Passive Equity Portfolio: Annual Report

Let’s get to the ugly truth. Since inception (July 2014), my passive portfolio is up only 2.18%19 times less than the market return during the period. For 2017, the portfolio returned only 3.82%, 6 times less than the market return. Um….um….um, let me try to justify the low returns.

My peers and people jealous of me would be laughing like this:

Kuroda’s evil laugh
2014-2015

When I opened the account in the summer of 2014, TD Ameritrade gave me 2 months to trade for free. So during that time, I wanted to fill the account with stocks. The only problem was I did not know which stocks to buy. At the same time, I did not know how to research potential investments.

Mostly guided by “expert” recommendations and positive headlines, I bought some stocks which destroyed my portfolio, including Ford (F), J.C.Penny (JCP), Cisco (CSCO), General Electric (GE), and General Motors (GM). In 2015, I still did not know which stocks to buy. I wanted to do my own research. I decided to research all the stocks that were bought the previous year.

From my research, I found CSCO, GE, and JCP attractive. So I decided to keep them in the portfolio. I even wrote about CSCO and GE on the blog. I did not write on JCP as I was not profoundly convinced. Funny thing is I have never shopped at JCP, just at its competitors. Even my mother did not like J.C. Penny.

I did not like F, yet I decided to keep F in the port because it was not worth getting rid of them at $10 commissions. For GM, I was on the fence. In addition to these names, I decided to research new names and bought some of them. 70% of my portfolio was in cash in January of 2015. In December, it was 42%.

The new stocks I bought in 2015 were non-dividend yielding risky names, such as Bellatrix Exploration (BXE), Twitter (TWTR), and GoPro (GPRO). All of which did not work out well to this day. BXE, because I tried to find a good energy company at the time every energy companies were distressed. I’m very active on Twitter and use GoPro most of the time. So I wanted to invest in them. At that time, I thought Twitter would get acquired, and GoPro management would start to turn things around, and the Karma Drone would be positive for the company’s financials.

2016-2017

In 2016, I continued to research new stocks. However, I did not invest in any of them. I deposited more money into the account during that year. At the end of 2016, 82% of the portfolio was in cash.

I always found real estate interesting. Used to read about them. My interest in the real estate market skyrocketed after my first ever internship, at a small real estate firm. In January of 2017, I decided to buy WPC, a Real Estate Investment Trust (REIT). During the year, I also bought Verizon (VZ). I did not want the remaining cash in the port to sit idle. So I decided to purchase free commission based short-term bond funds, very stable dividend yielding cash parking (and one high-yield ETF). At the end of 2017, 17% of the port was in cash.

Over the past month, I have been researching consumer goods companies. I’m looking to add one to the port. When I do, I will be sure to write about it.

10 Equities

I’m currently holding 10 companies; CSCO, GE, GM, BXE, WPC, JCP, F, TWTR, GPRO, and VZ.

All shares of 10 different companies belong to 1 class: domestic equity. 62% are in large cap., and 38% are in mid-cap.

On February 16, 2015, I recommended going long Microsoft (NASDAQ: MSFT) when the share price was $43.95. Since then, it is up 101%*. I made a mistake of not buying when I wrote about it. “Put your money where your mouth is, Khojinur.”

On April 12, 2015, I recommended going long General Electric (NYSE: GE). Since then, GE is down 33%*. Dividends are automatically invested in new shares. Average price I paid for the shares is $26. I’m down 29%. Despite the 50% dividend cut recently, I’m staying with the stock for two reasons. The cost-cutting will be the best bet for us the shareholders. The $7 commission fee won’t be worth it, especially since the stock was bought in 2015 when I had less money. If I can open second Robinhood account, I’ll transfer from Ameritrade to the free-commission based brokerage.

In the summer of 2015, I wrote about CSCO (part 1part 2 AND 4Q FY’15 earnings report). Since the first article, the networking giant is up 44%*. Average price I paid for the shares is $25.11. I’m currently up 57%.

