After finishing off one of the wildest quarters of my trading career, April managed to take the cake. For those that missed it (not sure how you possibly could have), oil settled negative $37. The effects of this were immediate: risk barometers had to be recalculated, option models switched, and most importantly was the immediate […]
There’s something about being quoted in the Wall Street Journal or making it onto Bloomberg TV that often leads to terribly inaccurate judgement calls (at least in the short-term). A classic example of this is Ray Dalio’s famous interview from Davos in early 2018, where he declared that “If you’re holding cash, you’re going to feel pretty stupid” just before the market cratered -12% and potentially may have begun a topping process for the entire bull market run from 2009.
“What just happened?” is becoming an all too common phrase for market watchers over the past few weeks. Whether it be the Fed Chairman giving a talk, interest rate behavior, or a short tweet from the President, markets have been responding aggressively. Over long periods of time all of these things could often be put on the category of “noise” but in the meantime anyone watching their portfolio can get an ulcer.
Trade War Tempest or Just a Squall? As the July 31st Fed interest rate cut was quickly overrun by the trade war tit-for-tat, we need to gain some perspective on expected impact of the US/China interaction in early August without the hype too often seen in the media. On August 1st, Trump stated that he intends to place a 10% tariff on the remaining $300 billion-ish in Chinese exports to the US as of September 1st. The prior statements were a 25% tariff (notably higher) and at an indeterminate date (easily ignored by the markets). A lower tariff that can possibly be fully absorbed by Chinese firms may ruffle some feathers but would not be a crisis. The Chinese response of cancelling nebulously-defined agricultural sales (note that pork shipments are full speed ahead, despite the existing Chinese tariff) would be partially matched off with lower US grain production from the poor spring weather. There are also some reports that the Chinese tempered their Brazilian soy purchases which implied intrinsically lower Chinese grain demand. In other words, this first response was justification for something they wanted to do anyway.
AG Capital is a global macro investment firm, trading futures across currencies, commodities, equity indices, and interest rates. The firm follows a 100% discretionary approach, relying on fundamental analysis to choose long and short themes, with technical analysis informing timing of entries and exits. Below is a sample piece showing how they see trading. This example sets up a trade viewed through the lens of a global macro firm.
Most of our expectations are really just knee-jerk reactions to day-to-day details, but today’s headlines rarely reflect tomorrow’s reality meaningfully. How many tectonic changes in how many different areas of our lives have and continue to occur, only dimly perceived even by those attentive to broadcast, print, and internet? Indeed most “experts” seem equally oblivious, leaving mainly to historians the task of describing change.
Wheat made new lows led by Matif, and corn and beans worked towards low end of the ranges. There were no real weather scares in SAm and both corn and bean prod’n ideas are getting bigger. For the month, corn lost 19-20 cents and beans were down 27. Meal was down $11.00 and oil down 25 points. Chgo was the biggest loser – down 35 cents with KC down 27 and Mpls down 16. Matif wheat was down $14.75 euros/tonne – 44 cents. French wheat is $20-25/ton below SRW and thus continues to bring Chgo down.
The amplitude of grains and oilseed prices last month was extraordinarily narrow. Soybeans were the most-contained, with a high-to-low closing price range of just 28c in the March contract, narrowest for January since 1998. It’s even more remarkable considering that on the 12th, USDA surprised the trade by reducing the 2015-16 U.S. crop by 50 million bushels. The reason that such stable matching of supply and demand rarely persists for a month is the constant fresh assessments of risks to production of crops in the field and the next to be planted. Today, such is the adequacy of supply and geographic diversification of growing areas that the market judges risk to be lowest in decades.
In the three prior articles we discussed the goals of absolute return (AR) investors, defined strategies typically used by AR investors and most recently stressed why limiting loses, a key goal for any AR investor, is vital to growing wealth in the long run. This article reiterates many of those concepts through the interviews of 2 highly respected Global Macro CTA’s. As you read their respective comments note the consistent emphasis of risk, losses and cross asset correlations.
The first goal of investing is to increase wealth or said differently, to increase purchasing power. Warren Buffet is quoted as saying “Rule number 1 of investing is never lose money. Rule number 2 is never forget rule number 1.” The hidden message in these seemingly obvious statements is that building wealth depends much more on preventing large losses than it does on achieving large gains.
Between late June and end-July, U.S. agricultural prices traced an extraordinarily wide and rapid boom-and-bust, wild even for futures markets. The managers felt well-positioned in corn bullspreads, which did little despite the sharp changes in expectations for supply tightness; apparently it all occurred so fast that the commercial grain business was too frozen to assess and re-position. As December corn rose 90c per bushel in reaction to widespread flooding east of the Mississippi River, and then, après deluge, abruptly fell back 75c, the December-March spread narrowed only a scant 2c and then reversed by as much. The result was a crummy month for us.
Bulls had something to cheer about to finish off last week’s trading in the Cattle markets, after Thursday’s limit higher move followed by a $2-3 rally on Friday. However, somewhat of a letdown was the Friday afternoon USDA news, with the choice beef cutout coming in off $3.02 and the monthly COF (Cattle on Feed) […]
Sugar #11- May15 Futures – In yesterday’s trading session Sugar future values were strongly influenced by the exchange rate movement in Brazil. This is the first time since March of 2004 that the dollar quote fell below $3, closing at R$2.967 (-1.3%).