Is the Aussie Safe to Short?

Thursday, April 18, 2013


TMM thought it would be time to review their old friend, the Aussie. A couple of interesting research pieces have come out from the sellside at the same time as one member of TMM has been travelling downunder so we thought we would try to find some sense between the 10,000 ft world of the big picture and capital flows and slightly more granular information on capital expenditures from corporates.


Lets start with the big picture of Aussie capital flows and what is holding up the currency. Shorting AUD has been about as much fun as being in the octogon with George St Pierre - just when you think you've got the terms of trade flow right you get slugged with flight to quality flows and just when you think they are receding with normalization of the volatility regime you find mining majors rushing into the market to build mines and gas plants as fast as they can. Its about as much fun as being hit in the face, then kicked, then thrown on the ground and strangled until you tap stop out. Ie not fun at all. So, where are we now with respect to these key drivers of flows and where are we going?

First, it appears that portfolio flows have slowed down somewhat. There are some tentative signs of a slowing of reserve accumulation ex Japan and Australia has not seen material net inflows for a couple of quarters.

TMM are big believers in normalization of current account balances as being a sign of the world getting better and this does appear to be happening. So, if reserve assets are generally going down and the eurogroup does not do anything insane for a while, perhaps having had their false idol of Reinhardt and Rogoff smashed by a bit of basic spreadsheet math then there should be less net flows and much less flows to Australia. TMM won't bet the farm on this one but having been blindsided by these flows despite having got the commodities picture largely correct we have stopped whimpering and gotten out of the fetal position on this one.

Second, what about European bank deleveraging? This provided a substantial tailwind to shorts in 2011 but has also tapered off as of late. BIS data seems to indicate that Eurobank exposures to Australia are now low enough that it is unlikely to be a key driver and anecdotal evidence from our trip down here indicates that most eurobanks that are leaving the market are down to their last couple of hundred million dollars of loans. The loan auction-palooza of 2011 appears to be a long way away now.

Third - what about all that mining investment? This is a bit more contentious and frankly much more important of a driver of flows in the last year and going forward. Investment continues to be torrid and while the coal sector is desperately looking to cut capacity after an apparent step function change in Chinese thermal power growth and iron ore projects get cancelled the gas sector rolls on. Or does it? Here is ANZ's pipeline of future projects as of Jan 2013:
The problem here is that Browse has been cancelled and Arrow is being doubted by the market. While this does not do anything to change the peak in investment (2013) the rolloff of projects appears to be very steep indeed after 2014 with not much in the pipeline. Now, TMM know there is more to life than gas, coal and iron so we thought we'd look at the contractors sector of the AS51 for clues as to what their development pipeline looked like:


Ohh er. Not pretty. Worst hit are coal and iron ore oriented names but the rest are not exactly in great health - maybe that has something to do with public sector sources of revenue being closely tied to resources like Queensland which tends to curtail public sector projects like rail and roads:

One partner of a insolvency advisory in Australia described what was happening in the Hunter Valley and Bowen Basin, both major coal mining areas as "a nuclear winter setting in". Not a lot of room for interpretation there. Word is that if you want to finance "yellow goods" - ie, things like bulldozers and massive trucks then you generally will not get much love from Australian banks who have seen this show before.

TMM have been wrong before on AUD but we are finding it hard to see what keeps it higher from here given the collapse in investment we are likely to see over the coming years. Even if the
investment flows do not do it then rate cuts cannot be that far behind.

Putting that lot together TMM feel that Aus$ is vulnerable to an old fashioned sharp move lower in a "thatshouldnthavehappened" style that is pure "Gold".

Posted by Nemo Incognito at 10:32 AM  

107 comments:

http://www.businessinsider.com/why-this-place-is-becoming-the-new-switzerland-2013-4

Topical.Should have come with a caveat about past performance is n guide to future etc.

Anonymous said...
12:20 PM  

So you are in the Welterweight class... good to know :-).

Eddie

Anonymous said...
12:24 PM  

Methinks it will take a crack in the triple AAA rating before it really goes so call up your mates from the big 3 and nudge towards the link between bank risk and sovereign balance sheets. Otherwise I agree with everything else. We have been pounding the Aussie trade for a while now. I swear, if I see another chart of the "high" dividend yield in Australia!!!!

Claus

CV said...
3:53 PM  

C says
I would have to disagree with the "AAA". By the time the agencies get around to that it is invariably lagging what the market has already been pricing in. I would rather suspect something along the lines of a bad set of data out of China,or something domestic like a jump in the unemployment numbers that tied in with growth implying an hitherto unsuspected depth of rate cut.

I thought Swann's outburst recently about "mindless austerity" in Europe was pertinent.
A rather nervous and unexpected commentary from him. He must already know he needs a plan B for 2014 and beyond. Does he really expect Europe to supply it? If that's his fallback plan it's a tinged with a touch of desperation.

Anonymous said...
5:44 PM  

We have hated the AUD for some time. It has been a little bit of a widow maker for us in the recent past, as we were convinced it should dump along with China data, Dr Copper and the recently beaten and flogged mining sector, all very logical, except it didn't f***ing work. (LB mourns the imminent expiration of his positions).

