Five Hundred Words 12/09/2018

Questions:

  • What is poverty?
  • What are the causes of global income inequality?
  • What creates inequalities amongst people?
  • What are the different viewpoints
  • What does China gain from stealing US intellectual property?
  • What is credit impulse?

 

How much intellectual property is China accused of taking from the United States per year?

What are the core topics currently?

  • Eurozone slowdown
  • US-China trade war tensions

 

Yesterday I received advice from two very wise people I know.  They told me it isn’t necessary to trade every pattern.  Often times it is better to wait for a pattern you understand to to ride it.  The world consists of large trends which are consisted to even smaller trends.

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Five Hundred Words 12/06/2018

Thursday, December 6, 2018

Daily Writing

Questions I would like to answer eventually

  • What is the current bull case for the overall economy, and global equities in particular?
  • What events in the late 1980’s led to the collapse of the Soviet Union?
  • Are there any parallels between USSR in late 1980’s and China today?

Market Overview

The United States has requested the extradition of the CFO of Huawei, Wanzhou Meng, from Canada.  Meng is also the daughter of Huawei founder Ren Zhengfei.

How did Canadian authorities have the right to arrest Wanzhou Meng?

US law prohibits the exports of specific US-origin technologies in certain countries.  When Huawei pays to license specific US tech, it promises not to export to certain countries like Iran.  So it is not unreasonable for the US to punish Huawei for flouting this US law.

The Dow opened down 400 points amid China trade tensions stemming from the arrest of Meng, and fears of economic slowdown.

I believe there are strong headwinds coming stemming from China, and our view is that a recession is on the horizon.  To be wrong would require a major turnaround in the Chinese economy, and interest rates must remain at historic lows.

We’ve exited all positions to mitigate risk and we now sit solely on cash.  We do not have any equity or bond positions.

From Bloomberg:

“The biggest qualm is the trade war escalating and this is haunting the markets,” said Naeem Aslam, chief market analyst at Think Markets U.K. in London, in an email. “It is arduous to find bulls in the market and it seems to me that this game is about to become uglier.”

US 10-year Treasury yields continue pushing lower, threatening to break through 2.80%

 

Parallels between economies of modern China and late-1980’s USSR

  • Economic statistics unreliable and often outright fudged
  • Steps taken to liberalize economy via centralized policy
    • USSR: Perestroika
    • China: 1980 economic reforms, 2019 opening of Chinese financial sector
  • Increasing influence of regional elite beyond central authorities
    • USSR: Ethnic minority regions
    • China: Xinjiang
      • From Beijing’s perspective, Xinjiang represents an existential threat to the CCP
  • Entrenched industrial, military, and legacy regime interests

“Political paralysis produced by the powerful forces who opposed economic reform was the ultimate cause of the Soviet Union’s collapse.”

Hypothesis:

Xi Jinping is terrified of losing authority over the military and regional elites in China.  If China enters economic downturn, Xi will lose his ability to influence these groups.  Therefore, Xi has no choice but to continually consolidate his power to ensure his total control.

I’m most interested in studying the collapse of the Soviet Union to gain an understanding of how modern superpowers decline.  I want to understand what sorts of events transpire on the ground during a period of economic turmoil.  Who are the victims?  Who are the aggressors?  Who gains, who loses?  Which groups or individuals have the most to lose from collapse?  Which individuals or groups stand the most to gain from collapse?  These are the types of questions I am hoping to answer before I go to China.

 

Market Data

Resource Commodities

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

Gold Spot

NA
1238.00
1230.30
1228.28

Silver

NA
14.505
14.355
14.385

Gold/silver

NA
85.47
84.84
85.29

Platinum

NA
802.00
806.00
806.00

Copper

NA
2.7555
2.8075
2.8571

Crude(WTI)

NA
52.12
53.25
52.97

 

Global Government Bond Yields

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

US 10 year

2.87%
2.91%
2.95%
3.02%

US 30 Year

3.13
3.17%
3.38%
3.38

UK

1.24%
1.31%
1.31%
1.33%

Germany

0.23%
0.27%
0.28%
0.31%

Brazil

10.00%
10.09%
9.95%
9.82%

Italy

3.20%
3.05%
3.15%
3.12%

Japan

0.05%

 

