July 8, 2013 Update

DJIA:15,136 S&P 500:1,632 NASDAQ:3,479 Gold:$1,229 Oil:$102.94 EURO:$1.29 YEN:101.1

Convexity by Chance

I believe that most successes in life are simply a result of strategic positioning. No matter how skilled you may be, if you find yourself in a payoff you believe to be convex is it likely you landed there as a result of good timing, and not because you had a superior skill set. Investors across the globe are investing around the Federal Reserve’s timing of the end of monthly buybacks. No one, except Bernanke, is certain exactly when tapering will begin and when interest rates will rise. No trader can truly be certain, yet many of us have constructed time frames based on market indicators that the Fed has hinted may trigger the end. I believe that the investor who lands in a convex payoff when the Fed winds down their asset purchases and raises interest rates will have found themselves in that position as a result of good timing and intuition, not because the person had special information or skills. The market is currently in the largest manipulation ever in the history of interest rates. A precedent for trading in this environment has yet to be set. As Talib said, convex payoffs depend on disorder and uncertainty; the more chaos, the bigger the chance of encountering convexity. Despite all the buzz and opinions, trading in this market is truly trail and error by chance. I think that the traders who succeed will be the most strategically positioned.  

Domestic News

• Market Update Futures trading higher as investor look forward to the start of Q2 earnings, with Alcoa announcing after the close. 
• Information on consumer credit will be released at 3pm, it is excepted to increase to around $13B in May from April’s $11.1B. 
• After almost two years of preparation, the US and Europe will officially begin talks on what would be the world’s largest free-trade agreement. If done correctly, it is believed that the agreement could boost regions’ economies by over $100B a year. The negotiations will focus on lowering and/or preventing regulatory barriers to trade.  

International Updates

Asia

• Market Update Markets traded down from uncertainty that Beijing will not ease its policies, despite slower growth.

Europe

• Market Update Markets rallied after Friday’s selloff, with banks driving the gains. 
• German exports fell at the sharpest rate since 2009 in May, dropping 2.4% vs. April’s -1.4%. The trade surplus fell 19.4% on month to €14.1B vs the forecast of €17.5B. The eurozone crisis and the slowdown in China are mostly responsible for the slide. 

Corporate

• Alcoa (AA) is expected to report earnings of $0.06 a share on an estimated revenue of $5.85B after today’s close. 
• The design of Boeing (BA) 777 seems to have helped prevent a greater loss of life and more major injuries when an Asiana jet crashed in San Francisco on Saturday. The plan’s flame-retardant cabin interior helped contained the fire. Investigators are looking into why the 777 approached the airport at a dangerously low speed, they are not focusing on mechanical failure. 

 Commodities & Forex 

• The dollar remained firm across the board. 
• Gold rose while oil prices fell.