Policy Uncertainty Falls.

Wednesday, November 07, 2012


This afternoon's dramatic moves lower in equities and oil have been pinned on Romney trades being unwound, but we do get the feeling that there is a lot of Price is News and tail chasing going on when very little has actually changed. We will go into whether that is the problem or not below, but for now are happy to concur with our faithful reader "Leftback" when answering the question of this morning's post "Now What?"

"The answer appears to be "throw all the toys out of the pram" this morning, or as the Australians say "spit the dummy". Of course there is a limit to the profit available on that trade once your favourite plastic rattle and squeaky ducky is on the floor."  Indeed.

Historically the markets rally out of elections due to reduced uncertainty and we still believe that there is less uncertainty today than there was yesterday, but this post event dump is being blamed on Romney trade unwinds. It is surprising to TMM that so many had Romney win trades on but also for the following -  Although politicians and pundits like to claim otherwise, the evidence is that tinkering with tax policy (US tax rates wouldn't exactly be out of whack with other G20 countries) does not materially affect economic outcomes to any real degree. Of course Wall Street, eyeing up their own tax rates wanted Romney, seemingly blind to the fact that slashing spending and tightening monetary policy at an economically fragile time would plunge the country back into recession, and somewhat ironically, hitting their own wealth via falls in the value of their assets (particularly bank equities). Indeed there is no free lunch in "Diner USA"

Beyond the whiplash in the CTA and 5 minute macro crew, excitement on Bloomberg chats about "poor price action" and many trying to argue that "the status quo is the worst of all possible outcomes", TMM would actually point out that Obama and the Democrats have been handed a pretty strong mandate here, despite Boehner's spin early this morning. The electoral college was definitive, with most of the swing states going Obama's way, and gains were made in both the Senate and the House. Add to that, the fact that Tea Party candidates failed to gain any mandate whatsoever, the apparent split in the Republican party over strategy (and likely infighting over the coming months as a new position is decided upon for the midterms) and it becomes clear that the path to a solution to the fiscal cliff has become much cleaner: -

- The hurdle in the house for compromise is lower, so fewer moderate Republicans will need to be persuaded to pass a plan

- There are reports of Nancy Pelosi being replaced by a more moderate democrat as minority leader. This also narrows the gap that needs to be bridged.

 Whether measured by popular vote, electoral college, Senate or House, all either show a continued firm mandate for Obama and/or a swing toward the democratic position. It is thus exceptionally hard for Boehner et. al. to argue that they have a significant mandate for dramatic spending cuts and a rejection of any tax rises. Simply put, digging in their heels in the face of any compromise plan put on the table does not look like a credible strategy nor launch pad to the mid terms.

Finally, it is worth noting that President Clinton managed to get through his budgets after re-election, despite facing a Republican Senate and House. In yet another echo of the mid-90s, this came shortly after a government shutdown and debt ceiling debacle (cf Aug 2011)

Team Macro Man believe that the path to falling policy uncertainty began this week and the fiscal cliff may have to be downgraded to "road hump".

Posted by Polemic at 4:38 PM  

97 comments:

I think the fiscal cliff will turn out to be our Y2K13. However, I believe that we have increased uncertainty since yesterday, in the sense that, heretofore, investors were gripped by the faux uncertainty of Obama / Romney. Now that they've freed up a bit of headspace, they're faced with the seemingly greater uncertainty of the fiscal cliff / earnings rollover / whatever.

That's my take on post-election price action; I don't think it really has anything to do with the election outcome per se.

My plan is to let people whip themselves into cliffpoplexy, and then buy, err, something. Right now, maintaining a watching brief.

VandalsStoleMyHandle said...
5:33 PM  

Obama is also one of the rare DM incumbents to win anything over the past couple of years.

It may not count for much, but looking at it this way strenghtens the mandate even more I'd say.

(Or perhaps, it says something about the current incarnation of the GOP, I don't know).

Dee Dee Humberside said...
5:35 PM  

SORRY MAN, YOU'RE JUST GUESSING AND TALKING YOUR DREAMS. STAY IN SOCIALIST EUROPE BONEHEAD

marcusbalbus said...
6:07 PM  

Another example of the trenchant, incisive commentary one has come to expect from a certain cohort of US-based readers whenever this blog turns to politics. Perhaps if these chaps ventured further afield than the outskirts of Hazzard County, they'd discover the merits of alternative perspectives to those of Boss Hogg and Roscoe P. Coltrane

The Original said...
6:23 PM  

euro euro on the wall who's the most bankrupt of them all

marcusbalbus said...
6:29 PM  

Wow, this is incredible, I am surprised that anybody writing in caps can read, let alone read something meaningful

Anonymous said...
6:50 PM  

C says,
Let me put it this way. Politicans who want to get elected have to learn from not getting elected.
The republicans ,assuming they have anything between their ears will understand that the route to power no longer comes from their preconceived policy ideas.They have just been shot down in flames with Romney. So, Republicans either find out how to outdo Obama on policy aimed more at the centre/left ,or they have learned nothing from their defeat.
I also therefore conclude that matters are probably clearer now than they have been for quite some time.That policy barriers might be easier to hurdle on some issues as republicans wise up to what swing voters in the electoarte have actually asked for with their votes.
Now I don't expect that to go down very well with the illiterate section of the right who think they need to ride their beliefs into the jaws of the cannon,but the smarter one's will know they can't afford to be dumb and play for more of the same.

