Tag Archives: rareview macro

circus at hofstra

Circus Comes To Town-Global Macro Guru Heads to Hofstra

MarketsMuse inhouse political pundits are headed to Hempstead, NY, home of Hofstra University where the Circus Comes to Town disguised as the first tranche of 2016 US Presidential debates. While our inhouse politicos battle the LIE rush hour traffic in effort to get a ring-side seat for the Ringling Bros Bake-Off circus, our curators pass the ball for pre-debate color courtesy of global macro guru Neil Azous, principal of macro think tank Rareview Macro and publisher of Sight Beyond Sight.  Below extract first appeared in yesterday’s weekend edition of FinAlternatives.com


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Neil Azous, Rareview Macro

Humble in Hofstra…One Debate an Election Can Make
by Neil Azous

Tonight’s U.S. Presidential debate, infamously coined the “Humbling in Hofstra” by Mark Cuban, has the potential to reshape the world. Unlike the adage “one stock a market does not make,” our view is that “one debate an election can make.”

At the top-down investment level, this event will dictate asset prices over the next 72 hours more than any other catalyst. For the reasons we will layout below, our bias is to be short risk assets or hedged going into the event.

Additionally, the event will kick-off a greater rebalancing exercise at the sector, industry, and single stock level which might take a few weeks to find an equilibrium.

The Debate Setup

Firstly, this is an advertiser’s dream as over 100 million people are expected to tune in, the largest ever for a US Presidential debate.

The debate will run from 9 to 10:30 p.m. ET at Hofstra University in Hempstead, New York.

Baby Boomers, Generation X, and Generation Y, can watch the debate on C-SPAN, Fox, ABC, NBC, CBS, Fox News, CNN, and MSNBC.

It will also be streamed live on various social networks. That way, the millennials who cut-the-cord from networks have an opportunity to follow along as well.

Secondly, it is important to recognize the extreme view that non-US citizens take on Donald. J. Trump. They view Trump in a similar vein as the Dear Leader in North Korea – that is, highly concerned over the prospects of his ascent on the world stage and having access to weapons of mass destruction.

The key point here is that if there is going to be a change in viewpoints on Trump, it will be for the better, as it cannot get much worse internationally.

Finally, the political strategists, already bruised from being wrong on Trump for 18 months, are struggling to pinpoint what a win or loss looks like for either candidate in advance of tomorrow night’s debate.

As evidenced by the widespread views expressed on the various Sunday morning talk shows this morning, they are all soul-searching at the moment.

The conclusion, especially after a surprise ‘Brexit’ outcome, is that paid forecasters, political strategists, media persona, and politicians are worthless in shaping sentiment and helping investors construct their portfolios.

Our View

Allow us to put one simple view forward.

Continue reading


If History Is Any Guide-Sell Every Rally, Now! Says Global Macro Muse..

If History is Any Guide….more than one “markets muse” should be running for cover, faster than if they found themselves strolling the streets of NYC’s Chelsea neighborhood this past Saturday evening. And, one global macro muse is extending that warning..

Stock market technicians, i.e. those who hang their hats on technical analysis and the notion that history tends to repeats during select times of the year should take note of the following statistics; if history is any guide, professional traders should sell every rally, now!

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Neil Azous, Rareview Macro

Why? Aside from the fact that the month of September is notorious for market tops and arguably, the most damaging sell-offs in US equity markets followed soon thereafter, the month of October in years ’29, ’87, ’91, , ’01* ‘ and 08 to cite just a few), professional chartists are reminded by a illuminating observation courtesy of global macro guru Neil Azous in the a.m. notes published by Rareview Macro’s “Sight Beyond Sight”:

Gann Day: Per legendary Wall Street trader W.D. Gann, September 22nd is the date markets top more frequently than any day of year. This year that date coincides with the Fed and BoJ meetings on Sep 21st. Stock Trader’s Almanac : S&P 500 down 22 of 26 during week after September options expiration, average loss 1.08% (Full Stats HERE, @AlmanacTrader)

S&P 500 Seasonality: This week is the 38th week of the year. This is the worst week of the year since 1950 and the S&P 500 has been down 7 of past 8 years. Last week was Sept Options Expiration. Since 1990, the week after this has higher only 4 times past 26 years. Higher only 15.4%, lowest for any week of year.

Those having glasses half full, or those whose glasses use bifocal lenses might argue “even a broken clock is right twice a day, that doesn’t mean lightening strikes at the same place at the same time..” will discount the above. On the other hand, “Many People Are Saying” that those who are familiar with fall stock market falls will want to follow Azous on Twitter, or better and smarter still, those who are global macro aficionados should grab themselves a subscription to Sight Beyond Sight by clicking this link.




Global Macro Trade-Eye On China-How to Hedge RMB

(SubstantiveResearch.com)- The global macro trade idea of the week with eye on China. With all of the debate around the Fed’s signalling for rate hikes this summer, the question of how to hedge, or for that matter, to bet on China is prominent in the mind of investors. Neil Azous of Rareview Macro has some good ideas on how to effectively hedge for the potential/probable devaluation of the RMB, and its wider impact on Asia, whilst also benefiting from some significant positive carry in long China equities. So rather than roll out the same ”will they-won’t they” or ”What today’s fix and what does it mean” there’s some good practical value-add here. Non-subscribers won’t be able to access the full piece, but click below to access Rareview’s archive or book a time to discuss the Rareview product with Azous.

Request publication


Global Macro: Bouncing Off China Walls

MarketsMuse sends out a shout out to SubstantiveResearch.com for profiling Global Macro guru Neil Azous from Rareview Macro, who “always looks to challenge the consensus and the sometimes lazy view of the prevailing market set up.” In yesterday’s note he focused on China, and the consensus view that the cyclical bounce in China has ended. What’s this mean for risk positioning? Has it already been discounted? He looks to the two most prominent barometers of risk; the USD and S&P500. He argues that while the consensus may be keen to embrace another move higher in the dollar, and a break lower in the S&P, the next set of requirements are yet been met. Indeed the recent sell off from last week’s S&P highs may have accounted for the weak China data in advance.

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Neil Azous, Rareview Macro

But what really matters here for risk is the continuous bid-tone in oil, says Azous. Because if investors believe that the cyclical bounce in China is over, they are by defacto saying that the emerging market inflation impulse has dissipated as well, which implies a total reversal of the FX carry trade. Azous argues that can only happen if oil moves back to $30, and he just can’t see that happening.

