Trading the Trend

[ducati916]

1. Not just anyone can float a global currency.

2. The volume of currency must be massive - large enough not just to lubricate trillions of dollars of economic activity that takes place on the other side of the world, but so large that ordinary transactions and business fluctuations do not effect the currency's day-to-day value. Otherwise, instability would scare users away from using it.

3. The provider's external trade must be so small relative to the size of its home economy that day-to-day changes in the currency's value don't dramatically upset the domestic economy.

4. As an extension of that, the provider must be so unconcerned about the currency's value that it doesn't (unless there's a really big disruption) intervene in currency markets to push its value up or down. Again, if people are concerned that the currency is going to be manipulated once they start using it (and therefore are reliant on its use), they aren't going to adopt it in the first place. I.e your first paragraph is correct.

5. The provider must be willing to let the money flow at the whim of everyone else - if they can't get their hands on it when they need it, they're not going to use it.

6. And last but not least: The provider must be able to secure the very global trade for which the currency is used.


7. Some 70% of global currency (by volume) is in some way linked to the USD. The USD is used for over 90% of global trade and of that tiny 10% left over, iirc, 90% of it done with the euro in the eurozone.

8. This is NOT going to change. The whole planet uses the one currency for the same reason everyone within a country uses its currency: Everyone use it, because everyone use it.

9. I can't remember the exact numbers off the top of my head, but there's several times as much USD in circulation as the U.S actually needs domestically. I'm exaggerating to make my point here but if we were to assume it was 20x as much (i.e that the yanks only had/used 5% of what's out there) then they could print twice what they actually have and only debase the currency by 1/20th.

10. Hence why they can "quantitatively ease" eye watering amounts of "stimulus" into the system and have absolutely SFA consequence for doing so. Hell, last I checked, the last batch of stimulus was overwhelmingly not even printed - it was mostly borrowed by the U.S government at rock bottom interest rates as everyone were trying to get their money out of the rest of the world anyway and so loaned it to them for peanuts. They don't even need to print most of their (massive) stimulus even now.

11. That is the degree of penetration & confidence the USD has and it is absolutely unique to it for a reason.

1. In theory, any fiat currency will suffice. In practice, no not anyone has an economy large enough and stable enough.

2. The volume of any fiat currency has no physical constraints. It certainly would require 'confidence'.

3. What does that even mean?

4. Governments that have held the reserve currency status are always intervening: from Greece through to the US.

5. Banks build up reserves. Generally the higher the reserves held, the greater the use.

6. Again, what do you actually mean?

7. Well reserves certainly approach 70%. The Fed. provides huge Swap lines and Eurodollars to any requiring US dollars (debtors).

8. It changes all of the time (albeit not that anyone other than historians really pay overmuch attention). International currencies in the past have included the Greek drachma, coined in the fifth century B.C., the Roman denari, the Byzantine solidus and Arab dinar of the middle-ages, the Venetian ducato and the Florentine florin of the Renaissance, the 17th century Dutch guilder and the French franc.

9. The 'money' (M2) in circulation is the tip of the ice-burg.

10. This misses the point entirely.

11. Hardly as history has demonstrated.

jog on
duc

 

[ducati916]

1. Every other time it's happened it's literally only been that one single day (or even morning) and the virus data has then snuffed it out. The last rally on data release on friday the 3rd lasted quite literally an hour until a new batch of virus data was released.

2. My work-from-home stocks like zoom have dropped on said positive economic news but etailers have bounced because whatever extra cash is being/can be splashed is all being spent ordering stuff online, not face-to-face. I actually gained on the days of positive economic data but no virus data thanks to a bounce in ebay & amazon more than counteracting the drops I saw in zoom etc.

3. With the virus data only getting worse by the day, I don't see this changing. We hit yet more U.S and global increase records this weekend.

1. The banking data has been improving. Not out of the woods yet I agree. However the Fed. will not allow another Lehman moment. Any banks reporting this quarter that wobble will receive a bailout. The banks are building for a breakout if their reporting is only a non-disaster. That is a pretty low hurdle.

2. The issue moving forwards is (a) valuations and (b) continuation of current trends. Well (a) requires a continuation of current trends. Here in NZ where we have been essentially virus free, we have returned to normal. As if it never happened. I would expect that to be repeated around the world. Thus the current trends will not maintain their hyper-acceleration in the tech. names that have benefitted. AMZN, GOOG, FB, AAPL, MSFT were all outperforming from years back. Nothing new there. They are on a totally separate vector.

3. Picking your sectors is of course important. Going forward I expect a rotation.

jog on
duc

 

[ducati916]

Lumber and housing data:

Lumber prices made a big comeback in the second quarter, with a nearly 60% jump for the period more than making up for a loss in the first three months of the year, as home builders rebounded from the initial effects of the pandemic.