On November 21, 2015, I wrote my first article on LLY and believed it was overvalued (it still is). Since then, the pharmaceutical company is up a mere 1.25%*. The second article on LLY was posted a year after the first article. I personally am not short the stock as I cannot short.

On December 26, 2015, I recommended going long GoPro (NASDAQ: GPRO) and believed it was a buy. Since then, the action camera maker and I are down whopping 59%.

On May 2, 2016, I recommended holding FireEye (NASDAQ: FEYE).  Since then, the cybersecurity firm is down 15%.

On January 20, 2017, I recommended going long W.P. Carey (NYSE: WPC). Since then, the REIT is up 11%*. Average price I paid for the shares is $61.44. I’m currently up 10%.

On May 9, 2017, I recommended going long Verizon (NYSE: VZ). Since then, the telecom is up 46%*. Average price I paid for the shares is $46.05. I’m currently up 47%.

*dividends not calculated

Estimated the portfolio dividend yield is 2.48% (that is very similar to the 10-year yield), with largest being 6% and lowest 0%. I plan to increase the portfolio dividend yield by getting rid of non-dividend yielding stocks and/or buying dividend-yielding stocks. That will happen fast, if I can make second Robinhood account and transfer the portfolio to there.

When I started doing research in-depth and writing down my findings and thoughts, everything started to improve. Writing is powerful!

Every new trade and investment will first be announced on Twitter. Almost always!

The Next Big Threat: Illiquidity

Liquidity is the investor’s ability to buy and sell a security without significantly impacting its price. Lack of liquidity in a security can have its consequences. Post financial crisis regulations, such as Volcker Rule (Dodd-Frank), and Basel 3, has made it more expensive and more difficult for banks to store bonds in their inventories and facilitate trades for investors. Regulations designed to make the system more safer have depressed the trading activity.

Lack of supply is one cause for diminishing liquidity. Banks, the dealers of corporate bonds, have reduced their inventories. According to Bank for International Settlements (BIS), “Market participants have raised concerns that regulatory reforms, by raising the costs of warehousing assets, have contributed to reducing market liquidity and could be keeping banks from acting as shock absorbers during periods of market stress.”

Primary Dealer Net Positions (2006 to 2016) Source: MarketAxess
Primary Dealer Net Positions (2006 to 2016)
Source: MarketAxess

According to BIS, “US primary dealers…have continued to reduce their corporate bond inventories over the past years. Since the beginning of the year 2013, they have cut back their net positions in U.S. Treasuries by nearly 80%.

Another big cause of decreasing in liquidity is technology. A technology that has changed the structure of markets, high-frequency trading (HFT), an algorithm computer trading in seconds and in fractions of seconds, account for much larger share of the trading transactions and it leads to low liquidity. Majority of HFTs, if not all, reduces liquidity by pairing selected (self-interest), leaving out others. According to BIS, 70% of U.S. Treasury trading is done electronically, up from 60% in 2012. For both high-yield bonds (not highly liquid asset), it accounts for more than 20%. About 90% of transactions on bond futures take place electronically. I have no doubt electronic trading will continue to increase.

“Greater use of electronic trading and enhanced transparency in fixed income markets typically comes at the cost of greater price impact from large trades.”, BIS said in the report. Bonds now trade in smaller transaction sizes than they did before, “… large trades seem less suitable for trading on electronic platforms because prices move quickly against participants who enter large orders due to the transparency of the market infrastructure.” “It “discourages market-makers from accommodating large trades if they fear that they cannot unwind their positions without risking a sizeable impact on prices.”

BIS in its quarterly review report (March 2015) stated (source: FINRA’s TRACE data), the average transaction size of large trades of U.S. investment grade corporate bonds (so-called “block trades”) declined from more than $25 million in 2006 to about $15 million in 2013.

This is a sign of illiquidity since “trading large amounts of corporate bonds has become more difficult.” Trades facing constrained liquidity puts investors, especially large investors, to a disadvantage.

