Archive for January, 2017

Market update 16 January

Posted: January 16, 2017 in Uncategorized

There has been over 64 days without a move of over 1% on the SP500 (2 longest streak in this rally and 30th longest since 1928).

Usually this “coiling” unwind quite powerfully.

It is too early to know which direction.

The market has been very resilient, so the move could well be on the upside.

As a positive there is the reporting season – on the back of the President Trump election this reporting season can be positive as over the last 5 years US companies have reported a positive beat of earnings by 4.5%. This could bring the SP500 to its natural target of 2,400 (ASX 200 6,000)

On the other side this week there is the President Trump confirmation and the scrutiny around if he can deliver his promises will intensify. But in effect the SP500 has to fall under 2,070 (so a fall of over 8%) to deny the trend towards 2,400.

SP500 can do that (January 2015 did -15%), but it can sustain quite a bit of damage before falling over.

Still doing my 2017 analysis, but my idea for the year is Rally – Wobble – Rally -Correction – Rally.

 

US (trade) war with China

Posted: January 12, 2017 in Uncategorized

One of the mainstay policy of Trump is the idea that China pillaged US.

While this is true – specially at the low end of manufacturing and assembly – a real trade war is close to a Mutual Assured Destruction as it can.

On the surface the strategy is atteinable as the US imports just 12.5% of GDP from China (and China stands at 22.5% ). Also at trading partner level the idea repeats as US trade with China represents 3.8% of Chinese  GDP – while on the other way it is just 0.65%.

But digging in the numbers shows a more scary picture for the US

Most of the Chinese exports are concentrated in consumer level electronics (eg Apple phone, television etc), toys and cheap clothing. A trade war would significantly increase the prices of these items and, in the US, consumption represents 68% of GDP. In China consumption is only 37% of GDP…but rapidly growing and interesting just as sheer size of population.

Also China would suffer greatly.

Already, under the surface, has a lot of stresses. Even if it is less consumption directed a trade war would make the Yuan fall through 7 (Yuan vs USD) and accelerate capital outflow that even draconian capital control could hardly stem.

As the Chinese reserves are already officially USD3 trillion (and probably under) and the “limit” for the economy is approximately USD2.6 trillion…a trade war could lead to a full crisis.

In the history of humankind governments in crisis usually create a bogeyman when confronted with an existential crisis. For China this bogeyman would be the US and tension will escalate in the South China Sea with the potential of a real world war 3 between US and China.

 

 

Today President Obama bid farewell.

 

As any, its presidency had positive and negative.

There was not a single day of the US not being at war – and per converse it gave the US one of the best bull market of history together with the “independent” Federal Reserve.

But also he crushed so much hopes that, out of rebellion, the normal middle class ousted him with the biggest slap in the face by electing Trump.

It was the only President in which a Red Line got crossed  (gassing in Syria) and that costed the US almost 2/3 of the Middle East.

In the US we had the biggest surge of mass shooting and gun crime. In his Chicago in 2016 there had been 762 homicides. More than double respect two years ago. Mass Shootings increased a stunning 246.7% (average per year 18.5 vs pre Obama 7.83)

I do not know why…but it is maybe part of the symptoms of the anger  that made people choose even Trump to have something different.

The US is slightly improving, but it is hard to quantify as the US Administration changed the GDP rules in 2014 – inflating numbers ( between R&D expenses, IP are now fixed assets).

Also the full employment, if you dig in the numbers, is not so good. Minimum wage is $15 an hour (minimum $7.25), jobs precarious, participation rate is low (62.7% from 67.3% in 2000 – close to the minimum in 38 years -62.2% in April 2016.

Racism is rampant, reminiscent of the apartheid in South Africa

Obama unfortunately was a very good speaker with amazing oratory skills that increased hope that then got crushed.

A bit of a delusion. From a start of “yes we can” to a “no we can’t”.

President Trump upset (as Brexit, as the Italian referendum, as Europe next year) are just signs of the rebellion of the developed country middle class – literally wiped out – starting in 1990s.

From the 2017, everything changes.

May the odds be ever in your favor- the Hunger Games have just started – your decision about investments will shape your family future.

Markets, january 2017

Posted: January 11, 2017 in Uncategorized

After a formidable start of January, we got a pause.

Now the market is starting to give signals of inversion.

Institutional selling hs start to increase in the expectation of President Trump nomination day.

The NYSE (the stock exchange where the main algos trading are working) has failed the break thru of the fan resistance starting 2015.

NASDAQ and Russell 2000 are in high stress condition ready for a big move (no confirmation of direction yet, but the market feels “tired”).

VIX (goes inverted to the market) support line is holding and break through 13 can make it jump to 15.

Definitely something is wrong.

The Yuan

Posted: January 4, 2017 in Uncategorized

China is subtly clamping down on Chinese bringing money abroad and devaluing the Yuan to avoid a panic hit to avoid a repeat of a January 2016 scare.

Wile the limit is not changed, all transactions above Yuan 50,000 must be reported to the People Bank of China and all transactions above Yuan 200,000 (circa USD28,400) must be subjected to a report process in which the citizen has to declare jpw the money will be used and pledge that the money will not be used to buy properties, securities and investment related purposes.

Bitcoin just rallied on this. There is not yet any restriction in bitcoin – probably as the market is too small to have a great effect. but it will come.

The other interesting news is that while the Yuan has always been pegged to a basket of currencies, now it just changed the basket decreasing a lot the USD peg.

It increased the basket from 12 currencies to 24 currencies, decreasing substantially the USD percentage in favor of Emerging Market currencies.

As emerging market are more volatile this means that the Yuan/USD will be more volatile and also some of the demand for USD will wane.

China did this as the Yuan lost 7% to the USD in 2016 and losing the Yuan/USD 7 level could spark panick (while the previous basket real value was, in my estimate, 7.5 – with the EM basket now is 6.96).

As we are growing accostumed since the Great Financial Crisis – the governments are not “playing by the rules”, but “playing with the rules”.