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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Trump Plays Checkers, Xi And Kim Play 3-D Chess


…what Kim’s move reveals is a broader strategy at work. In the lead-up to the Singapore summit, should it still take place, Trump may be preparing for the wrong game: a two-player round of checkers when Kim is steeling for a multiplayer two-board chess match. On one board will be the future of North Korea’s nuclear weapons programs, what Trump came to negotiate. On the other will be what Kim and the other participants know is also crucially at stake: the future of geopolitics in northeast Asia.  – Foreign Affairs

Xi and Kim’s Second Meeting 

Did President Trump Just Have An Epiphany?

President Trump may have finally had an epiphany that China’s President Xi and Kim Jong Un are engaged in three-dimensional diplomacy and may be playing him.   After today’s press conference it sure sounds like it.

We have been pounding the table about this in several posts over the past few months.  See here, here, here, and here.

Today’s Presser

Here is what President Trump said during today’s impromptu presser in the Oval Office with South Korean President Moon Jae-in.   His comments, by the way, caused stocks to sell off into the close.  We warned about these risks yesterday.

I will say I’m a little disappointed because when Kim Jong Un had the meeting with President Xi in China, the second meeting — the first meeting we knew about, the second meeting I think there was a little change in attitude from Kim Jong Un.

..there was a difference when Kim Jong Un left China the second time. And I think they were dedicating an aircraft carrier that the United States paid for, OK?

QUESTION: … China maybe discouraged Kim?

..I think that President Xi is a world class poker player…I will say this, there was a somewhat different attitude [from North Korea]  after that meeting, and I’m a little surprised.

…maybe nothing happened.., But there was a different attitude by the North Korean folks when — after that meeting. So I don’t think it was a great meeting.

Nobody knew about the meeting and all of a sudden it was reported that he was in China a second time. The first time everybody knew about, the second time was like a surprise. And I think things changed after that meeting. So I can’t say that I’m happy about it, OK?  – President Trump, May 22

President Xi, a world-class poker player, indeed.  Even your so-called friends covet your poker chips.

President Trump is learning by doing, Lord Palmerston’s dictum, “in international relations, there are no permanent friends or permanent enemies, only permanent interests.”



History Of Korea And China

We believe there is no way in hell President Xi will allow a unified Korea under western influence.  Losing Korea on his watch?  NFW!

Let’s go back just to 1950 to understand China’s strong national interest in Korea, which probably hasn’t changed much from a strategic perspective, even though the world is entirely different.  Also, keep in perspective,  Xi is the new Mao.

If we allow the United States to occupy all of Korea, Korean revolutionary power will suffer a fundamental defeat, and the Americans will run more rampant and have negative effects for the entire Far East. Threat of U.S. Bombing  – Mao Zedong, Secret Cable to Stalin, Oct. 2, 1950

Two weeks after the Stalin cable, China invaded North Korea, surprising American troops, who were heading the United Nations military effort to protect the South Korean Government of Syngman Rhee.   Thankfully, for us, Stalin reneged on his offer to supply air cover for the Chinese invasion force.

General Douglas MacArthur, the commander of the U.N. forces, openly doubted China’s resolve to move into Korea.  The entry of 260,000 Chinese troops into the war, shocked the American commanders and forced them into “the greatest retreat in United States military history.”

Different Time, Same  Chinese “Permanent Interest”

Of course, the times are different.

China is now a nuclear and rising world superpower and beginning to challenge U.S. hegemony.  They now control the South China Sea.

China, will, no doubt, have a seat at the table at the Singapore summit, if there is one, maybe not literally, but in the form of the deal already cut with the North Koreans.

Who knows what kind of deal Xi and Kim have cut, but there is no doubt they have an agreement of some sort, which is also playing into the U.S.- China trade talks, and that realization is now in Trump’s head.  Go no further than today’s presser for proof of the latter.

It’s time to get serious,  turn off the reality show,  and lay out our Bobby Fisher strategy.

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Macro Swan Watch: Deutsche Bank, Again

Deutsche Bank (DB) stock is approaching single digits again.   Watch this space. 

In 2016,  DB traded with a single digit handle for a few seconds before, we suspect, the monetary authorities stepped in.

When a “too big to fail” (TBTF) bank stock falls to into single digits, the risk of panic increases, the bank may begin to experience funding pressure, short selling proliferates, and systemic risk skyrockets.

Unlike Lehman,  however, DB has a deep deposit base and is less dependent on wholesale market financing.

We are not certain why the stock is plummeting, but we do suspect markets are getting a bit concerned about Deutsche’s humungo derivatives book, and the global size of the derivatives markets, in general.

Derivatives, especially credit default swaps (CDS),  are a legacy of the financial crisis which was ignored and never really dealt with.

Derivatives have never really gone away in the ensuing decade. The total value of the books at five of the biggest US banks has dropped about one-quarter since tougher capital rules kicked in, from 2013. Even so, there were $157tn of derivatives out there at the end of last year, according to data prepared for the FT by Aite Group, a Boston-based research firm. That’s about 12 per cent more than the amount these banks had, entering the crisis.