Capacity to buy/sell without too much influence on the market prices are deteriorating. Lack of liquidity can causes wild swings in the bond prices, which then can affect the rest of the financial markets. Today’s financial markets are so connected just like the economic domino effects.

They are connected, but let me tell you why they are so important. The U.S Treasury securities market is the largest, the most liquid, and the most active debt market in the world. They are used to finance the government, and used by the Federal Reserve in implementing its monetary policy. I repeat, in implementing its monetary policy. Having a liquid market – in which having no problem buying and selling securities without affecting the market price – is very important to the market participants and policymakers alike.

Examples of high volatility in a low liquidity:

  • Flash Crash (May 2010)

In a matter of 30 minutes, major U.S. stock indices fell 10%, only to recover most of the losses before the end of the trading day. Some blue-chip shares briefly traded at pennies. WHAT A SALE! According to a U.S. Securities and Exchange Commission (SEC) report, before 2:32 p.m., volatility was unusually high and liquidity was thinning, a mutual-fund group entered a large sell order (valued at approximately $4.1 billion) in “E-mini” futures on the S&P 500 Index. The large trade was made by an algorithm. The “algo” was programmed to take account of trading volume, with little regard, or no regard at all, to the price nor time. Since the volatility was already high during that time and volume was increasing, this sell trade was executed in just 20 minutes, instead of several hours that would be typical for such an order, 75,000 E-mini contracts (again, valued at approximately $4.1 billion).

May 6, 2010 - SPY Volume and Price Source: SEC Report
May 6, 2010 – SPY Volume and Price
Source: SEC Report
May 6, 2010 - SPY Volume and Price Source: SEC Report
May 6, 2010 – SPY Volume and Price
Source: SEC Report

According to the report, this sell pressure was initially absorbed by HFTs, buying E-mini contracts. However, minutes after the execution of the sell order, HFTs “aggressively” reduced their long positions. The increase in the volume again led the mutual-fund group “algo” to increase “the rate at which it was feeding the orders into the markets”, creating what’s known as a negative feedback loop. That’s the power of HFTs.

This was nearly 6 years ago. Today, there’s no doubt the power of the secretive section of the financial markets, HFTs, are much stronger and powerful and can destroy the markets with “one finger”.

With low liquidity in the bond market and increasing HFT transactions in it, the threat is real. Automated trades can trigger extreme price swings and the communication in these automated trades can quickly erode liquidity before you even know it, even though there is a very high volume. While liquidity in the U.S. bond market is high, it’s not high enough to battle the power of the technological progress.

Let’s not forget. Fixed-income assets such as, corporate bonds, are often traded over the counter in illiquid markets, not in more liquid exchanges, as stocks are.

It’s all about profits. Some, if not all HFTs, act the way they do, to make profit. There’s nothing wrong with that. But, the creators of the algorithms have to be ethical and responsible. It’s not likely to happen anytime soon since profits are the main goal (mine too) in the financial markets. So why should HFT “be fair” to others? I know I wouldn’t.

  • Taper Tantrum (2013 Summer)

In the summer of 2013, the former Federal Reserve chairman, Ben Bernanke, hinted an end to the Fed’s monthly purchases of long-term securities (taper off, or slow down its Quantitative Easing), which sent the financial markets, including the bond market into a tailspin.

On June 19, 2013, Ben Bernanke during a press conference said, “the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.” That sentence alone started the financial market roller coaster.

Yields skyrocketed. The gravity took down the value of greenback (U.S. Dollar). U.S. long-term interest rates shot up by 100 basis points (1%). Even short-term interest rate markets saw the rate-hike to come sooner than the Fed policymakers suggested. Borrowings costs increased so much, as the markets was expecting tightening of the monetary policy, it “locked up” the Fed from cutting the pace of bond buying that year.

