On your marks, get set, go

Well, the race to the finish has started, and the early evidence is that it's going to form.   Last week's survey provided an overwhelming consensus that long dollars as QE ends is the way to go, and sure enough the buck is soaring against most other currencies thus far this week.


Long equities are also a clear favourite, though whether that's by default or because of ECB stimulus or US growth is anyone's guess.   The perceived investment outlook for fixed income is more mixed, though interest is pretty clearly skimpy compared to the enthusiasm for FX and equity trades.

This week will of course provide a dose of signal via the ECB meeting and Friday's payroll report.  For choice, Macro Man expects the ECB to provide a by-now de rigeur downgrade of its growth and inflation forecasts but stop short of announcing any new policy measures.   After all, the first TLTRO is slated for allocation later this month, and hey- why not see how that goes before making any further decisions.    Given the term structure of European rates, it is surely legitimate to question exactly how much more monetary policy can be expected to accomplish. 

On an 'unchanged' ECB, the euro would presumably stage a small rally.  Will that produce a wall of supply or a raft of stops?  The result will tell us something about market positioning and risk appetite.  Of course, another strong NFP number would presumably encourage a further wave of dollar demand, so it's probably not the week for the "run tight stops and hope to get lucky" strategy that seems to dominate macro these days.

Of course, with four months still to go, this year, it's not how you start but how you finish.  In that vein, punters will be keen not to pull a 'Devon Loch', particularly after such a challenging year....



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Nico G
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September 2, 2014 at 2:51 PM ×

look no further than our poster child Portugal

http://davidstockmanscontracorner.com/europes-fantastic-bond-bubble-how-central-banks-have-unleashed-mindless-speculation/

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Leftback
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September 2, 2014 at 2:53 PM ×

Might be more like the legendary pile up at Becher's Brook in 2004. Luckily there were no fatalities that year.

Becher's Brook

A lot of these weeks end up being "buy the rumour (of the bazooka/World War 3/screaming US recovery), sell the news (there is no bazooka/World War 3/screaming US recovery, as of yet)". In this case the assets being bid are USD and European peripherals.

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Leftback
admin
September 2, 2014 at 3:40 PM ×

Bucky perhaps ready for another parabolic move against the yen to match its New Year spike to 107?
Abandon hope, all ye who enter here.... easy money has been made in this trade.

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Nico G
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September 2, 2014 at 3:52 PM ×

i have ranted against buyback long enough to be comforted by this:

http://hbr.org/2014/09/profits-without-prosperity/ar/1

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CV
admin
September 2, 2014 at 3:55 PM ×

I am loving the price action in DM bonds today ... someone came back from holiday in the US, looked at the screen and went, "Shit, this is way too low!"

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Anonymous
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September 2, 2014 at 4:09 PM ×

SocGen: Clearly, the market is in danger of disappointment if the ECB meeting on Thursday fails to deliver more than dovish rhetoric

Barclays: It's too early for the ECB to announce new policy measures, given the policies announced in June are not yet deployed.

UniCredit cuts its 2014 euro zone GDP forecast to 0.8% from 1.2% and its 2015 forecast to 1.2% from 1.7%,citing weaker emerging mkt growth

Here’s Why Morgan Stanley Says S&P 500 May Near 3,000 - Bloomberg via @BloombergNews http://bloom.bg/W5sQ4d


California to shift mentally ill inmates out of solitary confinement

Gee, I should have put that last bit of news first :)

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Anonymous
admin
September 2, 2014 at 4:23 PM ×

Why is the Shiller CAPE So High?

http://www.philosophicaleconomics.com/2014/08/capehigh/

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abee crombie
admin
September 2, 2014 at 4:50 PM ×

Perhaps instead of looking for consensus Q4, maybe we should look for Pink Elephants.

