Global Macro Trading Journal

Hatzius thinks Fed will hike 4 times this year
https://t.co/0jHUVvV9Ey

If he is right, the scenario I was talking about could happen, a decline in stocks and bonds at the same time. But thats the thing, if that happens I don't think the Fed will keep hiking. So it becomes a dog chasing its own tail sort of thing. What the Fed wants can't happen because the fact that they want it makes it difficult to make it happen. Does anyone really think the Fed would hike with ES bellow 1950? I will believe it when I see it
 
What I believe will happen is the Fed will hike rates as soon as stocks catch a bid and have a run. When it pops 50-100 points on ES, thats when they can do it. When they are down they will be in wait and see mode. So stocks could be in this range where they are saved by the Fed on the way down but killed by them on the way up. The tricky part is that once people figure that out, it might just tank and not bounce when the Fed says they wont hike because they realize the dynamic is not good for a sustainable rally. Which then would induce people to sell and only get back in when they can see that sustainable rally

Thats whats tough about figuring this out. Its hard to tell what equity people will think, a lot of the time their reasoning is so weird and nonsensical
 
We can only look back at how ridiculous the October rally was, it was based on the idea that the Fed was not going to raise rates until March (which was completly wrong and it didn't take that long for that to be falsified) and the fact that the Chinese market was closed for a few days. Then momentum took over and a huge squeeze happened
 
And thats not even the ridiculous part, the ridiculous part was the fact that the bond market didn't massively change its assesement of the Fed hike chances for Dec. That was just a fantasy that equity people wanted to believe in
 
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With China signaling the fact that they want a weaker currency but only doing it in a gradual fashion, they are effectively giving money to the people to are finding ways to short it. this selling makes them have to intervene more and more at levels they want dont to (because they want it lower). Looks like they are blowing through reserves to keep the currency from tanking. Could be the black/grey swan of 2016 be an Chinese overnight devaluation of 20%? Its the right thing to do from a fixed exchange rate perspective, you can't signal that you want to move the peg and not do it quickly, you create a run on your reserves. I understand they are using exchange controls to deal with that but it is still difficult. What you really want to do is to do it once, overnight and put it at a level where no one will question the FX rate
 
"December’s decline brought overall reserves to $3.33 trillion, the People’s Bank of China said Thursday. For the full year, reserves fell $512.7 billion, the largest yearly decline on record."
 
If they were to do a deval, ES would gap down like 50 points or something.
This will probably be a year to be on the defensive side. I'm sticking with a conservative allocation of less than 18% in equities (although, this will rise a lot if I get assigned on BRKB), 50% US bonds, 14% BR bonds, 5% gold, the rest in cash. El-erian says this will be the year to look for opportunities during the volatility, I agree.
 
If markets crash monday I will buy some BRKB outright instead of selling more puts. Just in case the $125 support holds and I don't get to buy shares
 
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