Five Hundred Words 11/13/2018

Tuesday, November 13, 2018

Daily Writing

9:44 AM

The yield on the 10-year Japanese government bond currently sits at 0.10%.  Who buys Japanese bonds?  How is it possible for yields to move lower or even be negative?

Oil is down more than 7.00% today.  What is the cause of this?

4:59 PM

There isn’t really anything in my trading that has left me frustrated the past few days, despite the markets continuing to move lower.  I am working on managing my psychology.  I feel scattered much of the time, like there are a million things to do but not enough time to do or even think about everything.  What can I do to continue moving forward?  It takes a lot for me to reveal what I’m thinking inside.  I’m not great at sharing.  Something I learned from reading the analects of Confucius is that no matter what your state of mind, the most basic thing you can share with the world is a positive mindset and attitude.  Smile more.

The markets were flat today overall.  News came out that the UK and EU reached an agreement on principal to move Brexit forward.  Now the UK must bring their proposal to UK parliament for approval.  The whole thing seems like a mess to me.

Market Data

Resource Commodities

 

November 13, 2018

November 12, 2018

November 9, 2018

November 8, 2018

November 7, 2018

Gold spot

1199.98

1209.40

1223.50

1226.10

1226.50

Silver

13.990

14.040

14.420

14.540

14.495

Platinum

838.00

852.00

861.00

871.00

867.00

Copper

2.72

2.69

2.78

2.72

2.81

Crude(WTI)

57.13

60.74

60.19

61.60

62.61

 

Global government bond yields (10 year)

 

November 13, 2018

November 12, 2018

November 9, 2018

November 8, 2018

November 7, 2018

U.S. 10 year

3.15%

3.18%

3.19%

3.22%

3.19%

Germany

0.39%

0.38%

0.40%

0.45%

0.45%

Brazil

10.54%

10.49%

10.37%

10.31%

10.26%

Italy

3.44%

3.43%

3.40%

3.41%

3.35%

Japan

0.10%

0.11%

0.11%

0.11%

0.11%

 

Major U.S. Indexes

 

November 13, 2018

November 12, 2018

November 9, 2018

November 8, 2018

November 7, 2018

VIX

19.45

17.26

16.87

16.18

18.03

DOW

253.21

259.59

261.49

261.80

257.85

S&P 500

273.06

277.24

277.76

281.01

277.55

NASDAQ

7259.66

7309.29

7406.90

7570.75

7442.00

 

Currency Cross Rates

 

November 13, 2018

November 12, 2018

November 8, 2018

November 8, 2018

November 7, 2018

USD/JPY

113.8200

113.800

113.7800

113.6800

113.2900

EUR/USD

1.1292

1.1268

1.1315

1.1426

1.1476

AUD/USD

0.7219

0.7209

0.7213

0.792

0.7285

CHF/USD

0.9929

0.996

1.00590

0.9971

1.0021

USD/CNY

6.9545

6.9631

6.9552

6.9366

6.9165

USD Index

97.16

97.33

96.90

96.23

95.87

 

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Five Hundred Words 11/12/2018

Monday, November 12, 2018

Daily Writing

9:44 AM

According to my sources in China, the current economic situation is looking quite dire.  Unless the Chinese government enacts major policy changes by the beginning of next year, the economic situation could become far worse.

The US Dollar Index has started to move higher once again, now firmly planted above the 97.00 level where it currently sits at 97.33.

GBP/USD is down today on concerns that the timing of a Brexit deal had slipped; sterling fell as much as 1.2 percent against the dollar early on but then recovered to trade down 0.5 percent at $1.2910.[1]

CBOE put/call ratio elevated throughout the day.  Out of the gate p/c ratio of 1.42.  Fear gradually subsided in the market as the day wore on.

It doesn’t seem like a good sign when the entire market falls due to the performance of one stock (AAPL in this case).  What makes it worse is that the weak performance wasn’t necessarily due to any changes in the underlying fundamentals in Apple, but rather on news that Lumentum Holdings, a supplier of 3D sensors that power the facial recognition technology on Apple’s latest iPhones, unexpectedly cut its outlook for its fiscal second quarter.

