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Strategies & Market Trends : John Pitera's Market Laboratory

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To: The Ox who wrote (18617)

1/21/2017 12:58:31 PM

From: John Pitera

5 Recommendations of 33421

A few thoughts on some of the huge investment opportunities that will present themselves with the shift in the global markets from lower rates to higher rates and the impact that the Global shift in Governments should provide in currencies, bonds and global equity markets.

the EUR is up against resistance where it is already.... It's dangerous to be long it from these levels as it has really already broken down below the 2 plus year horizontal support at the 105- 104.50... after getting support there 3 times...... the EUR could and probably will head straight south from here..... A lot is going on in Europe..

It's hard to understate the situation in the UK with brexit but the chart of the pound sterling since Brexit tells us it's a big deal.

It is not widely understood outside of true global banking and global Macro asset managers that London has been the supreme global financial capital for the FX markets and also for so much of the global derivatives markets... It's is right up their with New York, but it has been even bigger in NY in a number of ways.

One way of illustrating the power of London is that Citibank... had a 14 person "SIV" Structured Investment Vehicles Unit that, when it blew up in 2008 was responsible for maybe 40% of Citibank's losses that resulted in a 10 for 1 REVERSE split that took the stock from $50+ down to $5.

JPM had the London Whale derivative trader who had a 6 to 8 Trillion $ derivative trade that was so large and disruptive that it roiled the global markets and raised serious concern at the FED.. other central banks and of course concerned JPM CEO Jamie Dimon

There are serious issues at work in much of Europe. From Merkel's potential to lose control of her CDP and not get a 4th term, to the populist right wing party in France... that wants to pull their own Brexit.

the GBP/USD has been on a rough ride

and the Oct 7th flash crash that occurred just as Asia was opening and the pound fell briefly 10 big figures from 1.26 down to 1.14 was unprecedented ... it happened just as trading was getting going in Asia and had not happened before. It shows how the global bank proprietary trading desks getting smaller coupled with algorithmic computer trading is making the markets more dangerous.

It was not the same as Brexit where or Soros shorting the pound in 1991 which occurred over a number of weeks and months. And Brexit was a massive fundamental event that moved the GBP to a fundamentally new range that it then traded at for months on end.

It is a scary as when the Swiss National Bank dropped the CHF swiss franc peg to the EUR and we had a 30% temporary slide in 15 minutes. during the day on Jan 15th 2015.... that almost blew up the largest public FX dedicated trading firm and are the types of moves that can blow up derivative books of banks, hedge funds... cause havoc on multinational firms hedges.... and be very damaging to Insurance and ReInsurance books and other nooks and crannies of the global capital markets.

here is a 10 year weekly chart of the same EUR/CHF crossrate. That was actually not as big of a deal in the sense that the Swiss was pegged and the interest rate differentials and interbank forward markets and bonds markets were telling you that this type of event was going to occur at some point.

the 1/15/15 move caused a hell of a lot of turmoil in the $USD/CHF trading.... That blew up as many positions as any other position involving the Swiss Franc.

these types of moves did not use to happen in the currency markets..... and are not an especially good long term omen of things to come..... that move on January 15th of 2015.... within 2 months the USD/CHF was back to basically the same level 1.0240 on 1/15/15 and 1.0128 by mid march.... so in that sense it was just blowing out the speculators... but if you understand the underlying fundamentals of why a pegged currency is going to break it is a chance to hit grand slams as an investor.

The Hong Kong peg to the USD is a long standing peg that is gravitating to this type of reset.

food for thought on the eve of a the Trump administration and the economic policies around the world may well likely set us up for some really large out of the box realignments in the global currency and capital makets... And more importantly.... as we shift gears from declining and negative interest rates around the world and start to see CB rate increases and interest rate differentials dramatically expand and watch global interest rates dramatically rise over the coming 4 years... we will definitely experience several of these episodic events...... and some will be in the global equity and commodity markets and not just the currency markets...

Fortunes will be made by those individuals with foresight who know how to make money in a global market of rising interest rates.... far greater fortunes will be made in the increase in rates for those positioned in the correct instruments and investments.

JP

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