Swann is sending a message to Europe as follows. "Mates, quit d*cking around, cut rates and print, you dumb f*cks, so China can make and sell plastic sh*t to you and Shane can dig up rocks as usual. Otherwise we are up a gum tree and Shane is back to sheep shearing up the Murrumbidgee".

Back to the US, we see bonds as overbought here in the short term and expect to see yields drift higher. No economic news tomorrow or Friday, so the stage is set for a relief rally and return of the vol sellers and dip monkeys. The bounce is in progress for heavily oversold energy stocks and crude.

Index longs might well be worth a short -term punt here, will wait until the end of the day and see what the charts look like. SPX tagged the 50 dma at 1541 this morning at long last, and that should form a substantial support for the time being. In the past we have noticed that a right shoulder forming on the VIX after a vol spike is a reliably good time to trade Spoos from the long side.

Obviously, we remain bearish. A much larger dump is out there ahead of us, but not quite yet, we think.

Leftback said...
6:13 PM  

The fruit now at $395, P/E <9, yield 2.68%. I'm not tempted here but suspect others will be.

Compare with Gazprom, P/E <3 and yield 7.36%, or Shell, P/E <7 and yield 5.36%. Once you get into Value Land, it's all relative, innit? I suppose investors are put off by all the "communists" in Yoorp....

Leftback said...
6:22 PM  

C Says
I'm no expert on the Vix ,but if it stays in this 'shape' it doesn't look like any shoulder to me. It looks like a continuation.
Just my view of course.

Anonymous said...
7:39 PM  

As of this moment, we would agree, C. Today's close at or round the SPX 1540-1541 level is critically important, as is whatever happens into expiration.

In other news, TiPS are dumping today, as we suspect some of the same HFs that were d*cking around with too much leveraged gold may have also had too many TiPS in those Magical Inflation Funds that have succeeded in losing their investors 50%... (yeah, we are looking at you, Paulson Disadvantage). Not sure why anyone would do that, but there you go....

Leftback said...
8:35 PM  

Earnings coming thick and fast now. It's really a mixed bag, no consistent message. IBM falling, GOOG is up. It's clear that there are more misses than in Q4.

Leftback said...
9:20 PM  

C Says
I can only repeat nothing you think you know will be as it is when it comes to Cyprus.

http://www.telegraph.co.uk/finance/financialcrisis/10004726/Cyprus-bail-out-vote-stirs-fresh-jitters-as-slump-fears-grow-in-Europe.html

Anonymous said...
11:40 PM  

LB,

re Gazprom: do you want to be Putin's puppet ? Even then the price is a bit steep, innit ?

Re Shell, they accidentialy and unintentionally got their oil reserves wrong in the past. Not that much, just a little bit like a two-digit percentage figure. Nothing serious, really, you can trust those guys. That's why they throw out an above market dividend, to please their followers. Not my kind of game, though.

Eddie

Anonymous said...
7:26 AM  

C says
Nothing like a bit of Mr Whippy to get positions reloaded. Miner cover buying because hey ho China might leave you in the hole over a weekend. Offset by defensives etc etc.
The BP's are obviously still down ,but a little choppy backfilling would be good now to indicate dip buying and wreckage sifting. If the BP's are going to go low enough to make a move really worthwhile we need to get both sides loaded up.

Anonymous said...
11:03 AM  

I am definitely no expert in such matters, and I'm certain more intelligent people than me read and write this blog which is why I ask -

a) Why on earth have so many traders seen fit to short the Aussie and Kiwi?

b) Surely there other better short opportunities in the financial universe that don't bleed you on carry in addition to position losses?

c) One of you claims to have visited Australia recently. Does it look and feel like a place you'd want to short?

e) In this world of anemic growth and ZIRP, is this really a prudent trade?

Black Ink said...
11:49 AM  

Black Ink it doesn't feel screwed in its entirety - brokers are doing it tough, order books are collapsing for anything like mining services and there is a sense of malaise coming through. The important thing with being heavily capex and commodity driven as an economy is that for the capex visibility is generally good and the outlook is now bad. For commods, pick a price but its hard to find anyone seeing 20%+ returns in any metals. So, "I" goes down and terms of trade tread water.

Oh, and you can buy other carry that has a wall of Japanese cash behind it like XLP, MXN, you name it.

Nemo Incognito said...
12:17 PM  

Glad to see you back Nemo!

great analogy with St Pierre, watching the AUD is as boring as watching one of his fights. All the excitement and then just range bound trading.

I guess thats just trading. You get a great thesis that market has totally overlooked (China is over investing) and have to decide on how to trade it. Sometimes you get lucky and ppl sell you cheap put options (ala Paulson CDS) and other times with the AUD you sit and wonder for the past 2 years.

To me, AUD will come crashing down when the holiday with EM Debt begins to crumble. Its all about the flows and then ppl will realize the delta of the economy is heading down for a while. Perhaps that is starting to happen with OGX and Eike

BlackInk - Auz is an amazing place, but a trade is a trade.

