Friday Ramblings

Continued good jobless data has reset USD and US mood in general and there has been a proliferation of US Jobs analysis resulting in line-drawing that extends to 6% unemployment levels after further +200k NFPs. The USD/JPY break was perhaps the sound of the market cracking as this weight was added to that of Abe and EU policy moves and clues.  Whilst everything US is indeed looking better than a lot of everything else, it may be getting a bit short term extended. 

AUD appears to be on the receiving end of Soros / CB de-diversification / pick your bogeyman. Either way we are pleased, but note the sensitivity of Aussie inflation to imported goods prices. You can only make money on bills and AUD up to a point. We will add that the USD/JPY break has pulled many USD crosses through short term targets and though we expect AUD to underperform we are lightening our AUD/USD shorts at this level looking for a bounce to resell on.

Schauble's talk of loosening his garrotte of austerity around the throats of periphery pre-G7 (why are they holding at a public hotel rather than at "Chequers"?) may just be pre-talk camaraderie, but there is a theme.  Despite weak Italian data we see the Eur/Usd down move abating as growth prospects balance the -ve rate fears and instant USD effect.  It's still actually in a range.  

Equities in general - Towel chucking from perma-bears, yield calcs on zero cost funding and much much more continue to fuel the boom. We have a piece prepared on background "why buy equities long-term" but its such a common call we are caught behind the curve. We are dip buyers like the rest of the planet. Meanwhile, make us a price on how long it will be before regular daytime TV features stock trading programs again. 

TMM note the mad rush into "safe" assets like XLP, XLU, and the like. TMM have more to say on this at a later point but suffice to say all low volatility dividend payers are not created equal - we will revisit this soon. 

Tesla has proven that there's bad investment advice, then there's the advice you get from Sarah Palin. TMM think ultimately better battery technology is a great leveller in EVs much like cheap polysilicon was for solar. TMM think the Suntech chart from 2007 may be instructive here. Some of us were long but are no longer. Tesla worth more than Fiat? Short term that price action has got "dotcom" written all over it. 

On general asset price rises - QE is fuelling asset price rises but doing little  for income. In fact income ratios are falling as asset prices rise. Great for holders of capital but until they withdraw it to spend, the gap of wealth between poor and rich continues. QE has to reach income before it works. TMM have been wondering if just bypassing all the links and handing £5000 to every head of population would be quicker and benefit the poor over the rich.

Commodities:- TMM note that while equities are now trading on concerns of QE, zero financing etc much as commodities did in 2009, commodities are now trading on FUNDAMENTALS. Fancy that. Note crosses like Palladium / Silver - the former will stop being produced at these prices as every South African mine goes under, the latter falling due to structurally declining demand trends ex hoarding which also happens to be going backwards. Its a pity all those commodity funds are getting redeemed just at the time having any expertise has value but that's life with hedge fund allocators we suppose.

TMM are also wondering if speculation can hold inflation lower than it where it naturally should be. As the speculative drive into commodities, especially oil, seven years ago drove up actual inflation, perhaps the expectation of no/low inflation drives speculative positions into short commodity trades that feed through into real low inflation. If so, they are winding up a coil for a sharper snap back in inflation when the time comes.

Finally for all those long Nikkei / yen hedged - Been a good ride hasn't it? But crowing demands beer buying for the house

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abee crombie
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May 10, 2013 at 1:31 PM ×

Tesla also had/has a huge short position. Some of the other famous HF shorts are also rocking.. GME, SVU, RDN, P... Ackman has got to be nervous.

Crazy action in JGBs as well. I still dont get that one

I think this might be the start of a large in AUD. Sometimes a good trade just takes a while and then BAM it releases all the pent up energy.

FX is the place for Vol now. Only monkeys putting new money in equities and I would think most fast money already has close the max VAR they are willing to allocate to equities. So shift into FX where even the L/S guys are playing now

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Anonymous
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May 10, 2013 at 3:30 PM ×

Aussie has spent 30 months in the 1.1ish to .95 range, and 10 of those months in an even narrower range of 1.06 to 1.01. I'd like to see some more action.

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Leftback
admin
May 10, 2013 at 4:43 PM ×

Strange day today.

