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25 Tools and Resources for Crypto Investors: Guide to how to create a winning strategy

Lots of people have PM'd me asking me the same questions on where to find information and how to put together their portfolio so I decided to put a guide for crypto investors, especially those who have only been in a few months and are still confused.
This is going to be Part 1 and will deal with research resources, risk and returns. In Part 2 I'll post a systematic approach to valuation and picking individual assets with derived price targets.

Getting started: Tools and resources

You don't have to be a programmer or techie to invest in crypto, but you should first learn the basics of how it functions. I find that this video by 3Blue1Brown is the best introduction to what a blockchain actually is and how it functions, because it explains it clearly and simply with visuals while not dumbing it down too much. If you want a more ELI5 version with cute cartoons, then Upfolio has a nice beginner's intro to the blockchain concept and quick descriptions of top 100 cryptocurrencies. I also recommend simply going to Wikipedia and reading the blockchain and cryptocurrency page and clicking onto a few links in, read about POS vs POW...etc. Later on you'll need this information to understand why a specific use case may or may not benefit from a blockchain structure. Here is a quick summary of the common terms you should know.
Next you should arm yourself with some informational resources. I compiled a convenient list of useful tools and sites that I've used and find to be worthy of bookmarking:
Market information
Analysis tools
Portfolio Tracking
Youtube
I generally don't follow much on Youtube because it's dominated by idiocy like Trevon James and CryptoNick, but there are some that I think are worthy of following:

Constructing a Investment Strategy

I can't stress enough how important it is to construct an actual investment strategy. Organize what your goals are, what your risk tolerance is and how you plan to construct a portfolio to achieve those goals rather than just chasing the flavor of the week.
Why? Because it will force you to slow down and make decisions based on rational thinking rather than emotion, and will also inevitably lead you to think long term.

Setting ROI targets

Bluntly put, a lot of young investors who are in crypto have really unrealistic expectations about returns and risk.
A lot of them have never invested in any other type of financial asset, and hence many seem to consider a 10% ROI in a month to be unexciting, even though that is roughly what they should be aiming for.
I see a ton of people now on this sub and on other sites making their decisions with the expectation to double their money every month. This has lead a worrying amount of newbies putting in way too much money way too quickly into anything on the front page of CoinMarketCap with a low dollar value per coin hoping that crypto get them out of their debt or a life of drudgery in a cubicle. And all in the next year or two!
But its important to temper your hype about returns and realize why we had this exponential growth in the last year. Its not because we are seeing any mass increase in adoption, if anything adoption among eCommerce sites is decreasing. The only reason we saw so much upward price action is because of fiat monetary base expansion from people FOMO-ing in due to media coverage of previous price action. People are hoping to ride the bubble and sell to a greater fool in a few months, it is classic Greater Fool Theory. That's it. We passed the $1,000 psychological marker again for Bitcoin which we hadn't seen since right before the Mt.Gox disaster, and it just snowballed the positivity as headline after headline came out about the price growth. However those unexciting returns of 10% a month are not only the norm, but much more healthy for an alternative investment class. Here are the annual returns for Bitcoin for the last few years:
Year BTC Return
2017 1,300%
2016 120%
2015 35%
2014 -60%
2013 5300%
2012 150 %
Keep in mind that a 10% monthly increase when compounded equals a 313% annual return, or over 3x your money. That may not sound exciting to those who entered recently and saw their money go 20x in a month on something like Tron before it crashed back down, but that 3X annual return is better than Bitcoin's return every year except the year right before the last market meltdown and 2017. I have been saying for a while now that we are due for a major correction and every investor now should be planning for that possibility through proper allocation and setting return expectations that are reasonable.

