Options in the macro markets like gold, bonds, and currencies are priced for a disaster heading into "Brexit" Here's a way to play the pumped up volatility in the options market using Fibonacci and Elliott Wave Analysis.
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Plan Your Trade, and Trade Your Plan,
Todd Gordon
Hello MarketClub members everywhere. There's no doubt about it, yesterday's break in the world markets was caused by a little country in the North Atlantic named Great Britain and whether or not it's going to stay in the EU.
Having been born and raised in England, I cannot imagine in my wildest dreams why Great Britain would want to give up its sovereignty, its currency and cede control to Brussels. The EU is a bloated, incompetent bureaucracy that has a life of its own and answers to no one. To put this in perspective, the EU makes our government here in the U.S. look like it is super, super efficient. Continue reading "Brexit Yes, You Better Be-Leave It"
With interest rates on 10-year Japanese government bonds already deep into negative territory and comparable German bunds just a basis point or two away, most of the world’s safest debt instruments are trading below zero. With the notable exception of U.S. Treasuries.
While we’re still a long way from reaching that point – the benchmark 10-year Treasury note ended last week at 1.64%, its lowest level in nearly a year-and-a-half and down more than 60 basis points so far this year – it’s certainly not too early to start thinking about it. After all, if it can happen in Germany and Japan and several other countries, why not here?
Switzerland’s 10-year government bond closed last week at negative 0.50%, while the comparable Japanese bond ended at minus 0.15%.
Germany’s 10-year bund, the benchmark for the euro zone, closed at just two basis points above zero. The average yield on all German government debt outstanding is now below zero.
In real life, this means that if you buy a Swiss or Japanese bond today and hold it to maturity, you’re guaranteed to lose money. Such a deal.
What’s driving this madness? Continue reading "Are We Ready For Negative Interest Rates?"
The Yen is vulnerable. Yields on Japanese 2-year sovereign bonds are as low as -0.26%, inflation is persistently low (and seems likely to stay that way for a while) and GDP tilts from contraction to expansion and, in aggregate, barely grows. Currencies such as the US Dollar, the Pound Sterling, and even the Mexican Peso provide plenty of reasons to buy them over the Yen, and yet, the Japanese Yen holds sway. The reason? Global Stocks are underperforming.
Japanese corporations are basically cash machines, hoarding vast amounts of cash that they need to invest. The problem is that Japanese corporations’ default choice has always been buying the highly liquid Japanese sovereign bonds, despite their ridiculously low yields. If market sentiment is upbeat, if stocks perform well, and the global economy seems stable, Japanese corporations are willing to take the risk and store their cash in foreign assets, thus pushing the Yen lower. Continue reading "Japanese Yen Faces Summer Sale"
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