Q2 Preview

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?

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

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

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

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…

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

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

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 [...]

Current Events

November 12th, 2017|Economy|

It was a quiet data week, but we had a very interesting news week, that had some interesting implications for the curve.  It seemed for most of the year that everyone was expecting oil to go back down.  That has not materialized.  Higher oil prices are generally inflationary (even for core inflation).  Depending on whether the Fed is seen as being vigilant or patient, the front or back of the curve could lead a selloff.  It is unclear how much escalation we could see in the Middle East and how long this could last.  You would think that oil could [...]

The Big Data Week

October 29th, 2017|Economy|

I’m getting the feeling that if we don’t break the downtrend line next week, it could be at least another month (until the next PCE and Employment report) before we test it again.  We have a TON of data and news next week, and potentially a ton of good trading opportunities. Powell, Taylor and Yellen. We should find out who the new Fed Chair will be, before Trump leaves for his Asia trip at the end of the week.  There were rumors on Friday that Powell is going to get the nod.  Powell should be 80+% priced into the markets, [...]