Meeting of Minds – December 2017

Published on: January 3rd, 2018

In this Meeting of Minds, Raoul returns to the crucial issue of liquidity. It is liquidity in your investment of choice that provides you with the right to change your mind with limited cost. Julian has chosen to provide us with a series of charts to set the scene for 2018 and to use this opportunity to frame the current state of the world from a technical perspective; he looks at equities, fixed income, currencies and commodities.

Comments

  • sB
    sylvain B.
    12 January 2018 @ 03:22
    Dont follow Raoul nor Julian on their long USD thesis neither gainst EUR nor JPY. in my view conditions for LT US weakness are aligning as long as liquidity remains plentiful, global trade rises, volatility stays low and FED on the backfoot. But after sharp move down and extended positionning on long EM/EUR vs USD there is a risk of mild correction. Correction would provide attractive entry points to short USD again. tactically trading wise one could enter short EURUSD with a tight stop (1.215) to play short term weakness. Medium term i see EUR/JPY trending higher
  • MW
    Matthew W.
    7 January 2018 @ 12:45
    I don't generally comment, but some of these charts are approximately a year old, although the relationship hold true it would be nice to have charts with the most updated time series...
    • RL
      Robert L.
      9 January 2018 @ 06:11
      Matthew, Raoul has simply reprinted the article he wrote for GIM in 2016 as an outline describing his methodology on thinking about volatility. Unfortunately for that view, all those charts broke out and Fortress was acquired by a Japanese investor that operates under the assumption capital is free. But I like this idea that firms such as Blackrock are entities which are inherently short volatility.
    • GM
      Gerald M.
      11 January 2018 @ 16:42
      @Robert L. Is is there any substantial new material in the present piece from RP? I don't have the piece you are referring to and I am curious to know. Thanks!
    • RM
      Ritwik M.
      11 January 2018 @ 19:25
      Comment
  • EF
    Eric F.
    6 January 2018 @ 14:14
    Really surprised there is no commentary on FIG, BX & APO from report here. If RP thought these were potential shorts around 15 months ago, well they have only ran up since then. So, does that undermine or strengthen the (RP) thesis? Really wish there was a community component to discuss further here.
    • RP
      Raoul P. | Founder
      11 January 2018 @ 15:42
      This was a piece from a while ago, to allow you to see a framework an bigger picture thinking. The idea is that when things change in markets, then these are the areas of concern or opportunities. Nothing is to be done until that tipping point. These are the weak points in the system.
  • NH
    Neil H.
    3 January 2018 @ 20:52
    getting the direction of the dollar is key for making decisions on most asset classes. The dollar has not been acting well of late and it sounds like Julian is ready to throw in the towel. always enjoy meeting of the minds and would welcome others that disagree with their thoughts to state their case as well.
    • BR
      Boyd R.
      5 January 2018 @ 09:51
      Agree, their $ views are not as concrete in view as before
  • SR
    Steve R.
    3 January 2018 @ 23:27
    What is the long end of the US yield curve telling us? Its telling us the market thinks a spike in inflation will only be transitory - hence short end is up but the long end isn't moving. I think Lacy Hunt has called it spot on - that any inflation spike will be short lived and by Q3 onwards inflation will start to fall again. It's really a lost cause trying to stimulate an economy this late in the cycle with such a massive global debt mountain. This really is not going to end well when the next recession comes along - QE4, QE5, QE6 anyone? I therefore expect the USD to fall, the EUR to rise, gold to rise, and bonds to (eventually) start to rise again (Q3 onwards). People should check out Peter Brandt's piece on the 'January Effect' for the EURUSD, I think this is what will play out. Also checkout the MacroVoices podcast with Juliette Declerq - she has been spot on with her calls on US rates and the USD. The market looks 6 to 9 months ahead, so it all makes perfect sense to me how the market is reacting right now.
  • MC
    Minum C.
    3 January 2018 @ 22:49
    Something that has been discussed on the RV platform by Greg Weldon is the impact of a rising U.S. budget deficit on the USD. Markets focus seems to be on rate differentials as the key driver of FX, but a sharply deteriorating fiscal condition can cause the market to change its focus.
  • vt
    vadim t.
    3 January 2018 @ 22:35
    I think it crucial to understand what exactly has driven this dollar free-fall since Christmas, because it looks counterintuitive on the one hand (for example it hasn't been followed by the yield spike which is odd), but being very powerful (it obviously wasn't some random low-volume speculation or year-end window dressing) it'll definitely have far-reaching effect on the other hand. For me any attempt to made a USD forecast without an interpretation of what has happened with the dollar for the last two weeks would be a simple guess, no more no less.