Observations & Insight
OCC and Cboe, the hosts of the 2020 Options Industry Conference in Puerto Rico this April, announced that they have donated a combined $40,000 to World Central Kitchen, an organization committed to reducing the high rate of food insecurity in Puerto Rico. You can go here to donate.~SR
Mexico Pays $1 Billion to Hedge Its 2020 Oil Exports
Cyntia Aurora Barrera Diaz and Eric Martin – Bloomberg
Mexico paid $1 billion to protect its 2020 oil exports against steep price fluctuations, Finance Minister Arturo Herrera said Thursday. In a departure from previous years, the Finance Ministry did not disclose how much it paid for the coverage when it announced the conclusion of the hedge last week. Herrera was prompted to reveal the price at the request of President Andres Manuel Lopez Obrador.
As U.S. election heats up, investors brace for volatility
Lewis Krauskopf – Reuters
A U.S. stock market that has weathered trade wars, weak corporate earnings, and now a U.S.-Iran conflict to continually hit record highs faces a new obstacle: the 2020 U.S. election season.
Investors are bracing for more volatility as soon as early February when Democratic voters in Iowa and New Hampshire kick off the primary season. Clues about which candidates will have momentum heading into next month will emerge on Tuesday, when the Democratic Party holds its next presidential debate.
Emerging market FX set to falter again this year
Vuyani Ndaba and Hari Kishan – Reuters
Emerging market currencies will cede more ground against the dollar this year, reversing the brief rally at the end of 2019, Reuters polls of foreign exchange strategists found.
Last year was marred by the U.S.-China trade war, which forced investors to take refuge in safe havens and proved to be painful for emerging market assets.
Exchanges and Clearing
Largest Crypto Options Exchange Heads for Panama Amid Scrutiny
Olga Kharif – Bloomberg
Deribit, the world’s dominant exchange for trading cryptocurrency options, is relocating to Panama from the Netherlands next month in anticipation of rising regulatory scrutiny.
The Netherlands is likely to adopt new European Union regulations that “would mean that we have to demand an extensive amount of information from our current and future customers,” the Amsterdam-based company said in a letter to customers obtained by Bloomberg News. Deribit accounts for about 80% of Bitcoin options volume, according to data tracker Skew.
Giving the stock market more rocket fuel will work for only so long, El-Erian says
Mohamed A. El-Erian – MarketWatch
After a year that involved one of the biggest U-turns in recent monetary-policy history, central banks are now hoping for peace and quiet in 2020. This is particularly true for the European Central Bank and the U.S. Federal Reserve, the world’s two most powerful monetary institutions.
But the realization of peace and quiet is increasingly out of their direct control; and their hopes would easily be dashed if markets were to succumb to any number of medium-term uncertainties, many of which extend well beyond economics and finance to the realms of geopolitics, institutions, and domestic social and political conditions.
Regulation & Enforcement
Basel derivative rules point to more pain for fund managers
John Dizard – Financial Times
Only a few days into the decade and finance people are being forced to confront another year of regulatory deadlines that will be impossible to achieve, in particular those imposed by Brexit, the Basel Committee on Banking Supervision and the International Organization of Securities Commissions.
How about finding a way of not doing this to ourselves?
One word keeps popping up as BlackRock and other industry giants name the risk most overlooked by investors. Here’s how 3 of them say you should protect against it.
Akin Oyedele – Markets Insider
“Don’t fight the Fed” is sage advice on Wall Street that usually pays off if you heed it.
Just over a year ago, the Fed signaled that it would open the spigots of liquidity amid a slowing global economy. It did just that throughout 2019 by restocking its balance sheet and intervening in the market for repurchase agreements.
Market bulls took the Fed’s cue and smiled all the way to the bank as the market made new highs.
Iron Condor Skewered
Selling volatility post financial crisis remains profitable. Pre crisis, BuyWrite, PutWrite and Iron Condor had similar returns. Post crisis, BuyWrite and PutWrite have become more profitable but Iron Condor turned negative. This article explains why Iron Condor is best avoided post crisis.
Asset Class Scoreboard: December 2019
And just like that….we’ve wrapped up another year and the final scores have been posted across the various asset classes. Positives: Every. Single. Asset. Class. Ended. In. The. Green. This is a far cry from where we ended out last year where everything (besides cash) was in the red. U.S. Stocks, World Stocks, and U.S. Real Estate were the big winners of the year all posting +20% returns, making it one of the longest equity returns EVER.