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SKI - StokesBay - macro investing

Hello Darwinex community,

I want to introduce my Darwin, SKI.

I am a macro, discretionary investor with over 20+ years experience of trading equities, commodities, forex and interest rates. I am based in Jersey (Channel Islands) and my Darwin SKI is based around my global macro outlook as well as the politics of the UK, US and Euro area.

Whilst I have day-traded with limited success over the years, I have concentrated in the last few years only on medium/long term economic and politics. Leaving day-trading behind I have earned my greatest profits from predicting the political outcomes in the UK and US since 2016.

The current instruments traded within SKI to express my views are forex and commodities. I would trade interest rates if they were available in Darwinex.

I will always try and reserve my entry into macro trades only when I think the market is coming around to my outlook. I do not fight against price trend/momentum. For both political and central bank trades, I tend to look ahead to potential catalysts and enter ahead of the event if I believe the market has the outcome priced wrong.

You will see my Darwin is only just over 10 months old at this stage which is young for macro investing. Any investment should be considered for a period of at least 6 months. My experience attribute score is low due to a low volume of trades and market correlation is low due my macro view remaining unchanged. There will however be new opportunities to trade GBP around the new Tory leader, ahead of a potential general election and Brexit developments over 2019. Potenrial USD trades will be around a signal of a major change in policy by the Fed. I am also looking ahead to events in Italy and data from Germany and China.

As an upside to macro investing, you will see the capacity and divergence are very good. The average winning trade is currently 185pips (see Assets page). This means you need not be concerned you will not get the returns shown here. Current capacity is over $500m.

I look forward to answering any questions and hope you find SKI Darwin of interest.

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If I had money, I would invest in SKI. I like this Darwin a lot. I’m watching your progress with great interest.

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Thanks Muiris for your consideration and kind words.

Hello @StokesBay,

Thanks for this presentation about SKI : wish you the best :slight_smile: !

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It’s been an interesting week in the macro world. Thankfully SKI was positioned well for these events; namely global central bank easing.

ECB President Draghi kicked things off with his speech on Monday which recognised further weakening in the Eurozone, most notably German manufacturing. Chair Powell and the Fed followed up Wednesday with their own easing statement.

The German slowdown, is in many ways connected to the slowing growth in China where Germany has significant exports. Draghi made it clear that the ECB was willing to cut rates or restart QE if activity does not improve. Current Euro inflation is a weak 1.2% and needs much encouragement if it is to get close to 2%.

Economic data rarely moves in straight lines and so you can expect a bounce as indeed we already had in the PMIs later in the week. However, the uncertainty of this week may - and the actions of the central banks - will not help economic confidence.

The Fed statement was broadly making the same point. However, Powell indicated less action, more conservatism. He seemed less willing (in my opinion) to act and seemed more afraid of what a cut in rates would signal to the market. However, he may not have thought this through well enough as he now appears behind the curve, too slow in reacting if data deteriorates further.

As a result, he is left with little choice in July as the market now prices in a 100% chance of a cut. Only strong data will change those odds enough that the Fed does not have to move.

The other major talking point of the week was the ongoing US-China trade talks.

Xi holds the cards here. As a democratically elected politician, Trump must convince voters in 2020 he is worthy of second term. This means pump the economy. Xi faces no such immediate or even near term challenges and as such he can play a longer game, and to the point, longer than Trump.

They would both benefit from more monetary easing out of the US. Trump has already started the Fed blame game, suggesting weakening growth is due to the Fed’s ‘tight’ policy. A cut in US rates would allow China to also ease without being accused of currency manipulation.

The likely outcome therefore will be a stand-off in talks, weakening economic data, Fed cuts then a trade deal. All timed just far enough ahead of the US election to sweep Trump to power again.

But walking tightropes it’s a dangerous game. And post election? Nothing really changes. When the dust settles, the problems once again come in to focus.

Latest Darwin SKI performance metrics:

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So the state of the Euro area economy is so bad that they decided to appoint a politician, Lagarde, to act as ECB President. It would seem that communication is more important than monetary policy.

Trump’s G20 meeting with Xi was as expected. An announcement on great progress and talks going well with the continued expectation that the progress can collapse at any point. However, equity markets can sense more easing and any news other than tighter policy sends the markets higher.

