16 November 2016

My analysis on 9 November or rather say no analysis ( useless illogical decisions) hurt me a lot at the beginning when oil plunged dramatically during the week. Currently it has recovered a bit , however, gold price is still low. I did not judge the market correctly or reacted way too early for Trump protectionism.
Currently few things are clear and few is not:
Firstly Trump protectionism in trade and secondly, Trump policies for the development of US economy ( which will be run by large fiscal spending, tax cuts). Which one Trump will follow or give a priority is a puzzle though. His two different policies will have opposite impacts on global economy, international exchange rates, interest rates. I have to look at Trump appointees for the White to have a more clear picture. Knowing  Trump administration will help to judge the sentiment, however, that part is cloudy as Trump is still in the process of hiring. Also, I believe major Trump policies will not take place in the first half of 2017 as he will start his job in Jan 2017 and will need some time to get into action. What will matter is just market reaction to any news that will come from him. That will shake the market. Currently everyone is uncertain what his next move is, so close eye should be kept.
Trump’s fiscal spending could boost inflation and bolster the case for lifting US rates which will in turn lower bond prices. US bonds have fallen the past few weeks and yields have gone up. US stocks will stay strong as there is high US growth.
I will start to take short positions on bonds for now in anticipation of rising yields.
Currencies
International exchange rates are more dependent now on dollar value than ever before. Dollar is dependent on Trump. His words can cause market to determine the future course of dollar rise or fall. Dollar got strengthened against major and emerging market currencies in the past week. Mostly against yen in major currencies and Turkish lira, Mexican peso as well in EM.
I wish I could have stuck to my judgment I made back on 12 October on yen – I shouold have stuck with shorting yen. Now I am paying the price of my own decisions by getting out of the market. Yen fall is due to basically stronger dollar. nothing else at significant level has changed in Japanese economy than previous periods.
Oil
OPEC cut its oil price prediction by 20$ . 60$ end of decade from 8$. that is a bad sign for bullish investors. Only hope they had was OPEC and news, positive signs coming from them and now, bearish estimate of OPEC does not sound right.  I will keep my positions in oil till OPEC meeting on 30 November. That will determine the oil prices more than anything else till the end of year. If I see cut in production I will take a huge bet, I might actually either raise or go short  few days left till the meeting if there is gonna be a hint about what members of OPEC will do. So, i will need to stay cautious as my positions in oil is taking large part of my portfolio.
Gold
Gold has fallen which I did not anticipate at all. I thought It was going to stay above 1300$ as uncertainty surrounding Trump policies but it seems market participants have judged his future policies as positive and has got rid of gold.  I was lazy to react. In fact, I got stuck and increased my positions. I believe however, how market is bullish about Trump I am suspicious for now. Till i see a real action from Trump or hint, I will not touch my gold positions. in Contrary, i might keep building as I see an opportunity to rise in gold from current spot prices.
Dollar rise can be over optimistic for Trump policies.  The same I observed which cost me dearly in OPEC meeting in October. Market overreacted, oil went up above 50$ from 43 then now, market considers OPEX deal will not take into effect. The same might occur here as well. so, I think one of the major issues that will cause a reversal in the market will be if Trump starts talking about negotiation of trade deals rather than investments in infrastructure, cutting tax rates. So, I should stay close to Trump’s mouth when he starts talking)
There is a paradox I am stuck in.  Further rise in dollar can make FED to stop raising rates in the first place in 2016. Trump views on fiscal spending can increase inflation hence, FED can increase rates as counter balance. That is a bit tough spot. However, my current read is that FED will pay more attention to dollar value right now than Trump. Raising rates and lowering later is harder than being stuck with lower rates for now. Therefore, I think Yellen will stick with rate for now till she sees a clear picture as well on Trump policies. I might overestimate Trump policies by focusing more on them but that is what market has hung upon right now. I have to dig deeper in analysis in coming days. Furthermore, Trump protectionism is triggered before fiscal expansionary policies, FED may not raise the rates. So, I have got 2 vs 1 ( 2 no rate hike case vs 1 rate hike case) .
Therefore, my investment will follow this path however with some hedging in case I am wrong. I will short bonds for current being, stay to my oil and gold positions, short yen, long pound.
dfg
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