They Will Indeed Continue Their Rate Hike Campaign

Posted by Capital Trading Group on Nov 5, 2018 8:55:11 AM

We have a lot to get into and we will start this note off with this week’s big news, which was delivered by Apple. Here are the numbers as reported:


  • Q4 EPS: 2.91BN, beating Exp. $2.78
  • Revenue: $62.9BN, beating Exp. $61.44 billion
  • iPhone sales: 46.9 million, missing Exp. 48.4 million
  • iPad sales: 9.8 million, missing Exp. 10.5 million, and down from 10.3 million a year ago
  • Mac sales: 5.3 million, beating Exp. 4.9 million, and down from 5.4 million a year ago
  • iPhone ASP: $793, up from $618, smashing Exp. $729
  • Guidance for holiday quarter revenue: $89-$93billion, with the midline below Wall Street estimates of $92.74 billion (Zerohedge)


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Interest Rates Shift 

Posted by Capital Trading Group on Mar 21, 2018 3:07:49 PM

The Federal Reserve Open Market Committee will decidedly raise the upper bound of its Fed Funds limit to 1.75% today. At least this is what is predicted via The CME Group Fed Watch tool which puts the odds at 94.4%:

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Neither Investor nor Manager are immune from innate human behavior

Posted by Capital Trading Group on Mar 21, 2018 1:00:26 PM

What never ceases to amaze me about investors is their utter disdain for logical explanations of economic occurrences.  It seems to be that logic is often forgone for euphoria, this feeling that “the good times can never end.”  Maybe that logic is NOT as widespread or dispersed as I once thought.  The older I get the more market experience I have, leads me to believe that investors are perpetually ignorant, and certainly forgetful.  I can’t really attribute one specific human trait that perpetuates this theory about investors, but I am sure it’s a whole host of things.  However I can safely now, include investment managers into this loop as well.  Maybe managers are a bit more arrogant, a bit more complacent to their own inadequacies and that’s what leads them down paths of destruction. 

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Davos, Dollars and Dead Men Walking

Posted by Capital Trading Group on Jan 31, 2018 2:04:02 PM

          We have talked at length on the sinking Dollar and at Davos the “Mnuch” stated that “the weak dollar is good for the U.S. as it relates to trade and opportunities.”  Gee thanks Mr. Secretary, but what do you guys really mean?  We will tell you what it means…it means that the FED cannot have its cake and eat it too.  It cannot on one hand raise rates and on the other have sit- idly by with an ever sinking U.S. Dollar. 

          Now all econ fundamentals aside, one should be asking, why is the dollar moving lower when our rates are moving higher.  Shouldn’t that make our debt more attractive on yield a level vs another countries debt?  One would think but in a central bank, in a globally coordinated central bank world you have to realize that the central banks are not working independently but in unison.   We will dig deeper into that at another time, but the crux of the statement is every nation cannot be an exporter and when countries go to war with their currencies; the outcomes globally are usually disastrous and swift.  Are we there yet?  Yes we tend to think we are and how long the markets will continue to ignore this is anyone’s guess.  Anyway the problem with the FED raising rates coupled with the U.S. fiscal support, means a whole bunch of debt is going to have to be swallowed and higher rates have to attract such unwilling participants. 

          The last decade will go down in the history books as the decade the central banks hijacked global financial systems and decided that it’s in everyone’s best interest to work together. That is, obviously until it is not.  Who will be the first to balk? Our guess is the Chinese.  They have the most to lose, domestically and internationally and it’s why they have been so reticent in shoring up their gold reserves and trying to internationalize their financial exchanges.  However their underlying distrustful fiscal policies and their too good to be true WMPs, no not WMDs of the good ole Bush era, but potentially a synonymous acronym none the less as these WMPs will be like economic weapons of mass destruction. WMPs are Wealth Management Products, which basically package deposits and attract buyers with higher rates of interest, we hate to say it, but they sure do look a bit Ponzi in nature.  Then again, isn’t the entire leveraged, rehypothecated, fractional reserve system, exactly just that? So let’s get to some other market news this past week:

  • Starbucks was out this week saying it’s going to spend $250m on new employee benefits.
  • Credit Suisse was out stating the Pension Funds sector should be a natural seller when it rebalances this month. No doubt equity outflows will benefit bond inflows, but in realty how big of a dent will this be?

          JPM commented upon this and gave us this nice chart below.  When we looked at this chart what stood out to us as odd was that the Pension Funds have flat lined their bond purchases, seems a bit odd considering the fixed payment obligations they have.  This made us think pensions have been overreaching for yield for decades and in return receiving massive convexity risk. none the less we feel that if Pensions decide that equity risk is too much, we could see some massive reallocation into bonds and lower yields would beckon and equities will have a few less fools, anywhere here is the chart:


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