2020 market expectations and positioning

[moolala]

Real rates are already at 0% signalling a recession.

is there a inverted yield curve?

 

[coolhead]

Real rates are already at 0% signalling a recession.

thing is the fed is being proactive here hence the unnatural drop in real interest rates. in fact if you take inflation at 1.5% and the fed funds at 1-1.25%, real interest rate is already -0.25% to -0.5%. but I don't think real interest rates can be used to signal a recession since part of the cause of this is active intervention by the fed.
perhaps the earlier yield curve inversion in september 2019? If going by the stock market as a 6month leading indicator and that it takes 1-2 years for recession to occur after yield curve inversion, we are looking earliest in September 2020.

Posted from PCWX using Redmi K20 Pro

 

[h.y.o.m]

The key driver behind REITs' strong rally last year was central banks all over the world cutting interest rates. So far, the same behavior is exhibited this year so far. Given the virus, the fundamental outlook is bad for REITs with more people staying at home and calls to cut rental cost. I am watching the REIT sector with interest.

Last night's fall was not surprising since we had established a lack of professional participation to buy while flagging the possbility of new supply when virus spread hits the headlines. Both the bulls and bears are slugging it out here with no clear winners. Both forces are strong as marked by the increased volume and wide price gyrations. However wide the price swings, I note that we have been having a series of inside days on high volume. The jury is yet out.There has been congestion around the 3000 level in the SP futures, a level that was resistance turned support on break above. However, given the bearish change of behaviour, I am inclined to think that this level would still be tested again and potentially break if the virus spread becomes more widespread. 10y UST yields are breaking lower and I would take the lead from this to maintain shorts in the equity markets.

There were a few reports last night highlighting that investors are seeking safe haven in Real estate. And we see this quite clearly in the Singapore Reit space. I would caution against getting carried away in this play as it is a very crowded trade. A rate cut does not benefit DPU directly as most Reits would have locked their interest rate liabilities into fix rate loans. In any case, the mark to market losses on these fixed rate swaps would rise as interest rate falls - the interest rate expense bill would not decrease unless the Reit has taken up a new loan for a new project - yes new projects. Refinancing of existing loans mean that the REIT would have to pay up on the mark to market losses on their fixed interest rate swaps and reducing their DPU. For investors piling into REITs, it would be a call that the crisis would not last long enough to impact underlying REIT tenants. a prolonged slowdown in business or recession may see REIT catch up or exceed the broader market underperformance as they would have fallen from a higher perch. That said, the prospect of more rate cuts may well see more and more funds seeking haven into REITS in the near term and it would be sometime before the Reit space turns down on recessionary fears.

 

[DukeCS33]

If the market continues to sell off, some of these stocks could slide further too, albeit less so?

If you don’t mind sharing, are there any particular sectors you are examining?

In a bear market, all sectors would trade down. I adopt a bottoms up approach and would only look at individual stocks to bottom pick or for certain stocks that have been deeply oversold and which measures cheap by most valuation methods. I would enter positions when I see accumulation of these stocks based on Wcykoff's works. That way, I have fundamentals and potential institution backing my buy calls.

In any case, the path of least resistance is to the downside. So shorting rather than buying would be the order of the day.

 

[JustDoLor]

So the market is reacting to and expecting a quarter-point cut on March 18 and another at the Fed’s next formal meeting in late April.....

 

[DukeCS33]

thing is the fed is being proactive here hence the unnatural drop in real interest rates. in fact if you take inflation at 1.5% and the fed funds at 1-1.25%, real interest rate is already -0.25% to -0.5%. but I don't think real interest rates can be used to signal a recession since part of the cause of this is active intervention by the fed.
perhaps the earlier yield curve inversion in september 2019? If going by the stock market as a 6month leading indicator and that it takes 1-2 years for recession to occur after yield curve inversion, we are looking earliest in September 2020.

Posted from PCWX using Redmi K20 Pro

I do not think the Fed is being proactive. I think they have made a series of policy blunders. And the recent cut is another blunder that attempts to patch up earlier blunders. Rate cuts were not warranted at all last year... in fact they had an opportunity to withdraw liquidity and normalise rates but they did not. Now they are boxed into a corner.

Given the excess liquidity in the system, it is doubtful if inversion may be a reliable predictor of recession as in the past. Demand was artificially propped up by central bank actions.

 

[coolhead]

I do not think the Fed is being proactive. I think they have made a series of policy blunders. And the recent cut is another blunder that attempts to patch up earlier blunders. Rate cuts were not warranted at all last year... in fact they had an opportunity to withdraw liquidity and normalise rates but they did not. Now they are boxed into a corner.

Given the excess liquidity in the system, it is doubtful if inversion may be a reliable predictor of recession as in the past. Demand was artificially propped up by central bank actions.

maybe i should say they are too proactive because they are trying to get ahead of the curve.

I'm pretty goddamn sure that the fed knows it is committing the policy blunder because back in 2011, jerome powell was actually against QE, saying that it distorts the excessive risk that the market is taking.

If the fed had not made the rate cut, it could be argued that the yield curve inversion will happen sooner since the fed funds rate affects the 2 year yield significantly and cutting fed funds rate could lower 2 year yield to prevent a yield curve inversion from happening.

Posted from PCWX using Redmi K20 Pro

 

[peterchan75]

maybe i should say they are too proactive because they are trying to get ahead of the curve.

I'm pretty goddamn sure that the fed knows it is committing the policy blunder because back in 2011, jerome powell was actually against QE, saying that it distorts the excessive risk that the market is taking.