Markets' Reaction To June 19, 2013, Ben Bernanke Press Conference Source: Federal Reserve Bank of St. Louis
Markets’ Reaction To June 19, 2013, Ben Bernanke Press Conference
Source: Federal Reserve Bank of St. Louis

This raises (or raised) whatever the market prices can handle orders that are executed in milliseconds. It points to a lack of supply (dealer inventories), A.K.A illiquidity. I feel bad for funds that have a lot of corporate-bonds in their portfolio. The struggle is real.

An open-ended funds that allow investors to exit overnight are more likely to experience a run, as market volatility increases. A run on funds will force the funds to sell illiquid assets, which can push down the prices lower and lower. Recently example of that is the Third Avenue (“investors’ money are being held hostage”).

Brace for a fire sale. Coming soon in your area.

Market makers, where are you? Come back. I need to sell the investments at a current price, before it goes much lower.

  • October 15, 2014

The financial markets experienced – as the U.S. Department of the Treasury puts it – “an unusually high level of volatility and a very rapid round-trip in prices. Although trading volumes were high and the market continued to function, liquidity conditions became significantly strained.”

On October 15, 2014, the markets went into a tailspin again. The Dow plummeted 460 points, only to recover most of the losses. The Nasdaq briefly fell into a correction territory, only to rebound sharply. The 10-year Treasury yield “experienced a 37-basis-point trading range, only to close 6 basis points below its opening level”, according the U.S. Treasury Department report.

According to Nanex, a firm that offers real-time streaming data on the markets, between 9:33 A.M and 9:45 A.M, “liquidity evaporated in Treasury futures and prices skyrocketed (causing yields to plummet). Five minutes later, prices returned to 9:33 levels.” “Treasury futures were so active, they pushed overall trade counts on the CME to a new record high.”, said the report.

“Note how liquidity just plummets.”

Liquidity in the 10 year as measured by total sizes of orders in 10 levels of depth of book. Source: Nanex
Liquidity in the 10 year as measured by total sizes of orders in 10 levels of depth of book.
Source: Nanex

Again, as I said, “Today’s financial markets are so connected just like the economic domino effects.” The mayhem in in the bond market can spread to the foreign exchange (forex) market.

October 15, 2014 - World Currencies Source: Nanex
October 15, 2014 – World Currencies
Source: Nanex

These types of occurrences are becoming common, or the “new normal”. As the Fed raises rates, the market participants will be adjusting their portfolio and/or will adjust them ahead of it (expectations), these adjustments will force another market volatility. But this time, I believe it will be much worse, as liquidity continues to dry up and technology progresses.

Recent market crashes and volatility, including the August 2015 ETF blackout, is just another example of increasing illiquidity in the markets. Hiccups in the markets will get bigger and will become common. Illiquidity is the New Normal.

Hello HFTs, how are you doing? Making $$$? Cool.

With interest rates around 0 (well, before the rate-hike in December), U.S. companies have rushed to issue debt. With the recent rate-hike by the Fed, U.S. corporate bond market will experience more volatility. Lower and diminishing liquidity will “manufacture” a volatility to a record levels that the financial markets and the economy won’t be able to cope with it.  As said, “Today’s financial markets are so connected just like the economic domino effects.”, the corporate bond market volatility will spread to the rest of the financial markets.

Oh wait, that already is happening. Reversal of monetary policy by the Fed this year, as I believe the Fed will lower back rates this year, will make things worse.

Liquidity: Peace out!

Fed removes “patient”, and adds twists

Last Wednesday (March 18, 2015), the Federal Reserve released its statement on the monetary policy and its economic projections. The The Fed dropped from its guidance “patient” in reference to its approach to raising the federal funds rate. It was largely to be expected to be removed, which would have send U.S Dollar higher and U.S market lower. However, the opposite happened because of two twists; they lowered their economic projections, and Chair of the Board of Governors of the Federal Reserve System, Janet Yellen’s words during the press conference.