Risk Management

Quanitifying risk in crypto is surprisingly difficult because the historical returns aren't normally distributed, meaning that tools like Sharpe Ratio and other risk metrics can't really be used as intended. Instead you'll have to think of your own risk tolerance and qualitatively evaluate how risky each crypto is based on the team, the use case prospects, the amount of competition and the general market risk.
You can think of each crypto having a risk factor that is the summation of the general crypto market risk (Rm) as ultimately everything is tied to how Bitcoin does, but also its own inherent risk specific to its own goals (Ri).
Rt = Rm +Ri
The market risk is something you cannot avoid, if some China FUD comes out about regulations on Bitcoin then your investment in solid altcoin picks will go down too along with Bitcoin. This (Rm) return is essentially what risk you undertake to have a market ROI of 385% I talked about above. What you can minimize though is the Ri, the aset specific risks with the team, the likelihood they will actually deliver, the likelihood that their solution will be adopted. Unfortunately there is no one way to do this, you simply have to take the time to research and form your own opinion on how risky it really is before allocating a certain percentage to it. Consider the individual risk of each crypto and start looking for red flags:
  • guaranteed promises of large returns (protip: that's a Ponzi)
  • float allocations that give way too much to the founder
  • vague whitepapers
  • vague timelines
  • no clear use case
  • Github with no useful code and sparse activity
  • a team that is difficult to find information on or even worse anonymous
While all cryptocurrencies are a risky investments but generally you can break down cryptos into "low" risk core, medium risk speculative and high risk speculative
  • Low Risk Core - This is the exchange pairing cryptos and those that are well established. These are almost sure to be around in 5 years, and will recover after any bear market. Bitcoin, Litecoin and Ethereum are in this class of risk, and I would also argue Monero.
  • Medium Risk Speculative - These would be cryptos which generally have at least some product and are reasonably established, but higher risk than Core. Things like ZCash, Ripple, NEO..etc.
  • High Risk Speculative - This is anything created within the last few months, low caps, shillcoins, ICOs...etc. Most cryptos are in this category, most of them will be essentially worthless in 5 years.
How much risk should you take on? That depends on your own life situation but also it should be proportional to how much expertise you have in both financial analysis and technology. If you're a newbie who doesn't understand the tech and has no idea how to value assets, your risk tolerance should be lower than a programmer who understand the tech or a financial analyst who is experienced in valuation metrics.
Right now the trio of BTC-ETH-LTC account for 55% of the market cap, so between 50-70% of your portfolio in low Risk Core for newbies is a great starting point. Then you can go down to 25-30% as you gain confidence and experience. But always try to keep about 1/3rd in safe core positions. Don't go all in on speculative picks.
Core principles to minimize risk
  • Have the majority of your holdings in things you feel good holding for at least 2 years. Don't use the majority of your investment for day trading or short term investing.
  • Consider using dollar cost averaging to enter a position. This generally means investing a X amount over several periods, instead of at once. You can also use downward biased dollar cost averaging to mitigate against downward risk. For example instead of investing $1000 at once in a position at market price, you can buy $500 at the market price today then set several limit orders at slightly lower intervals (for example $250 at 5% lower than market price, $250 at 10% lower than market price). This way your average cost of acquisition will be lower if the crypto happens to decline over the short term.
  • Never chase a pump. Its simply too risky as its such an inefficient and unregulated market. If you continue to do it, most of your money losing decisions will be because you emotionally FOMO-ed into gambling on a symbol.
  • Invest what you can afford to lose. Don't have more than 5-10% of your net worth in crypto.
  • Consider what level of loss you can't accept in a position with a high risk factor, and use stop-limit orders to hedge against sudden crashes. Set you stop price at about 5-10% above your lowest limit. Stop-limit orders aren't perfect but they're better than having no hedging strategy for a risky microcap in case of some meltdown. Only you can determine what bags you are unwilling to hold.
  • Diversify across sectors and rebalance your allocations periodically. Keep about 1/3rd in low risk core holdings.
  • Have some fiat in reserve at a FDIC-insured exchange (ex. Gemini), and be ready to add to your winning positions on a pullback.
  • Remember you didn't actually make any money until you take some profits, so take do some profits when everyone else is at peak FOMO-ing bubble mode. You will also sleep much more comfortably once you take out the equivalent of your principal.

Portfolio Allocation

Along with thinking about your portfolio in terms of risk categories described above, I really find it helpful to think about the segments you are in. OnChainFX has some segment categorization to think about:
  • Currency
  • General Purpose Platform
  • Advertising
  • Crowdfunding Platform
  • Lending Platform
  • Privacy
  • Distributed Computing/Storage
  • Prediction Markets
  • IOT (Internet of Things)
  • Asset Management
  • Content Creation
  • Exchange Platform
I generally like to simplify these down to these 7 segments:
  • Core holdings - essentially the Low Risk Core segment
  • Platform segment
  • Privacy segment
  • Finance/Bank settlement segment
  • Enterprise Blockchain solutions segment
  • Promising/Innovative Tech segment
This is merely what I use, but I'm sure you can think of your own. The key point I have is to try to invest your medium and high risk picks in a segment you understand well, and in which you can relatively accurately judge risk. If you don't understand anything about how banking works or SWIFT or international settlement layers, don't invest in Stellar. If you have no idea how a supply chain functions, avoid investing in VeChain (even if it's being shilled to death on Reddit at the moment just like XRB was last month). Buffet calls this "circle of competence", he invests in sectors he understands and avoids those he doesn't like tech. I think doing the same thing in crypto is a wise move.
What's interesting is that often we see like-coin movement, for example when a coin from one segment pumps we will frequently see another similar coin in the same segment go up (think Stellar following after Ripple).
Consider the historic correlations between your holdings. Generally when Bitcoin pumps, altcoins dump but at what rate depends on the coin. When Bitcoin goes sideways we tend to see pumping in altcoins, while when Bitcoin goes down, everything goes down.
You should set price targets for each of your holdings, which is a whole separate discussion I'll go in Part 2 of the guide.

