The bears den

[revhappy]

This dollar strength is not good for global economy. As other currency yields turn more and more negative. USD will attract more and more money and it will get stronger and tip the world economy into a recession.

 

[Trader11]

Lol ECB bazooka coming soon in September

 

[churnmaster]

Surprised by the way the UST yields have tumbled over the last few days ... looks quite overdone.

 

[Dividends Warrior]

Lol ECB bazooka coming soon in September

All hail auntie Largarde!

 

[Dividends Warrior]

Surprised by the way the UST yields have tumbled over the last few days ... looks quite overdone.

People are so sure Fed will cut rate in Sep

 

[coolhead]

This dollar strength is not good for global economy. As other currency yields turn more and more negative. USD will attract more and more money and it will get stronger and tip the world economy into a recession.

Ok I'm quite confused here. I suppose you mean that USD will strengthen because of the interest rate differential compared to other economies right? But why will a stronger USD by virtue of the stronger us economy tip the world economy into recession, given that US is part of the world economy?

Sent from HMD Global TA-1004 using GAGT

 

[coolhead]

People are so sure Fed will cut rate in Sep

Fed is in a shitty position tbh. Remember when fed cut rates in July for 2 reasons: 1) insurance cut and 2) increase inflation.

I remembered both Duke and myself mentioning about the increasing inflation as a result of trade tariff. It seems that this is getting real as shown in US CPI data this month and last month. The problem is these are not the inflation that we want. There is generally 2 types of inflation: demand led inflation and supply led inflation. Demand led is good as it means consumers have more purchasing power and price increases are driven by more consumer spending for more goods. Supply led such as tariffs is bad as it forces the prices of goods higher out of market equilibrium and artificially raises the price of goods, consumer has no choice but to purchase it.
Housing, wage growth, employment and jobless claims numbers are not consistently good which paints a fragile US economy. The increase in inflation is not good as it is bad inflation.
So for the US to increase rate is suicide. To cut or maintain rates doesn't make sense since US economy seems good by FED standards and inflation is picking up.
Of course the market clamours for more rate cuts...

Sent from HMD Global TA-1004 using GAGT

 

[revhappy]

Ok I'm quite confused here. I suppose you mean that USD will strengthen because of the interest rate differential compared to other economies right? But why will a stronger USD by virtue of the stronger us economy tip the world economy into recession, given that US is part of the world economy?

Sent from HMD Global TA-1004 using GAGT

Global trade is priced in USD. When USD rises, people will have to pay more for the goods in their currency, so reduces purchasing power. Also global USD debt becomes more expensive to service. US exports become uncompetitive.

 

[Dividends Warrior]

Fed is in a shitty position tbh. Remember when fed cut rates in July for 2 reasons: 1) insurance cut and 2) increase inflation.

I remembered both Duke and myself mentioning about the increasing inflation as a result of trade tariff. It seems that this is getting real as shown in US CPI data this month and last month. The problem is these are not the inflation that we want. There is generally 2 types of inflation: demand led inflation and supply led inflation. Demand led is good as it means consumers have more purchasing power and price increases are driven by more consumer spending for more goods. Supply led such as tariffs is bad as it forces the prices of goods higher out of market equilibrium and artificially raises the price of goods, consumer has no choice but to purchase it.
Housing, wage growth, employment and jobless claims numbers are not consistently good which paints a fragile US economy. The increase in inflation is not good as it is bad inflation.
So for the US to increase rate is suicide. To cut or maintain rates doesn't make sense since US economy seems good by FED standards and inflation is picking up.
Of course the market clamours for more rate cuts...

Sent from HMD Global TA-1004 using GAGT

Agree, stagflation is not ideal at all

 

[coolhead]

Global trade is priced in USD. When USD rises, people will have to pay more for the goods in their currency, so reduces purchasing power. Also global USD debt becomes more expensive to service. US exports become uncompetitive.

