Monday, August 31, 2015

Buying the weakness today

I think this morning's action is as confusing as any as we have seen, all predicating upon whether the Fed shall or shall not move in September, whether it can or cannot move in September. And listening to the various comments from the monetary authorities in Jackson Hole Wyoming, I'm still confused as to whether they can or cannot move in September.

I guess the odds have been raised somewhat more than we had seen last week, after the comments from the monetary authorities.

Slightly long Stocks today

I trade only from my own account, I'm slightly long - a little discouraged when I see the action we've seen overnight in China. But, I think I'll stay that way and my propensity shall be to be a quiet modest buyer of more on today's weakness.

Stronger US Dollar helped by China currency devaluation

There has been no activity by the PBOC (People's Bank of China) regarding the Renminbi as “the people’s money” has been very quiet and there has been no need for action by the central bank there. The foreign exchange dealing world then breathes a collective sigh of relief at that fact. We remain of our oft stated opinion that this is a long term bull market for the US dollar and that we are, in baseball terms, only in the middle innings of the game. We can imagine the US dollar quietly but consistently heading higher vs. the Yen sufficiently to take the Yen/dollar to 150 and beyond, while the political confusion in Europe shall weigh heavily enough upon the EUR… along with more aggressive monetarily easier policies there than here in the US… sufficient to take the EUR to and below “par.”

The “Big Economic” news is out of Japan this morning where the government has reported that the economy in the 2nd quarter fell 1.6% in annualized terms, and although this is slightly better than the -1.9% that was the consensus this is still very clearly to the dismay of Mr. Abe and the Liberal Democratic Party there in Japan. Further this is a stunning drop when compared to the rather robust 4.5% expansion of the economy in the 1st quarter of the year. We can try to spin this number in any number of manners, but the only reasonable and common-sense spin is that the government shall have to increase deficit spending and the Bank of Japan shall have to expand the supply of reserves to the system at an even greater pace. Try as we might, we cannot see this developing in any other fashion. Indeed, the only bright spot at all is that the guess-timates on the Japanese Street going into the report were worse than the number itself. However, we suspect that there were those within the Abe Administration who “leaked” that -1.9% expectation number in order to make the official report look somewhat less onerous. We know that were we at the helm there in Tokyo that is what we would have done.

Worse for Japan, most of the weakness came in its export arena. Exports to other Asian nations… particularly to China… were down, and the only reasonable remedy for that situation is to allow the Japanese Yen to fall and to fall quite sharply. With China, however, already taking the lead on this question, Japan shall have to rush to the fore to weaken the Yen even more aggressively.

Regarding gold, we are quietly but seemingly inexorably turning away from being overtly negative of gold in US dollar terms to being at least reasonably neutral of Gold/dollars and may even find ourselves quietly positive of it. The “specs” are not bullish; indeed, they have been in recent weeks modestly net short. At the same time, the “commercials”… who are usually quite heavily net short of futures as they hedge their inventories of gold… are holding their smallest net short position in modern memory. When the “specs” are short and the “trade” is barely so it is historically unwise to be short and is historically reasonable to err bullishly. We find ourselves doing precisely that. Keeping things technically simple… and over the decades we’ve always found that “simple” trumps “complex” almost every time.


Friday, August 28, 2015

Fed will not be able to stop US dollar strength

Watch the Dennis Gartman interview on CNBC for his views on the US Dollar, Fed and why the US Dollar could still go higher.

Thursday, August 27, 2015

Stopped out of Oil long position

I turned bullish on Friday [on Crude oil]. I had no idea we were going to be walking into a 1000 point decline on the DOW.

I was wrong for one day. 
Am I still wrong? I'm on the sidelines. 
Do I think I'm going to be bullish on crude oil from this point forward? question..

Now comes the difficult point when a trader gets out of a trade and has to come back and buy it at a higher price than where he got stopped out at. That's the hardest thing in this business. We'll see if I have the courage and my convictions to do that.

Options vs Futures

In retrospect we should have been slower in turning from an overtly bearish posture on crude oil to one that was bullish, and even more properly we probably should have put our bullish posture into effect using options rather than a direct futures position. We shall consider that in the future. Certainly it would have been less “harmful.”

