No Fed LSAPs? No problem! Team Japan delivered a double-barreled assault on the nattering nabobs of negativity last night, with an aggressive expansion of the BOJ's QQE program and the long-awaited announced of the new GPIF model portfolio.
Unsurprisingly, the Nikkei went doo-lolly last night, with futures now at new cyclical highs. So too did the yen, with USD/JPY at its highest level in nearly seven years.
Naturally, Japan's domestic financial asset developments have resonated throughout the globe, dragging global equities higher and EUR/USD very slightly lower. Curiously, given the generally close ties between fixed income and the yen (as well as portfolio shifts vis-a-vis equities), Treasuries are only slightly down today (and German bonds are flat.)
Clearly the moves from Team Abe were coordinated to achieve the maximum possible market impact, so kudos to them. As for punters....if you wanted to add length and were cautious....unluggy. Spooz are back above 2k.
If you're short....ugh. Boom goes the dynamite. It must feel as comfortable as the chap in the video.
With seasonals turning sharply favourable for risky assets, it's hard to see how JBTFD won't remain in vogue for another few months at least.
Unsurprisingly, the Nikkei went doo-lolly last night, with futures now at new cyclical highs. So too did the yen, with USD/JPY at its highest level in nearly seven years.
Naturally, Japan's domestic financial asset developments have resonated throughout the globe, dragging global equities higher and EUR/USD very slightly lower. Curiously, given the generally close ties between fixed income and the yen (as well as portfolio shifts vis-a-vis equities), Treasuries are only slightly down today (and German bonds are flat.)
Clearly the moves from Team Abe were coordinated to achieve the maximum possible market impact, so kudos to them. As for punters....if you wanted to add length and were cautious....unluggy. Spooz are back above 2k.
If you're short....ugh. Boom goes the dynamite. It must feel as comfortable as the chap in the video.
With seasonals turning sharply favourable for risky assets, it's hard to see how JBTFD won't remain in vogue for another few months at least.
60 comments
Click here for commentsGood point about bonds, no reaction there.
ReplyBonds knew something, they move few weeks ago exactly as JPY today.
At the end, it doesn't matter what one trades these days - it's all 95% correlated to (aud/jpy + usd/jpy)/2
But one never goes full QE
http://www.youtube.com/watch?v=oAKG-kbKeIo
3mo TBills go to negative yields again for first time since 2011 ( -0.005%)
ReplyThe Carry Monkey became a Carry Gorilla overnight. Where's Beeks?
ReplyDash for Trash back on, Santa Rally in play, as Mr Market reaches for Polemic's New Real Top.
ReplyTime for some reflection and introspection over here. This surge in the dollar may be helping the US consumer going into Q4 (lower gasoline prices), but it isn't necessarily all good news for Q1.
Two strong sectors are going to get whacked. Exporters, as everything CAT sells just got more expensive, and the Domestic Energy sector, which has been one of the job engines. Right now, it's barely worth sinking a drill head in North Dakota, although NYC nearly put one into the F train yesterday.
With yields likely to continue to back up from the October Blow Off Bottom, the whole REIT sector looks a bit vulnerable here, and the utility sector may go with it. Time for some hedging over here, but no shorting of the Spoos. That will come later. 2015 might be one of those years where the high is on Jan 2nd.
Infamous anon here...like I said, this is not different. Same ish different day, but the thing with a QE driven market is, even when you think it's gone, it's not. And Draghi et al. haven't even officially joined the dance yet. Strong buy on beta.
ReplyLawrence McDonald
Reply¥80 Trillion a Year QE
That's 13% of GDP, Fed would have to launch QE of nearly $2T annual, $165B a month to match the experiment
Markets feel like October 2007
Indeed LB! In the absense of the Fed engineer, the monkey simply called in the workmen from Kuroda Inc to fix the machine. Now it is working like a charm, every time you pull if spews a wonderful rain of levered JPY, Spoos and other pleasantries ...
ReplyMight this FINALLY be the time to reach for the Ultimate Widowmaker?
ReplyThere will come a time when either Japanese inflation resurfaces above the 2% line or the currency completely disintegrates. Some time before that actually happens, JGBs are going to blow up. But as we all know, we've been saying it for years and there are an awful lot more widows around as a consequence.
