Welcome. The content below is free to the public. It might be worth what you are paying for it. Having studied economics and being in finance for over two decades, I have learned that only one thing is certain - that almost nothing is certain. As we endeavor to come up with our best analysis of the world around us, the opportunities and risks, we have to try to overcome a myriad of issues including our own ignorance, biases and emotions. What follows are my attempts to overcome those obstacles. Welcome to my view - publishing Monday and Friday afternoons.
Despite tepid economic growth, weak leading indicators and nearly non-existent inflation expectations, the Federal Reserve has been talking up the idea of another rate hike over the summer, maybe as soon as June. While many people waste their time trying to argue with a Fed that doesn't listen to them in any way, in fact, doesn't even know they exist, maybe a smarter use of time would be to consider exactly what is motivating the Fed to talk about raising rates.
I think there is a very simple explanation to why the Fed is looking to raise interest rates. In a day where the U.S. is importing less Middle Eastern oil, the incentive for Saudi Arabia and its allies to continue to pump petrodollars into the U.S. is diminished. If those nations should start selling U.S. Treasuries, then there would be a significant problem for the U.S. as it tries to finance around one-third of her debt the next couple years.
The Federal Reserve has spent the past year-and-a-half telling people that the super easy money was gone. Sure, easy money is still around, and more is probably coming by next year, but short of a crisis - which we'll have someday, probably in the 2020s - there isn't going to be super-easy money again for a long time. The quick take is that investors need to stop falling into the TINA - there is no alternative - trap that they have to be in stocks because interest rates are low. The Fed is telegraphing a strong dollar event. When it happens, you'll want cash to go out and buy stocks favored by government fiscal policy. Accumulate cash on all market strength - we're at around 50%.
On June 2nd, OPEC meets once again. Some naive speculators believe this will be the time that OPEC supports the price of oil. They will be very disappointed once again. What will be clear by the end of the meeting for the world though is that we are seeing an extinction level event for new deep water and oil sands development.
In general, caution is the name of the game. As we've been discussing, risk is rising across the globe even as America appears to be an island unto itself.
So, while I believe markets will get weaker over the summer and autumn, that doesn't mean there can't be an irrational rally higher, but if there is, it is something to sell into and to short.
The Global Trends ETF portfolio is a tactical portfolio that will generally hold some core positions representing 25-50% of the portfolio most of the time. It is is not a long-only portfolio, rather it is mostly long, most of the time. We only invest in market declines in extreme circumstances using non-levered inverse ETFs. You can certainly overlay some of the option swing trades if you are experienced enough to do so.
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On Monday, the U.S. Treasury revealed for the first time the amount of government debt held directly by Saudi Arabia. The amount reported was $116.8 billion which is far less than many expected. Interestingly, the accompanying chart from Bloomberg shows that direct Saudi treasury holdings have been on a steady rise upwards the past decade.
These are articles that caught my eye that I'll make sure to read this weekend:
The equity exodus by investors is getting worse at MarketWatch
China’s economy in doldrums: 8 factors driving the turmoil at The Financial Express
In Japan’s Economic Extremity, Few Ideas Are Too Extreme at Wall Street Journal
Fighting Corruption Critical for Growth and Macroeconomic Stability at International Monetary Fund
Stock Market Indicators: S&P 500 Buybacks & Dividends at Yardeni Research, Inc
While oil and gas have been a focus of ours for a long time, we are still watching OPEC with the same curiosity that the rest of the world is. In the biggest oil news, Saudi Arabia "retired" oil minister Ali al-Naimi who Forbes had ranked as one of the world's most powerful people. In his place now is the former Saudi Aramco CEO Khalid al-Falih.
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