The Market Radar

We anticipate, monitor, and comment on market moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t  afford to ignore us.

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Cue “Exit the BREXIT” & Other GMM Victory Laps

Because we get a lot of things wrong in the trading business as nobody knows the future, and every decision to buy or sell is really just a probability adjusted or calculated guess, we thought we would take a victory lap on a few of our calls this year.  We backed these calls with real money.

The Midterm

We are students of politics, as all traders should be,  and constantly trying to sense the mood of the body politic, keeping our political bias at bay.  Note we predicted Trump would win the electoral college and HRC would win the popular vote the night before the election.  We know of no one making that specific prediction.

Took a lot of heat in our household on election night, as it was our fault!

Our February Midterm Bet

Because so many allow  emotions to cloud their judgements and base their opinions on noise from political pundits, it is easy to pick off the gullible.

Here is a bet we made with a Trump supporter waaaaaay back in February that the Dems would take more than 36 House seats.  Many large institutional investors would know our counterparty’s name:

On Feb 27, 2018, at 6:10 AM,  P…… <> wrote:

I’ll bet better than average for $100

From: G…. <>
Sent: Tuesday, February 27, 2018 6:15 AM
To: P
Subject: Re: 

Done.  P…. = less than 36 loss;  G.. > 36.  Push at 36.

Sent from my iPad

He just conceded yesterday.  It looks like Dems are going to flip 37-39 House seats.

Our friend was betting Trump would weather the midterms based on the strong economy.  We knew the day after the Inauguration, with hundreds of thousands women marching in the street,  the XX chromosome demographic, who are the majority and more likely to vote,  had woke and their energy and revulsion toward the president would carry into the midterm.

President Trump’s polling numbers with women was the political metric we followed the most over the past 18 months.


Exit the Brexit_6

The Lavender Wave & Political Earthquake

We posted several pieces on the Lavender Wave, that is combination of pink (women) and blue (Democrat), sweeping the Republicans from the House.

Look for the wave to crest and break in early November when women and millennials, in general, come to the polls in droves  to express their revulsion for President Trump.  No level of the S&P or GDP growth will matter. – GMM, Sept 4th

Also see here and here.

Our model based prediction came in right on the money,

Dems Likely To Pick-up 27-47 House Seats

Our prediction is based, not on our personal politics, but on inference from the polling data, history, and simple factor models.   Recall, we predicted Trump would win the electoral college and Clinton, the popular vote, on the eve of the 2016 election.  – GMM,  October 9th

Though to be honest, our model did increase the upper end of the range after President Trump began to tank in the polls in the last few weeks before election day,

President Trump enters the week before the midterm election with the lowest approval rating of any full first-term president in modern day polling — 4 points below President Obama before losing 63 House seats in 2010, and 6 points lower than President Clinton before losing 54 House seats in 1994.

The presidential approval model predicts the Republicans are set to lose 53 House seats next Tuesday.  – GMM, October 29th

Clock Cleaning

Though many looked at the headlines on election night and were disappointed their long-shot bets – Beto, Stacy, and Andrew Gilliam – lost, the Republicans got their clock cleaned.

President Trump lost the most House Seats of any first-term Republican president since Herbert Hoover, who was sitting on an economy sliding fast into the Great Depression.  Conversely,  President Trump lost 40 House seats with a strong economy boasting a Misery Index of just 6.0,  the second lowest of any recent president in his first-term.


Exit the Brexit_3


Unless power changes from one party to the other or puts one party over the 60 vote threshold, Senate pickups are pretty marginal and signify little.   It was historic, however, in that the Republicans picked up Senate seats while losing the House.

It was the first time since the nation started directly electing senators in 1914 that a party has won control of the House without gaining seats in the Senate. – USA Today

We have been pounding the table for months about how a Lavender Wave – women voting Democrat – would determine the outcome of the midterm.   The wave crested on election day and swept Republicans from the House.   The 2018 midterm was the Year of the Woman, and their slogan?

Veni vedi vici!