Anonymous said...
6:52 PM  

Nyah nyah nyah nyah nyah.... Socialist Europe...

Quality stuff, there. We haven't had commentary on this low a level here for a long time. Can always count on events in US politics to drag down the level of analysis. We'll refrain from debating the possible economic benefits of social welfare and health care, or World War 3 will probably break out.

Fact is, there isn't a lot of actual socialism around these days. After all, countries being run by blokes like Monti who essentially take their orders from German bankers isn't exactly what Marx had in mind. As for the US, anyone who thinks that Obama is a socialist is clearly smoking something, and probably was last night if they thought Romney had a ghost of a chance.

Congress is already talking compromise, by the way, and in fact, this is one of those times when the market can be a useful stimulus to politicians to JFDI. Three sharp down days and I think the principal actors will get round the table promptly.

Leftback said...
6:52 PM  

Getting your very own kind of hate mail here... Guys you must be onto something! Keep up the good work!

Observer said...
7:01 PM  

C says'

Actually this is what it really comes down to...
"The Republican core vote is increasingly made up of white male voters of a certain age and there are fewer and fewer of these every year."
Numbers,always numbers.Unless they want to change whose allowed to vote then the Republicans need to wise up as to where the votes they need are to be found.If they can't cobble together policies that appeal to those voters then they could be like the conservatives were in teh Uk,frozen out for three full terms. If they're smarter than that we should see some adapatation going on with their policies.

Anonymous said...
7:02 PM  

C Says'
"We haven't had commentary on this low a level here for a long time"

I don't know,I think I've been there ,or thereabouts on occasion.

Anonymous said...
7:05 PM  

The title is reminding me of DB GEP 31 Oct edition, was not that convincing of an article, is there any predictive power?

Anonymous said...
7:47 PM  

c Says'
You want "predictive power" then buy a crystal ball.Lets' cut to the chase,do you think positions are taken and held on predictive power? If the answer is yes,you are not yet ready to go on to chapter two of the beginners manual.

Anonymous said...
8:25 PM  

If I were an elliotician with balls I'd short the dow to 10K, that's probably the clearest 5 wave move since the March '09 low I've ever seen. But it could be a wxyz blah blah blah, so who knows.

Here's an experience, a coworker from Texas and I have a good working relationship, he's a brilliant guy. Reads incessantly and can design a pin to hold up the planet if you gave him a shot. Yet 3 times a day he slides over to tell me "facts" he heard on his conservative radio talkshow. Welfare recipients make $50k a year, restaurants are going to hire fewer fulltime workers because of Obamacare, Ted Turner said soldiers committing suicide is a good thing, what would happen if someone broke into your house and raped your wife and daughter, and you were defenseless because you didn't have a gun?

All these facts and scenarios are backed up by "publications" on the internet, that do the same thing, they take the shit out of context, and that's how you get people like the guy who posted the comments somewhere above.

How do you make an intelligent man think stupid thoughts, you scare him to death.

What is it about the older generation that makes them so prone to propaganda, they take everything that is printed as gospel..and conservative extremists prey on this.

So you guys may be shocked to think that people actually believed that Romney would win, no...take that as an indication of just how far removed from reality, and how extreme republican tactics and rhetoric have become.

Anonymous said...
8:45 PM  

Dear Mr Shouty Man. the UK is not part of the Euro, and nor does it have a socialist government. But we guess you'd need an education to find that out. Or a passport.

Dear all our usual friends- thank you for your support

Anon 8.45 , Without detracting from the quality of the other comments, yours is a delight to read. Thank you for taking the time.

Polemic said...
9:05 PM  

hey polemic: what out for the poleaxe of euro collapse you snobi brit.

marcusbalbus said...
9:18 PM  

It would seem the 'Bunsiness Insider' is now sydicating your posts... might exlpain the sudden appearance of certain ZH types.

Regards

Anonymous said...
9:28 PM  

Would it be awfully churlish to ask for it to be UNsyndicated from BI?

