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Five Things You Need to Know: Everything Matters, Money and Credit Are Key, Global Imbalances, Housing Troubles, Human Condition


the US housing market is in DEEP trouble, and thus the risk to the US consumer is intensifying


Editor's Note: While we congregate in Vail for Minyans in The Mountains 3, we asked each Professor to prepare some thoughts on fiscal literacy, how to listen to the market and their area of expertise.

1) Everything matters, from the bottom-up. Changes in the macro-secular trends appear first in the micro-data-details, and often can be gleaned while perusing the peripheral markets, such as commodities and/or emerging markets. From swaps and spreads, to intermarket analysis, to data dissection, NO stone goes unturned.

2) Money and Credit are key, particularly in the current macro-secular environment that has come to be defined by monetary degradation and central bank facilitated reflation of paper wealth.

Sentiment and Position dynamics (COT report, and Commercial Bank data) have increased in importance over the last few years, with the proliferation of hedge funds, and the enormous inflow of speculative capital that is being put to work by these funds. Often, the hedge fund and CTA community are chasing the same trades, and often a correct macro-assessment can be rendered useless, if a large number of traders have jumped on the bandwagon.

Because of #3, the ability to 'read' the markets technically, basis momentum in the trend, has become more valuable. I use a complete technical overlay to enhance my macro-secular analysis and opinion, in terms of the timing of trade initiation.

The application of robust and staunch risk analysis is CRITICAL to trading success. Thus, this applies to the macro-global fundamental methodology, which I blend with a technical trend-momentum overlay to complete a trading philosophy.

Random Thoughts

  • First, global imbalances, in terms of trade, capital, savings, income, debt, output, consumption, capacity utilization, labor, and, ultimately wealth, have been intensifying for DECADES. These imbalances worsen every single day, everywhere in the world, with the global economy becoming increasingly dependent on the US consumer, as our trading partners continue to become more and more incestuously co-dependent on the US for their own export-derived income, savings, and wealth.

  • Secondly, the US housing market is in DEEP trouble, and thus the risk to the US consumer is intensifying.

  • Finally, when peering into the abyss defined by the risk of debt deflation/liquidation, global central bankers will be human, and choose the least painful path. The time for academic solutions is LONG GONE, leaving central bankers with only ONE option ... the creation of more paper money and thus more debt, as a means to achieve pain avoidance. We offer no solutions, only an analysis based on an understanding of the bottom line "human condition."
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