Friday, November 30, 2012

Cliff Up. The Broker Call

It's a quiet Friday afternoon and as we know when there is nothing else to yell about "The Cliff" takes center stage. So TMM are anticipating their lines lighting up any moment with brokers yelling their word.

Remember "Word Up"?

Word up (The broker call) 

Yo, pretty clients around the world
Got a disaster for you, so tell the funds and corps
Sell your Brother, your Apple and your S+P too
Cause they're about to crash down and you won't know what to do

Wave your hands in the air, it's a real scare
Scream at your punters as they start to look and stare
Do your dance, do your dance, to make em scared stiff.
Come on baby, tell 'em there's a cliff.

"Cliff up", everybody say
When you hear us call, you've got to sell it anyway 
"Cliff up", Use the Cliff word 
No matter how you say it, you'll know that you'll be heard.

All you sucker bulls who think it'll fly
There's got to be a reason but there ain't no reason why
You try to put on those longs and your fancy calls
But ya got to realize that you're acting like fools

If there's panic, we can use it, to pay the rents
We don't have the time for your common sense
"No 'greements", "no 'greements", is all we have to yell,  
Come on baby, tell me what's the word

  The word is SELL


Hotairmail said...

Word, brother.

Leftback said...

Not only a Cliff but also a Recession. Well, its not the sort of recession you can see, feel or measure. It's more of an ECRecession...

It's a Recession, I Tell You. +2.7% GDP is a Recession

As regular readers will know, LB doubts that this is an "Achurate" call by the doggedly determined but possibly delusional Lakshman. So, the evidence is that industrial production peaked in the US in July and then went down a bit. Um.. look, there is this seasonal thingy, happens every year, called summer. Hot, sticky, people slow down a bit.....

Look, to be honest, this recession call is getting a bit embarrassing. This is Carry On Forecasting. Yes, it's time for "The screens, nurse, the screens.."

CV said...

As an ardent student of leading indicators I must say that I am with LB here. I have tremendous respect for the ECRI, but if you look at the main leading indicators in the US economy they are very strong.

1) building permits
2) consumer confidence
3) NBER's leading credit index which is still very low (low volatility and all that)

As far as I can see the ECRI is trying to argue that we have seen a "turning point" in coincident index, but if you pull up the aggregate Coincident index for the US on Bloomie, I can't really see any turning point (in IP yes, but not in employment, manufacturing or income)

However, the most pressing issue is why should I listen to the ECRI telling me what MIGHT have happened back in July?

If Q4 GDP does not cliff dive (erm ... :)) and Q3 GDP is revised down, well. Actually my view is still that the real outlier was the Q4-11, Q1-12 GDP numbers which were way out of whack.


Anonymous said...


kindly bear in mind that GDP is the probably most revised macro figure out there. Even worse than inital jobless claims with its 1mn standard dev.

During the 2002/2003 recession the initial GDP estimate at the beginning of the recession basically flipped its sign, from something in the +2% range to something in the -2% range. I don't have the precise figures at hand but I think the idea is clear.

Anonymous said...


"Papandreous deny Swiss cash claims".

"The scandal over the so-called 'Lagarde list' of Greeks with Swiss bank accounts has deepened with claims that former Prime Minister G. Papandreous's 89-year-old mother was the beneficial owner of a Swiss account containing €550m".

Leftback said...

Another dull day. LB is amusing himself as ever by reading the thoughts of people who write a load of old tosh on the markets. As we warm up for TMM's always exciting Non-Predictions for 2013, we have a very strong early entry for LB's popular Captain Obvious contest for 2012:

Japanese Banks Have Significant JGB Exposure

Gosh. Banks having exposure to the govies of their own country. Never would have guessed that one....

Leftback said...

With SPX wedged in between the 200 DMA at 1385 and the 50 DMA at 1420, it's safe to assume that happy smiling punters can safely go off and do their holiday shopping while Big Ears and Boner continue to haggle over the content of the sausage.

In the credit markets, wall to wall OMOs are scheduled for the long bond until December 21. Where it gets interesting is when market participants realize that might be the last one....?