US is suffering a higher trade deficit, which means it imports more and more from the world than it exports. This should negate your argument about countries impacted by higher USD. Global usd debt is the responsibility of US to service, not the world right.

Sent from HMD Global TA-1004 using GAGT

 

[Merg91]

Trading stocks is a serious business.
Wow. So much one has to know about the currency / curves etc etc.

 

[revhappy]

US is suffering a higher trade deficit, which means it imports more and more from the world than it exports. This should negate your argument about countries impacted by higher USD. Global usd debt is the responsibility of US to service, not the world right.

Sent from HMD Global TA-1004 using GAGT

This is not only related to US. For example Thailand buy from Brazil is still priced in USD.

By global USD debt I mean countries that have issued dollar denominated debt.

 

[churnmaster]

Fed is in a shitty position tbh. Remember when fed cut rates in July for 2 reasons: 1) insurance cut and 2) increase inflation.

I remembered both Duke and myself mentioning about the increasing inflation as a result of trade tariff. It seems that this is getting real as shown in US CPI data this month and last month. The problem is these are not the inflation that we want. There is generally 2 types of inflation: demand led inflation and supply led inflation. Demand led is good as it means consumers have more purchasing power and price increases are driven by more consumer spending for more goods. Supply led such as tariffs is bad as it forces the prices of goods higher out of market equilibrium and artificially raises the price of goods, consumer has no choice but to purchase it.
Housing, wage growth, employment and jobless claims numbers are not consistently good which paints a fragile US economy. The increase in inflation is not good as it is bad inflation.
So for the US to increase rate is suicide. To cut or maintain rates doesn't make sense since US economy seems good by FED standards and inflation is picking up.
Of course the market clamours for more rate cuts...

Sent from HMD Global TA-1004 using GAGT

Even I had a similar view regarding US economy and thought there was no need for a rate cut. However, the day Powell spoke about insurance cut it was clear the rate cut is coming and I think we'll see at least one more cut before the end of the year. Maybe Sep. But I don't think we'll see negative rates in US like in Japan and Europe. Japan and Europe have demographic issues (read aging population) which is not the case with US.

 

[churnmaster]

Ok I'm quite confused here. I suppose you mean that USD will strengthen because of the interest rate differential compared to other economies right? But why will a stronger USD by virtue of the stronger us economy tip the world economy into recession, given that US is part of the world economy?

Sent from HMD Global TA-1004 using GAGT

The current USD strength is a reflection of risk averse mood in the global markets and not so much a reflection of interest rate differential. You are seeing a similar strength in JPY where the interest rates are much lower (negative).

There are many countries and companies outside of these two nations who have external borrowing (foreign debt) denominated mostly in USD. To service this debt, its easier if these countries or companies have export earnings where they earn USD and hence the currency exposure is partially / fully hedged. In the current situation, the external trade itself is getting adversely affected and hence their ability to service this debt.

Then there are countries and companies who have external borrowing which are used for domestic market operations. For them the currency exposure is completely unhedged unless they decide to hedge. The reason these countries and companies resorted to external borrowings in the first place is to lower their cost of borrowing as interest rate on USD debt is much lower compared to borrowing in their local currencies. In the past, some of these external borrowings by the companies were in the form of optionally convertible debentures, where in the lender had an option to convert the debt into equity at a pre determined price on expiry of the term. The lender would opt for conversion only if share price in the secondary market is higher than the conversion price. Unfortunately, when risk aversion sets in the share prices of such companies are the first to get dumped thereby requiring these companies to either continue with the debt by refinancing at a higher rate on expiry of the term or just default. Default by even one company makes life miserable for other companies with similar external borrowings. A classic domino effect sets in. Many emerging market companies fall under this category.

 

[churnmaster]

Finally closed all SG shorts today ... time to watch the market from outside for a day or two

 

[DukeCS33]

Good day guys!

I had a rethink about the current situation and think everything looks bad.

