Like a general fighting the last war

Central banks doing now what they should have been doing a decade ago

The last half of the 2010s was characterized by central banks trying to get back to ‘normal’ or to ‘home’ on interest rates. They were obsessed with getting away from the zero bound, just so they could cut again in the future.
They were slaves to the Phillips Curve and few of them emphasized (or realized) that technology, globalization and deunionization were putting downward pressure on prices.
Now we arrive in the 2020s and they’ve seen the light. They’re pledging to keep rates low and goose inflation above target. Kaplan today highlighted technology-enabled disruption as justification.
The problem is that the game is likely to change again. It’s all like a general investing in trench-digging equipment after the first world war. China is now exporting inflation.
I believe that the layering on of leverage should be one of the big takeaways from the market blowup in March. Central banks should be tackling that but instead, they’re building an even-larger tower of leverage in the belief that if anything goes wrong, they can always pump in enough money to make it better. That’s a mistake.
The real danger though is inflation. Yields moved up yesterday and in Asia today before correcting back lower. If they start to move up, bond investors are going to be sitting on massive paper losses.
Already, parts of the market are signaling that inflation is coming.Note that 5y5y forward inflation rates today are at 2.13%; a level that would crush today’s 10-year note bond buyers at 0.73%.
That’s a long way from even the post-crisis era but you can see which direction it’s moving.
Poweell
I’m the furthest thing from an evangelical on inflation but you can see the way that house prices, commodity prices and government spending are going.

10 HABITS OF SUCCESSFUL TRADERS

Number 10 - Free Picture of the Number Ten1.  Follow the Rule of Three.  The rule of three simply states that a trade will not be made unless you can carefully articulate three reasons for doing so.  This eliminates trading from an indicator alone.

2.  Keep Losses Small.  It is vitally important to keep losses small as most all of large losses began as small ones, and large losses can put an end to your trading career.

3.  Adjust Stops.  When a trade is working move your stop loss up in order to lock in gains.

4.  Keep Commissions Low.  There is a cost to trading but there is no reason to overpay brokerage fees.  A discount brokerage is just as good as a premium brand name one.

5.  Amateurs at the Open, Pros at the Close.  The best time to enter trades are after lunch when the professionals are looking to get in at a better price than one provided in the morning.

6.  Know the General Market Trend.  When trading individual stocks make sure you trade with the general market trend or condition, not against it.

7.  Write Down Every Trade.  Doing this will allow you to learn what is working and what is not.  It will also help you determine what types of trades work best for your personality.

8.  Never Average Down a Losing Position.  It is a loser’s game when you add to a loser.  You add to winning positions because they are winners and are proving themselves to be such.

9.  Never Overtrade.  Overtrading is a direct result of not following a well thought out plan, deciding it is best to trade off emotion instead.  This will do nothing but cause frustration and a loss of money.

10.  Give 10 Percent Away.  Money works the fastest when it is divided.  When we share we prime the economic pump of the universe.

Trading is a game of rules.  We either make the decision to abide by them or we break them.  We do the latter at our own peril.

Learn to be wrong and Who cares?

1.) Learn to be wrong. Traditional education trains us into thinking that we have to be right to get the grade. With investing and trading, focusing on being right will bring assymetric risk to your methodology and will eventually lead to a blowout at least once. – Steven Place

2.) First, invest in yourself.  That is, acquire as much knowledge as possible and analytical skills in a wide variety of disciplines and develop the ability to abstract yourself from the present. Become a mathematician, economist, political scientist, psychologist, sociologist, and futurist. – Gary Evans

3.) You are not a market-timing genius and neither is anyone selling services to you! There is a long-term path to progress, with several good ways to get aboard.  Be interested, be watchful, but do not be too confident. – Jeff Miller

4.) First, understand that ultimately you are responsible for the outcome of your investments and that they shouldn’t blame bad markets, bad advisors, or bad luck if they lose money.  Secondly, always try to stay as objective and unemotional as you can about what you invest in.  And lastly, remember that discipline and risk management is the key.  You can lose all the profits from five well managed trades or investments with one poorly managed one. 

Moody’s affirms USA credit rating at Aaa, outlook stable

Moody’s not interested in a lawsuit

Print all you like, spend all you like. No one is downgrading the USA after S&P did and the government sued them for $1.5B for mortgages. Even the company knew what it was all about.
At the same time, a country that prints its own money can’t default. But they can devalue.

