Trading the Trend

[qldfrog]

Yes big dip against euro in the last few days.can not insert picture from phone.

 

[over9k]

Victorian coronavirus cases.

 

[qldfrog]

if of interest in that thread: USD vs traded weighted basket and USD equivalent:
AUD (missing last 3 days and recent fall)
was on a recent uptrend

USD

on a down trend
For the recent fall of AUD: just retracing back on to what was already an uptrend of the euro since end of june

So Le Frog forecast: AUD falling against euro, USD carrying on its descent

 

[qldfrog]

And to put this in context with Mr LeDuc @ducati916 in NZ

I was doing a AUD-centric view of currencies:, the AUD itself fell a lot against the NZD during the initial crash but is now back to a higher stable level against the Kiwi.
the variation was nearly 10% which surprised me as I would have seen NZ/AUD more coupled.
The exchange rate can have a drastic effect on international portfolio as we all know.
Where do you put your reference is the issue.

 

[Chronos-Plutus]

The look on the guy's face is hilarious when Alan Greenspan says that the USA can always print money and inflate its way out of debt. Only 30 seconds of your time, to watch this clip:

 

[ducati916]

So I got a little busy at work this week and just didn't have time to really update. Nothing overly dramatic occurred in any case.

The current hot sector...gold and silver.

First chart up: US dollar (UUP) and Gold.

2010 to mid 2016. Low correlation. From mid-2016 they trade as a correlation. From May 2020, back to a divergence. Why?

Gold and 20yr Bonds. Nicely correlated from 2010 through 2020. Obvious reasons, flight-to-safety, risk free asset. In addition with yields hitting ZIRP and the (unlikely) possibility of NIRP, the argument is that they are both have essentially the same asset profile. Of course the gold zealots will burn you at the stake for such an opinion.

And finally US dollar as against 20yr Bond. Correlated as between 2010 to May 2020, where, the same divergence is found.

Clearly then (or maybe not) gold and Treasury paper are both considered protection against a falling US dollar. Why? Inflation? Cannot be. Treasuries will lose value in an (true) inflation as they will sell off increasing the yield. Disinflation? Yes. Treasuries will protect you to a point ( but not to a ZIRP/NIRP) in a disinflationary environment. Deflation? Yes. Treasuries will protect you in a deflation. If gold, then in an (true) inflation, yes you are protected. Disinflation? No (generally) but in a ZIRP/NIRP world, yes you are. There is no limit to how high gold can go (in theory). Deflation? No, history demonstrates that it does not.

We don't have inflation currently. We don't have deflation, although we could have had. We have had disinflation since the 1990s. We still have it, although some of the major disinflationary forces are dissipating (China) currently. The risk is that we get a true inflation through a falling (weakening dollar) and rising commodity prices and the big unknown: will fiscal policies of increasing welfare payouts get so high as to trigger inflationary pressures? If they do and interest rates adjust (more) aggressively than they would have otherwise, gold/silver will be taken to the proverbial woodshed.

jog on
duc

 

[ducati916]

Fed meeting this week:

jog on
duc

 

[ducati916]

Rotation continues:

jog on
duc

 

[Smurf1976]

Fed meeting this week

I'm always alert when I read words like "nobody expects......" since that sort of thing tends to be said when the next move ends up being exactly what "nobody expected".

Just an observation for financial markets in general not specifically what the Fed's about to do.

 

[Chronos-Plutus]

Fed meeting this week:

View attachment 106613

jog on
duc

Narrative is to run inflation to service the debt and fiscal spending: Greenspan's legacy.

Or Jay can pull the trigger and there will be blood on Wall Street.

Either way: gold and silver win; from inflation or from safe haven.

Then if we wanted to imagine an environment where these problems don't exist; silver still wins from the tight market and significant demand for the new technology transition to electrify our planet.

 

[over9k]

It was a whole-lotta-nothin'.

Tech was already up and has spiked after it. So did gold after trading flat for the day. Very realistic possibility of gold cracking 2k before the end of the week. Near certain by the end of next week. Looks like I'll be up about 2% for the day.

 

[over9k]

Gold's screaming. The news headlines will be nuts once it cracks 2000.

