(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon: At $1600 Gold is Tactical Short in the Macro Dragon Portfolio...
Top of Mind…
- Overnight econ data was deflationary at best, with big misses in the key ZEW surveys on both the EZ 10.4a 21.3e 25.6p & more importantly Germany, 8.7a 20.0e 26.7p.
- Interesting thing here for export skewed Germany, is one has to think the deflationary near-term shock that has hit China because of the virus is likely not yet being fully felt in the numbers in Europe – so question is, how much is priced in?
- Well the DAX is breaking out to new highs this wk of this current business cycle – so definitely does not seem to be a concern. Either the market is looking through this as a bump & focusing on the Chinese stimulus & backlog order that will come [Inventory orders in Europe have spiked, given the JIT (just-in-time) world that we live in & how well China has been able to service that], or the market is completely miss-pricing the slowdown & potential time it takes to get back to normal capacity in China.
- And/or there are other forces that are even stronger than a China economic slowdown that transcend any virus fears – those forces are more than likely to be a much more accommodative Fed & potentially ECB (i.e. on the latter those were the whispers making the round before EuroDollar broke south of 1.1000. EURUSD closed down -0.41% with that poor data showing o/n, closing south of 1.08 at 1.0792.
- In a relative world, the US continues to be the only game in town – and overnight that was in evidence again as the Empire State mfg. came in at 12.9a 5.1e 4.8p.
- The Macro Dragon structural thesis of long US EQ vs. RoW EQ remains a core part of our portfolio positioning, added upon which there is the META trend of all trends – lower yields. From KVP’s perspective, one cannot own enough US duration. Especially if one thinks of this deflationary hit we are likely to get from the Oil sell-off around the virus. Yes, brent has rallied +8.4% from the lows to 57.75 & kudos to those that caught this (shout out to Stratos for catching the delta in sentiment), yet we are still c. -15% from the close of last year (i.e. not even taking the spike off of US/Iran tussle this year.)
- Again, from KVP’s perspective, one cannot own enough US duration (I will bang the drums on this until USTs get sub 50bps). With USTs at these 1.56 – 1.66 lvls, its very plausible that we see south of 1.25% if not 1.00% by year end – don’t fight it, love it & position size accordingly. Where do you think UST go in the next Global and/or US Recession?
- There is a core clip (CC) & a trading clip (TC). We also love sterling assets for the medium & log-term, reiterating again that this is a multi-generational opportunity to pick up some “hold forever” cashflow yielding assets for the family.
- Lastly at $1600 here with yields higher & USD still strong, gold is a tactical sell in the Macro Dragons book – we’d be short from $1600, stop at 1628 9c. +2.5StDev) & three tgts of 1591.08, 1580.08 & 1550.08 – with a constant stop adjust to each successive points. I.e. Stop adjusted to entry if first target hit. Stop then adjusted to 1st target if 2nd target is hit, etc. Con here is you get thrown out of a profitable trade idea due to noise, pro is your protect PnL. Yes we like it strategic longs, yet this tactical move is a screaming fade.
- Overall risk to this tactical short is that we are actually in a bullish & successful break-out higher in gold. As well as a resurgence of outright risk off, leading to a sharp decline in yields, fall in equity markets & support for the precious metals. We've already seen highs of 1605.19 so far early Asia Wed Morning.
On The Radar Today…
(All times are SGT)
- JP: TB, core Machinery Orders
- AU: Wage Price Index YoY +2.20%e/p
- UK: CPI 1.6%e 1.6%p Core 1.5%e 1.4%p, House Prices
- CA: CPI 2.2%e/p Core 2.2%e 2.1%p
- US: Building Permits, Housing Starts, PPI + FOMC Speakers - Mester @ 21:30, Kashkari @ 00:45, Kaplan @ 02:30, Fed Minutes
For Thu key readings are likely to be ADP jobs data out of CA, Phily Fed out of the US, ECB mins. out of EZ, RS out of UK & for us in the Asia Pacific – jobs data out of Aus & PPI out of NZ.
Remember, econ data wise this wk is all about Flash PMIS on Friday
It is going to be a phenomenal week, wishing everyone the very best possible day. Let’s all keep our minds & hearts open to the opportunities available & remember, it is not about resources, but resourcefulness & most of all, timing.
All that we desire lies within.
Ps. Note the Macro Dragon will be on break from back-end of Feb to early Mar – given a long overdue & upcoming spectacular legacy family trip