If I haven't said so before, btw, this market's Mental. But we will plug away and try to act with a degree of sanity....
I don't see JGBs going down because the BOJ will swallow them all. It is will within their power to print and buy everything, and they probably will to prevent a destabilizing event. It will make the yen massively depreciate though
ReplyES_F 1000 lot just crossed the screen
Replyhttp://imgur.com/9LM0CYl
Kuroda for President!
LB references the ultimate widow maker trade, I'm assuming he means shorting JGB's. I find it interesting how many similar window-maker (or at least portfolio-smashing) similar trades are out there now? Shorting bunds at 130? Shorting the entire treasury curve? Maybe this is all just reflections of global-ZIRP, but I could see 20 years from now people are still lining up to short the bunds at 40bp and the current post-Draghi-smirking-eurostoxx-buying-ECB-head just rips them up too?
ReplyI think its also possible that people (including in Japan) are overstating the benefit of a weaker yen. You have of course the required-imports (energy, food etc) angle, but also corp Japan has spent the last decade deliberately co-locating their manufacturing all over the globe to maximize supply chain efficiency and reduce the burden of a strong yen. Is Toyota really going to benefit all that much from yen@120?
Where does this leave us? For now, on the sidelines.
Reminds of an episode of the Simpsons where Lisa compares the intelligence level of Bart to a hamster, placing a muffin with an electric shock on the counter. The hamster learns not to touch after one shock. Bart just never learns....
ReplyAnon is right. Actually shorting JGBs is like sticking your old man in a blender and then turning it on.... shorting the yen is probably more rational. AUDJPY and EURJPY might have a good run here.
ReplyJust buy some DXJ.
ReplyThank goodness I didnt have my offer out in the futures market but I still think it might take a bit of time before S&P runs up another 100 points. If we do it fast into the end of the year we are probably only setting the stage for a nice counter move at some point.
On the sidelines here but I do expect EM and EU to catch up now
http://peterlbrandt.com/asia-go-parabolic/
ReplyThis all reminds me of Peter Brandt's post back in late-July ...
Western Canada Select oil trading @ $64.82 per barrel ; Syncrude @ new 2yr low $76.82
Replyit's just end of month folks... and Santa is too far away - nice swing to come shortly
Replyas per the previous thread we seriously have to distinguish guys who started to trade in 2009 and the older folks, indeed
personally i still refuse to alter logic or rather, destroy logic/experience gathered in 20 years because just because the last 6 years were funny
the old normal will come back with a vengeance.
Germans started to pay their bank 0.25% for their deposits this week and they are fucking outraged
remember that this rally is 6 years long and
Happy Halloween
What. A. Week.
ReplyIt's a challenge, Nico, whether for noobs or the grizzled survivors of the 2008 waterfall. You're right that good risk management always wins in the end, and with that in mind.....
One thing we did in the last few days was to hedge against a mini-collapse of one segment of the portfolio, namely the high dividend mREITs and preferreds. If things get really silly here, a wave of optimism might send equity investors on a Dash for Trash. Fixed income punters might also be scuttling out of the front (or back) end of the curve for a month or two in a replay of summer 2013, and that would hurt both the real estate sector and the utilities. So we invested in some cheap protection by buying some long-dated IYR puts. The advantage of this is that IYR is very liquid, and it will go down in a rate scare or in a general dump, so we don't have to be right about the reason for any sell-off to make money.
Hope rates are relatively stable and this is not required....
am beginning to feel that with the recent mayhem in price action, the strong tenets of the main religions of financial opinion are appearing a little thread bear. Which is leaving many devout followers doubting the point of following any of them and instead, wisely, going back to building their own moral/financial codes on which to base their future actions.
Replyin other words I am wondering if as everything is so nuts, their is any point in bothering with either side of the story. Best to make up your own.
I have expanded on that thought in an other place.
@Pol: "in other words I am wondering if as everything is so nuts, their is any point in bothering with either side of the story. Best to make up your own. "
ReplyI think you've picked the turning point..
could be anon. but it would be an accident rather than anything based on current theory. but stocks aren't over yet. I just got a taxi home and the driver didn t mention stocks once.
