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 11/09/2018

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 11/06/2018

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