When Covid-19 entered the picture, the “ensuing economic calamity” shut down all sectors, including residential construction, and the “uncertainty significantly disrupted the perception of future demand and the consumption of lumber,” Kuta says. The “production side witnessed a complete collapse of takeaway and, in turn, was forced to make the hard decision of curtailing production in an attempt to match the immediate collapse in demand.”

U.S. construction of new houses climbed by 4.3% in May to an annual rate of 974,000, up from a five-year low of 934,000 in April, according to government data. New-home sales, meanwhile, rose nearly 17% to a seasonally adjusted annual rate of 676,000 in May.

“The housing metrics coming out of the first wave of the virus show an insatiable need for housing and have exposed the major issues that existed pre-Covid that still exist today—a shortage of existing-home inventory, a finite housing labor pool to actually build new homes, and a shortage of entry-level homes to satisfy the entry-level home buyer,” says Kuta. Historically low mortgage rates also help to boost housing demand, he says.

This is positive data for the banks, which will not be lost on the market.

jog on
duc

 

[Chronos-Plutus]

44% drop in EPS expected for S&P500 in Q2; Goldman Strategist expecting 60% drop.

https://www.zerohedge.com/markets/goldman-expects-60-drop-q2-eps-much-worse-consensus
Exciting week ahead.

 

[over9k]

1. The banking data has been improving. Not out of the woods yet I agree. However the Fed. will not allow another Lehman moment. Any banks reporting this quarter that wobble will receive a bailout. The banks are building for a breakout if their reporting is only a non-disaster. That is a pretty low hurdle.

2. The issue moving forwards is (a) valuations and (b) continuation of current trends. Well (a) requires a continuation of current trends. Here in NZ where we have been essentially virus free, we have returned to normal. As if it never happened. I would expect that to be repeated around the world. Thus the current trends will not maintain their hyper-acceleration in the tech. names that have benefitted. AMZN, GOOG, FB, AAPL, MSFT were all outperforming from years back. Nothing new there. They are on a totally separate vector.

3. Picking your sectors is of course important. Going forward I expect a rotation.

jog on
duc

I'll only be trimming my positions once virus numbers start dwindling - even then I'll be keeping a very close eye on why/how they're dropping.

I'll get to your other response later

 

[Chronos-Plutus]

Couple of interesting graphs here:

 

[ducati916]

So stocks reach resistance of previous high:

Pretty standard stuff, except we are in earnings, which adds a layer of complexity to any analysis (guesswork).

Just a nice pictorial, we already know most of the names.

And a summary from my main man flippe-floppe-flye:

The internals look somewhat weak currently, but I'll have a full summary later in the day. There are the first hints of macro-issues. This could be in anticipation of the banks reporting.

The Banks however are trading up in anticipation of some of the big money centre banks reporting tomorrow. So we have a dichotomy between the stock market (below) and the credit markets. It is only a twitch in the credit markets, but those twitches I take very seriously.

Earnings will be (pretty) irrelevant. NPL/Reserves will be the big number looked for. The stress tests were run and passed, but, who really believes the stress tests. The NPL number will be very important. The Fed. will bail out any failures, but the market will really hate (after being told they passed) any failures.

In a way you would expect the big money centre banks to be lower risk than the smaller regional banks. Usually it is the other way around. The big money centre banks (GS, MS, BAC, C, WFC) are the gunslingers and take on way more risk through derivatives (which sit off Balance Sheet) and have the greater chance of a blow-up, as to be honest, their risk management really sucks. Tomorrow morning a few of them report. We'll see.

jog on
duc

 

[over9k]

All the talking heads on the news today were banging on about taking profits before earnings season, so today looks like a classic case of selloff-causing jitters. Aka paper hands. Everything's down.Even tesla looks like it's about to close in the red.

Combine that with your analysis RE: the credit market, banks, and their earnings due literally tomorrow and today's bloodbath is completely understandable.

I bet it's an overreaction.

 

[ducati916]

All the talking heads on the news today were banging on about taking profits before earnings season, so today looks like a classic case of selloff-causing jitters. Aka paper hands. Everything's down.Even tesla looks like it's about to close in the red.

Combine that with your analysis RE: the banks and their earnings due tomorrow and today's bloodbath is completely understandable.

Well it still has some trading time to go:

There are (as always) some up, some down.

jog on
duc

 

[over9k]

Sorry, I meant the major indices. But the dow bounced a tiny bit before close and ended up 0.04% (which is essentially flat).

Lots of chop ahead IMO.

 

[qldfrog]

Sorry, I meant the major indices. But the dow bounced a tiny bit before close and ended up 0.04% (which is essentially flat).

Lots of chop ahead IMO.