LB you can still jump back in. ATM vol still pretty low.

abee crombie said...
1:08 PM  

Maybe just buy AGBs then, so that you have the flows *with* you while you are waiting for the inevitable.

a.k.a the 2011/12 Brazilian waxing playbook

Side observation, about an earlier TMM post on Asia setting direction the wrong way. Looks to me like PMs are actually being bought O/N, then slowly giving back gains as the West opens.

The pain is lower.

DD

Anonymous said...
1:51 PM  

Good point on AGBs, DD. When an economy slows dramatically (or the perception of the outlook changes negatively), e.g. US 2007/8, and as long as the sovereign is sound, then YC flattening or inversion usually occurs and the long end of the yield curve is often the best place to be. For a while...

Leftback said...
2:13 PM  

There goes the VIX.... Vol sellers are back in town.

Leftback said...
5:27 PM  

With regard to widowmaker trades, we would all be well advised to pay attention to this Fedspeak and a lot less attention to all the media baloney we were hearing in the winter about whether the Fed is going to become less accommodative in July or August due to strong US growth and rapidly improving employment conditions ... HA HA HA HA BONK. (Man laughing his head off).

Kocherlakota: Low Rates May Last 5-10 Years

We suggest that it might be OK to be short Treasuries for 15 minutes or so now and again (in fact we are right now), but that those funds touting this trade as a defense against the spectre of rising rates are simply going to lose your money for you - very gradually but very surely.

Leftback said...
6:19 PM  

IS IT SAFE!?

Anonymous said...
8:22 PM  

Marathon Man.
Nice ref anon.

Enquiring readers will re-watch the opening scene thinking of the car chase as a metaphor for what is likely to occur this summer with the gas truck of German elections.

DD

Anonymous said...
9:20 PM  

The AS51 (ASX) trades on 20x trailing earnings. The banks are ex growth and the consumer is in trouble should capex roll and U tick up.

So why would anyone bother shorting the currency and hence possibly being on the wrong end of portfolio flows and all the other attendant issues mentioned here ?

Sell the stock market and for any USD based investor they receive a free ride on the currency if that rolls to.

Anonymous said...
1:10 AM  

To anon - Selling Aussie stocks makes you long aud as you borrow the stocks (or short the future) so you have not net position but a decline in the aud will lesson the fall in asx, so you need to sell both or short a usd based tracker

Why do macro denizens here think the peripheral is so strong? Had nothing but negative news (Cyprus, rip banking union, deeper recession, lack of a political plan to achieve long term stability due to rip fiscal union, and ever more caustic bailout conditions and aversion to losses that are likely to make OMT unaccessable) but the markets just love it (and don't tell me its Japan...)

Anonymous said...
11:59 AM  

This week could be a big turning point in markets. Flash PMIs kicking it off tomorrow. Thoughts and expectations?

Consensus for the Markit prelim is at 53.5... can't see any reason for a surprise to the upside given the trend in data. I think you need a surprise to the downside (not just marginally inline or below consensus) for a serious correction in mkts. However, I suspect that if we are stronger then the bottom-fishers will come in.

Anonymous said...
3:39 PM  

Existing Home Sales lower. Shocker. Well, can't say we didn't warn you about the "red hot US housing recovery". Give them credit though, it was a decent con. Snort. We do expect to see the XHB dribble lower as the summer months draw near.

That having been said, sellers of Spoos are just looking a bit tired here, and LB's "right hand shoulder on the VIX" signal is starting to emerge. Punts from the long side might be in order.

Tomorrow is going to be all about the fruit. As AAPL has relentlessly dragged the Nasdaq 100 down, can we expect that a decent earnings report will lead the market higher? Less debt than Uncle Sam and a higher yield than the 10y. Anyway, for those who have been tempted by the fruit, a musical offering:

Tempted By The Fruit

Leftback said...
3:45 PM  

C says
"shocker".Thought it was a snooze.Small blip from something not very notable in terms of economic impact. Now if New Homes Sales follows suit that would certainly be a red light. As it is thought the Chicago data was more negative showing drops in consumption (ug) and housing which I assume captures somethign broader than just existing home sales.

Anyway BP's still singing risk off and nowhere near correction levels.I don't need to know more than that at this point.

Anonymous said...
4:20 PM  

A bunch of managers out there are dumping equities in emerging markets, and we are already suited up and doing a bit of dumpster diving. Brazil and Russia have been pounded relentlessly for weeks, and we like this a lot more here than we did when the TV traders were shoving it down everyone's throats.

Time to short the long end, for a trade. We are long US fixed income, but yields are right at the low end of the recent trading range here, so it's time for a hedge. Auction of 2s, 5s and 7s this week.

Leftback said...
4:24 PM  

Possible contrarian indicator here? Media only noticed that HFs like Paulson were stuffed to the gills with The Yellow Metal and The Fruit after both have cliff dived for months?

Too Much Apple and Gold

Well, yes, actually. They really are that inept...

Leftback said...
4:38 PM  

US gasoline (petrol) prices have now retraced 50% of their move up over the winter, which should help the US consumer a little in April/May, even as the weather finally moderates in the NE and Midwest.