Look, let's cut to the chase. The protestations of ECRI and the delusional neorecessionists notwithstanding, the most likely outcome is that we snooze for a couple of weeks. At some point we will wake up to find that there is a love-fest in Washington, no Grexit and no Spanic.

Mr Shorty will be receiving a right royal rodgering as Spooz gapped up 30 points. When that moment arrives, you might not want to be in USTs or bunds.
OK, back to sleep now.... zzzzzzzzz

abee crombie said...

ISM very weak today. I get why ECRI is vilified since markets have rallied hard since his call but if you look at the data, i dont think his call is so far off. PMI's world wide all near 50. IP (YoY) while still positive does have a noticeable decline. Remember he never made a stock market call, just an economic one. Judging from the data I dont think its really as bad a call as ppl make it out to be

Leftback said...

One sub-50 PMI doth not a recession make...

Weak patches are a feature of weak recoveries, which are an obligatory feature of the long dreary periods after deep balance sheet recessions. This is a soft patch. Furthermore, there is nothing in the least surprising about the current soft patch, since the "FC" shenanigans have been clearly telegraphed for months and even the mainstream media had noticed it and talked about it before the election. Then there was the storm in the NE, of course.

A true recession is almost always preceded by a tightening of credit conditions and followed by sharp rises in unemployment. There is no evidence at all for stress in US credit markets and I suspect that this soft patch will not trigger job losses. This week's employment number will certainly be influenced by Sandy and that is being priced in.

As for ECRI. They have a magic box formula. Most of us know what is in it, and it's not terribly clever, in fact a big part of it is just Spoos. This works in most cases - b/c the equity market is usually ahead of employment. What is ailing ECRI has troubled many other strategists, namely, we are in ZIRP, and it is clear that most conventional metrics do not always work at the zero bound, where RORO rules, and higher rates are usually positive for the equity market and reflect a stronger economy.

Leftback said...

Here is a long and thoughtful commentary by Chris Puplava on this year's recession calls and why they may have been not only (Early) but also (Wrong). The gist of it is, you can't get excited about a few data points. Sometimes you have to sit there and STFU.

Being Early and Wrong

Anonymous said...

C Says'
Whilst the FC is little more than a playground spat played out for the public via the media it is also a problem.The problem is we are counting down into thin markets with all that that implies.

abee crombie said...

LB, I get what you are saying about ECRI, their black box and tightening of credit. But 1) Employment is always lagging, not leading 2) Credit, you can very easily argue is too influenced by the fed/ecb at the moment and 3) one subpar ISM doenst make a recession but how about 4 of the last 6? I think trying to look at this as a normal recession is where almost everyone is arguing. It probably isnt.

Look I am not calling for a massive recession or anything like that. All I am saying is that, data based, ECRI's argument isnt so far off.

If the Spoos were at 1300 now instead of 1400 i think many more would echo my views.

anyway a mild US recession isnt the biggest risk IMO, EM inflation is, which may be a risk into 2nd half of 2013

CV said...

I hear you on both points Abee (especially EM inflation!) ...

The issue with this cycle however is that the formal recession signal was in Sep 2011 (we run largely the same models as ECRI and we got a sure signal then). Now what happened ... well, the economy stormed into 2012 and started to weaken in, let us say Q2/Q3 or perhaps Q3/Q4, but then you also had the almost crazy growth in housing indicators and this is a very reliable leading indicator in the US, so it is not easy at all to interpret this. Surely, we have been looking to re-jig our models, but at the end of the day, if I can only call a recession with 6m hindsight, I might not want to venture into this debate at all.

I think it is very likely that we will have found that the US will have been in a mild recession, but it would also have been a very odd one! As I said, what use is this to me if I am told in Q1-13 what happened in Q2/Q3 2012? Fact is that if you issue a recession signal in September 2011 and you look at that as an ECRI subscriber (as investor), you expect the market to weaken, well it didn't!

Basically, the ECRI has been sticking to their call and this is commendable, but it started to sound a like a broken clock a long time ago.