To access Rareview archive or to arrange a meeting with Azous to discuss Rareview Macro’s “Sight Beyond Sight” product click here
Neil Azous is the Founder and Managing Member of Rareview Macro, an advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight®. Neil has close on two decades of experience across the financial markets, and is recognized as a thought leader in global macro investing. Prior to founding Rareview Macro, Neil was a Managing Director at Navigate Advisors where he specialized in constructing portfolios and advising on risk. His daily commentary was highly regarded by the institutional investing community and his success in delivering a forward-looking viewpoint on global markets helped lay the foundation for Sight Beyond Sight® to be built. On Wall Street, his career included roles at UBS Investment Bank and Donaldson Lufkin & Jenrette, where his responsibilities comprised of trading derivatives, hedging solutions, asset allocation and fundamental securities analysis. He began his career at Goldman Sachs in Fixed Income, after completing both the firm’s Analyst and Associate training programs, widely acknowledged as the pre-eminent and most coveted learning ground for undergraduate and graduate students. Neil completed graduate level coursework for a MS in Real Estate at New York University and received his BA in Business Administration from the University of Washington, where he is a member of the University of Washington Bothell Board of Advisors and was the recipient of the Bothell Business School 2013 Distinguished Undergraduate Alumnus Award. He is active in various charity and community organizations.


To Whom It May Concern: Inflation Risk Is On

Memo: To Whom It May Concern: Inflation Risk is Back In Play

Below is a special edition of global macro commentary courtesy of Stamford-based think tank Rareview Macro LLC, the publisher of “Sight Beyond Sight.” The following has been excerpted by the curators at MarketsMuse and republished with permission from the author, Neil Azous.

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Neil Azous, Rareview Macro

For the last two years the expectations around the path of Federal Reserve policy swing from one side of the spectrum to the other every six to eight weeks.

This time is no different, and as that pendulum reaches an extreme, it just comes down to trading probabilities.

Right now, our models spit out the following – inflation risk is back in play.

Now, we do not care whether the Fed raises interest rates or not at the upcoming meetings. We only care that the market begins to believe the Fed will be at some point shortly on account of being behind the curve on inflation.

What we mean by that is that from the first speeches after next Wednesday’s FOMC meeting – which usually start on the Friday following – the tone from the various policymakers on the FOMC will begin to sound more hawkish.

A new drumbeat from the Committee will unlock the Treasury market to move away from the range it has been trading in for the past two months.

At the end of the day: the fixed income market needs to price in the inflation impulse that all other assets are reflecting.


The Rareview Macro Toolkit

Below is a list of five illustrations that describes our process that we use to determine the probabilities of Fed action over the next 12 months. Included is an explanation for each chart.

The first chart looks at the implied probability of a hike “BY” a certain meeting, which is the cumulative probability of every meeting before that point (i.e. adding them all up to a certain point).

The second chart looks at the unconditional probability of raising interest rates “AT” a certain meeting, which is specifically the probability of an individual meeting.

The third chart is our ‘decision tree’ illustrating the process we use to calculate answers to the following:



  • What is the probability of the Fed raising rates at BOTH the June and September meetings?


  • What is the probability of the Fed raising rates at the June meeting and NOT at the September meeting?


  • What is the probability of the Fed raising rates at the September meeting and NOT the June meeting?


  • What is the probability of the Fed NOT raising rates at EITHER the June or September meetings?


From there, we use options on Eurodollar futures to recreate these four scenarios digitally.


The decision tree starts with two generic questions:

What is the probability of the Fed raising rates at the June meeting?

What is the probability of the Fed raising rates at the September meeting?

Once we know the probability assigned to each of those two outcomes, by following the flow of the decision tree, we can determine the mathematical probability of the outcome of our original four questions.

To read the entire piece from Rareview Macro’s Sight Beyond Sight, please click here


Neil Azous is the Founder and Managing Member of Rareview Macro, an advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight®. Neil has close on two decades of experience across the financial markets, and is recognized as a thought leader in global macro investing. Prior to founding Rareview Macro, Neil was a Managing Director at Navigate Advisors where he specialized in constructing portfolios and advising on risk. His daily commentary was highly regarded by the institutional investing community and his success in delivering a forward-looking viewpoint on global markets helped lay the foundation for Sight Beyond Sight® to be built. On Wall Street, his career included roles at UBS Investment Bank and Donaldson Lufkin & Jenrette, where his responsibilities comprised of trading derivatives, hedging solutions, asset allocation and fundamental securities analysis. He began his career at Goldman Sachs in Fixed Income, after completing both the firm’s Analyst and Associate training programs, widely acknowledged as the pre-eminent and most coveted learning ground for undergraduate and graduate students. Neil completed graduate level coursework for a MS in Real Estate at New York University and received his BA in Business Administration from the University of Washington, where he is a member of the University of Washington Bothell Board of Advisors and was the recipient of the Bothell Business School 2013 Distinguished Undergraduate Alumnus Award. He is active in various charity and community organizations.


Global Macro Gut Trade: China ETF

For those following global macro think tank Rareview Macro’s “Sight Beyond Sight”, you already know that the firm’s chief strategist Neil Azous is on a roll and the firm’s model portfolio is outpacing many who have an ax in global macro style investing. Today’s edition of the firm’s commentary caught the attention of MarketsMuse curators in our ETF and Strike Price departments when noticing a Gut Trade view re the top China ETF: FXI. Below is the extract from today’s edition of Sight Beyond Sight and reproduced with permission..

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Neil Azous, Rareview Macro

Usually, we do our best to provide solid supporting evidence and some underlying insight for every trade we put forward in these pages.

It does not happen very often, at least for us, but sometimes this business is also about a gut feeling, instead of cold analysis, and nothing more. When it strikes, we act.Yesterday, we said that Monday was a top 3 performing day of the year in the model portfolio and that we are going to take that outsized performance for a spin and ramp things up a bit more directionally than normal. So you will see a subtle change in our tone and some of the things we do going forward. It will be a bit more aggressive.

Well, yesterday turned out to be even better than Monday and on account of again closing at a new high watermark for 2016, we feel it’s time to shift into a higher gear.

