The Enhanced Investor Weekly Macro
April 2, 2017
ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap Hey Hey! Well, this past week was telling. The UK finally triggered Article 50, which officially starts the legal process by which Britain will leave the (EU). Here’s what to expect as a result: 1) A stronger dollar 2) Gold to continue its rise 3) Crude oil to continue to rise on the back of Brent Yes, crude futures slid nearly 6% in Q1, but prices settled above the key $50-level on Friday. I’m not questioning the sustainability of the OPEC-led production cut agreement, especially if they extend another six months. Gold gained 8% in the first quarter of this year, after a less hawkish than expected Federal Reserve statement concerning the pace of rate hikes and uncertainty over the outcome of the European elections supported upside momentum in the safe-haven asset.
Market Update Global financial markets will focus on Wednesday’s minutes of the Federal Reserve’s latest policy meeting for further hints on the timing of the next U.S. rate hike. Investors will also keep an eye on key U.S. economic data, with Friday's monthly employment report in the spotlight.
Watch the Trumptrade funds: CENX, CLF, X, and Financials.
Meanwhile, in the U.K., traders will focus on a trio of reports on activity in the manufacturing, construction and services sectors for further indications on the The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
April 2, 2017
continued effect that the Brexit decision is having on the economy. Elsewhere, in the euro zone, market participants will pay close attention to a report on German factory orders to gauge the health of the region's largest economy. Outside the G7, market participants will be looking ahead to a monetary policy announcement from the Reserve Bank of Australia on Tuesday. 1. Fed FOMC Meeting Minutes The Federal Reserve will release minutes of its most recent policy meeting on Wednesday at 2:00PM ET (18:00GMT). The U.S. central bank raised its benchmark interest rate by 25 basis points following its meeting on March 15 and stuck to its projection for two more hikes this year. The Fed is not expected to raise interest rates again until June, according to market pros. Futures traders are pricing in around a 50% chance of a hike at the Fed's June meeting. Odds of a September increase is seen at about 75%. 2. U.S. March Jobs Report The U.S. Labor Department will release its March confirm payrolls report at 8:30AM ET (12:30GMT) on Friday. The consensus forecast is that the data will show jobs growth of 180,000, following an increase of 235,000 in February, the unemployment rate is forecast to hold steady at 4.7% while average Continue to watch USLV for pullback opportunities* hourly earnings are expected to rise 0.3% after gaining 0.2% a month earlier. Besides the employment report, this week's data-heavy calendar also features reports on U.S. auto sales, construction spending and ISM manufacturing on Monday; trade figures and factory orders on Tuesday; ADP private sector sector payrolls and the ISM non-manufacturing survey on Wednesday; weekly jobless claims on Thursday, followed by wholesale
The Enhanced Investor Weekly Macro
Pay close attention to any OPEC rhetoric this week. If they continue to talk about the extension: WLL, UCO, XOM, and RIG are potential longs.
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April 2, 2017
inventories and consumer credit on Friday. Headlines from Washington will also be in focus, as traders await further details on President Donald Trump's promises of tax reform and infrastructure spending. A meeting between Chinese President Xi Jinping and President Trump at his Mar-a-Lago retreat on Thursday and Friday will also be on investors' radar. 3. U.K. March PMI’s The U.K. will release readings on March manufacturing sector activity at 08:30GMT on Monday, followed by a report on the construction sector on Tuesday and the service sector on Wednesday. The manufacturing PMI is forecast to rise to 55.1 from 54.6 a month earlier, construction activity is expected to improve slightly to 52.6 from 52.5, while a survey on Britain's giant services sector is forecast to inch up to 53.5 from 53.3 last month. Besides the PMI's, the U.K. is due to release data on home prices, manufacturing production and the trade balance. The Bank of England voted to keep interest rates unchanged last month, but the decision was split with one of the nine members voting to raise rates for the first time since July given the recent spike in inflation. 4. German February Factory Orders Germany will publish data on factory order for February at 06:00GMT Thursday. The data is expected to show a gain of 4.0%, following a sharp drop of 7.4% in January. There will also be German, French and Spanish industrial production data due on Friday. All are expected to show growth, adding to evidence that the euro zone's economy is gaining momentum. In addition, the European Central Bank is scheduled to publish the minutes of its March policy meeting on Thursday. 5. Reserve Bank of Australia Policy Meeting The RBA's latest interest rate decision is due on Tuesday at 04:30GMT.