ReplyWaiter, could you bring me a new religion please? This one is broken
Losing My Religion
ReplyC Says
Reply"I think you've picked the turning point.."
I could reasonably say he's identified the start of the last euphoric wave.
Meanwhile ,watch out for bargains in your supermarket shop .... Tesco's are offering one free Japanese car with every box of Kellog cornflakes. No they are not replicas !
Consumers of the world go wild.
C, Yes, that is much more like it. The last Euphoric wave. And fits in with my NRT ( new real top) theory.
ReplyAnd like spots, euphoric tops should not be picked.
They are usually only identified as diminishing specs as you reach terminal velocity moving in the opposite direction.
@Nico:
ReplyGermans started to pay their bank 0.25% for their deposits this week and they are fucking outraged
To put things in perspective: this is one small savings bank almost nobody knew about a week ago. The minimum deposit for -25bps is 500k EUR, so this targets not exactly retail. None of the bigger banks went this far.. yet.
pol - i would be careful with the "taxi driver dispensing stock tips" test - not every topping process has a euphoric backdrop, least of all the ones where financial engineering and interest expense led earnings growth has been a big part of the rally.
ReplyBy way of example, while your example is true for the cycle that ended in 2000, I simply do not remember exuberance in 2007-2008 - if anything investors were justifiably nervous at 1400-1500 - what got the market then was the fact that people felt 1000-1050 was enough of a correction as we proceeded to implode to 700.
30% is 30% no matter where it starts from!
thanks anon and I do appreciate your points but will try an defend by expectation of an exuberance spike
ReplyI think that tops in stocks are produced either over exuberance in the stock markets themselves such as the 2000 case we mentioned, or by an exogenous shock that kills confidence through secondary paths. the crash of 2007/8 could be argued to be nothing to do with the stock market as a result of an exuberance spike in credit and housing, the resultant collapse killed practically everything. To this exogenous shock we can add war, meteor strikes and all the other disaster scenarios.
If we are looking for stocks to top out for stock reasons alone (and this includes anything based on internal stock/earning/ratio metrics), then I would say that any serious reversals have occurred after an exuberance spike.
Yours Pol
David Malone " Waiting for Something Bad to Happen"
ReplyThere has been "...a power-shift from the central banks to the global private banks. I think the global banks served notice that the Central bank plan of 1) reining in the risk-taking of the TBTF banks and 2) stimulating growth in the real economy is now dead in the water. There is a new plan."
http://www.golemxiv.co.uk/2014/10/waiting-something-bad-happen/
Bloomberg:
"Blackstone, Chief Executive Officer Stephen Schwarzman told investors yesterday that the firm’s $70.2 billion credit unit is ready to “feast” on lower-rated, long-term debt, particularly in Europe, after “waiting patiently for something bad to happen.”
C Says
ReplyAnon 12.46
There was plenty of exuberance in the last cycle top ,but like many such tops it took time to crystallise. last time was without a doubt property and property related finance ,but of course even AFTER that was seen by quite a few people no top reversal came into play ,because the world was still in love with commodity story. I remember thinking what the ..fk is holding this pile of crap up.
Anyway Pol, qualifier old son. That broad market move is iffy to say the least ,because the Japanese have not just delivered a broad carry at all which the move seems to have reflected. There are going to be very distinct winners and losers. SPX for a start with a much stronger dollar doesn't make any kind of sense at all. US consumers just got themselves a thanks giving 'tax break' so US domestic equity consumer oriented ..good. Big blue chip exporters not so good. Jap equity global ..yippee all those foreign sales repatriated to a Yen balance sheet ...earnings yippee. Domestic Jap with heavy import bills in their input costs...oh dear. There is though now a strong case for Japanese savers to get stuck into their blue chip equity rather than foreign bonds. It's the only way they are going to retain purchasing power via the conduit of repatriated foreign earnings that has someone else mentioned have been built up by Jap corps for quite sometime. Will they though see that when they have been addicted to other assets for so long...who cares , I'll have it on their behalf.
Pol, I'm with you on the top's but I believe that each one resulted from the break of the underlying market theme.
ReplyLate 90's...theme was internet improving efficiency, earnings will follow.