As we were walking out of a meeting yesterday afternoon we had a “gut feel” that the unwind related to all the voodoo we wrote in yesterday’s edition on a “mini-inflation scare” was going to accelerate and we were not big enough in the positions we had on.

New Position: Long iShares China Large-Cap ETF (FXI)

We make a living by entering trades when no one else is willing to, or by going places where no one else is willing to go. Today is no different.

Let’s go to China.

On March 30th, we added a long FXI position to our watch list.

Last night, the Hang Seng Index showed the largest positive risk-adjusted return across ALL regions and assets.For the avoidance of doubt, the FXI and the Hang Seng, in correlation terms, are virtually one and the same thing. While mainland China indices move and regularly make our risk -adjusted return monitor it is very rare to see the Hang Seng on that screen. We are well aware the data has stabilized in China, their political communication strategy is now more effective than last summer, and they have done a masterful job weakening their currency basket while holding steady vs. the US dollar. But what was missing was some action in the stock market following all that , especially the non-mainland such as Hong Kong.

Our interest is now piqued.

The structure we initially added to our watch list was to go long on the FXI August 38 call options. One structure we like even more is as follows:

1.Buy the FXI Aug 37.5 calls

2.Sell the FXI Aug 28 puts

After last night’s move in Asia, we doubt we will get the chance today as China is bid up.

At yesterday’s closing prices you could add this risk-reversal for even money on account of the puts trading 12 implied volatility points rich to the calls. Selling that expensive skew and knowing that the low in February was $28.44 (vs. the 28 put strike) is a better proxy for getting long than just buying the spot FXI outright. Besides, if we are wrong, and China implodes, we have massive convexity in our book overlays via being long on SPX puts and S. Korea credit default swaps (CDS).

We will see if we get the chance to put this on today for even money, or at least a similar structure. Otherwise, we may have to chase the bid and pay up if we want to participate. It is not going to help our entry point that JPMorgan raised MSCI China to overweight, but at least they downgraded Taiwan to neutral, which we are short of their currency.   Real time updates as to this position and all others are posted via our Twitter feed @NeilAzous


Neil Azous is the Founder and Managing Member of Rareview Macro, an advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight®. Neil has close on two decades of experience across the financial markets, and is recognized as a thought leader in global macro investing. Prior to founding Rareview Macro, Neil was a Managing Director at Navigate Advisors where he specialized in constructing portfolios and advising on risk. His daily commentary was highly regarded by the institutional investing community and his success in delivering a forward-looking viewpoint on global markets helped lay the foundation for Sight Beyond Sight® to be built. On Wall Street, his career included roles at UBS Investment Bank and Donaldson Lufkin & Jenrette, where his responsibilities comprised of trading derivatives, hedging solutions, asset allocation and fundamental securities analysis. He began his career at Goldman Sachs in Fixed Income, after completing both the firm’s Analyst and Associate training programs, widely acknowledged as the pre-eminent and most coveted learning ground for undergraduate and graduate students. Neil completed graduate level coursework for a MS in Real Estate at New York University and received his BA in Business Administration from the University of Washington, where he is a member of the University of Washington Bothell Board of Advisors and was the recipient of the Bothell Business School 2013 Distinguished Undergraduate Alumnus Award. He is active in various charity and community organizations.


BlackRock Botches Gold ETF; IOU for IAU

Administrative oversight left BlackRock unable to meet demand for its Gold ETF, IAU; Suspends New Issuance.

(WSJ) –BlackRock Inc. said it suspended the issuance of new shares in IAU, its roughly $7.7 billion gold exchange-traded product due to an administrative oversight, in the latest bruise for the exchange-traded-fund industry and its largest provider.

Analysts said the move on Friday threatens to drive business to competitors and intensify scrutiny of the $2 trillion ETF business in the U.S. It also underscores concerns that these products—baskets of assets that trade intraday like stocks—are vulnerable to breakdowns.

Friday’s suspension came after a 20% run-up this year in the price of gold. The rally had spurred increased demand for the iShares Gold Trust, which is traded on the New York Stock Exchange under ticker symbol IAU. Some analysts said the surge in gold-futures prices likely drove up demand for the product for use both in bets that gold would rise and bets that it would fall. Those wagers came amid uncertainty over the health of the global economy and concerns about resilience of the financial system in the face of negative interest rates in Europe and Japan.

BlackRock wasn’t able to issue new shares to meet the demand because it failed to file the appropriate Securities and Exchange Commission paperwork, the firm said.

The breakdown could prevent the fund from accurately reflecting the value of gold, interrupting a key process that lets investors arbitrage any difference between the quoted price of the ETF and the value of the underlying assets.

The suspension could mean the price of the fund would rise faster than the price of gold until share creation resumes. Investors are “going to be paying more of a markup,” said Mohit Bajaj, director of ETF trading at WallachBeth Capital LLC, which trades iShares Gold Trust. “I think people are going to be trading GLD instead of IAU now,” he said, referring to the ticker symbol for SPDR Gold Trust, which is run by a unit of the World Gold Council and marketed by State Street Corp.

In the week ended Thursday, investors put more than $1.1 billion into the iShares product’s key rival, the about $32 billion SPDR Gold Trust, more than any other exchange-traded product, according to FactSet data.

For the full story from WSJ, please click here



Only Idiots Use USO ETF to Trade Oil-It Can’t Tango!

For those who are confused as to the near-term, or even longer-term price direction of Oil, even J.R. Ewing would tell you there isn’t an oil man in Texas, including Boone Pickens, who can see far beyond the prices posted at the pump. Especially when one gas station in Oklahoma is now selling one gallon for .99 –a price that has been seen in certain spots, but not since 1993 has oil been so ‘cheap.’ For those who try to express a bet on price direction via a financial instrument, one leading markets muse is going so far as to infer that “..Only idiots use the ETF $USO to make a bet with.” Why? It Can’t Tango!  Well…that’s perhaps a poetic license pun on words, but..

Courtesy of the universally-known ETF Professor Todd Shriber, who pens for financial news site Benzinga, the markets muse in question turns out to be one of the global macro world’s more eloquent and most thoughtful gurus.. Here’s the extract from Shriber’s early a.m. column:

To say the United States Oil Fund LP (ETF) (NYSE: USO), which tracks West Texas Intermediate crude oil futures, is a flawed product is accurate and fair. Over the past three years, USO is down 77.1 percent, but the exchange-traded product remains a favorite, on both sides of the oil trade, of professional traders.