If the fed had not made the rate cut, it could be argued that the yield curve inversion will happen sooner since the fed funds rate affects the 2 year yield significantly and cutting fed funds rate could lower 2 year yield to prevent a yield curve inversion from happening.

Posted from PCWX using Redmi K20 Pro

It works. That big mouth in the WH wouldn't be shouting for rates cut anytime soon.

 

[limster]

Will limster unlock his warchest now that STI ETF is under $2.99?

Waited long time since 2016! But starting small first because its end of the trading week, prices may be distorted by shortists needing to close their shorts.

Will continue to average down next week.

 

[stormcruiser]

I do not think the Fed is being proactive. I think they have made a series of policy blunders. And the recent cut is another blunder that attempts to patch up earlier blunders. Rate cuts were not warranted at all last year... in fact they had an opportunity to withdraw liquidity and normalise rates but they did not. Now they are boxed into a corner.

Given the excess liquidity in the system, it is doubtful if inversion may be a reliable predictor of recession as in the past. Demand was artificially propped up by central bank actions.

Sep 19 liquidity dry up was rather drastic and the run up in overnight rates could have lead to systematic problems, if fed had not intervened with its repos/t-bills purchases. (putting aside the fact that these govvies were required under basel, and that dealers were reluctant to accept that t-bonds were just as good as cash for LCR purposes)

One could argue that they could have signaled or stopped buying earlier, after the year end turn. Fed was trying hard to resist further cuts before Covid, with US economy generally turning upwards and us-china risk was put on the backburner.

Well the market is used to cheap money since QE1 and could be a race to zero among the central bankers now and we might just see negative rates as the new norm.

 

[applecrisp]

Last night's fall was not surprising since we had established a lack of professional participation to buy while flagging the possbility of new supply when virus spread hits the headlines. Both the bulls and bears are slugging it out here with no clear winners. Both forces are strong as marked by the increased volume and wide price gyrations. However wide the price swings, I note that we have been having a series of inside days on high volume. The jury is yet out.There has been congestion around the 3000 level in the SP futures, a level that was resistance turned support on break above. However, given the bearish change of behaviour, I am inclined to think that this level would still be tested again and potentially break if the virus spread becomes more widespread. 10y UST yields are breaking lower and I would take the lead from this to maintain shorts in the equity markets.

There were a few reports last night highlighting that investors are seeking safe haven in Real estate. And we see this quite clearly in the Singapore Reit space. I would caution against getting carried away in this play as it is a very crowded trade. A rate cut does not benefit DPU directly as most Reits would have locked their interest rate liabilities into fix rate loans. In any case, the mark to market losses on these fixed rate swaps would rise as interest rate falls - the interest rate expense bill would not decrease unless the Reit has taken up a new loan for a new project - yes new projects. Refinancing of existing loans mean that the REIT would have to pay up on the mark to market losses on their fixed interest rate swaps and reducing their DPU. For investors piling into REITs, it would be a call that the crisis would not last long enough to impact underlying REIT tenants. a prolonged slowdown in business or recession may see REIT catch up or exceed the broader market underperformance as they would have fallen from a higher perch. That said, the prospect of more rate cuts may well see more and more funds seeking haven into REITS in the near term and it would be sometime before the Reit space turns down on recessionary fears.

Thanks for sharing your insights

 

[netzach]

VSA?

Any good books in particular to recommend for reading Up more about VSA,

I would love to learn about accumulation and distribution too.

In a bear market, all sectors would trade down. I adopt a bottoms up approach and would only look at individual stocks to bottom pick or for certain stocks that have been deeply oversold and which measures cheap by most valuation methods. I would enter positions when I see accumulation of these stocks based on Wcykoff's works. That way, I have fundamentals and potential institution backing my buy calls.

In any case, the path of least resistance is to the downside. So shorting rather than buying would be the order of the day.

गगनरोमन्थ HardwareZone Forums app

 

[FrostWurm]

Fed repo pump incoming (to what effect?)

 

[netzach]

Swee. You walk the talk.

Waited long time since 2016! But starting small first because its end of the trading week, prices may be distorted by shortists needing to close their shorts.

Will continue to average down next week.

गगनरोमन्थ HardwareZone Forums app

 

[limster]

Swee. You walk the talk.

During the last GFC, I also started at around $2.97 (last time don't have 3 decimal places) and followed the falling knife all the way to $1.4x, though personally I hope it doesn't fall that far. I hope its more like 2016!

 

[meatballmarinara]

https://www.reddit.com/r/wallstreetbets/comments/fe5s7e/the_fed_repos_are_an_attempt_to_prop_up_the/

if this guy is right, major major crash incoming

 

[ocs_woodlands]

dow futures down by about 1%.

didnt add to short this morning cos opened low.

still 200k Rex @ 189 avg
and DBS 500 @ 24.10.

just waiting to make 5k and will close positions.

I would only start to long much later... like maybe mid April..

 

[Trader11]

During the last GFC, I also started at around $2.97 (last time don't have 3 decimal places) and followed the falling knife all the way to $1.4x, though personally I hope it doesn't fall that far. I hope its more like 2016!

It will fall to 2

 

[netzach]

Wah I also don’t hope it dives that fall sia.
Shiong leh like that

During the last GFC, I also started at around $2.97 (last time don't have 3 decimal places) and followed the falling knife all the way to $1.4x, though personally I hope it doesn't fall that far. I hope its more like 2016!

गगनरोमन्थ HardwareZone Forums app

 

[polyglob]

https://www.reddit.com/r/wallstreetbets/comments/fe5s7e/the_fed_repos_are_an_attempt_to_prop_up_the/

if this guy is right, major major crash incoming

LoL WSB. Some people win at casinos too.