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