How The Fed Could Raise Rates Without Ending The World

If it's a no-brainer that bonds should sell off as Fed unwinds, and if there's no such thing as a free lunch, then bonds ought not to be sold.

If Fed hikes then emerging markets take a hit. If emerging markets take a hit, there will be a flight to safety. If there's a flight to safety, then Treasuries get bid up. If Treasuries get bid up, the price of bonds gets bid up. If the price of bonds get bid up while Fed is unwinding balance sheet, then the unwinding will be successful. If Fed unwinding is successful, there's really nothing to be bearish about aside from over-stretched valuations and the economic cycle.

Bottom line: if bonds rally while Fed unwinds, then the Fed's operation will be successful.

Bitcoin

The only people more ignorant than the people buying bitcoin on the way down are the ones that didn't buy it on the way up.

QOTD

"If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it's coming in, it'll never happen. The market is always right." - Ed Seykota

Why Bitcoin is a Derivative, not a Currency.

In order for Bitcoin to be considered a currency it must satisfy three conditions: 1. be a store of value, 2. a medium of exchange and 3. a unit of account.

What separates fiat currencies from BTC is the fact that they satisfy the most critical condition: being a unit of account. The US Dollar is considered a real currency because it satisfies that critical condition. 1 USD is just that: 1 USD. It is backed by nothing other than the full faith and credit of the United States Government. It is not a derivative.

BTC, on the other hand, is a derivative, and is not a unit of account, as it is backed by the nominal value of the USD, which, in this example, is the independent variable.

In order for something to be considered a unit of account, it must have an independent value metric. If it does not have an independent value metric, then its value, by definition, is derived from some other thing. When the value of an asset is derived from the value of an underlying, that asset is defined as a derivative.

Eye on Opiant

Indices are strong this week, however, certain overextended stocks are dropping like rocks; e.g. OPNT (Opiant Pharmaceuticals) is doomed re: opioid crisis. Gov't shutting down.

Tesla Stock and Rocket Man's Incentive

At some time, 28.7M shares of Tesla common stock (TSLA) must be purchased in the open market by the short interest, which is ~$10,390,659,760 of buying power. If Rocket Man shorted $1B worth of TSLA at today's close and put the price up 10 by bidding to cover, he would lose $28M on the trade, however, his total net worth would increase by $382M, and presto: a $354M net profit or >1,200% risk adjusted return, by shorting your own stock. A thing of beauty.

QOTD

From the Brilliant Ed Seykota:
"The Zero Point, or Zero Information Point, is the condition of nothing in CM upon which to base a judgment - including, say, even the very judgment that judgment itself is good or bad.

It is dancing joyously, with abandon. It is splashing your hand in a mud puddle and just being there with the experience. It is putting on a trade and succumbing to the enchantment of the whole process including the market, yourself, the prices, the pluses and minuses and the pretty colors on the monitor screen.

It is being able to read the markets directly and having no attachment to the ability to do so.

It is the sourcing condition for creativity. It is the feeling of feelings passing through, leaving no trace. It is beyond description in words and yet it somehow rides along from one person to another when Freds communicate without words.

When you have zero information, and do not even know that, then there is nothing you do not know."

QOTD

"No great performance ever came from holding back."

-- Don Greene, motivational coach, former Green Beret

Open Positions (07-27-2017)

Why Negative Trump News is Good News

It's been seven consecutive months of anti-Prez accusations and seven months of higher prices. Should the accusations stop, I'll be bearish.

If the underlying fundamentals of the economy were deteriorating, then dems would simply sit back and wait til next election and campaign on Trump/GOP incompetence. Since that's not the case, dems are attempting via any possible means to discredit the Prez until any sign of economic weakness appears in the data. Given that, and the fact that 80% of journalists in US are democrats, any non-economic-related negative news regarding the Prez should be interpreted as proof of underlying strength in the economy - a positive sign for wage growth, employment, capacity utilization and the stock market.

Open positions (7-16-17)

QOTD

Words of wisdom from Munger:

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.” — (Charlie Munger, Berkshire Hathaway)

"If you think your IQ is 160 but it's 150, you're a disaster. It's much better to have a 130 IQ and think it's 120."

"We recognized early on that very smart people do very dumb things, and we wanted to know why and who, so we could avoid them."

"Obviously if you want to get good at something which is competitive, you have to think about it and practice a lot. You have to keep learning because [the] world keeps changing and competitors keep learning. You have to go to bed wiser than you got up. As you try to master what you are trying to do — people who do that almost never fail utterly. Very few have ever failed with that approach. You may rise slowly, but you are sure to rise."

"You'll do better if you have passion for something in which you have aptitude. If Warren had gone into ballet, no one would have heard of him."

"What do you want to avoid? Such an easy answer: sloth and unreliability. If you're unreliable, it doesn't matter what your virtues are. You're going to crater immediately. Doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability."

QOTD

“In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see—or if you prefer, until you think you see—the turn of the market; the beginning of a reversal of general conditions. You have to use your brains and your vision to do this;
otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear.” -- (Livermore, 1923)

QOTD

"If anything terrifies me, I must try to conquer it." -- Francis Charles Chichester

Open positions (7-10-17)

It's an Anglo Thing

The central bank race to cut and print has now turned into the race to hike and reduce, with North America leading the charge, and the Anglo cousins trailing slightly behind. The Fed has passed the hurdle of raising interest rates and has moved on to addressing a reduction in the balance sheet, which itself has been flat for the last three years. Additionally, The BOC and BOE are both signaling that its days of increasing quantitative easing and lowering rates have come to an end, and the next moves in interest rates are more likely to be hikes rather than cuts. This leaves the ECB and the BOJ far behind the curve, as Mario "any means necessary" Draghi still hints toward more quantitative stimulus, and has not made clear any plan to address a reduction in the balance sheet any time in the near future. The general concern among central banks seems to have made a U-turn: "how will the Fed ever raise interest rates without triggering a recession" has turned into "how will the ECB and BOJ ever get on the same rate path as the Fed, The BOC, and The BOE.

Open positions (6-30-2017)