Summing it up

This was meant to get you think about what return targets you should set for your portfolio and how much risk you are willing to take and what strategies you can follow to mitigate that risk.
Returns around 385% (average crypto market CAGR over the last 3 years) would be a good target to aim for while remaining realistic, you can tweak it a bit based on your own risk tolerance. What category of risk your individual crypto picks should be will be determined by how much more greed you have for above average market return. A portfolio of 50% core holdings, 30% medium risk in a sector you understand well and 20% in high risk speculative is probably what the average portfolio should look like, with newbies going more towards 70% core and only 5% high risk speculative.
Just by thinking about these things you'll likely do better than most crypto investors, because most don't think about this stuff, to their own detriment.
submitted by arsonbunny to CryptoCurrency [link] [comments]

Crypto Investing Guide: Useful resources and tools, and how to create an investment strategy

Lots of people have PM'd me asking me the same questions on where to find information and how to put together their portfolio so I decided to put a guide for crypto investors, especially those who have only been in a few months and are still confused.
Many people entered recently at a time when the market was rewarding the very worst type of investment behavior. Unfortunately there aren't many guides and a lot of people end up looking at things like Twitter or the trending Youtube crypto videos, which is dominated by "How to make $1,00,000 by daytrading crypto" and influencers like CryptoNick.
So I'll try to put together a guide from what I've learned and some tips, on how to invest in this asset class. This is going to be Part 1, in another post later I'll post a systematic approach to valuation and picking individual assets.

Getting started: Tools and resources

You don't have to be a programmer or techie to invest in crypto, but you should first learn the basics of how it functions. I find that this video by 3Blue1Brown is the best introduction to what a blockchain actually is and how it functions, because it explains it clearly and simply with visuals while not dumbing it down too much. If you want a more ELI5 version with cute cartoons, then Upfolio has a nice beginner's intro to the blockchain concept and quick descriptions of top 100 cryptocurrencies. I also recommend simply going to Wikipedia and reading the blockchain and cryptocurrency page and clicking onto a few links in, read about POS vs POW...etc. Later on you'll need this information to understand why a specific use case may or may not benefit from a blockchain structure. Here is a quick summary of the common terms you should know.
Next you should arm yourself with some informational resources. I compiled a convenient list of useful tools and sites that I've used and find to be worthy of bookmarking:
Market information
Analysis tools
Portfolio Tracking
Youtube
I generally don't follow much on Youtube because it's dominated by idiocy like Trevon James and CryptoNick, but there are some that I think are worthy of following:

Constructing a Investment Strategy

I can't stress enough how important it is to construct an actual investment strategy. Organize what your goals are, what your risk tolerance is and how you plan to construct a portfolio to achieve those goals rather than just chasing the flavor of the week.
Why? Because it will force you to slow down and make decisions based on rational thinking rather than emotion, and will also inevitably lead you to think long term.

Setting ROI targets

Bluntly put, a lot of young investors who are in crypto have really unrealistic expectations about returns and risk.
A lot of them have never invested in any other type of financial asset, and hence many seem to consider a 10% ROI in a month to be unexciting, even though that is roughly what they should be aiming for.
I see a ton of people now on this sub and on other sites making their decisions with the expectation to double their money every month. This has lead a worrying amount of newbies putting in way too much money way too quickly into anything on the front page of CoinMarketCap with a low dollar value per coin hoping that crypto get them out of their debt or a life of drudgery in a cubicle. And all in the next year or two!
But its important to temper your hype about returns and realize why we had this exponential growth in the last year. The only reason we saw so much upward price action is because of fiat monetary base expansion from people FOMO-ing in due to media coverage. People are hoping to ride the bubble and sell to a greater fool in a few months, it is classic Greater Fool Theory. That's it. Its not because we are seeing any mass increase in adoption or actual widespread utility with cryptocurrency. We passed the $1,000 psychological marker again for Bitcoin which we hadn't seen since right before the Mt.Gox disaster, and it just snowballed the positivity as headline after headline came out about the price growth. However those unexciting returns of 10% a month are not only the norm, but much more healthy for an alternative investment class. Here are the annual returns for Bitcoin for the last few years:
Year BTC Return
2017 1,300%
2016 120%
2015 35%
2014 -60%
2013 5300%
2012 150 %
Keep in mind that a 10% monthly increase when compounded equals a 313% annual return, or over 3x your money. That may not sound exciting to those who entered recently and saw their money go 20x in a month on something like Tron before it crashed back down, but that 3X annual return is better than Bitcoin's return every year except the year right before the last market meltdown and 2017. I have been saying for a while now that we are due for a major correction and every investor now should be planning for that possibility through proper allocation and setting return expectations that are reasonable.
How to set a realistic ROI target
How do I set my own personal return target?
Basically I aim to achieve a portfolio return of roughly 385% annually (3.85X increase per year) or about 11.89% monthly return when compounded. How did I come up with that target? I base it on the average compounded annual growth return (CAGR) over the last 3 years on the entire market:
Year Total Crypto Market Cap
Jan 1, 2014: $10.73 billion
Jan 1, 2017: $615 billion
Compounded annual growth return (CAGR): (615/10.73)1/3 = 385%
My personal strategy is to sell my portfolio every December then buy back into the market at around the beginning of February and I intend to hold on average for 3 years, so this works for me but you may choose to do it a different way for your own reasons. I think this is a good average to aim for as a general guideline because it includes both the good years (2017) and the bad (2014). Once you have a target you can construct your risk profile (low risk vs. high risk category coins) in your portfolio. If you want to try for a higher CAGR than about 385% then you will likely need to go into more highly speculative picks. I can't tell you what return target you should set for yourself, but just make sure its not depended on you needing to achieve continual near vertical parabolic price action in small cap shillcoins because that isn't sustainable.
As the recent January dip showed while the core cryptos like Bitcoin and Ethereum would dip an X percentage, the altcoins would often drop double or triple that amount. Its a very fragile market, and the type of dumb behavior that people were engaging in that was profitable in a bull market (chasing pumps, going all in on a microcap shillcoin, having an attention span of a squirrel...etc) will lead to consequences. Just like they jumped on the crypto bandwagon without thinking about risk adjusted returns, they will just as quickly jump on whatever bandwagon will be used to blame for the deflation of the bubble, whether the blame is assigned to Wall Steet and Bitcoin futures or Asians or some government.
Nobody who pumped money into garbage without any use case or utility will accept that they themselves and their own unreasonable expectations for returns were the reason for the gross mispricing of most cryptocurrencies.