US Gas Prices Retrace

$gaso seems to be about to turn up again however, as the summer driving season looms, so it may be a temporary respite. In addition, the recent USD trading range is also a factor. DX seems stuck here and unable to surmount resistance around 83. In the absence of strong economic data, a reversal lower in DX might be expected to drive up energy and commodity prices in the next few weeks.

Leftback said...
7:33 PM  

Our patented declining VIX indicator is flashing green. Another leg up may be in progress here, with a move to new highs not totally out of the question if a new group of stocks takes over leadership from utilities...

Leftback said...
8:17 PM  

So it seems like we are heading for a bit of a growth scare - Chinese demand slipping noticeably, German PMI missed, risk off in copper, crude and the PM's , fixed income of most flavours pretty much bid, currencies flashing amber in JPY, AUD/JPY and EUR, GBP...... but European equities gaily skipping across the railway tracks to their own tune.

What gives ?

long time lurker said...
9:09 AM  

Long time..

yes.. looking at same, explanations i can think of are
a.. worse the euro growth, especially German, the more likelyhood in mkt eyes of ecb action so using the US and Jpn qe playbook that's good for eqs innit?
b.. eur.usd falling, thats good for exporters innit!

Personally think the low growth story finally swamping the qe assumptions .. look at usdjpy 100 failure

Polemic said...
10:24 AM  

C says
Sifting through the Euro data I would suggest we might not have a curency war per se,but we certainly have an export enviroment that is in trouble.
With global growth not being a scare story ,but a reality it is self evident that economies founded upon exports are not al going to be winners.Gains in one are likely won by losses to another.

Reaction to the data I think reflects a dearth of alternatives for many players. Unfortunately,I have to view that negatively.It smacks to me of that mindset based upon well if I lose it's still ok as long as I don't lose more than my benchmark so that's all I really need to keep me in.

The vunerability is IF we get much more transparency that that slowdown is biting also in the US then I think boat that floats could sink rather quickly.Data like New Home Sales and consumption data are key here I think. Earnings are already enough to thin the market.It just needs a trigger.

Anonymous said...
10:26 AM  

C Says
This AM offers a good chance to flog some short term trades.Uk has a fairly substantial ex div day tomorrow. One of the easiest plays as to been to ride up to div day and offload without the div. A truly strong market doesn't treat ex div days like this one. In them you keep the div knowing there is still enough buying power out there to sustain the price ex div.
This market you hold for the div and you are oft swapping it for the capital gain made in the entire run-up.Again for me that is a measure of the underlying market strength,or lack of it.

Anonymous said...
10:43 AM  

The double top k. $Y is one that only a mother could love

Anonymous said...
11:41 AM  

C Says
According to FT Alphavill falling sovereign yields in Europe suggests what the question is what crisis. I disagree. I suspect this is banks buying up theirown sovereign debt in scoops. For every action their is a counteraction.In this case that means to me they are sucking a corresponding amount of money out of the private sector.Such an action is deflationary,but if you interpret it to indeed inidcate no crisis then you'll be making the wrong investment decision.

Anonymous said...
12:11 PM  

C says
http://www.businessinsider.com/february-fhfa-house-price-index-2013-4

It's incredible just how similar those US houses look to those we have here in the UK.

Anonymous said...
2:19 PM  

C says
New Home Sales was so so hardly indicative of anything meaningful saying which if the backdrop was really as strong as we are being led to believe then I think intuitively I would have been looking for stronger trending data.

No detail yet ,but global figure on the Richmond appears to be well out in the wrong direction at -6 !

Keep taking the happy pills.

Anonymous said...
3:27 PM  

C

Bit of a squeeze going on, probably. But this could last a while, we have seen a few rounds of this already. Just the same weird dynamic that we have seen so many times during ZIRP. As Mr P points out, the econ data this week is "so bad that it's good", b/c punters perceive increased likelihood of ECB and PBOC easing.

Spoos arguably back in a channel now that can drive it up to 1600, so let's wait and see if we get another round of the slow grind upwards as vol sellers once again ply their filthy trade, frustrate the shorts and once again drive the VIX to unfeasibly low levels. LB's much maligned indicator does seem to be working today.

Shorties should be patient and cautious, and we are most certainly not among their number this morning as we enjoy a punt from the long side. Room for one more rotation in US equities, from the defensives into technology, which has underperformed. The Fruit will lead the charge, one way or the other, obviously.

Leftback said...
3:54 PM  

C says
LB,
patient and not too aggressive is what I've been playing here for awhile.
I could see by the leader board Uk equity some people has over egged it. You know 10 and 8% etc on a large cap tells it all really.

Anonymous said...
4:33 PM  

A nice simple piece of writing here, busting some of the media and blogosphere myths about the FED and QE:

Myths About The Fed's QE Policy

Leftback said...
5:31 PM  

F*ck. All my stops got triggered. They should disallow all those trades. F*ckwits at AP need to be bent over and......

F**king half-wit media people who are f*cking useless at security shouldn't try to use stupid technology that is full of holes like f***ing Twitter.

F**king grow up people, this is a market, and we need people to use tools that are secure not f***ing silly children's toys.

This is why you can't use f***ing stops any more, b/c there is always some f***ing tool out there with a fat finger and a brain the size of a walnut.

