Sunday , November 18 2018
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Gregor Samsa

Gregor Samsa

This site is designed as a “go to” source for traders, investors, policymakers and any interested in markets and the global economy. We provide informed opinion, timely market information, sources, and links.

Articles by Gregor Samsa

Our Favorite Chart Of The Week

14 hours ago

Events and the market are moving our way,
BREXIT ain’ gonna happen.  The political extremes on both ends have “woke” the sleepy and complacent middle, women, and the young.  We believe you will see the results in the upcoming “November to Remember” midterms.
A second vote on BREXIT is an uphill battle, but if the Trump administration gets “bitch slapped” in the November midterms the momentum and pressure for a new BREXIT vote will build, in our opinion.   – GMM, October 20th
You did hear it here first!

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Week In Review – November 16

1 day ago

Summary
U.S. 10-year yield in on slowdown worries
Probability of Fed move in December drops 10 points to around 65 percent
Corporate credit spreads blew out big time.   Watch this space
Equity markets are rudderless and feel like they want to go lower
Natural gas futures are a joke.  Massive squeeze, up over 40 percent in Q4
Commentary:   Watch credit spreads.  Take a look at country ETFs.  It has been a terrible year for financial assets translated into dollars.

Vulgar looking S&P Chart

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Cue “Exit the BREXIT” & Other GMM Victory Laps

2 days ago

Because we get a lot of things wrong in the trading business as nobody knows the future, and every decision to buy or sell is really just a probability adjusted or calculated guess, we thought we would take a victory lap on a few of our calls this year.  We backed these calls with real money.
The Midterm
We are students of politics, as all traders should be,  and constantly trying to sense the mood of the body politic, keeping our political bias at bay.  Note we predicted Trump would win the electoral college and HRC would win the popular vote the night before the election.  We know of no one making that specific prediction.
Took a lot of heat in our household on election night, as it was our fault!
Our February Midterm Bet
Because so many allow  emotions to cloud their judgements

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U.S. Treasury Market Borrowing & Global Foreign Savings

3 days ago

We were curious about how much U.S. Treasury market borrowings have increased relative to global foreign savings and whipped together the table below.
We define  global foreign savings here as the cumulative current account surpluses of all the world’s surplus nations.
The sum of the world’s economies current account balance should equal to zero.  That is not the case with the actual data, however,  due to measurement errors.   Some argue it is because the world runs a current account deficit with Mars.   Wonder what kind of tariff will fix that?
Nevertheless, the data are quite shocking.
In 2014, for example,  the U.S. Treasury issued $649 billion in marketable debt, of which the Fed, during QE3, bought more than 33 percent in the secondary market.   The net issuance after QE

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Multiple root problems lie behind Italy’s economic woes – FT

3 days ago

Great synopsis of Italy’s economic and political woes by the FT.
The country’s lagging GDP per capita is all you need to know to understand the cause of the political conflict and rise of left-right Italian populism.
We were surprised by the chart on Italy’s undereducated youth (second chart), which is another  explanation why populism has taken root in Italy.
Trumpism, America’s form populism, gets it oxygen from the non-college educated, mainly,   non-college rural white males.  Not a good metric for the future of the Republican Party as this demographic in on the extinction list as the other demographics are growing in relative terms.  You saw the results in the midterm.

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Is The 10-Year S&P500 Rally At Risk?

4 days ago

We don’t know and neither does anyone else.
We do know, however,  the market trades horribly;  it can’t hold its water on rallies;  has lost its leadership and trades rudderless,  and the index is getting close to testing some key levels to the downside.   It feels like a Cat 2 hurricane,  dangerous but not yet catastrophic.
We begin to get nervous about the rally from 2009 if the 2018 lows break at 2532, and real nervous if the first Fibo of that rally is violated at 2404, which is 11 percent lower from today’s close.   Still that level would not constitute a bear market.
Key Levels
We have highlighted the key S&P levels to watch in red in the table below.
Watch today’s low at 2685.75, which was just above the .236 Fibo of the recent correction.  Then 2641.25, the closing low of

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The Rack Trade Cometh & Killeth

4 days ago

The following trade is causing some mega pain and panic unwind within the energy trading community:

Long Crude Oil futures/Short Natural Gas Futures

It’s painful enough to be squeezed, but to be taking it at both ends is unbearable and you can see it in the chart.
It looks like the rack trade should be close to ending  but still wouldn’t jump in here.   We have experienced and know all about these rack trades.  Very painful.
Just when you think you’re nice and hedged up, it hits the fan.
Compliments of the Polish Rifle,  Dougie Skrypek.

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Rome Is Burning, Again

5 days ago

This is insane. It is getting old and hard to breath.  Godspeed to those suffering.