Draghi dissapoints, EUR rallies and S&P falls (the correlation is pretty high)

JPY? who knows

Putin de-esclates and Russian assets rally

Argentina and Brazil get their 'Modi' moment

The Fed throws a changeup and the dollar doesnt rally (hey makes sense, if the dollar is rallying on low US rates, maybe it falls on higher rates, you never know)

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Leftback
admin
September 2, 2014 at 5:12 PM ×

Abee, do you mean Pink Flamingoes, (which at least in the context of this blog are taken to mean trades that after a period of popularity have to be uprooted under cover of darkness and parked on someone/anyone else's portfolio...)?

USDJPY would appear to be the primary Pink Flamingo du jour, it's had a long run but everyone who didn't have this on is now in the process of buying in, so soon everyone will be on the same side of the boat.

TSLA is now entering its Third Parabola, during the upward extension of which it will be sold to the kind of discerning punters who would buy small samples of Special Sand while traveling in the desert, or authentic bottles of British Rain.

Long USDRUB, Short RSX. Any de-escalation in Da Yookrain and these punters will have to forget the Cold War and instead will get the Cold Steel.

It's clear that Silly Season has been extended for a few extra days this year post Labor Day, as we await not only Dr Aghi but also the latest US employment data. Normal service will be resumed next week.

Anyone else got favorite Flamingoes?

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CV
admin
September 2, 2014 at 5:44 PM ×

Well, thanks for asking LB ;);

Here is my Pink Flamingo list

- Bunds and Oats (heck throw in BTPs too)
- Short eurozone financials
- Love the idea of Brazil having a "Modi Moment", god that would be fun.
- Short supermarkets in the UK(?)
-Oh yeah, and the USDJPY and Russia indeed ...

Claus

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Mr. T
admin
September 2, 2014 at 7:16 PM ×

Aside from a couple punts I'm happy on the sidelines. My inclination is bearish on cb-targeted-assets but I'm just not going to do that trade without some indication that the central banks are willing to let it work, which seems highly unlikely.

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Leftback
admin
September 2, 2014 at 9:11 PM ×

Mr. T, agreed wholeheartedly with your sentiment. It's been an absolutely great year to sit on your arse doing nothing but collect dividends and receive rates.

Load your muskets, men. But hold your fire until you see the whites of their ... socks?

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Leftback
admin
September 2, 2014 at 9:17 PM ×

Nico, thanks for the Stockman post. He started in with Portugal and then he really gave the entire European bond universe a good going-over.

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Anonymous
admin
September 3, 2014 at 7:26 AM ×

ciao dude...

2 questions 4 yopu all:

question 1: do you think Fed is going to allow ECB to devalue EUR beyond 1.25/1.20 without intervening ?

question 2: given the EU headwinds, are we sure the Fed won't take those as an excuse to postpone/slow down tapering &co?

Apologies for my rhetorical questions...

ciao f

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abee crombie
admin
September 3, 2014 at 1:27 PM ×

while i missed the boat on tesla, and do think its a bit of a momo stock, the back of the envelope valuation numbers arent so crazy. if they can get to > $10B in sales.

For reference Mazda had $27B in sales, F & GM around $150B, Toyota & Volkswagen around $260B, and BMW $100B. If you think its likely TSLA can take 10% of BMW's share (same market) then it isnt so expensive

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Nico G
admin
September 3, 2014 at 3:05 PM ×

and i have the feeling Tesla drivers share that particular doucheness inherent to Bmw drivers

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Polemic
admin
September 3, 2014 at 4:26 PM ×

So applying 2014 rules the trade is to be short USD

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Leftback
admin
September 3, 2014 at 4:48 PM ×

Indeed, Mr P. We like short USD - or these proxies:

1) Long silver/gold/GDX?
2) Long EM equities?
3) Long EM debt in local currency?
4) (gulp) Long EUR?
5) (gasp) Long JPY?

