Wednesday 31 October 2018

Is Bitcoin being jammed up by a whale?

Since May as volume has slumped, has a whale(s) been propping Bitcoin up? 

The buy the dip, sell the rally strategy is not seeing rallies to get out of.

Looks like someone jammed it up today after it sold off but volume evaporated after.

Main question is which of the whales defending it folds first?

The volume over the last week has been on price weakness as well, so large or multiple small steady sellers.

Thursday 25 October 2018

JPY - Is BoJ QT the new Plaza Accord?

The Yen has rarely been as cheap as now at about 112 to USD Last time it was this cheap was 1982-1985 and followed by the September 1985 Plaza Accord it then rallied approximately 50% in 3 years
Could BoJ QT deliver the same this time? Ending ZIRP/ QT has so far rallied the USD to rarely seen high levels

We also have a similar 3-4 year topping process as last time - since 2012 BoJ QE sank the Yen from late 2012 to 2015 and since 2015 its been range bound/ slightly strengthened

BoJ QT will rally it

If it goes to an all time high then say 55-65 USDJPY in 30-36 months is in play

What happens to JPYCNH? first stop 7.5c/ 2012 levels, then what?

Tuesday 16 October 2018

Trump's floating rate liability

Trump has at least $180m in floating rate liabilities and with three >$50m loans potentially quite a lot more than that

The loans are against the better properties while others are known to lose money

But higher rates over time will squeeze NOIs, FCF and asset values lower

Much of the debt is from Deutsche, who are known to sometimes sell off credit risk, for example they could sell it to a bank like Alfa Bank

With the whole empire resting on the ability of the profitable properties to prop up the debt, the losing assets and the family's living costs, no wonder he doesnt like Powell's rate hikes

It will be interesting to watch the personalities and psychology play out as so far Powell seems more hawkish than Yellen

Wednesday 10 October 2018

US real interest rates

10 year real returns went over 1% last week while forward inflation expectations remain anchored (at ~2.25%). 

As such it seems its being mainly driven by the Fed, mirroring how low real returns were engineered by ZIRP/ QE. 

Longer term I deducted a CPI measure from Fed funds to give a real interest rate indicator. Real interest rates have not uncommonly been +4 or 5% and are often in the 2.4-3% range mid to late cycle. 

Adding both together gets a potential neutral rate for the Fed for the real economy of 4.65-5.25%. 

A notable exception was the late 70s where the Fed struggled to keep up with inflation until Volcker hiked Fed funds into the teens to finally kill off inflation. 

But the Fed, given the credit and asset bubble that has been blown up, currently looks like it will try and taper out rate hikes next year with a 3-3.5% range. 

The problem they will have it that might be tight for financial assets, but it will still be loose for the real economy. 

The Yellen Fed wouldn't want to hike enough and risk an asset market crash and the Whitehouse won't want neutral rates for the real economy. 

Powell so far seems more hawkish and the whole set up looks similar to the early 70s.

Tuesday 2 October 2018

The People's QE/ loose fiscal/ tight monetary policy era

Nominal GDP inflecting higher on Trumponomics stimulus Wages starting to see a bid (finally)? Underpinning the beginnings of a wage inflation cycle next year? Showing Fed hopelessly behind real economy on rates.

But a 2019 financial economy pressured by higher rates so Fed hesitant to keep hiking. 

So USD higher this year on Fed driven short squeeze, but as a peaking Fed cycle is priced in, USD enters a bear market in Q1 or Q2 next year. Amongst other conclusions

I was discussing with a contact the outlook for markets and policy and so on. We agreed while there are risks of an 08 style rerun, it also clear to the Central Bankers that there are some entities that are too big to fail within what are highly leveraged, credit and liquidity dependent systems. 

But we also agreed that; nothing is too big to slump. In other words a multi-year valuation bear market, induced by QE unwind and higher rates, the Central Bankers should take in their stride, as long as wages and the real economy are doing OK. 

They will hike rates and unwind QE just enough to put a squeeze on debt and asset markets but will still be loose for the real economy. 

The real economy being juiced by loose fiscal stimulus/ People's QE.

The US in H1 2018 has seen non-financial debt grow about $2.7Tn annualised, or roughly 11% of GDP. US debt has never grown anywhere near this fast. 

The result has been to push nominal GDP up to a 7% handle from a 5% handle. 

Meanwhile the market discounts the Fed's hiking guidance for next year with only one hike priced in to September and the 10year struggles to get over 3%...


City population cycles; London peaking out?

Population chart of London, but it has happened many times in history.

City-based booms bring people in, eg financialization era since mid-80s or Victorian empire/ industrialization, but living costs rise and then when the growth is outside the gateway city, eg if manufacturing grows in the Fourth Turning/ post-Brexit, people leave the high-cost city.

If over 30 years the population shrinks, it will turn forecasts and value of 'core' assets on their heads

These cycles can last 3, 4, 5 decades typically. London's current growth cycle is over 3 decades old.

London I have said before is functionally bankrupt. It's too expensive for regular people to live in and have a decent quality of life.

Anecdotally I know many people moving elsewhere in the UK or going back to home countries. Corbyn is obviously going to win the next election and many of his policies will speed this process up. He will help manufacturing and services you can work remotely for anyway.

In the States there is clear evidence of migration away from high tax, high cost coastal gateway cities.

The one exception to this I would expect is Hong Kong, where you have all of these same cost of livign issues, but next door there are 1billion+ people in a dictatorship, so Hong Kong real estate can deflate but I think the population numbers should be stable or even grow. 

US corporate profit cycle due to resume the slide in 2019?

US corp profit cycle peaked in 2012.

Bounced a bit last year with the oil price recovery and has been massively juiced this year by Trump's fiscal stimulus.

But should start reverting lower towards longer run means in 2019/20 as Fed hikes and wages pick up. Just need to really see some movement on wages though.

Eurozone banks under pressure again

European banks resume slide after the Fed.

That's what a $3Tn long in US fixed income, as the Fed hikes, gets you.

The Fed is euthanasing the entities that funded this US credit cycle just as Federal double deficit accelerates.

FT's chart showing debt held by foreigners in the US:

At a time when Sth European banks are dependent on a record amount of ECB funding via TARGET2

Immediately pushing up finding costs into year end. A 25bps parallel shift is worth probably $30-35bn in additional funding for the $3Tn in longs.

Add to that the Brexit and Italy issues and I reiterate my view that the USD is rallying into Q1 and EZ assets remain under pressure.