Insane footage of the California fires. 🎥 via @abc7la pic.twitter.com/8M0DxB3xM2
— Lori McNee (@lorimcneeartist) November 13, 2018

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Mr. Market’s Biggest Headwind

6 days ago

At the end of September, we posted our analysis of the structural changes taking place in the Treasury market,  The Gathering Storm In The Treasury Market 2.0,  which was very well received and still getting thousands of hits per week.
Crowding Out
Our analysis focused “crowding out”, mainly, the changing supply and demand dynamics in the Treasury market.  We flagged the sharp increase in new Treasury supply this year and the coming years, and the declining demand, mainly, what was once “free money” from:  1) foreign central banks;  2) U.S. government trust funds, such as Social Security which is now in deficit; and 3) The Fed, which is now a net seller of Treasury securities as quantitative tightening is full steam of head, forcing the Treasury to issue an additional maximum of $30

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Is The U.S. Dollar Over/Undervalued?

7 days ago

If you are planning on retiring to a country other than the United States, you may want to have a glance at our following analysis.
Purchasing Power Parity
We have taken the October IMF WEO database and backed out their Purchasing Power Parity dollar deflator to get a sense of how cheap or expensive each currency in the world is relative to the US dollar.    When traveling to a foreign country, you can get a sense of the home country’s currency valuation by the purchasing power of your dollar in the local market for goods and services.
That, in a snapshot, is the concept behind Purchasing Power Parity exchange rates, which is long-term currency valuation measurement.   It gets more complex when considering other factors, such as the local GDP per capita, for example.
Nevertheless,

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In Honor Of Veteran’s Day: The Butterfly Effect

7 days ago

To honor Veterans’s Day,  we are reposting our June 2017 butterfly piece, which illustrates how sleepwalking can lead the world into a war that nobody wants.
French President, Emmanuel Macron, warned today about sleepwalking into another great conflict.
“I know there are old demons which are coming back to the surface. They are ready to wreak chaos and death. History sometimes threatens to take its sinister course once again.  – President Macron

History’s Biggest “Butterfly Effect” Occurred On This Day

Posted on June 27, 2017 by macromon

The butterfly effect is the concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science.
In chaos theory, the butterfly effect is the

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Crude Testing Critical Support…Will Stocks Follow?

10 days ago

The near WTI futures price is down 21 percent since peaking on October 3rd as traders front ran the Iranian oil sanctions, which went in to place this week.   Fearing spiking oil prices, the U.S. granted waivers to eight of Iran’s largest buyers of crude – China, India, South Korea, Japan, Italy, Greece, Taiwan, and Turkey.
KeyStone Cops Markets
Now fearing the world is amply supplied, traders are selling crude down and down.  The U.S. now produces more oil and than Saudi and Russia.
The United States has increased output to more than 11 million barrels a day, surpassing Saudi and Russian production. Saudi Arabia and Russia have also been increasing output to offset the drop in Iranian exports. – CNBC
Testing Key Levels
After bottoming at $42 on June 1, 2017, WTI’s 2-year uptrend

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How Trade Helps Both Sides – PIE

11 days ago

Interesting piece explaining comparative advantage.  Though it shows the gains,  those cake and pizza makers in each country get hurt.   We always propose taxing some of the gains from winners to help the losers.
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GMM’s Pre Post-Mortem On The Midterm

11 days ago

Just a quick note on the midterms as we await for the full results.
The Lavender Wave (pink + blue) that we were expecting did materialize, though not as strong,  and swept the Republicans from the House.  Suburban and college-educated women came out big last night, and a record number of over 100 women were elected to Congress.
This will truly be the year of women flexing their political clout. – GMM
It looks the number of House seats lost will come in at around 37, which puts the 2018 midterm the third worst showing for a first-term post-war president, and worst for a Republican president.   It is 17 seats lower than what the presidential approval model predicted but certainly not an outlier.  See chart.
The pick-up of Senate seats by Republicans was historic,
It was the first

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Changes Coming To Global Macro Monitor

11 days ago

The Global Macro Monitor (GMM) came into existence in 2010, motivated, mainly, as a way to discipline our trading.  There is nothing like writing and data crunching to create clear, concise thinking and original research to create a framework to view the markets.
After over 5,000 posts at GMM, we have already significantly cut back on our trading and will do even more after year-end.  Thus the opportunity cost of our writing and research, which we have shared with you over the past eight years increases dramatically.
We are reaching out to our readers to get a sense if there is a market for the Global Macro Monitor on a subscription basis.  We are thinking of a pricing point for a basic subscription in the zip code of around the cost of a daily cup of coffee:
Basic Subscription

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Germany’s “Sneaky Left Hook”

13 days ago

Interesting feedback from a GMM reader about our recent post on the silent rise of Germany’s Green Party,  As Everyone Looks Right, Germany Is Swinging Left,
“That is interesting. This article alone makes my subscription worth it. Not a WORD of this in the press and Die Grüner is at 24%! That’s a sneaky left hook.” – GMM reader
We like it.  Keep those comments, letters, and emails coming.