Inflows to USO confirm as much. After adding nearly $3.1 billion in new assets last year, USO has seen year-to-date inflows of almost $900 million. USO’s 2016 inflows put it just outside of the year’s top 10 asset-gathering ETFs.

USO And Contango

Perhaps the greatest source of criticism against USO comes from the fact that the ETF is frequently in contango. As it pertains to USO, contango occurs when the West Texas intermediate futures currently held by the ETF trade at higher prices than the market expects that contract to trade at for the months ahead.

“Oil traders should be aware that USO tracks front-month WTI future contracts and the underlying oil market is currently in a state of contango. Consequently, USO could experience a negative roll yield when rolling a maturing futures contract, or selling a contract that is about to expire in exchange for the next month contract,” according to ETF Trends.

WTI And Negative Yield Rolls

Speaking of negative yield roll, West Texas Intermediate futures are currently facing an epic negative yield roll.

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Neil Azous, Rareview Macro

“The widening in the ‘contango’ between the first and second futures contracts, or the March-April spread (CLH6-CLJ6), has exploded to ~8 percent in negative roll yield,” said Rareview Macro founder Neil Azous in a note out Wednesday evening.

As Azous noted, West Texas Intermediate’s current level of contango is quadruple that of Brent crude, the global oil benchmark contract, on a percentage basis.

The problem for any trader, professional or retail, who is long USO is that instances of exaggerated West Texas Intermediate have previously given way to savage declines for that contract and USO.

“The extrapolation that the market will likely make into next week’s crude oil futures roll and options expiration is that the next leg lower in the barrel has started and this CLH6-CLJ6 spread can widen out dramatically as evidenced by the extreme widening to 25 percent back in the winter of 2008-2009 when the barrel finally bottomed out for that cycle,” added Azous.

Read more: http://www.benzinga.com/news/16/02/6246307/how-contango-could-affect-a-popular-oil-etf#ixzz3zt6Cpp2D



Global Macro Guru Says: Look Out Below

MarketsMuse curators are often most inspired by views expressed by those dedicated to interpreting and positing financial market outlooks via a global macro lens. This ‘style’ requires a disciplined process and for those who are best in the practice of this dark art, the projections are often prescient. With that, we point to opening commentary courtesy of  global macro guru Neil Azous via  ‘Special Sunday Night Edition’ of “Sight Beyond Sight”, a daily publication produced by global macro think tank, Rareview Macro LLC and one that is followed by many of the top hedge funds across the globe.

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Neil Azous, Rareview Macro

The majority of conversations over the weekend were centered on the breakdown in the momentum factor in US equities. Given how deeply embedded this factor is into all strategies built over the last 18-months, the tentacles are far reaching, including observations on the value versus growth style, large versus small capitalization, quantitative strategies, the performance of TMT funds, defensive rotation, etc.

Since this newsletter is forward-looking – sight beyond sight – we will not rehash those conversations or illustrate the back-tests of past episodes of momentum unwinds that have been published.

However, there are a few important observations to recognize.

Firstly, the world’s most sought after top-down strategists are united in calling for the momentum unwind to continue. In fact, some were quick to begin to take victory laps on their forecasts for this event so the last thing they want to do is relinquish their trophies so soon. At this point, vanity is all that is left for some even if their broken clock is right twice per day.

Secondly, a lot of ink has been spilled over the last six months on the narrow market leadership – FANG, NOSH, Top 10 basket, Top 20 basket, etc. We highlight this because unlike the sell-off in January that was driven by hedging and index futures flows this sell-off is being driven by the long selling in the narrow leadership – single stocks – which makes up a disproportionate amount (i.e. 40-45%) of the S&P 500’s market capitalization. Put another way, there is no hedge to this type of selling except to reduce risk outright.

Thirdly, there are a lot of kids with rulers out there drawing straight lines on a chart. In fact, we did not even have to data mine very hard at all to find key breaks in many relationships. While these illustrations are subjective depending upon what technical analysis discipline you subscribe to, the fact is that for the moment they are self-fulling to the momentum unwind narrative and you have to live with them for a while. We have included a few for your amusement in the Top Observation section below.

In our experience, there are two types of momentum unwind.

The first one is the normal run-of-the-mill unwind due to irrational exuberance in valuations and an extended positioning in consensus strategies.

The second one is related to changes in cycles.

It is a bad combination when all three – valuations, positioning, and cycles – converge as is the case now, in our opinion.

Regardless of which bucket you want to place the current episode into, the reality is that these exercises tend to last 2-3 months, and in some cases when the world is really in bad shape, as many currently feel it is, can last 6-months or longer.

The key point here is that to expect a resumption of momentum or a recovery of that factor’s leadership this early in the unwind, especially considering the PnL duress in the professional community is currently more violent than the losses suffered in January, would be misguided.

Put another way, if there is a momentum strategy, style relationship, market capitalization, sector rotation, you watch daily, and it is down or has reversed by 5-10%, call us when it is down or has reversed by 20-30%, and we will take a look at it.

Finally, ask yourself this question:

If the EURO STOXX 50 Index (SX5E), German DAX (DAX), NASDAQ 100 (NDX), Russell 2000 (RTY), and Facebook-Amazon-Netflix-Google (FANG) all made new “closing lows” for 2016 last Friday, then is it more likely that the next move for global risk assets is a bounce or that the Nikkei 225 (NKY) and S&P 500 (SPX) will play catch up?