Risk Management

Quanitifying risk in crypto is surprisingly difficult because the historical returns aren't normally distributed, meaning that tools like Sharpe Ratio and other risk metrics can't really be used as intended. Instead you'll have to think of your own risk tolerance and qualitatively evaluate how risky each crypto is based on the team, the use case prospects, the amount of competition and the general market risk.
You can think of each crypto having a risk factor that is the summation of the general crypto market risk (Rm) as ultimately everything is tied to how Bitcoin does, but also its own inherent risk specific to its own goals (Ri).
Rt = Rm +Ri
The market risk is something you cannot avoid, if some China FUD comes out about regulations on Bitcoin then your investment in solid altcoin picks will go down too along with Bitcoin. This (Rm) return is essentially what risk you undertake to have a market ROI of 385% I talked about above. What you can minimize though is the Ri, the aset specific risks with the team, the likelihood they will actually deliver, the likelihood that their solution will be adopted. Unfortunately there is no one way to do this, you simply have to take the time to research and form your own opinion on how risky it really is before allocating a certain percentage to it. Consider the individual risk of each crypto and start looking for red flags:
  • guaranteed promises of large returns (protip: that's a Ponzi)
  • float allocations that give way too much to the founder
  • vague whitepapers
  • vague timelines
  • no clear use case
  • Github with no useful code and sparse activity
  • a team that is difficult to find information on or even worse anonymous
While all cryptocurrencies are a risky investments but generally you can break down cryptos into "low" risk core, medium risk speculative and high risk speculative
  • Low Risk Core - This is the exchange pairing cryptos and those that are well established. These are almost sure to be around in 5 years, and will recover after any bear market. Bitcoin, Litecoin and Ethereum are in this class of risk, and I would also argue Monero.
  • Medium Risk Speculative - These would be cryptos which generally have at least some product and are reasonably established, but higher risk than Core. Things like ZCash, Ripple, NEO..etc.
  • High Risk Speculative - This is anything created within the last few months, low caps, shillcoins, ICOs...etc. Most cryptos are in this category, most of them will be essentially worthless in 5 years.
How much risk should you take on? That depends on your own life situation but also it should be proportional to how much expertise you have in both financial analysis and technology. If you're a newbie who doesn't understand the tech and has no idea how to value assets, your risk tolerance should be lower than a programmer who understand the tech or a financial analyst who is experienced in valuation metrics.
Right now the trio of BTC-ETH-LTC account for 55% of the market cap, so between 50-70% of your portfolio in low Risk Core for newbies is a great starting point. Then you can go down to 25-30% as you gain confidence and experience. But always try to keep about 1/3rd in safe core positions. Don't go all in on speculative picks.
Core principles to minimize risk
  • Have the majority of your holdings in things you feel good holding for at least 2 years. Don't use the majority of your investment for day trading or short term investing.
  • Consider using dollar cost averaging to enter a position. This generally means investing a X amount over several periods, instead of at once. You can also use downward biased dollar cost averaging to mitigate against downward risk. For example instead of investing $1000 at once in a position at market price, you can buy $500 at the market price today then set several limit orders at slightly lower intervals (for example $250 at 5% lower than market price, $250 at 10% lower than market price). This way your average cost of acquisition will be lower if the crypto happens to decline over the short term.
  • Never chase a pump. Its simply too risky as its such an inefficient and unregulated market. If you continue to do it, most of your money losing decisions will be because you emotionally FOMO-ed into gambling on a symbol.
  • Invest what you can afford to lose. Don't have more than 5-10% of your net worth in crypto.
  • Consider what level of loss you can't accept in a position with a high risk factor, and use stop-limit orders to hedge against sudden crashes. Set you stop price at about 5-10% above your lowest limit. Stop-limit orders aren't perfect but they're better than having no hedging strategy for a risky microcap in case of some meltdown. Only you can determine what bags you are unwilling to hold.
  • Diversify across sectors and rebalance your allocations periodically. Keep about 1/3rd in low risk core holdings.
  • Have some fiat in reserve at a FDIC-insured exchange (ex. Gemini), and be ready to add to your winning positions on a pullback.
  • Remember you didn't actually make any money until you take some profits, so take do some profits when everyone else is at peak FOMO-ing bubble mode. You will also sleep much more comfortably once you take out the equivalent of your principal.

