18 December 2017: The moment of truth

For central banks in the US and around the world, the moment of truth is about to arrive. Years and years of quantitative easing (QE) and keeping interest rates low, have helped the post-subprime crisis economy back on track. At the beginning of this decade, few would have thought that in seven years time, the US economy would be booming in a period of synchronized global expansion. But here we are. So, now that their monetary policy seems to have served its purpose, it is time for the central banks to stop stimulating the economy and to switch to quantitative tightening (QT) and raising interest rates. The thing is: these monetary policies, with the cost of money at close to zero (or even below), have moved central banks into previously unknown territory. According to an article published at Bloomberg.com last Thursday, the biggest challenge for central bankers right now, is ´exiting quite slowly from emergency settings on monetary policy´, as they are ´terrified of upsetting the markets´. Metaphorically speaking, they are afraid to ´take away the punch bowl without interrupting the party´.
Where have we heard this before? Ah, yes. In the documentary Overdose: The Next Financial Crisis (2010). This documentary describes how the 2008 financial crisis has been addressed: by creating another bubble, one of printing money and bailouts. And one that is not likely to end well. A doom and gloom prophecy? A far-fetched conspiracy theory? Or the work of visionaries? Only time will tell. (See the trailer here, and the full documentary here).

white-chapel-logo-smallAll US indices bathed in a sea of green last Friday, propelled by signs that the long awaited US tax cut plan is about to materialize. The Dow advanced 0.58% for the day, the S&P 500 gained 0.90%, and the NASDAQ more than one percent: 1.17%. For the S&P 500, the week has been a bumpy ride. The first half of the week the index was rising steadily, but it lost its upward momentum on Wednesday. And at the end of Thursday’s trading, it ended up back where it started on Monday. Friday’s trading made the difference though: the S&P ended the week with a gain of 0.9%. A similar story for the NASDAQ. Friday’s trading made it good for the week: +1.4%. For the Dow, only Thursday was a losing day. It closed the week with a gain of 1.3%. Once again, it was a week of low volatility. With the exception of some short-lived spikes on Wednesday and Thursday, the VIX stayed well below the level of 10. It closed at 9.42 on Friday, 1.7% lower than the week before. For UVXY ETFs, Friday was another painful day. It lost 6.7% that day. XIV ETNs profited with a gain of 2.7%.
Danny Daredevil is biting his lips. His RSS sank to below 4%. It has now become very unlikely that this unprecedented year of ultra-low (read: virtually non-existing) volatility will turn out to be a good year for him. But with still two trading weeks to go before the year’s end, you never know what might happen. Adventurous Anny is holding cash. Solid Suzy and Lazy Larry are just one percent away from an RSS of 100%.
None of our models gave a trading signal at the end of Friday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

3.59%

-74.30%

-25.65%

2%

Adventurous Anny Cash 6 March 2017

22.91%

22.91%

13.28%

30%

Solid Suzy XIV 6 March 2017

98.95%

98.95%

36.01%

141%

Lazy Larry
XIV 6 March 2017XIV

98.95%

98.95%

36.01%

141%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

RS_v05-small

Trees in cities (IV)

The city of Breda is preparing for the second edition of Winterland Breda, an annual winter event which is held in the city center. From 20 to 30 December, Breda will be turned into a magical Winter Wonderland with lots to see, do and eat for young and old. It also puts the thematic photo series ´Trees in cities´ into a new perspective.
Picture left: Christmas trees with the Grote Kerk (Big Church) in the background.
Picture right: Christmas trees at the ice-skating rink on Grote Markt with the Sint-Antoniuskathedraal (St. Anthony of Padua Cathedral) in the background.

Picture of analog clock by Micthev (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons