Thu, 23rd February 2017

Anirudh Sethi Report


Archives of “international trade” Tag

3 destructive habits every trader must avoid.

Three destructive habits that will kill your trading day, week, month, or career.

Not having a plan. Get a plan, who cares if it is bad, start with something. You can build off of it and refine it. You have to be willing to spend the time to make the plan yours. You do not start anything without some level of planning. Trading is hard; your brain spends a lot of time in fast forward, affecting your memory. You can slow it down by having a plan and increase your brains ability to remember.  A plan makes it possible to improve. Most importantly, a plan gives you a chance at removing emotion.

Forgetting why you are trading.  The purpose of trading is to make money.  Every action should bend to that goal. That does not mean every trade makes money.  It means every trade gets to closer. If you are looking for comfort, get a teddy bear. If you are looking to be right, play trivial pursuit.  If you want excitement, drive fast.

Letting it go. It is really important to separate what happened from how you felt. The more distance between the two the less time it takes to learn from that situation.  Admitting you made a mistake or are wrong are necessary for letting it go.  Unlike life, you get no credit for admitting you are wrong, it is just a part of trading. Neither matter unless you take action.

How’s that oil demand picture looking OPEC? – India’s demand at the lowest for 13 years

One part of the OPEC production deal isn’t going according to plan

The main reason for the OPEC deal was to freeze production so that demand eats into the glut of supplies. That’s all well and good until the glaring floor in the plan comes home to roost, i.e demand doesn’t grow or worse, it drops.

So when one of the fastest growing countries sees oil demand fall the most in 13 years, there should be alarm bells ringing at OPEC.

Bloomberg has noted the drop which has seen India’s use of diesel drop 7.8% in Jan. Diesel accounts for around 40% of total fuel use. India also imports around 80% of it’s oil and the IEA said it will be the fastest user of oil through to 2040.

The drop is being tied in with the recent policy crackdown on high value bank notes, which is expected to shrink economic growth. One analyst expects that this is a one off and demand will pick back up in Feb. We’ll see whether he’s right no doubt. If he’s not then this could be a bigger issue for OPEC who will start to think about what to do with the current deal in a couple of months or so.

For me, the demand part of the OPEC puzzle was always the weak link and if demand doesn’t match expectations in relation to this deal, there’s going to be strong calls to expend it.

Japan resurfaces as No. 2 contributor to US trade deficit

Japan accounted for $68.9 billion of the U.S. trade deficit on goods in 2016, re-emerging as the second-largest contributor for the first time in three years for a potential flashpoint when the leaders of the two nations meet Friday.

The overall U.S. trade deficit on goods shrank by 1.5% to $734.3 billion last year on a Census basis, according to Department of Commerce data released Tuesday. Exports fell 3.2% to $1.45 trillion on a strong dollar, but imports decreased 2.6% to $2.18 trillion.

 The country logged a $247.8 billion surplus on services, bringing the overall U.S. trade deficit to $502.3 billion on a balance of payments basis.

The goods deficit with Japan remained roughly flat and accounted for 9% of the U.S. total. The deficit on motor vehicles and parts — an area in which President Donald Trump claims Japan engages in unfair practices — jumped to $52.6 billion from $48.9 billion in 2015, making up nearly 80% of the total American deficit with Japan.

Japanese automakers are increasing production in North America. But cars sold from Japan to the U.S. tend to be higher-end models, and the average price per unit is rising.

China was the top contributor to the U.S. trade deficit on goods, accounting for $347 billion, or 47%. Germany ranked third and Mexico fourth. Trump, seeking to curb the deficit, has accused Japan, China and Germany of manipulating their currencies. The president also demands a renegotiation of NAFTA with Mexico.

Schauble Agrees With Trump That Euro Is “Too Low” For Germany, Blames Mario Draghi

In surprising comments that may rekindle a verbal currency war between president Trump and Europe, German finance minister Wolfgang Schäuble told German newspaper Tagesspiegel that in his opinion the Euro is “too low” for Germany, echoing criticism from Trump’s trade advisor Peter Navarro, who last week told the FT that Germany was exploiting its US and EU partners by using a “grossly undervalued” euro to create a vast trade surplus. The comment placed Germany, alongside China and Japan, in a category of countries that the Trump administration has accused of currency manipulation for competitive advantage.