Portfolio Allocation

Along with thinking about your portfolio in terms of risk categories described above, I really find it helpful to think about the segments you are in. OnChainFX has some segment categorization but I generally like to bring it down to:
  • Core holdings - essentially the Low Risk Core segment
  • Platform segment
  • Privacy segment
  • Finance/Bank settlement segment
  • Enterprise Blockchain solutions segment
  • Promising/Innovative Tech segment
This is merely what I use, but I'm sure you can think of your own. The key point I have is to try to invest your medium and high risk picks in a segment you understand well, and in which you can relatively accurately judge risk. If you don't understand anything about how banking works or SWIFT or international settlement layers, don't invest in Stellar. If you have no idea how a supply chain functions, avoid investing in VeChain (even if it's being shilled to death on Reddit at the moment just like XRB was last month).
What's interesting is that often we see like-coin movement, for example when a coin from one segment pumps we will frequently see another similar coin in the same segment go up (think Stellar following after Ripple).
Consider the historic correlations between your holdings. Generally when Bitcoin pumps, altcoins dump but at what rate depends on the coin. When Bitcoin goes sideways we tend to see pumping in altcoins, while when Bitcoin goes down, everything goes down.
You should set price targets for each of your holdings, which is a whole separate discussion I'll go in Part 2 of the guide.

Summing it up

This was meant to get you think about what return targets you should set for your portfolio and how much risk you are willing to take and what strategies you can follow to mitigate that risk.
Returns around 385% (average crypto market CAGR over the last 3 years) would be a good target to aim for while remaining realistic, you can tweak it a bit based on your own risk tolerance. What category of risk your individual crypto picks should be will be determined by how much more greed you have for above average market return. A portfolio of 50% core holdings, 30% medium risk in a sector you understand well and 20% in high risk speculative is probably what the average portfolio should look like, with newbies going more towards 70% core and only 5% high risk speculative.
Just by thinking about these things you'll likely do better than most crypto investors, because most don't think about this stuff, to their own detriment.
submitted by arsonbunny to CryptoMarkets [link] [comments]

"A Sea Of Red": Global Stocks Plunge With Tech Shares In Freefall

While there was some nuance in yesterday's pre-open trading, with Asia at least putting up a valiant defense to what would soon become another US rout, this morning the market theme is far simpler: a global sea of red.

Stocks fell across the globe as worries over softening demand for the iPhone prompted a tech stock selloff across the world, while the arrest of car boss Carlos Ghosn pulled Nissan and Renault sharply lower. Even China's recent rally fizzled and the Shanghai composite closed down 2.1% near session lows, signalling that the global slump led by tech shares would deepen Tuesday, adding a new layer of pessimism to markets already anxious over trade. Treasuries advanced and the dollar edged higher.
S&P 500 futures traded near session lows, down 0.6% and tracking a fall in European and Asian shares after renewed weakness in the tech sector pushed Nasdaq futures sharply lower for a second day after Monday's 3% plunge and crippled any hopes for dip buying. News around Apple triggered the latest bout of stock market selling, after the Wall Street Journal reported the consumer tech giant is cutting production for its new iPhones.
Europe's Stoxx 600 Index dropped a fifth day as its technology sector fell 1.3% to the lowest level since February 2017, taking the decline from mid-June peak to 21% and entering a bear market. Not surprisingly, the tech sector was the worst performer on the European benchmark on Tuesday, following Apple’s decline to near bear-market territory and U.S. tech stocks plunge during recent sell-off. The selloff was compounded by an auto sector drop led by Nissan and Renault after Ghosn, chairman of both carmakers, was arrested in Japan for alleged financial misconduct. The European auto sector was not far behind, dropping 1.6 percent, and the broad European STOXX 600 index was down 0.9 percent to a four-week low.
“Most of Europe had a red session yesterday and that has been compounded by the news on Apple and tech stocks overnight, The overall climate is risk off,” said Investec economist Philip Shaw. “Beyond stocks, the Italian bonds spread (over German bonds) is at its widest in about a month now, and Brexit continues to rumble on - uncertainty is very much hurting risk sentiment,” he added.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 percent, with Samsung Electronics falling 2 percent. In Japan, Sony Corp shed 3.1 percent. Japan’s Nikkei slipped 1.1 percent, with shares of Nissan Motor Co tumbling more than 5% after Ghosn’s arrest and on news he will be fired from the board this week.
Meanwhile, as noted yesterday, the CDS index of US investment grade issuers blew out to the widest level since the Trump election, signaling renewed nerves about the asset class.