Exit the BREXIT

So, folks, how many analysts do you know who were predicting after the American political earthquake pressure would build in the U.K for a second referendum on BREXIT?   You certainly did here:

BREXIT ain’ gonna happen.  The political extremes on both ends have “woke” the sleepy and complacent middle, women, and the young.  We believe you will see the results in the upcoming “November to Remember” midterms.

A second vote on BREXIT is an uphill battle, but if the Trump administration gets “bitch slapped” in the November midterms the momentum and pressure for a new BREXIT vote will build, in our opinion.   – GMM, October 20th

Exit the BREXIT is hardly a done deal but we direct you to today’s headline in The Sun.

Exit the Brexit_4

Politicians are no more than weathervanes of popular opinion, which is especially true in a parliamentary system, such as the U.K.  Unlike America’s political system, particularly its archaic electoral college and upper chamber, the Senate, where the tyranny of the minority can, and often, do rule.

The total cumulative population of the bottom twenty least populated states in the U.S. have 40 votes in the Senate, for example, whereas California, with the same population as the bottom twenty, only has two votes in the Senate.  Is that a fair and democratic way to pick, say, Supreme Court justices, the third branch of the American government, for example?  Just askin’.

Polls Moving Against A BREXIT

Nevertheless, check out the latest polls on BREXIT in the U.K..  The pressure for a second vote on BREXIT is going to grow and about to get intense.   We wouldn’t bet against the U.K. staying in the European Union.


Exit the Brexit_1

Exit the Brexit_2

Source:  Sky Data poll

Will the British pols thwart the will of the people?

We seriously doubt it, especially given that British policymakers seem to have no idea what the hell to do on this issue.

We stand by our prediction.  No BREXIT


Finally, you know we have been critical of Apple’s strategy of driving revenues through inflating iPhone prices and strongly believe it is unsustainable.

Apple’s market cap hit 1012 dollars today.

Impressive but no pom-poms here at Global Macro Monitor.  We would be more impressed if Apple’s main businesses were doing better and the company was more focused on electrical engineering rather than financial engineering. – GMM, August 2nd

Apple continues to rely on iPhone inflation for revenue growth as unit sales quarterly year-on-year growth was flat for the 12th consecutive quarter.   The almost 30 percent increase in iPhone revenue is due to price increases.

…Assuming, for example, iPhone prices rose at the rate of inflation of 3 percent (and, of course, assuming away quality upgrades),  the company revenues would have increased by only 5.7 percent instead of 20 percent.

Relying on price increases is not sustainable and may be why the stock is taking a beatdown after the close.

…We suspect if unit sales do not increase this holiday season,  the stock could be in trouble. Just our calculated guess.  – GMM,  November 1st



The Street is coming around to our view and the stock is under pressure.

We received this email from a golf buddy and friend a few days ago.

Johnpaul <>
Wed 11/14/2018, 7:45 PM


G…, hope you’re doing well. Just wanted to let you know that in early August you gave me some advice on Apple stock shares I was holding. You said despite Apple’s recent share price run up Apple relied heavily on their iPhones sales making them a “one trick pony” and very vulnerable long term. I took your advice and sold my shares of Apple. Glad I did. Thanks!
JP 🙏😊

Sent by my Labrador

Always feels good to help a friend save a few bucks ($30-40 per share to be exact).


There you have it folks.

We could add more, such as our calls where we stood alone on various issues:   China trade, the Taiwan StraitTrump and North Korea,  the U.S. Treasury market, just to name a few.   Many of our views are now becoming conventional wisdom.

We could lay out many of the calls we got wrong, especially the call on a stock bear market earlier this year, though we believe we were just early.   But you must admit, we provide a different perspective and angle on the economy, the markets, and current events.

This is exactly why the Global Macro Monitor is must read.  Turn off the cheerleaders and stay tuned.

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U.S. Treasury Market Borrowing & Global Foreign Savings

We were curious about how much U.S. Treasury market borrowings have increased relative to global foreign savings and whipped together the table below.

We define  global foreign savings here as the cumulative current account surpluses of all the world’s surplus nations.

