2017 Ending Year Portfolio Percentages.

Going into the first trading day of 2018 the Sea Wolf's manifest will read:

Longer Term Holdings

LQD..........46.0%
TBX..........23.0%


Trading Holdings

IEF............23.0%
GLD.......... 3.5%
GCC.......... 3.5%
XIV..............1.0%

100% total with 50% of portfolio hedged with IEF being a 100% hedge against TBX.

Happy New Year !!!

Perfect Fall is Perfect Again.

A quick recross from favoring TBX is now favoring LQD once again.

The asset of choice is, as I've mentioned many times before, is LQD/VCLT.

Will This Time Be Different?

Will interest rates break to the upside and send TBX/TBF higher?

If so, the spec position would indicate there will be a rapid increase in rates.

http://www.zerohedge.com/news/2017-12-26/most-important-chart-world

Stay tuned.

Same to You.

Iceland...the land of an impossible language, no trees, and both hot water and hot women.

Perfect Fall Isn't Perfect any Longer.

Nope, the temp is rising slightly (13 degrees / 200 possible) as TBX draws money from LQD based on the shortest of my models pivot points being crossed.

TBX/TBF...Bond Asset Winners in 2018?

http://www.atimes.com/article/not-good-time-buy-bonds/

Mario it appears is first an Italian and second chair of the ECB. Trouble is the other members are circling the wagons and squeezing him to act like the chair ( and not an Italian). Interest rates in Germany are ridiculously low, which mean bond prices and way to high and as they fall global bond prices will fall in lockstep.

Commodities...The Big Question for 2018

Can commodities gain traction in 2018 and power interest rates higher making TBX the winning bond asset for the year? Stayed tuned.

FXE:FXY Suggesting i Rates 'should be' Much Higher.

Instead of falling most the year, they (interest rates) 'should have been' rising. Rates have a great deal of catching up to do.

Will the Nascent Inflation Pulse End Perfect Fall?

After being beat down a couple of weeks ago inflation is on an untick.

I've been picking up an inflationary pulse from GCC and GLD:FXY. With growth as a given, inflation turns fall into spring.

My spring bonds are JNK and TBX, with JNK being the colder spring and TBX the hotter.

When spring really heats up SJB will beat out JNK.

Icarus of Farming

https://www.wsj.com/articles/two-brothers-tied-to-the-land-face-wrath-of-americas-farm-bust-1513615986

(Must have believed that global warming would be a one way ticket to higher ag prices...wrong !!!)

Peak Goldilocks Means Peak Cryptos

Crips took a hit today as interest rates advanced across the board.

Wait until 'perfect fall' becomes less than perfect for the trip bubble swoon.

Is this it? The end of the thirty five year run in the UST Long Bond?

Exciting as all get out !!! Stay tuned.

Peak Goldilocks...LQD @ $121.80

A couple of days ago LQD peaked, to the day of the article below by Jeff G.

http://www.zerohedge.com/news/2017-12-16/jeffrey-gundlach-warns-goldilocks-era-over

Been a hell of a 10 year run for the stuff.

I haven't moved out of it, yet...waiting for my crosses. If things continue the way they have been going I'll add to by TBX position.

Epic Battle Between Bond Bulls/Bears

On the bear side you have the 10 year note and on the bull side the 30.

Last time there was such a battle was Nov-Dec. 2015, which the bulls won handily in Jan 2016.

So will history repeat itself with the thirty-five year bond bull remaining in tact, or will this mark the turning point...stay tuned. Interesting that the chart overlay of 2015 is a mirror copy of what's happening today.

I'm still on the bull side but my conviction is only at a +25% level.

As Fall as Fall Can Be.

Temp is at a perfect zero with no hint it will move either hotter or colder any time soon.

As mentioned this is a perfect environment for both LQD and VCLT...and asset bubbles, i.e. Cryptos.

Either go along for the ride or sit in cash, with the temp saying to avoid shorting until it either starts getting hotter or colder.

