Enhanced Investor Macro - 5/21 by seitys

The Enhanced Investor Weekly Macro

May 21, 2017

ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap-Up Hello Hello, It’s gotten quite political over the past two weeks, but this was to be expected and was called back in January. The major indices in the US realized the worst decline of 2017 on Wednesday, as investors dumped risk assets amid reports that President Trump asked the then-FBI Director James Comey to shut down an investigation into the actions of former National Security Advisor Mike Flynn. I was very clear regarding the level of volatility that Trump possessed as was on display when the DOW fell 372 points and the VIX spiked 42% this past week. In corners of the US where those in “the know”, i.e., those in government are fully aware of what’s to come, I’ll say this, plans for the Pence administration are already being sculpted. Stay tuned to these reports as to how Pence’s agenda differs from Trump’s and how it is actually better for the markets and economy. Gold, of course, rallied and should continue to trend upwards given the volatility and turmoil of erratic Trump. Good for gold! Gold saw its highest gains in roughly five weeks. And then there was the black gold (oil). Crude closed above the key level of $50 on Friday due to OPEC and non-OPEC members agreeing to continued production cuts until March of 2018. I have mentioned this geopolitical movement and its impact on economics many times. Once the deal is approved and compliance is observed, oil should rally to $65 a barrel with ease. The only risk to the downside is if the US were to produce more than we currently are, which I cannot logically justify at this time given the political hurricane we’re currently immersed in.

The Enhanced Investor Weekly Macro

May 21, 2017

This Week Prepare for a wild one if anymore Trump details are leaked. Otherwise, the biggest market-movers this week in the global economy OPEC’s highly-anticipated meeting on Thursday to see if the major producers sign an extension to their current production-cut agreement (mentioned above). If crude is hovering around $50 - they’ll sign. Unless oil magically shoots up to $60+ by the time the meetings begin, OPEC will sign any extension they can to prop up the price of crude. Meanwhile, Wall Street and China will look to Wednesday’s minutes of the Federal Reserve’s latest policy meeting for further hints on the timing of the next U.S. rate hike. I highly doubt the Fed will raise rates anymore this year, or at least until December, given the past turbulent weeks of Trump’s horrific administration. The Fed does not want to spook the markets any more than it already has. Elsewhere, in the U.K., market players will be looking ahead to a second reading on British growth data for further indications on the continued effect that the BREXIT decision is having on the economy. A lot of outflows are streaming into Paris and Beijing as a result. In the EU, traders will assess flash survey data on euro zone business activity for further signs on the strength of the region's economy and hints on when the European Central Bank will start withdrawing stimulus. As long as Trump is president, Draghi will err on the side of caution. 1. OPEC Meeting Oil ministers from the Organization of Petroleum Exporting Countries and other major producing countries will meet in Austria on Thursday to decide whether to extend their current production agreement beyond a June 30-deadline. As previously report, in November last year, OPEC and 11 other non-OPEC producers, including Russia, agreed to cut output by about 1.8 million barrels per day between January 1 and June 30. Most market analysts expect the oil cartel to extend output cuts for until March 2018, instead of six months as previously expected. There is also talk that OPEC is looking at the option of reducing the current production even further, but it is not clear whether there would be support for that unless the US agrees to scale back production, as well. The Enhanced Investor Weekly Macro

The Enhanced Investor Weekly Macro

May 21, 2017

So far, the production-cut agreement has had little impact on global inventory levels due to a relentless increase in U.S. shale oil output and rising supply from producers not participating in the accord, such as Libya. 2. Fed FOMC Meeting Minutes The Federal Reserve will release minutes of its most recent policy meeting on Wednesday at 2:00PM ET (18:00GMT). In addition, a handful of Fed policymakers are due to make public appearances this week that may offer insight into the likelihood of higher interest rates in the months ahead. This always has an impact on gold prices, as well as major indices depending on the rhetoric used during the speeches. The Federal Reserve left interest rates unchanged following its meeting on May 3 and gave a positive assessment of the U.S. economy, suggesting it was still on track for two more rate hikes this year. However, a recent run of disappointing U.S. economic data coupled with signs of deepening political turmoil in the White House saw investors temper expectations for higher interest rates in the months ahead. I do not think the Fed can raise again until the situation at the White House has been resolved, which will take months. 3. U.S. Revised 1st Quarter Growth Data The U.S. is to release revised data on Q1 GDP at 8:30AM ET (12:30GMT) Friday. The data is expected to show that the economy grew at a 0.9% annual rate in the first three months of the year, upwardly revised from a preliminary estimate of 0.7%. Besides the GDP report, this week's calendar also features U.S. data on new home sales, existing home sales, weekly jobless claims, consumer sentiment and durable goods orders. Investors are likely to continue to stress over the latest headlines coming out of Washington for any new fallout from the Trump campaign investigation. The deepening turmoil surrounding the Trump administration intensified doubts that the president would be able to follow through on his campaign promises for tax cuts, deregulation and fiscal stimulus.