…The banks say these huge numbers — $157tn is more than twice global GDP — do not tell the whole story. And they are right: headline figures say nothing about the counterparties, the collateral, the offsetting positions, or whether the trades are centrally cleared. (Bear’s actual credit exposure — or its “net replacement cost of derivatives contracts in a gain position”, in the jargon — was much smaller, at $12.5bn.)  – FT, March 16

Though, we believe it is a small probability,  if the markets do run on DB’s derivatives book, even God won’t be able to save it.

Low probability, high impact event.  A major macro swan.  Keep it on your radar.


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Political unknown as Italy’s new Prime Minister?

Italy’s populist Five Star Movement and the far-right League have proposed Giuseppe Conte as the country’s new prime minister.…


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Macro Swan Watch: German-Italy Sovereign Spread

The 10-year German-Italy sovereign spread out another 26 bps today, that’s almost 70 bps wider in the month of May.   The swans continue to gather.



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Just to be clear….

Markets are all lathered up over a China Trade deal?  WTF?

Alternatively, is the market higher because of just the cessation of hostility and talk the trade war is now  “on hold.”

Whatever the case, here is the exchange with Larry Kudlow and George Stephanopoulos on ABC yesterday afternoon.

George Stephanoplous:  Just to be clear, it there an agreement or not?

Larry Kudlow:  The is no agreement for a deal. We never anticipated one. There’s a communique between the two great countries.  That’s all.  – This Week With George Stephanopoulos,  May 20

Couldn’t be more clear, and a communique is worth nothing more than the paper it is written on.

Nevertheless, the efficacy of any trade agreement with China, if there is one, will be judged through the political lens based on did it protect and create more jobs for President Trump’s base?  Selling more Boeing aircraft to China will not move the political needle in his direction, in our opinion.

President Trump will ultimately realize this and given his proclivity to mood swings and his own form of recency bias – those who speak  to him last – we wouldn’t be making  bets on this news for more than a  trade or a day or two.  Uncertainty still reigns.

The Growing Perception Trump Is A Paper Tiger

Furthermore,  the president will not like the headlines coming out that he is being played by China and North Korea because, among other things, he is putting a North Korea deal that will win him a Nobel Prize above all else, and that he losing the trade war.

This only adds to the perception that America is perceived as a Paper Tiger in Asia.   We have pointed this out in several posts.  See here and here.

It may cause some erratic tweets and destabilizing behaviour going forward, raising the event risk of unexpected (though we expect) tape bombs.



Critics fear Trump is ceding too much to China on trade

President Trump’s tough-guy persona is taking a beating from China, judging from the reaction of some of his allies on Capitol Hill and in the trenches of the trade wars.

The former business executive, who prides himself on his negotiating savvy, is facing criticism for bending to the Chinese government on two key trade disputes in the space of a week, alarming longtime supporters who had welcomed his call for a more confrontational approach to Beijing.  – Washington Post, May 20

Posted in Black Swan Watch, China, Uncategorized | Tagged , , | 18 Comments

How Sustainable Is Earnings Growth?

Not very.

We will leave the calculation for the entire stock market to the stock analysts.

Here’s why:

Just glancing over WalMart’s latest earnings release from the week, we see two one-off macro factors that helped WalMart’s earnings in Q1, and likely are the same for most companies:

  1.  Foreign exchange rate effect
  2.  The tax cut

Note that almost 40 percent of WalMart’s y/y revenue growth in Q1 was due to the exchange effect, and over 1300 bps of tax cut relief.  That is one-offs.

Though the dollar was weaker in Q1, it has rebounded sharply in Q2.  Thus a deleterious exchange rate effect is coming to Q2 earnings.  Not to mention higher gas prices and interest rates, which will negatively impact the non-energy and non—financial sectors.




Posted in Dollar, Earnings, Uncategorized | Tagged , , | 33 Comments

The Upheaval in Central America – Project Syndicate

The macro swans continue (swans = crows in this video) to gather.

Social and political upheaval in Central America – in particular, Guatemala, Honduras, and Nicaragua – is sending many north in search of a better life. The region’s current turmoil reflects the impact of fragile institutions, organized crime, corruption, drug trafficking, and gang violence, fueled in part by US interventions aimed at securing its own interests.

Keep up to date with PS films by subscribing to our YouTube channel:…

Posted in Geopolitical, Politics, Uncategorized | Tagged , , | 34 Comments

Week In Review – May 18


  • Omnifarious selling in emerging markets this week and signal global liquidity is tightening up
  • EM 10-year yields higher across the board from Mexico up 20 bps to Turkey up 125 bps
  • Euro periphery spreads blow out. Italy 34 bps wider, Greece 49 bps wider
  • EM currencies hit hard: Argentina peso down another 5 percent, now down almost 20 percent in May; sends government back to the IMF
  • Turkish lira down over 4 percent
  • Dollar index up 1.19 percent
  • France CAC up 1.31 percent
  • S&P500 down about ½ percent
  • Russell 2000 making new highs
  • Grains move higher
  • Crude continues to march higher
  • Gold back below $1300

















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Global Risk Monitor – May 18



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Sector ETF Performance – May 18






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