Posts

Understanding Why Currencies Move: Vicious and Benign Circles

Let’s talk about currencies. The different types of currencies and the various roles they play in the global financial system.

Because this topic is complex and I don’t want to get lost in the weeds, I’ll be making broad sweeping generalizations while focusing on the key points that matter. My plan is to do this while trying not to bore you to death. Read more

Chinese Yuan

The Chinese Yuan and a Global Tipping Point

Every market cycle has 1 to 2 macro drivers at the heart of its regime. We call these the fulcrum points. Keep an eye on the fulcrum and you’ll know when a major cyclic turn is underfoot. Read more

Fed and BOJ

What the FED and BOJ Decisions Mean for Markets

No surprises here…

Both the Fed and BOJ did exactly what everyone expected them to. Read more

USD Currency

Liquidity Crisis? What The New SEC Money Market Fund Regulations Mean For The Financial System

Things could get real interesting in the next few months.

On Oct. 17th a new SEC rule finally comes into play that will affect money market funds and liquidity across the financial sphere. There’s potential for some really big moves here. Read more

Bitcoin

A Sober Look At The Cryptocurrencies Bitcoin and Ethereum

One of our more profitable trades this year was in the cryptocurrency Bitcoin. Read more

Federal Reserve Meeting

Some Thoughts Before The Fed Meeting

The Fed is back at it again on Wednesday of this week. And as with every Fed meeting, we get to play the “will they” or “won’t they” game.   Read more

USD Macro Trend

The Dollar Deke

Webster defines a linchpin as “a person or thing that holds something together: the most important part of a complex situation or system”. In global economics, there’s always a critical factor or “linchpin” on which everything rests.

Right now, that linchpin is the US dollar. Its movements will determine the fate of global markets. The USD trend is the biggest macro trend in the world. It affects everything from equities to commodities and bonds. Read more

Why the Bank Of Japan’s Move to Negative Rates Signaled the Beginning of the End

If you want to be successful in the markets, you need to pay close attention to inflection points. Correctly evaluating an inflection point is the key to understanding market sentiment. And once you understand market sentiment, you’ll be able to determine which way an asset will trend.  

An inflection point is a critical juncture in an asset’s price. It’s a sort of crossroads, where after a big fundamental piece of news is released, the price takes off in either direction.

For example, say a high-growth tech company that’s been one of the best performers over the past few years is now reporting earnings. The company ends up releasing great earnings, but its stock price plummets the next day. This negative price reaction can be taken as a signal that investors were disappointed. Their expectations were not met, and the company’s share price suffered as a result. Read more

The Fed Already Tightened 3.25% And Probably Doesn't Know It

The Fed Already Tightened 3.25% And Probably Doesn’t Know It

  • As seen in the Shadow Federal Funds Rate, the effective interest rate was as low as -3% in April of 2014 before the Fed started tightening.
  • The current rate of 0.25% means the Fed has already tightened by 3.25%.
  • There is no way the Fed will stick to its proposed rate hike schedule. If it does, we should expect crippling deflation, a market crash, and a resulting depression.

“Don’t Fight The Fed” is a Wall St. adage as old as the Central Bank itself. The reason for its staying power is that it’s absolutely true. Interest rates set by the Fed are one of the single most important factors affecting stocks and the wider economy.

The Fed Funds Rate affects the interest you pay on a car loan, the demand for housing, the hurdle rate for a company to make capital expenditures, the discount rate used to value companies and their stock, and much more. Read more

Long Bonds: A Safe Haven In Volatile Markets

Long Bonds: A Safe Haven In Volatile Markets

  • Long dated US treasuries do well in times of market volatility and provide their best returns during bear markets.
  • US debt is viewed as a safe haven when markets are in turmoil and investors flood into them.
  • Recessions are deflationary and inflation expectations plummet. This increases the expected real return on bonds.
  • Lower growth and lower inflation lead to a lower federal funds rate. This rate is transmitted throughout the yield curve and results in lower yields across multiple durations.
  • A potential ease in selling pressure from China will also help propel bonds higher.

Read more