0.06%
0.06%
0.07%

 

 

Major U.S. Indices

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

VIX

23.53
CLOSED
16.84
16.04

DOW

247.27
CLOSED
257.53
257.80

S&P 500

265.97
CLOSED
278.34
280.38

NASDAQ

7114.10
CLOSED
7158.43
7421.77

EM USD

1060.39
CLOSED
1059.93
1054.71

 

 

Currency Cross Rates

  December 6, 2018 December 5, 2018 December 4, 2018 December 3, 2018

USD/JPY

112.4800
113.2100
112.8100
113.590

EUR/USD

1.1389
1.1344
1.1339
1.1334

AUD/USD

0.7224
0.7268
0.7338
0.7369

USD/MXN

20.494
20.5130
20.356
20.0611

USD/CNY

6.8815
6.8545
6.8342
6.8893

USD Index

97.00
97.08
96.97
97.02

Five Hundred Words 11/30/2018

Friday, November 30, 2018

Daily Writing

10:14 AM

Today is the final trading day of November.  Yesterday we exited our short US 10-year Treasury position as it is becoming clear that yields are struggling to keep their head over the 3.00% support level.  Although the historical volatility of the PST exchange-traded instrument was within a tolerable range of 7.00% to 9.00%, the underlying narrative was struggling to hold up after Jerome Powell’s announcement on Wednesday that interest rates are inching closer to a range considered to be “neutral”.

We are focusing on outperforming the SPX benchmark.  Our primary goal into the next year is focusing on exceeding this benchmark.  Our methodology will focus on large-cap, high dividend U.S. equities. We expect portfolio allocation of U.S. equities to fall within 50 – 75%.  At least 60% of portfolio allocation will consist of low beta assets, aiming for below average correlation to the S&P 500 benchmark.

Market Data

 

Resource Commodities

November 30, 2018

November 29, 2018

November 28, 2018

November 27, 2018

Gold Spot

1223.90

1220.70

1214.60

1221.60

Silver

14.285

14.285

14.120

14.190

Gold/silver

85.76

85.39

86.13

85.81

Platinum

818.00

822.00

831.00

842.00

Copper

2.824

2.7955

2.75

2.73

Crude(WTI)

50.52

51.07

51.23

51.58

 

Global Government Bond Yields

November 30, 2018

November 29, 2018

November 28, 2018

November 27, 2018

US 10 year

3.02%

3.02%

3.06%

3.07%

US 30 Year

3.38%

3.33%

3.33%

3.32%

UK

1.36%

1.34%

1.37%

1.39%

Germany

0.31%

0.32%

0.35%

0.35%

Brazil

9.89%

10.05%

10.08%

10.10%

Italy

3.21%

3.22%

3.26%

3.25%

Japan

0.08%

0.08%

0.09%

0.08%

 

Major U.S. Indexes

November 30, 2018

November 29, 2018

November 28, 2018

November 27, 2018

VIX

19.18

NA

18.87

19.41

DOW

253.39

NA

248.33

246.40

S&P 500

273.98

NA

269.61

265.76

NASDAQ

7296.39

NA

7120.56

7081.85

EM USD

1053.73

NA

1048.40

NA

 

Currency Cross Rates

November 30, 2018

November 29, 2018

November 28, 2018

November 27, 2018

USD/JPY

113.5300

NA

113.6300

113.6300

EUR/USD

1.1316

NA

1.1367

1.1326

AUD/USD

0.7306

NA

0.7304

0.7242

USD/MXN

20.226

NA

20.2442

20.623

USD/CNY

6.95557

NA

6.9538

6.9486

USD Index

97.20

NA

96.84

97.15

Five Hundred Words 11/29/2018

Thursday, November 29, 2018

Daily Writing

9:01 AM

Earlier this morning the price of oil dropped below $50 per barrel.  Where is the bottom?  What impact will this have on the US shale industry?

The headquarters of Deutsche Bank was raided by police today as part of a money laundering probe.[1]

The yield of the US 10-year Treasury Note dropped by three basis points since yesterday following Fed Chairman Jerome Powell’s announcement that interest rates appear to be nearing “neutral.”[2]  This development reignited bullish sentiment in equities markets as the SPY closed 2.20% higher.  The yield on the US 10-year is down to 3.02%, however the yield on the longer term 30-year hasn’t budged.  Why are shorter term interest rates more impacted?

