So Sell Some Vol and Buy the Spoos

If you're bored of eating turkey and/or watching crude collapse, enjoy the lyrical stylings of friend-of-the-blog Leftback, who sends his apologies to Modern English....

Punting Forwards, Placing all our Bets
The Team of Macro Man was never Second Best
But after ZIRP it's a Devaluation Race
and Central Bankers are Always
In Your Face

I'll Stop The World and Buy The Spoos
You've seen the earnings and they're
Getting Better All the Time
There's nothing Central Banks Can't Do
So Sell Some Vol and Buy the Spoos

Dream of Real Markets, In a Normal State
Free from Constraints of Imaginary Rates
We may be smarter than a lot of Momo Tools
But these Bazookas make the Smart Guys
Look Like Fools

I'll Stop The World and Buy The Spoos
You've seen the earnings and they're
Getting Better All the Time
There's nothing Central Banks Can't Do
So Sell Some Vol and Buy the Spoos

We had a year or two of Divis and The Reds
But then we woke to find the PIIGS had Shat the Bed
You bought some Credit Swaps to Mitigate your Risk
Never comprehending that Risk
Had Long Gone By.

I'll Stop The World and Buy The Spoos
You've seen the earnings and they're
Getting Better All the Time
There's nothing Central Banks Can't Do
So Sell Some Vol and Buy the Spoos

The Spigot's Open Wide....

Hmm hmm hmm
Hmm hmm hmm QE
Hmm hmm hmm
Hmm hmm hmm QE (humming)

I'll Stop The World and Buy The Spoos
You've seen the Earnings and they're
Getting Better All the Time
There's nothing Central Banks Won't Do
So Sell Some Vol and Buy the Spoos



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marcusbalbus
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November 28, 2014 at 2:53 PM ×

perfect. you are a genius

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Anonymous
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November 28, 2014 at 5:39 PM ×

The $VIX is Now up 10% and Dark Pools are Selling $SPY, What are you going to Do?

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Leftback
admin
November 28, 2014 at 6:06 PM ×

We should probably point out at this point that a great deal of British irony was implied in this post...

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CV
admin
November 28, 2014 at 6:14 PM ×

Bravo LB!!

A question for you chaps. At what point does the carnage in US energy spill over into the HY market forcing Templeton et al to try to offload their APA or CHK bonds testing the waters on just how little liquidity there is in the non-fin corp debt market when the going gets tough?

Claus

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Anonymous
admin
November 28, 2014 at 7:40 PM ×

C Says
Excluding 5 min macro punters we need to ask why HYG and LQD go in opposite directions confirmed by US guvvy of course whilst Spoos do their thang with RUT not playing the game either. 5 min macro and Spoos a match made in heaven until the music stops.

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November 28, 2014 at 9:48 PM ×

Good job!
Talking about Us HY energy bonds are yet gone down a lot, having an impact on index... but we've seen a good resilience of rest of the market... we need an unanimous movement or some big names in trouble to test liquidity scares... at least we're near to credit wides YTD..
I'm really impressed also by what's happening in spoos...it seems locked, unable to move down..BUT if you see single stock names there are big movements... today for example a lot of energy names minus 10 while airline and other +7.. for some reasons however it's always a balancement and index vol is ridicolous...

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Anonymous
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November 28, 2014 at 10:25 PM ×

The experiment of trying to change the flow of water never works.

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Anonymous
admin
November 29, 2014 at 7:46 PM ×

How Leveraged is the US Energy Sector to Oil?

$72B leveraged loans outstanding

$225B high-yield bonds

Fitch data; end of October

No problem. Means nothing. CBs will rescue the world.

