‘Harbour Waves’ in the Horizon VI

BarroMetrics Views: ‘Harbour Waves’ in the Horizon VI

A quickie blog today.

Here are two references to Brexit:

The leave camp has slipped from a 50-50 to 51-49 (up to June 21). This reading is in line with my expectations. I expect the ‘leave’ camp to recover lost ground today.

  • This one outlines what the results ‘ought’ to be, on a district by district result, if the ‘leave/remain’ camp are to win. Interesting and useful.


The site will allow you to assess the probabilities of either camp winning as the results come in.

We are lucky in Asia; the first critical result is due on June 24 at 7:30 a.m. instead of the ungodly hour of 12:30 a.m.

The problem with getting on a trade (as the info comes in) will be the wide bid-offer spread. So, you’ll probably have to take the trade ahead of the results. If you do, you’d best keep the size way below normal to account for the probable increased volatility on June 24.

‘Harbour Waves’ in the Horizon

BarroMetrics Views: ‘Harbour Waves‘ in the Horizon

The death toll at Orlando is expected to rise above the confirmed fifty. Condolences to all those who suffered loss. It’s sorrowful enough to suffer a loved one’s death but to lose someone through such a violent act…..words escape me.

Back in the financial world, we are facing two events that could move mountains: FOMC and Brexit.

Of the two, FOMC is easier to determine: there will be no rate rise in June. What is less easy to determine will be the nature of the accompanying text and press conference.

My view is the FED will seek to lay the foundation for a rate rise in July or September (no meeting in August). If the language does not strongly hit at a July rise, that should lay the foundation for a rally in stocks and a move South for the USD.

So the question is: how likely is it that July will see a rise?

The answer to that question will depend on the results of the Brexit referendum on June 23.  I expect the FED to foreshadow a rate rise in July provided ‘the market upheavals (due to the referendum results) are contained’.

And this brings me to Brexit and its impact on the markets – tomorrow……

A Bazooka to Backfire?

BarroMetrics Views: A Bazooka to Backfire?

So, QE is now taking the form of negative rates. Some commentators have called negative rates a bazooka.

In this blog, we’ll be considering the questions:

  • What are central banks attempting to achieve with negative rates? And,
  • Are they likely to be successful?

But, firstly we need to consider what exactly does the term ‘negative rates’ mean?

In its simplest form, the term ‘negative rates’ means that the lender pays the borrower, e.g. a depositor pays the bank interest for the privilege of depositing its funds in the bank.

The aim of the central banks is to encourage the populous to spend rather than to save money. In this way, central banks believe they will be able to stimulate the economy.

So we now come to the central question: do negative rates achieve their purpose?

The fact is they don’t for two reasons.

Firstly, in a low rate environment, commercial banks find it difficult to make money on loans. And, in the United States, the Fed is paying commercial rates for its deposits with the St. Louis Federal Reserve. As a consequence, commercial banks prefer to deposit with the St. Louis Fed Reserve rather than to Main Street (see Figure 1).

There is no evidence to suggest that negative rates increase economic activity.

But there is an even more important reason why negative rates failed to achieve their aim: they distort and corrupt pricing in capital markets.

During normal times, investors have a choice between investing in stocks that pay a dividend or in bonding yields. Usually, if we invest in stocks, because they are a riskier asset class, we seek a safety moat. For example, Benjamin Graham suggested that the moat should be 5% more than corporate bond yields.

Let’s see what’s happening in the current environment.

McDonald’s who have had no income growth for about two years or more and the stock is paying a dividend yield of 2.8%.  Its current share price represents around 27 times earnings.

In normal times, we would not expect investors to be purchasing MCD given the lack of growth and the 27x earnings. But, these are not normal times. As Figure 2 shows, MCD has been in a solid uptrend since September 2015.


Because investors are desperately searching for yields. If the bond market won’t provide it, investors will move into stocks. The problem is, when rates start to rise, stocks like MCD will fall.