The answer to that question, along with other insights can be found by those who read the entire Sunday Night Special Editor of Sight Beyond Sight. To do so, please go directly to Rareview Macro’s archive section via this link (Subscription Required, but Free Trial Subscriptions are still being offered)

Global Macro View-Friday’s Stock Rally In Perspective

MarketsMuse curators have canvassed assortment of guru-types who have attempted to decipher Friday’s stock rally, along with tuning in to the abundance of Monday morning quarterback views. For those who turn to the cartoon channel (i.e. CNBC), some pundits call it a dead cat bounce, more optimistic professional traders and pontificators would like to believe the spike on Friday is a sign of a “bottoming formation”–irrespective of many signals that suggest the “R-word” will become more frequently used when describing the state of the US economy. Smarter money, particularly those who have Sight Beyond Sight are focusing on following a private weekend comment summarizing last Thursday’s email newsletter from global macro think Rareview Macro…

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Neil Azous, Rareview Macro

Factually the 14-day (Relative Strength Index) or “RSI” on the SPX Index is now 39; no one with a straight face can say the market is oversold technically. Last week, when the S&P futures bounced off the lows the professional community was open to the notion that the index could trade back up into the 1920-1960 range. That has not happened despite three key things:

  1. President Draghi has backing of the Committee now to ease policy further;
  2. The FOMC was dovish and the implied probability of a hike in March now is at 18% (it was ~28% yesterday); anything below 20% most likely means it’s going to zero; unconditional probability of June is exactly 20%; post-March FOMC that is most likely around 33% or 3 to 1 AGAINST;
  3. Crude oil has taken out last week’s highs multiple times and broken the downtrend channel today on an intra-day basis. Additionally, the market has removed the majority of event risk related to Yen and Nikkei heading into the BoJ meeting tonight on the view that if the BoJ eases they go big (20 bonds, 1-3 ETF, and even cut IOER) because they can’t risk an incremental easing that the market rejects.

The key question is with largely every asset now discounting these central bank events and the high degree of correlation of risk assets to crude oil, especially the S&P 500, why has the S&P not responded and traded up to the expected range of 1920-1960?

The answer is that tomorrow the BEA releases their quarterly update for corporate profits (Bloomberg Ticker: CPFTYOY Index). Last quarter it was down -5.74%. The key point being is that tomorrow brings a likely confirmation of two-quarters in a row of declining profits – or a “profit recession”. Remember, this is a clean look at profitability and there are no footnotes like a company specific earnings release that can attempt to paint any Picasso they want.

Additionally, ISM Manufacturing data is released on Monday and in order for the cyclical call bounce to begin to materialize it can’t show another print to the downside. Right now the market has shifted to a 40-50% probability of a forthcoming recession up from 10-20% to start the year. Confirmation of further ISM Manufacturing weakness will only accentuate the view that 11 of the last 13 recessions included ISM Manufacturing printing below the 50 level.

So while you may have to wait for two-quarters in a row of negative GDP at some point in the future to get formal confirmation of a recession, the risk is that corporate profits and manufacturing will govern risk assets for the time being and outweigh the heavy emphasis the Ph.D. community places on the consumer and a services-driven economy for now.

When you marry all of this with corporate earnings season that is now half-way complete, with the exception of Facebook (NYSE:FB), not one icon company has had a good print or said something truly positive in the outlook. In fact, AAPL is very close to touching its 200-week moving average like Russell 2000 and Transports. The last time that happened was during the GFC.

Finally, Friday was month-end and the bulls will lose the call for further pension re-balancing that showed equities were very large to buy. The risk now, with all of the oversold conditions worked off, is that the S&P 500 resumes its downtrend and like every other risk asset the 200-week moving average of 1704 is a magnet.

Interest Rate Probability Dispersion Post-FOMC:

  • Hike Twice March AND June: 6%
  • Hike Once March OR June: 36%
  • NO Hike At All by June: 58%

Rareview Macro is the publisher of “Sight Beyond Sight“, a subscription-based advisory service for professional investors, hedge funds and self-directed investors and offers actionable trade ideas using futures, options, and ETFs within the framework of a disciplined analysis process. Author Neil Azous publishes intra-day updates re model portfolio and trade posts via Twitter @rareviewmacro



Oil-Slippery Slope for Traders and Pundits Alike-Except One..

(SubstantiveResearch.com). Trading oil or simply just talking about where, when and why this commodity will assert a more predictable pricing direction has proven to be a slippery slope for professionals and pundits alike. Expressing views via the actual barrel (WTI) or via an ETF (e.g. USO, BNO etc) has been challenging for the best of traders who have spent the last number of months trying to catch a falling knife, or at least pinpoint a trend that doesn’t slip through their fingers. Neil Azous, from global macro think tank Rareview Macro has spent some time this week discussing switching out of his bearish views on oil and its correlated asset classes should the right signals appear.

The idea being that should oil take out last week’s highs (i.e. step 1), and that move is then confirmed by breaking the upside of the downward channel (i.e. step 2), he would start buying the correlated exposure (MSCI EM, high-yield, RUB, TIPS etc). Well, step 2 was breached yesterday, but only on an intraday basis, not on a closing basis. So technically it’s not confirmed, but it is moving in the right direction.

neil azous-global-macro
Neil Azous, Rareview Macro

While Rareview still holds the view that oil may go back and retest, or take out recent low prices before bottoming, Azous has some interesting observations about oil positioning that makes going long enticing. He reckons there is a very clear agenda from the professional community to label the reversal in prices as the long awaited bottom in crude oil and that there is now a genuine exercise underway to engineer higher prices by joining the long crude oil position. Of course the idea that OPEC and non-OPEC may co-opt in production cuts takes this a step further, but it’s just wishful thinking at this stage. Azous goes on to discuss CTA positioning, expectations for IMMs later today, oil’s correlation with the MSCI, which will be of interest to those looking to put on an actionable proxy trade/hedge related to the above narrative.

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wrong way first trade global macro

2016-Global Macro-The Wrong Way First Trade

You don’t need to be a MarketsMuse or a global macro guru (or any other type of pundit) to know that professional financial market traders are only as good as their last best trade. In that spirit, we look to the 2016 outlook and spotlight on the Wrong Way First (WWF) Trade courtesy of Rareview Macro’s Neil Azous and Sunday night special edition of Sight Beyond Sight–which included a wink and a nod to astrology-friendly traders who swear by the “Bradley Effect”

marketsmuse neil azous rareview macro cnbc oct 6 2015You’re Only as Good as Your Last Best Trade

  • Wrong Way First (WWF) Trading Explained
  • WWF Driving: High Yield (Ignition), Chinese Yuan (Accelerator), US Jobs Report (Speeding Ticket)
  • WWF Candidates: Two Real (Japan & Momentum) & Two Fakes (Styles & FANG)
  • New Trade:  Short EURGBP Spot Exchange Rate

Wrong Way First (“WWF”) Trading Explained

  • Wall Street Jargon: Wrong Way First
  • Acronym: WWF
  • Reference: The risk the professional investment community is exposed to at the beginning of every New Year – that is, the first major trade will be a reversal in the consensus positioning and lead to significant PnL duress.
  • Time Frame: 20 calendar days or in this year’s case US equity options expiration on January 22, 2016.
  • Candidates: Trend, momentum, sentiment, position, faith-based extremes (not fundamental)
  • 2015 WWF Examples: S&P 500 and Swiss franc
  • 2014 WWF Examples: Japanese Nikkei and Chinese yuan carry trade strategies

While it is true that substantial wealth is only really created over time (i.e. by investing sensibly), the money management business is still a slave to the Gregorian calendar and that means performance resets at the close of business on December 31st.