 

[ducati916]

For a little over a week now since it last made a new high on 7/20, the Nasdaq Composite has been churning around and consolidating its gains as investors await today's testimony ahead of Congress from Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Facebook (FB) and then earnings reports from all four companies after the close on Thursday. Needless to say, the next two days will go a long way in defining the backdrop for the Technology sector through the rest of the summer.

Since the Nasdaq's high on 7/20, only one of the Technology sector's six industries has posted positive returns, and it's also the smallest industry in the sector. While the Electronic Equipment industry has gained 1.8% since 7/20, larger industries like Semis, Tech Hardware, and Software are all down over 3%. While these industries have pulled back a bit over the last week or so, QTD they're all still in the black, and on a YTD basis, they still remain among the market's top performers with double-digit percentage gains for all three. On the right side of the image below, we show where each industry is trading relative to its 52-week range, while the tail indicates the change since 7/20. At the Nasdaq's peak on 7/20, all three industries mentioned above were either at or right near record highs as investors sought growth in a growth starved market.

While elsewhere, a rotation has been taking place.

Now a rotation does not mean that Tech. simply stops or reverses, simply that Tech slows from its previous red hot advance as money rotates or arrives in other areas of the market. The stock market is typically forward-looking, so the recent strength in these cyclical industries suggests that either the market is uncharacteristically clueless or it sees better economic times ahead.

jog on
duc

 

[ducati916]

So if inflation is your narrative, the economic data will (should) be important in providing evidence for that thesis:

Along with the headline index, just about every sub-index posted expansionary readings. Shipments, Capacity Utilization, and Availability of Skills are in the upper decile of historical readings. When it comes to the indices for future expectations. even more categories are around some of their highest readings on record. For example, the indices for future conditions for Shipments, New Orders, Order Backlogs, Capacity Utilization, Vendor Lead Times, Local Business Conditions, and Number of Employees are all in the 90th percentile or better.

The only areas that remain on the weak side for both present and future conditions are for expenditures. For current conditions, Capital Expenditures, Equipment & Software Expenditures, and Services Expenditure are all at the low end of historical readings with little improvement in July. Additionally, a greater share of companies continue to report decreases than increases in their workforce as the index for the Number of Employees remained below zero for a fifth consecutive month. Altogether, this points to a generally improved backdrop for mid-Atlantic manufacturing businesses, though they remain hesitant to invest back into and expand their businesses.

Even though the manufacturing sector has staged a massive turnaround, the same cannot be said for the services sector. Service sector businesses did report Local Business Conditions improved in July, but Demand, Revenues, Expenditures, and employment all remain in contraction. Expectations are more optimistic, but there were some large declines this month, namely in the expectations indices for Revenues, Demands, and Local Business Conditions.

How does that sit with the inflation narrative?

jog on
duc

 

[over9k]

It's pretty hard to see price inflation when the economy is this far in the toilet. Monetary inflation, however...

 

[ducati916]

Markets and sectors having a good day:

Far more balanced advance. This bodes well (especially given earlier data) for the continued advance of the market. In a healthy market (economy) you really don't want only a single sector outperforming to such a degree, the rest of the market.

jog on
duc

 

[over9k]

Well I ended up 1.9% for the day with after hours reporting sending several of my holdings screaming even further.

Excellent week so far.

 

[ducati916]

It's pretty hard to see price inflation when the economy is this far in the toilet. Monetary inflation, however...

Your reply, seems to imply that there are different types of inflation. Is that a fair conclusion? Expand if you wish. I'll be finishing up at work this afternoon and will have time to respond.

jog on
duc

 

[over9k]

Well you can destroy the value of the dollar without prices surging, and cpi doesn't track how much money is printed. I'm an austrian by training so as far as I'm concerned, we should actually have deflation. But different discussion.

Paypal and shopify both screamed today. So did docusign.

Stay at home baby!

 

[qldfrog]

Well you can destroy the value of the dollar without prices surging, and cpi doesn't track how much money is printed. I'm an austrian by training so as far as I'm concerned, we should actually have deflation. But different discussion.

Paypal and shopify both screamed today. So did docusign.

Stay at home baby!

Tongue in cheek, so have you gained back last week losses?