[1] https://www.ft.com/content/19529d88-e67a-11e8-8a85-04b8afea6ea3

Market Data

Resource Commodities

 

 

November 12, 2018

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

Gold spot

1209.40

1223.50

1226.10

1226.50

1230.60

Silver

14.040

14.420

14.540

14.495

14.610

Platinum

852.00

861.00

871.00

867.00

864.00

Copper

2.69

2.78

2.72

2.81

2.8034

Crude(WTI)

60.74

60.19

61.60

62.61

63.23

 

Global government bond yields (10 year)

 

 

November 12, 2018

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

U.S. 10 year

3.18%

3.19%

3.22%

3.19%

3.20%

Germany

0.38%

0.40%

0.45%

0.45%

0.42%

Brazil

10.49%

10.37%

10.31%

10.26%

10.19%

Italy

3.43%

3.40%

3.41%

3.35%

3.40%

Japan

0.11%

0.11%

0.11%

0.11%

0.12%

 

 

Major U.S. Indexes

 

 

November 12, 2018

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

VIX

17.26

16.87

16.18

18.03

19.84

DOW

259.59

261.49

261.80

257.85

254.52

S&P 500

277.24

277.76

281.01

277.55

273.36

NASDAQ

7309.29

7406.90

7570.75

7442.00

7378.25

 

Currency Cross Rates

 

 

November 12, 2018

November 8, 2018

November 8, 2018

November 7, 2018

November 6, 2018

USD/JPY

113.800

113.7800

113.6800

113.2900

113.2900

EUR/USD

1.1268

1.1315

1.1426

1.1476

1.1407

AUD/USD

0.7209

0.7213

0.792

0.7285

0.7229

CHF/USD

0.996

1.00590

0.9971

1.0021

0.9964

USD/CNY

6.9631

6.9552

6.9366

6.9165

6.9166

USD index

97.33

96.90

96.23

95.87

96.29

Five Hundred Words 11/09/2018

Friday, November 9, 2018

Daily Writing

1:05 PM

Markets are down today overall.  The question is whether the past week was a false breakout to the upside or if will see continued momentum higher toward the end of the year.  The price of crude oil continues to drop as we are now retesting February lows.  If crude oil drops below $60/barrel it would have disastrous effects on the U.S. shale industry, as prices need to remain above $60/barrel for the industry to remain solvent.

Bond yields ticked higher throughout the week.  While yields on the 10-year U.S. Treasury note remain elevated, it is not clear if the yield will continue to move higher and eventually break through the 3.25 level for the long term.  Bond yields have been artificially suppressed for quite some time, and it seems reasonable to believe that we could see bond yields move into the 3.50% to 4.00% range, at least temporarily.  Side note: Brazilian U.S. Treasury yields ticked steadily higher throughout the past week.

Market Data

Resource Commodities

 

 

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

November 5, 2018

Gold SPOT

1223.50

1226.10

1226.50

1230.60

1232.20

Silver

14.420

14.540

14.495

14.610

14.715

Platinum

861.00

871.00

867.00

864.00

NA

Copper

2.78

2.72

2.81

2.8034

2.8099

Uranium

28.80

28.90

27.85

NA

NA

Crude(WTI)

60.19

61.60

62.61

63.23

63.49

 

Global government bond Yields (10 year)

 

 

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

November 5, 2018

U.S. 10 year

3.19%

3.22%

3.19%

3.20%

3.19%

Germany

0.40%

0.45%

0.45%

0.42%

NA

Brazil

10.37%

10.31%

10.26%

10.19%

NA

Italy

3.40%

3.41%

3.35%

3.40%

NA

Japan

0.11%

0.11%

0.11%

0.12%

NA

 

 

Major U.S. Indexes

 

 

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

November 5, 2018

VIX

16.87

16.18

18.03

19.84

20.18

DOW

261.49

261.80

257.85

254.52

254.44

S&P 500

277.76

281.01

277.55

273.36

271.89

NASDAQ

7406.90

7570.75

7442.00

7378.25

7356.99

 

Currency Cross Rates

 

 

November 9, 2018

November 8, 2018

November 7, 2018

November 6, 2018

November 5, 2018

USD/JPY

113.7800

113.6800

113.2900

113.2900

113.1600

EUR/USD

1.1315

1.1426

1.1476

1.1407

1.387

AUD/USD

0.7213

0.7292

0.7285

0.7229

0.7204

CHF/USD

1.00590

0.9971

1.0021

0.9964

1.0044

USD/CNY

6.9552

6.9366

6.9165

6.9166

6.9273

USD Index

96.90

96.23

95.87

96.29

96.45

 