The sum of the world’s economies current account balance should equal to zero.  That is not the case with the actual data, however,  due to measurement errors.   Some argue it is because the world runs a current account deficit with Mars.   Wonder what kind of tariff will fix that?

Nevertheless, the data are quite shocking.

In 2014, for example,  the U.S. Treasury issued $649 billion in marketable debt, of which the Fed, during QE3, bought more than 33 percent in the secondary market.   The net issuance after QE totaled only 27 percent of the world’s foreign savings.   Note this does not include domestic savings, which is the bulk of savings.   Moreover,  one should not conclude the Treasury absorbed all of the world’s foreign savings.

Our analysis should be used to benchmark Treasury market borrowings relative to savings and the potential stress it puts on the world’s capital flows and markets.

In 2018,  based on the January through October realized data and our estimates for November and December,  the Treasury will issue $1.12 trillion of marketable debt.  The U.S. government will also repay over $250 billion to the Federal Reserve as they run off their SOMA portfolio.   We estimate the net pressure on the capital markets will be $1.4 trillion, or 84 percent of global foreign savings, more than triple the 2014 level.

These data points are relevant given the U.S. government has been so dependent on foreign savings during the last 15 years to finance its budget deficits (see chart below).  It also helps explain the pressure on emerging markets this year as the U.S. public sector borrowing requirement (PSBR) is crowding out capital flows to to the rest of the world and other markets.



Maybe this why markets are beginning to feel so tight even as global policy real interest rates remain at near or below zero.


CenBank TD_1


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Multiple root problems lie behind Italy’s economic woes – FT

Great synopsis of Italy’s economic and political woes by the FT.

The country’s lagging GDP per capita is all you need to know to understand the cause of the political conflict and rise of left-right Italian populism.

We were surprised by the chart on Italy’s undereducated youth (second chart), which is another  explanation why populism has taken root in Italy.

Trumpism, America’s form populism, gets it oxygen from the non-college educated, mainly,   non-college rural white males.  Not a good metric for the future of the Republican Party as this demographic in on the extinction list as the other demographics are growing in relative terms.  You saw the results in the midterm.








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Is The 10-Year S&P500 Rally At Risk?

We don’t know and neither does anyone else.

We do know, however,  the market trades horribly;  it can’t hold its water on rallies;  has lost its leadership and trades rudderless,  and the index is getting close to testing some key levels to the downside.   It feels like a Cat 2 hurricane,  dangerous but not yet catastrophic.

We begin to get nervous about the rally from 2009 if the 2018 lows break at 2532, and real nervous if the first Fibo of that rally is violated at 2404, which is 11 percent lower from today’s close.   Still that level would not constitute a bear market.

Key Levels

We have highlighted the key S&P levels to watch in red in the table below.

Watch today’s low at 2685.75, which was just above the .236 Fibo of the recent correction.  Then 2641.25, the closing low of the Q4 correction, and finally the 2603.54 intraday low.

The probability of a retest of the 2018 intraday low of 2532.69, 6.25 percent lower, is a high probability event, in our opinion.   If that fails,  a bear market is likely.

Of course, this trajectory can change if, say, the U.S. and China soon kiss and make up on trade, which we put at 30 percent, or the Fed reverses shrinking its balance sheet, a 15 percent probability, in our opinion.

Stay tuned.










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The Rack Trade Cometh & Killeth

The following trade is causing some mega pain and panic unwind within the energy trading community:

Long Crude Oil futures/Short Natural Gas Futures

It’s painful enough to be squeezed, but to be taking it at both ends is unbearable and you can see it in the chart.

It looks like the rack trade should be close to ending  but still wouldn’t jump in here.   We have experienced and know all about these rack trades.  Very painful.

Just when you think you’re nice and hedged up, it hits the fan.

Compliments of the Polish Rifle,  Dougie Skrypek.


Rack Trade


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Rome Is Burning, Again

This is insane. It is getting old and hard to breath.  Godspeed to those suffering.