Spent and Accounted For.

The amount of the overspending has already been spent and stimulated the economy when it happened as long as thirty years ago. It's already been paid for either by taxes or an increase in debt. There is no going forward effect from the discovery.

Anytime OPM (other people's money) is spent by a government agency cost over-runs and bad things happen. I remember the shocking case of the thousand dollar toilet seat for a Air Force bomber many years ago...which is probably 10,000 today.

Ultimately you are correct in that the price paid is a devaluation of the dollar. Now I'm really old school in thinking of commodities, especially food DBA/JJG, as the ultimate money. Trouble is, from a devaluation standpoint, the dollar and every other currency around the world has been getting stronger, not weaker, as food commodity prices have crashed over the past four years.

The chickens won't come home to roost until grain crops are monetized (last happened in 2007-8), and we all know what happened after they did. Some day a bushel of wheat will go for more than a Bitcoin and all hell will break loose, but I don't know if I'll live that long to see the day. In the mean time we are in a perfect Fall season which is THE most favorable season for bubbles of all sorts.

Yellen's Grade...A+.

Yellen did what both Greenspan and Bernanke did...pass the baton with the Fed being almost perfectly neutral with the actual real Fed Fund Rate now at -.22% and my modified Taylor Rule calling for -.26%.

Rather amazing in that each of the last three Fed Chairs all walked away with a perfect mark!!!

Now it's Powell's turn, the non-economist, his tenure can't be any better, but can be way worst.

Market is Bouncing Between Pivot Points.

...can't help but being whipsawed as market is now pointing towards lower interest rates.

LQD/VCLT is still THE place to be until otherwise dethroned.

EDV:ZROZ has been hitting it with the shorter duration zero rather dramatically underperforming the longer ZROZ.

The Ten Day Crush of Inflation Expectations

http://stockcharts.com/h-sc/ui

SLV:GLD carnage

Peak Goldilocks...12/6/17

Yep, a perfect fall day with LQD (THE perfect fall bond) now the place to be, both short and long run vs. TBX, JNK, TIP, IEF, and SJB.

The temp is at neutral or zero predicting slow growth and lower inflation...the exact opposite to negative growth and higher inflation which would favor TIP and GLD.

The last to give in was the long term LQD:JNK which crossed yesterday, taking all the heat out of the index.

Goldilocks (XIV) v. Three Bears (VXX)

XIV loves a goldilocks economy, one growing fast but not too fast to raise interest rates.

I've developed a short term (5 day) proprietary index using the interplay between JNK, LQD, and TBX.

When both are favorable the economy is in Goldilocks mode and XIV should do well.

When both are negative the economy is in Three Bears mode and VXX should do well.

When the signals are mixed, no call is made.

As of the close on Friday the indicators are flashing GOLDILOCKS.

This means I would not try to take advantage in the short trend of increasing volatility by playing VXX, holding on to XIV.

TBX:IEF Cross Predicting Higher Rates Ahead.

....only the fourth such cross in five years.

Sold 50% in all long bond holdings and 100% in IEF raising 40% cash.

Still holding UDN and added a 6% short position in TBX

Will 2018 Begin Like 2016?

The Fed in Dec of 2015 raised rates, with the market anticipating the increase. What it didn't anticipate was Stan Fisher coming out and saying there would be FIVE more rate increases in 2017!

The market goes into a tantrum, like the summer of 2013, until the Fed relents and backs off the rate increase threat.

The Fed was promising to get well ahead of the curve in 2016 and is doing it again, by now saying they don't have to wait on inflation to raise rates. True, but economic growth then has to be a barn burner which currently is starting to soften.

As always, every asset in the world revolves around the UST 10 yr. If the Fed moves ahead of the curve IEF will rally if it matches the curve, raising rates no faster than the economy grows IEF will fall.

Stay tuned...