Exactly two months after the S&P hit all time highs, stocks have been caught in a vicious decline and continue to struggle for support as some of the technology companies that helped drive the S&P 500 to a record high earlier this year tumbled amid a slowdown in consumer sales and fears over regulation, many of them entering a bear market.
At the same time, a more gloomy macro outlook is emerging, with Goldman chief equity strategist David kostin overnight recommending investors hold more cash even as it reiterated its base case of S&P 3000 in 2019.

Ray Dalio disagreed, and said that investors should expect low returns for a long time after enjoying years of low interest rates from central-bank stimulus.
“The easy days of long, global bull markets where you can invest in a tracker for five basis points -- I say this as an active fund manager -- and watch the thing go up, I think those days are gone,” Gerry Grimstone, chairman of Barclays Bank PLC and Standard Life Aberdeen PLC, said in an interview on Bloomberg Television. “It’s going to be a move back to value investing, and back to the Warren Buffett-style of investment.”
In the latest Brexit news, UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers, while reports added PM May has received agreement from the EU to drop the backstop plan if both sides can agree on alternative arrangements to keep the border open. Meanwhile, Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May, the FT reported. In related news, Brexit rebels reportedly admitted attempts to oust PM May has stalled as Eurosceptic MPs turned on each other. The Telegraph also reported that the confidence vote now appears to be on hold until after Parliament votes in December on Mrs May's Brexit deal.
Sky News reported that the UK government are to publish new analysis before the MPs’ meaningful vote on the Withdrawal Agreement comparing the “costs and benefits” of Brexit. The impact of three scenarios will be measured; no Brexit, no deal, and leaving with the government's draft deal and a free trade agreement.
In rates, Treasuries rose, driving the 10-year yield down to its lowest level since late September, ahead of Thanksgiving Thursday. Italian government bond yields jumped to one-month high on Tuesday and Italian banking stocks dropped to a two-year low, hurt by risk aversion and concerns over the Italian budget. Euro zone money markets no longer fully price in even a 10 bps rate rise from the European Central Bank in 2019, indicating growing investor concern about the economic outlook in the currency bloc.
In FX, the Bloomberg Dollar Spot Index whipsawed in early London trading even as it stayed near a more than one-week low on concern cooling global growth will slow the pace of Fed rate hikes, keeping Treasury yields under pressure. At the same time, the pound stabilized as Theresa May appealed to business leaders to help deliver her Brexit deal, and evidence mounted that a plot to oust her as U.K. Prime Minister is faltering.
The euro slid as Italian bonds dropped, pushing the yield spread to Germany to the widest in a month; the currency had opened the London session higher, supported by corporate buying in EUGBP. The yen rallied to a month-to-date high as Asian stocks followed a U.S. equity slide while the New Zealand dollar got a boost from a jump in milk production; the Aussie was on the back foot even after the RBA said Australia’s unemployment rate could fall further in the near term. India’s rupee rallied a sixth day after the central bank signaled a compromise with the government in their dispute over reserves.
Bitcoin extended its drop below $4,500 for the first time since October 2017.
WTI crude oil futures hovered around $57 a barrel after oil prices lost steam as fears about slower global demand and a surge in U.S. production outweighed expected supply cuts by the Organization of the Petroleum Exporting Countries. Brent crude slipped 0.9 percent to $66.21 per barrel.
In other overnight news, BoJ Governor Kuroda said there is currently no need to ease further, while he added that there was a need for bold monetary policy in 2013 and now we need to persistently continue with policy. Furthermore, Kuroda suggested that the chance of reaching the 2% inflation target during FY2020 is low. Japanese PM Abe says the next initial budget is to have measures to address sales tax.
India's Finance Ministry sources expect that the RBI will stand pat on rates at its meeting next month.
RBA Governor Lowe states that steady policy is to be maintained for 'a while yet' and it is likely that rates will increase at some point if the economy progresses as expected.
Expected data include housing starts and building permits. Best Buy, Campbell Soup, Lowe’s, Medtronic, Target, TJX, and Gap are among companies reporting earnings.
Market Snapshot
Top Overnight News
Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off as Apple shares dropped nearly 4% on reports it had reduced production orders and with all FAANG stocks now in bear market territory. As such, the tech sector underperformed in the ASX 200 (-0.4%) and Nikkei 225 (-1.1%) was also pressured with Mitsubishi Motors and Nissan among the worst hit after their Chairman Ghosn was arrested on financial misconduct allegations. Shanghai Comp. (-2.1%) and Hang Seng (-2.0%) were heavily pressured after the PBoC continued to snub liquidity operations and as China’s blue-chip tech names conformed to the global rout in the sector, while JD.com earnings added to the glum as China’s 2nd largest e-commerce firm posted its weakest revenue growth since turning public. Finally, 10yr JGBs were weaker amid profit taking after futures recently hit their highest in around a year and following mixed results at today’s 20yr auction.
Top Asian News - BlackRock Doesn’t Expect Significant Growth Slowdown in China - China Stocks Lead Global Losses as Tech Rout Hits Fragile Market - Stock Traders in Asia Keep Finding New Reasons to Hit ’Sell’ - World’s Largest Ikea to Open in Manila as Company Bets on Asia