Check out how the Alternative for Germany (AfD) peaked this summer and have moved back to 13 percent support, while the Greens have doubled their support since the beginning of the year.

We don’t know if this would translate into more Green seats in the Bundestag if federal elections were held today,  as we are not German political analysts.  Nevertheless, it is certainly interesting and worth

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It Could Never Happen Here…But It Is

14 days ago

Fareed nails it this morning.   Wake up, AmeriKA!

If the country doesn’t repudiate this on Tuesday, the country and the world goes much darker and is in deep, deep doo-doo.
Soros is the perfect bogeyman for conspiracy theorists. He is rich, powerful, grew up abroad, and has a foreign accent.  Plus, he is Jewish.  Many Republicans now speak openly and often of the dangers of globalists, but for some reason, these globalists all tend to be Jewish financiers:  Llyod Blankfein, Janet Yellen, George Soros,  Gary Cohn. 
Given the ugly historical smears in this regard, one can only conclude that elements of the Republican Party are either clueless about anti-Semitism or actively encouraging it. 
…These forces used to be peripheral, voiced by marginal figures…Today senior Republicans

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As Everyone Looks Right, Germany Is Swinging Left

15 days ago

This is stunning and a shocker.
The support for Germany’s Green Party has doubled since the beginning of the year, while the right-wing Alternative for Germany (AfD), after peaking in the summer, is right back where it was.   The AfD, consisting mainly of nationalists and populists,  has sucked all the oxygen out of the political headlines in Germany over the past few years.
Check out the tracking poll here.

Sonntagsfrage zur Bundestagswahl • Forsa für RTL/n-tv: CDU/CSU 27 % | GRÜNE 24 % | SPD 13 % | AfD 13 % | FDP 9 % | DIE LINKE 9 % | Sonstige 5 %➤ Übersicht: https://t.co/MO5RyMFkPu➤ Verlauf: https://t.co/QebW8kam1g pic.twitter.com/2JB1zOHIzK
— Wahlrecht.de (@Wahlrecht_de) November 3, 2018

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Trump v. Obama Jobs Market – Midterm Review

16 days ago

The Bureau of Labor Statistics (BLS) released its final jobs report before the midterm election on Tuesday.
The pre-midterm final verdict is in.
The Obama economy created 423k more total non farm payroll jobs and 194k more private sector jobs in his administration’s last 21 months in office than did the Trump economy’s first 21 months.   The Obama economy averaged 216k monthly jobs while the Trump economy averaged 193k non farm payrolls.
Context is always good.  President Trump’s economy is impressive when considering it is running up against severe labor constraints as the unemployment rate hovers at multi-decade lows.   There is not a big pool of labor to draw from and wages are beginning to pick up due to these shortages.
Zero-Sum Game
Looking at the table below, we suspect the

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iPhone Inflation Drives Apple Earnings, Again

17 days ago

Apple continues to rely on iPhone inflation for revenue growth as unit sales quarterly year-on-year growth was flat for the 12th consecutive quarter.   The almost 30 percent increase in iPhone revenue is due almost entirely to price increases.
Unit sales growth for the iPad and computers were negative year-on-year.
Assuming iPhone prices rose at the rate of inflation of 3 percent (and, of course, assuming away quality upgrades),  the company revenues would have increased by only 5.7 percent instead of 20 percent.
Relying on price increases is not sustainable and may be why the stock is taking a beatdown after the close.
I have a friend who works in retail smartphone who swears the Google smartphone is a superior product to the iPhone.
Apple shrank their shares outstanding by about 6

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Key S&P500 Fibonacci Retracement Levels

17 days ago

Watch this space.   The battle taking place right now at 2,732.42.
No sense to even think about getting long for a swing until it clears and closes through the .500 at  2772.   Mr. Market desperately needs to close above 2732.42 today.   Baby steps.
Oh yes,  watch bond yields.

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The Taylor Swift Boating Of The Midterms

18 days ago

The term swiftboating (also swift-boating or swift boating) is a pejorative American neologism used to describe an unfair or untrue political attack. The term is derived from the name of the organization “Swift Boat Veterans for Truth” (SBVT, later the Swift Vets and POWs for Truth) because of their widely publicized—and later discredited—campaign against 2004 U.S. presidential candidate John Kerry –  Wikipedia
But this (Taylor) Swift Boating is kinder and gentler, an exercise in decency, fairness, good citizenship, and the best of democracy — getting the young people out to vote.

Taylor Swift’s Savvy, Smiley Instagram Voter Drive
Please, please educate yourself on the candidates … and vote based on who most closely represents your values,” she [Taylor Swift] wrote in an

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Exit Mr. Rocktober

18 days ago

Ugly month.
The fourth worst October performance for the S&P500 since 1950.   Could have been much worse if not for the bulls skate save over the past two days.
Rare that stocks down so much yet 10-year yield 8 bps higher.    Something is cooking.

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