Five Hundred Words 12/19/2018

Wednesday, December 19, 2018

Daily Writing

 

Things I’m thinking about

  • What key economic metrics am I overlooking?  Especially regarding China?
  • Chinese internal crisis of confidence.  Are Chinese elites losing faith in Xi?
  • The empty promises of Xi Jinping.  What promises specifically?  “Reform”?
  • The Federal reserve is scheduled to raise interest rates 0.25% today.  How will the market respond?
  • Where can we find opportunities in this environment?
  • What is ‘open interest’?
  • Why is it significant if LIBOR moves higher?
  • How to improve my technical analysis?
  • How can I improve the structure of my days?

 

Trading Log

9:48 AM

From a trading standpoint, shorting S&P Futures has been an effective strategy since the beginning of the month of December.  Today’s FOMC meeting will shed light on the Federal Reserve’s stance on interest rates moving into 2019.  Will the Fed hold off on raising rates next year if they feel global slowdown is becoming increasingly imminent?  We currently sit on 100% cash headed into the FOMC meeting today.

In yesterday’s letter we noted that it would be an historical aberration for the Fed to raise rates when the probability of a rate hike falls below 75.00%.

The entire trading day is being dictated by the outcome of the FOMC meeting.  We will know the Fed’s guidance for 2019 by 2:00 PM today.  At that time, we will also learn whether the Fed has opted to raise its overnight rate by another 0.25%.

2:13 PM

After the fed announced its rate hike at precisely 2:00 PM the market started to drop considerably.  The adage “buy the rumor, sell the news” seems especially appropriate in this case.  The SPY fell more than 1.00% following the release of the fed announcement.  The Fed also outlined its plans for 2019, and the message I took away from it was that they are just going to observe the market on a quarterly basis and make their decisions from there.  I can’t reiterate this enough that the Fed absolutely needs to get rates back up to at least 4.00% or 5.00% to have baseline ammunition to counter ever a moderate economic slowdown.

Market Observations

Why is the price of copper falling so drastically?

US Treasury yields continue to move lower, which is surprising considering how many bond bears there are out there.  The yields on the 10-year and 30-year US Treasuries are 2.82% and 3.06%, respectively.  Overall treasuries were stuck in a holding pattern today.

The major news today is the Fed’s 0.25% rate hike that many pundits view as dovish.  I find it unusual that the market is paying so much attention to this bit of news.  That fact alone tells me that the market may not be healthy.  The market is desperately struggling to eke out whatever good news they can find.  Our view is that the Fed must find a way to bring rates back to a normal level that can sustain the next downturn.  If we are currently in the next downturn then we could be in big trouble.

Market Data

Resource Commodities

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

Gold Spot

1249.00

1245.20

1238.10

1241.70

Silver

14.600

14.65

14.535

14.715

Platinum

789.00

792.00

785.00

794.00

Copper

2.6825

2.7040

2.7200

2.7590

Crude (WTI)

47.00

48.64

50.53

51.10

Global Government Bond Yields

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

US 10 year

2.82%

2.85%

2.86%

2.89%

US 30 Year

3.06%

3.10%

3.12%

3.14%

UK

1.28%

1.28%

1.27%

1.24%

Germany

0.25%

0.24%

0.26%

0.25%

Brazil

9.56%

9.67%

9.67%

9.61%

Italy

2.78%

2.93%

2.95%

2.93%

Japan

0.02%

0.01%

0.02%

0.02%

Major U.S. Indices

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

VIX

25.15

24.68

22.36

21.57

DOW

236.93

237.70

239.86

244.08

S&P 500

255.18

257.19

259.39

262.92

NASDAQ

6741.80

6812.51

6864.23

6961.86

Currency Cross Rates

 

December 19, 2018

December 18, 2018

December 17, 2018

December 14, 2018

USD/JPY

112.450

112.500

112.9200

113.2900

EUR/USD

1.1392

1.1369

1.1344

1.1306

GBP/USD

1.2628

1.2650

NA

NA

AUD/USD

0.7141

0.7175

0.7181

0.7178

USD/MXN

20.068

20.066

20.223

20.2528

USD/CNY

6.894

6.896

6.905

6.9049

USD Index

97.03

97.02

97.15

97.42

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Five Hundred Words 12/12/2018

Wednesday, December 12, 2018

Daily Writing

10:15 AM

Things I’m thinking about

  • How do the best traders structure their days?
  • What is the significance of the gold/silver ratio?
  • What are the most important Chinese economic data to follow?
  • What are the industrial uses for copper, palladium, and platinum?
  • What is ‘interest rate differential’?
  • What are credit spreads?  What do spreads measure?

