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Risk Analysis Review: Warning about Coronavirus in Feb. 2020

by with No Comment AssetsBehavioral SentimentCentral Banks

Risk Analysis Review: Warning about Coronavirus in Feb. 2020

Below is a risk analysis note written in February of 2020 regarding the risks and potential implications of coronavirus as seen by Robert Petrucci on financial markets. The letter was sent to a senior associate who was a Chief Investment Officer for a firm. After speaking to the senior associate on the phone, feeling as if his thoughts were dismissed without heed and told he was too concerned about coronavirus, Mr. Petrucci sent the following to the CIO:

Thanks for asking about my thoughts.

What worries me is the opportunity for the virus to be a catalyst. The reactions in the E.U by government talking heads reminds me a lot of the financial crisis in 2007 when people publicly disregarded the potential domino effect which was becoming apparent. 

The Coronavirus imo is a potential domino which could take down the remainder of a fragile architecture. Meaning the ill-conceived philosophy and work of central banks in Asia and Europe have left them with little regarding ammunition should they need to fire an economic gun. If Europe and Asia buckle the US will be left limping too.

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Psychologically the markets appear vulnerable, but as you rightly point out the higher realms of the Indices have been waiting for a bit of a sell off for a long time and the selling underway may be more of a reaction and mere trigger which has been long overdue. 

However, I wonder about the ‘clever’ algorithms which have been developed and trade also due to human bias. What concerns me more than what is taking place in China is what is happening in Italy right now. 

Italian governments have a long political history of ineptitude and disregard of reality regarding numbers which are staring them in the face, particularly with budgets and a long tradition of corruption and its destructive force on transparency. If Italy continues to spike higher infection numbers and continue to escalate then I believe the E.U is in for trouble. The inaction of Italy and its reliance on the tourism business will make it hard for them to accept shutting down major airports and cities which enjoy the fruits of international visitors year round. 

Also, I must add and circling back to China that it is not known yet if another outbreak may suddenly appear in another zone if someone dealing with this asymmetrical virus is unaware of their affliction. 

Which brings me back to the springboard, worst case scenario I fear is a major outbreak in the E.U including Germany. If we see signs of spikes statistically across Europe the next two weeks it will be devastating economically for the next quarter financially. 

As you say, things will certainly bounce back, they always do, we must look at the long term. Investors need to keep a stiff upper lip and protect themselves as you have done in many regards with Indices, US ten year bonds and some gold. 

The question for me now is what happens the next ten business days across the U.S and Europe and how the world handles this virus. Worst case is pandemic and bad Central Bank formula, which have been in place the past twelve years with cheap money. The desire to keep everything steady may in fact lead to miscalculations which have not been planned for and cause reactions in the markets which cannot be checked this time around. I do not believe we are at a Black Swan point yet, but it does worry me that the E.U politicians and even some U.S politicians seem to have their head in the sand or look like deer stuck in the headlights.

Robert Petrucci 26 Feb 2020

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Telling Someone to Not Trade Works Like Reverse Psychology

by with No Comment AMT MarketsAssetsFeatured Highlights

Telling Someone to Not Trade Works Like Reverse Psychology

From the strange but true file, comes the realization after working within risk analysis for a long time that telling a speculator to avoid a particular market because I believe it is going to be volatile often has the opposite effect. Perhaps the best thing to do is to remain silent and allow inexperienced day traders to lose their money, convincing them to walk away from speculative endeavors forever. But I prefer to constantly teach and warn, while providing help for those who have made the firm decision they want to pursue the financial markets.

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It is rather well documented that 90% of retail traders lose their money. And as pointed out within AMT since our inception most brokerage institutions are counting on you to lose money. This because many platforms are letting you trade via CFD assets and virtual Forex wagering, meaning the brokers take the risks that you may actually make money and are willing to pay out your winning bet, because they know most of the time you are going to lose. If not today then tomorrow, because casinos always believe the gamblers will lose.

People ask why I refer to wagers and bets when I write about Forex, commodities and equity CFDs. The answer is because I feel the need to remind speculators constantly they are entering a domain that is akin to gambling. I have come to learn that I cannot stop inexperienced day traders from making costly mistakes by telling them not to trade. New retail speculators can be helped by providing them risk management via basic knowledge and expanding upon the theme. Angry Meta Traders intends to always make risk management and analysis of the markets its core foundation.