As the FT reports on Sunday morning, Schauble acknowledged that the ECB had to set monetary policy for the eurozone as a whole, but said: “It is too loose for Germany.” A recent chart from Morgan Stanley confirms that on a PPP basis, the EUR is over 40% undervalued for exporting and current surplus powerhouse Germany on a standalone basis, however for many of Europe’s peripheral countries it still remains expensive.

What was more curious about Schauble statement is that the German finance minister blamed the European Central Bank for the low exchange rate.

Beijing Blasts Washington for Plans to Launch High Taxes on Chinese Steel

On Friday, the US Commerce Department announced its plans to raise import tariffs for the Chinese stainless steel products from 63 percent to 190 percent citing a probe that found they were selling on US market at dumping-level price.

“China is disappointed that the United States continued to launch high taxes on Chinese steel export products and calls into question the unfair way the US conducted its investigation,” Wang said, as quoted by the South China Morning Post newspaper.

The United States did not take into the account the evidence previously submitted by the Chinese steel manufacturers and avoided cooperation with the Chinese government, violating the rules of the World Trade Organisation (WTO), the Chinese official underlined.

This is a second blow for the Chinese steel importers in the recent months. The European Commission imposed in January anti-dumping duties on Chinese stainless steel tubes and pipe butt-welding fittings to protect its industry from steel overcapacity.

According the European Commission, Chinese imports will be taxed with duties ranging from 30.7 to 64.9 as its investigation commission confirmed that Chinese stainless steel products had been sold in Europe at dumping prices.

The Future of Globalization

The cross-border movement of goods, services, and capital increased markedly for the thirty years up to the Great Financial Crisis.  Although the recovery has given way to a new economic expansion in the major economies, global trade and capital flows remain well below pre-crisis levels.  It gives a sense globalization is ending. 

The election of Donald Trump as the 45th US President has underscored these fears.   His first few weeks in office clearly mark a new era not just for America, but given its central role in late-20th-century globalization, for the world as well.   Trump is a bit of a Rorschach test.  He did not win a plurality, let alone a majority of the popular vote, but that does not stop pundits from claiming that Trump won because of this or that issue. 

There are some campaign promises which Trump has backed away such as citing China as a currency manipulator on his first day as President or pursuing legal charges against Hillary Clinton.  His priorities have been repealing the national health insurance, formally withdrawing from the Trans-Pacific Partnership, and signaled an intention to re-open the North American Free Trade Agreement.

Trump and his closest advisers seem intent to unwind not just his predecessor’s initiatives, but the general thrust of America’s grand strategy since the end of WWII.  His rhetoric of America First harkens back to Warren Harding, who succeeded Woodrow Wilson after the US Senate rejected the League of Nations.  Some historians refer to that period as ‘isolationism, ’ but in practice it was unilateralist.

