FINANCIAL MARKET ANALYSIS & Forecasts

The above chart in Bitcoin shows both the capture of the rally and the missed opportunity of the impulsive rally above 20,000

Contents of this Q3 Review

1. Introduction.
2. The main geopolitical calls.
3. The market predictions and performance.
4. Funds and their performance.

1.0 Global Forecaster Introduction

Global Forecaster was set up in the summer of 2019 to inform and advise professional asset managers through troubled waters. During this year, there were obvious indicators that global markets were soon to peak in February 2020 and collapse with the most grievous consequences. I have called this transition The Great Shift as it is driven by the hegemonic challenge of China to America and the West.

With one year of performance under our belt, the results of our geopolitical predictions, market predictions and fund performances have been very pleasing. We believe the key to high returns and long term success is based on:

1. Prescient market views generated with a systematic multi-timeframe and price modelling system.
2. Good trade entry points with tight and structurally meaningful stops (entered with contrarian price modelling).
3. Appropriate position sizing.
4. Risk management in accordance with trends.
5. Successful trade exit points.

These five points describe Global Forecaster’s risk methodology.

By reading the below quarterly performance appraisal you will have a better idea of how we apply my risk allocation methodology as well as how we combine geopolitical predictions using various models from Breaking The Code of History. All of these real-time predictions have been published on the Global Forecaster site. We then go a stage further and apply these trades to different fund mandates. Track records are given below.

2.0 The Main Q3 Geopolitical Calls

1. Biden would win the election by a considerable margin. Contextually, this call was made back in January when Trump's re-election seemed inevitable and when no one was predicting Biden's victory. We based this call on the need of the American electorate for wealth distribution to keep them afloat. This prediction proved correct.
2. Sino-Western polarisation will accelerate swiftly as the effects of the pandemic worsen. Ultimately, China will be found guilty in Western courts and damages against the state will result in expropriations on Western soil. China will drive an accelerated arms race using its idle industrial capacity to build ships, missiles, planes, armoured vehicles and an amphibious capability. Faced with the overwhelming polarisation against China, President Xi could well choose the path of accelerated aggression. Taiwan is the most probable flashpoint. This is the biggest geopolitical shift of them all and it is unfolding at the rate I expected. Our estimate is 99% of all senior political and business leaders are underestimating this shift and its impact. Recent Murrinations give details of Xi’s future path for China as an internally fuelled consumer society that becomes fully militarised like Germany in 1939, which is effectively the road to war in 2025. This prediction is on track.
3. The delusional gap between economic reality and the stock market will close. The Phase 2 correction will end imminently and, following a sharp reversal sentiment, will swing to the other extreme during a six month decline of up to 80% from the February highs in European stock markets and only a slightly smaller fall in America. As the reality gap closes, the social mood of populations will become markedly darker and there will be increasing social unrest due to economic stress on the lower and middle classes. These classes will find a just cause to express their collective frustration and anger. Additionally, as the pressure builds there will be regime changes in countries with unstable economies (especially hydrocarbon economies). This prediction has still to unfold.
4. There will be very significant asset price deflation well before inflation becomes noticeable in shares, commodities and the property market. Gold and silver will be a major store of value and will appreciate 200%+. Expect this to unfold in the autumn as unemployment numbers increase. This prediction has still to unfold.
5. The Pandemic will continue for 18-24 months until a vaccine is found or herd immunity is reached. Herd immunity is being bolstered through T cell immunity which is not as of yet tested. I estimate that with T cell immunity the herd immunity levels are at least double the published figures. I am not confident that we will see an effective vaccine until next year.
   1. There will be secondary and tertiary waves. We were correct concerning the onset of a second wave.
   2. Governments will have to become more effective at constraining the pandemic, locating new virulent strains and keeping the economy operating. This is happening in the East at present, but not in the West. This prediction proved correct.
   3. Testing (including for new strains) and tracking must be greatly enhanced. This prediction proved correct.
   4. A global response to the pandemic could and should be led by Britain. This will exclude China and possibly America (by its own choice). This prediction is on track.
   5. There needs to be more focus on the inevitable mutations of the virus into a multi-strained simultaneous pandemic. This prediction proved correct.
   6. In Western societies there could be long term health benefits as populations are encouraged to take self-responsibility for their health. This prediction is on track.
6. The lockdown strategy of Western governments will in time be viewed as a misguided response that equated to economic suicide. This is because lockdown failed to balance the overall relatively low death rate of the majority versus the high magnitude of economic destruction. By focussing on the preservation of the older, less productive population, governments have sacrificed the future for the younger population. The failure by Western governments to respond holistically illuminates both the predominant left-brained thinking process and the influence of the madness of collective behaviour. Governments should have resisted this with clear strategic leadership. This prediction is on track.
7. There will be a sovereign debt crisis in Italy and/or Spain. The German Supreme Court will do all they can to resist the ECBs support of the Italian bond market. Bond yields will rise considerably by the years end. America will also be at risk of a sovereign bond crisis and ultimate restructuring. Bond yields will rise not due to economic recovery, but due to the risk of holding debt. This prediction has still to unfold.
8. America's role as the global hegemony will continue to wane. Trump will not be elected again. New non-American alliances will evolve. The dollar will fall by 20-30% against the major currencies. This prediction is on track.
9. The EU will fracture from its current structure and devolve to national levels. This will be triggered in the later stages of Brexit. Moreover, Brexit will happen on terms that benefit the UK as the EU’s position weakens. This prediction proved correct. The vacuum created by the shrinkage of American global influence and the accelerated Chinese coercion of other nations could provide Britain with a massive opportunity to strengthen its global links with the Commonwealth and establish a new global trading network. Britain will hold the upper hand in the Brexit negotiations. While a no-deal outcome is probable (as the economic environment worsens in the next six months) the EU will find they have the weaker hand and thus will yield to British demands at the last moment. Sterling will appreciate more than any other currency in the world during the next 6 months rising to Cable 1.60 plus and against the Euro to 0.65. Exporters, be warned and prepared. This prediction is on track.
10. There will be social unrest in Russia. Resultantly, there is a high probability that Putin will be displaced. Such an eventuality would provide the strategic opportunity to entice Russia back into the Western fold.  This prediction is on track.

