The Enhanced Investor Weekly Macro
April 16, 2017
ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap Happy Easter Everyone! Apologies for the late post, but it’s been an incredibly long week. I am anticipating extreme volatility this week, so unless you’re hedging, longing gold, the yen, or treasuries - I’ve got no new long-term holds on Fundamentals except WLL/CLF. Following a packed week from the Russian delegation here at Harvard’s Davis Center and Veterans Impact Day, let’s jump into what moved and is primed to move the market. The Dow, S&P 500 and Nasdaq ended the week in negative territory, after geopolitical jitters triggered a ‘flight to safety’, as investors flocked into safe-haven assets such as gold, U.S. treasuries and the yen. The concerns over geopolitical tensions in the Middle East and North Korea will continue to trigger moves in commodities and currency, despite solid first quarter results from financials. OPEC’s new monthly report revealed its members cut oil output in March more than anticipated. Compliance with the global deal to drain the glut in supply, averaged 104% according to production figures published by OPEC. Crude prices settled higher on Thursday to notch a third straight week of gains, following a slump to a four-month low of $47.01 in March, on the back of concerns that a ramp up in U.S. oil production could dampen OPEC’s efforts to reduce supply. The U.S. must stifle the output if OPEC is to continue cutting production output. Gold prices had its best week since June, as the risk-off sentiment continued to fuel demand, which is considered a safe haven asset. Gold rose to a five-month high on Thursday. The dollar suffered its biggest one-day decline in more than three weeks on Wednesday, after President Donald Trump said the currency is getting “too strong” and added "I do like a low-interest rate policy, I must be honest with you”. The USD/JPY pair slipped to a five-month low, after investors poured into the safe haven yen amid a rise in market volatility, as unfavorable geopolitical events unfolded throughout the week.
Market Education: Trade Currently, President Trump is meeting with the President of China to discuss The Enhanced Investor Weekly Macro
Geopolitics influence economics and market fluctuations - I’ve said this time and time again. For longevity in these markets, you must learn how to interpret these
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The Enhanced Investor Weekly Macro
April 16, 2017
trade. During his administration, President Trump plans to put forward a policy to reduce America's trade deficits. This potential shift in policy represents a departure from previous administrations and goes against what many economists have concluded about trade. For that reason, we must determine to think about trade deficit differently. Indeed, economists argue that a trade deficit exhibits a failing economy yet this does not tell the whole story. On the surface, the US imported over 462 billion USD worth of Chinese goods, while exporting 116 billion USD. Oxford economists argue that many of these products are intermediary products and adding these products back in from the trade deficit. To explain this, let’s use the supply chain of an iPhone in 2009. China will import approximately $11 worth of product from the US, $172 worth of product from other countries, and earn about $8. Apple’s markup for the iPhone for approximately $600. US trade value shows that value showing up for China thus inflating the deficit. Foreign trade is about products and people, not countries. Currency manipulation and GDP inflation in its essence. Although it is easy to deduce that foreign investment is making the U.S. poorer, there is more to account for. One of my professor, Matthew Rooney, wrote last that “it’s important to understand that a country’s balance of payments, which summarizes all transactions between its citizens and the rest of the world, is like a corporate balance sheet, where assets and liabilities are equal and add to zero. However, in the case of the balance of payments, we don’t talk about assets and liabilities. Rather, we talk about short-term transactions (aka the “current account”) and long-term transactions (aka the “capital account”). This means that a current account deficit is the flip side of a capital account surplus. Dollars that flow out to buy goods and services turn around and flow back in as foreigners buy goods and services and invest in the U.S.– either way, employing Americans. From this perspective, a trade deficit is not an indicator of national economic failure. On the contrary, it is more like an indicator of success: It means the U.S. has a thriving economy that is an attractive place to do business and produces abundant wealth.” More importantly, to consider is Pay close attention implementing a policy that mediates the cause. to any geopolitical A trade deficit can point to imbalances elsewhere in the economy. A capital account surplus suggests that the economy is producing profitable investment opportunities that exceed what the available pool of domestic savings can finance. In our case, domestic savings are inadequate mainly because of Continue to watch USLV for government budget deficits. Less government pullback opportunities* borrowing would leave more savings in the domestic pool, which would reduce the capital account surplus, which would, in turn, reduce the trade deficit. A trade deficit that is driven by a budget deficit, as ours is, is, in fact, a serious problem.The solution lies not in policies designed to limit imports, but rather in a focused effort to reduce government borrowing. The credit problem in China is another problem to consider later. Although most economists have concluded that the trade deficit is problematic
The Enhanced Investor Weekly Macro
movements this week. I said this last week and I’ll continue to say it. USLV, FAS, and RIG on the verge of base-breakouts.
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The Enhanced Investor Weekly Macro
April 16, 2017
but this is not the case. Instead, the potential shift in policy does not represent SR problems but departure from previous administrations to focus on LR stability.
Additional Info For any newcomers who don’t know me, I’ve been contributing via the Enhanced Investor Weekly Macro Reports under #WatchList for over a year now. I began the education portion of this newsletter back in November due to the market action at the time. My in-depth knowledge of bubbles relative to political shifts and global economics, emerging markets, and monetary/fiscal policy needed to be shared, so I decided that it was simply not enough for beginners, or even intermediate traders because in order to have the ability to synthesize what’s truly happening - you need to be operating at the MBA/PhD level. As I’ve noted before, unfortunately, some PhD’s forget the basics. Whether that’s due to moral hazard, or plain and simple hubris, I can’t comment on that. Anyway, as I said a few weeks ago, it’s not fair for me to assume that all of you have what those at investment banks call “financial sophistication”, but that’s why we’re working together here at Enhanced Investor. Monitoring Wall Street and Washington helps us gain the upper edge. It’s why we do this. Anyway, I am more than happy to help, so if for some reason I don’t receive a tag in the #mainstockchat, or you don’t direct message me on Discord, please feel free to email here adamwood@fas.harvard.edu or you can tag me on StockTwits @ EILeadMacroAnalyst. Don’t fear a bubble - ever. We do not fear bubbles here at Enhanced Investor. Why? Because we’re armed with the strategic, tactical, and historical knowledge of every major bubble that has ever occurred. From the Tulip Mania of 1637 to the Housing Crisis of 2008 and the current market conditions - we’re prepared.
The Enhanced Investor Weekly Macro
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