Five Hundred Words 11/27/2018

Tuesday, November 27, 2018

Daily Writing

8:58 AM

Gold remains rangebound hovering around the $1200 spot price.  The price of gold has not moved outside of $1200 to $1235 per ounce since the middle of August.

Oil has started to hold ground at $51.00/barrel.  We found an informative clip assessing the current oil pricing situation.  In the current environment, which countries have the most impact on the price of oil?  Which events or types of events have the most significant impact on the global price of oil?

German bunds move higher, as the yield on the 10-year bund continues to move lower.  How are German and other European equities performing?  What determines the price of German government bonds?  How much impact does the European Central Bank (ECB) policy have on the domestic monetary policy of sovereign European states?

What sorts of things keep the E.U. up at night?  We know for sure that climate change is one of those things.  We know the idea of adopting a common military is also one of those things.

The yield of the 10-year United States Treasury is hovering around the 3.05% mark. We currently hold a significant position in PST, a 2X leveraged bond ETF. What are the bull and bear cases for bonds?

 

Market Data

Resource Commodities

November 27, 2018

November 26, 2018

November 20, 2018

November 19, 2018

November 16, 2018

Gold Spot

1221.60

1222.80

1224.55

1222.70

1214.50

Silver

14.190

14.250

14.405

14.340

14.270

Gold/Silver

85.81

85.86

NA

NA

NA

Platinum

842.00

841.00

847.00

841.00

840.00

Copper

2.73

2.72

2.80

2.80

2.75

Crude(WTI)

51.58

51.91

56.23

55.66

57.82

 

Global Government Bond Yields

November 27, 2018

November 26, 2018

November 19, 2018

November 16, 2018

November 15, 2018

US 10 year

3.07%

3.07%

3.04%

3.08%

3.09%

US 30 Year

3.32%

3.38%

3.29%

NA

NA

UK

1.39%

1.41%

1.39%

1.42%

NA

Germany

0.35%

0.36%

0.35%

0.36%

0.36%

Brazil

10.10%

9.97%

10.10%

10.15%

10.39%

Italy

3.25%

3.25%

3.60%

3.49%

3.51%

Japan

0.08%

0.08%

0.09%

0.09%

0.10%

 

Major U.S. Indexes

November 27, 2018

November 26, 2018

November 20, 2018

November 19, 2018

November 16, 2018

VIX

19.41

20.78

20.76

18.78

20.04

DOW

246.40

243.64

250.17

254.13

252.42

S&P 500

265.76

265.80

269.10

273.73

271.74

NASDAQ

7081.85

7051.86

NA

7247.87

7247.87

 

Currency Cross Rates

November 27, 2018

November 26, 2018

November 20, 2018

November 19, 2018

November 16, 2018

USD/JPY

113.6300

113.5700

NA

112.8600

112.8300

EUR/USD

1.1326

1.1340

NA

1.1427

1.1415

AUD/USD

0.7242

0.7233

NA

0.7289

0.7332

USD/MXN

20.623

20.399

NA

NA

NA

CHF/USD

1.00187

1.0012

NA

1.0033

0.9996

USD/CNY

6.9486

6.9396

NA

6.9427

6.936

USD Index

97.15

96.98

NA

96.39

96.43

 

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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 11/15/2018

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

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 11/07/2018

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