Posted in Uncategorized | 2 Comments

Mr. Market’s Biggest Headwind

At the end of September, we posted our analysis of the structural changes taking place in the Treasury market,  The Gathering Storm In The Treasury Market 2.0,  which was very well received and still getting thousands of hits per week.

Crowding Out

Our analysis focused on “crowding out”, mainly, the changing supply and demand dynamics in the Treasury market.  We flagged the sharp increase in new Treasury supply this year and the coming years, and the declining demand, mainly, what was once “free money” from:  1) foreign central banks;  2) U.S. government trust funds, such as Social Security which is now in deficit; and 3) The Fed, which is now a net seller of Treasury securities as quantitative tightening is full steam of head, forcing the Treasury to issue an additional maximum of $30 billion into the market to refinance the FED’s maturing Treasury portfolio.

Treasury_Financing Needs





Treasury_SOMA_Maurities and Rolloff

We concluded the extra supply and declining demand is putting almost unprecedented stress and pressure on the world’s financial markets.  That is the marginal supply of liquidity/savings/capital, however, you label it, available for all global asset purchases is not unlimited unless complimented by quantitative easing, and is being sucked into the U.S. Treasury market.

Interest Rates

We also noted in the piece that the only possible case for Treasury yields to remain at current levels or to move lower was for haven flows to increase.  Selling in other asset markets, such as stocks and emerging markets, with the money moving into Treasuries.

Even still, we expect real yields to move higher.

Moreover,  as markets increasingly fret over the growing fiscal deficit and how it will be funded, we suspect the political conflict in the U.S. is going to get very loud and ugly over the next few years.

Place your bets on how to lower the deficit to relieve market pressures.   Cutting entitlements or raising taxes?   Or both?

Jim Grant

Finally,  Jim Grant nailed it last week, confirming, at least to us, our analysis.  Keep it on your radar, folks.

…the expected burden of Treasury security supply in the market this year..we are talking about the biggest dollar amount of securities for sale as a percentage of GDP since World War II, 1945.  – Jim Grant, @2.35 minute mark  

Jim Grant_Nov12

 Click here for interview

Big changes coming to the Global Macro Monitor.   See here for details. 

Posted in Budget Deficit, Capital Flows, Interest Rates, Uncategorized | Tagged , , , | 20 Comments

Is The U.S. Dollar Over/Undervalued?

If you are planning on retiring to a country other than the United States, you may want to have a glance at our following analysis.

Purchasing Power Parity

We have taken the October IMF WEO database and backed out their Purchasing Power Parity dollar deflator to get a sense of how cheap or expensive each currency in the world is relative to the US dollar.    When traveling to a foreign country, you can get a sense of the home country’s currency valuation by the purchasing power of your dollar in the local market for goods and services.

That, in a snapshot, is the concept behind Purchasing Power Parity exchange rates, which is long-term currency valuation measurement.   It gets more complex when considering other factors, such as the local GDP per capita, for example.

Nevertheless, the following analysis is a crude 10,000-foot view of dollar valuation throughout the world.  It does, in general,  pass the Economist’s Big Max Index smell (yummy) test,

THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.  – Economist


Based on the 2018 data, there 172 currencies in the world undervalued to the U.S. dollar, ranging  from 83 percent to 1 percent.    There are 16 currencies overvalued to the dollar, ranging from a high of 37 percent in Switzerland to 0.9 percent.

All of the G20 currencies are undervalued except Australia.   Our friends Down Under may have a different view.  Must be their housing market.

Don’t get to caught up in the exact data points.  We view them as decent approximations and in the zip code.









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In Honor Of Veteran’s Day: The Butterfly Effect

To honor Veterans’s Day,  we are reposting our June 2017 butterfly piece, which illustrates how sleepwalking can lead the world into a war that nobody wants.

French President, Emmanuel Macron, warned today about sleepwalking into another great conflict.

“I know there are old demons which are coming back to the surface. They are ready to wreak chaos and death. History sometimes threatens to take its sinister course once again.  – President Macron




History’s Biggest “Butterfly Effect” Occurred On This Day

The butterfly effect is the concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science.

