Morning thoughts

TL;DR: none. DXY short looks a bit over extended. DX future seems to be going up today. Probably a reversal, but I can understand the bull thesis. As DX rises, commodity prices fall, in unison. This seems to have happened today, including precious metals. This post from The (excellent) Market Ear suggests that short DX may have gone on too long. The main point it makes, though, is that the Fed is, compared to the size of the pool of bonds it’s buying in, doing the least of the Fed, the BoE and the ECB. However, the long dated rates don’t seem to be rising much.

Generally, the intra-day swings seem higher, maybe because the breadth (propertion of the market moving together) has dropped. The Fed announcement yesterday doesn’t seem to have had the (presumably) desired effect of spiking the market higher.

Diana Choyleva argues that this time is different for the Chinese stock market. I am not so convinced. There must be a ton of malinvestment in China, and converting a trillion RMB debt to equity cannot be bullish for share prices, unless I’ve misunderstood something fundamental about supply and demand. (Although I’d be the first to admit that shares are not widgets, in terms of the price vs supply behaviour.)

Economic thoughts

This article by Robin Harding argues that the Central Banks had no alternative to the policies they carried out since the 90’s, and that any negative collateral damage was preferable to allowing a real deep recession to arise from too tight a monetary policy. The comments are more or less unanimous in disagreeing and several imply some sort of charm offensive by the CBs to get journalists to defend their actions in print. I wouldn’t go as far as this, but it’s gratifying that most of the commentators are of the opinion that CBs have made life a lot worse for the young. It seems to me that if we don’t change CB policies, we need to introduce fiscal policies to compensate losers. The obvious policy is much higher capital taxes. Any hint that this policy might be enacted would these will generate a very intense lobbying effort, so I am not hopeful.

I watched the final episode of the TV documentary series about the Murdoch dynasty last night. He is a huge beneficiary of the desire of corporates to interfere in the political process.

Bitcoin is a Ponzi scheme, but plenty of people get rich by investing in them

Kuppy argues that although Bitcoins are worth nothing (obvs) it is quite possible that one can make a ton of money by buying them. He talks about charts, fashion, liquidity of the asset, compares it to gold etc. etc. I don’t know. There are an infinite perfectly viable substitutes for BTC (i.e. the ‘alt-coins’ aka the ‘shitcoins’). However, BTC is the one that people seem to have faith in, and that’s what five pound notes have but Monopoly money does not have (outside a game), so it’s not to be sneezed at. Would I buy $GBTC? Probably not, but at least I’d consider it. Two things worth considering though: * Kuppy is probably only writing this now because he wants to close his own position (or go short), * Ponzi schemes can collapse faster than you can close your position, and liquidity can evaporate quicker than liquid nitrogen in a furnace.

Talking about Ponzi schemes, Wolf nails it in his account of what has been going on with Eastman Kodak ($KODK). “Nauseating” doesn’t even come close to what is going on here.

India

Narendra Modi has been a divisive prime minister of India. He has increasingly relied on mobilizing his base, rather than fixing the economy, to get re-elected. This approach is not good for the economy of the country, a point made by Gavekal Research, referenced in this article. The level of infections is extremely high, so maybe India will the first country to hit herd immunity. It’s a place worth watching. The emerging market stockmarket I am most bearish about is China’s (including HK’s). I suspect that most Chinese stocks listed in the US have serious deficiencies in their statutory reporting, but it’s extremely dangerous to short a Ponzi scheme, as recent stock market developments have shown.

Late afternoon report

Nothing much changed from this morning, except precious metals have retraced more. Natural gas & oil have lurched down, and brought down the tankers with it. This probably has a lot to do with Q2 GDP dropping by 33% (annualized). This drop in GDP provoked a rare and dramatic plunge in the Nasdaq index, which was down 0.12% as I type this. It’s hard to remember when the index dropped by so much, but I’m sure the PPT will make sure it is suitably pumped up overnight when volume is thin. The figures above were based on the nearby future’s price. Exposure to the index for most retail traders is via QQQ which, reassuringly, is still green on the day. Praise be the Fed! (More seriously) the explanation is that the expected drop in GDP was a bit worse, and the dollar is still going down, which inflates the dollar revenue figure for the FAANGs without hitting their (dollar denominated) cost base (much). Firms like Google must have something like the most geographically diversified income base on the planet.

Oddly, compared to other countries’ reporting conventions, US economic figures are all reported as an annualized figure (i.e. the actual quarterly drop was multiplied by four to come up with the 33% drop). Wolf is good on this too.

Ten year US Treasury yields are down. Yet the stockmarket is up. What’s going on? One of them is mis-reading the economic situation. The DAX and STOXX50 are down 3%. It’s all very odd.