3.0 The Q3 Market Predictions

3.1 GF Methodology

I was a macro asset manager for over 35 years. I know there is a big difference between having an idea and translating it into profit. My Arkent and Market Analysis Services are designed to do just that.

Over the past 12 months, Global Forecaster has evolved its risk system into the one described below. The trade performance tables represent this standardised system.

To remind you of how it works, each idea has a risk unit, defined from the entry point to the stop level, and a trade idea in one market can have a maximum of 100% which equates to 10 risk units at any one time. Trade recommendations can be either 33.3%, 66.6% or 100%. The 100% limit in a market can be put on all at once or in combinations of 33% and 66% sub-trades. For example, T12a, T12b and T12c would be three 33% trades in one market and for one idea. High conviction trades require the time frames of short, medium, and long to all be aligned. Notably, in 2020 Q3 the conviction levels were very high due to the high and integrated signal strength associated with my Phase 3 roadmap.

My trading strategy is to trade in alignment with long term directions and trends and then find short term entry points that translate into long term time frames that produce tight risk rewards on entry as well as high multiple risk returns. The tight risk rewards on entry may mean that an entry point needs to be attempted several times. A spreadsheet is available on request to explain all the trades which are displayed on the site and the summary tables below.

We then go a stage further, taking my trade recommendations and applying them to specific fund structures such as Top Macro, General Macro, Long Short and Commodity funds operated on behalf of clients. The history and performance of those funds is given below. 

3.2 Top Performing Markets Over the Past 12 Months

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As an example of how the Global Forecaster risk system works we have included a table of my top-performing markets. Take the FTSE as an example where 763.2 risk units were generated over 12 months. This equates to a 71x return on a 100% trade of 10 units. In reality, as some of the units would have been 33% and 66% this will underestimate the return. Even so, 76x is a massive number. Even a 13x multiple represents a very significant return at the bottom of the table.

Another clear pattern that this table demonstrates is my predictive systems work in all the asset classes I cover. This is conditional of course on directional movement which has a cyclicity of fallow periods and fertile periods. Key to this system is avoiding the fallow periods that eat up energy and capital with no return, focusing instead on the fertile periods in sectors. This is key to consistent overall portfolio generation.