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The name, coined by Edward Lorenz for the effect which had been known long before, is derived from the metaphorical example of the details of a tornado (exact time of formation, exact path taken) being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier. Lorenz discovered the effect when he observed that runs of his weather model with initial condition data that was rounded in a seemingly inconsequential manner would fail to reproduce the results of runs with the unrounded initial condition data. A very small change in initial conditions had created a significantly different outcome.  — Wikipedia

On this day in history, June 28, 1914, the driver for Archduke Franz Ferdinand,  nephew of Emperor Franz Josef and heir to the Austro-Hungarian Empire,  made a wrong turn onto Franzjosefstrasse in Sarajevo.

Just hours earlier, Franz Ferdinand narrowly escaped assassination as a bomb bounced off  his car as he and his wife,  Sophie,  traveled from the local train station to the city’s civic city.   Rather than making the wrong turn onto Franz Josef  Street, the car was supposed to travel on the river expressway allowing for a higher speed ensuring the Archduke’s safety.

Yet, somehow, the driver made a fatal mistake and tuned onto Franz Josef Street.

The 19-year-old anarchist and Serbian nationalist, Gavrilo Princip, who was part of a small group who had traveled to Sarajevo to kill the Archduke,  and a cohort of the earlier bomb thrower, was on his way home thinking the plot had failed.   He stopped for a sandwich on Franz Josef Street.

Seeing the driver of the Archduke’s car trying to back up onto the river expressway, Princi seized the opportunity and fired into the car, shooting Franz Ferdinand and Sophie at point-blank range,  killing both.

That small wrong turn,  a minor perturbation to the initial conditions, or deviation from the original plan,  set off the chain events that led to World War I.


Stumbling Into The Great War
Fearing Russian support of Serbia, Franz Josef would not retaliate by invading Serbia unless he was assured he had the backing of Germany.   It is uncertain as to whether the Kaiser gave Franz Josef Germany’s unequivocal support.   Russia, fearing Germany would intervene, mobilized its troops forcing Germany’s hand.

The great European powers thus stumbled into a war they didn’t want through complicated entanglements and alliances, and miscalculation.  Russia backing Serbia;  France aligned with Russia,  Germany backing the Austro-Hungarian Empire;  and Britian, who really didn’t have a dog in the fight except her economic interests, aligned with France and Russia.

Later the U.S. would enter the war due to Germany’s unrestricted submarine warfare threatening American merchant ships and the Kaiser floating the idea of an alliance with Mexico in the famous Zimmerman Telegram, which was intercepted by the British.

Of course, some will argue that Great War in Europe was inevitable

The great Prussian statesman Otto von Bismarck, the man most responsible for the unification of Germany in 1871, was quoted as saying at the end of his life that “One day the great European War will come out of some damned foolish thing in the Balkans.” It went as he predicted.  –

Nevertheless,  maybe the course of history would have been different if not for that wrong turn on June 28, 1914, which created the humongous butterfly effect, which we still experience the consequences this very day.

The botched Treaty of Versailles  sowed the seeds the for World II.  The War contributed to the Russian revolution and Cold War.  The redrawing of borders in the Middle East after the War created the conditions for the instability and breakdown to tribalism the region experiences today.

A map marked with crude chinagraph-pencil in the second decade of the 20th Century shows the ambition – and folly – of the 100-year old British-French plan that helped create the modern-day Middle East.

Straight lines make uncomplicated borders. Most probably that was the reason why most of the lines that Mark Sykes, representing the British government, and Francois Georges-Picot, from the French government, agreed upon in 1916 were straight ones.  — BBC News

If Franz Ferdinand had not been murdered on this day in history,  that conflict between the Serbs and the Austro-Hungarian Empire may have been contained to just the Balkans.   Maybe.

The butterfly effect.  Think how many small events, decisions, mistakes, one small turn, or “minor perturbations” in plans have had enormous consequences in your own personal life.


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Sector ETF Performance – November 9





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