Major European indices are largely in the red, with the SMI outperforming (+0.1%) which is being bolstered by Novartis (+1.0%) following their announcement of a joint digital treatment with Pear Therapeutics for substance abuse disorder. The DAX (-0.7%) is lagging its peers, weighed on by Wirecard (-5.0%) following a disappointing change to guidance forecasting as well as weak sentiment across IT names after the FAANG stocks entered bear market territory on Wall St. In particular, the Stoxx 600 Technology sector (-1.9%), dropped to its lowest level since Feb 2017. Meanwhile, Deutsche Bank (-2.5%) are in the red due to reports that the Co processed payments for Danske Bank in Estonia.
Top European News
In FX, the DXY index remains technically prone to further downside pressure having closed below another Fib support level yesterday and testing the next bearish chart area around 96.050-10 ahead of 96.000 even. However, a more concerted bout of risk-off trade/positioning saved the DXY and broad Dollar from steeper declines as the tech-induced sell-off in stocks intensified, and jitters over Brexit alongside the Italian budget returned to the fore.
NZD/AUD - The Kiwi is bucking the overall trend and outperforming in contrast to this time on Monday, with Nzd/Usd rebounding firmly to 0.6850+ levels and Aud/Nzd retreating through 1.0650 to just south of 1.0600 following overnight data showing a hefty 6.5% y/y rise in NZ milk collections for October. Conversely, the Aud/Usd has slipped back under 0.7300 again, and close to 0.7250 in wake of RBA minutes underscoring no rush to hike rates and subsequent affirmation of wait-and-see guidance from Governor Lowe. In fact, he asserts that the jobless rate could decline to 4.5% vs 5% at present without inducing wage inflation, while also underlining concerns about the supply of credit.
JPY/CHF - Both benefiting from their more intrinsic allure during periods of pronounced risk aversion and investor angst, as Usd/Jpy probes a bit deeper below 112.50 and a key Fib at 112.46 that could be pivotal on a closing basis with potential to expose daily chart support circa 112.16 ahead of 112.00. Meanwhile, the Franc has inched closer to 0.9900 and over 1.1350 vs the Eur that remains burdened with the aforementioned Italian fiscal concerns.
GBP/EUR - Almost a case of déjà vu for Sterling and the single currency as early attempts to the upside vs the Greenback saw Cable and EuUsd revisit recent peaks around 1.2880 and 1.1470 respectively, but a combination of chart resistance and bearish fundamentals forced both back down to circa 1.2825 and 1.1425. In terms of precise technical/psychological levels, 1.2897 and 1.1445 represent Fib retracements, ahead of 1.2900 and 1.1500, while the Pound has remained relatively unchanged and unresponsive to largely on the fence pending Brexit rhetoric from the BoE in testimony to the TSC on November’s QIR.
In commodities, gold has stayed within a USD 5/oz range and traded relatively flat throughout the session moving with the steady dollar ahead of US Thanksgiving. Similarly, copper traded lacklustre breaking a 5-day rally because of a subdued risk sentiment stemming from ongoing US-China trade tensions; with Shanghai rebar adversely affected from these factors. Brent (-0.1%) and WTI (+0.2%) are following a relatively quiet overnight session, while recent upticks in the complex resulted in WTI reclaiming the USD 57/bbl and Brent edging closer to USD 67/bbl. This follows comments from IEA Chief Birol that Iranian oil exports declined by almost 1mln BPD from summer peaks. Looking ahead, traders will be keeping the weekly API crude inventory data which is expected to print a build of 8.79mln barrels.
On today's light data calendar, in the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.
US Event Calendar
DB's Jim Reid concludes the overnight wrap
With the sell-off of the last 24 hours we have now traded through the last of our YE 2018 top level credit spread forecasts as US HY widened 6bps to +424bps (YE 2018 forecast was 420). We still think US HY is the most expensive part of the EUR & US credit universe but as discussed above, last night we’ve become more optimistic on all credit in the near-term after what has been the worst week of the year. Credit massively under-performed equities last week but equities caught up on the downside yesterday. The sell-off was underpinned by the FANG names selling off, an accounting scandal emerging at Nissan, oil swinging around and the US housing market spooked by weak data.
Just on the market moves first, the NASDAQ and NYFANG indexes slumped -3.03% and -4.28% yesterday, registering their fourth and third worst days of the year, respectively. Facebook and Apple fell -5.72% and -3.96% respectively, as the sector remains pressured amid a slew of negative PR and the spectre of stricter government regulation. Over the weekend, Apple CEO Tim Cook said in an interview that “the free market is not working” and that new regulation is “inevitable”. This negatively impacted highly-valued social media companies. Twitter and Snapchat traded down -5.02% and -6.78% respectively. The tech sector was further pressured after the WSJ reported that Apple had cut production orders in recent weeks for the new model iPhones, with chipmakers broadly trading lower and Philadelphia semiconductor index shedding -3.86%. The S&P 500 and DOW also slumped -1.66% and -1.56% respectively while in Europe the STOXX 600 turned an early gain of +0.71% into a loss of -0.73%. In credit, cash markets were 2bps and 11bps wider for Euro IG and HY and 2bps and 6bps in the US. CDX IG and HY were, however, 3bps and 11bps wider, respectively. Elsewhere, WTI oil first tested breaking through $55/bbl yesterday, after Russia stopped short of committing to supply cuts, before recovering to close +0.52% at $56.76.
