Thanks for the nuanced attitude. This is what I was hoping for when I signed up for the long-term investor 2023 plan. I'm tired of reading the sensationalist financial stuff that says everything is sliding downhill and it's all doom. I was hoping that Alf would give a professional take on the current financial situation and it looks like that's what we're getting. Kudos for not going down the easy route of sensationalist news. 👍
You should check out the Last Bear Standing as well.. One of my favorite substacks for a nuanced take on everything. Great takes on Tether and Twitter acquisition lately, rather than just the usual narrative
Thanks for your deep insights as per usual. Learning tons from this, even if just at a more high level, but slowly things are beginning to make more sense (I hope at least lol). Really appreciate it!
You often see general media paint negative light re the credit centric world we live in (well, only when the times begin to worsen), but also for being too "USD-centric" but the commentary is always very surface-level.
But really my basic observation is just a very complex and sophisticated system that has helped realize real economic growth faster that has had to react and evolve over time, making it fragile. Basically, learning on the go, and where things blow up, patch it up and try to move on. Very much like everything else in life.
Obviously, this is a worrying reality given so much there's riding on it, but what can you expect? Impossible to for anyone or anything be all-knowing.
And always good to have your commentary, not just explaining things and providing insight but also adding context as to why things are the way they are... and even though so many things are nuanced, it's likely not going to be the "end of the world!"
Great piece - as always - and looking forward for the macro paid service in 2023!
However, I don’t get one thing. Why do you and everyone call it ’debt’? To enter the FX swap, you need to have the cash (let’s stick to JPY example) so you exchange JPY for USD - I don’t fully get why it is called debt. Only risk is related to FX rate changes - and it may lead to incurring losses. But notional itself is mostly covered by cash in JPY that is required before you enter swap.
Nice write up but I think you will find that only a very small percentage of FX forwards, (the far leg of a swap), is centrally cleared. NDFs and FX Options are increasingly centrally cleared but not FX forwards.
Another great article, Alfonso! Highly educational for people like me, who want to figure out how the financial system works, in order to understand WTF is happening in the world we live in.
As a person, who isn't an investor yet, it is not worth paying for any of the subscriptions, but it would be great if could still provide these articles for free to people like me or at least for an affordable price.
I think you might like my Substack, if you want to check it out. Free for one and all, and lots of interest content on investing, book reviews, list of my favorite podcasts every week, societal trends, etc. Basically everything that I think is fascinating, and hopefully other people enjoy as well.
Really fantastic piece Alf! So, just to understand, these pieces won't be available to subscribers of the plan "THE LONG-TERM INVESTOR", correct? Only to those belonging to "THE ALL-ROUND INVESTOR"?
Thank you for the wonderful content. I have signed up for the your paid subscription, I’m guessing your articles will no longer be listed on Substack and on your platform? Will we still get a voice over the article? I find this very useful.
SO WHY did the $ drop since october ? Did the US injected more $ into the global system to increase liquidity ? Is that not what we saw in march 2020? ... this can continue for several months ?
Your quote is arguing a $ spot bid up
"But when these USD cash flows dry up as the economy is weakening, all of a sudden servicing $ debt becomes hard.
In a snowball mechanism, all foreign entities leveraged in US Dollars try to de-leverage…which means they bid up the spot USD itself, which in turn hits other foreign USD borrowers in a self-fulfilling prophecy.
That is the question I've been trying to find an answer for, but there seems to be no reason for it! The only reasonable answer is the cyclical nature of everything, including markets. Some great TA analyst said (I don't remember who said it): "Show me the charts and I will tell you the news!". I get more and more proofs that this is absolutely true! Markets have their own opinion and it often disagrees with the news and the common narrative. A simple proof of that is that the markets always bottom and start recovering long before the economy hits the bottom and start recovering.
Thank you for your hint; all my TA indicators are "volatility adjusted" - one of the rare ones that really "saves my ass.." is DeMark series check it out ( it is even part of Bloomberg terminal, TradingView has "some" versions but I recommend "Symbolik is the only licensed and legitimate source for DeMARK on the web
Thanks for your advice too. I will check them out. I'm still experimenting with different indicators while always considering the market sentiment and my own gut feelings as well. In my ongoing pursuit to find what fits me and my very limited free time and develop my own hybrid trading style (day/swing trading), I have so far come to this combination: LUX Algo's premium oscillator and their Nadaraya Watson Envelope (paid package of many indicators), plus Bolinger Bands and Stochastic and I'm watching the volume for confirmation as well.
