The Business Cycle and More…

Published on: October 21st, 2017

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  • NH
    Neil H.
    21 October 2017 @ 17:17
    Always clear and precise. Keep it up
  • BR
    Bernard R.
    21 October 2017 @ 18:15
    Yield curve steepening? Long term rates going up or short term rates going down? Please elaborate. Love your work!
    • MS
      Morten S.
      23 October 2017 @ 10:56
      Short term rates going down. Long rates might fall as well, but not as fast as short term rates. Cheers.
    • RP
      Raoul P. | Founder
      23 October 2017 @ 10:47
      See reply above
  • WD
    Wim D.
    21 October 2017 @ 19:31
    Agree with this framework, however if this plays out gold will not do well (usd/jpy. Or am I wrong?
    • RP
      Raoul P. | Founder
      23 October 2017 @ 10:47
      My view is that gold sells off initially but really begins to rally when more QE becomes an option. I also think that the dollar rallies too, which would be very rare but is based on the offshore dollar funding shortage but then the dollar should weaken and gold continue higher. These are just views and we have to see how they pan out.
  • AG
    Abhimanyu G.
    22 October 2017 @ 00:41
    Dear Raoul, Could you please shed some light on why the yield curve steepens (after hitting a low) during a recession? Is it because the CB would have started back-peddling on rates by then? Thank you!
    • RP
      Raoul P. | Founder
      23 October 2017 @ 10:45
      Actually, it is often two fold. Firstly, there is often a sell off in the 10 yr bond as the market gets the final inflation fear and the Fed are hiking and then the two year bond starts to rally faster than the 10 yr as those rate hikes begin to get priced out.
    • GS
      George S. | Real Vision
      22 October 2017 @ 22:00
      Check Insider Talks (August) - he explains it there thoroughly.
  • SD
    S D.
    23 October 2017 @ 02:38
    Can I please clarify? Call purchase on Eurodollar futures contract - this is an option to buy a futures contract expecting that the rate paid on US dollars parked in EU banks will fall? Or that the price of the 3 month Eurodollar futures contract will rise? Apologies for not immediately getting this. I'm also wondering if there is an ETF you would recommend to pursue this trade. I also would like to know if this is similar to the widely held view that Eu junk bonds are going to have to decline rapidly, with Draghi due to speak on Thursday. Is there a trade you recommend for exposure to that move, or is this trade your recommended exposure, because it sounds extremely significant.
    • RP
      Raoul P. | Founder
      27 October 2017 @ 19:25
      Sizing is a personal thing... I think 0.5% to 1% of NAV is decent but wont kill you if its wrong but could make a nice profit if its right.
    • SD
      S D.
      23 October 2017 @ 20:08
      Thank you!
    • JL
      J L.
      23 October 2017 @ 17:20
      Regarding the eurodollar options it would be great if you could give a rough idea of what would be a prudent/aggressive sizing as a % of AUM. I know it is a subjective question but an opinion on those boundaries would be appreciated, and also how the move in risk/reward from 10 to 1 to currently about 20 to 1 would influence sizing. Many thanks
    • RP
      Raoul P. | Founder
      23 October 2017 @ 10:41
      Hi Sarah, it is the cal options on 3m interest futures called Eurodollars. Eurodollars are the worlds most actively traded futures contract and broadly represent US short term interest rates. The trade is for the futures to rise which equals interest rates falling. It is not to do with Euro the currency. Hope that helps
    • SD
      S D.
      23 October 2017 @ 02:41
      Sorry, to be clear, is there another trade you can recommend for exposure to this weird situation in the EU junk bond market? I'm seeing a lot of comment that this is the trigger for a rout in the bond market, and would REALLY appreciate your thoughts on this. It sounds like a big screaming deal and with Draghi due to speak and confidence so low, should we expect a major move this week?
  • RL
    Robert L.
    23 October 2017 @ 07:04
    Well written report. However, there seems to be an underlying contradiction between the business cycle framework which has been outlined in the past and thus the current indicators would point to a much more optimistic view but instead recently and in this report, stretches are being made to support the broader more pessimistic view, which has been wrong for 1-2 years (on US equities in USD dollars). In the next meeting of the minds, it could be useful to layout a few scenarios where the team could be wrong.
  • DG
    Don G.
    24 October 2017 @ 00:48
    HI Raoul, UUP is pretty close to $24.50 if we add to the trade where would you place the stop? Where should we look to take profits in this trade?
  • DG
    Don G.
    24 October 2017 @ 00:48
    HI Raoul, UUP is pretty close to $24.50 if we add to the trade where would you place the stop? Where should we look to take profits in this trade?
    • RP
      Raoul P. | Founder
      27 October 2017 @ 19:24
      UUP should not trade below 24 again or something is wrong. Upside targets, i'll leave that to you... I cant run your risk profile
    • DW
      Daniel W.
      26 October 2017 @ 19:24
      He said he was looking for 120 on the DollarIndex Future.
  • CY
    C Y.
    26 October 2017 @ 19:49
    UUP inverse head and shoulders complete. party on
  • SA
    Sandeep A.
    27 October 2017 @ 01:38
    Raoul, Great call on USD! At what point will you consider adding to the XOM trade you had recommended earlier?
    • RP
      Raoul P. | Founder
      27 October 2017 @ 19:23
      Plenty of tie for that... lets see the core thesis get proven a bit first
  • RC
    Ronald C.
    27 October 2017 @ 21:44
    I wonder...with the CB flooding the world with liquidity whether modeling the ISM should include the effects of CB largesse to account for extension of the ISM to the upside and triggering a downside when the punchbowl gets taken away