Anonymous said...
10:28 PM  

No it wouldn t be churlish. In fact that's rather flattering of you to suggest it. We said yes to them a couple of years back as an alternative to seeking alpha which was pissing us off on various counts so we pulled that one. To be honest there has been little cross over in readership, or certainly comment style, in the past with trollishness staying on the BI side of the comments fence. Is it because of the risk of troll leakage that you ask?

Polemic said...
10:57 PM  

what a bunch of pompous snivelling weasels. can't take a little Cowboys face punching? go suck on your Pimms. Those most treacherous seek to muzzle criticism. watch out our our imperial BHO will have you liquidated as a foreign terrorist.

marcusbalbus said...
11:25 PM  

C says'
Why Tex,weer I'ze come from that there's shooting talk.Fill your hand you varmint.

Anonymous said...
12:04 AM  

As an American I apologize for the moron above. Our education system isn't very good anymore and unfortunately the alternative for most is religion.

booshfan1 said...
4:50 AM  

Quote: 'the smarter one's will know they can't afford to be dumb and play for more of the same'

Never underestimate stupidity, especially in politics, especially in Washington, especially with more Tea Party on board

talking my book but i see further profit taking down the road, i am struggling to see any more catalyst for new highs (equities) at this point

as per US vs Europe boxing comments both sides seem to have about the same marge de manoeuvre at this point, so no need for any side to lecture the other

Nicolas (trading Eurostoxx from Hawaii)

Nicolas Goudard said...
4:56 AM  

I happen to enjoy Pimms. Then again, I am a Canadian so what do I know?

Was a little taken aback by today's price action, but here's to hoping it continues so I had load up on VXX puts into the new year. Or something.

WellRed said...
4:59 AM  

Why hasn't anyone lately thought about EOY flamingo hunting...there's some prime candidates around...

amplitudeinthehouse said...
7:30 AM  

Generally not one to flog much-a-flogged memes, but profit taking ahead of potential tax changes definitely has a place here, imo. In the end, I think maintaining current capital gains rates may well be the chip given to allow top marginal rates to rise, but that won't stop knee-jerk selling in the here and now.

Secret--Sauce said...
8:16 AM  

Worth noting, credit holding better so far. -DD

Anonymous said...
10:49 AM  

booshfan: another sir galahad sucking up to the euro-pigs. put a cork in it moron-hunter.

marcusbalbus said...
12:08 PM  

We are all moron-hunters here...and you are the quarry. Sadly, you offer as much sport as shooting fish in the proverbial barrel. Now run along back to your Sarah Palin jazz mags

The Original said...
12:14 PM  

C says'
Well I'm pretty much with Nichols I think.
My main play for the last quarter was to add long Asia to outperform.I've taken that off this morning. I don't really are if I'm early. Its done it's job.
Reasoning is simple. Not too many days ago it appeared to me that we had a gradual uptick in volatility that I have to assume continues until it doesn't. My view on this is correlation kicks back in when volatility increases so I'm thinking Western sideways markets against trending Asian consumer might now stop beimng the way to go for this quarter ,or what's left of it.My book of course.This could mean a very boring run in to the year end for me given as it stands I'm just now staying flat to keep yield flowing from long term debt holdings.

Anonymous said...
12:23 PM  

C says'
It's worth noting I think that I see quite a few similarities between the Democrats strategy in the US and the same strategy that our so called New Labour adopted to stay in power. They used demographics unashamedly and bought the centre vote sufficiently well to shaft the Tories and effectively push them into appearing more right wing than they actually were.Appears the same game played out in the US. Only a disaster actually sank Labour here eventually,the demographics are still probably in their favour hence why we couldn't even get anything better than a coalition govt. The republicans need to learn from that a lot better than our conservatives did otherwise they will also be depending upon a disaster to put them back into power.
Moreover I don't think they are stupid although they may appear that way.The stupid tag only works because the underlying political manouvering is not looked at from the politicans point of view.From their viewpoint they're more often being rational,not stupid.

Anonymous said...
12:32 PM  

Someone much clever than I am on these matters pointed out to me that clever Reps probably realized that 1) the Tea Party was actually *too* strong, and pandering to them while trying to win a national election was always going to be hard and 2) the economy was bad, but not getting worse, which is what you need to beat the incumbent (Carter, Bush 41).

Which is why you ended up with the carousel of idiots that was the GOP primary, and Mittens as the eventual "least worst" choice.

So, inevitable demise of the GOP? Or Catch22, i.e. the fundamentals were bad because the Christies of this world didnt run vs. the Christies didn't run because they were smart enough to recognize the fundamentals were not great for this cycle.

I remember the Dems being written off the same way in 2004 (ironically enough, with a Massachussets "out of touch flip flopping" candidate failing to beat an incumbent that had quite a few things going against him). So perhaps the problem is not the platform, but the candidate. Which is something Brits, who with the parliamentary system, focus more on the former (unless the candidate is a mumbling Scot of course), may fail to fully appreciate.

