Before the Bubble


THE KNOWS ARE KNOWN - There hasn't been a lot on the economic calendar this week, though the truth is, it really doesn't matter. We have these bigger picture items that need to be addressed, taking precedence over the day to day. When we break it down, we already know the Fed is going to be moving forward with another rate hike next month, we know the ECB has scaled back, we know the BOE is worried about Brexit and so on and so forth. So there's very little on the calendar that should have much impact as far as the trajectory goes. Of course, there is one exception..and that exception is any signs of movement on the inflation front.

cartoon nov 9

WAITING FOR - Now, we don't get any inflation data of note this week, but generally speaking, there needs to be a move up in wage growth for things to truly be looking better and brighter. We have yet to really see this, though in the UK, there have been positive developments on that front, something I think that was overlooked in last week's BOE decision. This is actually one of the reasons I'm aggressively bullish the Pound on a medium to longer term basis. The rise in wage growth is a positive there and the upwards pressure on inflation in general, will put the BOE in position to be raising rates at a faster clip than other central banks, making the Pound attractive on a yield differential basis.

X FACTOR - I keep talking about Bitcoin and the possibility for a negative impact on global financial markets when the crypto currency finally decides to capitulate. It will. The rate at which this market has appreciated is not something that can be sustained for any meaningful period of time and there needs to be a serious adjustment here before we can get more serious about the prospects for crypto currencies and blockchain technology. The prospects are very bright, but the space is way to young and the investment way too ahead for this not to end badly over the short term. The bubble here looks a whole lot bigger than the dotcom bubble and I would imagine that when it pops, all of that outflow will trigger some panic in the broader markets.

With bigger markets, we get bigger bubbles, which means we need more patience too.

THIS GUY TOO - Of course, it's not like we need this to happen. As we all know, the US equity market run is another one well overdue for a day of reckoning. Yes...it could continue higher still..but it does nothing to change the fact that a market that was artificially supported to record highs on excessive monetary policy accommodation, will suffer from the removal of such policy accommodation, as the Fed is forced to normalize policy. As far as strategy goes, we have our current positions which I love! They will all take time, but long GBPUSD, long EURUSD and short US equities is definitely where I want to be. It all adds up and as is always the case, I'm positioned well, exercising extreme patience and very much looking forward to the follow through.

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