069

USD/CNY

6.896

6.905

6.9049

6.878

USD Index

97.02

97.15

97.42

97.15

[2] https://en.wikipedia.org/wiki/VIX

[3] https://www.bloomberg.com/news/videos/2018-12-18/key-takeaways-from-xi-jinping-s-speech-video

[4] https://www.nytimes.com/2018/12/18/world/asia/xi-china-speech-takeaways.html

Five Hundred Words 12/17/2018

Monday, December 17, 2018

Daily Writing

 

Housekeeping

Over the next few days, we are gearing up for a long-scheduled, much-anticipated trip to China on December 25, 2018.  Throughout this week we will focus on some of our main goals for the China trip.  I am genuinely worried about the state of China, its economy, and its political climate.

 

Things I’m thinking about

  • What does the economic environment currently look like in China?
  • How is the political climate changing?
    • E.g., political propaganda more prevalent, increased patriotic sentiment?
  • How does the average Chinese citizen view the economy vis-à-vis the “average” Chinese political and/or business elite?
  • How have views of the United States changed since this time last year?
  • What are Chinese companies doing to prepare for a global economic slowdown?
  • What is the overall market sentiment China?
  • If folks in China aren’t worried about the economy, then what are they worried about?

 

 

Market Observations

The S&P started the day with a 1.00% spike downward.  US Treasury yields continue their push lower, with the yield on the 10-year Treasury now 2.86% and the yield on the 30-year Treasury now 3.13%.  Keep in mind that just a few weeks prior the yield on the 10-year Treasury Note was higher than 3.25%.  At the time many experts felt that US Treasuries could online continue to move higher, with some speculating that the 10-year yield was more likely to reach 4.00% than 3.25%.

The CBOE put/call ratio also remains elevated, at time of writing sits at 1.16 after opening the day at 1.24.  The average ratio is 0.76, and a rate over 1.00 is elevated.  The CBOE put/call ratio is a measure of overall fear in the market.

At the time of writing, WTI crude has dropped more than 3.50% where it currently sits at $49.40/barrel.  I find it interesting that amid the current market turmoil gold has hardly budged.  For the past few months, gold has traded within a tight range between $1200 – $1250/oz.

 

 

Personal thoughts

I’m not sure if this belongs in my daily writing, but I feel it is essential to grant this sliver of insight into my own thinking.

When I wake up each morning, I tell myself three things that help propel me forward:

  • I will be proud of my actions
  • I will strive to help others
  • I will be kind

It can be quite tricky to balance these things, and the results are not immediate.  However, in general, I’ve found that by following these commands that I give myself I can enhance my own learning and growth.  The focus is not on me, but those around me.  Also, I do not ‘hope’ to accomplish these tasks each day, I give myself the command that I ‘will’ strive to accomplish these things each day.  This allows me to feel a greater sense of control and accountability for my actions.  I must be a pillar of support for others, but I also must be vulnerable at times.  Kindness is highly undervalued.

 

Developing a personal investing style

Last week I met with a trusted advisor for lunch.  We discussed the importance of identifying broad trends in market behavior and even human behavior.  Sometimes patterns cannot be quantified 100%, although that doesn’t deter many from trying.

My biggest takeaways were focusing on using Time to my advantage.  It seems obvious, but the more time you have, the more options and flexibility you must employ different strategies.  The second takeaway was the importance of discovering my own style and utilizing that style to my advantage.  I’ll never be able to obtain an edge if I blindly copy the path of others, even if I emulate Warren Buffett there will be times where I need to make decisions based on my own intuition, experiences, and processes.  I’ll never be the next Warren Buffett because I am focused on being the next Kevin Tellier.