Commodities, AUD, ZAR, Goldfinger and Mr Bond all getting a hiding. Safe havens being pounded (UST, JGB, bund, gilt, gold) even as the USD hits new highs. Someone explain that to me, if you can - any cause other than momo and HFT robots?

Homebuilders rallying in the face of a yield spike, but the banks not doing much? This action doesn't seem to make a lot of sense.

Peak complacency approaching? It's a good day to look at assets that nobody has any use for.....

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Anonymous
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May 10, 2013 at 4:53 PM ×

Correlation breaks ... hmmm...

LB, only thing we can say is that bonds will be bought today. The little bit of action in "things" has very good to us for the past six weeks after a difficult March. Time to make carry and rolldown plans for the summer.

TSLA is hilarious. We joked about it, but it really is starting to look a bit VOW 2008, innit.

DD

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Saul Bollox
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May 10, 2013 at 5:19 PM ×

TSLA is fakkin parabollick. Innit?

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Anonymous
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May 10, 2013 at 8:07 PM ×

Just remember how it all ended for the REAL Tesla. Now wouldn't that be ironic...

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Leftback
admin
May 10, 2013 at 9:24 PM ×

Bill Gross announces death of bond bull.... hasn't he done this a few times already?

Gross Says Bond Bull Dead - Again!

Usually when he does this, the little elves at PIMCO are actually running around scooping up Treasuries in their hats and filling their boots.....

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Black Ink
admin
May 12, 2013 at 9:30 AM ×

Playing Doubting Thomas doesn't pay dividends

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Black Ink
admin
May 12, 2013 at 10:18 AM ×

Tesla - 9,5 billion pushing the scientific & engineering envelope

Facebook - 65,5 billion glorified gossip & chat tapping & training dopamine receptors

The T-bull, much like the original T-Ford is on a firmer footing, and 'a ways to go'. I'm staying long.

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Anonymous
admin
May 13, 2013 at 2:31 PM ×

As Aphex Twin would have it, this week looks like "UST, come to DD".

Yes, we are toe dipping back in.

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Leftback
admin
May 13, 2013 at 3:59 PM ×

The Tesla may well have a great future, but the stock may not have a great summer. June has a way of pulling the plug on extremely high beta.

Social media, alternative energy, homebuilders and home-related retailers are all very over-extended. It is, as they say, a matter of when, not if, for these stocks.

Of greater importance to the economy than the bubble in silly equity valuations is the bubble in junk bonds and how the Fed is going to let the air out of that bubble soon, before banks leverage up into it again and dodgy credit attains dangerous proportions.

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abee crombie
admin
May 13, 2013 at 6:40 PM ×

another shorty on fire, with a musk play, SCTY up 25% today. 50% Short interest.

Re: FB vs Tesla. FB network effect, 100% positive. one of the best talent pools in tech land currently. massive advertising optionality

Tesla, innovative technology but also BIG entrenched competition.

Hey I love the car, liked the stock and wont short it here, but clearly this is a squeeze

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Leftback
admin
May 13, 2013 at 8:44 PM ×

Some interesting thoughts here on QE, and on that iceberg that the bond market ran into last week. Apparently it was due to a strange structured product that was created to help guys trading USDJPY, obviously some leverage and convexity was involved...

Dark Side of QE

Article has this great line ... "hedge funds aren’t underperforming because they don’t get economics, it’s because they are applying valuation models to a market that can’t be valued"

Which is something that I think has been a major source of frustration to all of us here.

Another article I read at the w/e was a classic top indicator - it was about one of those kids who has been coining it this year, trading for a NYC margin mill, saying "you don't have to know anything about the companies, b/c it's all pattern recognition"...

This is clearly the comment of a young trader who has yet to meet that very special "pattern" where you walk in one morning and it's all quiet, then BOOM - AUDJPY is off 2%, Spoos off 30, and the market gaps, limit down, suddenly there is no bid for your miserable illiquid small cap growth stock and you are being f***ed up the arse by lunchtime. So to speak....

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Leftback
admin
May 13, 2013 at 9:24 PM ×

Peter Tchir on credit and QE Tapering... we concur with quite a few of the thoughts cogently expressed here, especially with the idea that hikes are totally off the table, and that tapering QE would produce only a transient spike in Treasury yields.