Yes, we also provide our insights about potential directions in particular assets constantly, and try to contribute our thoughts on the thinking of the large players within the marketplace. We would like AMT to become a membership pass into the temple for retail traders and the occasional institutional participant that reads our material. Temples are usually the domain for philosophies which have been gained through years of experience and contemplation about the human condition.

While it may sound absurd to discuss temples, experienced traders unless they have been merely lucky their entire careers, know the psychology of financial institutions is always important. Understanding the behavioral sentiment of large players and the quantitative engineering they use to make decisions is crucial. The keys to the inner workings of the financial temples is a metaphor, hopefully allowing day traders to feel like they have been given the ability to look inside and understand the decision making process of large institutions that can move the markets.

Angry Meta Traders is not always right, our analysis and predicted movements about assets are sometimes wrong. Yet, by stressing risk management via limited leverage, stop losses when appropriate (they almost always are), and telling traders to not be overly ambitious, we hope AMT delivers constant reinforcement and needed learning.

The noise of the market can be quite intense, false narratives, and misguided analysis are dangers all traders face, even the most experienced large players and financial institutions understand they will not always be correct. And this takes us back to the notion that trading for inexperienced people is not easy. But I know telling you not to trade works in the wrong way. So what I tell you now is to be patient, learn, gather wisdom as you trade and hopefully you will attain some of the tools needed to make your speculative life easier. Knowing that 90% of traders lose money, we hope that via our efforts to inform that we can put you within the small percentage of people who actually profit.

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Implications of a 48th President on the 20th January 2025

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Implications of a 48th President on the 20th January 2025

Presidential news and questions are moving fast, but the coming weeks and months may become a political nightmare if challenges are not handled pragmatically. Financial markets opened this morning with risk appetite reduced, as cautious trading swept through financial assets on the news President Joe Biden would not seek re-election in November of this year. Hyperbole is dangerous and noise can cause unwanted nervous reactions in financial markets when there are unknowns.

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Taking into account possible risk factors is important for mid and long-term outlooks. Financial institutions and traders should consider the potential of a rather dangerous political situation developing in the United States over the next few months. First off, will Kamala Harris now get the nomination from the Democrats to run for President in November? There are no certainties and Democratic power brokers may have other potential candidates in mind, which will create less clarity for investors.

Worse, what if there is a 48th President being sworn into office on the 20th of January 2025? Joe Biden, the 46th President, has in no uncertain terms publicly admitted he does not have the capacity to run for the Presidency in the coming U.S election. Does this also mean that he does not have the ability to run the nation until another President takes over following the November election and January inauguration? What would happen if the 25th Amendment of the U.S Constitution dealing with presidential succession and disability comes into force? If Biden is seen as unfit to rule now, he would have to be replaced and Vice President Harris would assume power.

What happens if Harris is forced to take control and becomes the 47th President of the United States before the U.S election is held or even afterwards? The 25th Amendment will become a talking point by political foes of President Biden, and maybe even by those who admire him. The question about Biden’s ability to make correct cognitive decisions between now and the inauguration in January is not a far fetched conspiratorial concern anymore.

How would financial markets react to Biden being replaced by Harris as President in the coming weeks or months? What would happen to U.S foreign policy? The U.S is not set up like Parliamentary political systems to have caretaker governments simply help guide a nation until a new government can be formed. The 25th Amendment and its use could be demanded in order to remove Joe Biden if he is currently unfit to serve, and this opens the door to chaotic U.S executive administration developments and decisions in the months ahead.

The fact that Biden has not been able to make a public announcement regarding his decision not to seek re-election, and will only speak to the U.S public later this week per his letter yesterday is troubling. Is Biden’s health so bad that he cannot perform the job of U.S President today? Section three of the 25th Amendment allows for the Vice President to be transferred power if the current President is unable to discharge their duties until fit again.