General Notes

Types of Hedge Funds

  • CTA/Managed Futures
  • Equity Hedge
  • Event Driven
  • Fixed Income Directional
  • Fixed Income Relative Value
  • Macro
  • Multi-strategy

Market Data

 

Resource Commodities

 

December 17, 2018

December 14, 2018

December 13, 2018

December 12, 2018

Gold Spot

1238.10

1241.70

1245.00

1242.90

Silver

14.535

14.715

14.720

14.535

Platinum

785.00

794.00

802.00

783.00

Copper

2.7200

2.7590

2.780

2.7854

Crude(WTI)

50.53

51.10

51.41

51.83

 

Global Government Bond Yields

 

December 17, 2018

December 14, 2018

December 13, 2018

December 12, 2018

US 10 year

2.86%

2.89%

2.91%

2.90%

US 30 Year

3.12%

3.14%

3.16%

3.13%

UK

1.27%

1.24%

1.26%

1.24%

Germany

0.26%

0.25%

0.27%

0.26%

Brazil

9.67%

9.61%

9.86%

10.02%

Italy

2.95%

2.93%

2.93%

3.00%

Japan

0.02%

0.02%

0.05%

0.04%

Major U.S. Indices

 

December 17, 2018

December 14, 2018

December 13, 2018

December 12, 2018

VIX

22.36

21.57

21.00

21.91

DOW

239.86

244.08

245.76

245.09

S&P 500

259.39

262.92

266.45

267.45

NASDAQ

6864.23

6961.86

7096.00

7163.89

 

Currency Cross Rates

 

December 17, 2018

December 14, 2018

December 13, 2018

December 12, 2018

USD/JPY

112.9200

113.2900

113.6700

113.210

EUR/USD

1.1344

1.1306

1.1355

1.1366

AUD/USD

0.7181

0.7178

0.7223

0.7230

USD/MXN

20.223

20.2528

20.069

20.0358

USD/CNY

6.905

6.9049

6.878

6.8777

USD Index

97.15

97.42

97.15

97.46

Five Hundred Words 12/13/2018

Thursday, December 13, 2018

Daily Writing

Things I’m thinking about

  • What is the long-term economic impact of quantitative tightening (QT)?  Does anyone know the answer? Is there a historical precedent?
  • Why has the hedge fund industry struggled so much over the past few years?
  • How to discover the things in the world that are permanent and enduring?
  • What kinds of things are more durable than others?
  • What is “total social financing” (TSF)?

 

Market Overview

Over the past week the market has struggled to find traction, it feels like there could still be more downside.  Early in the morning the CBOE put/call ratio was the highest I’ve ever seen at 1.94. It slowly moved downward through the day, but it remains quite elevated.  What is the root cause of all the fear in the market? Volatility spiked a small amount in the middle in the day but overall the market is basically just flat.

ECB to halt expansion of EUR 2.6 trillion quantitative easing (QE) program.

What impact will this have on European markets?

Another hedge fund veteran is quitting a brutal market.

 

 

General Notes

Types of Hedge Funds


CTA/Managed Futures

Equity Hedge

Event Driven

Fixed Income Directional

Fixed Income Relative Value

Macro

Multi-strategy

 

Trading Log

11:00 AM

I’m trying to become more aware of timing and trade selection.  Recently I realized I’ve been overtrading for the past year, this causes me to make some gains on my good trades, but those gains are quickly offset by ill-advised or poorly timed trades.  My view is that the current market environment is good for experienced active traders. My problem is I’m not experienced enough in these types of market environments to have a firm grasp of what’s really going on in this world.

I shouldn’t feel pressure to swing at every single pitch.  In fact, I shouldn’t feel pressure to ever swing at a pitch because there are not strikeouts unless I swing the bat.  I can wait a thousand pitches if I want.

3:30 PM

After meeting with a valued advisor today I left our discussion with a renewed sense of the importance of understanding and developing my own style.  The world is in a constant state of disruption, yet there are still things, people, asset classes, and equities that endure and remain constant.  It’s not enough to find one person to emulate.  It’s important that I take in everything I can from the world around me.  This includes a varied set of viewpoints and ideas.  Will continue grinding.