While the tech got hammered, XOM ended up, banks up,etc
No bloodbath for me in the US this morning and with USD up, i expect a flat or slightly up US resilt for my Australian centric view.
Volatility is up so far
Will see what my systems tell me today

 

[qldfrog]

Zoom -5.6%
Ebay -1.6
Amazon at -3%
Time not to stay at home...
;-)
Now understand your use of bloodbath @over9k
Teasing aside, it is edgy time

 

[over9k]

Nah they've even bounced 1.5% in after hours. Futures are all up as well. NDX futures are 0.5% up already. Unless there's some kind of horror news, tomorrow will be green again.

Like I said, it was just people getting the jitters and running for the exits. A big one obviously, but they were even on the news saying they were going to do it plus what duc mentioned about bank credit etc spooking everyone.

I've seen single days that bounced up more than this - the volatility at the moment is just absolutely nuts.

It's tomorrow that'll be telling - bad bank day etc will undoubtedly spook the market into a selloff and the fed into action, so if it's bad tomorrow, there'll be a beautiful drop to buy into before the stimulus

 

[ducati916]

Market close update:

First up VIX. Spiked to our trendline. To date, that trendline has held. No reason to expect otherwise. Unless...the banks (significantly) disappoint.

Next up QQQ 50EMA. Still have that divergence. Currently at support. I would expect support to hold. The caveat is the divergence.

This is the credit issue. Corporate 10yr paper. Twitched. At our trendline. Much will depend on the bank reporting tomorrow re. credit spreads. Watch this space.

Then we have SPY and QQQ internals. Note the divergence. SPY likely to move higher. QQQ could go either way, but I suspect lower. Therefore there could be weakness in the QQQ, which might, if it is bad, bleed over into SPY, unless the banks have a good result. If the banks are strong, we see a rotation.

Banks closed pretty strong. I think the banks have the NPL issue covered. I don't expect great earnings, but nobody does, so it will be really hard to disappoint. If there is an upside surprise for any reason, banks move and drive a rotation.

Technically, we have a x2 bottom and a break of the trendline. That is pretty significant. It will take some serious losses via NPLs that threaten balance sheets to crumble the banks currently. The bar is set pretty damn low.

jog on
duc

 

[over9k]

Yep pretty standard stuff - expectations have been priced in, if actual data is above/below then we get movement in whichever direction. A lot of people obviously got the jitters & bailed out early yesterday (i.e didn't want to take the risk). Looking at the after-hours trading and futures it would appear it was a bit of an overreaction.

The only difference is that the volatility is huge at the moment so the swing either way is going to be LARGE. But it's been like that with every other data release lately so, same-same.

All the other stuff except virus data has been above expectations though and we know the fed has everything on a hair-trigger now, so even in the unlikely event we see a slump it'll be pounced on pretty quickly.

 

[over9k]

I should emphasise I meant a slump in my stay-at-home stuff. There's plenty of other sectors in for a world of hurt yet.

 

[over9k]

JPM's profit 10% higher than expected. EPS 1.38 vs 1.01 estimated. Credit losses were 10.47b vs estimated 9.15b. So they lost more than expected, but also made more than expected. Was already up ~0.4% premarket, bounced to over 4% on the news. Futures of all major indices up, republican stimulus package being revealed/pitched next week. Small business confidence higher than expected.

Should be plenty of green from here on out. Now to pick which will be the greenest. The fundamentals haven't changed.

 

[Chronos-Plutus]

JPM's profit 10% higher than expected. EPS 1.38 vs 1.01 estimated. Credit losses were 10.47b vs estimated 9.15b. So they lost more than expected, but also made more than expected. Was already up ~0.4% premarket, bounced to over 4% on the news. Futures of all major indices up, republican stimulus package being revealed/pitched next week. Small business confidence higher than expected.

Should be plenty of green from here on out. Now to pick which will be the greenest. The fundamentals haven't changed.

Are bank trading profits compensating for non-performing loans. The FED will keep pushing the market higher, so the banks don't fail; maybe

 

[over9k]

Basically, yes. Those increased losses might explain the credit tightening mentioned earlier. On balance the market's reacted overwhelmingly positively though.

But this is just banking - I suspect several of the other laggard sectors will remain so. Yesterday saw a big pivot (so to speak) to industrials iirc. This week's a bit of a wait & see moment.

 

[Chronos-Plutus]

Basically, yes. Those increased losses might explain the credit tightening mentioned earlier. On balance the market's reacted overwhelmingly positively though.

But this is just banking - I suspect several of the other laggard sectors will remain so. Yesterday saw a big pivot (so to speak) to industrials iirc. This week's a bit of a wait & see moment.

I actually want the market to have a massive melt-up, over the next year.