We do agree that there is going to be some kind of a mini credit crunch this summer and that the casualty will not be MBS (which the Fed will want to protect), but HY - spreads can't get any tighter, and when the selling starts, HY is just going to run into a wall and become suddenly illiquid, as it is wont to do:

Peter Tchir on QE Tapering

We are short JNK, and will probably add to the position this week. We continue to not like the XHB as much as day traders and long only funds appear to...

Investors seem to think that US housing stocks are this 350 yard par 4, with a great big 100 yard wide fairway, just take out driver and whack one out there - but it's like a Robert Trent Jones course, there are any number of traps and pot bunkers out there for the high handicap momentum investor and you can't see all of them from the tee. Tsy yield spikes, MBS spreads widening, HY spreads widening, disappointing starts and sales data, etc..... with markets at valuations like these, it doesn't matter which trap you find, you can easily hit into one trap from another and make double or triple bogey.

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Anonymous
admin
May 14, 2013 at 4:52 AM ×

LB, that was a great article (dark side of QE). Thanks for posting it.

I think the author missed one critical point though: who needs a hedge fund manager when you have proactive central planners like Bernanke/Greenspan watching your asset prices for you? (And they don't charge any fees either)

Both Bernanke and Greenspan have been playing the role of mutual fund managers for all Americans for 20+ years. Just invest in SPY/real estate (50/50) and step back and let these guys manage it for you. If the market pulls back too much, they'll adjust monetary policy to get it moving again. If prices spike too high (like 2000's), they'll do the opposite and slow down the trajectory, etc.

In some ways, these guys are hedge fund managers on steroids. They don't need to cherry pick investments. These guys can move the entire market in the direction that they desire, so having them manage your investment is a better long-term strategy.

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Anonymous
admin
May 14, 2013 at 10:38 AM ×

Fed rants are so 2010. "Market that can’t be valued" my arse.

Pardon my french but whining underperformers can really go and stuff their 2/20 where the sun don't shine.

DD

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Anonymous
admin
May 14, 2013 at 12:06 PM ×

Rampagingruss says:
Any views on whats going on in the JGB market?

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Leftback
admin
May 14, 2013 at 3:42 PM ×

DD

Quite. I think a better description of the market today is "a market with tremendous valuation disparities". There are a lot of similarities to the late 90s now, when boring old bricks and mortar widget makers trade at a single digit multiple while social media and other pets.com analogs trade at multiples in the 1000s.

One need not question whether this is "right" or "wrong", in order to point out the existence of this inequality, just as in the case of the ratio of average worker to CEO compensation. Again, I am not moralizing, just observing. I do have my own views on whether Louis XIV levels of inequality are healthy for the economy and for society as a whole, but that's not relevant here. What matters is what comes next..?

The major effect of the QE infinity policy and the year-end payroll tax change has not been on the employment picture, but has been a very large wealth transfer from the US worker to the ultra-rich, speculators and the balls out hedge fund managers of the Tepper ilk. One wonders how long this is politically sustainable.

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Leftback
admin
May 14, 2013 at 5:08 PM ×

Btw, we are aware that US housing is "en fuego", (b/c we are told this every day on the TeeVee), which is obviously great news to all those who own thousands of recently acquired rental properties in Detroit, or who live in an underwater McMansion.

This is also great for those noobs who are recently long the XHB, or who own related stocks like LL, Z, TRLA etc., b/c "housing is back". We salute all of you, your powers of groupthink, your late arrival at the party, and your piles of newly erected lumber.

There is just one problem, chaps. Building growth would be expected to increase demand for lumber, so you'd think that lumber futures would be soaring, as they were in January through March. But they are not. In fact they are falling, and are down 20% since the March peak.

Timber !!

Longs might have to be careful this tree doesn't fall on them. We think there is some money to be made this summer in shorting a number of the housing related instruments mentioned above. It only takes one disappointing housing starts or new home sales number, or a FED release about tapering MBS purchases, and this pile of sticks is coming down like a Pulte Home in the path of a tornado.

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Leftback
admin
May 14, 2013 at 6:13 PM ×

PIMCO talking about reducing portfolio risk, reducing exposure to Italy, Spain, HY corporates etc...

PIMCO pares risk

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Leftback
admin
May 14, 2013 at 7:01 PM ×

Time to short junk bonds?