Rant over.

Leftback said...
6:32 PM  

If AP are reading this, f**ing get a clue.
F**kwits.

Anonymous said...
6:46 PM  

C**ts.

Saul Bollox said...
6:46 PM  

Michael Jackson's "Just Beat it"

Just tweet it, tweet it, tweet it, tweet it.
Don't care if its real tweet it.
We'll just say its hacked, while your money gets jacked
Have you seen our PR lady she's got a nice rack.
So tweet it!

AP

Anonymous said...
9:55 PM  

C Says'
I don't call it twatter for nothing.

Anonymous said...
10:45 AM  

C Says
US durables revised down last month and below consensus this month.The overall broad global ecoonomic data trend is surely unmistakeable by now .

I think Twatter should be thanked really.It was a good dry run showing the kind of market that exists. Imagine that a similar 'surprise' event did happen and did not get rescinded within minutes then you would have ben damned glad to be stopped out ,becuase the algos wouldn't have gone into reverse they would just have kept piling on the pain.

Anonymous said...
2:49 PM  

Two things. Jan 2014 puts on EWA are very cheap. Gets you short AUD and the ASX.

Applying a 10% haircut to the world's number one input should stimulate the economy. Besides, isn't all this Spring concern for the global economy becoming old hat?

WellRed said...
3:22 PM  

Oh yeah, and the contrarian in me is starting to look at the Nikkei/Yen with some skepticism. Strikes me that eventually others are going to get tired of Sony/Toyota eating their lunch and there will be policy intervention.

Hoping someone here has done my homework for me and knows of an unhedged Nikkei ETF with a reasonable amount of tracking error (?)

WellRed said...
3:27 PM  

Stops are for puffs.

Long fruit/short gold

Anonymous said...
3:29 PM  

"Stops are for puffs".

LOL. Agreed. BUT...
I was on a run to the khazi, innit?

Leftback said...
4:18 PM  

So the fruit is now a 3% stock with huge free cashflow and returning substantial amount of capital to shareholders via buybacks.

Has anyone calculated how much K is returned p.a including the divy and the repurchases. Roughly 10pc plus it looks to me.

Not involved, but I am starting to see the appeal (although to a different group of people than those presently holding the bag I suppose)

DD

Anonymous said...
4:48 PM  

WellRed 3.27

Would you take the hubris that is starting to emerge at Wisdom Tree as another sign that perhaps the whole thing is ripe for a shakeout

http://etfdailynews.com/2013/04/12/wisdomtree-files-for-a-japan-korea-and-united-kingdom-hedged-equity-etf/

DD

Anonymous said...
5:53 PM  

And to wrap up our own personal overreach, am I crazy or is Nemo's *other* favourite short (the shiny metal, but not the yellow one) REALLY setting up for a second turn down the elevator

DD

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5:55 PM  

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zahid ahmed said...
7:04 PM  

DD

When your cab driver wants to get long Japan without the currency risk, it's probably time to short. For now we may be in the early innings of this type of mania. Wisdom Tree will flog it to death, of course. This is a manifestation of what we have been saying here for ages, that the Nikkei is a pure leveraged yen carry trade. Earnings?

The Fruit has been juiced, but what worries me a bit is all the "growth stock" people now trapped in the Fruit who don't care about the dividend and have been there since the $500s and $600s. The presence of irrational actors can perturb price in strange ways. Only when these punters all finally leave and value types enter will the transition be complete. This might take a while, and the thing still has a downward trend for the time being. Instead of being a market leader, the Fruit might end up being a stock that goes down when beta goes up.

Leftback said...
8:32 PM  

DD,

according to the latest 8-K the fruit plans to return USD 100bn until 2015. USD 60bn are marked for buy-backs which is c. 16% of today's market cap. A USD 3 div equals around USD 3bn based on today's market cap, including buy-backs this should increase to around USD 3.5bn over time.

Eddie

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7:38 AM  

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7:39 AM  

Gold isn't rallying to new highs, bugs, it's just "fibing". A 50% retrace of the big dump, so far.

TMM, anyone like EMs over DMs in Q2? Signs of life in some of the BRIC markets of late. We also like Qs over Ss and Ds for a while as technology stocks have lagged for a long time and now play catch up.

Media spouting all kinds of rubbish today as usual, much ado about nothing, but bullish sentiment is pretty low, which means we are likely to see the market drift higher, as vol sellers continue to have their way with the unfortunate Mr Shorty.

AA II Bulls Very Low

Leftback said...
3:35 PM  

No wonder it's quiet, the f*ckwits who run the markets have c*cked up something else really important today!

CBOE FUBAR

Leftback said...
5:12 PM  

C Says
Gold has been eking out a very classical price action process.What happens in essence when margin call comes a calling and creates in it's wake a price vacuum.The combination of covering and bottom sifting inevitably fills part of that vacuum before it once again runs out of momentum and tips back over. It's actually one of my favourite trade setups,because of it's very high win rate.