I didn’t quite realize the impact Powell’s words would have on short-term rates.  I still don’t quite understand why Fed intervention has greater impact on the yields of shorter-term Treasuries (7-10 years).

We are working on building our portfolio around several positive carry trades.  Notably, equities which pay a sizeable dividend are quite attractive.  We will focus on compounding capital, that is the key here.  We’d like to avoid assets with high expense ratios, such as leveraged ETFs.

Citations

https://www.golddealer.com/gold-to-silver-ratio/

https://www.fastmarkets.com/commodities/base-metals/news/1

https://www.bloomberg.com/news/articles/2018-11-29/deutsche-bank-headquarters-searched-in-money-laundering-probe?srnd=premium

https://www.ft.com/content/221b509e-f32d-11e8-ae55-df4bf40f9d0d

 

 

Market Data

Resource Commodities

 

November 29, 2018

November 28, 2018

November 27, 2018

November 26, 2018

November 20, 2018

Gold Spot

1220.70

1214.60

1221.60

1222.80

1224.55

Silver

14.285

14.120

14.190

14.250

14.405

Gold/silver

85.39

86.13

85.81

85.86

NA

Platinum

822.00

831.00

842.00

841.00

847.00

Copper

2.7955

2.75

2.73

2.72

2.80

Crude(WTI)

51.07

51.23

51.58

51.91

56.23

 

Global Government Bond Yields

 

November 29, 2018

November 28, 2018

November 27, 2018

November 26, 2018

November 19, 2018

US 10 year

3.02%

3.06%

3.07%

3.07%

3.04%

US 30 Year

3.33%

3.33%

3.32%

3.38%

3.29%

UK

1.34%

1.37%

1.39%

1.41%

1.39%

Germany

0.32%

0.35%

0.35%

0.36%

0.35%

Brazil

10.05%

10.08%

10.10%

9.97%

10.10%

Italy

3.22%

3.26%

3.25%

3.25%

3.60%

Japan

0.08%

0.09%

0.08%

0.08%

0.09%

[1] https://www.bloomberg.com/news/articles/2018-11-29/deutsche-bank-headquarters-searched-in-money-laundering-probe?srnd=premium

[2] https://www.ft.com/content/221b509e-f32d-11e8-ae55-df4bf40f9d0d

 

Five Hundred Words 11/26/2018

Monday, November 26, 2018

Daily Writing

8:37 AM

We are placing greater emphasis on risk management and portfolio construction.  Personally, I perform portfolio evaluations each day to address weaknesses.  I intend to use this blog as a means of keeping track of my work.  Additionally, I can use the blog to publicize my work, progress, and development strategy.

There are many things to learn each day.  I am working to geographically regionalize my framework because I learn best when I can visualize the system I am analyzing.  The world is a complex system which I am hoping to investigate.

This blog is intended to be daily, but I do take time off for holidays and travel days.  I spend my days reading and monitoring data.

I learn by asking questions and seeking the answer.  Sometimes I do not find the solution immediately or at all, but sometimes the question in itself or the process of seeking can be more critical.  This blog contains many questions that remain unanswered.

What is the importance of the gold/silver ratio?  What does it mean when the gold/silver ratio moves higher or lower?

The price of oil continues to fall considerably.  WTI Crude (Jan ’19) has dropped more than 30.00% since its high on October 3, 2018.  What is the cause of falling oil prices?  Despite the decline in price in recent weeks, WTI Crude is up close to 2.82% on the day at the time of writing.

Brazilian 10-year government bond yields have dipped below 10.00% for the first time since May 2018.

We’ve introduced the Mexican 10-year bond yield to our global government bond yield watchlist because we would like to keep a closer eye on the political developments of incoming Mexican President Andrés Manuel López Obrador (AMLO).  We have also introduced the USD/MXN currency cross pair to serve the same function.  AMLO is a socialist who heads the National Regeneration Movement (MORENA). [1]

We continue to emphasize the importance of building out a framework for understanding the flow of capital in the world.