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
April 2, 2017
Most economists expect the central bank to keep rates unchanged at the current record-low of 1.5% for the ninth straight meeting and maintain its neutral policy stance, given the economy's convincing rebound last quarter, rising commodity exports and a robust increase in household debt levels. Besides the RBA, monthly retail sales, building approvals and trade figures will also be in focus.
Long-Term Fundamentals TRMB - Trimble Navigation, in a steady uptrend and coming out of an 8- week base pattern AEIS - On a steady uptrend. 3-week tight base pattern for this power conversion maker. PE ratio of 22. BRKS - 9-week base pattern - Semiconductor equipment and life sciences sectors
Education There is a tradeoff between long-term growth and bottom-line results in the short run. Change is being accelerated with technology and we must embrace change. But how we decide to manage the everchanging conditions we face needs to have deep roots in ethics, goals, and models based on patience and discipline of sustainability. So often in finance there is an attempt to quantify things that they don’t know the answer too. We over analyze Janet Yellen wearing a gold necklace or get too caught up in what policy says historically. The probability bell-curve is not historically shaping. It is still a bell because future probability is still unknown. Human beings are irrational by nature and it’s easy to lose sight on what really matters. It’s not easy to stand in the face of a hundred bulls, but sometimes that is the thing to do, so dig your feet in. The CAPM and other risk-return models are flawed in the sense that just because you’re are taking on more risk, does not guarantee greater gains. If you are going to bet on a horse to win the race why bet the long shot that hobbles to the starting gate? “You get what you pay for,” certainly applies to the world of investments. People want to bet on the long shot and I get the cigar butt type approach but foreseeing growth is more than getting out of the gate. The worst stocks to buy for the long haul are the speculative and cheapest ones. As successful as Kevin, Justin, Karl or any of the many calls that are made at EI, there is no such thing as get rich quick and they aren’t always going to hit. It is an increasingly proven fact that most
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
April 2, 2017
fund managers fail to beat the index over time. With the rise of algorithms and AI what is getting locked in is what works today not what works in a month or a year from now. Everyone holds their own ethics, goals, and models of trading and investing. It’s hard enough to hold one’s day to day emotions in check, let alone balance those other aspects, while focusing on keeping a steady mind and strong hands, during a draw down, or contain one’s pure euphoria of during a successful trade - we fail to realize those emotions are temporary and those trades are done. In the end, you are left with a profit or loss, but even more than that you are left with again your ethics, goals, and ideas. Whether you believe in the efficient market hypothesis or random walk theory, stocks patterns are never fully predictable and are at large very random. At the end of the day though, success is measured more than what’s on the balance sheet. Ben Graham wrote that, "Though the stock market functions as a voting machine in the short run, it acts as a weighing machine in the long run. Fear and greed play important roles when votes are being cast, but they don't register on the scale.” Just because you made profit today does not guarantee that that same trade will play out identically in the future. Indeed many Wall Street bankers ruthlessly “hunt for elephant” deals, traders find their “supernova” stock, and VCs fund their Silicon Valley “unicorn” startups; what gets lost is what truly matters. As Mara Zepeda argues,“The current structure is flawed. It rewards quantity over quality, consumption over creation, quick exits over sustainable growth, and short-term shareholder profit over long term results and prosperity”. We need new rules for winning, not just because the current system is ruining finance, but because long run time horizons are also important. I understand investors need to make hay while the sun is shining. The last couple months in a screaming bull market can make a lot of hay for those investors. With increased uncertain about the future of healthcare, environmental policy change, and unsteady foreign relations now, more than ever, we need to anchor ourselves in quality, creative, sustainable growth that that provides long-term results and prosperity. Although I eagerly awaited the annual Berkshire letter as much as any kid on Christmas morning (probably too eagerly), second hand reports from individuals only go so far. It is very important to look at quality, creative, sustainable growth yourself. I invite you this week not to pick up a WSJ, but a Car and Driver; not a Barrens, but a Wired. As much as the changing interest rates matter and everything in the short run, putting an ear to the ground and understanding where you stand is that will drive the future of your portfolio. Do your due diligence and stay true to those personal ethics, goals, and models - in the long run you will find success. -Trey Taylor
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The Enhanced Investor Weekly Macro
April 2, 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.
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