The Wizard of Abe



Reaction to Abe's Third Arrow has been one of disappointment. Whilst we see him continuing to throw everything at it we are concerned that impressions are everything and if the market detects cracks in either policy or commitment the fall out will be huge and not limited to Japan.

The market discovers the true Wizard of Abe

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Anonymous
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June 5, 2013 at 11:08 AM ×

C Says
"The market". I really am not sure who "the market" is,but much of their behaviour appears to be governed by exploiting and closing fairly short term arb opportunities then departing in search of the next one.

Structural reform however is not something that equates well to that sort of behaviour. To even make a reasonable judgement you would need to stick around and see implementation and ongoing economic monitoring of performance.
Same day sell simply says' to me not what reforms will achieve,but that we still have too many people in profit and willing to bank it.

Labour market reform though,what an issue.THE issue everywhere really if only by way of secondary connections.
Here is my thought for the day.We have surplus labour worldwide relative to current demand for product/service. Indeed that bringing in of labour from Asia/Emerging has been deflationary for labour in the West. So much so that in the West we had to increasingly create a new job called unemployed. You could be really unemployed and paid to be so,or over the years as the welfare benefits systems evolved you could be em (unem)ployed,but subsidised to be so to so some degree ...think any one of the many ludicrous benefits that have evolved !Then think how did we get these public borrowing mountains in Japan/Europe/US,but other than through trying to compensate for the deflationary effects of new influx of labour/new tech intros etc.

I'm out of ideas how we get around labour deflation so good luck Abe. Hope you are more creative than I am.Perhaps we need to start thinking of being unemployed as a valued job,a public service no less ;)

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Anonymous
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June 5, 2013 at 4:23 PM ×

Serious fixed income boot filling, as Directionless Gamma Capital changes name to become Detapering Partners.

Now if payrolls come in at 400 or something like that, we will be in for a world of pain. But we think yields are toppish and are happy to revisit the summer swoon business of years past.

DD

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Leftback
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June 5, 2013 at 5:17 PM ×

Gundlach said yesterday yields could top out at 2,50% but that would crack equities. However you could sort of tell he was already long Treasuries and didn't believe the hype.

Our boots have been crammed to the laces with fixed income for a while, augmented with a few options. Shorting those leveraged inverse bond ETF thingies can often be a source of amusement when all the bond bears have to throw a U turn at once.

Today we have had the Kevlar out and been nibbling on some REITs and some emerging market stuff, but just small bites of things like AGNC and NLY preferreds, as we don’t think this sell-off is quite done yet.

We have been selling June puts. If I close my eyes I can hear the hoofbeats of a herd of vol sellers. VIX seems to be peaking out here at 17ish and we expect to see equity buying and options selling pick up as we approach 1600. Anyway, the easy money has likely been made on the short side now for the time being. The mood is already getting a lot more negative, which means that good ole Mr Squeegee is waiting to pick off the late arriving Bears.

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Leftback
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June 5, 2013 at 9:20 PM ×

Bad day for the mindless throng who jumped in long, they started out strong but ended up wrong.

Good day for Mr Bond. Haven't said that for a while. Watching all the bond bears who were screaming for a 4% 10y (or even a 3% 10y) have to unwind over the next week or so, this is going to be fun.

EEM is now at lows of the year, and we are getting close to outright revulsion in some markets, so there are some good values out there already. In Russia and Brazil, here and there are some end of the world P/E multiples. India and China still have a bit further to go to be attractive.

Expecting a bounce in equities to start before long and already had a nibble at a few strategic issues that we haven't added to since December. As for the rest of the US market, that can wait - until the real washout comes along. The bubble stocks will probably retrace the whole move back to where they broke out by the end of the summer, but it probably won't happen all at once, which means more happy BTFDers will get hosed.