At the end of the week, President Trump and Chinese President Xi Jinping will meet in Buenos Aires as part of the Group of 20 meetings and look for ways to ease tensions.[2]

A scientist in China claims to have created the world’s first genetically edited babies, in a potentially ground-breaking and controversial medical first.[3]  In what other scientific areas is China equally or as advanced?yield_curve_11_26_2018

What are the effects of a flattening yield curve vis-à-vis a steepening yield curve?  Which result is most desirable for the Federal Reserve?

The CBOE volatility index dropped considerably today, finishing at 18.90 after opening at 20.78, a 12.17% decline.

Market Data

Resource Commodities

 

November 26, 2018

November 20, 2018

November 19, 2018

November 16, 2018

November 15, 2018

Gold Spot

1222.80

1224.55

1222.70

1214.50

1203.25

Silver

14.250

14.405

14.340

14.270

14.130

AU/AG Ratio

85.86

NA

NA

NA

NA

Platinum

841.00

847.00

841.00

840.00

833.00

Copper

2.72

2.80

2.80

2.75

2.78

Crude(WTI)

51.91

56.23

55.66

57.82

56.53

Global Government Bond Yields

 

November 26, 2018

November 19, 2018

November 16, 2018

November 15, 2018

November 14, 2018

US 10 year

3.07%

3.04%

3.08%

3.09%

3.15%

US 30 Year

3.38%

3.29%

NA

NA

NA

UK

1.41%

1.39%

1.42%

NA

NA

Germany

0.36%

0.35%

0.36%

0.36%

0.40%

Brazil

9.97%

10.10%

10.15%

10.39%

10.44%

Italy

3.25%

3.60%

3.49%

3.51%

3.48%

Japan

0.08%

0.09%

0.09%

0.10%

0.10%

Major U.S. Indexes

 

November 26, 2018

November 20, 2018

November 19, 2018

November 16, 2018

November 15, 2018

VIX

20.78

20.76

18.78

20.04

20.41

DOW

243.64

250.17

254.13

252.42

250.61

S&P 500

265.80

269.10

273.73

271.74

268.76

NASDAQ

7051.86

NA

7247.87

7247.87

7129.04

Currency Cross Rates

 

November 26, 2018

November 20, 2018

November 19, 2018

November 16, 2018

November 15, 2018

USD/JPY

113.5700

NA

112.8600

112.8300

113.2200

EUR/USD

1.1340

NA

1.1427

1.1415

1.1303

AUD/USD

0.7233

NA

0.7289

0.7332

0.7272

USD/MXN

20.399

NA

NA

NA

NA

CHF/USD

1.0012

NA

1.0033

0.9996

0.9949

USD/CNY

6.9396

NA

6.9427

6.936

6.938

USD Index

96.98

NA

96.39

96.43

97.22

[1] https://en.wikipedia.org/wiki/National_Regeneration_Movement

[2] https://www.wsj.com/articles/u-s-china-trade-fight-risks-fragmenting-global-market-says-beijings-ambassador-to-the-u-s-1543228321

[3] https://www.theguardian.com/science/2018/nov/26/worlds-first-gene-edited-babies-created-in-china-claims-scientist

Image: National Geographic

Five Hundred Words 11/16/2018

Friday, November 16, 2018

Daily Writing

9:44 AM

US 10-year treasury notes have steadily ticked down throughout the week as investors seek a haven.  Equities markets remain choppy on trade tensions between the US and China.  Uncertainty regarding the outcome of UK-EU Brexit negotiations is also feeding into the broader uncertainty.

Brazilian 10-year government bond yields dipped lower on news that president-elect Jair Bolsonaro selected Santander’s Campos Neto to chair the Central Bank of Brazil.[1]

We are looking into a play to short European corporate debt.  Some European corporate bonds currently yield less than US treasuries.[2]  One way to short European corporate debt would be through shorting international corporate debt through the exchange-traded fund PICB.  We will continue to look through this and provide updates in the future.

