Archive for February, 2018

Yesterday there was the first speech of the new Fed Chairman Powell and he stuffed up.

Everybody said that Powell was just a continuation of Yellen, but, from the FED history, it is clear that every chairman likes to have its own stamp of approval.

Why he stuffed up.

The Fed was trying to convey a “balanced message” – The written speech was all about “balance between overheating and gradually bringing the price inflation to 2%”


Also. on Monday, his deputy, reassessed that he will carefully watch the signs and proceed gradually.

But when Representative C. Maloney, Dem = NYC, asked what would cause the Fed to raise interest more than 3 times (my personal take always has been 4), Jerome answered that his personal view is the the US economy has strengthened.

Immediately after the bond yields rocketed +1.62%, USD +0.62% and SP 500 -1.27%.

That is what I call a first bad day in the office.

My clients know what is my technical call.


A Third Lebanese War

Posted: February 21, 2018 in Uncategorized

There are so many things happening in Syria and surrounding that is hard to keep pace.

The latest is that Syrian-allied troops are supporting against Turkey (apart what you read on the media….the reality is that Turkey – a NATO country – invaded Syria with the silent approval of the US and Russia. Syria is simply protecting its legal borders).

But something larger and even more ominous is happening.

It is a few year that a large LNG field has been found off the coasts of Cyprus, Turkey, Syria, Lebanon and Israel and Egypt. But now the real digging starts and things are becoming even hotter.

Turkey breached the Cypriot economic zone with warship and intercepted a Saipem (Italian energy giant ENI) oil drill ship.

It has already started a war of world between Egypt and Turkey – in 2013 Cyprus and Egypt signed an exploration collaboration for the gas fields. Now turkey says that the agreement is invalid.

Naturally Israel is interest and already the Iranian proxy Hezbollah made known that any Israeli oil platform will be subject to rocket fire.

Italian Eni and Saipem, American Exxon and Nobel , Qatar petroleum and Israeli Avner Oil, BG and Delek Drilling are all involved. 4.5 Trillion cubic footof LNG!!

And already you can see the rivalry Cyprus, US, Israel, Greece, Egypt vs Turkey vs Lebanon/Syria/ Iran at least.

Here we go again – as usual we will be told that there are some “baddies” to take care (well the US did intervene to save the Yazidis when Islamic State was starting to threaten the Iraqis Exxon oil field).


Markets: surprise!

Posted: February 15, 2018 in Uncategorized

Inflation read was higher…and the market….rallies.

Why? The main factor is that a secondary report detailed that retail sales were a miss and other factors (including oil decrease) muddled the figures and there is not enough in it for the FED to change pattern.

Other influence is that 10 year yield is close to 3% and it is not a resistance that will give way easily.

Also it was Vix option expiration day.

Still the market is changing pattern.

Everybody is waiting anxiously the CPI data released in the US.

A good data (inflation lower than expected) will spur the market into a consolidation – a bad data will restart the sell off.

Also tomorrow is option expiry date that can induce more volatility.

In the last year inflation in January (the one that spooked the markets) was always overstated – but they changed the basket. So there is no way to know.

In the market yield are consolidating, but a lot hedge funds are taking position for a sell off (mind you hedge funds can be wrong or just hedging.. A Citi released showed that hedge funds went fully long 25th January.

Street is looking at 0.2% as a good number (y/y growth 1.7% vs 1.8% December.

On 70 economist interviewed by Factset, only 6 see a 0.3%.

Goldman Sachs is saying buy the dip, Bridgewater Associates (largest hedge fund) says please do not even think about it.

It is really a bet.

Syria: a real Game of Thrones

Posted: February 13, 2018 in Uncategorized

People likes to read the Games of Thrones – while there is a real one.

Now that Islamic State has been defeated as a coherent ground force – the real war starts to appear.

In the North, Turkey is making its advances in the Syria- Kurd territory (with the implicit assent of Russia) , but the advance is slower than predicted and casualties are mounting (the Kurd shot down an helicopter) as the Syrian Government (with the consent of Russia and Iran) starts to delivering support to the Kurd. Erdogan probably as until August to “solve” the situation before the media turns against him.

Turkey tried to spearhead deeper in Syria, but Russia started bombing ahead of the convoy to say – I do not like it.

The Iranian/ Russian/Syria tried to advance towards North East in the US Supported Free Syrian forces (and an oil field of Conoco Philips) and clearly showed that the US does not approve by bombing 150 Syrian soldiers and shooting down a Russian Su 25 (Su 25 is a well defended aircraft – so probably the manpad (shouldered missile) was a top of the shelf Manpad – maybe US Special Forces).

