PAM Market Report (Dec 27, 2019): Yields May Have Peaked; PAM Adds To Long Bond And Long Gold Positions

Summary

The 10yr yield breached the 1.8900% support for yields (chart above), and looks to be falling in accordance with liquidity mini-seasonality for a two week drought.
The TCB had peaked; current (2019) 10yr yield is already past the top of the 10yr yield's 5-year average. We believe we have already seen an inflection point in yields.
PAM adds to long gold 3X Long Gold ETN UGLD for both Algo and Regular portfolio. Gold (XAU) has just completed a classic bullish "irregular" consolidation, followed by more rallies.
PAM is more certain that yields will fall further. Equities should follow in a day or so. PAM increased long bond exposures, now that we have some capital freed by recent exit from some long oil and bear bond positions.PAM buys 3 tranches of TMF for each of the Algo and Regular portfolio when ETFs prices stabilized in NY trade.
The key of this thesis is of course that the change rates of bank reserves (BR) will continue to decline, after keeling over yesterday. That done, repo rates rise and 10yr yields fall. The modeled behavior of 2019 bank reserves suggest that the change rate of the repo rate series already saw a top yesterday.

(This actual Market Report was written pre-NY market opening, on December 27, 2019, and was updated until the NY market closed. Seeking Alpha has been encouraging SA service providers to become more transparent, and show actual reports and interaction between providers and subscribers. We are providing this report to showcase what PAM provides to the members of the community).

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Robert P. Balan @robert.p.balanLeaderDec 27, 2019 1:42 PM

GOOD MORNING

Very early version of the Market Comment At The Chat.

This is why I am doing this report early. I said in yesterday's Market Report that PAM will buy another 3 tranches of Gold for both the Algo and Regular portfolios. The time has come to do just that.

The 10yr yield breached the 1.8900% support for yields (chart above), and looks to be going in accordance with liquidity mini-seasonality for a two week drought (see chart below).

The TCB has already peaked, and the current (2019) 10yr yield is already past the peak of the 10yr yield's 5-year average. Tim and I believe we have seen an inflection point in yields.

Meanwhile, Gold (XAU) has just completed a classic "irregular" consolidation, and will like be ratcheting up higher from here.

Using the yield analytical platform, we see gold falling over the next two seeks in the short term (chart below).

I placed an order for the equivalent of 6 tranches of Gold (XAU) in terms GCc1 earlier, and got all six tranches at 1,511 (3 tranches each for the Algo and Regular portfolios).

@all

PAM buys 6 tranches (equivalent) of GCc1 for the Algo and Regular portfolio.

TRADE DETAILS - GCc1 at 1511 for 6 tranches.

I just uploaded this email:

PAM Buys Gold (GCc1) For The Algo And Regular Portfolios; 3 Tranches For Each Portfolio

PAM buys Gold (GCc1) for the Algo and Regular portfolios; 3 tranches for each portfolio.

TRADE DETAILS - GCc1 at 1511 for 6 tranches.

PAM is more certain that yields will fall further. Equities should follow in a day or so. PAM will increase long bond exposures, now that we have some capital freed by recent exit from some long oil and bear bond positions.

PAM will buy 3 tranches of TMF for each of the Algo and Regular portfolio when ETFs prices stabilize in NY trade.

With yields falling, the energy sector is starting to lose upside momentum as well. It also helped that NatGas resume the downtrend. NG still leads crude oil and gasoline in the turns.

Finally DXY is breaking down, which should provide extra lift for Gold prices.

Here is why we are very partial to long bond positions at this time. Tim and I actually think we have seen the trough of repo rates the other day.

The key of this thesis is of course that the change rates of bank reserves (BR) will continue to decline, after keeling over yesterday. That done, repo rates should rise and 10yr yields should fall.

The modeled behavior of 2019 bank reserves suggest that the change rate of the repo rate series already saw a top yesterday.

Robert P. Balan @robert.p.balanLeaderDec 27, 2019 3:50 PM

@all

PAM will add to long bond 3X Bull ETF TMF -- just waiting for a pullback in prices. PAM will buy 3 tranches for each of the Algo and Regular portfolio.

Robert P. Balan @robert.p.balanLeaderDec 27, 2019 3:56 PM

@all

PAM will add to long gold 3X Long Gold ETN UGLD for both Algo and Regular portfolio -- just waiting for spot gold (XAU) to fall to circa 1509. I will personally take over the futures position acquired earlier for easier bookkeeping.

@all

We will pull the trigger in TMF now

TRADE DETAILS -- TMF - 27.02 -- for 6 tranches (3 each ofr the Algo and Regular Portfolios).

Robert P. Balan @robert.p.balanLeaderDec 27, 2019 4:06 PM

I just uploaded this email:

PAM Adds To Long Bond 3X Bull ETF TMF Holdings, 3 Each For The Algo And Regular Portfolios

@all

We will now pull the trigger on long UGLD

TRADE DETAILS - UGLD - 139.16.

PAM buys 3 tranches for each of the Algo and Regular portfolio.

I just uploaded this report:

PAM Adds To Long Gold 3X Long Gold ETN UGLD For Both Algo And Regular Portfolio

OK, looks like equities getting the end of the year, last chance to lock in profits message.

I wonder what kind of shenanigan Trump and Kudlow will pull next to have the gullible investors back into buying equities.

JdEFP @jdefpDec 27, 2019 5:07 PM

Large draw in crude. I can hardly wait to get out of my short oil trade.

User 12932881 @User.12932881Dec 27, 2019 5:08 PM

so far equities seem to be responding to the 500B in TOMO scheduled until Jan 14th that the Fed did in response to Zoltan's paper about year end repo stress . . . .

oiltozero @oiltozeroDec 27, 2019 5:32 PM

It looks like the 470 million the Fed added has had the desired effect of raising the market and avoiding the meltdown we had at the end of last year.

Robert now that you have bought the gold positions do you think we are finally going to get some inflation? If so you must believe that oil still has some running room to the upside?

Robert P. Balan @robert.p.balanLeaderDec 27, 2019 5:37 PM

oiltozero

Here is the longer outlook for oil -- I discussed this at length in this article.

Crude Oil: The Uptrend Resumes, Still With Brent $90.00/bbl Price Target In Q2 2020

But that is a long term outlook, so you can be long here, grit your teeth, and wait until we see targets sometime in Q2 2020.

But we do swing trading, and it is an entirely different strategy altogether. And right now, if the main risk assets, equities, yields do fall as per our liquidity model, then oil, gasoline and NatGas will fall as well. That is what we want to capture over the next two to three weeks of potential downturn.

Do not mix the two strategies -- you will get whipsawed, if you are not careful or have no experience in doing this. If you have experience in doing both, then your basic investment stance is LONG, but you need to inoculate your long positions from downswings. You have to do active hedging.

PAM at the outset decided to follows those swings up and down (per the systemic liquidity seasonality), but we always opt to err to the upside in the case of oil, given the positive long term outlook. But it does not stop us from trying to make money on the downside.

In this case we overhedged our long oil positions with DGAZ and DWT, plus some long bonds, for good measure (oil prices also tend to fall when yields decline).