Long rant, sorry. -DD

ps: some towel throwing in the comments lately, hmmm ...

Anonymous said...
12:50 PM  

Also, Secret-Sauce 8.16

Where would those capital gains go when monetised? Can retail be more underinvested equities still? (All honest questions)

-DD

Anonymous said...
12:57 PM  

back to the Post, PIN has been the theme for the past 3 years, so no surprise there. So far the equity sell off seems pretty contained to just US, as charts in Eu and asia still looking OK, and HY for most part is down only marginally.

Hold the line for now, but another 2.5% down move, breaking 200 SPX moving average and we could get so real action across markets, but I doubt that happens.

abee crombie said...
1:33 PM  

I think the thinking is more along the lines of ready, fire, aim! HNW is all hot and bothered to monetize gains before rates go up, and will think about the next step later. (Also, this whole line of thinking assumes that you would cash out next year - if you plan to hold for a while still better not to - what with time vs. timing etc.)

A topic that I keep hearing is commercial real estate in relatively protected segments, as well as foreclosure to rent conversions. Although the big boys have taken notice and driven yields down, given the lack of scalability and the pain-in-the-arse factor of such investments, they remain in vogue due to attractive yields (albeit at the expense of liquidity not materially differing from zero).

Cash is still a poplar destination.

Secret--Sauce said...
2:01 PM  

Now that we have had some venting of political angst from the commentariat, it might be time to get pragmatic again and make some money.

LB hopes we can now begin a useful debate, not about the effects of the "FC" so beloved of the Cliché Brothers on financial TV, but about the nature of the good ole American fudge that the Fools On The Hill are about to concoct. Regular readers of MM will know that governments around the world are true connoisseurs of fudge and will start making a batch whenever things start to go a bit pear-shaped.

Although there might be one or two Tea Party types who would prefer to see the economy go over the "FC" (mainly out of spite directed against the poor, and because of hatred of poor old Big Ears and his fearsome "socialist agenda"), it seems likely that wiser heads will now prevail, especially those wiser heads on both sides of the aisle who are on the payroll of the big Wall Street houses.

We will not see the economy go over the Cliff, any more than we will see Cliff Richard singing with Lady Gaga. No cliff, we suggest, and instead we will see Congress announce a "Fiscal Molehill" in the form of itty-bitty changes in the tax code and minor league changes to Medicare to be named much much later. Everyone will then trumpet this as a great advance in the fight against the US debt.

This means that a lot of the stuff that a lot of people don't like is simply NOT GOING TO HAPPEN, as Kent Conrad of North Dakota said on TV today. Ultimately the realization of this is going to make a lot of people a lot happier. This group, however, will probably not include bond investors, especially the intrepid purchasers of 10y yesterday at 1,68%. We'll be back later on with some detailed dissection of the change that we hope we are not actually going to see in January 2013.

Leftback said...
3:05 PM  

By the way, returning briefly to Yoorp, despite the incessant yakking on US TV about the imminent demise of the Euro, Greece and the Kingdom of Spain, the Tesoro actually unloaded $6B of debt at auction today.

Spain Auctions $6B Debt

What might be especially stunning to the Euro Collapse and Chicken Little brigade is the fact that Spain got off some TWENTY YEAR issues at 6.33%, which is stunning if you think about where we were in June before Rajoy brandished Peseta plutonium* and Draghi responded by flashing his enormous bazooka.

Leftback said...
3:17 PM  

* The immortal phrase "Peseta Plutonium" was coined by Mr Charles Butler of the Ibex Salad blog. Hat tip.

Leftback said...
3:18 PM  

autarky awaits all you money printing slaves of the bailout.

marcusbalbus said...
3:58 PM  

Autarky?

αὐτάρκεια - it's all Greek to me, mate.

Btw, we should make it clear that nobody necessarily loves bailouts. But they do obviously happen, as history tells us, and if you're going to manage money you really have to see the world as it is, and not as one might prefer it to be.

Leftback said...
4:06 PM  

I dunno about autarky... but i m wondering if the comments column has caught Tourettes

All seems well and then suddenly ..... its back.

Or are you actually the founder of a large HF we know? The character fits.....


Polemic said...
4:21 PM  

CMBS spreads squeezed tighter than Anna Lee's legs but still better than Ben 10. @168 sold 2 u sucka!

Secret--Sauce said...
4:26 PM  

This is quite hilarious, the Austrian Autarchists drumming the Autarky fearmongerism.

Foutainheads indeed.

Secret Sauce, there is an AJ Burned pun waiting to be added to your post.

-DD

Anonymous said...
4:41 PM  

Immortal, LB? I dunno. Subtly pointing out that I was absolutely effing right about who ruled the euro roost would have sufficed.

