TradeSmith Daily

February 2020

How a Surprising Power Struggle Could Sink the British Pound

February 18, 2020TradeSmith Research Team

Bruce Kovner, a retired billionaire currency trader profiled in the book “Market Wizards,” once said he made most of his money from “stupid governments.” Kovner did not mean individual policymakers are dumb. The idea is that high-IQ people can make collectively dumb decisions as a result of political pressure and groupthink. When the bad decision is obvious, central banks and treasury departments can help make currency traders rich — or in Kovner’s case, help the rich get richer. Sometimes a

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As Silicon Valley Faces “The End,” Venture Capital Firms are Raising Money as Fast as They Can

February 25, 2020TradeSmith Research Team

In the natural resource industry, they have a saying: “When the ducks quack, feed ’em.” Demand for natural resources — precious and base metals, energy, timber, and so on — tends to be highly cyclical. There are boom periods and bust periods. After the boom, the inevitable bust comes. And then, over a period of years, the pendulum swings back again. “When the ducks quack, feed ’em” refers to the appetite of the public for speculative natural resource ventures. Like

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Markets are Underestimating Supply Chain Risk

February 27, 2020TradeSmith Research Team

The S&P 500 index is having its worst week since 2008 and has entered “correction” territory, defined by a 10% decline from the highs. Some will argue this is an overreaction. It is not. The coronavirus threat is still being underestimated — not just to human beings, but to businesses and corporate earnings, and the global economy on the whole. The Johns Hopkins University Global Cases dashboard is still showing an alarmingly high death rate. If you divide the total

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A Rare and Powerful “Bearseye” Signal Has Been Triggered — Here’s What That Means

February 28, 2020TradeSmith Research Team

As a brutal week comes to a close, the Dow Jones industrial average has endured its worst stretch of losses since the 2008 financial crisis. The S&P 500 has completed its fastest correction (a 10% drop from the highs) in history. And the yield on the 10-year treasury note, a “flight to safety” barometer, has hit new record lows. Our indicators also show a “bearseye” signal has been triggered via SPY, the bellwether S&P 500 ETF. What is a bearseye

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March 2020

Get Ready For “The End of Retirement”

March 4, 2020TradeSmith Research Team

“The End of Retirement” is a theme we’ve been studying for almost two years. The basic idea is that retirement as we know it, the popular concept we are all familiar with, is dead. From here on out the 20th century concept of retirement — may it rest in peace — will be replaced by one of two options: One group of retirement-age individuals will stay mentally and physically engaged, finding ways to fulfill themselves with active life pursuits, well

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America is Entering the Coronavirus J-Curve

March 5, 2020TradeSmith Research Team

America is entering the coronavirus J-curve. This means we are going to see rising levels of anxiety, fear, and even panic. Unfortunately, there is no way around this: You can’t sidestep a J-curve. Once you’re in one, you can only get through it. J-curve theory has applications in fields like economics, geopolitics, and venture capital. The basic message of the J-curve is that “sometimes, things have to get worse before they get better.” In economics, the J-curve applies to currency

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Reality Check: More than 80 Million Americans are Likely to be Infected

March 6, 2020TradeSmith Research Team

When crisis conditions are real, it is better to be informed than uninformed. The reality of a crisis situation is worth getting a handle on early — even if the truth is unpleasant. So let’s lay out some grim data points: More than 80 million Americans are likely to contract the coronavirus. Even by very optimistic estimates, more than 400,000 Americans could die from it. The point of discussing this is not to provoke anxiety or panic. Instead, the goal

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Why “Zero” is a Four-Letter Word for Financial Stocks

March 10, 2020TradeSmith Research Team

As the stock market dissolves into coronavirus chaos, three of the hardest-hit sectors have been energy, transports, and financials. The pain in energy and transports is relatively simple to understand. Crude oil prices have collapsed, wreaking havoc on anything fossil-fuel related. Travel and shipping demand has also collapsed, due to contagion fears and supply-chain disruptions, respectively. But what about financial stocks? For banks and other lenders, the pain revolves around “zero” — as in zero interest rates and zero growth.

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Why “Flattening the Curve” Means Sacrificing the Economy

March 12, 2020TradeSmith Research Team

Global financial markets are facing a stark reality this week. To save lives during an outbreak, the health care system has to function. To keep the system functional, the caseload has to spread out over time. To spread the caseload over time, the rate of early cases must be slowed. To slow the rate of early cases, the economy must be sacrificed. The term to describe this process, now trending globally, is “flattening the curve.” It comes from a visual

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The Next Two Weeks are on High Alert for Crash Risk

March 13, 2020TradeSmith Research Team

The next two weeks have heightened “crash risk” for various reasons. While vigilance is always a good idea, it makes sense to be even more vigilant over the next 10 trading days or so. “Hold on,” you might say, “Didn’t the market just crash?” After all, the Dow Jones industrial average saw its biggest single-day decline since 1987 this week. Meanwhile European equities had their biggest down day ever in percentage terms, and the S&P 500 broke a record for

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You Don’t Need to Hoard Food or Empty Your Bank Account

March 16, 2020TradeSmith Research Team

Thucydides, an Athenian general and historian from the fifth century B.C., has words of wisdom that apply well in a time of crisis. Here they are: “The bravest are surely those who have the clearest vision of what lies before them, glory and danger alike, and yet notwithstanding, go out to meet it.” Real courage means knowing the stakes and rising to the occasion. In day-to-day life, there isn’t much call for this. In the midst of a crisis, however,

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U.S. Treasury Bonds are the Most Important Market in the World Right Now

March 19, 2020TradeSmith Research Team

The most important market to watch right now might be 30-year U.S. Treasury Bonds, known as “long bonds.” Treasury bonds are supposed to rise in value when the stock market falls sharply. There isn’t a rule that requires this. Instead, it is just the normal way things work: When stocks drop heavily and across the board, capital flows out of stocks and into “safe havens.” One of the largest and deepest “safe haven” destinations in the world is U.S. Treasury

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