FT: The Golden Age of Junk

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Leftback
admin
May 14, 2013 at 7:24 PM ×

TSLA clearly had a blow-off top this week. After every short in the universe was Edward the Seconded....

TSLA Chart

Wonder what it's like to be the last stooge to be a buyer in one of those things? We will never know.... b/c nobody will ever admit that they weren't "in it all the way from the breakout at $35..."

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Nico G
admin
May 14, 2013 at 9:13 PM ×

"Louis XIV levels of inequality"

fantastic - for the last two years i said we had gone back to 'medieval' gap in wealth but your rendering is just brilliant

in my next life i'll be the current hooker in Cannes festival making $40,000 on some boat one night sucking some old, kind oil princes who still cannot believe their luck

they should tip the CFTC guys who abandon any effort to regulate, more than those hookers.

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Leftback
admin
May 14, 2013 at 9:38 PM ×

Nice idea, Nico, or you could try getting long high yield bonds here ...

HY Now Yields Less than Treasuries in 2008

Now that is the definition of reward-free risk.

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Anonymous
admin
May 15, 2013 at 11:23 AM ×

As explained wrt Fed rants earlier, we try not to let a personal (let alone political) opinion get in the way of our assessment of price action.

That being said, that tickling feeling in the underpants of precious metals zealots is something we are not going to deny enjoying. A lot.

LB -- admission: we had some Teslas PA, but did not have the guts to carry them over the earnings call after what had already been a decent run. Hockey sticks are sadly not something we have ever been able to play.

- DD

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Anonymous
admin
May 15, 2013 at 11:26 AM ×

Oh, and AUD, at last!

And our AGBs outperforming the global duration selloff as well.

We will not get cocky, since this position cost us a lot on the way there but feels like this one has some ways to go.

DD

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Anonymous
admin
May 15, 2013 at 12:37 PM ×

Was just wondering of the divergence in some leading indicators...

I mean look at all the industrial metals, copper, aluminium, nickel and zinc. They have all been pretty much flushing down the toilet from the beginning of February. LME stocks have also been on the rise.

Meanwhile most major stock indices have been telling a different story. US/Europe are up altough Shanghai is down from February. So China seems to be correlating more with the metals.

Should one be worried about this in terms of global growth? Of course lower raw material prices should be good for input cost and profitability and all that, but then again, why are the prices (demand) getting lower when the stocks are going up? So seems like stock indices aren't be getting support atleast from metals.

Also a link from the last post (Spoos earnings growth homing in on zero on a 2 year trend): http://i.imgur.com/Xw7c9gu.jpg

I wonder how this will fit into the multiple expansion.

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Anonymous
admin
May 15, 2013 at 2:03 PM ×

We are thinking USDMXN is ripe for a shakeout here.

A FX mind care to opine?

DD

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Leftback
admin
May 15, 2013 at 2:29 PM ×

Look at that red-hot US economy go..... !!

Today's underwhelming data will probably put a floor under the Treasury market for a few days at least. Might even see a bit of a squeeze today, as a lot of the usual reflation suspects have been pounding the table lately. Now watch the housing numbers come in weaker than expected today and tomorrow, after we already have seen that mortgage applications slipped...

When is the ASX going to follow the lead of the AUD? That turnaround in China doesn't seem to be coming, and Beijing isn't printing. Yet.

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rp
admin
May 15, 2013 at 4:59 PM ×

gis' a job
I can do anything, back office/booking/"data cleaning"/lunch run whatever.

15k

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Anonymous
admin
May 15, 2013 at 5:34 PM ×

You wanna job for 15k? And Merv the Swerve sees an improving economy from here? lol

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rp
admin
May 15, 2013 at 7:01 PM ×

To be fair the Swerv is probably right, so is Gideon. Besides, 15k is well over my transfer earnings. OK, I'll take 14k, contractor no bens.

Other skills in order of usefulness:
-Doing what i'm told
-Night security guard / cleaner, could work out well if you aren't in serviced offices.
-Foot courier; City-W.End i reckon i could give a horse a run for its money...in traffic
-Speak English
-Arithmetic
-Data monkey work
-degree
-Markets knowledge

Honestly, i don't even need a desk.

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Anwar Fazil
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May 17, 2013 at 12:53 PM ×

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