Meanwhile, the very good auction that gives Spain a 14 month long 2013 was received with... selling. Spec longs giving up on the put, if I read it right. Alternate view - nothing actually matters anymore.

Which of you candy-assed euro socialists votes for giving Marcusbalbus a regular feature at MM? Too brilliant to be true.

Charles Butler said...
5:30 PM  

the modern battle of the milvan bridge will result in you all being trampled below the hooves of the new leader who discerns "lasciate ogni speranza voi ch' entrate" in the heavens who is endowed with the power to crush the euro malefactors

marcusbalbus said...
6:05 PM  

Secret,

Ben 30. @282 sold 2 u sucka!

UFB, really. What's more interesting is all the TV pundits who couldn't spell B-O-N-D a few years back are all suddenly huge fans of Treasuries.

Kaminsky on CNBC today was telling everyone that pension funds are in bonds and AREN'T SELLING THEM. Well, yes Gary (familiar name to MM readers). Real Money and SWFs always have had large stable fixed income portfolios, and they are normal participants in the bond market. What's different here is we have all these extra marginal players, including Fast Money and European banks. Like it or not, the Treasury market is now full of hot money, and that has a habit of suddenly disappearing.

Leftback said...
6:20 PM  

You do know that the empire founded (or, more properly, moved) by said leader became entirely Greek a few centuries later, right? Not sure if that's the analogy you're going for. Frankly, the only cross in the sky that matters now for Uhmurca are the (antiquated) poles that suspend power lines in the Northeast. Oh wait, loads of those are still lying on the ground. And it's the Europeans who are backwards?

The Original said...
6:23 PM  

That is the most lively and interesting discussion of this year, and at the time of stress, which is in line with coment-o-meter.

Anonymous said...
6:36 PM  

Yeah but Original he has just elevated the intellectual level from his past comments a bazillion percent.. well done mb..by the way are you marcus nonius or marcus altius?

Give my regards to Pompiea..oh and get i d be out of town when that mountain behind starts to rumble.

Polemic said...
6:43 PM  

you guys got to know each other, only that many people in this age know anything about classic history and run the money

Anonymous said...
6:52 PM  

Imagine there are two companies...

One has a great range of products, expanding revenue world-wide, $B in cash on hand, its debt is highly rated and it pays a dividend of 1.95%. It hasn't had to raise equity in ages.

The other is going through a period of restructuring, is heavily in debt, faces a ratings downgrade and pays a yield of 1.63% if you hold it for ten years. It issues new debt at least once a month.

Right now you would have to like AAPL over TNX. We don't own AAPL, just pointing out the yields here. This is one of those inefficient market moments.

Leftback said...
7:54 PM  

LB, I guess its called Autumn cleaning.

Throw out all your tech. My oh my sentiment changes for that sector over a month.

maybe something to do with tax repitraton and potential rises in rates.... your friend DVY looks a bit iffy as well.

Flamingo's in FX and HY land seem relaxed? Is it time to go hunting?

abee crombie said...
8:09 PM  

sorry, should be (pink) elephants, not flamingos. I always mess that one up!

abee crombie said...
8:11 PM  

if only all the euro socialist lefty wacko pimm suckers had but one neck (or so sejanus would say)

marcusbalbus said...
8:34 PM  

"The lemmings cliff and the Gemonian stairs"
Only on TMM.
-DD

Anonymous said...
9:21 PM  

Here's what needs to be on all euro pig gravestones: Qualis Artifex Pereo

marcusbalbus said...
10:07 PM  

Who let the Rhodes scholars in? This new guy is an intellectual Colossus....

Pimm's is not usually the tipple of Islington lefties, but it is a staple at Henley. (Regatta, not Don). You would enjoy Henley, Marcus, you could kiss the cox of the winning crew.

Toy chucking will end tomorrow morning, we believe. Vix has been falling as vol sellers appear once again. The dollar hasn't done much really, and it never broke above 81, although the yen did make a move over the last few days. So overall, we conclude:

Don't Panic, Captain Mainwaring (in honour of the late great Clive Dunn). RIP, Corporal Jones. They don't like it up 'em, indeed.

Leftback said...
11:22 PM  

The market closed today with the SPX more or less perched on the 200 DMA, a few points below, in fact.

SPX Chart from Doug Short

It would take a convincing break below that level to make us wonder whether perhaps the 10y was really a better deal than AAPL, or that the 30y was even half as good as T or TOT, for example. This madness will abate. There is little in the way of bearish action appearing in credit or FX, and thanks to the Fed, there is clearly no shortage of liquidity.

Don't Panic.

