To The Moon

Originally posted on thepensivenugget.com Credit Suisse has failed, and been rescued, over the course of a weekend. While this may have prevented an immediate global banking crisis, danger remains. Here are five alarm bells that are currently ringing very loudly. 1. Use Of The Fed’s Discount Window Is Through The Roof The Fed runs an emergency borrowing facility commonly referred to as the “Discount Window” (now formally known as the Primary Credit Facility). It exists primarily to ensure that banks in the US financial system can borrow bank reserves from the Fed in the event of emergencies. In practical terms, it is the Fed’s lender-of-last-resort facility, and has a reputation of being so. Due to this reputation, a bank tends to on

Market Edge #57 Originally posted on thepensivenugget.com Trouble in the banking system has very quickly metastasized from the failures of regional banks, Silicon Valley Bank and Signature Bank, to hit a globally systemic important one, Credit Suisse. Systemic risk is obviously a major concern now, which is best observed and indicated in two macro markets, the USD and US rates. Pay very close attention to what they are doing! While each bank has its own individual issues that contributed to their problems, the common underlying factor determining their fate is the same — the global repo market (as explained in our article on SV

Originally posted on thepensivenugget.com The recent failure of Silicon Valley Bank (SVB) has driven markets into a frenzy of trying to understand why it happened, and what broader systemic implications it may have. The US government has stepped in to backstop depositors in an attempt to prevent further bank runs, but mainstream narratives continue to miss a broader point — bank runs are symptoms of a much more troublesome problem. One large enough to potentially trouble the entire global financial system. The Repo Lurking Behind The Narrative Popular narratives that have been used to explain SVB’s blowup run along similar lines: Banks took in cheap deposits when rates were low and couldn’t lend all of it out, which led them to invest in

Market Edge #56 Originally posted on thepensivenugget.com Recession or no recession? This is the crucial question that traders are grappling with at the moment. Naturally, how you answer the question will determine how you position your portfolio for the months ahead. But what if you simply want to wait for the markets and/or data to give a clearer heading? Waiting and not trading is certainly one way to go, but so is taking non-directional positions. Markets Remain Uncertain About The Future… Markets are not fully aligned towards a weaker global economic environment (do note that they were fully aligned and indicating a global recession as recently as October 2022) Weaker USD in short term, but the medium term trend is sti

Originally posted on thepensivenugget.com Talk of global recession is gaining momentum as we begin 2023. Here are three signs which will indicate that a broad market selloff is imminent. Before we begin, it is important to note that a broad market selloff occurs when all markets are aligned on a cyclical basis. This means that the general idea behind looking out for indications of a coming selloff rests on understanding where important markets are trading in their own cyclical patterns, as well as how they normally trade just before inflection points. 1. The Dollar Strengthens, Or Remains Strong As you can see from the charts, the Dollar (DTWEXBGS) was the first market to turn, way back in mid-2021, signaling that USD funding conditions were b

Originally posted on thepensivenugget.comEveryone has heard of the law of large numbers, but what about the law of small numbers?In truth, there isn’t really such a law.The turn of phrase is simply used as a parody of the actual law (of large numbers) to illustrate that humans tend to draw firm conclusions from small samples — to their detriment.9. Believing In The Law Of Small NumbersA common example of this would be traders coming to the conclusion that their strategy is sound after a small number of profitable trades, which is related to some degree to the recency bias.This also applies to the o

Macro Edge #53Originally posted on thepensivenugget.comThe USD continues to strengthen broadly, and macro markets remain stuck in their negativity, warning of worse to come for risk assets.USD Keeps Strengthening, Warning Of Worse To Come The USD continues to rally, except against the EUR. Given how macro conditions and markets remain weak, renewed Dollar strength is signaling further sell offs- CNY has broken out vs the Dollar in a bad way, and continues to make new lows for the year. If CNY continues to weaken vs the USD, expect more selling in global risk assets- Although UST yields are rallying, the US yield curve remains deeply inverted at multiple points, base metals are still weak, and breakevens remain low- Gi

Originally posted on thepensivenugget.comHindsight is 20/20.You’ve probably heard this phrase at some point or other in your life, and it refers to the clarity that comes with retrospection, which isn’t available to you at the point of making a decision.8. Hindsight biasThis is very common in trading and investing, where laments along the lines of “I should have bought this stock when the price was lower”, or “I should have taken profits last week before markets tanked” can often be heard.It is especially common among less experienced market participants, who tend to be more emotionally affected by outcomes of their trading decisions than grizzled veterans.In a way, the hindsight bias is related to the

ETF Edge #33Originally posted on thepensivenugget.comLast week’s Jackson Hole meeting has injected some downside volatility into equity markets, pushing the summer rally into reverse.Go Up Together, Go Down Together The summer rally has begun to reverse, with large sell offs as markets react to Jackson Hole- SPY, QQQ, and IWM have now broken below major support levels- Continue to pay attention to EEM. If it breaks below its recent range, it could signal further weakness in risk assets- Remember that changes occur at the margins first, then spread to the core Energy stocks (XLE) are an exception to the current selloff in stocks, and could be headed for a test of its current cycle highs. Oil prices are back in the

ETF Edge #24Originally posted on: thepensivenugget.comMarkets are trading in a start-stop manner, which is frustrating for bulls and bears alike.Sharp falls followed by large rallies may continue for a while as many developed markets head into summer, but stay mindful of how bearish trends are.Start-Stop Markets Frustrate Bulls & Bears. Trend Still Bearish! Most ETFs moved off their lows over the course of last week, taking some of the sting out of early June’s sharp falls, but Trends remain very bearish, and correlation between markets is high, both of which indicate that further weakness is possible More start-stop price action, or consolidation, is possible as most developed markets head into summer  XLF is telling us something interesting - financials are “supposed” to do well