Market Overview


Price of gold has been steadily rising since the beginning of the month.  The price of silver closed yesterday at 14.535, and at the time of writing the price of silver is up 1.20%.

platinum_price_12_12_2018

Trading Log

I am working to determine my precise tolerance for volatility.  On many trades I find myself exiting a position due to my emotions, then a few weeks later I will discover that the price of the security I sold had recovered or even soared higher.  How can I resolve this? Better risk management?

1:32 PM

There are times where I feel like it doesn’t make sense to follow the news as closely as I typically do.  To me it seems like it could be more productive to perhaps read the news in the morning, gain a grasp of the general undertone of the day, and move forward.  Not every day is going to be a “newsworthy” day. That doesn’t mean every day can’t be amazing from a personal standpoint, it’s just that there are so many headlines in the world that can attract attention.

 

Market Data

Resource Commodities

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

Gold Spot

1242.90

1243.10

1245.00

1237.20

Silver

14.535

14.495

14.545

14.440

Platinum

783.00

783.00

782.00

788.00

Copper

2.7854

2.7575

2.80

2.7530

Crude(WTI)

51.83

51.52

51.58

53.73

 

Global Government Bond Yields

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

US 10 year

2.90%

NA

2.85%

2.89%

US 30 Year

3.13%

NA

3.13%

3.17%

UK

1.24%

NA

1.21%

1.26%

Germany

0.26%

0.23%

0.25%

0.26%

Brazil

10.02%

NA

10.12%

9.99%

Italy

3.00%

NA

3.09%

3.14%

Japan

0.04%

NA

0.03%

0.05%

 

Major U.S. Indices

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

VIX

21.91

NA

23.95

22.42

DOW

245.09

NA

243.61

24918.82

S&P 500

267.45

NA

263.37

269.45

NASDAQ

7163.89

NA

7041.83

6994.39

EM USD

1061.96

NA

1062.41

1059.54

 

Currency Cross Rates

December 12, 2018

December 11, 2018

December 10, 2018

December 7, 2018

USD/JPY

113.210

NA

113.1800

112.6900

EUR/USD

1.1366

NA

1.1358

1.1384

AUD/USD

0.7230

NA

0.7188

0.7227

USD/MXN

20.0358

NA

6.8730

20.338

USD/CNY

6.8777

NA

6.9127

6.882

USD Index

97.46

NA

97.18

96.80

 

Five Hundred Words 12/11/2018

Tuesday, December 11, 2018

Daily Writing

Things I’m thinking about

  • How do the best traders structure their days?
  • What are the routines of the top traders?
  • What factors determine bond prices and yields?
  • After the point where the yield curve inverts, how do markets typically behave until recession arrives?
  • What does full conviction feel like?
  • What is the current state of global liquidity?  What are the arguments for global liquidity drying up?
  • What would happen to the UK economy under a ‘hard Brexit’?

Market Overview

Global bond yields continue to tick steadily lower.

China to cut tariffs on imported US cars.

 

What are the causes of the current global slowdown?

What are the causes of the current global slowdown?[1]

A) Much tighter dollar liquidity

  1. US dollar has served as the world’s reserve currency since World War II
  2. All major international transactions are settled in US dollars
  3. Because central banks main reserves are held in US dollars rather than local currency
  4. The Fed is the world’s de facto central bank
  5. When the Fed floods domestic banks with reserves (QE) it increases the domestic monetary base
  6. Increasing US monetary base causes US demand to start growing faster than the rest of the world
  7. This causes the US current account to swell
  8. The result is that the Fed doesn’t only increase the monetary base domestically, but it also increases the monetary base abroad and generally the global monetary base increases
  9. The Fed’s quantitative tightening (QT) policy means global dollar liquidity stopped accelerating earlier this year

B) China

  1. China’s shift began following the 19th party congress is October 2017 when the central government signaled its intent to shift from an economic model heavily reliant on exports to one driven by the services sector and domestic consumption.

Book recommendation

Beyond Blockchain: The Death of the Dollar and the Rise of Digital Currency

By Erik Townsend

 

Market Data

Resource Commodities

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

Gold Spot

1243.10
1245.00
1237.20
NA

Silver

14.495
14.545
14.440
NA

Platinum

783.00
782.00
788.00
NA

Copper

2.7575
2.80
2.7530
NA

Crude(WTI)

51.52
51.58
53.73
NA

 

Global Government Bond Yields

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

US 10 year

2.85%
2.85%
2.89%
2.87%

US 30 Year

3.13%
3.13%
3.17%
3.13

UK

1.21%
1.21%
1.26%
1.24%

Germany

0.23%
0.25%
0.26%
0.23%

Brazil

10.12%
10.12%
9.99%
10.00%

Italy

3.09%
3.09%
3.14%
3.20%

Japan

0.03%
0.03%
0.05%
0.05%

 