3.3 General Appraisal of Q3 Performance

October looked to be on track for a major risk-off market move as the weaker European stock markets started to accelerate lower. As they did so we were able to lower the stops and lock in small returns. However, the rally that in retrospect looks like a continuation of the Phase 2 correction was sharper and unexpected and hence our equity performance for the quarter was poor and mixed in FX bonds and commodities. The best performing market was Bitcons which we captured from 6000 to 20,000.

3.3.1 Equity Markets

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The Above Chart Shows the Eurostoxx trading during the quarter

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Our strategy of selling the weakest stock markets in preference to the strongest proved once more to be a successful trading adage this quarter as the weakest markets dropped the furthest distance, allowing the stops to be lowered before the late October rally commenced. However, overall equity predictions were negative for this quarter.

3.3.2 FX Markets

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The above chart shows the Dollar Index and the quarters trade locations

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Our  strategy was one of being long term short on the Dollar, but medium term being in a 4th wave correction. The effect was a mixed return across the Dollar pairs. Only Bitcoin produced an exceptional return for the Quarter as our long predictions bore fruit.

3.3.3 Bond markets

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These markets were trapped in corrective ranges that we classify as 4th wave before one more rush higher. As such, they provided mixed returns. Bunds gave positive returns, with US  bonds giving negative returns.

3.3.4 EM Markets

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There were very few recommendations made in this sector over the quarter.

3.3.5 Commodities

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Considering that Gold and Silver were in a messy sideways trading pattern our recommendations were very solid and productive. In oil we sought to go short too early, but in Nat gas made some good returns. In basic metals we were too early for our short position.

4.0 Funds Performance

Global Forecaster operates four fund portfolios for clients by applying GF trade recommendations.

4.1 Long Short (Square point)

A long short fund of $200m with a max of 50 equity positions of $4m.

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This fund suffered from the equity market rally in which our key short on oil and banks flew in our face. Whilst we traded our Gold and Silver stock portfolio well the gains were only net marginal. This created the first loss making quarter in this fund.

4.2 Commodity (Square Point) - A Commodity Fund

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There were few technical problems that prevented the capturing of the Gold and Sliver rally, whilst we lost money on the Oil rally and base metal move, producing a  quarter.

4.3 Top Macro (Client X)

A concentrated best of my macro ideas with zero leverage.

Its key positions have been: Short WTI and Brent and Short FTSE and Eurostoxx. 

The net loss over the quarter was 3% with the previous four month return at 15%.

4.4 General Macro (Client Y)

Contains 80% of all the trades generated from equity indices, FX, bonds and commodities.

The returns over this quarter were poor.

The above Chart is of one of my  trades of the Quarter in Gold;The others were Silver, Bunds and best of All US T Notes.The Dollar Shorts were close seconds!

Global Forecaster Introduction

GF was set up in the summer of 2019 to inform and advise professional asset managers through troubled waters ahead. As the signs that global markets were soon to peak and collapse where obvious, with the most grievous consequences. I have called this transition The Great Shift, as it is driven by the hegemonic Challenge of China to America and The West.

My performance in Q3 2019 and Q12020 has exceeded any of my expectations. By reading the below quarterly performance appraisal you will have a better idea of my risk allocation methodology as well as how I combine geopolitical predictions using my various models from Breaking The Code of History, with complex market price models, all then integrated into a risk model. All of these real-time predictions have been published on the Global Forecaster Site.

The Main Geopolitical calls

Our main geopolitical calls during this quarter are listed below. Most have unfolded as expected or are in the process of doing so.