Anonymous said...
8:33 PM  

Our thoughts as well, C
But our attempt at asset class overreach in yday comments was nicely ill timed so we'll stick to what we know, i.e. selling some of our pregnant credits into strength.
DD

Anonymous said...
9:15 PM  

Fixed income has had a good run, assisted by whatever numbskulls actually believed the 3.2% GDP forecast and were forced to buy Treasuries today. But surely this run to lower rates is getting long in the tooth, and it's time to lighten up, or at least hedge bonds for now?

Today's GDP number is more of a Goldilocks number than anything else. This isn't the number that will bring the market crashing down. If anything, this will probably be bullish equities, especially emerging markets, in the short term, as it will arrest the recent irresistible climb of the dollar. This isn't a game changer in the way that a shocking employment number would be.

Looks like as you were, TMM?

Leftback said...
2:50 PM  

C Says
You look at the fiscal drag coming in the US and the trade that is going to be harder to keep going now with deteriorating numbers from the US is going to be that Yenny thing.Just my opinion.

Anonymous said...
3:28 PM  

That sounds like a good call, C, agree that USDJPY may finally be out of gas here.

In which case, long the yen and short Nikkei for a while? The inverse Wisdom Tree trade...

Leftback said...
4:05 PM  

Sorry to dwell on this, but price action in metals screams trapped longs.

That last candle, wow.

DD

PS: captcha 2nd word (I am a fan of those coincidences) read "Proctor" this time around.

Anonymous said...
4:41 PM  

Gold retracement back to 1485 is pretty close to 76.4% of the drop to 1322, and completely covered the gap open from last Monday. Declining triangle or 2nd large wave down are the likely patterns from here?

Leftback said...
6:06 PM  

Expired feline behavior clearly visible in the GDX.

Anonymous said...
6:15 PM  

Next week, everyone and their mother sets up short at 1600, duly receives the Order of Cold Steel, vol sellers do their thing, bears capitulate and then....

.... the bottom drops out?

Just musing. Nowhere near enough bullishness or complacency just yet, although plenty of margin.

Leftback said...
7:59 PM  

A weakening dollar against a strengthening jpy should unwind some of the amazing outperformance of NKY over HSI ytd... my fave trade for next month. Grabs a bit of EM v DM at the same time.

To the title of this post though, "Is the Aussie safe to short" I think the answer would seem, "probably not"

Their equity market though...hmmm... digging a bit below the surface of the index shows some real pain going on down there.

long time lurker said...
11:37 PM  

so we shouldn't be buying bank of queensland ?

Anonymous said...
10:58 AM  

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Muhammad Khalid said...
12:58 PM  

Is it safe to short gold? Read this for a fascinating account of what happened on Gold Fryday

Rossmorguy

Anonymous said...
2:35 PM  

https://www.mauldineconomics.com/ttmygh/bulls-hit

oops.

Rossmorguy

Anonymous said...
2:36 PM  

Didnt read the whole thing (Mauldin ... meh). But the pictures and description of retail asia rushing to buy the dip would make us very happy if we were short the thing.
DD

Anonymous said...
5:27 PM  

It's ECB bingo week again.

Wonder if the Reichs chancellor has given permission to turn on the laughing gas or not until after the great election.

Anonymous said...
2:01 PM  

Merkel set to go all Mean Granny on Yoorp again, just in time to appear "firm" for the German erection?

A good day for the Fruit here, may have broken out of that bearish trading channel, and obviously it can't help but drag the QQQ up along with it. Vol sellers having their way again, more pain for shorties.

Unfortunately for bulls, the Fruit is not beta any more, it's value.... or is it?

Leftback said...
3:52 PM  

The fruit has tagged its 50 day. Might get a pull back from that level to a new support.

Leftback said...
6:41 PM  

up up and away. Keep buying the beaten down tech stocks you say(AAPL, IBM, INTU). I guess they do look a bit cheap says the underweight pension fund. Besides i have a long term horizon (until the next EU/China/ Bird Flu fear appears)

No news = good news I guess.

What are the chances of ECB bringing out the bazooka




abee crombie said...
7:03 PM  

I finally threw in towel today and went long in ES @ 1587. I feel like its late in the game, but better late than never. Next stop might be 1700 and I don't want to miss it.

Anyone else jumping in late to catch one final wave up?

Anonymous said...
7:44 AM  

Anon 7.44 if that's your view, I'd say the best way to play this is LT OTM calls, melt-up vol still somewhat cheap given bullish behaviour in the indices.

SPY 175 1Y calls for less than two bucks, limited risk and all that

DD

Anonymous said...
10:33 AM  

it's all about your timeframe - you'll probably get 1700 in the next 12 months. But you'll get 1480, too

can you stomach a 100 point heat on your entry? coz I personally think 1480 happens BEFORE 1700.

Nico G said...
11:04 AM  

But the probability of "seeing 1480 first" probably priced in as much (if not more) than "getting to 1700 in a year's time". So, there, SPY risk reversals for those inclined to own upside risk at decent prices.

On a sidenote, not macro, but still fascinating.
"VOW, part deux" price action in Elon Musk. Serious pain for some shorties in that one.

DD

Anonymous said...
11:41 AM  

It's quiet. Too quiet......

Too many of the following outcomes and trades have been counted out at this time as "not plausible".