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amplitudeinthehouse
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June 6, 2013 at 3:52 AM ×

- The guys behind the desk keep sending the usual muck into the email box when QE is implemented..I'm sure some of these guys are from the last cycle ...before it was trashed for what eventually was for all the right reasons...this one is heading straight along the same lines..ps...desk v trenches

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Meganee
admin
June 6, 2013 at 7:36 AM ×

what r u saying it's so hard to be

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amplitudeinthehouse
admin
June 6, 2013 at 8:00 AM ×

Let me spell it out for you...
It's been over ten years since the tech bubble & here we are , still here
& again the desk want to serve up muck after all this time ...please...you know where my stops are, do me favor, take me out!

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Anonymous
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June 6, 2013 at 8:45 AM ×

C Says
Japanese equity basically closed the gap up from early April and at nearly 20% off it's rally top we seem to be at a flush pause point I would have thought.

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Anonymous
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June 6, 2013 at 3:40 PM ×

Rampagingruss says:
@Leftback
While I like fixed income as well, I am concerned the sell off in the MBS market is going to cause a negative feedback to treasuries via people hedging their duration risk. Any views on this? This sort of price action can cause a very bad negative feedback loop...

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Anonymous
admin
June 6, 2013 at 3:57 PM ×

Don't forget that the Fed holds a LOT of this MBS paper that is supposed to trigger convexity hedging. You can take the view that it hedges its duration the same way Mr and Mrs Stamford Connecticut do, but really at the margin, the dynamics should be more muted than when the entire stock was privately owned.

It is our view that OAK and similar FI vehicles will do very well over the summer.

Sidenote. Can't remember who it was who suggested EWA shorts a few weeks back. Nice call.

DD

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Nico G
admin
June 6, 2013 at 4:02 PM ×

meanwhile.. European banks are getting hammered - it feels like summer 2011 again

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Anonymous
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June 6, 2013 at 4:15 PM ×

Someone care to explain to a FX simpleton where that USDCHF move came from.

COuld have bet (actually did, ouch) that it would have gone the other way.

DD

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Anonymous
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June 6, 2013 at 4:50 PM ×

Honest to god does Draghi have any clue what he's doing? Any whatsoever? You could write a script about EU monetary policy and it would be summarily rejected as far too farcical.

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CV
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June 6, 2013 at 5:38 PM ×

Intervention here in the USD chaps?

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Anonymous
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June 6, 2013 at 8:18 PM ×

Dr. Aghi seems to base assumptions of recovery mainly on some other part of the world coming and just pulling Europe up out of the swamp. Meanwhile they can "continue to accomodate conservative policies and the interest drop that was just made will continue to support Euro domestic consumption". The growth forecast is now over 1% for next year. Of course this wouldn't be the first year to miss by a wide margin.

Well China has been telling a different story. They want to make their growth more stable( presumably internal and not so much import). So have to wonder who is the tooth ferry that will make Euro exports fly again as in the last decade.

Domestic consumption? Where is the income growth? I guess as C said, since there is no easy answer to create productive jobs, we should borrow and create bogus jobs or regard unemployment as a job to distribute the loans so as to create growth.

Or another option, start building the Death Star (which was officially dismissed by the White House).

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Anonymous
admin
June 6, 2013 at 9:33 PM ×

Talk about some seismic bullshit in FX. Sorta kidding, sorta not.
The USD has been a fave for too long.

Summer range highs being established maybe?

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Leftback
admin
June 6, 2013 at 10:30 PM ×

Curiouser and curiouser. Bizarre day. A 2 yen move in the middle of the trading day is a rare animal. Wonder what Honest Abe thought about that?

Great day to be Directionless Capital after a tiny bit of Falling Knife Management yesterday.

It was almost like the Fed got on the dog and bone to Tokyo, woke someone up on the graveyard shift at BoJ and said "wake up and start f***ing selling sh*tloads of yen and we will sell vol. Move it you tools".. and they did.

We see EURUSD at nose bleed levels now.

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