US markets now:
Money managers are incentivized to follow the trend. If you lose less money when there's a sell-off, no one will ring you to say 'well done'. However, if the market is going up and your fund is under-performing, expect angry calls. Hence, you generally see johnny-latelies joining the party pushing the prices up using levered ETFs and HY betas. No one will try to preempt and sell as it's too expensive to fight the trend. IMO current state of US and global markets mirror this scenario. So far, price velocity has been on the side of long positions. However, I think it looks wobbly at the top, but the trend is clearly up, for now, until something 'big' happens. I'll be selling size when everybody sells, but in the meantime, stick to my small long positions as I don't see/believe in huge upside. On the other hand, per COT, retails is fully convinced that SPX will crumble anytime now and there are over 90% retail short positions on SPX.... so contrarian view, I expect retail to be squeezed. On the other hand, if retail shorts come down significantly, or if retail gets bullish, I'd go short.
Next quarter:
I am currently seeing strong $DXY and this has ramifications for RMB(which is fixed to USD basket) and EMs. When crude rallied few months ago, it was announced that oil producers were rushing to sell to hedge prices. This month, we're seeing commodity equities rise up due to earnings beat(which is really function of $DXY and its effect on commodity pricing in last quarter). In the next quarter, we're likely to see the same equities currently beating forecasts, paring some gains due to USD strength and weak commodity prices. I think there we will see a sell-off but not a mini-crash.
EMs are likely to get sold next quarter - I am seeing a strong uptrend in Nifty 50, but I am not convinced - India's ETFs are not currency hedged and they've just managed to pass the GST bill(which I think is the last +ve). They get a new central bank governor soon & I don't think markets are going to like it. China's situation looks similar. Last quarter PMI, FT pointed out that the growth was via old vehicles of economic growth which are debt funded.... This quarter Chinese politicos have acknowledged this in news. Next quarter, I think we'll get a 'we told you so'
December:
I think global markets will rally again after US elections, no matter who wins. We're likely to see some strong fiscal spending in the US. I think Japan is stuffed and it has reached the limits of monetary policy and they have structural issues which are likely to hold them back, unless they make drastic changes (this is very tragic).
Crude:
I have no idea how/why crude prices move in the way they do - I have never really spent any time in understanding this. Any thoughts on crude Vs USD divergence?
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