P.S. Excuse me if this is a kind of advertising Lux Algo's indicators. I have absolutely no affiliation to them. I'm just sharing my experience. This combination fit me well in my hunt for volatility, exhaustion, reversals and setting targets, but I have to admit that I still often sell too early and buy back in too early, so I'm far from mastering it.
@Bataille @Hristo I think what's messing with you is the reliance on indicators. I've been down this road. The key really is simply understanding Consolidation, Expansion, Reversal, back into Consolidation. Price respects Price and Time theory. Best place to look at is ICTs 2022 Core Mentorship. All free on youtube. Start there and see how things align. Coupled with TMC articles, it's powerful.
It seems like the world is borrowing short term for long term projects and if the balance sheets are leveraged it is a Matter of time that they get “squeezed “
And the FED can’t put more dollars out there and finance the world
Am I nuts. ?? We have seen this outcome before I think.
Why would a Brazilian company accumulating USD want to hedge anything? Typically, a strong USD position for developing nations is the desired position to hedge against dollar denominated debt payments. I could see them entering into FX swap agreements to make productive use of their strong USD cash flow.
If only the average person understood how absolutely cartoonish the amount of leverage in our system is
Thanks Alf
Cartoonish :) made me laugh
I fill like getting a milkshake now ;)
:)
Thanks for the nuanced attitude. This is what I was hoping for when I signed up for the long-term investor 2023 plan. I'm tired of reading the sensationalist financial stuff that says everything is sliding downhill and it's all doom. I was hoping that Alf would give a professional take on the current financial situation and it looks like that's what we're getting. Kudos for not going down the easy route of sensationalist news. 👍
Yep, there is no agenda behind how I look at macro and markets.
Just my data-driven nuanced takes.
You should check out the Last Bear Standing as well.. One of my favorite substacks for a nuanced take on everything. Great takes on Tether and Twitter acquisition lately, rather than just the usual narrative
Thanks for your deep insights as per usual. Learning tons from this, even if just at a more high level, but slowly things are beginning to make more sense (I hope at least lol). Really appreciate it!
You often see general media paint negative light re the credit centric world we live in (well, only when the times begin to worsen), but also for being too "USD-centric" but the commentary is always very surface-level.
But really my basic observation is just a very complex and sophisticated system that has helped realize real economic growth faster that has had to react and evolve over time, making it fragile. Basically, learning on the go, and where things blow up, patch it up and try to move on. Very much like everything else in life.
Obviously, this is a worrying reality given so much there's riding on it, but what can you expect? Impossible to for anyone or anything be all-knowing.
And always good to have your commentary, not just explaining things and providing insight but also adding context as to why things are the way they are... and even though so many things are nuanced, it's likely not going to be the "end of the world!"
Glad you enjoyed the piece!
Great piece - as always - and looking forward for the macro paid service in 2023!
However, I don’t get one thing. Why do you and everyone call it ’debt’? To enter the FX swap, you need to have the cash (let’s stick to JPY example) so you exchange JPY for USD - I don’t fully get why it is called debt. Only risk is related to FX rate changes - and it may lead to incurring losses. But notional itself is mostly covered by cash in JPY that is required before you enter swap.
What am I missing here??
Thanks a lot
Mike
''Debt'' is indeed a wrong definition of it
✔️✔️
Nice write up but I think you will find that only a very small percentage of FX forwards, (the far leg of a swap), is centrally cleared. NDFs and FX Options are increasingly centrally cleared but not FX forwards.
That's a fair point but variation margins still apply
Another great article, Alfonso! Highly educational for people like me, who want to figure out how the financial system works, in order to understand WTF is happening in the world we live in.
As a person, who isn't an investor yet, it is not worth paying for any of the subscriptions, but it would be great if could still provide these articles for free to people like me or at least for an affordable price.
Educational material will be at the heart of the Long-Term Investor subscription, Hristo.