Bond markets were relatively quiet, with Treasuries and Bunds ending -0.4bps and +0.6bps, respectively, albeit masking bigger intraday moves. BTP yields rose +10.6bps to 3.597%, within 10 basis points of their recent closing peak, as rhetoric between Italian officials and their European peers continued to intensify. Finance Ministers from Austria and the Netherlands separately spoke publicly about their concerns, and expressed their hope that the European Commission will loyally enforce the fiscal rules. Italian Finance Minister Tria tried to calm conditions by framing the disagreement as relatively minor, though he also accused the Commission of being biased against expansionary policies, which he argued are needed to avert a macro slowdown.
Back to credit, as we highlighted yesterday, the recent weakness in the asset class has become a talking point for broader markets and while our view is now that value is starting to emerge, there are an increasing number of idiosyncratic stories plaguing the market. There were a couple more examples yesterday with the aforementioned story about Nissan removing its chairman after being arrested for violations of financial law. This caused Renault’s CDS to widen +25.0bps (equity down -8.43%), while Vallourec bonds dropped 15pts after falling 11pts on Friday as concerns mount about the company’s rising leverage in the wake of recent results. Like we’ve see in equity markets, it does feel like credits are now getting punished with sharp moves in the wake of negative headlines Certainly something to watch, but as we said above, credit is now much more attractively priced than it has been for some time.
From steel tubing to Downing Street, where we’ve actually had a rare temporary lull for Brexit headlines over the last 24 hours, although behind the scenes it does look we’re getting closer to the threshold for a confidence vote in PM May with the Times yesterday reporting that “senior Brexiteers” had told reporters that they had “firm pledges” from over 50 MPs to submit letters. As a reminder, 48 are needed to trigger the process. Looking further out, yesterday DB’s Oliver Harvey published a report arguing that there is still a path towards an orderly Brexit based on the existing Withdrawal Agreement should May survive a confidence vote. This path is provided by the political declaration on the future economic relationship. The latter has yet to be negotiated, and as the EU27 and UK recognise in the joint statement, the existing temporary customs arrangement (TCA) already provides a basis for a future economic relationship. Oli argues that the UK should push for the political declaration on the future relationship to explicitly commit the UK to a form of Brexit that might be described as “Norway plus.” The temporary customs arrangement would become permanent, but under the governance framework of UK membership of the EEA and EFT. The UK should tie the political declaration on the future relationship to the good faith clause in the existing Withdrawal Agreement, meaning that if negotiations were not pursued on these lines after the transition period had begun, the UK could withhold payments from the EU27. This would help to allay concerns from across the political divide that the UK would be “trapped” in a sub optimal customs union with the EU27.
Meanwhile, to complicate matters, Bloomberg has reported that the EU is mulling over issuing a series of separate statements on Brexit on Sunday, in addition to the Withdrawal Agreement and the Political Declaration. This comes after pressure from some EU countries not to appease any additional UK demands. Elsewhere, the SUN has reported that the PM May has drawn up a secret plan to scrap the Irish backstop arrangement in an attempt to win over angry Tory Brexiteers after a meeting with them yesterday. However, if a mutually agreeable solution couldn’t be found over the last couple of years, it seems tough to imagine one was finally found yesterday afternoon. We’ll see.
Further adding to the complexity of where Brexit heads, last night the DUP abstained on the UK finance bill, which implements the budget. This stops short of their prior threat to actively vote against the legislation, but is still a surprise and signals that further political turbulence between PM May and the DUP is likely. The bill only just scraped through. Sterling finished +0.14% yesterday and this morning is trading flattish (+0.02%) in early trade.
Sentiment more broadly in Asia is following Wall Street’s lead with almost all markets trading in a sea of red. The Nikkei (-1.25%, with Nissan Motors down as much as -5.41% and Mitsubishi Motors -6.71%), Hang Seng (-1.84%), Shanghai Comp (-1.63%) and Kospi (-0.96%) are all down along with most other markets. Elsewhere, futures on S&P 500 (-0.29%) are extending losses as we type.
Back to yesterday, where as we mentioned at the top, weak US homebuilder sentiment survey data played its part in the moves for markets. The November NAHB housing market index tumbled to 60 from 68 in October after expectations had been for just a 1pt drop. That’s the lowest reading since August 2016 and biggest one-month drop since February 2014. The details weren’t much better and falls into line with the expectation of a softer outlook for housing. As you’ll see in the day ahead we’ve got more housing data in the US today so worth keeping an eye on even if the October data for starts could be distorted by Hurricane Michael.
As far as the day ahead is concerned, we’re fairly light on data today with Q3 employment stats in France, October PPI in Germany and November CBI total orders data in the UK the only releases of note. In the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.
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Litecoin Gains Ahead What LTC Has In Store

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