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Leftback
admin
September 3, 2014 at 4:53 PM ×

After all, we are NOT going to be in any kind of a liquidity crisis given all the global QE programs. If it is anything at all, long USD (T-bills etc.) has shown itself to be THE safe haven of choice when liquidity dries up abruptly (2008, 2011). Now that we are in a world sloshing with liquidity chasing return, it seems more likely that we will see a rotation away from US assets, with the possible exception of the long bond, as evidence of renewed US weakness emerges, led as usual by the housing data, which has already turned down.

Sorry this is all gloom and doom, Pol, but it is what it is. It's the demographics, innit?

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Leftback
admin
September 3, 2014 at 5:00 PM ×

However, we are not bending over in front of Draghi or this week's employment numbers. Still too many late arriving bulls rushing in one direction, so we'll wait until the steamroller has gone by before punting.

It is notable that the REITs hardly budged this week despite a +10 bps move in US10y, so professional investors seem not to be in fear of a Fed rate hike. We assume a lot of that spike was reversal of a Ukraine-Russia fear trade rather than data-driven.

Today was a good morning for Russian equities, not so good for USDRUB longs.

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Anonymous
admin
September 3, 2014 at 8:46 PM ×

I think this article about Tesla is pretty interesting, even though he is talking his book. http://dcbandor.com/2014/07/29/tesla-lets-do-elons-math/

- Whammer

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Mr. T
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September 3, 2014 at 10:59 PM ×

The Stifel $400 ($50bil cap) note is assuming 49% cagr for sales, and 61% cagr for gross profit during the same period. 2017 sales of $10bil with gross margins north of 30%. If TSLA pulls this off, it'll be one for the record books.

For better or worse, lots of stocks are trading on similar valuation metrics (ie 5x out-year sales), but what I don't understand with TSLA is where all the business model leverage is supposed to come from. TWTR is trading at about 6x 2017 sales, but the leverage there is obvious - relatively fixed costs with (modeled) exponential growth in users, sales, etc. Is Toyota really such a poorly run company that they muddle along with (industry-leading) 20% gross margins where TSLA is going to be able to scale 1000bp higher, all the while absorbing the costs of pioneering a new technology and the associated infrastructure?

There is a reason why software,internet etc names get higher multiples - the leverage inherent in their business models. I can't see why the 500,000'th car is going to generate the 100% margins that is used to justify the high multiples for the fixed-cost-high-growth companies that the TSLA analyst is drawing on for inspiration.

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amplitudeinthehouse
admin
September 4, 2014 at 12:58 AM ×

Global managers keep trying to con investors that TLSA will be profitable in the right hands, then eventually someone will fall for it..but I've seen the form, and you are a GUESSER, and while the sun rises I'll never trade for you.

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Anonymous
admin
September 4, 2014 at 9:51 AM ×

C says
My favourite pick for the remainder of this year and probably most others is short my sanity. Am I the only one who finds constant mention of Apple beyond irritating ? I know it is probably an age thing ,but I find Apple as exciting as a wet weekend in Whitby. In a supporting ,but secondary role in terms of claims upon my sanity comes ...the 'App'. Seriously, get a life folks.

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CV
admin
September 4, 2014 at 10:57 AM ×

"wet weekend in whitby" ...

... this place is really great sometimes!

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Anonymous
admin
September 4, 2014 at 11:06 AM ×

guys... with regards to TSLA, the interesting part of the business model is NOT the vehicle, it's the recharging stations.

http://www.teslamotors.com/supercharger

THAT is a game changer.

ciao f

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Anonymous
admin
September 4, 2014 at 4:19 PM ×

C Says
Did I say 'wet weekend in Whitby'. Typo ,I meant Workington :)

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Polemic
admin
September 4, 2014 at 10:05 PM ×

Funnily enough I m sailing around the Greek islands at the moment and it's wet and windy here too. Positively Lake District weather. Greek economics are alive and well though..

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Polemic
admin
September 4, 2014 at 10:10 PM ×

As for Tesla. I bought at 35 and sold at 70and haven t wanted to look since.. Still want a Tesla S though powered by a bank of solar cells in my field. Fat chance though as Mrs Pol says they would make the field look horrid.

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