 

Market Data

Resource Commodities

 

December 13, 2018 December 12, 2018 December 11, 2018 December 10, 2018

Gold Spot

1245.00
1242.90
1243.10
1245.00

Silver

14.720
14.535
14.495
14.545

Platinum

802.00
783.00
783.00
782.00

Copper

2.780
2.7854
2.7575
2.80

Crude(WTI)

51.41
51.83
51.52
51.58

 

Global Government Bond Yields

 

December 13, 2018 December 12, 2018 December 11, 2018 December 10, 2018

US 10 year

2.91%
2.90%
NA
2.85%

US 30 Year

3.16%
3.13%
NA
3.13%

UK

1.26%
1.24%
NA
1.21%

Germany

0.27%
0.26%
0.23%
0.25%

Brazil

9.86%
10.02%
NA
10.12%

Italy

2.93%
3.00%
NA
3.09%

Japan

0.05%
0.04%
NA
0.03%

 

Major U.S. Indices

 

December 13, 2018 December 12, 2018 December 11, 2018 December 10, 2018

VIX

21.00
21.91
NA
23.95

DOW

245.76
245.09
NA
243.61

S&P 500

266.45
267.45
NA
263.37

NASDAQ

7096.00
7163.89
NA
7041.83

EM USD

NA
1061.96
NA
1062.41

 

Currency Cross Rates

 

December 13, 2018 December 12, 2018 December 11, 2018 December 10, 2018

USD/JPY

113.6700
113.210
NA
113.1800

EUR/USD

1.1355
1.1366
NA
1.1358

AUD/USD

0.7223
0.7230
NA
0.7188

USD/MXN

20.069
20.0358
NA
6.8730

USD/CNY

6.878
6.8777
NA
6.9127

USD Index

97.15
97.46
NA
97.18

 

Five Hundred Words 12/12/2018

Wednesday, December 12, 2018

Daily Writing

10:15 AM

Things I’m thinking about

  • How do the best traders structure their days?
  • What is the significance of the gold/silver ratio?
  • What are the most important Chinese economic data to follow?
  • What are the industrial uses for copper, palladium, and platinum?
  • What is ‘interest rate differential’?
  • What are credit spreads?  What do spreads measure?

Market Overview


Price of gold has been steadily rising since the beginning of the month.  The price of silver closed yesterday at 14.535, and at the time of writing the price of silver is up 1.20%.

platinum_price_12_12_2018

Trading Log

I am working to determine my precise tolerance for volatility.  On many trades I find myself exiting a position due to my emotions, then a few weeks later I will discover that the price of the security I sold had recovered or even soared higher.  How can I resolve this? Better risk management?

1:32 PM

There are times where I feel like it doesn’t make sense to follow the news as closely as I typically do.  To me it seems like it could be more productive to perhaps read the news in the morning, gain a grasp of the general undertone of the day, and move forward.  Not every day is going to be a “newsworthy” day. That doesn’t mean every day can’t be amazing from a personal standpoint, it’s just that there are so many headlines in the world that can attract attention.

 

Market Data

Resource Commodities

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

Gold Spot

1242.90

1243.10

1245.00

1237.20

Silver

14.535

14.495

14.545

14.440

Platinum

783.00

783.00

782.00

788.00

Copper

2.7854

2.7575

2.80

2.7530

Crude(WTI)

51.83

51.52

51.58

53.73

 

Global Government Bond Yields

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

US 10 year

2.90%

NA

2.85%

2.89%

US 30 Year

3.13%

NA

3.13%

3.17%

UK

1.24%

NA

1.21%

1.26%

Germany

0.26%

0.23%

0.25%

0.26%

Brazil

10.02%

NA

10.12%

9.99%

Italy

3.00%

NA

3.09%

3.14%

Japan

0.04%

NA

0.03%

0.05%

 