Early 20's....housing never goes down.
Currently....don't fight the fed, the initial moves here seem to indicate this theme is still intact. (Unless there is another meme that I'm not seeing.)
I do hope we are getting near the top here however. I feel the longer this runs the harder it falls.
Beginning to think that the next big break will be caused from a failure of markets themselves. Failure to clear and settle, post liquid b/a. and lack of coordination among participants. Something along those lines. Confidence in Mr. Market to solve all our woes at all time highs. It's when that breaks that we should worry.
ReplyThanks chaps and I can't disagree with any of you as there is validity in everything you say ( as ever) I don't think any one theory is fully correct - It's all a portfolio of theories and it's a game of weighting them correctly .. hence I am not sure which to follow completely or if its worth following any of them religiously.
ReplyHave a very happy weekend all.
pol
In 2000, people stopped believing in the wondrous power of the internet. In 07, they stopped believing in structured finance. In 20?? they stopped believing in Central Bankers
ReplyThe most amazing thing about the Japan narrative is the abject failure of QE to achieve its stated aims , yet, what will solve it ? More QE.
http://davidstockmanscontracorner.com/the-boj-jumps-the-monetary-shark-now-the-machines-madmen-and-morons-are-raging/
Reply"Japan Inc. is fixing to inject a massive bid into the stock market based on a monumental emission of central bank credit created out of thin air."
"50% of [Japan's state pension] fund's $1.8 trillion portfolio will flow into world stock markets. On top of that—the BOJ will pile on too—-tripling its annual purchase of ETFs and other equity securities."
Sushi-QE to Near-Infinity!
What, me worry?
ReplyRossmorguy
Nice write up on Thursday's blackout...
Replyhttp://blog.themistrading.com/sip-crash-the-sequel/
Matrix showing who would have been affected by yesterday's blackout (the ones using SIP)...
http://imgur.com/ODHtccz
the only thing i am bullish on is MM commentometer
Replyhttp://www.cnbc.com/id/102110810
ReplyKyle Bass interviews from last week ... his short-yen position probably made him a few more nickels. He certainly was quite prescient about Kuroda's upcoming QE announcement!
Dollar starts the week bid: Acc to Citi there's general USD demand in early Asian trading. USDJPY is now 112.9, while EURUSD at 1.2503.
ReplyMoody's: Rosneft is Russia's most heavily indebted oil comp, w/ $20bn due in next 2qtrs amid constrained liquidity as result of sanctions.
ReplyMidas touch:
Replyhttp://stockcharts.com/h-sc/ui?s=$gold&p=D&yr=2&mn=5&dy=0&id=p67917380001
http://evilspeculator.com/wp-content/uploads/2014/10/2014-10-31_gold_update.png
http://www.dailyfx.com/forex/technical/elliott_wave/gold/2014/10/30/eliottWaves_gold.html
those waves... if you cannot surf them, do not trade them
Replyi missed that one from the great Joshua
Replyhttp://thereformedbroker.com/2013/10/24/silly-little-bitches/
Carry monkey still climbing the tree towards 115JPY, where it may pause on the road to 120. We can no doubt expect yet another burst of exuberance in USD in anticipation of US jobs data into Wednesday, when likely we will see new lows in EURUSD.
ReplyThursday is unlikely to bring more ECB "QE", after all this is one central bank that doesn't actually have its hands on all the controls. Political road blocks will remain for Dr Aghi - until and unless EU (OK, German) IP data really plunges. Friday's US data, when it finally arrives, will be lukewarm as ever. So long USD for the first half of the week, then long EUR for a punt?
Steen Jakobsen sticks to his call:
Reply"I have only one trading view: Lower yields (since Q4-2013), one economic view: Dis-inflaton/deflation will be the catalyst for an asset sell off as Fantasy-land is replaced by Reality-land, one FX view: US dollar will peak in mid-November……one timing view: LOW in this economic/inflation/Nonsense is Q2-Q3 2015"
Timing is always difficult in this world of Bazookas and Kuroda's Dynamite factory, but it does seem as though Bucky's Parabolic run may end soon.
ReplyAs for next year, who knows when Spoos will top and bottom, but I do think it will be a miserable year for the brainless morons who made money by lever pressing these last two years.