The most annoying thing is of course that we know they will laud themselves in praise if the economy is found to have been in a recession or even if we enter one in 2013, but they have been waay too early I think, so I am not sure the accolade is fair.

Bottom line. It is lose/lose for ECRI.

- IF the recession was in Q2/Q3 what is the point of knowing it now anyway?

- If we get a recession, what point is their call in terms of market positioning?


jill said...

The U.S. recession has already begun.

Data via St. Louis Federal Reserve...

The Chauvet-Piger method is an excellent recession indicator. Reflects turning points pretty close to real time and more than 6 months ahead of NBER.

Another data series from the BLS on U.S. weekly wages for full time salaried workers adjusted to CPI-U...

Viewed on a quarterly basis, a U.S. worker made less in Q3 of this year than in every year since 2002 with the exception of 2008.

The U.S. consumer is 70 percent of it's economy and the U.S. consumer is dead broke.

Anonymous said...


corporate margins are currently at record highs in terms of % of GDP (FRED kindly provides the necessary data). If margins stay like that for a looooooooooong time stocks are currently fairly priced (based on reasonable PE multiples applied to said margins). A recession might change that...

Pls note that I don't make any bearish calls or similar stuff or any predictions when mean reversion will take its toll. My personal conviction is just that it will at some point in time.

Anonymous said...

C Says'
I'm really not sure what the argument is about recession.I would think there are points at which it is pretty academic.When growth is across multiple quarters is well below trend it's going to feel like a recession to a lot people anyway ,because in those conditions marginal expenditure decisions are already being influenced.Who really cares if you are slightly above zero,or below it.Neither position equates to the kind of enviroment that sees busy pushing Capex etc.On the contrary they tend to hunker down just like many of their end user clients.

Current situation has been stranger than most because of contradictory signs which I dare say have been distorted by central intervention measures.

Leftback said...

Bloody Hell. Face the facts. Growth this summer in the US was between 2 and 3%. How are you going to revise that to zero?

It's another Teddy Bear's Picnic today. Look, I have been a massive bear in the spring of 2010 and 2011, and for good reason. But much as many people want Good Ole Big Ears to wear an Official Double Dip recession here, there is one big problem.

There Isn't One, according to the strict dictionary definition of two negative quarters of GDP. There might be a soft patch, anemic growth, certainly low wages, weak employment, a naughty naughty bunch of Commies in the White House, Financial Repression by The Bernank, or whatever ideological slant you prefer, but the fact is this:

There Is No Recession.

Wake up and smell the coffee.

Anonymous said...

C Says'
I was referring to the Uk actually.
As far as the US goes they don't appear to be in recession territory that I can see unless I am missing something.

Anonymous said...

C Says'
Re where we are right now I note that resiliance on even small dips.

jill said...

"corporate margins are currently at record highs in terms of % of GDP"


I wonder why? Could it be ...?

From the US Treasury first quarter report fiscal year 2013:

Individual income taxes were $102.039 billion.
Corporate taxes were $1.619 billion.

See table 3 ( )

Projections for Fiscal Year 2013:

$1.292 trillion of individual taxes
$0.294 trillion of corporate tax revenue.

The regular people are just so screwed...

Salaries and wages adjusted to GDP:

Joe 6 pack is tapped out and crushed.
Where is Joe going to get the money to buy the stuff that corporations make?

Leftback said...

Joe isn't doing great. LB actually lives in a J6P neighborhood in the US, so he sees this close up, as apart from filtered through the Bloomberg terminal, or via conversations at the Country Club.

Look, Joe is going to get it from the same place he has been getting it for the last three miserable years, namely his pay check and his credit card. J6P has learned to "embrace the suck" and just get on with it. Besides, if he doesn't go to work and borrow on the plastic to buy stuff for the kids he is really going to hear it from the wife. Trust me, if J6P was going to cut back this holiday, LB would know about it.

Now, Barbara and Barrington Banker, that might be a different story this year.

Anonymous said...