Put another way, if you manage money for a living you’re only as good as your last best trade.

Therefore, it should be of little surprise that professionals begin every January more focused on not getting caught up in a New Year’s malaise rather than trying to take advantage of opportunities by adding new risk or pressing legacy positions.

While there are many key conversations underway to start 2016, it is important to highlight that the dominant theme emerging from our discussions with the risk takers we know is concern over a WWF trading theme materializing. Such is the nature of this business, especially for absolute return strategies.

Following a flat-to-negative performance in 2015, our interpretation of these conversations is that, for most investors, there is very little tolerance to withstand PnL duress around any theme that is a current WWF candidate.

It should be noted that the sensitivity to start 2016 is also elevated on account of the much higher than the normal market beta that would be associated with this theme – short commodities and emerging markets.

If you apply this theme to actual positioning it reveals that the top WWF candidates across the major asset classes are:


  • RV: Long Japan and Europe vs. Short/Underweight US
  • Quantitative: Long US and EU 12-month momentum
  • Style:  Long Growth vs. Short/Underweight Value
  • Market Cap: Long US large vs. short small caps
  • Sector: Long Banks
  • Directional: Long stock baskets (FANG, NOSH, Top 20)


  • Long USD vs. short c/a deficit (ZAR, TRY, BRL)
  • Long USD vs. short crude oil (NOK, CAD, RUB)
  • Long USD vs. short Chinese yuan (USD/CNH)


  • Short Gamma

Fixed Income

  • Short US front-end
  • Long US flattener (2yr/10yr and 5yr/30yr)
  • Long 5-10yr Italy vs short Germany Bunds


  • Short crude oil
  • Short base metals
  • Long EM oil importers vs. Short exporters


  • Long US vs. short EU High Yield

Personally, while we are mindful, if not darn right respectful of WWF trading, it is not a strategy we look to exploit largely because we are process driven. Additionally, it is our experience that in general contrarian strategies perform badly because they get on the wrong side of trending markets. By that, we mean that the big themes have the ability to persist for a number of years. They do not mean-revert after one year or simply because the Gregorian calendar undergoes its annual reset.

So not only do we tend to side with the majority who look to “weather” a potential 20-day storm, but we hope that a WWF trading event actually materializes and creates enough dislocation to enter positions at much better prices than we initially envisioned to start the year, and at the same time reveal which trends are strong- or weak-handed.

That said, we recognize this is a newsletter and many of you want to actively trade.

So in that spirit, here are the most important questions and answer related to WWF trading to start 2016.

Before that, it should, however, be noted that this year begins with an added twist.

Sometime in the next 72 hours, there will be a “Bradley turn date”. (H/T CP)

The Bradley Siderograph (literally: star chart) is illustrated below but those who use astrology, numerology and cycle analysis to forecast market turns are highlighting this indicator as a catalyst for risk asset weakness.  The 2016 Bradley Siderograph Turn Dates are in green. The first one is January 5, 2016, or this Tuesday.

Note that the siderograph looks like a price chart with smooth sloping lines going up and down. However, the turn dates are only indicators of a change in the trend – not in the direction of the markets.

bradley siderograph


While we are not ourselves great believers in the ability of the stars to influence the markets, just as we don’t read our horoscopes, it is important to recognize that more professionals follow this indicator than they care to admit in public. For example, disciples of Bradley give themselves a +/-4-day grace period and argue that Equities and Gold are the two assets most prone to turning when it does.

With that in mind, however, here are three things we are watching down here on earth.

WWF Driving – High Yield (Ignition)

  1. Which asset class matters the most, or is the ignition switch?
  1. Answer = US High Yield Credit
  1. Which market proxy is second most important, or the accelerator pedal?
  1. Answer = Chinese yuan (CNY)
  1. Which event in the first week of the year breaks the speed limit?
  1. Answer = Monthly US Employment Report (this Friday)

See the below correlation matrix that shows how the various market proxies are all a “One Beta” trade – they’re all going in the same direction.

To continue reading the 3 January edition of Rareview Macro’s Sight Beyond Sight, please click this link (subscription is required; free trial available without need to insert credit card)

global macro stock conflagration

Global Macro Guru: Simmering Stock Conflagration?

MarketsMuse Global Macro curators, like many across the hedge fund complex, have attempted to decipher an investment thesis that can prove itself without being hijacked by short-term volatility. Deflation, Inflation, Oil, the Dollar and bets being made in advance of the Fed’s widely-expected interest rate adjustment are talking point ingredients that are potentially leading to a stock conflagration–according to global macro guru Rareview Macro LLC.

In the firm’s a.m edition of “Sight Beyond Sight”-the top bullet point “Top 10 SPX stocks on Alert” evokes a view that may not be rare, but the underlying premise is certainly worth contemplating….Thanks to Rareview’s top gun, Neil Azous, below is the opening extract..

Deflationary Impulse Spreading Beyond Inflation Levered Plays…Top 10 SPX Stocks on Alert

  • Getting from A to B
  • Canada and Crude Oil
  • South Africa and Metals & Mining
  • The Top 10 Stocks in the S&P 500
neil azous
Neil Azous, Rareview Macro

To get on the front foot today, we hope that you have an appreciation for how acute the pain is around the world on account of the latest downward price adjustment in crude oil.

There is no question that the latest 10% move lower (and counting) in the barrel has led to an “acceleration point” in various asset prices, corporate decision making, and countries.

The trade-weighted US dollar is making new highs (JPMQUSD) and the CRB Commodity Index (CRY) is making new lows today. Asset prices across Asia are once again feeling the reverberations rippling out from the latest weakness in the Chinese yuan (CNY) as fear builds of another devaluation. This is once again shining the spotlight on emerging market currencies, especially the Mexican peso (MXN) where the weakness today is a result of it being the main source for liquidity for emerging market proxies.

