| |Last night was a great chance to opportunistically be long of risk, short the long end of the curve. We got some incrementally positive news on the China front on the Europe open and, risk pushed higher, and steepeners were put out. Bears were sent scrambling to wait for the grownups to come back from vacation … Read more Breakout Funds – Toxicity
| |“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. … Read more Adalpha Asset Management – Seeking Volatility
| |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. … Read more Coloma Capital – Trade War Tempest or Just a Squall?
| |We had an interesting conversation with an extremely sophisticated allocator recently. He asked, given that you have had a good run with a long gold position this year, with large open profits, how much will you lose if it reverses hard and you are stopped out at lower levels?”. It’s a question that gets to the heart of trading, and ultimately deals with the difference between what’s known as open equity and closed equity … Read more AG Capital – Volatility Expansions and Contractions
| |The S&P 500 continued to climb steadily up to the last trading day of the month even though market participants knew that day could bring volatility, as the U.S. Federal Reserve (the “Fed”) was scheduled to announce their latest monetary policy update on July 31st. Speculation about their intentions to lower interest rates for the first time in ten years had been a market focus for months. Fed Funds futures pricing is often used to estimate the probability of pending Fed interest rate changes, and had signaled the most likely decrease to be between 25 and 50 basis points. However, when Charmain Powell announced the 25 basis point cut he also implied it might be a “one and done” scenario rather than a prolonged rate cutting cycle favored by market participants, causing an immediate decline in stock prices. The selling in the S&P was strong, sending the Index to its largest intraday decline since early May. In fact, prior to that drop, the S&P had not had a 1% daily gain or loss in the previous 36 consecutive trading days, the longest streak since early October 2018 … Read more Warrington Asset Management – Looking back on July
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