Five Hundred Words 11/07/2018

Wednesday, November 7, 2018

Daily Writing

9:21 AM

Crude oil has undergone steep declines over the past few weeks.  What is the reasoning behind this?  The U.S. Dollar index has started to show weakness over the past several weeks as well.  According to experts, the weakness in the U.S. dollar index was expected after mid-term elections reflecting skepticism that the stimulus bonanza, including further tax cuts, that had fueled the dollar’s rally in the first half of the year, would continue under a split congress.[1]

We are eagerly awaiting two new developments from the UK and Europe in the coming days and weeks.  Theresa May has ordered a push for a Brexit deal this week, ordering her attorney-general Geoffrey Cox to prepare a legal solution that would unlock an agreement between the UK and Brussels.  We are keeping an eye on the impact of this week’s development on the GBP and EUR.

The second major development in Europe is also set to play out over the coming days.  The Italian government has until November 13 deadline to submit a re-drafted budget proposal to the Eurogroup.[2]  We don’t really see an easy resolution here, as “Rome’s populist government is standing firm ahead of a November 13 deadline to rewrite plans or escalate its stand-off with Brussels.”[3]

Something new to consider: the price of Uranium hit a 2.5 year high on November 5.  Uranium has been one of the best-performing commodities of 2018, rising more than 40% from its April lows.

According to data recently released by the People’s Bank of China (PBoC) in October, the central bank’s foreign exchange reserves dropped by roughly $32bn on account of China’s push to strengthen the renminbi in the face of potentially disastrous devaluation.  The PBoC is also intent on maintaining foreign currency reserves above $3tn, as these reserves serve as China’s means of suppressing the value of the renminbi.  Official foreign exchange reserves fell to $3.05tn by the end of October from $3.087tn a month earlier.  China’s forex reserves peaked at just under $4tn in mid-2014, but in the following two-and-a-half years the PBoC burnt through nearly $1tn to prop up the renminbi amid a capital outflow surge.

[1] https://www.marketwatch.com/story/dollar-slides-following-midterm-election-results-2018-11-07

[2] The Eurogroup is the recognized collective term for informal meetings of the finance ministers of the eurozone—those member states of the European Union (EU) which have adopted the euro as their official currency. The group has 19 members.

[3] https://www.ft.com/content/197f4ad2-e10b-11e8-8e70-5e22a430c1ad

 

Market Data

Resource Commodities

 

 

November 7, 2018

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

Gold Spot

1226.50

1230.60

1232.20

1232.55

1218.30

Silver

14.495

14.610

14.715

14.77

14.38

Platinum

867.00

864.00

NA

NA

NA

Copper

2.81

2.8034

2.8099

2.8012

2.7501

Uranium

27.85

NA

NA

NA

NA

Crude (WTI)

62.61

63.23

63.49

63.34

65.16

 

Global government bond yields (10 year)

 

November 7, 2018

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

US 10 Year

3.19%

3.20%

3.19%

3.18%

3.16%

Germany

0.45%

0.42%

NA

NA

NA

Brazil

10.26%

10.19%

NA

NA

NA

Italy

3.35%

3.40%

NA

NA

NA

Japan

0.11%

0.12%

NA

NA

NA

 

 

Major U.S. Indexes

 

 

November 7, 2018

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

VIX

18.03

19.84

20.18

19.24

20.96

DOW

257.85

254.52

254.44

254.84

252.42

S&P 500

277.55

273.36

271.89

274.75

271.64

NASDAQ

7442.00

7378.25

7356.99

7407.46

7332.72

 

Currency Cross Rates

 

November 7, 2018

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

USD/JPY

113.2900

113.2900

113.1600

113.28

112.750

EUR/USD

1.1476

1.1407

1.387

1.1385

1.1405

AUD/USD

0.7285

0.7229

0.7204

0.7193

0.7192

CHF/USD

1.0021

0.9964

1.0044

0.9955

0.992

USD/CNY

6.9165

6.9166

6.9273

6.8893

6.9346

USD Index

95.87

96.29

96.45

96.53

96.41

Five Hundred Words 11/06/2018

Tuesday, November 6, 2018

Daily Writing

9:21 AM

The U.S. mid-term elections take place today.  The outcome is uncertain but there is a strong possibility that the Democrats retake the house of representatives.  This opens the door for Trump impeachment in 2018.  The markets have not fully priced in a democratic agenda for 2019.

