Potpourri I

By | April 9th, 2017|Economy|

[Not one of my more inspired posts, but this goes to show you why directional trading is not always the best approach.] I have a lot of mixed thoughts about rates right now.  The best course of action was to jot them all down, take a step back and evaluate them. BULLISH THOUGHTS Later Non-Quarterly meetings. “Later this year” does not just mean Dec.  It could mean Nov (and Sept is a remote possibility).  This means that the Nov non-quarterly meeting year is not looking great for a hike, if you are in Dudley’s camp that the Fed takes a [...]

Widen Your Trading Horizons

By | March 13th, 2017|Basics, Featured|

One of my pet peeves about trading is how the general trading population can only think in terms of “up or down.”  As a result, people tend to under-appreciate market commentary that is not related to correctly predicting/forecasting/guessing “up or down.”  I wanted to discuss the various forms of analysis that you can make use of: Correct directional analysis. This is unquestionably useful when correct, but very few people are right significantly more than about 55-60% of the time.  Very few.  If you take a longer time horizon, that number could be higher.  But it would be unrealistic to think [...]

Six Pillars Update

By | March 12th, 2017|Economy|

That article I wrote was finally published.[1]  The hard copy should be out some time next week.  I’m supposed to be getting a distributable pdf copy at some point that I will forward to you.  The important takeaway from the article is to understand when the regime is about to change.  “Understand the current regime we are in relative to the historical data and understand what regimes we are likely to progress towards.”  We are a few steps from getting to a regime change now… Remember the “Six Pillars of Long Rates” [2] article from last quarter?  We are starting [...]

Calendar Thoughts

By | February 26th, 2017|Economy|

I saw an interesting interview last week with Chris Cole (Artemis Capital).  He gave an example of the Cold War, where we had peace (low volatility) however any number of things could have happened that could have triggered a nuclear disaster.  Since he is a vol trader, he was referring to the current environment of high risk but low volatility. I suppose I had been thinking something similar, in that I have been saying the tail risks to both sides have been quite large.  It’s somewhat unusual to think that we can get a huge move and not have a [...]

Curve Regimes

By | February 19th, 2017|Basics|

I finished that article on regime change for a trade magazine, and it has been approved.  It should be published some time in the next few weeks (I’m guessing).  There was one part of it that I thought was particularly interesting that I wanted to highlight because it seemed very relevant to the current market.  The market positioning has been “overly bearish” for some time, and partly as a result, the markets have not been able to sell off for most of this year.  EDZ0 is UP 2bps on the year, despite much-better data and a hawkish FOMC.  That’s got [...]

Op-Ed: Trump’s Glass of Water

By | February 12th, 2017|Economy|

Way back when, Mrs. CA edited a domestic violence handbook for the Junior League.  We had some memorable exchanges.  “[LOL] Do you really need another pair of shoes?”  “That’s financial domestic violence!”  We were both joking.  But through these types of exchanges, I became aware of the many types of non-violent domestic violence.  I couldn’t find the booklet online – it may have been before the internet took off.  In any event, I found something similar to what I was looking for (http://www.huffingtonpost.com/crystal-sanchez/8-steps-that-explain-why-_b_9143360.html):   “Step 5- Leniency & Opportunity  Just when a victim can literally take no more, the abuser [...]

A Nation Divided (aka Take My Wife Please!)

By | February 5th, 2017|Economy|

Don’t get me wrong – I love my wife. But if she is not the #1 Trump hater in Texas, I have no idea who is. It has gotten to the point where we have had to ban the mention of “He Who Must Not Be Named” in the house, for fear of frightening the kids. And by “kids,” that includes me. But she is not alone. I also have some very loud friends that feel similarly. I thought things were smoothed over after the election – with “no use crying over spilled milk”, “what’s done is done – let [...]

Trump’s “Master Plan”?

By | January 29th, 2017|Economy, Featured|

[From time to time, I'll write an article for Seeking Alpha. Below is the summary of the article that was published on February 2, 2017. To read the full article, go to seekingalpha.com] Summary • We have seen the past few quarters how much the Trade Balance can affect GDP. • Trump's "puzzling" foreign policy actions are wholly consistent with reducing the Trade Balance with various counterparties. • One of Trump's strengths is negotiating, and he is using some classic negotiation tactics with various countries. I discuss what he is trying to accomplish in the various parts of the world. [...]

ED-FF Spreads Have Been Widening

By | January 22nd, 2017|Economy|

I sent out an email earlier in the week discussing the noticeable ED-FF spread widening since the start of the year.  On the right is a chart of EDH7 vs a 50-50 weighting of FFJ7 and FFK7.  This FF mix matches up the Fed meetings in EDH7 exactly, and is a good reference point for the libor spread widening.  The spread settled Friday at 36.75, but this looked to be a high settle in the spread (EDH7 settled a little low).  The previous post-Treasury money rule high (from mid-October) was 36.5.  So we are in the ballpark of that previous [...]

The January Fixed Income Rally

By | January 15th, 2017|Economy|

For a few weeks now, I have mentioned the January fixed income rally that we have seen the past three years.  If you count this year, that would be four years in a row.  You can see from the chart on the right how strong this pattern has been.  We have averaged a surprisingly consistent 40bp drop in yield the previous three Januarys.  For comparison purposes, I adjusted the previous years’ rates on Jan 1 (and subsequent rates) to this year’s Jan 1 rate (2.45%). I generally don’t have a strong view on seasonal patterns.  One would think that with [...]