In equities, the alarm on the carbon monoxide detector for the Top 10 stocks in the S&P 500 is now at risk of going off more than at any other point since the October recovery. Some are noticing the two main symptoms of that – a headache and stomach nausea – but can’t seem to smell anything because they live in a world of isolation and only care about something else when they are forced to. And some of the longs we speak to who are more mindful of the top-down backdrop are almost as nervous as a long-tailed cat in a room full of rocking chairs.

Given the degree of concentration or narrow breadth, does crude oil weakness ultimately matter to these stocks? We may be close to finding out the answer to that.

Rareview Macro updates its views, along with trade ideas in real time via Twitter. To read the entire edition of the Dec 8 edition of Rareview Macro’s “Sight Beyond Sight, please click here

USD long trade

Global Macro-Dollars and Donuts-The Long USD Trade

MarketsMuse Global Macro curators credited with metaphoric title “Dollars and Donuts”–a phrase many of those who trade on institutional desks should appreciate…Snippet below is courtesy of a.m. edition of institutional research unbundler SubstantiveResearch.com

Neil Azous from Rareview Macro writes that for all attention being devoted to the equity market at the moment, the biggest sensitivity in markets currently is the long USD trade, which is where a majority of the market risk now sits. Indeed, with 45 days left in the year, this trade could be the make or break for many investors in 2015, Azous adds. This is reflected in CFTC positioning and yesterday’s BAML fund manager survey, which shows a widespread sensitivity to a USD selloff. Azous outlines three hurdles that US dollar longs should be aware for the remainder of the week. Not surprisingly they involve either central bank meetings or disclosure of policy committee meeting minutes from the BoJ, Fed and ECB.

To read the entire commentary form Rareview Macro, click on the link below (subscription required, Free Trial available)

Do You Even Know the Risk Profile if You’re Long on the US Dollar? The Majority Don’t

paris risk

Financial Markets Ignore Paris Terrorism-At Their Own Risk

Weekend’s Geopolitical Events Are Being Ignored..

MarketsMuse curators have been navigating commentary across the media throughout the weekend in search for the various financial industry pundits and opinionators who might add some context to the terrorism that shook Paris on Friday night. No surprise, we noticed the below opening from hot-off-the-press a.m. commentary from global macro advisory Rareview Macro via their institutional newsletter “Sight Beyond Sight”..

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Israeli equities are showing the largest positive risk-adjusted return across regions and assets. Crude Oil is -3% off the overnight highs and now trading flat-to-negative. So what is behind that? One argument is that these asset markets are positively responding to the deal made over the weekend on how to end Syria’s civil war and the adopted timeline that will let opposition groups help draft a constitution and elect a new government by 2017.

A lot of professionals want to believe that the US equity market is also technically oversold. Combine that with some of the global solidarity sketched out above in response to the weekend events in France and the view is that there will be more stability rather than higher volatility today in risk assets.

If you believe that, we have land for sale in Fallujah, Iraq and it’s at half price today. 

For the full analysis expressed by Rareview Macro’s Sight Beyond Sight, please click here


High-Yield Credit Spreads, HYG and VIX-Reading The Tea Leaves

MarketsMuse followers have been reminded more than a few times that conventional wisdom requires investors to keep their eyes on corporate bond spreads so as to have a clear lens when considering the outlook for equity prices on a medium-to-longer time frame. The relationship between high-yield debt,most-often measured by HYG (the high-yield bond exchanged-traded fund) and VIX–the latter of which is an often misunderstood metric, is a telling indicator for stock investors. And, those who are experts at reading the tea leaves are pointing to red flags on the horizon..

Courtesy of CNBC, Neil Azous of Rareview Macro and Andrew Burkly of Oppenheimer, two of the industry’s most sensible pundits discuss the cause and ramifications of the recent junk bond sell-off, pointing to high yield bond ETF $HYG as a meter benchmark to in the video below..

The Fed Really Wants to Lower Interest Rates-Here’s Why..

While 99% of market pundits have been busy for the past months laying odds and making bets as to precisely when and how much the Fed will raise interest rates, a small universe of Fed Watchers have picked up on a surprising nuance that few seasoned market experts have even calculated into their outlooks. Its not about Janet Yellen’s body language, its more about the water in San Francisco and what the real Fed thought-leaders are signalling. Tony Bennett might have to update his iconic song..we’ll let the marketplace decide that one!

MarketsMuse Global Macro curators offer a hint into what those having Sight Beyond Sight are now modeling into their own calculations. As proffered via a special CNBC appearance by Neil Azous, the founder of global macro think tank Rareview Macro, LLC, the “lower for longer” theme could prove to be an even lower interest rate regime and lead to prospects for yet another QE, all driven by the clouds on the horizon that some believe are spelling out  “global recession..” Listen carefully to the following thesis….and in tribute to Tony Bennett, scroll down and sit back to the second video clip on this post

Classic Counter-Trend Tuesday; You Date Equities But Marry Credit

“To put it bluntly, what headline writers or traders are selling you today is a load of bollocks.” Neil Azous, Rareview Macro LLC

When global macro guru Neil Azous of Rareview Macro appeared on CNBC midday yesterday, MarketsMuse curators had already absorbed and relayed his recent views about energy prices, as well as his relatively rare (and sober) view as to the mid-term outlook for equities. When he opined late last night, “You date equities, but you marry credit..” via his Twitter feed, MarketsMuse Fixed Income curators smirked; simply because our resident bond market experts have long held that rare view–one that today’s “young Turks” often fail to appreciate.

Whether Monday’s equities market action was merely a ‘dead cat bounce’ in a progressively deteriorating state of market metrics that some attribute to a cyclical ‘earnings recession’, or a firming up of the underlying financial market foundation that portends “higher for longer” stock prices, its good to have sight beyond sight…

Consensus is a Classic Counter-Trend Tuesday…You Date Equities but Marry Credit

To put it bluntly, what headline writers or traders are selling you today is a load of bollocks.marketsmuse neil azous rareview macro cnbc oct 6 2015

Emerging market equities have just recorded their largest five-day gain since the taper tantrum in June of 2013. While the historical precedent is not the same the absolute performance is of similar magnitude for developed market equities. The prevailing view is that this is on account of a weaker US dollar, and on the view that lower interest rate for longer will be supportive for global growth.