Despite the lack of evidence that negative rates will bail us out of the doldrums, every single country of note is now following the same tune: from the US to China, to the EC. The central banks have managed to turn what would have been a serious recession into a disaster waiting to happen.

06-03 FRED AMB


Note the sharp rise in deposits since QE. This is money not used for lending to Main Street

06-03 MCD



Ensuring Trading Success

BarroMetrics Views: Ensuring Trading Success

Manish asked for an outline of Ultimate III; John Gault and others asked questions that can summed up in this one:

Why does Ultimate produce the kind of results it does?

The answer lies in the delivery system. A system modelled on and modified for traders. Called Flip the Classroom, it is an educational revolution producing extraordinary results.

How did you learn to trade?

For the more ambitious, you’d attended at least one seminar. Usually, it would have been a 2-day or 3-day. It may have even had a bonus of weekly meet-up where the student can ask questions.

Here’s the thing, the educational model will work for those who are super-disciplined and super-focused. For us mere mortals, the model fails us.


Because for most of us, the model is similar to, and only slightly better than, a failed New Year’s Resolution. Yes, we are totally committed to carrying out the New Year promise at the time we commit. But, that commitment soon wanes in the face of daily challenges.

So too with applying our new trading knowledge, especially when we are faced with this reality.

Damn! It looked so easy in class! Now I don’t even know where to begin!???”

We find our initial commitment wanes and we go back to doing what we had been doing before the course – losing money.

More tomorrow. …..(I’ll post the Ultimate’s content on the last post in the series).

Temporary New Look

I’m Peter Ow, Ray’s business partner.  Our blog has been compromised and used for spam activities.  We have isolated the issue and working behind the scene to fix it.  Ray will continue to share his knowledge and views of the market.

For now, we have a temporary new look while we build something better. Share with us what you like or dislike about this new layout.

We love to hear from you.

DAX Revisted 2015-03-30

BarroMetrics Views: DAX Revisted 2015-03-30

In ‘The Start of a Heavy 25 Days“, I suggested that the DAX would provide a low risk, high reward trade.

Today the DAX provided an entry scenario.

Figure 1 shows the Ray Wave Count. Wave (2) was a simple wave; this suggests Wave (4) will be complex – the most usual complex is a sideways market. If a sideways structure is to form, we should see the DAX move to the Primary Sell Zone (12,189 to 12220), and then head down to the Primary Buy Zone (11649 to 11619). The minimum retracement would be the 21.4% line, 11747/11748.

A breach of 11177 would invalidate the wave (4) count.

This allows us to prepare for an entry at the Primary Buy Zone, with stops below 11177. With the 13-week swing in a strong uptrend (what I call a R2 Trend), it is difficult to project a reward. I’d deal with that once an entry is executed.


FIGURE 1 Ray Wave


FIGURE 2 Sideways Zone


BarrOMetrics Views: FOMC II

I was going to conclude “The Thin Line” today but the FED decision takes precedence. Besides, I received a flood of emails commenting on the ‘The Thin Line’ that needs to be read. I’ll conclude that piece tomorrow.

Yesterday, the FED tried to have it both ways: it did not drop ‘for a considerable time’ (commit to keep rates low) but did indicate that it would raise rates at a faster rate. It now is looking for a rate rise to 1.25% to 1.5% by end 2015 (instead of a max 1.25% by end 2015). This suggests that the latest rate rise would have to begin by June 2015 and this would be followed by a rate rise at every meeting thereafter to reach these levels. This is because there are only 8 FED meetings a year.

Also note that the FED expects the rate to be 2.75% to 3% by end of 2016. This suggests another 6 rises in 2016.

My question is whether Yellen will have the stomach to keep to this roadmap if the stock market starts to tumble.

The reaction to the FED was pretty much as anticipated:

  • The USD went up (except against the GBP, we’ll need to await the result of Scottish vote  for that decision)
  • The S&P gyrated around and ended with a neutral. To shake the belief that the FED will jump in to save any decline, it appears we’ll need to see clearer evidence that the punchbowl will be withdrawn. Let’s see what happens.