However, section four of the 25th Amendment allows the Vice President and cabinet to declare the current President incapable of performing their duties. The Vice President and the current President’s cabinet allows them to decide and issue a statement to the Senate and House leaders declaring the President is unable to govern and is unfit to voluntarily transfer power to the Vice President. Yes, there are timetables involved regarding the President’s capacity to be judged again and reconsidered for the resumption of power, but the U.S Constitution does open the door for a President to be removed permanently if they cannot perform their jobs by the President’s cabinet.

So again, what will happen over the coming weeks and months? Critics of Joe Biden will certainly claim he is not capable of governing and demand proof of his ability in the coming days. A growing chorus is likely to emerge expressing doubts about Biden’s ability to lead. Politics will be a factor in the potential game which will get loud. Republicans will certainly claim if Biden cannot run for President in November, that he likely cannot run the country until a new President is elected.

Politics have delivered a lot of noise this past weekend, but investors should expect the turmoil to grow in sound as people question the leadership of the U.S and ask for proof that Biden is in charge. The U.S elected Joe Biden to be President, not his appointed cabinet. If Biden is not able to prove he can do the job, there are legitimate reasons to consider a transfer of power to Kamala Harris.

At this juncture it appears the Republicans are in the drivers seat politically regarding the November elections. The Republicans may take control of the Senate, remain in charge of the House and attain the White House. Will Kamala Harris have to perform a caretaker government until the 20th of January 2025? Investors and day traders should keep these risk scenarios in mind.

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Risks: Short Term Market Chaos and Long Term Viewpoints

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Risks: Short Term Market Chaos and Long Term Viewpoints

Today I got the date wrong, I thought it was Friday the 9th of September, turns out that I caught the error and managed to hide some of the wrong usage. In another calendar gone wrong saga, a couple of years ago I believed there would be a 31st of April on a following day.

I couldn’t understand why my significant other was giving me an odd look when I asked her several times to confirm an event we were scheduled to attend that Sunday, which turned out to be the 1st of May. She thought I was playing a late April Fools’ Day joke, but no I simply did not know there wasn’t a 31st of April. I learned to accept I was wrong.

I don’t know everything. This summer has produced wicked results in Forex and the affects have been hard to swallow for many speculators. The strength of the USD has been steadfast in many cases. The upwards path of U.S Treasury yields have certainly shadowed the markets. The slight downhill slope of U.S stock indices this week has added some loud chatter, this as media pundits clamor for the next apocalypse to gain ratings.

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USD/INR Three Months Chart as of 8th Sept. 2023

I do not know what will happen today in the stock markets or next week. I also do not know what will happen at the G20 this weekend in India, except I will bet Joe Biden makes an error to two regarding context as he speaks. The broad financial markets are showing signs of nervousness certainly, but it is hard to time when there will be an optimistic turnaround or a bone crushing downturn, or if things will simply remain unclear over the mid-term.

Risk analysis is a bit like forecasting the weather, most of the time you can look up at the sky and and tell what the next 12 and hopefully 24 hours will bring. Within the trading world you can often tell by volumes and price velocity if a potential storm is building. I certainly do not want to be someone known as a scaremonger. I prefer to warn and remind traders to use entry points, stop losses, take profits, and to know how to navigate potential ill winds, while searching for smooth sailing.

The trend in the USD has been strong and while I tend to believe that a ‘downturn’ is due, the ability of the ‘greenback’ to continue adding value in Forex cannot be denied. The drop in value of the EUR and GBP the past month and a half is not only interesting, but creates the gut instinct that something is ‘not right’ in the markets. Yes, I can take a look at U.S Treasuries and try to correlate all results to the higher yields, and economic data, but it feels like something else is amiss. I see ‘oversold’ and ‘overbought’ signals aplenty, but the market prices are real, even if my sentiment tells me something is wrong, and until the markets reverse I have to remain cautious regarding my outlooks.

Short-term market outlook looks chaotic . Nervous results continue to filter into view. During these type of conditions I prefer to trust my long-term vision. One insight that has grown on me in the past year is that I am ‘long’ India. I believe the development and progress we are witnessing within India is important and that the nation will continue to make great strides if it remains stable and democratic. Understanding short-term conditions are rough and need to be dealt with carefully is crucial, and having a long-term plan to work towards provides a solid path to improve.