May 30, 2018 - 11:45 AM EDT
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Global Trader Notebook- Bonds, Italy Crisis, Equities, Healthcare Play

Nothing more whets the contrarian investors’ appetite then when these three little letters start making their rounds around the financial sphere, writes Nell Sloane Wednesday in her weekly trader notebook on global markets.

What three letters you ask? “CDS.” Some of you novices might not be old enough to remember the damage that these things did a decade ago, but I love a good rehypothecated insurance product, don’t you?

What risk is there any more? Markets just rise and rise and it’s cherry Kool-Aid stained T-shirts for everyone right? Yeah more like blood-stained in disguise, masked under trillions of global central banks interest rate fixing, bond buying, #QE4EVR regimes.

Anyhow let’s just take a look at Italian 5Y CDS shall we. Lovely isn’t it? Driving a hard nail into the skull of any willing and able seller.

A move from 100 to 260 is massive, but don’t let that fool ya, so it used to cost $100k to insure $10 million in bonds, now $260k or 2.6x more.

Doesn’t sound like much, but here’s the thing: this can easily continue to blow out and if it does, rest assure dominos will be falling faster than SpaceX rockets.

So, this story is worth watching and the 5 Star and League parties are an “anti-establishment” nuisance but they are winning votes in Italy. If they have their way, they could force a referendum to vote on the unified currency and the odds would most likely be a tossup.

We have already seen in the United States the ideals of a populist movement dismantling the established hard line players. Might it just be that Main Street is done entrusting these aristocratic bureaucrats?


Equity concerns: Moving on, we have read report after report cautioning us on the overall tone of the equity markets. From Morgan Stanley, whose chief equity strategists expect to see a peak in the rate of change for year-over-year equity earnings growth, which could see PEs contract.

They are also concerned with the hawkish Fed and their potential policy error resting on a “too hawkish” stance.


Goldman Sachs was out with a critical piece on the U.S. debt pile, in particular the deficit which they see rising to $2 trillion dollars within ten years. Hah, that is laughable and we suppose by then interest rates will firmly be negative and the Fed’s own balance sheet will be around $16 trillion, ahh such fun times ahead.


Healthcare plays: OK on some brighter notes. The WSJ had a great Health Care Technology report in today’s edition, if you haven’t looked at it, it outlines some of the key companies leading the way. We all know health is everyone’s concern and thus the industry will always have sufficient demand.

Some of the companies they talked about and ones you should look into are:

--Intuitive Surgical (ISRG) whose Da Vinci system has been used in over 5 million surgeries worldwide so far.

--Medtronic PLC (MDT)

and Transenterix Inc. (TRXC)

--They also mentioned the company Verb Surgical, which seems to utilize AI and machine learning.

So, I thought I would mention these so you can read your own tea leaves and see if any of them are a good fit for your portfolio.


Marketwatch: Moving onto the markets and including today’s market action which saw the equity markets tumble on the heels of the Italian worry of contagion. First let’s look at our overall settle sheet for today.


A couple of notable moves today, obviously with Italy at the forefront the Eurex DAX index fell 266.50 points and was our biggest dollar value loser on the day. On a points-based system the Dow was the largest loser and lost 353 points, down nearly 1.5%.

Crude Oil also continues to falter giving up another $1.15 today but still holds the star spot for return on the year at 11%.

Of course, one would expect the euro currency to falter and it did losing $1.32 and is now the biggest dollar value loser on the year by single contract value, down some $7675, taking over the loser’s spot from the Ultra Bond.


Privacy baloney: On a side note anyone else annoyed by all this European GDPR privacy baloney? Who is this helping? How much more do we have to regulate? When is enough, enough?

OK I’ve said enough about it, but it all seems rather annoying!


Ultra Bond: Anyway, speaking of the Ultra Bond it had a stellar day up 112 ticks and gaining $3500 for one single contract, quite a large move even for the Ultra, but it’s good to see fixed income picking up.


Not to be outdone was the U.S. short end which saw yields plummet. The big winner on the day was the U.S. 5- year maturity dropping 18.6 basis points moving its yield to 2.57%.


Can the Treasuries make a nice push into the second half of the year? Could the Fed be wrong? Well, you know I have to answer both of those questions with a resounding yes!

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Source: (May 30, 2018 - 11:45 AM EDT)

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