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Tag: bonds

Did the Federal Reserve Kill the Volatility Trade?

On October 11, 2019, the Federal Reserve announced they would begin buying Treasury Bills in an effort to ensure there are “ample reserves” in the banking system through the end of the year.

fed treasury oct 11

On October 11, 2019, the Volatility Index (VIX) sat at 17.4. Today on November 26, 2019 the VIX has recently closed at 11.5. As you can see from below, it appears as though this not-QE program that is “organically” growing the Federal Reserve’s balance sheet has effectively killed the long VIX trade.

fed vix chart

The case made that supports this idea is that investors are engaging in more risk on behavior, because they are basing their decisions based on the Federal Reserve’s prior balance sheet expansion programs (QE 1-3).

Because the Fed is purchasing T-bills, they have eased some of the money market pressures. Liquidity in the market has proven to be a positive catalyst to the market.

Why do I believe this?

It can’t be the trade deal.

That’s the only other source that has been moving the markets higher according to many daily stock market new reporters. And I don’t believe these markets are pushing higher on hopes of a trade deal.

I think the Fed’s easy money policies have once again eased tensions. For now.

A lesson to me

This whole scenario has taught me a valuable lesson about position sizing. I’ve learned to not be so overconfident in my predictions.

Every trade made is a small bet. Each bet will abide by the Kelly criterion.

Never go all in.

Grow your money slowly and strategically.

Live to trade another day.

Read

Barton_options on Twitter has been a great resource for me to learn more about the Federal Reserve operations and how it relates to the Treasury and the overall economy.

He recently wrote about this in a newsletter you can read here.

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What’s going on in the stock market today? August 7th 2019 Edition

In the futures market, the S&P 500 was up 50 basis points overnight just before 6 am this morning.

As of this writing this the S&P 500 futures have tanked precipitously. At 8:10 a.m. the S&P 500 futures are down 45 basis points, almost a full 100 basis point swing from just two hours ago.

https://www.tradingview.com/x/p8mSqCAI/

What are bonds doing today?

Bond prices continue to rise today. The 10-year T-note Futures are up 50 basis points this morning driving expected yields down as central banks across the globe continue to implement easy money policies.

What is the Yuan doing today?

Yesterday, it appeared that China was letting their foot off the gas. However, their currency is devalued again today. After dropping slightly yesterday, the USD/Yuan exchange rate is up 34 basis points.

https://www.tradingview.com/x/tXuE6O4l/

The concern is if China doesn’t have control over the currency. As I mentioned the other day, if China loses control over their currency it could be very bad for global markets.

What should you watch for today?

Based off the futures behavior in the past two hours, and the volatility index spiking up 9% off of its morning lows from just a few hours ago, this could be an interesting day in the market with more selling to come.

I’m not sure what’s going on in the market at the moment but it seems like investors are dumping risk assets.

Money seems to be piling into bonds at the moment.

Also money is piling into commodities. Gold is up 1.62% from the prior day. gold continues to Rally in the face of easy monetary policies engaged by the central banks across the globe.

What’s going on globally?

According to a report from Bloomberg, global easing is picking up pace as New Zealand shocked the market with a bigger rate cut than expected.

New Zealand’s Central Bank reduced its cash rate by 50 basis points. New Zealand Reserve Bank Governor Adrian Orr didn’t rule out negative interest rates to help prop up inflation.

This cut by New Zealand mirrors what’s been going on in  Europe, Japan, and what will be coming in the United States in the near future.

Interest rates are getting cut. They’re going to get caught big. They’re going to go negative. This is going to have a significant impact on  the bonds in commodity markets especially.

Keep an eye on GOLD and TLT today to see what the market is pricing in. Check out the article I wrote about on game theory and the markets, and why you should pay attention to not only equities, buy bonds and commodities as well.