Together with the macro courses I'll deliver, I think it's a good proposition
I think you might like my Substack, if you want to check it out. Free for one and all, and lots of interest content on investing, book reviews, list of my favorite podcasts every week, societal trends, etc. Basically everything that I think is fascinating, and hopefully other people enjoy as well.
https://theunhedgedcapitalist.substack.com/
Really fantastic piece Alf! So, just to understand, these pieces won't be available to subscribers of the plan "THE LONG-TERM INVESTOR", correct? Only to those belonging to "THE ALL-ROUND INVESTOR"?
All-Round Investor subs will get timely articles like this covering hot topics.
For instance they would get a live update of my analysis on the just-released CPI or immediately after the Fed they'd get a piece.
Long-Term Investors would get a weekly piece regularly on Sunday.
Fantastic piece, thank you, Alf
I think I now understand the mechanics of "dollar milkshake" for the first time!
Great!
Thank you for the wonderful content. I have signed up for the your paid subscription, I’m guessing your articles will no longer be listed on Substack and on your platform? Will we still get a voice over the article? I find this very useful.
Hi! Yes you will get a voice over. And on Substack only some occasional articles, all the good stuff will be behind paywall.
SO WHY did the $ drop since october ? Did the US injected more $ into the global system to increase liquidity ? Is that not what we saw in march 2020? ... this can continue for several months ?
Your quote is arguing a $ spot bid up
"But when these USD cash flows dry up as the economy is weakening, all of a sudden servicing $ debt becomes hard.
In a snowball mechanism, all foreign entities leveraged in US Dollars try to de-leverage…which means they bid up the spot USD itself, which in turn hits other foreign USD borrowers in a self-fulfilling prophecy.
That is the question I've been trying to find an answer for, but there seems to be no reason for it! The only reasonable answer is the cyclical nature of everything, including markets. Some great TA analyst said (I don't remember who said it): "Show me the charts and I will tell you the news!". I get more and more proofs that this is absolutely true! Markets have their own opinion and it often disagrees with the news and the common narrative. A simple proof of that is that the markets always bottom and start recovering long before the economy hits the bottom and start recovering.
Thank you for your hint; all my TA indicators are "volatility adjusted" - one of the rare ones that really "saves my ass.." is DeMark series check it out ( it is even part of Bloomberg terminal, TradingView has "some" versions but I recommend "Symbolik is the only licensed and legitimate source for DeMARK on the web
Thanks for your advice too. I will check them out. I'm still experimenting with different indicators while always considering the market sentiment and my own gut feelings as well. In my ongoing pursuit to find what fits me and my very limited free time and develop my own hybrid trading style (day/swing trading), I have so far come to this combination: LUX Algo's premium oscillator and their Nadaraya Watson Envelope (paid package of many indicators), plus Bolinger Bands and Stochastic and I'm watching the volume for confirmation as well.
P.S. Excuse me if this is a kind of advertising Lux Algo's indicators. I have absolutely no affiliation to them. I'm just sharing my experience. This combination fit me well in my hunt for volatility, exhaustion, reversals and setting targets, but I have to admit that I still often sell too early and buy back in too early, so I'm far from mastering it.
@Bataille @Hristo I think what's messing with you is the reliance on indicators. I've been down this road. The key really is simply understanding Consolidation, Expansion, Reversal, back into Consolidation. Price respects Price and Time theory. Best place to look at is ICTs 2022 Core Mentorship. All free on youtube. Start there and see how things align. Coupled with TMC articles, it's powerful.
It looks like USD leads Korean exports in the chart, not the other way around
I was gonna write the same thing. Possible explanation is that higher USD weighs on global growth and therefore reduced trade
It seems like the world is borrowing short term for long term projects and if the balance sheets are leveraged it is a Matter of time that they get “squeezed “
And the FED can’t put more dollars out there and finance the world
Am I nuts. ?? We have seen this outcome before I think.
Why would a Brazilian company accumulating USD want to hedge anything? Typically, a strong USD position for developing nations is the desired position to hedge against dollar denominated debt payments. I could see them entering into FX swap agreements to make productive use of their strong USD cash flow.
The minding numbing part is dollar has potential to go much higher