A Jan 2nd top, then a July 2nd summer bottom, terminated by a Hilesenrath leak in WSJ of Dame Janet's upcoming QE4/5 speech at J-Hole? 2015 will be better for Europe, EMs and commodities than for US equities. That's been my base case for a while.
[Cue the usual ritual abuse and US flag-waving]
Comparing 2014 to 1998:
Replymgur.com/QD53Iyv
US construction spending down again. Before too long we are going to see US energy investment fall and jobs in both sectors start to decline.
ReplyThis is bad for Permabulls. It's really an issue b/c those are relatively high paying low-skilled jobs. A recovery based on 75 y-o retirees taking part-time Wal-Mart greeter jobs isn't going to cut it, is it?
This is bad for Permabulls.
ReplyLB - I thought we were still in a weak-data-good-for-stocks regime because it will keep the fed cheerleading. Do you think we are no longer there? Anyone taking a punt on Nikkei? I'm in my warm cocoon of the sidelines and it all looks confusing.
Yes, "bad news is good news" for equities in the week preceding FOMC mtgs, b/c then we can trade "the dot plot" and score on a few "get in there" trades like MM last week......
ReplyThe rest of the time, however, we are heading into a Santa rally, where "there is no bad news" for equities, b/c once again there are loads of john-johns trading spoos correlated with usdjpy, which is going to go up every single day.
Until it doesn't.
WSJ:
Reply"Taylor St Baristas is planning to raise up to £3 million ($4.7 million) through the launch of Britain’s first ever crowd sourced coffee bond as it looks to add 21 additional shops in the City of London on top of its existing nine outlets."
"Investors, whose bulk the company hopes will be regular customers, can elect to have their coupon paid through store credit at the rate of 12% per year. Or bondholders can be paid in cash at the rate of 8% per year. The company requires a minimum investment of £500 over a four-year period and it is looking to fork out payments twice a year".
South Sea Coffee, perhaps?
ReplyThe IWM is back to under-performing. Right now it is trading lower than it was at the open Friday after the dynamite went off half way up Mr Shorty's arse. Looks like squeeze in small craps is over.
Donkeys and elephants on parade tomorrow. As a knee jerk response, usually the USD prefers the elephants. No fiscal policy change is possible. Doesn't mean a damn thing.
"Fisher: For those with access to capital, QE was a gift of free money to speculate with. http://bit.ly/1tA54uW "
ReplyCLZ4 just fell out of bed.
ReplyAre we having our oil version of an Amaranth blow up somewhere in hedgie'ville
ReplyCan u guess
Reply"Friday was simply a work of financial art in Japan. The BoJ is now picking up where the Fed left off. Janet's Jell-O Shots are being replaced with Harry's Sake Bombs. And just as the US needs to snug up financial conditions, the Japanese are exporting us a bit of tightening. Its perfect! The baton is being passed, and a well coordinated global monetary policy plan is coming together.
But there is one missing link. We have not been served any of Mario's Martinis. The ECB is tragically behind in this game, and the pressure is mounting fast. Accommodation worked in the US, and it worked in the UK. The Japanese watched and followed. But Europeans have just dragged their feet. Something has to change, and this Thursday's ECB meeting cannot disappoint. To that end, I fully agree with Martin Sandbu who wrote in the FT today that depo rates can and need to go MORE negative. Its an easy policy fix. Economists such as Miles Kimball of UMich have put forth simple plans for executing a sizeable lowering of the depo rate (to -1.25%). At this point, after the Japanese moves, it's the only hope for Europe."
John Hall can't be too happy, calling for $150 brent back in September.
ReplyTime for regime change at the House of Saud? They sure are trying to piss everyone off. Russia, Opec, US oil, Obama (if he wanted cheap oil he'd let it flow from Canada).
Full of Bull?
Replyhttp://evilspeculator.com/wp-content/uploads/2014/11/2014-11-03_SPX.png
Martini stocks (Italy) have retraced all the sake infusion of Friday
Replybig hang over - do Italians know something about Draghi Thursday that others don't?
How To Find perfect One :- Find The Man Of Your Dreams
Reply