According to the “dot plot”, the Fed lowered median “dot” for 2015 to 0.625% from 1.125% (December). What is “dot plot”? The Dot Plot is part of the Federal Open Market Committee (FOMC)’s economics projections and it shows what each member thinks the federal funds rate should be in the future. It is released quarterly. Sometimes, it might be released more than that, depending on economic circumstances. It gives you a perspective of what each member of FOMC thinks about economic and monetary conditions in the future.

Again, the Fed lowered median “dot” for the end of 2015 to 0.625% from 1.125% in December (-0.50%). The Fed also lowered the “dot” for end of 2016 and 2017. For the end of 2016, it is at 1.875% from 2.5% in December (-0.625%). For the end of 2017, it is at 3.125% from 3.625% in December (-0.50%). Besides, the “dot”, Yellen said one thing that took a toll on the U.S Dollar.

Even though the Fed removed “patient” from the statement, Yellen had “patient” tone during the press conference. Yellen said ““Just because we removed the word “patient” from the statement does not mean we are going to be impatient,”. This sentence alone halted US Dollar from rebounding after it dropped on the statement. There are other things that complicates the timing of the rate-hike.

It’s now more complicated to predict the Fed’s next move because of three reasons; very strong US Dollar, low inflation, and economic crisis in Europe and Japan, if not United Kingdom too. US Dollar is too strong, hurting U.S exports. Inflation has declined due to falling energy prices. The struggling foreign countries economically can also hurt U.S economy. I believe two majors factor of the Fed’s next move are the strong US Dollar, and the low inflation. When both of them are combined together, it makes imports cheaper and keeps inflation lower. I believe Europe will start to get better–as Quantitative Easing (QE) fully kicks in–money starts flowing in Europe. European stocks will probably hit new highs in the coming years because of QE program. Once, the Fed raises the rates, the money will probably flow into Europe from the U.S because of negative interest rates. Low rates have been a key driver of the bull markets in the U.S stock market the past six years. Lower rates makes stocks more attractive to the investors.

Since, the “dot” has dropped harshly, I believe this could be a sign of late delivery of rate hike. They might hike the interest rate in September, not June. However, if non-farm payrolls number continue to be strong, average wage (indicator for inflation) lifts and oil prices rebound, then the door for rate-hike for June might still be open. For now, there is no sign of oil rebounding since it has dropped sharply this week. We will get the next non-farm payroll, which also includes average wage, on April 3.

In the statement, FOMC stated “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”

The Fed want to be cautions before raising the interest rates. They want more time to be sure; “further improvement in the labor market” and “reasonably confident that inflation will move back to its 2 percent…” Although, non-farm payrolls have been strong lately, inflation is too low. The inflation is low because of the stronger dollar and the plunge in oil prices.

The Fed is in no hurry to increase the interest rate. The Fed said it would definitely not act on rates at “…April FOMC meeting.” and might wait until later in the year. I believe September has higher chance than June, from the rate-hike.

It looks to me that the Fed planned to send US Dollar lower. They probably wanted the US Dollar to be weaker before raising the rates, which could send the US Dollar a lot higher. Their plan worked. The US Dollar dropped so much that it sent EUR/USD (Euro against US Dollar) up 400 pips (above 1.10). U.S market rose after they were down ever since the release of non-farm payrolls for February. Dow gained over 200 points, as well as other indices.

 

Dow Jones (DJI) - 30 Mins
Dow Jones (DJI) – 30 Mins
US Dollar - 30 Mins
US Dollar – 30 Mins
EUR/USD - 30 Mins
EUR/USD – 30 Mins

 

Feel to contact me and/or to leave comments. Don’t forget to follow my twitter account @Khojinur30. At any moment, I might post my view on certain things. Thank you.

Recap: Europe, Australia, United Kingdom, Canada, and The United States.

This week was full of financial news. I will be talking about some of them, which I consider too important to pass up. I will also give my views on them.