The Fed does not need to cut rates but is forced into a corner to do so. The current run of economic numbers are just not dire enough for them to be doing so. But because of political pressure and I suspect, a undercurrent currency war, they would be forced along. And Since they have started, whether they like it or not, their hand is forced to go along. Other countries need to cut rates as their economic numbers are turning more and more south but as most countries are already in some form of QE, the reduction of rates or more QE would be at best cosmetic and not have any serious positive effect on their real economies. What all these does would be to stroke relative currency devaluation.

The combined effect of what each country does would just add on to the excess liquidity floating in the global system. Now take a step back and try to think where these flows would go? In a beauty parade amongst the ugly, the least ugly would win the contest. And I am guessing that right now, the US is the least ugly. Growth is being downgraded left right centre... HK, Sing etc.... the developed countries are already bad.... So I think whether we have a trade war resolution or not, the next 6 to 10mths may see the US equity market outperform the others.

 

[coolhead]

Good day guys!

I had a rethink about the current situation and think everything looks bad.

The Fed does not need to cut rates but is forced into a corner to do so. The current run of economic numbers are just not dire enough for them to be doing so. But because of political pressure and I suspect, a undercurrent currency war, they would be forced along. And Since they have started, whether they like it or not, their hand is forced to go along. Other countries need to cut rates as their economic numbers are turning more and more south but as most countries are already in some form of QE, the reduction of rates or more QE would be at best cosmetic and not have any serious positive effect on their real economies. What all these does would be to stroke relative currency devaluation.

The combined effect of what each country does would just add on to the excess liquidity floating in the global system. Now take a step back and try to think where these flows would go? In a beauty parade amongst the ugly, the least ugly would win the contest. And I am guessing that right now, the US is the least ugly. Growth is being downgraded left right centre... HK, Sing etc.... the developed countries are already bad.... So I think whether we have a trade war resolution or not, the next 6 to 10mths may see the US equity market outperform the others.

Why bad bro??? US equities going to hit record highs don't sound bad to me...
The fed won't need to cut rates and I'm sure they won't cut rates. (Ok that's what I said in June and they still cut rates in July).

Sent from HMD Global TA-1004 using GAGT

 

[littleredboy]

I think FED maybe forced to cut by Trump constant pressuring and cat calls. Senseless to cut now. Inverted yield curve is an indicator, not an absolute. Likewise when we trade, we don't just look at 1 indicator only.

Dates for FOMC is after the next round of trade war talks, let's see then.

Also, Sunday mass protests in hk. I don't think they care much whether billionaires networth are getting slashed Ready your bullets on Monday.

 

[Trader11]

Good luck. Keep calm and add on solid companies

 

[churnmaster]

Good day guys!

I had a rethink about the current situation and think everything looks bad.

The Fed does not need to cut rates but is forced into a corner to do so. The current run of economic numbers are just not dire enough for them to be doing so. But because of political pressure and I suspect, a undercurrent currency war, they would be forced along. And Since they have started, whether they like it or not, their hand is forced to go along. Other countries need to cut rates as their economic numbers are turning more and more south but as most countries are already in some form of QE, the reduction of rates or more QE would be at best cosmetic and not have any serious positive effect on their real economies. What all these does would be to stroke relative currency devaluation.

The combined effect of what each country does would just add on to the excess liquidity floating in the global system. Now take a step back and try to think where these flows would go? In a beauty parade amongst the ugly, the least ugly would win the contest. And I am guessing that right now, the US is the least ugly. Growth is being downgraded left right centre... HK, Sing etc.... the developed countries are already bad.... So I think whether we have a trade war resolution or not, the next 6 to 10mths may see the US equity market outperform the others.

I share a similar view ... the divergence between US and non US markets should increase in the near term, before something starts looking attractive from a long term perspective. If oil drops to the low 50s, some of the EMs in Asia would start looking attractive with their favorable demographics.