Bond yields reflect the health of a state’s balance sheet.  Is this a fair way to approach government bond yields?  Brazil’s 10-year government bond currently yields more than 10.00%.  Will we see lower yields as newly elected right-wing candidate Jair Bolsonaro’s policies begin to take root in Brazil?  Bolsonaro is widely viewed as a right-wing fascist who will be willing to sacrifice capitalism in favor of dictatorship and “rule of law”[1].  At 0.42% Germany’s balance sheet looks quite “healthy”.

Most Asian bond yields are ridiculously low.  Japanese Government Bonds (JGB’s) currently yield 0.12%.  Isn’t this effectively a negative yield?  Why would anyone buy Japanese bonds?  (No one does apparently).[2]

The price of WTI crude has dropped considerably since the start of October.  What could be the cause of this?  Is Saudi Arabia facing heightened pressure to increase demand after the Khashoggi incident?  What is the impact of newly enacted U.S. sanctions against Iran on global oil prices?

Volatility continues to tick downward, with the CBOE Volatility Index falling below 20.00 for the first time since September 2018.  However, things can change drastically tomorrow following the results of the mid-term election.  Our thinking is that the market does not like surprises, if the market is surprised by the election outcome (i.e. Republican victory in the house race), then we could see a considerable spike higher in volatility.

Yesterday European Union Ministers called on Italy’s populist government on Monday to engage in talks with Brussels on a revised draft budget for 2019, backing the European Commission’s view that the plans violate previous commitments by Rome to shrink the deficit next year.  The populist Italian government does not view the EU’s terms favorably.  What does Italy want to include in its budget that the EU is opposed to?  Italy wants to include three things in its budget that fall outside of EU rules: flat tax, reduced retirement age, and citizens’ income.  In its current form, Italy’s 2019 budget deficit will balloon to 2.4% of GDP, well outside the 0.8% cap mandated by EU authorities.  Things could get ugly here if the issue is not resolved.  We are following the deeper impact on the Euro.

[1] https://www.commondreams.org/news/2018/10/29/after-win-brazilian-fascist-jair-bolsonaro-worlds-capitalists-salivate-over-new

[2] https://www.cnbc.com/2018/04/09/something-strange-is-happening-with-japans-bond-market-hardly-anyone-is-trading-it.html

 

Market Data

Resource Commodities

 

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

October 31, 2018

Gold Spot

1230.60

1232.20

1232.55

1218.30

1215.20

Silver

14.610

14.715

14.77

14.38

14.33

Platinum

864.00

NA

NA

NA

NA

Crude(WTI)

63.23

63.49

63.34

65.16

66.35

 

Global Government Bond Yields (10 year)

 

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

October 31, 2018

U.S. 10 Year

3.20%

3.19%

3.18%

3.16%

3.15%

Germany

0.42%

NA

NA

NA

NA

Brazil

10.19%

NA

NA

NA

NA

Italy

3.40%

NA

NA

NA

NA

Japan

0.12%

NA

NA

NA

NA

 

 

Major U.S. Indexes

 

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

October 30, 2018

VIX

19.84

20.18

19.24

20.96

22.72

DOW

254.52

254.44

254.84

252.42

248.75

S&P 500

273.36

271.89

274.75

271.64

267.77

NASDAQ

7378.25

7356.99

7407.46

7332.72

7161.65

 

Currency Cross Rates

 

November 6, 2018

November 5, 2018

November 2, 2018

November 1, 2018

October 31, 2018

USD/JPY

113.2900

113.1600

113.28

112.750

113.240

EUR/USD

1.1407

1.387

1.1385

1.1405

1.1318

AUD/USD

0.7229

0.7204

0.7193

0.7192

0.7086

CHF/USD

0.9964

1.0044

0.9955

0.992

0.993

USD/CNY

6.9166

6.9273

6.8893

6.9346

6.9737

USD Index

96.29

96.45

96.53

96.41

97.13

Five Hundred Words 11/05/2018

Monday, November 5, 2018

Daily Writing

10:24 AM

The most palpable tension is stemming from the uncertainty over the outcome of tomorrow’s mid-term elections.  The outcome is uncertain.