Fifteen truths about options trading

  1. I believe that successful options trading requires a different mindset from the traditional “rules of success” for most directional traders in stocks and futures products.
  2. First and foremost, I believe you need to take profits early and often. We’ve all been hit over the head ad nausem about the old maxim “cut your losers short and let your winners run.” This is a truth I believe holds true for most directional traders, but I don’t believe it holds any currency with consistently successful options traders.
  3. Speaking of direction, I believe nobody knows the next direction the instrument you trade will move. Nobody. Plenty have ideas and hunches, and often they’ll be right. But the truth is, a coin flip has nearly identical odds. This is why I trade options positions that either don’t require me to guess a direction, or provide me with plenty of opportunity to make money even when I’m leaning in the wrong direction.
  4. Immediately contradicting the item above, I believe in fading moves (especially, violent down moves). The best traders and investors are willing to put on positions the majority of market participants find hard to put on due to fear. Since the majority of market participants are net losers, I’ve got to find more opportunities to join the minority.
  5. I believe in contradictions. I believe in breaking the rules. Rules are guidelines, nothing more. Nobody got ahead in this world by following the rulebook and not daring to make mistakes or look like an ass from time to time.
  6. I believe in getting paid to wait. Time is money. Wherever possible, I want to have positive theta on my side. The odds are with me whenever this is the case.
  7. Speaking of odds, I believe in frequent trading. Common wisdom wants you to believe that “over-trading” is the common cause of death for most retail trading accounts as commissions steadily drain your account. In many cases this is true (especially if your commission rate is obnoxious). But for me, I’m putting on trades with the probabilities in my favor. The more instances of opportunity I can get myself into, the more the law of large numbers and favorable probabilities will materialize to my bottom line.
  8. In order to trade frequently, I believe in trading incredibly small so that I can spread my opportunity across as many instruments as possible, diversifying my risk. Call me “One-lot Seany.” I’ll proudly wear that name tag.
  9. I believe that volatility retraces from spikes or reverts to the mean much quicker and predictably than most would have you believe. Thus, I believe in selling fear. Fear subsides.
  10. I don’t believe in stop losses. I believe in adjustments. Options trading gives you, um…. options. When positions go against me, all is not lost. Often times, there will be plenty of opportunity to roll strikes to collect additional credit which improves my odds of success, or roll positions out in time to in effect “buy myself more time” for the trade to play out.
  11. The reason adjustments work: I seek to enter credit spreads when volatility is elevated (see #9 above). Therefore, if my position is getting tested on the upside, volatility will likely be shrinking which further aids my short volatility position. If I’m getting tested on the downside, volatility is likely remaining high (or increasing!) which gives me more juicy premium to sell into, which then results in collecting more cash and effectively lowers my breakeven points on the downside, thus improving my odds of success.
  12. I believe in net market neutral exposure for my portfolio.
  13. To help achieve neutral exposure, I believe I should always have a short delta (but positive theta — paid to wait) position in the general indexes. Since the majority of my individual positions will be short volatility and benefit from a stable or slowly rising market, I need to have short index positions which will benefit when markets are receding and volatilities are rising.
  14. I believe in making stocks and markets work to beat me. They will win from time to time, but they will have to earn it with outsized moves. If the stock or market is too lazy to come get me, I’ll gladly collect its coin and move on to the next trade.
  15. I believe the only true edge in any marketplace is Buying Power.*

Value of negative-yielding debt drops below $10tn

The value of corporate and government debt that trades with a sub-zero yield has dropped below $10tn, a substantial decrease from September when investors piled into the fixed-income market, according to Tradeweb.

Roughly $9.6tn of bonds trade in negative territory, down from nearly $14tn four months ago and $10.7tn near the end of December, as rising inflation expectations and hopes of a rebound in economic activity propels yields higher, Yields rise as bond prices fall.

The rise of negative-yielding debt was spurred by central bank stimulus meant to accelerate lacklustre economic growth. Inflation expectations have climbed in the wake of Donald Trump’s election, as investors await promised government stimulus, tax cuts and a weaker regulatory regime that may prompt a more hawkish Federal Reserve.

The declining value of debt trading with a negative yield also reflects a stronger US dollar, which makes foreign obligations appear smaller when converted back to the greenback.

Global steel production returns to growth in 2016

WS256Global steel production returned to growth in 2016, even as output of the grey metal shrank in many large producing nations such as Japan, the US, Russia, South Korea and Germany.

The amount of crude steel produced worldwide increased 0.8 per cent to 1.628.5 million tonnes last year, according to the World Steel Association.

This was underpinned by a 1.2 per cent rise in output by China, the world’s biggest producer, reversing the country’s first production decline for three decades in 2015.

China’s economic slowdown has led to a surge in its steel exports, sparking accusations that its companies are dumping material at unfairly low prices.

Indian households have record gold hoard of Rs 24,000 tonnes worth $800 bn

Indian households, together the world’s largest hoarders of gold, hold a record 23,000-24,000 tonnes of the prea record 23,000-24,000 tonnes of the precious metal, worth at least $800 billion, despite a sharp fall in international prices from their peaks in 2011, according to a comprehensive study of the Indian market by the London-headquartered World Gold Council (WGC). The value of the holdings is based on (conservative) international prices, which doesn’t factor in a 10% customs duty. The value would be substantially higher in the rupee term.

Coupled with 557.7 tonnes of the central bank’s holdings, gold stocks at most of the known sources in the world’s second-largest consumer would represent around a half of its gross domestic product. This means the gold monetisation scheme can be a success if the government makes it lucrative.
The country’s gold demand has been shaken a tad after demonetisation, as some customers feared a crackdown on gold holding as well, but long-term prospects remain bright with demand expected to average at 850-950 per annum by 2020, the WGC said. The country’s gold demand is expected to have fallen to a seven-year low of 650-750 tonnes in 2016, although a recovery is expected as early as 2017.