CAT...Damn Market Isn't Crashing Like Its Suppose To.

https://www.crescat.net/crescat-capital-quarterly-investor-letter-q3-2017/

Old Adage: The market can stay irrational longer than you can remain solvent.

Advice: Stay in cash (if you can't go long) until the technicals prove your right. No good bear or bull buys at the low or sells at the high. It's far better to buy/sell at the right time than the right price.

All the Talk About Sub-prime Auto Defaults...

is just talk, look at the rocket used car prices have underneath them.

https://publish.manheim.com/content/dam/consulting/ManheimUsedVehicleValueIndex-LineGraph.png

Crazy good past six months!

Death Cross for Long UST Interest rates.

http://stockcharts.com/h-sc/ui?s=edv%3Azroz

EDV is the shorter of the two.

Also note the 200 has started to turn south!

Could Very Well Fill Out UDN Next Week.

The zone keeps rocking along economically speaking reporting record PMI's.

JNK could fill as well.

That would only leave IEF from achieving a maxed out portfolio position. Full speed ahead.

IEF Wins TBX Loses.

Didn't take long for the battle to be won after Friday's disappointing durable goods number.

Looking at my seasonal sectors the forces of inflation and deflation are perfectly in balance, with growth beating out contraction by a score of 6 to 4.

Put together you have the perfect environment for LQD/VCLT.

Interesting Play Likely to Happen Next Week

Instead of timing the YCS:GLD pair...currently in GLD

The pair trade might be an all Yen affair with YCS:FXY for 1/2 the allocation.

The reason is that short-term the deflationary loving FXY has been a better performer against the inflationary loving GLD.

What this means for the economic is that deflation is the enemy not inflation.

HaVE A GOOD T-DAY.

Adding a DOG but No DIAmonds.

To my list of 20 possible investments I'm adding the DJIA short DOG. I'm not adding the long DIA. I am so far away from buying DOG it's not even funny...but when the time comes it will be nice to have it on the shelf.

Unique Short-term Situation in IEF/TBX.

Both the long and short version of the UST 10 year are giving buy signals.

One side will win out in a matter of days.

Until the smoke clears all money that would be allocated to the pair is now held as MM.

This battle could well define the direction of intermediates for 2018.

Fed Policy, Too Much, Little, or Just Right?

The bond market is the barometer by which Fed policy is measured.

Setting a just right interest rate generates modest growth and modest inflation.

Too low of rate, the Fed falls behind the curve and inflation becomes the problem.

Too high, the Fed moves ahead of the curve and lack of growth becomes the problem.

A just right environment favors LQD, too low TIP, too high IEF.

The winner today is LQD, but when (not if) the Fed going forward makes a mistake either way you'll be the first to know.

Good Chance Today Adding to AGG & LQD

...assuming current market levels hold I'll be filling out my positions in both at the close.

So Who Will Lead Global Inflation?

...when it happens, when ever that is.

US, China, Zone, or Japan.

...or another way of saying it, who should be raising interest rates but is behind the curve.

Answer: (this is an easy one)

THE ZONE !!!

If inflation raises it's ugly head it will first pop its head out of the womb of Europe.

I base my analysis on the comparative factory utilization rates of each country (which are very different by the way) looking at each to develop a range and then comparing current interest rates to utilization.

Ranking the countries as to who should be actively raising rates the Zone is #1, USA #2, China #3, and Japan...I don't thin they ever will raise them, #4.

Reversing this and ranking the countries most likely to cut rates or increase QE Japan is #1.

2018 Interest Rate 'Projections'.

Coming towards the end of the year everyone and their brother loves to forecast where interest rates are going, especially the short end.

Goldman says we'll be up four for another 1%, the Fed three for 3/4.

Underling their forecast is a rose colored view of BOTH faster economic growth and higher price inflation.

Interesting in that to get both you need an accommodative Fed, but if the Fed increases by 1/4 in Dec. it will eliminate all their accommodation and be at a zero point with no acc and no restrictive bias.