Europe:

Last Monday (March 2, 2015), a report showed that Consumer Price Index (CPI) Flash Estimate ticked up to -0.3% year-over-year from previous -0.6%. Markets were expecting -0.4. The data was little positive. However, It remained in negative territory for the third consecutive month. There are deflation in euro zone. The deflation might soon end later in the mid-year, as Quantitative Easing (QE) program starts this Monday (March 9, 2015).

Last Thursday (March 5, 2015), European Central Bank (ECB) kept the interest rates unchanged. During the press conference, the President of ECB, Draghi stated that the QE would start on March 9. ECB raised its projections for the euro area, “which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017.” Remember that these are just projections and can change anytime. Plus, central banks are not right all the time. Mr. Draghi felt confident as he talked about the future of Euro zone. He believes Euro zone will greatly benefit from QE program and some areas already have since the announcement of QE last January.

This week, EUR/USD fell all the way to 1.0838, lowest level since September 2003, due to positive U.S jobs reports, Greece worries and QE program starting next week. I was already short on EUR/USD and I still believe it has a room to go further down.

EUR/USD Hourly
EUR/USD – Hourly

Australia: 

Last Monday (March 2, 2015), Reserve Bank of Australia (RBA) announced that they will leave the interest rate unchanged at 2.25%. In February meeting, RBA cut by 0.25%. This time, they did not. RBA is in “wait and see” mode, for now. I believe another rate cut is coming in the two meetings, depending on future economic reports. In the Monetary Policy Decision statement by RBA Governor, Glenn Stevens stated that the Australian dollar “remains above most estimates of its fundamental value…A lower exchange rate is likely to be needed to achieve balanced growth in the economy…Further easing of policy may be appropriate…”.  I believe RBA is open to further cuts and it will come in the next two meetings. However, positive economic reports might change that direction. As economics reports come out from Australia, we will have better sense of what RBA might do.

Last Monday (March 2, 2015), Building Approvals report came out and it was very positive. It was expected at -1.8%. It came out at whooping 7.9% up 10.7% from previous -2.8%. It shows that more buildings are being built. Thus, creating jobs. However, Building Approvals reports show that building approvals tend to jump around every month. If the report continues to be positive, it might convince RBA to keep the rate unchanged.

Last Tuesday (March 3, 2015), Gross Domestic Product (GDP) came at 0.5%, up only 0.1% from previous report (0.4%). It came out little bit weak from what was expected, 0.7%. It’s still very weak and it might have larger impact on RBA’s future actions. I believe RBA will cut because GDP is not improving much.

Last Wednesday (March 4, 2015), Retail Sales and Trade Balance reports came out from Australia. Retail sales came out at 0.4% as expected from previous 0.2%.  Trade balance on goods and services were a deficit of $980 million, an increase of $480 million from December 2014 ($500 million). All these numbers are in seasonally adjusted term. I believe the gap in Trade Balance from the last two reports might convince RBA little bit to cut the rate again.

I would be short on AUD. I believe it has the potential to go further down to 0.7500. The best pair would be to short AUD/USD (Positive U.S news and upcoming rate hike).

AUD/USD Hourly
AUD/USD – Hourly

United Kingdom: 

Last Thursday, Bank of England (BoE) kept the interest rate unchanged at 0.50% and Quantitative Easing (QE) programme at £375bn. In March 2009, the BoE’s Monetary Policy Committee (MPC) unanimously voted to cut the interest rate to 0.50% from 1.00% (-.50%). The interest rate still stays unchanged and QE stays steady, for now. If future economic reports such as wages, and inflation declines or comes out negative, rate cut might come. If it does not, rate hike might come sooner than expected. I believe it will get better and MPC will decide to raise the rate, sending Pound (GBP) higher.

This week, Pound (GBP) fell after rising last week, due to little negative news from UK and that BoE rejected higher rate for some time being because of concerns in oil prices and inflation. I would not trade GBP at this time. If I’m going to trade GBP, I would analyze its chart first. Did you notice that last week GBP/USD had-daily bearish engulfing pattern and this week there is-weekly bearish engulfing pattern?