Leftback said...
11:31 PM  

Leftback: Bobby Eroica Dupea would tell you what to do with your snobishness and Pimms, and garbage single malt.

marcusbalbus said...
11:37 PM  

LB - you make a fair point re: the fruit vs 10s as an investment.

but small quibble - by definition, equities have an infinite duration so 1% rise in 10s yield (at this duration of ~7 yrs) will lead to a much smaller loss to capital than if the fruit's yield were to rise by 1%, no?

also wondering what you chaps think about this:

http://soberlook.com/2012/11/tail-risks-lurk-in-shadows-fiscal-cliff.html

Anonymous said...
4:09 AM  

to add to 'don't panic (yet)' remarks on credit and Asia there is some quite remarkable resilience shown by EU blue chips

DAX a leading indice in many ways is solid as a rock. I wish Estoxx puked a bit more but current decoupling, if persisting, will have to be respected

Nicolas Goudard said...
6:04 AM  

C Says,
My take is a choppy Nov. Pre Expiry week has a tendency for weakness when it has already been in liquidity off mode follwoing the early month surge.Wxpiration week next week I'd expect to see some losses recovered,but not all and then I expect to see more selling .
I'm looking to the very back end of Nov to be a next buying opportunity in terms of being able to buy lower.
I still hold long initially for US small cap sector and want to add to that lower down in preparation for a decent 2013 rally.
If the data changes then that position would change,but as it stands I remain fine with the data and this kind of event driven action seen this week shouldn't be given more weight than it deserves.

Anonymous said...
7:14 AM  

Ol' dirty bastard says

Anon @ 4.09 AM

Duration of equities is not infinite but just rather long (because discount factors get closer to 0 over time). If you discount at current swap levels the duration is about 40 years right now for both the US and Europe (assuming interest rates of around 2.4%)

Using long term treasuries instead should yield a similar result.

Anonymous said...
9:01 AM  

Mr Whippy is in the House!

30s just went from 2,73 to 2,84 in a blink of an eye on Boner/Big Ears tête-a-tête rumours.

LB has heard so much sh*t talked by pundits about the Treasury market this week. About how it's a stable market, "Real Money is in there and he's never ever coming out". This is bollocks. The long end has become a f*cking fear trade this year, pure and simple.

You can start slicing up the fear in there, let me see, there's 50 bps for the Fiscal Cliff, 20 bps for Grexit, 50 bps for Peseta plutonium and another 30 bps for China hard landing.

Wow, if the world doesn't end, that's a lot of bps.

Leftback said...
12:18 PM  

Btw, I am sure others have realized that MM's vaunted Comment-O-Meter indicator peaked with this post, which occurrence is almost always coincident with a local minimum in equities....

Leftback said...
12:20 PM  

I don't know pal,the contrarian indicator is catching up. Friday afternoon walks around the city have been quite revealing of late, but one must pretend to be gullible to the smarties of course. As the FEDs Benank knows all to well, let the action come to you otherwise you'll run out of moves and, you are being noted as running up and down on the one spot now old timer :)

amplitudeinthehouse said...
12:38 PM  

Lefty-

Concur on fruit over tens (more partial to ladies over tens meself) but would note that only one of them has the risk of 100% capital loss. And mark2market can (and has lately) really ouch for dat one!

Hear a lot of similar talk especially after yesterday’s lowish dealer uptake and strong cover. Dealers seem to be shortening duration a bit so who’s your buyer if you don’t buy the retail story? (Besides Benny, of course. Speaking of which if SOMA duration rises to 8 years as it is to by yearend, a 150 bp jump will really ouch ma and pa kettle.)

Secret..Sauce said...
1:03 PM  

feels like towel chucking day!

abee crombie said...
1:50 PM  

"I feel increasingly stressed, and poised to sell stuff that I recently had good reason to believe strongly in, because I am projecting the declines we've had to date to quite significantly lower levels, and my rationalising of my intended selling is that I want to free up cash now for when we hit those even lower levels.

What am I?"


Dear lad, believe it;
For they shall yet belie thy happy years,
That say thou art a man: Diana's lip
Is not more smooth and rubious; thy small pipe
Is as the maiden's organ, shrill and sound,
And all is semblative a woman's part.

Anonymous said...
2:18 PM  

Credit where credit is due. I think it was Nick who called for a low on Friday morning. These sell-offs often bottom out in the futures market about 8am, and this one was no exception.

Cheeky spike down in yields this morning to clean out a few stops, but now it looks as though the world isn't ending after all. Amazingly whippy session in UK gilts over in London.

Amps definitely spotted something a few days ago on his walks around town. Which town, we aren't quite sure, but it must have been informative.

Leftback said...
3:26 PM  

C says''
The whippy gilts was probably me offloading mine ;)
Cover buying today was a good call,but come on it is Friday after a strong week down and expiry next week blah. Bond arkets are closed Monday as well are they not. So going to be messy stuff.