 

 

Major U.S. Indices

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

VIX

21.91
23.95
22.42
23.53

DOW

245.09
243.61
24918.82
247.27

S&P 500

267.45
263.37
269.45
265.97

NASDAQ

7041.83
7041.83
6994.39
7114.10

EM USD

NA
1062.41
1059.54
1060.39

 

Currency Cross Rates

 

  December 11, 2018 December 10, 2018 December 7, 2018 December 6, 2018

USD/JPY

NA
113.1800
112.6900
112.4800

EUR/USD

NA
1.1358
1.1384
1.1389

AUD/USD

NA
0.7188
0.7227
0.7224

USD/MXN

NA
6.8730
20.338
20.494

USD/CNY

NA
6.9127
6.882
6.8815

USD Index

NA
97.18
96.80
97.00

[1] Juliette DeClercq, JDI Research, as featured in Macrovoices

Five Hundred Words 12/10/2018

Monday, December 10, 2018

Daily Writing

9:25 AM

Things I’m thinking about

  • Do option holders receive dividends?
  • How do the best traders structure their days?
  • What are the routines of the top traders?
  • What factors determine bond prices and yields?
  • After the point where the yield curve inverts, how do markets typically behave until recession arrives?
  • What does full conviction feel like?
  • What is the current state of global liquidity?  What are the arguments for global liquidity drying up?
  • What would happen to the UK economy under a ‘hard Brexit’?

Market Overview

Brexit

The major news today revolves around Theresa May’s aborted Brexit vote upon the realization that her Brexit proposal would fail miserably.

 

How are markets reacting?

The GBP/USD currency pair dropped 67 basis points and is sitting on 0.90280 at time of writing.  The EUR/GBP currency pair is trading 92 basis points higher at 0.90261.

Our view is Theresa May is merely delaying the inevitable.

 

The Chinese Yuan has started weakening again

 

USDCNY_12_10_2018

 

Trading Log

Moving forward I will include a trading log as part of my writing.  The purpose of this activity is to gain a better sense of the price action of the market as it relates to my emotions in the market.  My to gain a better understanding of the impact of markets on my emotions.

Why do I have such strong impulses to sell when the correct decision would be to buy and vice versa?  It’s quite easy to lose track of your emotions while trading.

A lesson I learned recently is that I don’t always need to be trading.  I’ve found that 90% of my time is better spent observing the market, researching, and doing pretty much nothing.  I’ve discovered that I make my biggest mistakes when entering trades at the wrong time, mostly early.  For example,  after I conduct my research and open a position, I find I have difficulty maintaining my original reason for entering the trade initially, so when the trade starts to go in the wrong direction I begin to allow new ideas to pop into my head that eventually convinces me I’m wrong, even if I’m still right.  It’s quite confusing.

Market Data

 

Resource Commodities

 

December 10, 2018

December 7, 2018

December 6, 2018

December 5, 2018

Gold Spot

1245.00

1237.20

NA

1238.00

Silver

14.545

14.440

NA

14.505

Platinum

782.00

788.00

NA

802.00

Copper

2.80

2.7530

NA

2.7555

Crude(WTI)

51.58

53.73

NA

52.12

 

Global Government Bond Yields

 

December 10, 2018

December 7, 2018

December 6, 2018

December 5, 2018

US 10 year

2.85%

2.89%

2.87%

2.91%

US 30 Year

3.13%

3.17%

3.13

3.17%

UK

1.21%

1.26%

1.24%

1.31%

Germany

0.25%

0.26%

0.23%

0.27%

Brazil

10.12%

9.99%

10.00%

10.09%

Italy

3.09%

3.14%

3.20%

3.05%

Japan

0.03%

0.05%

0.05%

0.06%

 

 

Major U.S. Indices

 

December 10, 2018

December 7, 2018

December 6, 2018

December 5, 2018

VIX

23.95

22.42

23.53

CLOSED

DOW

243.61

24918.82

247.27

CLOSED

S&P 500

263.37

269.45

265.97

CLOSED

NASDAQ

7041.83

6994.39

7114.10

CLOSED

EM USD

1062.41

1059.54

1060.39

CLOSED

 

Currency Cross Rates

 

December 10, 2018

December 7, 2018

December 6, 2018

December 5, 2018

USD/JPY

113.1800

112.6900

112.4800

113.2100

EUR/USD

1.1358

1.1384

1.1389

1.1344

AUD/USD

0.7188

0.7227

0.7224

0.7268

USD/MXN

6.8730

20.338

20.494

20.5130

USD/CNY

6.9127

6.882

6.8815

6.8545

USD Index

97.18

96.80

97.00

97.08

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 11/06/2018

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