We've got a new government that's coming in we don't really know how they're going to act, what they're going to do. So it's very difficult to trade based around that policy and clarity of policy. We have really no idea what the central bank’s going to look like in a year's time or so. So it's difficult to trade around that.
The only thing I do know if I look out and say what’s an obvious trade, the dollar still seems to be a pretty obvious trade unless somebody does something to rollback this globalisation or even the thought of repatriating profits from companies abroad which is another strong dollar event even if they're in dollars abroad let’s say Apple's profits that are in Ireland are in U.S. dollars once you take those out of the markets in the offshore euro dollar market that makes the funding conditions even tighter so the dollar goes higher.
So the dollar situation seems pretty obvious to me. I don't see anything that would change that, there is no risk yet of the Central Bank starting to cut rates or looking at doing any excessive policy. So I think that's still the cleanest trade in the world.
The trade that's a little more difficult but becoming more interesting to me is having a short at the short side of the equity market. I use DMAC technical indicator. I found them very helpful for me. We've got a perfect monthly, daily, weekly set up which is very rare. Usually at worst the market goes sideways or at best the market goes sideways at worst the market has a sharp, sharp correction or it's the entire top.
I don't really have a view yet on what that is, I’m just monitoring that, noting with interest that this position is there, noting that the market bought the election and knowing how fickle markets are, they’ll probably sell in the inauguration. So that's one thing that’s kind of interesting. What do you think?
Erik: Well I’ll see if you want to grade me on the thoughts I have. The only real directional trade that I see right here is long the dollar index and I think we agree on that we've already discussed the reasons why.
Beyond that the things I'm looking at there, if I look at the term structure of crude oil. We've got a fairly steep contango for a few months but then we see backwardation in the belly of the curve. So apparently we're not going to need storage after June or July or so it's going to be a non-issue those tanks are going to be empty. I'm not buying that story.
So I do see a curve steepener trade that is-- I actually just bought a bunch of spreads short June, long December. Just thinking that at that point there was backwardation in that segment of the curve I don't think that's going to stay in backwardation I think by the time June gets here we're going to be looking at contango again.
So that's one trade that I see the other one I'm kind of waiting for and I’m lining up quite a few dominoes here is I think that Trump is going to get tough with ISIS very quickly after entering office and I wouldn't be surprised if there's some kind of ultimatum, ISIS knock it off or else, and I think there's so much hysteria right now politically there's so many people with such polarized viewpoints that you could easily see a an overreaction, a massive upward spike in oil prices because a lot of paranoid people are convinced that Donald Trump is going to launch nuclear weapons on ISIS or something.