Anonymous said...
3:33 PM  

Half the time when I walk outside I have to pinch myself to check that I'm not in the middle some kind of Astral projection...so how can I tell you what town I live in!

amplitudeinthehouse said...
3:40 PM  

Funny enough, I did not buy yet, prefer to loose first few points of the move but be more comfortable with the risk. Will go higher soon I think, just may be not now yet. Don't like the way Europe bounced of the lows, not much of volume, just specs... Nick

Anonymous said...
4:24 PM  

Not being as nimble as some, LB doesn't usually do a great job of catching the bottom. As an inveterate knife catcher you have to get used to a few nicks.

It's been a fun few days pondering Keynes remark concerning market irrationality and solvency....

Leftback said...
4:31 PM  

As soon as there is consistency in method there is result. Nick

Anonymous said...
4:33 PM  

Political maneuvering in Japan is often described as "Kabuki theatre". Everyone knows what is going to happen but the puppets have to dance around a bit before the inevitable happens. This week's post-election sell-off seemed a bit like Kabuki trading. Not much FX correlation, not much conviction from anyone that there really might be a recession.

It's all looking a bit ramp-y now, probably about time someone made a puerile remark about shorts getting squeezed at this point. This is often LB's role, in the absence of more illuminating commentary.

Cold Steel for Mr Shorty! Unscheduled visit to the proctologist.... [insert your favorite clichés here]

Leftback said...
5:45 PM  

I'm still looking (hoping) for that short term bounce but not so sure longer term if this isnt the start of something new. I'd like to see some Europe equity and US financials strength to keep the equity long thesis going. For now, not changing but I think after a bounce here we are setting up for an interesting 2013

abee crombie said...
7:07 PM  

Wonder when the margin calls will end on the momos who chased CMG, AAPL etc. to the moon? No doubt the same people who enjoyed the ride in RIMM and GMCR and so many other rocket ships in the past.

It would be nice to get back to a more sane market..... even Eurobolleaux is easier to trade than momos unwinding. Interesting to see Europe get the blame this week, but it had nothing to do with Greece, Spain etc.. just a little domestic violence.

Leftback said...
9:53 PM  

C Says,
AAPL reminded me of the prop bubble. Regardless of what you think of it's ongoing worthiness when it has becomes so 'hot' it become the property of people who can't really afford to hold it then it's going to have an accident at some point to wash them out.Problem I have is I'll only know they're out when the price has gone through it's scattergun effect and based down again which is much more than a 5 minute exercise.
Friday was ,well a Friday.profit taking covering,but nothing else to be seen that I could see.Meanwhile Obama gave us the first taste of codswallop that we will be seeing much more of in the weeks to come.

Anonymous said...
8:51 AM  

LB re: Doug Shorts SPX daily close chart.
If memory serves, each penetration of 200MA was followed by QE/twisting......except that last time?
I thought the kevlar glove dawning normally preceded shorty getting the steel. Always enjoy those calls.
I must thank you for the colour you add to the comments section.
Cheers

JohnL said...
2:39 PM  

John, you're welcome mate. I am the comic relief guy who occasionally writes something serious but usually am clowning around to add colour. But the only colour I saw this week was red....!!!

Tough to don the Kevlar when: 1) politicians are involved and 2) you are already longer than long.. :-(

At times like these I usually just start muttering about valuations, writing down tables of yields and try to ignore all the emoting going on around me. If only I could remember that others are emotional and on margin, that would prevent me from being early at turns, as I invariably am.

Leftback said...
10:54 PM  

This is Olivier Desbarres is (now former) head of Asia FX strategy at Barclays:

Says everything you want to know about the nature of these bankers:

http://www.youtube.com/watch?v=PgjVJXsh2Pg&feature=player_embedded

jill said...
12:42 AM  

C Says'
"Says everything you want to know about the nature of these bankers"

No,it doesn't although it does say something about the way you perceive events and construe them to meet your particular needs.

Here we simply see one individual whose occupation is irrelevant to his actions..He ,for reasons unknown to us,has an emotional trigger moment.The probability actually is that because he vents in this way he is more than likely to be harmeless.
The really dangerous individuals usually can't find an outlet like this for their frustrations and they mount up until they explode in far more tragic ways.
Yes,it would be nice if he also could find an alternative solution that didn't involve him venting allover others,but the reality is he was probably forgotten by these people about 5 mins after he left.


I note that the economic sitation in the US grows ever more dire as the latest Bond movie rakes in a record box office taking. Obviously tough out there. And here of course,because we saw it this weekend and it's the only movie that I can remember going to see that filled the theatre on a second weekend in the afternoon with all premier seats prebooked.Yup, as Tex would say, mighty hard out there pardner.

Anonymous said...
9:07 AM  

A little generalist there jill.

Does Harold Shipman say everything you want to know about doctors, Lance Armstrong everything about sportsmen, Sweeney Todd everything abour hairdressers, Kimberly Saenz everything about nurses, Pol Pot everything about politicians and Saville everything about entertainers?