The Enhanced Investor Weekly Macro

May 21, 2017

4. U.K. First Quarter GDP - Second Estimate The Office for National Statistics is to produce a second estimate on Q1 GDP for the U.K. at 08:30GMT (4:30AM ET) on Thursday. The report is forecast to confirm the economy grew 0.3% in the January-March quarter, underlining worries that Britain's economy is slowing just as it prepares to start negotiations to leave the European Union. On a year-over-year basis, the economy is forecast to grow by 2.2% also unchanged from an initial estimate. In addition, traders will be keeping an eye out for the Bank of England's Inflation Report due on Tuesday. Recent data has pointed to signs that rising inflation, caused in part by the pound's postBrexit vote tumble, is crimping spending by consumers, the main drivers of the economy, just as the country is set to start EU divorce negotiations. 5. Flash Euro Zone PMIs for May The EU is set to publish preliminary data on manufacturing and service sector activity for May at 08:00GMT (4:00AM ET) on Tuesday, amid expectations for a modest decline. Ahead of the euro zone PMI's, France and Germany will release their own PMI reports at 07:00GMT and 07:30GMT respectively. The ECB is likely to signal a move away from its ultra-easy monetary policy by September as economic performance improves and political risks recede, according to most market experts. However, I would continue to watch the IMF, China, and DC for indications of staying the course.

The Enhanced Investor Weekly Macro

May 21, 2017

Education I haven’t done one of these segments in awhile, but thought it appropriate for the current drop in the USD. Trump once called Michael Flynn to ask if a strong or weak dollar was good for the United States. He was referred to an economist. Allow me to answer the question for our Commander-in-Chief… Quite simply, the vast majority of the globe’s premium currencies float against one another. The USD, however, is often the standard by which other currencies are measured, or “pegged”. A strong dollar means that our currency buys more of a foreign county's goods, which can be good for domestic consumers and international travelers because they consume at a higher rate and travel when it’s cheaper to do so. However, the downside is US-based companies that sell goods to foreign customers suffer because, relative to a weaker currency, our goods and services cost more. This may mean U.S. producers are at a disadvantage in the global economy. This can lead to manufacturers moving plants to foreign countries with lower costs, so they can remain competitive. In short, a strong dollar can mean jobs lost in the United States. So no, We, the United States, do not need a USD above $100 in FOREX - ever. It is here that I’ll introduce why NOT to go crazy on gold yet unless it is revealed - in simple chapter and verse - that Trump obstructed justice AND the campaign colluded with the Russians. It’s simply not time to go “all in”. First, gold’s recent strength has been driven entirely by the strength of the Euro and not due to falling real interest rates, its primary fundamental driver. Macron’s win in France coupled with recent strength in European markets has supported what was an oversold and depressed euro. This has supported gold in US dollar terms but only in those terms. As the chart below shows, gold has been weak when measured against foreign currencies and equities.

The Enhanced Investor Weekly Macro

May 21, 2017

The above chart shows that Gold remains well below its spring high near $1300 despite the US dollar breaking its spring lows to the downside. In addition, gold remains rather weak relative to foreign currencies and equities. The one hope for gold would be a falling stock market and sustained strength in the gold/equities ratio. While I expect that eventually, I do not think it is in the cards yet. Turning to the gold mining stocks, there appears to be immediate downside risk as the miners appear to have completed their oversold bounce. Over the past few weeks VanEck Vectors Gold Miners (NYSE:GDX) and VanEck Vectors Junior Gold Miners (NYSE:GDXJ) rallied 13% and 17% respectively and retraced a good chunk of their April decline. However, they now appear ready to decline into June and the upcoming Fed meeting. For the first time in months, GDX was unable to touch its 200-day moving average, which is already sloping down. Support for GDX is at $21 and $18-$19. Meanwhile, GDXJ peaked at its 50-day moving average and strong resistance at $34-$35. Its next strong support level is the December 2016 low. The Enhanced Investor Weekly Macro

The Enhanced Investor Weekly Macro

May 21, 2017

The Enhanced Investor Weekly Macro

May 21, 2017

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