Major U.S. Indices

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

VIX

21.91

NA

23.95

22.42

DOW

245.09

NA

243.61

24918.82

S&P 500

267.45

NA

263.37

269.45

NASDAQ

7163.89

NA

7041.83

6994.39

EM USD

1061.96

NA

1062.41

1059.54

 

Currency Cross Rates

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

USD/JPY

113.210

NA

113.1800

112.6900

EUR/USD

1.1366

NA

1.1358

1.1384

AUD/USD

0.7230

NA

0.7188

0.7227

USD/MXN

20.0358

NA

6.8730

20.338

USD/CNY

6.8777

NA

6.9127

6.882

USD Index

97.46

NA

97.18

96.80

 

Five Hundred Words 12/11/2018

Tuesday, December 11, 2018

Daily Writing

Things I’m thinking about

  • How do the best traders structure their days?
  • What are the routines of the top traders?
  • What factors determine bond prices and yields?
  • After the point where the yield curve inverts, how do markets typically behave until recession arrives?
  • What does full conviction feel like?
  • What is the current state of global liquidity?  What are the arguments for global liquidity drying up?
  • What would happen to the UK economy under a ‘hard Brexit’?

Market Overview

Global bond yields continue to tick steadily lower.

China to cut tariffs on imported US cars.

 

What are the causes of the current global slowdown?

What are the causes of the current global slowdown?[1]

A) Much tighter dollar liquidity

  1. US dollar has served as the world’s reserve currency since World War II
  2. All major international transactions are settled in US dollars
  3. Because central banks main reserves are held in US dollars rather than local currency
  4. The Fed is the world’s de facto central bank
  5. When the Fed floods domestic banks with reserves (QE) it increases the domestic monetary base
  6. Increasing US monetary base causes US demand to start growing faster than the rest of the world
  7. This causes the US current account to swell
  8. The result is that the Fed doesn’t only increase the monetary base domestically, but it also increases the monetary base abroad and generally the global monetary base increases
  9. The Fed’s quantitative tightening (QT) policy means global dollar liquidity stopped accelerating earlier this year

B) China

  1. China’s shift began following the 19th party congress is October 2017 when the central government signaled its intent to shift from an economic model heavily reliant on exports to one driven by the services sector and domestic consumption.

Book recommendation

Beyond Blockchain: The Death of the Dollar and the Rise of Digital Currency

By Erik Townsend

 

Market Data

Resource Commodities

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

Gold Spot

1243.10
1245.00
1237.20
NA

Silver

14.495
14.545
14.440
NA

Platinum

783.00
782.00
788.00
NA

Copper

2.7575
2.80
2.7530
NA

Crude(WTI)

51.52
51.58
53.73
NA

 

Global Government Bond Yields

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

US 10 year

2.85%
2.85%
2.89%
2.87%

US 30 Year

3.13%
3.13%
3.17%
3.13

UK

1.21%
1.21%
1.26%
1.24%

Germany

0.23%
0.25%
0.26%
0.23%

Brazil

10.12%
10.12%
9.99%
10.00%

Italy

3.09%
3.09%
3.14%
3.20%

Japan

0.03%
0.03%
0.05%
0.05%

 

 

 

Major U.S. Indices

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

VIX

21.91
23.95
22.42
23.53

DOW

245.09
243.61
24918.82
247.27

S&P 500

267.45
263.37
269.45
265.97

NASDAQ

7041.83
7041.83
6994.39
7114.10

EM USD

NA
1062.41
1059.54
1060.39

 

Currency Cross Rates

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

USD/JPY

NA
113.1800
112.6900
112.4800

EUR/USD

NA
1.1358
1.1384
1.1389

AUD/USD

NA
0.7188
0.7227
0.7224

USD/MXN

NA
6.8730
20.338
20.494

USD/CNY

NA
6.9127
6.882
6.8815

USD Index

NA
97.18
96.80
97.00

[1] Juliette DeClercq, JDI Research, as featured in Macrovoices