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EMMA program was down 0.96% in January.

Volatility is staging a come-back. Macro is back. But we are not convinced this correction is “the one”. Late stage rallies tend to be choppy with ever greater display of fear and greed. We’d be surprised if the recent Dow peak isn’t challenged again and the 1175-point drop record doesn’t get shattered soon.
 
The strength of euro and the aggressiveness of dollar’s drop is surprising. Inflation and rate hike expectations hammered the bond market then the stock market more recently. We usually don’t trade these markets but we are watching and adjusting to some correlational shifts. Market participants seem to have begun the transition to risk-off mode. It will take a much larger shock for people to run to safe assets en masse. When that happens, which is a long ways off, we expect precious metals and bonds to be in vogue again. 
 
On another note, shutdown politics has played out twice in a month. Alas, that old fashion kick-the-can-down-the-road still reigns. The latest compromise calls for more military AND domestic spending without a trace of reform of the big three – defense, Social Security, and Medicare, at a time of record debt level and rising interest rates. It is cliché to blame politicians, but it is hard not to – this is not a good time to put another new car on the family credit card.
 
Corn and wheat seem to have bottomed out. With still-healthy demand growth and tighter supplies, as well as weak dollar in their back, we anticipate upside potential for grain prices. Meats are having a pretty big correction despite solid fundamentals. We will be actively looking for the right set up for entry.
 
Oil and gasoline had a huge run-up as we called it, but as much as we like the technical trends, the current price levels are not sustainable based on fundamentals. Natgas is in a delicate supply/demand balance and the weather momentum is likely gone for good. As a result, we are not holding any energy positions at the moment.
 
Overall, we agree with the consensus that commodities’ time has arrived. Long term structural dollar weakness, tightening market conditions, strong demand are supportive of prices. Our indicators of improving fundamentals, good technical picture, and positive sentiment are all present. We expect to have a good year.
 
Commodities cycles are typically off sync with business cycles and stock markets. We encourage investors to look at it as a way to diversify from stocks, bonds, and cash, especially when this rising-but-still-low inflation & interest rate environment renders all of them vulnerable. In fact, our EMMA program’s correlation to S&P 500 just hit 0 at the end of January. Barron’s published a timely piece on this point. And here's our February newsletter.


Regards,
Jeff Lee, CTA

 
Past performance is not necessarily indicative of future results.
There is a substantial risk of loss in futures and options trading.

 
Kronos Management, LLC
604-880-3931 | www.kronos-management.com

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