Ten Good Weekend Reads

Posted on January 11, 2019 by macromon

 

tgwr_4

  • Volatility: how ‘algos’ changed the rhythm of the market – FT
  • Shelter From the Storm in 2019, Barry Eichengreen – Project Syndicate
  • Seoul bears bad news for the globe – Nikkei Asian Review
  • As China’s economy gets the chills, some California firms catch a cold – LA Times
  • Why the world economy feels so fragile, Martin Wolf – FT
  • One Russian in Four Lacks an Indoor Toilet, One of Many Signs There are Now ‘Four Distinct Russias’ – Johnson’s Russia Listtgwr_2
  • Emerging Markets Get Goldilocks Feel as Risk-Buying Returns – Bloomberg
  • Even Bond Traders Don’t Believe This Rally  – Bloomberg
  • Is Apple still a ‘forever’ company? How about Facebook? – AEI
  • The fate of the dollar will shape financial markets in 2019 – Economist

Bonus

  • The hedge funds that are doing the most hiring right now – efinancialcareers
  • Lessons from history on the dangers of blind trust in data – FT
  • Will Machine Learning Transform Finance – Yale Insights
  • Xi’s US strategy recalls Mao’s ‘protracted war’ – Nikkei Asian Review
  • China’s team of crack trade negotiators will extract their ‘pound of flesh’, experts say – SCMP
  • Second Brexit referendum calls grow as Keir Starmer tells Corbyn it
    could be ONLY way out  – Express
  • Warnings From Versailles – Foreign Affairs

  • Golf-Home Owners Find Themselves in a Hole – WSJ

Tax champions: how much do the French really pay?

 

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File Under: You Heard It Here First!

Posted on January 11, 2019 by macromon

See here and here.

Hat tip:  @gregorymckenna

 

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Hmmmm…

Posted on January 10, 2019 by macromon

I’m focused on the picture in the People’s Daily tweet.  Are those what I think they are?

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S&P500 Key Levels

Posted on January 10, 2019 by macromon

Nice price action today generating an outside day, which the textbooks tell us is a confirmation and continuation of the recent move.  No fight here.

Nevertheless, moving into the zone of heavy resistance as the S&P crosses 2600 and the 50-day and .50 Fibo at 2640ish become just a chip shot away.  Grab your gap wedge,  folks.

s&p_resist

Waiting for Godot Mr. Doji so we can sell this market.

One Note Of Caution For The Bears

We are a bit concerned and nervous waiting for our short set-up as everyone and their mother are talking about the heavy resistance at 2600-2650, and also looking for a retest of the Dec 26th low.   There will have to be some real selling up there, which we think is probable given earnings should be sufficiently negative to break some supply loose.  Stay tuned.

s&p_500_chart

s&p

 

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QOTD: You Are A Badass!

Posted on January 10, 2019 by macromon

Deciding means jumping in all the way, doing whatever it takes, and going after your dreams with the tenacity of a dateless cheerleader a week before prom night.  – Jen Sincero, You Are a Badass: How to Stop Doubting Your Greatness and Start Living an Awesome Life

QOTD:  Quote of the Day

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Why Communist China Has So Many Billionaires – Bloomberg

Posted on January 10, 2019 by macromon

By one estimate, China mints a new billionaire every two days, far exceeding the rate of countries like the United States. But how did China remain a nominally Communist state while becoming a hotbed for billionaires-in-the-making? Bloomberg QuickTake explains how capitalist compromises and moves begun decades ago have made China the not-quite-Communist country it is today.

Video by Henry Baker, Graphics by Christian Capestany, Sylvia Yang – Bloomberg

 

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Selling Brazil ETF

Posted on January 10, 2019 by macromon

Taking profit in the Brazil ETF, EWZ, after  a tremendous run.  Out at $43.00 and will look to reload at a lower price.  Bulls eat, bears eat, and pigs get slaughtered.

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The Automatic Tapering Of Quantitative Tightening

Posted on January 9, 2019 by macromon

We heard a market pundit today mention the Fed will soon begin to taper its reduction in the balance sheet.  The pundit seemed convinced the balance sheet reduction is on track to total $600 billion per year as far as the eye can see.  Not so, Joe!

The balance sheet reduction is on automatic pilot in so far as the monthly maturities coming due in the Fed’s SOMA portfolio of Treasury securities and MBS are not rolled over.   That is the total monthly size of QT is dependent on the maturity profile of the SOMA portfolio. The second derivative – the change of the change in the SOMA portfolio – is sharply negative as the maturity profile in each successive year gets smaller (see table).   No Fed tapering needed, Joe!

