thread: Training Journal

quote Thanks so much for your in depth analysis Synicz... One newbie question: You mentioned To make things worse, interest rates are still not far away from all time, thus restricting the choices of central banks. If interest rates are near all time, doesn't that mean there's room for them to go higher that would in turn become an option that the Central Bank can utilize? How would low interest rates become an impediment to the Central banks? Thanks once more...

Central Banks will only increase interest rates if the market is good and inflation is picking up. The reverse happens. Economies falter and experience deflation. In this case, authorities typically reduce interest rates in expectation of encouraging people and businesses to invest, this will in turn spur the market. In theory, interest rates can only go to zero, but Japan has performed a fantastic little trick with negative interest rates (That will be an additional chapter if I were to elabourate). During the 2008-09 financial astrophe, the fed cut interest rates from about 3.5% to 0.25%.

The current US interest rate is 1.25-1.5%. We don't have much wriggle room to decrease interest rates if a different downturn were to happen. If government can't cut interest rates satisfactorily, the recession might be protracted. And we all don't want that. With economies so tightly tied. Trouble in 1 country could quickly spread to other countries. Especially with countries such as US.

quote Since you are aware. Fed will raise interest rates and roll back on their QE measures. While EcB has already started rolling back on QE. General consensus is that the current markets are being encouraged by the very low interest rates and excess money. By rolling back on QE and raising interest rates, the government is decreasing the total amount of cash floating around the world. Therefore, people (investors and consumers) will have lesser cash to eat and/or invest. To translate that to the markets, we might observe a drop in shares,...

Thank you so much for the in depth analysis Synicz...

One newbie query:

You mentioned

To make things worse, interest rates are still not far away from all time highs, thus limiting the choices of central banks.

If interest rates are close to all time, does not that mean there is space for them to go higher which would subsequently be a choice that the Central Bank can use?

How would low interest rates be an impediment to the Central banks?

Thanks once more...

quote Synicz, Thanks for your commentary on the developments... My question would be then, if stocks, bonds, commodities are all going down, where is all the money going? Surely it has to go someplace. Probably the clue may be the current anticipation of increasing interest rates and rolling back of quantitative easing... Could you please elaborate more on the above? Which asset class is it specifically likely to and why? Thanks

As you're aware. Fed is planning to increase interest rates and roll back on their QE measures. While EcB has already begun rolling back on QE.
General consensus is that the current markets are being artificially supported by the low interest rates and excess money. By rolling back on QE and increasing interest rates, the government is decreasing the total amount of money floating around the world. Thus, people (consumers and investors) will have lesser cash to eat and/or invest. To interpret that to the markets, we might see a drop in stocks, bonds, and commodities. The level of that is dependent upon the pace of tightening. Too fast a pace and we might see a market crash is all the asset classes. Too slow and inflation may overshoot.

My take is that stock markets are currently over-inflated. And that the Fed, EcB, BoE or anything central banks that implemented any kind of stimulus cannot effectively remove them without causing an accident in the markets. To make matters worse, interest rates are still not far away from all time, therefore limiting the choices of central banks. So undoubtedly all markets will decline eventually. But if, how long, and asset class would probably be hardest hit? Nobody understands.

It is however in my view that contrary to consensus, government bonds will continue to be supported for the above mentioned facts. I would however be tired of US government bonds on account of the amount of debt they've incurred and expectations of the total amount of debt that they will incur in the long term. Alternately, money are a safe bet if you're ready to miss out to the current bull run.

To summerize my response, all markets will probably decline. But I see government bonds and money to be least affected.
I must say however that the above are my opinions made by available information. Economics has a humorous way of churning out surprises! Who knows. Markets may rally another 5 years!

4/02/2018 -- The prior week was a volatile one. With international stocks largely down and bond yields upward. Among the index that I use mostly to assess global risk sentiment is the VIX - that has been below 15 for quite a while. Lately, VIX reached 17, implying that belief is starting to turn risk adverse. Energy and precious metals commodities will also be all down weekly. Lately, USD performed comparatively well weekly. Being the very best gainer among the G10 currencies. My question is then, if stocks, bonds, commodities are all going...

Synicz,

Thanks for your commentary on the developments...

My question is then, if stocks, bonds, commodities are all heading down, where's all the money going? It must go.
Probably the hint could be the current expectation of rising interest rates and rolling back of quantitative easing...

Could you please elaborate on the aforementioned? Which asset class would it be specifically likely to and why?

Due

4/02/2018
--

The preceding week was a volatile one. With global stocks mainly down and bond returns up.
Among the index that I use mostly to evaluate global risk sentiment is the VIX - which has been below 15 for quite some time. Lately, VIX attained 17, implying that sentiment is beginning to turn risk adverse.
Energy and precious metals commodities will also be all down last week.
Lately, USD performed relatively well last week. Being the very best gainer amongst the G10 currencies.

My question is then, if stocks, bonds, commodities are all heading down, where is all the money going? It must go somewhere.
Probably the clue could be the current expectation of increasing interest rates and rolling back of quantitative easing...

Also, I am waiting for the US government bond yield curve to flatten further to wager on the curve steepening

USD rises against bullish data... This might be the alyst for the dollar rebound. It is oversold anyways

02/02/2018
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I noticed that no. 11 sugar futures has been ranging because june 2017. We're currently sitting at the lows of the multi month range. Taking my cue in another agriculture commodities, they appear to be breaking from the highs of the range whilst sugar has to follow.
Looks like a good chance to go long!

01/02/2018
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US salary and employment data seems to be getting back in line for more powerful inflation.
All we need now is the last knockout during non-farm tomorrow. Usd should react with strength after.

31/01/2018
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I have reasons to believe that the end of the bond bear market is nearing... Possibly once 10 year treasury hits 2.8%...

VIX INDEX JUED ABOVE 15 IN US SESSION
DOW SP500 DOWN AGAIN

Prepare to jump off the risk-on Boat!
Im seeing the markets for signs of a breakdown/decline. If it starts, im gont load up on these safe havens!