Generational shift

In the beginning of 1980s interest rates and inflation started to trend lower. They have trended lower ever since and they got to levels never seen before in the history of mankind. It feels that we have forgotten they could ever rise again. Inversely the same is true for bonds. But I think we are witnessing one of the greatest generational shifts that are happening right in front of our eyes.

What if interest rates and inflation are about to rise for the next 3 decades while treasury bond bubble is about to burst with bond prices trending lower in the same period?

Most media don’t even cover this topic. They’re too focused on clickbait stories. I covered this topic last September in But aren’t bonds supposed to only go up? and three weeks ago in Bond breakdown? posts. But it’s so important I need to give you another update.

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Dow Jones Industrial Average: stocks are going up!

So many guys are trying to call the market top in an up trending market. Sure, any swing top could be the top, but calling the one is a low probability bet for obvious reasons. Usually major tops are a process and they need time to develop. For example one could argue that German DAX is currently forming a major market top. We’ll see if that will be the case. But there is no sign of a major market top in the US stock indices yet.

And DJIA closing at a new all time highs, surpassing this January’s high, is anything but bearish. Breadth indicators are also not telling a bearish story. And what if there is a bigger risk of a melt up, rather than an imminent crash?

I wouldn’t exclude this case and neither should you. Sure, stock market is in the later stages of a bull market in my opinion, but does this mean it should crash? If it does, I won’t be stubbornly holding to my holdings. And before we see any serious deterioration it’s hard to join the doom and gloom side. When that happens I will be more than happy to short it.

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Energy to start outperforming?

I can’t help it but I need to write yet another energy post. It’s hard to be bearish energy in general if oil continues to trend higher (see here) and if US natural gas is just breaking out of a major bottom (see here).

But I promise I’ll try to make this post shorter. I’ve already written about the futures market so let me focus on equities now. My main question is, could $XLE energy ETF start outperforming broad based S&P 500 index?  

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Is US nat gas just breaking out of a major bottom?

European energies and oil had an unbelievable run in the past 2 years. But in the same period the US natural gas was going nowhere. It was stuck in a narrow range. I’ve heard so many people it won’t and can’t go up anymore.

But where have I heard this before? Right… the same story was going on with the European energies a year or so ago. Please read my past post where I write about a potential bottom there. And they gave us such a great show this year. I believe something similar could happen with the US nat gas in the months to come.

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Euro to repeat 2017 move?

The US dollar is the most important currency and EURUSD is the most important currency pair in the world. When you get the dollar right then you can get most things right because everything is so interconnected and linked to it. This is also the reason why I focus so much on it.

I highly respect opinions of some friends and people I follow who think that the dollar might appreciate a lot in the coming months, but I don’t agree with them. I think that the world needs a weak dollar, stocks need it and the inflation narrative needs it too.

I’ve been saying that for some time, and you’re welcomed to read my last post about bonds and inflation as well as my last one on the dollar. 

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Bond breakdown?

… and inflation is coming.

I could end the post with this. For some this could be the news, for others maybe not so much. I wrote a post last year But aren’t bonds supposed to only go up? Like then also now I was chatting to a friend recently and he was very surprised when I said I’m expecting inflation to pick up.

Most people think we’ll stay in this disinflationary and low rates environment forever. But we’re getting inflation signs everywhere. For example, the housing market is strong in most cities (in Europe) and it seems it could stay that way for a while. There are some other big infrastructure projects under way. Food prices are slowly but steadily rising. Huge pressures on salaries starting to emerge. And I believe oil prices could rise to $100 in the near future too (see here)!

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Expecting a move in Bitcoin

Earlier this year I wrote a post about cryptos saying that they’re big, really big. I still believe that, technology has a good chance to disrupt in many fields. Even though the timing of that post wasn’t the best, my long-term views didn’t change much when it comes to bitcoin. We can see that more and more very important companies are getting into the space, they’re investing not only in bitcoin but the underlying technology as well.

But what does this mean for the price action? Sentiment has changed a lot. Greed is not present anymore. Neither is fear of missing out. But there are still a lot of terrible projects that have been funded with ICOs and are still behaving very irrationally. I’ve been tweeting about this quite a lot and I’ve been expecting ether to under perform bitcoin. Exactly this has happened so far.

Regardless, I’m getting some signs bitcoin might be getting closer to the end of the current bear market, but this doesn’t mean the pain has to end immediately. There’s still a very serious risk we could see yet another leg lower. Read More

Watch Alibaba for clues in emerging markets

There are a lot of debates whether the current stock market is the longest one in history or not. I am in the group of people who thinks that’s not the case. I think this market had a lot of corrections since the bottom in 2009 or since 2013 which was the start of a new secular bull market in my opinion.

Even if you focus only on the US stocks one could argue that the market was in a correction during the 2015-16 period. But for the most of the world markets did not even have a chance to take its former all time highs. Regardless of your or my opinions we have to respect what the market is doing and act accordingly.

And the fact is that most stock markets are under-performing the US market. A nice example of a lagging market as a class are merging markets or $EEM ETF.

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Affordable mistakes

We all make mistakes in our day to day life. I make them all the time. I bet you do too. For the most part, we don’t pay any special attention to them. But sometimes, when they get a bit bigger, we become very aware of them. We repeat some over time, and for most we’ve learnt over the years what we can and cannot do to minimize the effects.

I bet you’ve heard countless times what you should and shouldn’t do to avoid mistakes and how important they can be in not resulting in ruin. For example, in trading, people advise you shouldn’t risk more than x% of your capital per trade. Quite often they over generalize. They give this advice to both young folks, just starting their careers, and older guys and girls, already counting down the hours to retirement.

Why is this? Why do we think a piece of advice is good for some circumstances? Are they really equally effective in all circumstances? Read More

Why I keep being constructive on oil

Summer is slowly but steadily nearing its end. It was a great opportunity for me to take a break and do some stuff I didn’t have time for during the year. I was still watching the markets, but trading much less frequently than usually. One has to keep in mind that the markets will always be here and so will the opportunities. When I was less experienced I thought that if I miss an opportunity it’s over, I will miss the train to the riches… so perhaps like the most of us I had the fear of missing out. Once you really understand that, sure we swing for the big win, the market keeps throwing opportunities at you, you get much more relaxed.

But what I wanted to say is that when you do that, when you step back a bit, you might get a fresh look or a new perspective on things. You open up to the new ideas. And this is the big win. Everyone needs to do it now and then.

Anyway, let me get to oil now. Since last summer I had been constructive on oil and energy prices in general. Read More