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December 15, 2018 | Trading Desk Notes – December 15th

Senior Vice President and Derivatives Portfolio Manager. Victor began trading financial markets over 45 years ago and has held a number of senior executive positions during his career as a commodity and stockbroker. Over the years he has provided considerable market analysis via radio and television and at financial conferences. His primary brokerage business is providing corporate accounts with risk management services using exchange traded derivatives. He actively trades currencies, interest rates, precious metals, stock indices and commodities for his own accounts.

There have been 3 major market events since the beginning of October: 1) stock markets virtually everywhere have been hammered, 2) the US Dollar has been rising against nearly every other currency and, 3) crude oil has tumbled more than 30%. During that pivotal 1st week of October Fed Chair Powell essentially told the market that the Fed had a long way to go to get short term interest rates to “normal” and Khashoggi was killed in Istanbul.

Stocks:  Lipper fund research reports that for the week of Dec 5 – 12 investors pulled a record >US$46 Billion out of stock mutual funds and ETFs. This was more than double the previous weekly record outflow since Lipper began tracking this data in 1992. Bond funds saw a near-record US$13 Billion outflow that week while money market funds received US$81 Billion. Some of the selling in stocks and bonds had to be tax related but you can bet that after seeing their October and November statements a lot of people were yelling “Get Me Out” at their broker.

The benchmark S+P 500 Index closed the week at 8 month lows – down ~11% from All Time Highs made the beginning of October and down ~3% YTD. The major Canadian and European stock indices are around 2 year lows, while the Dow Jones World Index is at 18 month lows.

The US Dollar Index closed at 18 month highs this week. It’s interesting to note that USDX rallied as US stocks rallied in the April to August period…but has also rallied as stocks all over the world fell in the October to December period.  One of my key Big Picture concepts over the years is that capital flows to America for safety and opportunity.

The Canadian Dollar closed at 18 month lows this week around 7490. Part of CAD weakness was due to USD strength but weak commodity prices, a negative interest rate spread Vs. the USA and a host of domestic issues…especially aggregate national debt (household, business and government) at 290% of GDP add to downward pressure on the Loonie.

WTI tumbled from 4 year highs at $76 BBL the first week of October and has chopped back and forth between $50 and $54 the last 3 weeks. The market was probably WAY too speculatively bid leading up to the October highs on expectations of American sanctions slamming the door on Iranian exports…and the unwinding of those positions accelerated the >30% tumble. In a classic case of “it never rains but it pours” the bad news just kept coming as crude prices fell…the Americans eased back on the sanctions, OPEC and non-OPEC production soared, inventories grew and demand estimates were cut.

The Fed meets Tuesday and Wednesday this coming week and the consensus view is that the Fed raises rates by a ¼ but signals that they will go slow for the next few months. This follows the ECB meeting this week which confirmed that they will stop QE this month (but will reinvest income from their massive balance sheet holdings) and may, ever so cautiously, start to raise rates late next year.

My short term tradingI started the week short CAD, long Yen. I had re-shorted CAD Friday, Dec 7, when it jumped ¾ cent on the bizarre employment data. I bot the Yen thinking it would rally if stocks fell. I covered the short CAD mid-week for a gain of ~60 ticks when it failed to take out the previous week’s lows. I was stopped out of the Yen for a small loss even though stocks started this week down. I bought an S+P call spread Monday thinking the stock market was WAY oversold and also shorted TNotes thinking the month long rally in bonds was WAY overdone. I covered the long leg of my S+P spread for a decent gain mid-week when the stock market couldn’t hang onto gains and kept the short call leg. I bot gold mid-week thinking it might catch a bid if stocks got hammered but was stopped for a small loss when the Euro tumbled on weak economic stats and took gold down with it. I’m going into the weekend short TNotes and short S+P calls with some decent unrealized gains on both positions.

PI Financial Corp. is a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or the authorize someone else to trade for you, you should be aware of the following. If you purchase a commodity option you may sustain a total loss of the premium and of all transaction costs. If you purchase or sell a commodity futures contract or sell a commodity option or engage in off-exchange foreign currency trading you may sustain a total loss of the initial margin funds or security deposit and any additional fund that you deposit with your broker to establish or maintain your position. You may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the requested funds within the prescribe time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult to impossible to liquidate a position. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options. Any distribution or dissemination of this in any other jurisdiction is strictly prohibited. Past performance is not necessarily indicative of future results

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December 15th, 2018

Posted In: Victor Adair Blog

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