Tag Archives: Federal Reserve

Shifting Fed

Now we can explain why bad news is good and good is bad.

This morning the claims numbers missed slightly and the ES is rallying. Personal income rises, and spending falls. Ok. The logic apparently is: if the economy slows or stays flat, The Fed continues buying. A stock market methadone drip. This is now the only factor of any import, left for investors. How much have central bankers primed the system? (source: FT):

  • $12 trillion of financial asset purchases by the big 5 central banks
  • 520 central bank rate cuts
  • $33 trillion of fiscal and monetary stimulus according to the BIS1 (an amount equivalent to (46% of the world economy)
  • The lowest US government bond yields in 220 years
  • 50% (or $20tn) of global government bond market cap trading with a yield below 1%

The effect withdrawl will have on the EMs or Europe, is unclear. And yet I have gold in the back of my mind… Gold remains the outcast, only recently she was the prom queen. What to make of the paper selling in gold?

S&P-Gold Chart

All of last weeks worry was unwarranted. Really? That was quick. Is the VIX buying it? She can’t decide what to wear to the prom and gold is not in fashion.

VIX Chart

So when will QE end, slow, stop or be spun into such schizophrenic confusion that rehab is the only option? Never? I find that hard to believe. When the economy starts working on its own? That’s vague. Maybe they can take it in 12 steps. Friends of Ben.

The risks of shock to the equity euphoria are huge. Being long here feels dicey to me, but based on the charts it looks smart. We met one of my pull-back targets, but I personally traded it poorly. I was expecting more time to pass, end of July was my target time horizon. Here’s the chart and my logic is here.

S&P500 Chart

Leaving aside the BOJ, ECB, and Fed, the most confusing action for me is gold.  Is it not a safe haven investment after-all? Have we been mislead? Where’s the simple reasoning that gold will protect against inflation? Is that no longer a major risk? Check out the gold chart. Ugly.

Gold ChartGood Trading.

 

Credible Confusion

For those watching the gyrations of the S&P Futures, the sceptics are being vindicated. How long will the weakness last is unsure (though I have an idea), but; fear is seeping into the market. The strategy I’ve been following is written about obtusely here, here, and here. The list of red flags which have been raised over the last month is long, and taken individually the market might have easily overlook each. Yet even as the elephant in the room, Mr. Bernanke, tied the lose ends together as optimistically has his communication strategy would permit, traders started looking for an exit.

So that’s all well and good, but what now? The elephant has spoken. Continue reading

Market Sentiment Like We’ve “Never” Seen It

In 1985 I graduated High School, in what at the time, I considered the sticks. In truth suburban Cincinnati wasn’t so far from London, New York, or Paris. Ask Nolwenn Leroy, all types of interesting people pass through Cincinnati.

Me

I’ve found myself in the sticks again, I’ve left Paris for some fresh air and space. I’ve moved to a charming valley, called the Vallée de l’Eure. This change after living in Cincinnati, New York, London, and Paris is refreshing, and exciting. The trading strategies I employ have nothing to do with the stress and noise of Paris, I’m hoping to be more effective here. For those of you who have followed this blog, you’ve seen what’s probably a classic novice trader’s chemin. My interests over the last year have focused on index futures, and option hedges. This year I’ll continue with these products.

A lot has been happening since I last spent a few hours ranting here on Brandnet and I have so many ideas bouncing around in my head that this first post of March risks being incomprehensible, beware.

Here are some of the contradictions that get me thinking:

  • Europe, and it’s place in the world economy – for that matter in my economy…
    • Italy and it’s comedy, specifically
  • Youth, Unemployment, Ambition
    • Subway
  • The media’s handling of politics and the economy
  • Bitcoin, Wealth, distribution
  • Market tempered euphoria
  • Trading strategy

Admittedly the white smoke, the pope, and the historic deconstruction of how Francis will move on 4 wheels takes a certain effort to avoid, but this too will pass, as Vatican punditry fades.

2Paragraphs has a refreshing perspective.

Dow_EURUSDStarting with Europe’s Spring head fake, Europe still hasn’t paid the piper. My last post, Will Europe Find Center Stage (Again)? rings true, still. The economic numbers continue to disappoint and the European markets continue to levitate, following the US markets to recent highs. Ten straight now. The flagrant disconnect in the EURUSD defies logic. Manipulation? Obviously. This divergence is tradeable, but when? You would expect euphoria, and all you sense is apathy, as if the smart money is dumb, and the dumb money is in hibernation.

The founder of Subway, Fred Deluca claims regulation would prohibit the creation of Subway if he tried to start-up today. The spin around this story, puts me in papal avoidance mode, yet the premise strikes a chord. I’m reminded of a grandparent saying how hard they had life, wearing that struggle as a badge of honor. That tale is turned on its head today. In fact life was easy for our Grandparents, or so we’re told. Ambitious youth, educated and indebted face an increasingly difficult journey.

Yet if you compare American youth to their Italian, Spanish, Greek, French and Portuguese brethren who live with nearly insurmountable under employment (though less debt), I have to ask where and when the social impact of this horror will appear on the nightly news. What would our Grandparents say? Or what should we say to our Grandparents?

The EURUSD chart above reflects a manipulated market and a manipulated currency. The ECB and the Federal Reserve are responsable, politicians are complicit, and many argue fully justified. Yet, since we left the gold standard for a fiat currency, currency manipulation, QE or whatever lever central banks choose to employ, is fully accepted as prudent economic theory. The gold standard debate is a can of worms, lets avoid it. But PhD’s assert sans fin, the brilliance behind financial structure, and the strategies employed to manage employment and inflation. That alone raises questions. The simple idea that currency shouldn’t be manipulated by central banks is a powerful idea. Simple = Smart?

Bitcoin is constantly catching my attention, I’m trying to grasp the disruptive potential. I absolutely love the pitch, but struggle to grasp the reality. A recent ‘bug’ caused major stress in the bitcoin market. (here) On the other hand, Argentina’s capital controls are a boon to bitcoin… This  just gets more interesting. My personal experience so far is limited and a ‘wallet’ that just never seems to be synchronised. It’s going to take some work to understand the utility, but the fact that we can buy cupcakes, and trade bitcoin as a unmanipulated currency keeps my attention. (One of my recent posts on Bitcoin.)

Good Trading.