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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