1. The Wuhan Pandemic Having predicted its arrival in early January, I stayed ahead of the curve during the whole of Q1 and Q2, predicting the effects Entropy Tsunami and impact on economies, politics, and the pandemics behaviour. The big question remains where did it come from and was it released intentionally?
2. Trump's One-Term Presidency: In January when the consensus was that Trump would be elected. I predicted that with the impending stock market fall and deteriorating economic conditions, Trump would lose to a Democrat. This is on track and will impact the market significantly
3. The collapse of the oil sector:  late last year when oil was at $65, I called for the fall of the oil price to sub $27. I also predicted the end of US oil shale and a range of massive upheavals to hydrocarbon economies and associated Geopolitical shifts. This is still ongoing
4. The Battle at The heart of the UK government will be won by Boris. The left-brained encumbrancy as personified by Mark Sedwill would be swept aside by the right-brained Cummings revolution to change government and the direction of Britain which would be very positive for Sterling.-This is now unfolding and I expect sterling to benefit greatly.
5. The delusional gap between economic reality and the stock market will close. Although this has not taken place I expect it to do so before the end of the year. The Phase 2 correction will end and, following a sharp reversal sentiment, will swing to the other extreme during a six-month decline of up to 80% from the February highs in European stock markets and only a slightly smaller fall in America. As the reality gap closes, the social mood of populations will become markedly darker and there will be increasing social unrest due to economic stress on the lower and middle classes. These classes will find a just cause to express their collective frustration and anger. Additionally, as the pressure builds there will be regime changes in countries with unstable economies (especially hydrocarbon economies).
6. There will be very significant asset price deflation well before inflation becomes noticeable in shares, commodities, and the property market. Gold and silver will be a major store of value and will appreciate 200%+.
7. The lock down strategy of Western governments will in time be viewed as a misguided response that equated to economic suicide, failing to balance the overall relatively low death rate of the majority versus the high magnitude of economic destruction. By focussing on the preservation of the older, less productive population governments have sacrificed the future for the younger population. The failure by Western governments to respond holistically illuminates both the predominant left-brained thinking process and the influence of the madness of collective behaviour. Governments should have resisted this with clear strategic leadership.
8. Chinese-Western polarisation will accelerate swiftly, driven by both sides, as the effects of the pandemic worsen. Ultimately, China will be found guilty in Western courts and damages against the state will result in expropriations on Western soil. China will drive an accelerated arms race using its idle industrial capacity to build ships, missiles, planes, armoured vehicles and an amphibious capability. Faced with the overwhelming polarisation against China, President Xi could well choose the path of accelerated aggression. Taiwan is the most probable flashpoint. This will bifurcate the world into two trading spheres and limit the economic recovery significantly.
9. Brexit will happen. It will happen on terms that benefit the UK as the EU’s position weakens. The vacuum created by the shrinkage of American global influence and the accelerated Chinese coercion of other nations could provide Britain with a massive opportunity to strengthen its global links with the Commonwealth and establish a new global trading network. Britain will hold the upper hand in the Brexit negotiations and whilst a no-deal outcome is probable as the economic environment worsens in the next six months, the EU will find they have the weaker hand and thus will yield to British demands at the last moment. Sterling will appreciate more than any other currency in the world in the next 6 months rising to Cable 1.60 plus and against the Euro to 0.65. So exporters be warned and prepared.
10. America's role as the global hegemony will continue to wane. Trump will not be elected again. New non-American centric alliances will evolve. The Dollar will fall by 20% to 30% against the major currencies.

Overall Strategy and Summary

We started the quarter in April cutting our shorts and taking our profits on the trend break from phase 1 (the initial drop from February). We then correctly identified that we were in a phase 2 correction which was the corrective bounce driven by government action. However, I underestimated how much money would be unleashed. Once the equities markets had reached a 38% to 50% bounce we moved into our Phase 3 playbook, which turned out to be correct in the case of the Dollar and Bonds markets. But 8 weeks early in the case of equities until they made their June 9^th/10^th highs. Thus our main significant returns for the quarter were in short Dollar positions, gold and Silver and the Bond market, which although range-bound provided great trading opportunities. Equity markets and commodity proved tough with our bearish viewpoint, but constantly good trade locations and size allocations preserved large portions of the profits made in phase 1. Especially in what I describe as the weak equity indices, which confirmed our adage sell the weakest and buy the strongest. Meanwhile, commodity markets and especially oil, mirrored the equity trading pattern, but again the losses in the correction did not exceed 30% of the profits made in Q1 when we exited short positions from $62 on the day we saw negative oil. We ended Q3 in a full on Phase 3 mode, short equities commodities and the dollar ,long bonds and waiting for a dip in gold and silver to reload.