As a gesture of goodwill by the Bulls, after five days of impressive stock gains, and for no other real reason, the consensus view is that today is a classic counter-trend Tuesday.

We have to chuckle to ourselves over this, because just last week, a stronger US dollar and an imminent interest rate increase that would remove the Federal Reserve uncertainty were also viewed as positive for equities. There is not even an acknowledgement that the move off the lows in the S&P 500 is very similar to the market bounce seen at end of August, and we all know how that worked out.

We’ll leave the narrative spinning to everybody else and, as we do every day, just try and deliver you some sight beyond sight.

One would think that this large group of people, all of whom consider themselves students of the market, would include a few other basic factors in their headline writing or analysis, such as:

  • The BoJ meeting tonight;
  • The ECB and BOE meeting minutes on Thursday;
  • Dead-cat equity market bounces of this magnitude are thematic during bear markets;
  • Reluctant buyers ahead of earnings season, especially considering a mini-theme of negative pre-announcements beforehand has already begun.

We suppose the list of data points could go on and on, but for us the key driver for risk assets is whether financial conditions tighten or loosen. We are watching corporate-based measures closely for that insight, not just the traditional market-based measures the majority on the Street monitor.

Despite the bounce in equity markets, a minor step-change in sentiment around the energy sector, which is supportive for inflation expectations, and the minor relief that a weaker US dollar and lower interest rate profile provides, there really has been no loosening in financial conditions over the past five days.

The breakdown in correlation between equity and credit markets is too hard to ignore, especially if you are looking for the upturn in equities to show durability beyond the past five days.

Here are three examples from yesterday of what we mean by this disconnect between stocks and credit and how credit is struggling with the tight financial conditions. These are just some of the corporate-based, as opposed to market-based, measures we are referring to.

  1. Ford Credit (F), a BBB rated issuer, came to market with a two-part 3-year fixed and floating rate note deal. Later in the day, the 3-year fixed notes were sold after combining its fixed and floating rate tranches. Additionally, it was forced to pay a 35 to 50 bps concession over its nearby 3-year fixed issue to print new paper. The key takeaway is that with a BBB rating, in this type of market, Ford would only issue if it “needed” to, not because it would do so opportunistically. Accordingly, the market is making them pay up for this new paper.
  1. The Province of Ontario (a sovereign-type issuer that is rated A+) stood down from issuing a €2.5bn 10-year deal due to “market conditions”, even though the deal had already been pre-marketed (i.e. investors knew of and were prepared to buy the deal).

The lead managers released the statement below.  This is extraordinary to say the least and illustrates how even the best credits are being very cautious… “Ontario always tries to right size its transactions and provide a liquid benchmark sized offering.  The Province views the USD and EUR markets as core strategic markets and, as such, wants to maintain a well-defined liquid yield curve in each currency.  Market conditions were today such that Ontario could not meet these objectives and, as a result, has decided to step back from the market at this stage and would like to thank investors for their interest.” 

  1. Five (5) other IG deals were known to have stood down from coming to market yesterday, following the decision by the Province of Ontario. (Source: Mischler Financial, Quigley’s Corner, Ron Quigley)

In our view, we do not expect financial conditions to confirm the recent equity bounce. In fact, we think tighter financial conditions will be a key determinant in why the fourth quarter positive seasonal call will struggle this year despite the stock trader’s almanac always saying otherwise.

Firstly, we have already made our views very clear on how one major financial condition – the corporate financing gap – has now swung into deficit. And we have pointed out the consequences of that: it will limit their ability for further credit issuance, M&A will cost more, and stock buybacks will slow, and that collectively has led to the Street being way too generous in its fourth quarter forecasts for all of these metrics.

In fact, we were pleased to see Deutsche Bank yesterday echo what we have already said and lower its forecast for stock buybacks in 2016 by 25% or more, relative to the total announced in Q3 ($600bn annualized). Moreover, the buyback announcements in Q3 were already significantly lower than the first half of the year.

Secondly, investors are beginning to recognize that a high yield bond should never have traded with a 4% yield in the first place, as that yield was artificially inflated by extreme monetary policy measures such as QE. So while spreads have widened a lot, a 5% or 6% yield should really still be the equivalent of 7% or 8% similar to other cycles. Additionally, the breadth of weakness, for the first time this year, has now spread outside of the energy and materials sectors as investors do their homework on the rest of the things they own. The point here is that high yield is not cheap if the measurement is multiple cycles, not just the cycle with extraordinary monetary measures.

Finally, the other anecdotal trend we are observing is that credit traders don’t have the same appetite as equity traders to buy weakness right now. The majority of credit trader’s performance over the last few years is easily traceable to buying a new issue, watching that credit tighten immediately thereafter due to the sensational appetite for yield, and then selling them out quickly. Put another way, you are insulting equity investors when you call them IPO flippers. Right now, this trade does not exist and anyone who does not have a genuine investment process is being shut out of the market. This is one reason why credit spreads are not tightening.

The bottom line is that corporate Treasurers or credit investors remain highly suspicious of the primary issue market. Yes, companies will always need to re-finance their credit stack as part of their normal operations, as could be seen with Ford Motor paying up for it yesterday. But anything opportunistic is on hold, especially if a company has to re-model their economic projections for an M&A deal in the pipeline, as that will now come at a higher price.

So until we see several – by which we mean 3 to 4 consecutive days – of firm market tone conveying that corporate Treasurers and credit investors are once again aligned it is pretty easy to chalk up the latest move in stocks to nothing more than a classic bear market bounce. If this does not materialize, then the mindset of selling into strength will prevail.

As a reminder, when push comes to shove, you date equities but marry credit, especially after a 5-6% bounce.

Neil Azous is Founder/Managing Member of global macro think tank Rareview Macro LLC and the publisher of global macro newsletter, Sight Beyond Sight, a daily publication subscribed to by leading hedge funds and investment managers. Neil’s real-time comments and trade ideas are often posted to Twitter

To continue reading the Oct 7 edition of Sight Beyond Sight, please click the following link. Subscription is required, a Free Trial is available (no credit card required). Click here to access...