There was a short-lived fall in defensive assets but normal business has now resumed. All assets are floating on a sea of ever increasing liquidity.

In the very near term we have NFPs on Friday and then over the next few weeks, earnings. Those will likely create volatility but unless they are awful, any dip in equities will likely be bought on expectation of a higher cut in rates in July.

UK data also turned worse this week including awful construction data.

At these levels Aussie and CAD look expensive should the economic data continue to disappoint.

As for SKI, we make continued slow progress higher.

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Hi ! You really have a macro capacity waiting for you ! Wondering what’s the secret. Too bad you’re hiding the traded assets :wink:

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just invested. like the way you operate and are running this.

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Hi EvidenceAlpha,

Yes! With time I hope to fill just part of that capacity! The upside of macro trading is no concern over capacity. Even the number of 500m understates the capacity since the trades are open for weeks and my entry is not based on any one signal or event. The capacity attribute is really only relevant for those Darwins which need to place their position in one trade.

I am hiding the positions as they are open for a relatively long time and it would be easy to replicate my portfolio if you see the open positions. I’m not sure anyone would go to the effort needed however to replicate the portfolio in real time but regardless, I can hide the trades and so I do.

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Thanks for your support vik2001. I aim to post my macro/political thoughts alongside periodic updates on SKI.

All comments are welcome.

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It’s good war :slight_smile: Does the risk manager let you hold your positions in full sizes for so long without alleviating them at some point, leading to a readjustment need ?

Congratulations @StokesBay for this promising DARWIN !

Technically, your DARWIN catches my eye when I compound the average duration and the return curve.
As pointed by @EvidenceAlpha : very curious about the underlying asset(s), too :slight_smile: (Don’t feel offended, but it really arouses my technical curiosity :slight_smile: ) !

Wish you the best !

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Hi Securix,

Thanks for your interest. The assets are the currency majors and commodities.

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If Lagarde has been brought in to influence EU member governments to reform (as she did with Greece) then we could be in for some very interesting times across Europe.

On one side, structural reform is positive in the long term for the country’s finances. But on the other, it is negative for the people who have to bear the lower standards of living in the near term.

Whilst the EC may see this as their duty, if the people of Italy, France and Spain see this coming they will likely turn against the EU. This creates political instability. None of this plays out quickly, perhaps over 1-3 years but in that time we will have elections.

Indeed we have Greek elections tomorrow and there is expected to be a change in government after Tsipras sold out the Greek people under pressure from the EU and IMF to reform.

In the US, the jobs number was okay and certainly better than many had feared. The US economy continues to grow. However, PMI numbers forecast a slow down. The Fed may try to avoid cutting rates as it could hurt confidence in the economy. They will likely give more consideration to staying put than the market was pricing in before the jobs number and still is pricing in; certainly if the data is positive this week.

As for SKI, we continue to position looking ahead to the rest of the year, a slowing global economy consistent with falling yields.

To watch ahead, central bankers may begin their push back against governments for more monetary easing. They may instead go on the offensive in an attempt to not get cornered into setting negative rates. That suggests more volatility and that suggests we should all reduce risk.

[Whilst Darwinex may set VAR at 10%, do appreciate this is based on historical volatility. It does therefore take time for increasing volatility in the current price to feed into the VAR calculation.]

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As Powell speaks today there is a value trade in a stronger dollar today with equities falling. Whilst this may be an outside bet - as unless Powell pushes against a rate cut the market will take it as confirmation a cut is coming in July - it will have an outsize reaction and create volatility in other assets.

SKI has moderately increased USD exposure this week.

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Powell confirmed the market consensus this week for a cut in July. As I positioned for a stronger dollar and Powell did as expected, SKI lost some ground. However since this was the expected move it was only slight and SKI ended down less that 1% on the week.

The July cut looks certain now and so thoughts move to whether and when we get a second cut. Again, this depends on the data and in the near term that’s earnings.

Equity markets don’t seem to mind deteriorating earnings as long as it is accompanied by the Fed confirming an easing bias in response.

So in terms of returns for SKI, I am looking to take advantage of anything out of the Fed which sounds remotely hawkish.

The ECB has been quiet recently so news there could move the Euro more than otherwise.

SKI is currently ‘On fire’!

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