Stronger yen, for example (howls of derision)
FED mention of tapering QE (the hawks are dead!)
Some semblance of recovery in Europe's economy
US underperformance in Q2-3 (or indeed ever!).
Large bank reorganization/s, capital requirements.

Everyone has their money on:

Unabated Abenomics
QE infinity
ECB rate cut on eternal economic weakness
Cash is trash
"Stocks are cheap relative to bonds"

..and that means almost everyone is going over to the same side of a small number of boats.

This is one of those times when it isn't smart to be standing on the other side of the boat on your own, but it might be a great time to be sitting in your own little lifeboat with some provisions and a massive stash of cash. Why? Because experience has taught us that it is hard to make money at those times when everyone has forgotten risk.

Did we mention we hate trading Fed week, ECB week etc? We closed a bunch of longs yesterday, and are more than happy to sit this out for a few days. When "it's easy to make money in this market" we get very nervous.

Leftback said...
2:19 PM  

C Says
When the data goes one way and the mom tries to go the other way through what I see has a roughly sideways range then I treat the mom as the squeeze staying patient and not overly aggressive. Little pings about "new highs" are irrelevant as far as I am concerned.
In essence the economic data is broadly deteriorating along with earnings. There are media sentiment games ,but you have to decide if that is really the game you are in and if so what is your signal to get out.
The breadth is showing a squeeze,but as it stands the margin for that to go sour is quite narrow and worth waiting for to determine the next tilt on the portfolio.

Anonymous said...
2:23 PM  

agreed DD, take a look at CS Fear Index, basically the same thing. Put option vol is cheap. But in the past few years, cheap call vol has been associated with sell offs.

ASX new highs, off strength from Financials. Dont run into that trade too quick

abee crombie said...
2:28 PM  

Chicago PMI in recessionary territory at 49, adding to the weak US econ data deluge we have seen in recent weeks. If we got a number like that out of China blokes would be throwing everything out of the window, yet here everyone is, waiting to suck on the mother's milk of QE from the FOMC teat.

Wonder whether we see any reflection of this in the week's jobs numbers? Not yet is my answer. Initial claims are telling me we will see a modest bounce back from last month, so our bet is on a tepid +135k on Friday. By the time the lagging indicators catch up with the slowing economy we will be in a much different market. This is going to be a very tricky week indeed.

Leftback said...
2:57 PM  

WTF are they doing in Europe? They actually want a stronger Euro or sumthing? Buncha puffs.

Anonymous said...
3:50 PM  

C Says
"Europe" are basically imploding that is what they are doing although looking at some of the equity plays you could be forgiven for thinking otherwise.

I'd love to see the net migration numbers for say Spain to put some context onto their "employment" numbers. I suspect what is happening there is the debt is moving up and some of the people who could pay it in the future are moving out which summarised means the story is actually even worse than it appears.

Anonymous said...
4:05 PM  

Europe are squeezing your nuts for grins, Anon, as everyone (me included) is expecting the rate cut. It also seems that the usual seasonal US economic weakness is becoming more apparent now, and so the ubiquitous stronger USD trade (buy US equities, real estate, Treasuries, anything American) is probably on its last legs here, for a while at least.

Once we get a decent flush of over-priced assets, it is probably going to be a decent time to look around at values in the emerging markets, consistent with a short period of declining USD. The stronger dollar trend will resume once we digest the usual spring/summer slowdown and approach the all-important German elections in September.

Leftback said...
4:29 PM  

ECB monetary policy is so tight it should be criminal. Amazing to think how much misery one country has brought over the course of a century or so...

Anonymous said...
5:09 PM  

Vol sellers at it again, but the VIX hasn't revisited those depths of 11-12 this time. Perhaps after the market gets its methadone tomorrow?

Not messing with this until the FED is behind us.

Leftback said...
5:53 PM  

This market reminds me of 1995, where the spoos went up in a straight line, every day, none-stop, for 12 months!

Back then, Greenspan was busy doing what Bernanke is doing now. I guess the old saying "don't fight the Fed" is still true.


1995:
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=1994-12-01&en=1995-12-31&id=p75691987360

Anonymous said...
9:56 PM  

Bloomberg: US mint sales of gold coins at 3-year high. DUMB MONEY?

WellRed said...
5:11 AM  

C Says
We come out of the monthly sweetspot seeing those auto reinvested moneyflows which were more or less positive for most stuff. Henceforth we get back to the data,earnings etc .

Anonymous said...
11:13 AM  

C Says
The ADP number and the lower revision of last months awful number put employment on the backfoot. Might be good for QE extending,but it's not supportive of growth and top line is already a problem in earnings.

Anonymous said...
1:58 PM  

The euro appears to be looking for the Beard to be dovish. But the sharp falls in the shiny stuff, Mr. Bond yield and oil (pre FOMC) suggest a more deflationary interpretation of growth (and profits). As noted by C, it might imply more QE, but 'more policy' is not doing much for earnings.

Skippy said...
2:51 PM  

Rally caps on today, no doubt, as today's weak employment data means the chance of FOMC tapering any time soon is zero. So QE forever, dudes, until one day we will wake up to find there is no POMO. That day is not today.