Polemic said...
9:27 AM  

Oh..i see C beat me to it.. I concur

Polemic said...
9:29 AM  

Oh and jill.. add " and does marcus balbus tell us everything about commenters to this blog" !...nahhh course not...where is he by the way? i m in need of a balbus babble fix..

Polemic said...
9:52 AM  

You probably should do a full Latin post next time. Probably would lure him out of wherever he/she is hidden.

I guess LB could probably squeeze an "ut lapsu graviore ruant" out of his Long Bond musings.

DD

Anonymous said...
11:40 AM  

Rampaingruss said:
Why are you guys always so bearish treausies? The Japan experience show that the bond market can grind higher indefinitely. Furthermore, as interest income continues to decline at US banks they become incentivised to hold even more bonds with a longer tenor.

If the Japan experience is the template for markets - then we are the level when market begin to tank - starting with withheld names like AAPL, PM, CMG, SBUX etc... Given the huge run in the SPX from lows, I wonder why TMM is so bullish - can you not go net short?

Finally - can you fix the registration thingy - I can barely read the number I need to put in to prove I am not a robot...

Other than that - keep up the good work, I enjoy your blog.

Anonymous said...
12:48 PM  

Rampaingruss..

We can and do go short stocks but background macro to us is indeed bullish despite shorter term horrids. The cult of the black swan just needs a bit more of a duck shoot. Regular readers will know we have hated fashion bubblestocks such as apple for ever.

I would suggest that comments column is more bearish bonds than us, we would more suggest yields have floored.

As for the security thing.. no. Not us.. tis blogger itself. We feel the same and not just 2weeks ago wrote about it in the Calculated Stupidity post.

Polemic said...
1:07 PM  

And I m changing my name to Polemicus

Polemic said...
1:11 PM  

I dont think it's as much being bearish the T thing as it is being puzzled by the amount of people who would have never touched those when they were at 3/3.5/4/4.5/you name it, now finding them irresistible at 2.7.

The Japan analog might or might not be valid, it still had to hurt to hold these puppies during say, the 2003 cyclical bounce.

One doesn't need much of a swing for the duration to hurt a lot of people.

DD

Anonymous said...
1:13 PM  

DD

You said it for me. It's a crowded trade, and recently populated by long-time Treasury haters and Fast Money, what you might refer to as unusual market participants. That's enough for me to don the bear suit at this juncture. Fear trades are heavily populated, and can become quite scary for the unwary when they themselves begin to unwind.

Do we turn Japanese in the end, as Rampain suggests? It's possible, but there are many sentiment swings and policy decisions between here and there, and Bernanke would say, over his dead body.....

Leftback said...
2:17 PM  

C Says'
The problem that I have with the japanese argument remains that it is based upon a data sample of 1.
I cannot think of any situation under which i would commit meaningfully based upon a sample size so small. The very fact that so many have simply makes me glad to not be in that camp.
In any case I suspect that many who hold treasuries/gilts have hedged elsewhere to get a more balanced portfolio approach. Personally when I do use them it is usually only for that transient purpose rather than any longer term view.
Given we appear to be on all things Latin. I liken govt bonds to be one of those Julius Caesar moments.You're just never going to know when you step out of the portfolio, and the central bank you thought was your friend sticks the knife in.

Let's conduct a simple experiment.

You see before you a glass containing whiskey,50 years old premium stuff.
Tell us what you see by voting as follows;

1.The glass is half full

2.The glass is half empty

3.The glass is neither half full nor half empty

4.The glass is definitely empty because LB's be in.

5.The glass is a commie in disguise (just to give burble something to answer)

Anonymous said...
2:39 PM  

Rampagingruss said...

While the US may end up being wildly different to Japan, currently it seems to be trading very similarly to me. Super low rates, corporate earnings that a becoming ever more reliant on a weak dollar, cash hoarding by corporates, and massive fiscal deficits are just a few similarities.

The time to be short JGB historically is when activity has bottomed. The US is now recording post GFC highs in car sales and auto sales. I suspect that when activity begins to fall again, yields will first move much lower before becoming shortable. Looking at JGB lows in 2002 of 50bp for a 10 year, makes me suspect we would need 10 year treasury below 1% before risk reward in shorting looks good. And you would need the equity market to be tanking as well.

Anonymous said...
3:34 PM  

Also sample size is not 1 - you have seen a very similar market action in Taiwan, and to a lesser degree core Europe.

Anonymous said...
3:36 PM  

marcus balbus says hold the chicken

bobbyeroicadupea said...
6:25 PM  

DD wrote "You probably should do a full Latin post next time"

Never go full Latin...

VandalsStoleMyHandle said...
10:08 AM  

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