In the south an Iranian drone provoked an almost war situation with Israel. As Iran has no intention to provoke Israel – probably this was a pretext of Israel to give a lesson – but they lost their first airplane in combat since 1982 (please note this is geopolitics not propaganda against Israel – simple as a matter of fact Israel need to send a message to Iran). The plane was shot above Israel as planes do not need anymore to hit from above.

“Fortunately” no one really want a full blown up war as the economic costs would be excessive – so, after the fact they all show restrain in escalating (Russia has S-400 and S-500 anti air missile which are  some of the best system – but it is still not using it).

But a misjudgment is just a trigger finger away.

Germany elections

Posted: February 9, 2018 in Uncategorized

Germany elections are almost over after moths of empasse.

I say almost as there is the agreement – but it has to be ratified by the SPD members.

The big loser would be Angela Merkel party as it had to relinquish a lot of power to the SPD.

The SPD has a more risk-sharing and “investment in Europe” approach so it could be good for Europe.

There is still quite an elevated disagreement that could instead paralyze Germany.

Meanwhile France is pushing for more European economical integration – while Northern Europe always is dragging its feet.

Most likely reforms will be passed, but watered down.

But first let’s see if the SPD referendum gets ratifies.

Another day, another kill day for the market.

Did you notice that the kill zone is always 30 mins before the close.

Two motivations and the same culprit

  1.  To make money a lot of mega funds (US 401k, Industry funds, Sovereign funds) found a new way to make money. As lat year the volatility was not existent they started volatility trade. Sell volatility say at 8 and get extra income without doing anything. The issue is that as soon the volatility rise the program (the are all computer driven programs) have to sell  indiscriminately to unwind the trades.So practically when the volatility is high they buy (like in the two days of calm) and then they sell adding. Like today, looking at the VIX, as soon as the VIX passed the 200 days average everything went pear-shaped. All automated.
  2. Robo advice – especially in the US the large majority of retail clients are now using Exchange Traded Funds and Robo – Advice. Again as the volatiity spikes the risk does not match and they start selling (again at the end of the day) indiscriminately.

What a human can do?

The human can discern when there is good value or not (actually in the sell off good company have been sold off more as they can withstand the volume or money) – wait the storm to pass and buy again.

What the Regulator should do?

They are the one that should have imposed rules on the algorithmic trading machines. Probably they will do it. Late as usual

Last week a Russian jet was shot down by a portable shoulder missile. Naturally Russia retaliated with violence and killed all the unit responsible.

The issue is that the weapons have been given to them by the US 2018 National Defense Authorization Act signed by President trump)to the Free Syrian Army, specifically HTS (Al Qaeda re branded).

Now, they really do not understand that a portable shoulder missile in the hands of the “now friendly” Al Qaeda can be easily sent too Europe close to a civilian airport?

When it happens, don’t blame the Russians please.

State of the Markets

Posted: February 7, 2018 in Uncategorized

A day of reprieve today.

Serious damage has been done and, aside today, a period of consolidation will be needed.

Moreover it is an harbinger of things to come.

In the last year Wall Street introduced (a bit like 2006) a lot of new and strange product.

Gamma trades (bet on low volatility), all sort of ETF (robotic trading, factor, ultrashort, leveraged and so on), algorithmic trading, volatility selling).

Always in bull market they find a way to make more money and the regulator just watch.

This products significantly will produce more swings and we will need to get used to it.

And yes…soon or later something will go really wrong. Well at least the Fed now knows it.



My November newsletter was aptly name the Rise of the Machines.

And last Wednesday was Early Warning.

In essence I wrote the new algorithmic  trading and ETF will wreak havoc once they decide to attack.

And they decided provoking immense and rapid losses.

From JP Morgan quant desk (today, not over 3 months ago)

<<JPMorgan’s quant strategist Kolanovic said spike in market volatility will probably trigger some $100B of outflows from US stocks by funds following so-called systemic approaches. Said selling from trend-following strategies contributed to Monday afternoon’s selloff on Wall Street and unwinding of positions betting on continued low volatility — known as index-option gamma hedging, short-volatility trades and volatility-targeting strategies — were also behind the outflows. However, noted recent selloff will likely draw fundamental investors and even trigger pension fund rebalances. ” In a separate article, Bloomberg discussed how momentum-chasing quants were actually ready for the sell-off with Commodity Trend Advisers’ (CTAs) reducing their equity exposure from a three-year peak on 24-Jan while raising their commodity exposure to a six-year high.>>

Moreover I must add that it is clear that ETF (exchange Traded Fund) are selling under robotic advice parameter.

For my clients only, I also explained how to fight the machines. Very similar to the movie, indeed – the future of stock market war is here.