US Treasury yields continue to move lower coupled with weakness in the equities markets.  The dollar fell and Treasuries rallied on Friday after the Fed’s newly appointed vice-chairman issued cautious comments that further reinforced the market’s view the US central bank would be in no hurry to step up its pace of interest rate rises.[3]

 

[1] https://www.bloomberg.com/news/articles/2018-11-15/brazil-s-campos-neto-to-take-over-central-bank-guedes-says

[2] https://seekingalpha.com/article/4121474-look-back-cringe-part-1-european-junk-bonds-yield-less-u-s-treasuries

[3] https://www.ft.com/content/dfa2dbc4-e9a9-11e8-885c-e64da4c0f981

 

Market Data

Resource Commodities

 

November 16, 2018

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

Gold Spot

1214.50

1203.25

1201.90

1199.98

1209.40

Silver

14.270

14.130

13.985

13.990

14.040

Platinum

840.00

833.00

837.00

838.00

852.00

Copper

2.75

2.78

2.76

2.72

2.69

Crude (WTI)

57.82

56.53

56.43

57.13

60.74

 

Global 10-Year Government Bond Yields

 

November 16, 2018

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

USA

3.08%

3.09%

3.15%

3.15%

3.18%

UK

1.42%

NA

NA

NA

NA

Germany

0.36%

0.36%

0.40%

0.39%

0.38%

Brazil

10.15%

10.39%

10.44%

10.54%

10.49%

italy

3.49%

3.51%

3.48%

3.44%

3.43%

japan

0.09%

0.10%

0.10%

0.10%

0.11%

 

Major U.S. Indexes

 

November 16, 2018

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

VIX

20.04

20.41

20.52

19.45

17.26

DOW

252.42

250.61

253.88

253.21

259.59

S&P 500

271.74

268.76

274.18

273.06

277.24

NASDAQ

7247.87

7129.04

7271.83

7259.66

7309.29

 

Currency Cross Rates

 

November 16, 2018

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

USD/JPY

112.8300

113.2200

113.9600

113.8200

113.800

EUR/USD

1.1415

1.1303

1.1303

1.1292

1.1268

AUD/USD

0.7332

0.7272

0.7224

0.7219

0.7209

CHF/USD

0.9996

0.9949

0.992

0.9929

0.996

USD/CNY

6.936

6.938

6.9509

6.9545

6.9631

USD Index

96.43

97.22

97.12

97.16

97.33

Five Hundred Words 11/15/2018

Thursday, November 15, 2018

Daily Writing

9:44 AM

GBP/USD is trading much lower today amid Brexit negotiations which seem to be getting nowhere.

US treasury yields are also ticking lower today as investors move into more secure assets.  Volatility is not moving too much, and aside from the elevated CBOE put/call index from the start of the day, volatility has moved steadily lower throughout the trading session.

 

Market Data

Resource Commodities

 

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

November 9, 2018

Gold spot

1203.25

1201.90

1199.98

1209.40

1223.50

Silver

14.130

13.985

13.990

14.040

14.420

Platinum

833.00

837.00

838.00

852.00

861.00

Copper

2.78

2.76

2.72

2.69

2.78

Crude (WTI)

56.53

56.43

57.13

60.74

60.19

 

Global government bond yields (10 year)

 

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

November 9, 2018

U.S. 10 year

3.09%

3.15%

3.15%

3.18%

3.19%

Germany

0.36%

0.40%

0.39%

0.38%

0.40%

Brazil

10.39%

10.44%

10.54%

10.49%

10.37%

Italy

3.51%

3.48%

3.44%

3.43%

3.40%

Japan

0.10%

0.10%

0.10%

0.11%

0.11%

 

Major U.S. Indexes

 

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

November 9, 2018

VIX

20.41

20.52

19.45

17.26

16.87

DOW

250.61

253.88

253.21

259.59

261.49

S&P 500

268.76

274.18

273.06

277.24

277.76

NASDAQ

7129.04

7271.83

7259.66

7309.29

7406.90

 

Currency Cross Rates

November 15, 2018

November 14, 2018

November 13, 2018

November 12, 2018

November 8, 2018

USD/JPY

113.2200

113.9600

113.8200

113.800

113.7800

EUR/USD

1.1303

1.1303

1.1292

1.1268

1.1315

AUD/USD

0.7272

0.7224

0.7219

0.7209

0.7213

CHF/USD

0.9949

0.992

0.9929

0.996

1.00590

USD/CNY

6.938

6.9509

6.9545

6.9631

6.9552

USD index

97.22

97.12

97.16

97.33

96.90