The price of U.S. West Texas Intermediate (WTI) crude fell by more than 6.6% for the week.  Oil prices posted their fourth consecutive weekly loss.  It is still not entirely clear to me what determines the price of oil.  My intuition tells me that oil trading is susceptible to numerous exogenous factors that cannot be predicted by oil traders.

The price of gold continues to hover around the $1200.00/oz level, silver remains bound between $14.00 and $15.00/oz.

On Saturday (11/03/2018), Berkshire Hathaway Inc reported that its operating profit nearly doubled from the year prior due to stronger insurance results and lower taxes.  It is reported that Berkshire Hathaway repurchased $1 billion of its own stock in the third quarter of 2018.  Net income jumped to $18.5 billion from $4.1 billion just a year ago.

Looking at the bond market: “not one point on the Treasury yield curve is priced to deliver a positive, after-tax, real return when adjusted for the consumer prices you actually pay but that the Bureau of Labor Statistics neglects to incorporate in its carefully curated inflation indices.”[1]

[1] Grant’s, Vol. 36, No. 21, “What Corrections Correct”

Market Data

Commodities & U.S. Treasuries

 

 

November 5, 2018

November 2, 2018

November 1, 2018

October 31, 2018

October 30, 2018

Gold SPOT

1232.20

1232.55

1218.30

1215.20

1222.90

Silver

14.715

14.77

14.38

14.33

14.49

Crude(WTI)

63.49

63.34

65.16

66.35

65.64

US 10yr

3.19%

3.18%

3.16%

3.15%

3.11%

Major U.S. Indexes

 

November 5, 2018

November 2, 2018

November 1, 2018

October 30, 2018

October 30, 2018

VIX

20.18

19.24

20.96

22.72

24.20

DOW

254.44

254.84

252.42

248.75

247.00

S&P 500

271.89

274.75

271.64

267.77

266.23

Nasdaq

7356.99

7407.46

7332.72

7161.65

7124.74

Currency Cross Rates

 

November 5, 2018

November 2, 2018

November 1, 2018

October 31, 2018

October 30, 2018

USD/JPY

113.1600

113.28

112.750

113.240

112.861

EUR/USD

1.387

1.1385

1.1405

1.1318

1.14105

AUD/USD

0.7204

0.7193

0.7192

0.7086

0.7114

CHF/USD

1.0044

0.9955

0.992

0.993

0.997

USD/CNY

6.9273

6.8893

6.9346

6.9737

6.928

USD INdeX

96.45

96.53

96.41

97.13

96.79

 

Five Hundred Words 11/02/2018

Friday, November 2, 2018

Daily Writing

10:24 AM

U.S. average hourly earnings rose 3.1% in October.  Rising rates are central bank’s worst nightmare because it forces central banks to raise interest rates.  We think it is quite possible we see another rise in the federal funds rate in December.

Market Data

Commodities & U.S. Treasuries

November 2, 2018

November 1, 2018

October 31, 2018

October 30, 2018

October 29, 2018

Gold SPOT

1232.55

1218.30

1215.20

1222.90

NA

Silver

14.77

14.38

14.33

14.49

NA

Crude(WTI)

63.34

65.16

66.35

65.64

NA

US 10yr

3.18%

3.16%

3.15%

3.11%

NA

 

Major U.S. Indexes

 

November 2, 2018

November 1, 2018

October 30, 2018

October 30, 2018

October 29, 2018

VIX

19.24

20.96

22.72

24.20

NA

DOW

254.84

252.42

248.75

247.00

NA

S&P 500

274.75

271.64

267.77

266.23

NA

Nasdaq

7407.46

7332.72

7161.65

7124.74

NA

Currency Cross Rates

 

November 2, 2018 November 1, 2018 October 31, 2018 October 30, 2018 October 26, 2018

USD/JPY

113.28

112.750

113.240

112.861

112.368

EUR/USD

1.1385

1.1405

1.1318

1.14105

1.1407

AUD/USD

0.7193

0.7192

0.7086

0.7114

0.7046

CHF/USD

0.9955

0.992

0.993

0.997

0.99849

USD/CNY

6.8893

6.9346

6.9737

6.928

6.945

USD Index

96.53

96.41

97.13

96.79

96.73