If the total Treasury maturities for any month exceed $30 billion, for example, the difference of the total less $30 billion is reinvested back into the monthly auctions across the curve.

The mechanics of the MBS run-off are more opaque as not only we don’t have any maturity data there is also uncertainty due to refinancings.   We estimate the 2019-2021 MBS run-off based on an assumption of a running rate of 52 percent of the monthly Treasury reduction, which is the ratio since the balance sheet reduction began in October 2017.

Upshot

The following table illustrates that the Fed’s balance sheet reduction naturally falls simply due to the profile of its maturities in the SOMA portfolio.  Quantitative tightening does not come close to $600 billion that the market clowns were freaking out about over Christmas.   In 2021, the balance sheet reduction is estimated to be only $254 billion, which is just 42.27 percent of the $600 billion cap!   Still, the Fed balance sheet at the end of 2021 will remain around 3.5x its pre-crisis size in 2007.

Remember the idjits proclamation , “the Fed and Jay Powell know nothing,” at the nadir of the recent crash?   What a joke!

This confirms our suspicion the market crash from October to December was likely misdiagnosed.  Maybe what ails the market is not solely a cyclical phenomenon and about the Fed,  but something more structural, such as too much new debt being floated by the Treasury and the inability of the risk-free rate to rise and find its market clearing level. More on this in a later post.

Nevertheless,  it will be interesting to see if stocks can continue to rally on, what we believe, is a false narrative.    Stay tuned.

fed_bal_roll-off

fed_bal_roll-off_2

 

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Opportunistic Alpha Housekeeping

Posted on January 9, 2019 by macromon

If you haven’t noticed, we have been posting specific trade ideas with entry points, target prices, and stops.  These are not recommendations but a vehicle so that our readers can hold us more accountable for our ideas, and to also illustrate that following the Global Macro Monitor is a money maker.

Ideally, the trades will generate alpha for, say, a global macro fund, or P&L for individual traders, mainly through event-driven opportunistic trades.  Assume we have $1,000,000 in capital or trading limits,  which can be levered, mainly with futures. 

Let’s call these posts “Opportunistic Alpha.”

  • Brazil has been stunning, up 10.10 percent from our entry and 12.50 percent for the year.  Getting tempted to take half off but gotta let the winners run.
  • Gold starting to move.  Trading inversely with dollar
  • Is the U.K. getting close to calling for a second BREXIT referendum?  We think so simply due to TINA – there is no alternative.   The disaster scenario is not an option and we suspect the PM secretly wants a “People’s Vote” as an easy way out.  She has to at least appear to be placating Boris
  • We think stocks are still in a bear market and a test of the December low is a given.  Though we think a little more upside, especially on some positive trade noise, we will be looking to get shorty in the 2600-2640 range or sooner  if Mr. Doji begins to appear in the daily schticks

Looks like we left a little on the table by selling the China ETF too early.  Can get them all.

We just had a large contribution from a reader who said the Brazil ETF trade made him some nice coin and wanted to pay us for the idea.  That is exactly what we are looking for. 

A special shout out to our friend, Scott in Tasmania, who was our first contribution and jumped on it as soon as we put the PayPal widget up.  We will never forget it.   

Links to original posts for each trade:

Brazil ETF
Gold
British Pound
China ETF  – exit

strictly alpha

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S&P500 Key Levels

Posted on January 9, 2019 by macromon
  • The S&P continues to march toward, what we believe, is the next major area of resistance at 2640ish, which is the zip code where the 50-day and next key Fibo live
  • The market will soon be tested with the Q4 earnings reports, which will be interesting, to say the least, with all the foreign exposure in S&P500 earnings
  • Doji candlesticks have signaled coming downdrafts since the October top, the closest signal we have found to ringing a bell at the top
  • We are becoming a bit more cautious as the daily candlesticks over the past few days are beginning to resemble Dojis.  Watch this space. 
  • If the S&P generates a nice formed daily Doji, we will get shorty for a trade
  • The S&P needs to hold 2573.61, the key Fibo level during this sell-off
  • The short-term marker to the upside is today’s high at 2595.32

 

s&p earnings exoposure to china

                    Source: @gabewildau

 

s&p_500_chart

 

s&p

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