Flood of Japanese money rushing to USD assets

Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets

  • “The presence of the Japanese as the main carry trade driver seems to be growing as they must turn to overseas investments”
Demand for higher-yielding American assets growing
  • In April, Japan’s money managers bought the most U.S. corporate debt in eight years and the second-highest amount of equities in five years
  • “Japanese investors use yen to fund purchases of Treasuries or U.S. corporate bonds, for instance, to seek credit spreads and these flows are continuing,” said Koichi Sugisaki, a strategist at Morgan Stanley MUFG Securities Co. in Tokyo.
Check out USD/JPY … its net more or less unchanged, even a little lower, since November last year …. Without all the Japanese money leaving yen into USD it’d have to be lower I guess?
Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets 

Bridgewater warns of a lost decade ahead for stocks

Bridgewater Associates is a Ray Dalio founded US investment firm. Via an analysts’ note:

Analysts at the firm are warning of a lost decade ahead for equity investors.
Citing:
  • U.S. corporate profit margins could reverse the strong growth seen in recent years.
  • these margins have provided a substantial portion of the excess return of equities over cash
  • reversal is more than merely the current cyclical downturn in earnings
  • “Globalization, perhaps the largest driver of developed world profitability over the past few decades, has already peaked”
  • “U.S.-China conflict and global pandemic are further accelerating moves by multinationals to reshore and duplicate supply chains, with a focus on reliability as opposed to just cost optimization.”
Also warn on rising corporate debt due to the efforts made on the coronavirus pandemic.

Fitch Revises India’s Outlook to Negative, Affirms IDR at ‘BBB-‘ Full Text

Fitch Ratings has revised the Outlook on India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the rating at ‘BBB-‘.

 

KEY RATING DRIVERS

The revision of the Outlook to Negative on India’s Long-Term IDRs reflects the following key rating drivers:

The coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high public-debt burden. Fitch expects economic activity to contract by 5% in the fiscal year ending March 2021 (FY21) from the strict lockdown measures imposed since 25 March 2020, before rebounding by 9.5% in FY22. The rebound will mainly be driven by a low-base effect. Our forecasts are subject to considerable risks due to the continued acceleration in the number of new COVID-19 cases as the lockdown is eased gradually. It remains to be seen whether India can return to sustained growth rates of 6% to 7% as we previously estimated, depending on the lasting impact of the pandemic, particularly in the financial sector.

The humanitarian and health needs have been pressing, but the government has shown expenditure restraint so far, due to the already high public-debt burden going into the crisis, with additional relief spending representing only about 1% of GDP by our estimates. Most elements of an announced package totalling 10% of GDP are non-fiscal in nature. Some further fiscal spending of up to 1 percentage point of GDP may still be announced in the next few months, which was indicated by a recent announcement of additional borrowing for FY21 of 2% of GDP, although we do not expect a steep rise in spending. Continue reading »

Jake Bernstein on Faulty Learning from Positive Reinforcement

  • The tension of riding a profit or loss may be quite intense for some investors. By liquidating too early, they are relieved of the tension, and, therefore, the mere termination of this situation will have the same result as a positive experience. They will be more likely to behave the same way in future trades.
  • Those who ride losses to unacceptably large amounts also tend to experience the positive effects of relief. Again the relief can serve to reward an otherwise inappropriate act. It’s like the man who, when asked why he kept banging his head against the wall, replied, “because it feels so good when I stop.”

Month-end rebalancing points to strong USD-selling – Citi

It’s almost June

It's almost June
Citi’s month-end rebalancing model flags a strong USD sell signal against EUR and GBP at this month-end
“Our Asset Rebalancing Model notes a rotation from equities into bonds at May month end. The signal is moderately strong coming in at -1.4/+1.3 historical standard deviations (hist. std. dev.) for equities and bonds respectively.
The FX impact notes selling of USD against EUR and GBP at month end,” Citi notes.
Typically, month-end FX re-balancing flows is felt most going into the 4pm London fix on the last trading day of the month.

George Soros: Coronavirus damage to Eurozone economy will last longer than most people think

Some remarks on the euro area by Soros

Soros

  • The survival of the EU is being challenged
  • This is not a theoretical possibility; it may be a tragic reality
  • EU needs to consider perpetual bonds, otherwise it may not survive
  • Says that he is particularly concerned about Italy
  • Says that Italy has been treated badly by the EU and Germany
Soros has been floating the idea of perpetual bonds since the beginning of the crisis but his idea does have its own validity since