Buy USD: Month-end rebalancing flows

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Yesterday’s month-end rebalancing flows were understandably USD negative, given the recent USD positioning in the market.

They have given us excellent levels to add to USD longs.

The USD uptrend should resume, given the strong fundamentals in play.

Donald Trump’s jawboning simply cannot weaken the USD materially, since he cannot reduce the structural dollar shortage, the $10 trillion off-shore debt or the normal mean reversion of term premia on longer dated treasuries.

How to get the best entry for trades

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Using robots.

When you’re watching a price chart, emotions take over.

Robots have no emotions.

 

A grid robot, for instance, enters a trade every 50 pips (or whatever interval you wish).

You set the direction.

The robot enters the trade.

 

That is probably the best way to trade.

And it frees up time to do other stuff, too.

 

The feeling you get when you wake up, and the robots have already made money, is awesome.

Way better than watching a screen, taking profit but always being stressed if you got the right entry and exit!

Top trades for 2017

New Year Sand Beach New Year's Eve 2017

 

1. Long USD vs JPY, CAD, AUD, NZD, EUR

A structural dollar shortage, fiscal stimulus and a hawkish Fed should support the USD.

As US yields rise, long-term carry trades in AUD and NZD will begin to get squeezed.

A stronger USD will put pressure on commodities, especially crude oil as concerns about the OPEC cut may begin to surface. This will be bearish for the CAD and may force the BoC to cut rates.

A strong positive interest rate differential between the US and Japan means that a long USDJPY position should play a core part of our portfolio.

A short EURUSD position plays on the divergence between continued monetary easing and political uncertainty in Europe, versus a hawkish Fed and structural dollar illiquidity.

 

2. Short AUD versus USD, CAD, NZD

A weakening Australian economy, and risks of a stronger dollar strangling Chinese dollar-denominated debt, should continue to weaken the Aussie forcing the RBA to cut rates.

 

3. Short European equities (but long US equities on a significant retracement)

The FTSE needs to be shorted, as any appreciation in Sterling will result in massive bearish pressure.

The DAX looks overstretched near 11,500, and needs to be shorted as a play on rising European political tensions, risks of European bank defaults, and as a hedge on our short EURUSD position.

 

4. Long GBP vs EUR, AUD, JPY, (USD)

A neural BoE, rising inflation expectations, and strong economic performance should support Sterling against the weaker EUR, AUD and JPY.

A long GBP position against USD is the perfect way to hedge any long USD exposure.

Based on FX fundamentals and long term fair value, Sterling is significantly undervalued against all currencies.

 

 

5. Long gold vs USD

This is a hedge against long USD exposure, but more importantly, protects against a crisis created by dollar illiquidity.

Near 1,100, this is an excellent time to start building long positions – after most investors have been caught off-guard, squeezed and stopped out.

 

 

Is selling oil and buying USD/CAD the best trade of 2017?

Dollar strength is here to stay.

Fiscal stimulus, rate hikes, $10 trillion of off-shore dollar debt, rising US yields, dollar index breaking out of a multi-year consolidation.

 

The dollar is inversely correlated with oil.

This chart shows oil (red/green) and inverted dollar (blue):

oil-dxy

 

Right now, there is massive divergence between the price of oil and the inverted dollar index.

This needs to be corrected.

Either the dollar will weaken, or the oil price will fall.

 

However, like I said, dollar strength is here to stay.

Therefore, the oil price should fall dramatically.

 

Oil is correlated with the Canadian dollar (CAD).

Therefore, if we assume oil will fall, the CAD will also fall.

 

Furthermore, the Canadian economy is weak.

The BoC should cut rates, especially after Trump’s victory.

In any case, they will not raise interest rates in the long term.

 

Combining all of this gives us an excellent trade: buying USD/CAD.

Dollar strength, causing a drop in oil prices, causing CAD weakness.

One of my top trades for 2017.

Affirmations work. Period.

we-become-what-we-think

So for the past 2 months I’ve been writing out my goals every day.

And writing them out as if I’ve already achieved them.

 

That’s pretty much what an affirmation is.

A statement of conviction in something you want to achieve.

I learned this from Rob Booker, one of my favourite humans.

 

I write these out 5 times each day.

Hopefully first thing each morning, but sometimes life happens and I do it in the evening.

Or I wake up so late that the morning is over.

 

My affirmations are split into different things I want in life.

They’re quite ambitious.

Because what’s the point of having something that’s easy to achieve?

 

I’m so glad to say that, at the end of October, I’ve achieved one of my affirmations.

Plus, I’m closer to achieving 2 of the others.

I actually can’t believe it.

 

Now, a year ago I was telling everyone about my goals, what they were, how I was going to achieve them.

But since then, I’ve seen Derek Sivers’ TED talk on why you shouldn’t tell anyone your goals.

It’s short but brilliant:

 

Since watching that video – seriously – I’ve got so much more done towards my goals.

Derek is brilliant.

That reminds me, I need to listen to his chat with Tim Ferriss.

 

Anyway, back to affirmations.

Another awesome human, Buddha, said

The mind is everything. What you think, you become.

– Buddha

 

Now some people say that that quote is falsely attributed to Buddha.

I couldn’t care less about that.

What I do know that if something is even remotely associated with Buddha, it deserves my time.

 

And I think it’s true.

I think we do become what we think about all the time.

Along similar lines:

Whether you believe you can do a thing or not, you are right.

– Henry Ford

 

Affirmations help put into action what Buddha and Mr Ford are alluding to.

They make us think about what we want.

They make us believe we can do it.

 

And boy, are they effective.