Rampagingruss says:
Seems to me most readers of this blog are not really concerned whether the US is in a recession or not, but more with where equities are going. Equities say that there is no recession, while bonds (that is 30 year US bonds) have basically being saying the US has been in a recession for a year now. For my money, US dollar is too cheap - and when that corrects so will current ultra high US corporate margins. So I would worry more about when the rest of the world gets in trouble and start devaluing against the dollar. EM inflation concerns are the another way of expressing that fear. I suspect 2013 will be a bloodbath in equity markets.

Anonymous said...

C Says'
"So I would worry more about when the rest of the world gets in trouble and start devaluing against the dollar"

I must be missing something here.Whihc part of the world has not (or is not) already in trouble?
The wall of worry has been full of nothing ,but trouble all year from mainland Europe;Uk;Japan,and China "hardcrashing". I mean just how many parts of the world are left that are not in trouble? and yet the dollar continues to remain locked instep without any mega rally. I don't follow your logic. In the world growth in the US this year has been the least source of strife hence the relative strength of the dollar. In the rest of the world ,if anything,there is an argument we've expressed our worst fears already and currencies should reflect that.
What am I missing?

Anonymous said...

C Says'
A lot can change in the months ahead,but as we stand we seem to stand where we have been all year.That is,with a wall of worry looming over us convincing many people to stay in either govt debt,or cash to a higher degree than usual.From an equities point of view this isn't usually what makes a top.Risk tops tend to come with people overweight risk and highly complacent about the risk of capital drawdown.
Looking around I see little evidence of the aforementioned.

Anonymous said...

Rampagingruss says:
Hi C,
While yen has been weak of late at 82 to the dollar we are still looking at close to life time highs. Inflation adjusted CNY and most Asian currencies are also at or near life time highs versus USD, and this is also true of most of Latin America. If we see much weaker Asian and Latin America currencies from lets say a credit crunch in China I expect margins for US corporates to get crushed.

Leftback said...

TMM's vaunted Market Timer of the Month award goes to this lady for an absolute gem:

China Value Trap?

Shanghai was up almost 3% overnight....

Leftback said...

The services "ism" doesn't seem to have received the recession memo. Still, it is probably coming soon and the forecasters are just early.... *

* engage irony detector.

BTW, Ramapagingruss, and with great respect to all recent commenters, when someone comments on MM and says "we are in a recession", the word recession is herein understood to connote something specific to do with the economy, and the responses tend to be addressed towards that.

Now when they come on and say, "I am a punter and oo err I don't fancy the Spooz", then that's another matter and a somewhat different debate. In other words, language is important, and if we are to have a reasoned debate, it's important to define terms so it's not apples and oranges.

Anonymous said...

Why Would Anyone Want to Invest in China?

Anonymous said...

The 2013 sellside psychobabble that has been inundating our desks these past few weeks has once again reminded us of our favourite 2012 fact: IG bonds returned 10+% (and all the way to 12% for Yoorp), all that on sub 4pc initial coupons.

It's a truly astounding number, and perhaps the one thing this year that has surprised us the most.

Now, perhaps it's indeed all becoming Japan (where both spreads and rates rally for as far as the eye can see), but I really do wonder how long it's going to be before the duration bus hits a couple of jolly punters on its way out.

- DD

Anonymous said...


sorry for keeping on nagging. A value trap is better viewed over the span of a few years (2 to 3, say), not a few nights. Some nice examples would be CNX (Beware of the shale gas boom !) or PBR (Nationalized oil companies are the way to go, just look at China !). The lady is a bit shallow in her arguments imo but she might be accidentally right after all.

Anonymous said...

As for our most recent other obsession du jour, i.e. EURJPY ... well ... it doesnt exactly scream risk off, does it?

- DD

Leftback said...

By far the easiest way to make money this year was various forms of US distressed credit, buy it and forget it. Credit HFs have beaten macro handily this year, even if one eliminates some of the most cerebrally challenged funds (cough, Paulson) that became victims of being really big and everyone else knowing their positions and leverage.

