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High Yields and Equities

By | April 22nd, 2018|Economy|

I ran across this chart yesterday (a retweeet from 13D Research and Bloomberg), and I thought it was interesting because we had some unusual price action Friday.  Normally, when equities drop almost 1%, you would expect fixed income to rally noticeably (especially after the volatility-driven market nervousness earlier in the year).  But the long end of fixed income actually sold off noticeably!  I suppose the longer end of the yield curve did (over)flatten the prior few months, so perhaps we were due for a correction. Since the volatility scare a couple of months back, it’s felt like fixed income has [...]

Trade Tariffs Potpourri

By | April 8th, 2018|Economy|

The markets are difficult to trade directionally with the markets whipping around on trade tariff headlines.  We have no significant competitive advantage in trying to guess the outcome.  There are a lot of people out there with more information than we have – people who actually speak to the inner circles of Trump and Xi.  And even if we knew what the final outcome was going to be, it’s probably going to be a long process and we have no idea if the next major trade headline will move the markets the wrong way before moving the right way. The [...]

Q2 Preview

By | April 1st, 2018|Economy|

We could see extremely interesting price action this quarter.  There are a number of catalysts we had been anticipating in Q2.  Let’s look for opportunities in the next week or two in the following areas: Equities.  We had been looking forward to this next set of earnings for months now.  We should see the effects of the lower corporate tax rate and investment incentives.  We will also get the announcements on what will happen with the repatriated earnings.  I would think one of the reasons people have liked buying equities on dips is because of the anticipation of these pieces [...]

Equity Regime Change?

By | February 11th, 2018|Economy|

I’m not one of those people constantly calling for an equity correction.  Last year, when everyone was on the “October crash” bandwagon, I said while this was possible, that seemed liked a crowded trade and that the positive EV (expected value) was probably to the upside.  Most “analysts” will just look at something simple like a P/E ratio and not consider the other things going around them… like the corporate tax reductions, individual tax reductions, repatriation, a new infrastructure spending plan, the popularity of short vol strategies, and global central bank QE.  If you weigh all of the above, it [...]

King Kong Lives

By | February 4th, 2018|Economy|

Long time readers will know this story, but when I went through the (JPM) Chase two-week trading simulation, I just crushed it.  I had been playing strategy games and video games all my life.  So making markets and buying and selling many trades in fast markets was relatively simple.  One trading unit was in foreign exchange.  I had no experience with FX whatsoever.  But I had no reason to think I couldn’t do as well in this simulation, as I had in the past simulations.  When I sat down, the default trade size was set to “1”, which seemed very [...]

A Caveman’s View of Bitcoin

By | January 28th, 2018|Economy, Featured|

I’m not claiming to be any kind of Bitcoin expert.  I don’t know much… after all, I’ve been trapped in a block of ice all these years[1].  In particular, I have no idea how Bitcoin (or equivalent) can be considered a “currency.” When you have a fixed asset where someone keeps taking a fractional transaction cost, eventually, the users end up with next to nothing and the processors end up with most of the asset. A long time ago, my father and I were sitting around the fire cooking our mammoth meat, and I described to him how poker at [...]

A Sheep’s View of Fiscal Stimulus Effects

By | December 31st, 2017|Economy|

I (re)heard a good trading quote the other day… “Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep -- and the sheep get slaughtered.”  The line is by Gordon Gekko, from the movie Wall Street.  I didn’t realize when I first saw the movie decades ago that sheep are followers.  I just thought Gekko was saying other fund managers were meek.  And now you know why I was not a literature major (or a farmer).  In any event, it’s perfectly fine to be a sheep – you just need to know when to get out.  It [...]

Many Traders have Never Seen…

By | December 24th, 2017|Economy, Featured|

Have you ever heard that phrase “Many traders have never seen___”?  For example: Many traders have never seen a real vol spike. You’ve probably heard ad nauseum about how short vol (VIX) sellers will get crushed one day. Many traders have never seen a real equity correction. For almost eight years, buying on dips has been a good strategy. Many traders have never seen buying fixed income against the bond (or tens) yield downtrend line in the US not work. There are many old traders who’ve made a career on having the 30+ year downtrend line in the bonds hold. [...]

Bungee Cord Drivers: Retirement and Inflation Part 1

By | December 17th, 2017|Economy|

I’ve talked a lot about the bungee cord in the past few months, that is holding the US longer end from taking off.  But the bungee is more than just the ECB and BOJ QE.  Implicit in the QE policies (aside from manipulating the FX in those economies’ favor, eh hem) are the inflation and demographic structural forces that cause the QE to be implemented in the first place.  So to figure out when the bungee cord will break could amount to getting a better idea of when we could see some signs of inflation or a change in the [...]

Too Much Energy in the Bungee Cord

By | December 3rd, 2017|Economy|

The “common sense” narrative is that the economic data has been good and we just got tax reform.  A $1.5trillion deficit means that much more debt that needs to be issued and a boost to the economy.  3.0% tens, here we go!  I mean the Fed’s long run FF projection is 2.75%, and most of them don’t assume any kind of substantial fiscal stimulus.  Add some increased term premium on the curve and we could be off to the races.  This would make complete sense if the US was not so linked to the policies of other major economies.  But [...]