Guys, ive been sailing and traveling and so posting this has been a little more complex than intended especially my internet down in the mountains.
On the basis that markets wait for no one I post up the Swiss team’s latest comments with a v2 update to this to follow in the next 24hrs. The price distribution is telling.
Here is the latest update from Fitzpatrick.
And here SC with their weekly view:
What can we say the trend remains our friend for as long as it is clearly in force. I remain in the camp, for now, that its too early to call a top here.
Scot with the ctfc latest..
So looking at this report where are the most likely sweetest allocations here. 9 times out of 10 is the high contrarian bets on the cftc that are the most interesting or the trades worth not joining as the trade is “full”. Given the interventionist world we live in it seems to me the BOJ will look at this extremely long jpy speculative position as an opportunity. A swift sharp reversal of this position is surely too tempting for policy makers in collaboration with the BOJ to miss. On news the position unwind would be immense. And for the asymmetric traders amongst us the recent low volatility in the pair (USDJPY) should also be noted. (As an example the 60 day option call usd vs jpy is starting to be priced at a very low level especially given that we only now 30 days or so away from the US election result). The eurusd volatility is also at a very low level now and pattern wise shows a decent wedge that needs resolving on the long term chart.
Its always fascinating to make sense of the connection of logic between the macro and the technical picture, in my opinion. So from a macro perspective, how can we make sense of Fitzpatrick’s technical comment of much higher nominal levels for equities etc? In this monetary environment it appears to me high inflation is eventually inevitable and therefore much higher nominal levels are “baked” in. The ftse100, eurostoxx50 and nik225 (in local currency) have under performed inflation in the last 20 years. This is an exceptionally rare event in a fiat currency system. Policy makers are committed to reversing this via the printing presses to save their system. Inflation adjusted the sp500 is now inflation pegging but with much higher inflation likely to come. Massive debt write offs beckon via policy and or central bank “action”. To steal Bernanke’s para
“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation… “
Mathematically he has to be correct but as history shows the unintended consequences of such actions are ultimately ruinous for the uninformed.
A better question, in my opinion, is therefore whether equity prices have topped in terms of their real value rather than nominal. As inflation is now understated officially equity prices can, in real terms, rise though unofficially logic tells us they are likely close to their real term highs given the lack of investment and productivity issues and lack of structural change. As investors we live in the nominal world, especially if you leverage, so golden times are still ahead of us thanks to policy and the central banks inflationary efforts.
To my mind the most interest market areas are Commodities inc bullion, Asia, the US$ vs the major pairs, the nik225, and the Eurostoxx50. Japan and Europe’s central banks this fall are likely to do more not less and it may propel all asset classes (ex euro and jpy) simultaneously, nominally, higher.
ll the best and more to come.
Rich