GF Methodology

I have been a macro asset manager for over 35 years and  I know there is a big difference between having an idea and translating it into profit. My Arkent and Market Analysis Service are designed to do just that. Indeed, I am pleased to say I have achieved this objective during  Q1 and Q2 by successfully building on the Brexit success of the last quarter. To remind you of how it works, each idea has a risk unit from the entry point to the stop level and a trade idea can have a maximum of 9x risk units in any one market at any one time. Trade recommendations from 6x to 9X have high conviction, and notably, in Q2 the conviction level was much higher than Q1 as we built confidence in our methodology. That means that in equity markets the give back in Q2 was in point terms, very low indeed from Q1 profitability which was achieved with smaller trade sizes.

My goal is to trade aligned with long term directions and trends and then find short term entry points that telescopes into long term time frames, producing tight risk rewards on entry and high multiple risk returns. The tight risk rewards on entry may mean that an entry point needs to be attempted several times.

A spreadsheet is available on request to explain all the trades which are displayed on the site and the summary tables below.

Best of Macro Portfolio

We have started managing a Marshal Wace Tops Macro Portfolio, and although we only started in the middle of June the first steps were encouraging with a 0.62% return. This portfolio is a representation of my strongest ideas from my universe of recommendations.

Equity Markets

Although 2/3rds of the quarter were spent with the wrong view, excellent trade locations and stop controls, coupled with more persistence and hard work than I would have liked, minimised the losses relative to Q2s gains. Notably in the weaker indices where we offer higher levels of trade management in the Eurostoxx 50 , and DJI the Quarter was profitable, whilst only marginal losses were seen in the FTSE (4.5% of Q1 profit) and SP500 (27%). For the past decade equities have had a bias in terms of time to go upwards, but the drops are very swift when they happen. Hence the return profile is very much like buying options.

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Meanwhile our long Short Strategy had three key elements, Short The Oil sector and banks and long Gold and silver stock at critical phases, which rewarded us with a spectacular result on the Square point Platform with a 12.4% return on a notional 200m portfolio ranking 2^nd out of 203 competitors.

FX Markets

We have been bearish the Dollar since the start of the Q2 when the safe haven rush into dollars peaked and it has been one of the signs that Phase 3 is in play in some assets. Having entered dollar short positions at excellent locations in max size our preferred trades to be long against have been sterling the Index the CHF and the Yuan. Our risk-off trades in Dollar Canada and Dollar NZD have been wrong but in line with our give back in weak equity indices. Meanwhile, Bitcoin has produced solid returns. We expect an acceleration of the dollar bear trend in Q3. Our EM currencies are reviewed in the EM section below.

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Bond Markets

Our bond recommendations have been consistently good this year as attested by the results. The US, German and UK bond markets have been range bound all of Q2, however we have  traded all the cycles very well, especially in Bunds. On the basis that Bond Markets were smarter than equities, whilst equities in the US went into a blow-off high, bond yields were sending the signals that they were ready to decline. We ended the quarter with longs in Bunds, Gilts and our most successful are the T Notes as the latter had the most yield compression potential; On the opposite side of the coin we have been short on Italian BTPs looking for them to go into default and that position has made money and looks great for  Q2. Overall, we are extremely pleased with our performance in this sector.

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Emerging Markets

This is a new sector product, although we have developed a good track record in EM currency’s in this quarter. We missed the correction, and are now once more short of EM currency’s going into Q3. The equity section is only just getting going.

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Commodities

Gold and Silver produced particularly good returns this quarter and we expect them to continue to do so this next quarter. Oil started well by ending its fall with a collapse which we used to cover all shorts at $7.5 and go long. However, we exited too early at just under $18 and have been short since. What has compounded the loss of 27 units compared to the Q1 gain of 88 units was the increase in trade size from 3x to 9x at the highs. The basic metals followed equities in holding their prices in sideways price pattern. We ended the quarter being short of this sector.

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Our square point commodity portfolio of 200m notional reflected our early massive gains in oil racing £62M, but then falling back to $15.5m and 20/62 in this universe.

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