Having been bearish of crude oil for a very long while, it is time no longer to be bearish, but perhaps we were indeed a bit too early in turning bullish. Better, in hindsight, it would have been to have been on the sidelines following Friday’s weakness in the capital markets,  knowing that Monday would be a disaster. Lessons are always being learned.

Unfair criticism

But others took us to task a great deal more disconcertingly, calling upon us to close our business; to take up another vocation; to stop making “calls” and as one “pundit” rather comically suggested we should go have s-e-x-u-a-l relations with our self. 

But we know of no other perspective to take but to admit our mistakes when they happen, even if they are created by outside, short term agencies over which we have no control and which develop out of the thinnest of short term air. We have no choice but to live to fight another day and the chaos of yesterday forced that down hard upon us.


Tuesday, August 25, 2015

Yesterday was ugly and possibly more to come

Finally, this is the time for retaining what liquidity we can muster; this is not a time for courage. Get smaller; get liquid and get safe. Things turned ugly yesterday and today we fear is but a brief respite.

via Zerohedge

Monday, August 24, 2015

Crude oil could go up from here

For having been overtly and rather relentlessly ... and very publically ... bearish, we are this morning turning bullish of crude oil and we are turning so because the term structure shifts mandate that we do so.

We do not make this statement lightly for this is a material shift in our view of the energy market… a very material shift.

Amidst the carnage of the global stock markets this morning and even in light of the sustained bear market in crude oil, the narrowing of the contangos in Brent and WTI brings us to become a buyer of crude as noted at length above. We’ll buy a unit of crude oil, split between Brent and WTI, upon receipt of this commentary. We shall, for the moment, give these prices the latitude to move 3% against us, hoping that we can tighten that up when we return Monday.


Wednesday, August 19, 2015

Monday, August 17, 2015

Possibility of bear market has started

Chinese currency devaluation

Those focusing their attention then solely upon the Renminbi/US Dollar rate shall miss what is really going on: a veritable currency war between China and Japan. This ‘war' is only now a goodly sized skirmish. It very likely shall become much, much worse over time.

Overall market health

One by one the markets are turning downward through important moving averages signaling that the present downturn is more than a mere bout of profit taking. We do indeed find it disconcertingly bearish when the 50 day moving average falls downward through the same market's 200 day moving average: the so-called "Death Cross." We find it disconcertingly bearish when the market falls below its own 200 day moving average and we find it disconcertingly bearish when the broader moving averages are themselves turning downward.

We've been unwilling to make that case [of a real Bear market] heretofore, although we feared that that was precisely what has been developing, because every time it appeared that a potential interim top was forming the markets would right themselves; dust themselves off; look around; see that the economic coast was still clear and head higher once again. But this time the market appears staggered; it is not dusting itself off, and rather than leaping to its feet to begin the fight anew it is staggering to one knee, bloodied and exhausted and looking for the referee to stop the fight.


Wednesday, August 12, 2015

Long term bull case for US housing

Housing starts need to rise not just above 1.0 million in annualized terms, but they need to rise toward and above 1.5 million, perhaps to 1.75 million before this decade is over, for the pent up demand for housing is enormous and decades long in the making.

Monday, August 10, 2015

Dennis Gartman on Fed and US Dollar

The Fed is very concerned about the strengthening of the U.S. dollar. I don't think they're going to be able to stop the strengthening of the U.S. dollar. 

When they begin the process of taking the overnight Fed funds rate up is really to me inconsequential. It's going to go up soon. Then the real question becomes, how quickly thereafter do they move it by another 50 basis points?

Thursday, August 6, 2015

Unlikely for the Fed to raise rates

We have a Fed that is by all accounts overtly dovish in its perspective. That number this morning gave them no reason, no reason at all to consider monetary tightening going into the next quarter. 

Unless suddenly you got commodity prices spiking to the upside, that PCE is going to remain under pressure and it's not going to get above 2 percent.

They would like to raise rates. Everybody wants to see them raise rates but I think their propensity to do so, especially given this composition of the FOMC and the voting members, their propensity to tighten I think is very, very limited.