This of course explains the flatting curve, where bond traders reduce duration and move to the long bond which would love to see the Fed make a mistake and raise short rates high enough to dent both growth and lower inflation.

Not to say the economy can't produce both increased growth and inflation but it hadn't when the Fed was more accommodative than it is now. Let's just say I remain skeptical, but will listen to the market and not put money on what i think and feel.

Talking Interest Rates.

So which way are they headed?

Short rates: <10 years...up

Intermediate rates: 10 year...Short timing signal towards higher rates, but the longer (much more important) buy/sell pivot point is barely pointing to lower yields on the 10 year.

As it stands today, IEF is 4% (or 50%) of maximum exposure.

If the cross occurs (which could well happen this week) IEF will fall to 0% and TBX (10 yr. UST short) will move to 8%. If this happens money will flow from the winter loving IEF to spring loving TBX.

Long rates: +20 years. With the curve flattening, TLT still remains a hold at a full 8% with both the short and long pivot points suggesting lower long term rates.

On the very short end, FF rates, If the Fed raises rates 1/4 in Dec, I'll have them removing every last bit of accommodation based on my modified Taylor Rule using factory utilization and core PCE inflation numbers.

Any further rate increase, unless it's preceded by higher capacity utilization and/or higher inflation would be contractionary bringing the economy and market down.

CAT Down a Rather Incredible 18% YTD.

https://www.crescat.net/wp-content/uploads/CGMC-Report-2017-10.pdf

...They still are short China/general market. Sea Wolf in comparison, is off 2% trailing the global macro hedge fund index by 5%

Back From a Great Vacation in Florida.

...Nov. and March are the two best times along the northern coastline. Low 70's and no humidity make the days perfect and with the kids in school the beaches are all but deserted.

Long days looking out over the Gulf gave me plenty of time to review and reflect on the nature of timing.

A market timer is like a pioneer...too early and you end up with arrows in your back, too late and all the good land has been taken.

So I've staggered the timing from early to late to reach an average of three months duration.

The early trigger will move to 50% cash, but not an inverse position until the longer pivot is also crossed.

Interesting that the market has sent buy signals for all the possible seasons, going into the market opening on Monday, the Sea Wolf's manifest reads:

SPRING ASSETS: EEM 8%, HYXU 8%, JNK 4%. = 20%

SUMMER ASSETS: LTPZ 8%, GCC 8% GLD 4% = 20%

FALL: VCLT 8%, LQD 4% AGG 4% = 16%

WINTER: TLT 8%, IEF 4% = 12%

US Dollar: Short/UDN = 4%

TOTAL 72% + .5% XIV and 2% CYB = 74.5% + 25.5% MM

Interesting that the inflation loving assets, spring and summer, are currently 40/16 vs. the deflation loving assets of fall and winter.

The growth loving assets, spring and fall, are very slightly ahead in weighting to the recessionary loving assets winter and summer.

All in all the market almost perfectly balanced between the four forces with a bias towards higher inflation.

Assets which currently have a $0 balance, but will be purchased at the pivot cross include: UUP, EUM, TBF, TBX, SJB, PALL, YCS, FXY and VXX The total universe of investable assets = 20.

The market will really get exciting when all the portfolio is concentrated in a single season, i.e. winter:
TLT, IEF, SJB, EEM.

...stay tuned.

Is SFS Turing into HFS Today?

Stalking horse... TBX.

Runners 5th place to 1st all JNK, but the fifth place animal is only a nose ahead of a TBX.

Any TBX on the board moves spring from 'soft' with declining rates, to 'hard' with rising rates.

All JNK Runners on 4th Day of SFS.

1st => 5th are all JNK, with the 6th animal also JNK.

Huge day moving money into UUP/YCS/TBF and of course JNK & XIV.

Fifty Sounds About Right Assuming they Gain 1/2% per Year Against the Dollar.