Five Hundred Words 12/05/2018

Wednesday, December 5, 2018

Daily Writing

Market Overview

Markets are closed today for a National Day of Mourning in honor of late President George HW Bush.  Markets will reopen on Thursday.

Investors are still reeling from the sudden 3.00% drop in U.S. equities on Tuesday.  There are indications that China is actively looking to cooperate more with the United States, but there is no telling what that means for the markets when we resume trading at 9:30 AM on Thursday.

Little questions I’d like to answer eventually

  • What does an inverted yield curve mean for the broader economy?
  • The price of palladium has exceeded the price of gold for the first time in 16 years. What does this mean?  Why is this important?  Who does this impact most?  What is the use case for palladium?

China and Trump and America and trade wars, etc.

Following President Donald Trump’s open questioning of China’s commitment to reduce tariffs on US imports, China’s ministry of commerce stated publicly that it is committed to a 90-day timeline to address specific items.

Global markets cheered the weekend accord on Monday, only to reverse course Tuesday as doubts emerged over precisely what the world’s two largest economies had agreed on.

There is no good indication of how markets will respond to news that China’s ministry of commerce confirmed their 90-day commitment to purchase US imports and move to reduce or entirely remove tariffs within 90 days of December 1.

Government Bonds (German ones specifically)

The yield on the German 10-year government bond (also known as “the Bund” has fallen to 0.27%.

Why is this important?

When it comes to bonds, price and yield move inversely.  When the price of a bond moves higher, the yield moves lower.  Declining bond yields in the German Bund (or other comparably safe assets such as U.S. Treasuries) indicate that global investors are seeking safer assets to park their money.  For example, if European investors are starting to feel uncertain about European equities, they may choose to rotate their assets into bonds where they know they can find a guaranteed “risk-free” rate of return.

Here’s what we’re thinking: a 0.27% yield in nominal terms is negative in real terms.  Negative real yield means that once the bond matures, the investor will end of losing money.

If global investors can’t buy their domestic bonds and they can’t buy German bunds, then where do they go?

The clear answer is US Treasury Bonds.  At the time of writing, the yield on the US 10-year Treasury Note is 2.91%.  An important thing to note is that the real yield of U.S. Treasuries after taking long-term inflation into account is just 0.97%.  Compared to the negative-yielding German or Japanese Government Bonds (or even gold) a 2.91% yield is pretty darn attractive.

Miscellaneous items

Brexit

There’s still no Brexit deal.   I’m not entirely in tune with the happenings of Brexit (which from what I understand is likely for the better), but it feels like the indecision surrounding Brexit negotiations between the May government and the EU is fueling more anxiety and fear in the market than a hard Brexit would.  I understand that the issue is far more complicated than that, but that’s just how it feels to me.

We will consider a deeper dive into the Brexit narrative at some point, but for now, we’ll leave it here.

Personal Thoughts

Overall this blog is intended to be an exploration of my thinking and analysis of the world over time.  I hope whatever I write here can be informative for others as well.  My approach is to continually ask questions about things I don’t understand clearly, because of this my writing contains unanswered questions.  I hope moving forward I can develop a community of people who possess a learner’s mindset.  Ideally, those who follow my blog are skilled in areas where I am weak so that I can learn as well.  My sincere wish is to contribute to the thinking of others.

Market Data

Resource Commodities

 

December 5, 2018

December 4, 2018

December 3, 2018

November 30, 2018

Gold Spot

1238.00

1230.30

1228.28

1223.90

Silver

14.505

14.355

14.385

14.285

Gold/silver

85.47

84.84

85.29

85.76

Platinum

802.00

806.00

806.00

818.00

Copper

2.7555

2.8075

2.8571

2.824

Crude(WTI)

52.12

53.25

52.97

50.52

Global Government Bond Yields

 

December 5, 2018

December 4, 2018

December 3, 2018

November 30, 2018

US 10 year

2.91%

2.95%

3.02%

3.02%

US 30 Year

3.17%

3.38%

3.38

3.38%

UK

1.31%

1.31%

1.33%

1.36%

Germany

0.27%

0.28%

0.31%

0.31%

Brazil

10.09%

9.95%

9.82%

9.89%

Italy

3.05%

3.15%

3.12%

3.21%

Japan

0.06%

0.06%

0.07%

0.08%

Major U.S. Indexes

 

December 5, 2018

December 4, 2018

December 3, 2018

November 30, 2018

VIX

CLOSED

16.84

16.04

19.18

DOW

CLOSED

257.53

257.80

253.39

S&P 500

CLOSED

278.34

280.38

273.98

NASDAQ

CLOSED

7158.43

7421.77

7296.39

EM USD

CLOSED

1059.93

1054.71

1053.73

Currency Cross Rates

 

December 5, 2018

December 4, 2018

December 3, 2018

November 30, 2018

USD/JPY

113.2100

112.8100

113.590

113.5300

EUR/USD

1.1344

1.1339

1.1334

1.1316

AUD/USD

0.7268

0.7338

0.7369

0.7306

USD/MXN

20.5130

20.356

20.0611

20.226

USD/CNY

6.8545

6.8342

6.8893

6.95557

USD Index

97.08

96.97

97.02

97.20

Tellier Holdings Apprentice Fund

Wednesday, December 5, 2018

Equities

 

Close

P&L (%)

Shares

Average price

Entry date

BRK B

closed

closed

30

209.505

11/30/2018

KO

closed

closed

83

49.65

11/30/2018

MCD

closed

closed

19

187.43

11/30/2018

SNY

closed

closed

60

45.15

11/30/2018

SBUX

closed

closed

38

66.61

11/30/2018

LMT

closed

closed

6

302.45

11/30/2018

MSFT

closed

closed

15

110.28

11/30/2018

TCEHY

closed

closed

23

39.87

11/30/2018

ETFs

 

Close

P&L (%)

Shares

Average price

Entry date

Franklin FTSE China

FLCH

Closed

Closed

50

22.14

11/30/2018

SPDR S&P 500 ETF

SPY

Closed

Closed

15

274.38

11/30/2018

Cash

 

Close

P&L (%)

Position

Average Price

Entry date

EUR/GBP

EUR/GBP

(-0.04%)

10000

0.89177

11/30/2018

 

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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 11/15/2018

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 11/13/2018

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

 

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