GBP/USD - Daily
GBP/USD – Daily
GBP/USD - Weekly
GBP/USD – Weekly

Canada:

Last Tuesday (March 3, 2015), Canadian Gross Domestic Product (GDP) came out little positive at 0.3% from previous -0.2% on monthly basis. It was expected at 0.2%. On quarterly basis, it came out at 0.6% following 0.8% in third quarter.

Last Wednesday (March 4, 2015), Bank of Canada (BoC) left the interest rate unchanged at 0.75% following 0.25% cut last month. Ever since BoC cut the rate last month due to falling oil prices; oil prices has risen and been in $50 range. If oil price continue to fall, I believe they will cut the rate again. There is strong relationship between Canada and oil. As oil gets weaker, Loonie (CAD) gets weaker. Why? Canada is ranked 3rd globally in proved oil reserves. When making a trade decision on CAD, I would look at the oil prices. Of course, I would also look at news and technical. For example, if I want to trade USD/CAD, I would look at both U.S and Canada economic news (rate hike/cut, employment, etc) and technical on chart. If U.S economic news are strong, Canada economic news are weak and USD/CAD is just above strong support line, I would definitely go long on it. However, let’s say if USD/CAD is just below strong resistance line, I would wait for confirmation of a breakout and if the news are in my favor, I would go long.

Last Friday (March 6, 2015), Building Permits and Trade Balance reports were strongly negative. Building Permits came out at -12.9%, following 6.1% the previous month, expected of -4.2%. Trade balance on goods and services were a deficit of -2.5 billion, following -1.2 billion the previous month, expected of -0.9 billion. Both reports were negative, which sent CAD lower. At the same time, U.S non-farm payrolls came out strong, which sent USD higher. As a result, USD/CAD skyrocketed. The reports will definitely be on BoC committee’s mind. As of right now, I would be short on USD/CAD.

This week, USD/CAD was mixed as BoC kept the interest rate unchanged, after cutting it last month (negative for USD/CAD) and strong U.S jobs report (positive for USD/CAD). I would be short on it as I said in the last paragraph.

USD/CAD - Hourly
USD/CAD – Hourly

United States:

Last Friday (March 6, 2015), U.S jobs report came out very strong except the wages. Employment increased by 295,000 (Expected: 240k) and unemployment rate went down 0.2% to 5.5% (Expected: 5.6%). However, average hourly earning fell 0.1%, following 0.5% the previous month (Expected: 0.2%). But, that hourly wages part of the report did not stop U.S Dollar from rising. It was very positive for the U.S dollar because there is little higher chance of rate hike coming in the mid-year.

Since U.S economic news tends to have impact on global markets, here’s what happened; U.S Dollar rose, U.S stock fell, European stock rose, Euro dived, Gold prices fell and Treasury Yield jumped. EUR/USD fell to 1.0838, lowest level since September 2003. USD/JPY rose to 121.28, a two-month high.

So why did U.S stocks sold off? It sold off because of upcoming rate hike, which can be negative for equities, specifically for dividend stocks. As economy is getting better, it should help boost corporate profits. At the same time, strong dollar can hurt them. Rate hike can only make dollar even stronger.

In two weeks, the Fed will be meeting and I believe they might drop the “patient” in its March policy statement.

I would be long USD. The best pairs would be to short EUR/USD (Euro zone delfation, Greece crisis and QE program) and short NZD/USD (RBNZ keeps saying that NZD is too high and they will meeting next week, rate cut?) as I’m already short NZD/USD, and long USD/JPY (Upcoming U.S rate hike and extra stimulus BoJ might announce).

Dow Jones Industrial (DJI) - Hourly
Dow Jones Industrial (DJI) – Hourly
Nasdaq - Hourly
Nasdaq – Hourly
Standard & Poor 500 (S&P 500) - Hourly
Standard & Poor 500 (S&P 500) – Hourly
USD/JPY - Hourly
USD/JPY – Hourly
NZD/USD - Daily
NZD/USD – Daily

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