A few brave souls extended distressed credit out to Greek GBs and were handsomely rewarded, but only if their timing was perfect.

Yes indeed, everyone loves fixed income these days, and it will no doubt take one of those +100 bp yield reversals at the long end to teach/remind people of the meaning of Duration Risk.

Leftback said...

Punters should stop and "Take Five" to remember the legendary Dave Brubeck:

Take 5


Leftback said...

If you're not sick of The Boomer Generation yet, read this:

Many Boomers Are Penniless

If only we weren't going to be paying for ever to support these lovable retards who popped too many tabs, smoked just a few too many reefers, enjoyed Free Love, bought their clothes at Gap and opened one too many HELOCs....

Leftback said...

Here is why the market is so boring. Spoos remain in a declining wedge. This wedge is exerting a vice-like grip as SPX meanders between the 50 and 200 DMA, waiting to fall UP or DOWN the "Cliff", as you prefer. The chart, from Doug Short:

Spoos Get A Wedgie

Anonymous said...

C Says'
Groovy man,I can dig all that.Yet in the great Karma of things should we light up another reefer, and contemplate how the Zen of life brings us to this magical place.A place where we are going to keep on keeping on for so much longer,and because the great master knows how destructful that could be he also creates a need for us keep on working on for longer.Such is the secret of Homo sapiens,to always seek the balance in things.
May the boom be with you.

Anonymous said...

C Says'
If I had to interpret this market it would go something like this.
Equity is more undervalued in Asia and Europe than the US. If ECB and BOE stay tighter than Benny than they would rather sell the dollar and buy those better valuations.
Note,I do not say US equity is overvalued,just that it appears to be fuller valued and in this beauty line up perhaps that is enough.

Anonymous said...

C Says'
On a funny note...

This guy is going into a wrld of pain.He probably deosn't understand waht a wall of French bureacracy can do when you offend them.He's about to find out!

Anonymous said...

C Says'
I came across this on and I hope no one minds me linkng it.I wish to do so ,because it's a fine piee of work.I could be accused of finding what I am looking for simply simply to confirm my own existing views,but nonetheless the research data speaks for itself to support such views.
I recommend it to you.Don't be put off by the title.

amplitudeinthehouse said...

C,being a betting man I have no doubt reading your comment you read "Zen and the art of motor cycle maintenance" during the 70's...keep it burning son till I get there.

I've packed it in for the year more or less, but , there was a sense of feeling today that rose within me , brought about by Polemical's sporadic postings that this blog may be metamorphosing into the ultimate contrarian so?

It's been duly noted that the comment board clicks into overdrive when the QE reflexivity trade is in motion after past fed induced cycles, then it seems to proceed into a " I am a Legend " scene when the POL decides to put the kevlar gloves on...what does it all mean now that Polemic is missing in action, are the hedgies and real types hedged for the year and sitting around waiting for the right moment to let them run off?
Who know's , may be I'm just paying to much attention to detail...but hey, it's hasn't done me any harm this year, has it!

Anonymous said...

C Says'
Nice call .

Leftback said...


When TMM become very very quiet it is a sure sign that:

a) They may be down the pub.
b) Excessive government/CB interference is awaited.
c) Holiday party season is almost upon us.
d) They are busy taking their kids to Pantomime.

For the time being, LB will keep the blog audience amused, irritated, informed, or bemused while the political wrangling continues. Rest assured that TMM will return once the current pantomime season in Washington draws to a close.

Anonymous said...

C Says'
Do you hve a call,post ,or pre NYear on FC?
What's you sense of it being over there?."Sense" might not be the most appropriate word to use.

Leftback said...


As you correctly surmise, LB is mainly responsible for the Non sense on the blog. LB does have a point of view on The Cliff. We will share it with readers at an appropriate moment.

Leftback said...

Towel chucking on bonds here by the media, who now finally and officially love Treasuries. They have even adopted the "Widowmaker" sobriquet. LB seems to remember several people threw that particular idea out in this space, about twenty-one months ago:

USTs The New Widowmaker?