But.... at the end of the day, we will have to return to the disappointing Q1 earnings of many US companies, slower growth in China, Europe still a mess, and good old seasonal slowdown that promises to make the Q2 earnings even more underwhelming.

Today is one thing, but once the FED is out of the way for another month we'll see whether anyone wants to Curb their Enthusiasm a little. The consensus number for Friday was +153k and that looks over-optimistic now. We were at +135k, but after ADP it could even be as low as +50k now.

Leftback said...
2:52 PM  

C Says
Looking now at the global data flow there was little out of the US today to help Asia tonight and our friend Yenny is tottering with about 65b of equity inflows behind it (hope they're not held on margin ..I lied) and if that's not good enough you get the opportunity to wake up tomorrow to a pile of EU data and after IR and NL can there be anybody out there wanting to take the upside for that?
Of course this is all as nothing for the bearded one.The master of the tide !

Anonymous said...
4:34 PM  

A possible short-term contrarian indicator, here. Über-bullish Knob comments on the market, from the historical epicenter of Knob Commentary:

Some Knobs Already Banging On About SPX 1700

It's a bit like counting Abby Joseph Cohen sightings on TV, usually means things are a bit toppy, whereas if you see David Rosenberg + Gary Shilling on CNBC on the same day = a bottom, sell Treasuries today.

Leftback said...
4:43 PM  

Maybe the time really has come to short the p*ss out of Australian equities. This PMI number was quite unbelievable:

Australian PMI Plunges

Once we see Aussie unemployment spike, there will already be lots and lots of pain cemented into the housing sector and in the banks. Investors aren't going to wait around to see how bad it is going to get. There is absolutely no reason why Aussie banks won't get completely taken to the cleaners in the next 6-12 months. They haven't exactly skimped on leverage in their exposure to The Lucky Country, that's for sure.

Long yen is the safety trade for all things Asian, look for a lot of JPY carry trades to start unwinding. I bet nobody thought the next big blow-up would be in Australia....?

Leftback said...
4:54 PM  

Of course Matthew Lynn is still looking for the next crisis to emerge EXACTLY where the last crisis was:

Matthew Lynn Bangs On About Predictable Things In a Predictable Way

So the nex problem is going to be in Europe. Imagine that! Cor, guv, Slovenia is going tits up next, innit, 'cos it's near Greece an' tha' .... but it's funny how that isn't what usually happens, b/c when there is a crisis some bloke comes out with a bazooka or a fire hose full of liquidity and drenches the area. Sorry, this is just a dull hack following the news and recycling conventional wisdom.

Matthew, you have just earned your 3rd Knob Of The Week title. Retrospective analysis of your previous calls has shown you to be almost 100% fallible. Pretty soon you will be in the Knob Hall Of Fame.

Leftback said...
5:02 PM  

Leftback interesting thoughts on Australia. I cannot believe that PMI number. Well done by the way TMM seems your research on the ground is being reflected in the data. A lot of folks shorted AUD/YEN last week, which just broke the 100 handle, but I agree with DD, the real indicator of AUD weakness is the AUDCAD which is just coming off the range top. She'll have to break below parity to signal a downward range breakout, and more weakness to come. I just cannot stand how well this currency holds up sometimes, I'm always hesitant to short it.

Anonymous said...
6:23 PM  

A really nice piece by Chris Kimble (via Doug Short) on lumber prices, with falling lumber prices often a signifier of trouble ahead for the housing industry and other markets:

Chris Kimble on Lumber

Leftback said...
6:59 PM  

If you re too scared to sell carry currencies or short mining stocks, just go DOUCHBAGBS

DOwn Under Climbdown to Hell. Buy AGBs.

DD

Anonymous said...
8:31 PM  

c says
http://www.markiteconomics.com/Survey/PressRelease.mvc/ad71cdaa9bb8426ab3bf5aaddfb0418b

The concluding commentary is well thought through as a summary of the position. Within the context of todays' ECB I would have to say that a rate cut would be like pissing in the wind.Primary problems will be inreasingly entrenched behavioural change in consumer behaviour.Consequent falling demand for credit and general monetary contraction. Against that a small change in the cost of finance is irrelevant. Indeed we've seen this before at earlier stages in the Uk for example where confidence leads people to retrench and paydown debt rather than borrow more simply because of a marginal change in rates. Indeed such changes have until recently failed to find their way through the banking system anyway.

Anonymous said...
9:39 AM  

It would seem that the laughing gas was saved for a later time. From what I gather only rate cuts and pep talks to improve cost competitiveness and effectiveness. That's pretty much no support at all.

Nice note on the PMI Mr. C. I would guess that, when you look at how much the public sectors in the EU countries account for the GDP (over 50% in many countries), any downsize tinkering with the public sector will hugely affect the real economy. And this is what has been happening all along.

A vicious circle of downward spiral through austerity which is affecting consumer spending in a huge way. And the solution seems to that seems to be absent, as a mean 'ol granny who is worried about the elections doesn't help the situation at all.

There's just no way around it, public debt and spending it in stuff is ultimately the backbone driver for private consumption.

Anonymous said...
2:03 PM  

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