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Anonymous
admin
November 30, 2014 at 12:51 AM ×

"State-controlled Rosneft owes about $60 billion to banks and bondholders, making it more indebted relative to earnings than any large oil producer apart from Brazil’s Petroleo Brasileiro SA. The Moscow-based company has already applied for state funds as it faces $30 billion of debt that’s due by the end of next year."

http://www.bloomberg.com/news/2014-11-28/russia-s-oil-giant-battles-debt-after-55-billion-deal.html

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Anonymous
admin
November 30, 2014 at 4:21 PM ×

Anon at 12.51. There's a difference between Rbls and $. Rosneft must repay 440 billion roubles' worth of debt by the end of this year and 626 billion roubles next year. Great arbitrage for someone in Geneve.

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Nico G
admin
December 1, 2014 at 4:28 AM ×

James Farro (via Josh Brown) reminds us how intricately linked share buybacks are to junk bond financings. If backbacks start to dry up, it will start to hinder EPS growth as the "S" in EPS stop shrinking:

With the ongoing massacre in crude oil my thought has been that the highly leveraged players would have debt issues which would just facilitate industry consolidation. But with the state of the credit market excluding sovereigns, we could have something else entirely. The energy sector makes up a large segment of the HY bond market and it’s about to take a big hit.. Sooner or later it’s coming.

If the high-yield market in it’s fragile state is given a push we could see a real rout in the markets. It’s starting to look like energy debt could go bidless for a time and take HY with it if action isn’t taken soon. And that action, in part should be for the orgy of debt issuance that is being used for buy-backs to stop asap.

But wait.. The stock buy-backs have been a major enabler of higher equity prices.

Yep.

Why is no one talking about potential consequences from this ocean of unproductive debt issuance that’s not used for expansion/capex but merely multiple expansion?

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Leftback
admin
December 1, 2014 at 11:43 AM ×

Sakakibara says yen weakness may be coming to an end. Japan downgrade and Abe weakness in the polls might add to the pressure on BoJ to tone it down a bit. Last week 200% of the world's population KNEW that usdjpy was going to 120. Not there yet... gold and silver staged an interesting turn around today in the wee hours. Is this the beginning of the end of Bucky's run?

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Polemic
admin
December 1, 2014 at 11:51 AM ×

LB, have to say I've exited my long Nikkei short yen as it seems to be losing momentum and coming into year end that is one of the easy trades that can get unwound. And Japanese unwinds are always a bit messy.

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Anonymous
admin
December 1, 2014 at 12:08 PM ×

C SAYS,
Pol,
If you are trading momentum then go for it. If like me you think this is all structural I'll hold and buy.

LB,
You've had some excellent fixed income calls,but you know and I know this is how many times that you have called Bucky to 'end'. You are going to be right some time and this might even be this time for the momentum crowd ,but along the way those Bucky calls left a lot on the table.

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abee crombie
admin
December 1, 2014 at 1:58 PM ×

I hear you on the Yen and it does make sense to lock in some profits here. But still have to keep most of the position, its a bull market afterall ;-)

RUB killed, COP , MXN looking ugly as well, while CAD an AUD holding in there and ZAR, since they import doing better. Buy INR and TRY here or is it already in the price?

Will be interesting to see if copper keeps following oil here too.

While I agree on the talk of US HY oil related credit, the bigger question is in EM commodity issuers, IMO.

so yes buy S&P (or maybe even Europe) but selling vol here I am not a fan of due to the credit linkage.

And last but not least, US interest rates, lower for even longer? EDZ5 i got no idea anymore

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Anonymous
admin
December 1, 2014 at 2:41 PM ×

"In Japan, former Minister of Finance Eisuke Sakakibara sees the Japanese Yen drop to stop eventually after plunging 14% since mid-year. He believes that the nation's currency is unlikely to hit its low of 124.14 per Dollar in the run-up to the financial crisis in June 2007. Sakakibara also highlighted that the Japanese economy is not that weak despite the fact that negative impact of April's sales tax appeared to be prolonged. Thus, eventually, the tax increase will loosen its choking impact on the world's third biggest economy and the Yen will start strengthen.

http://www.actionforex.com/analysis/daily-forex-fundamentals/major-events-of-the-previous-week--20141201230299/

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Leftback
admin
December 1, 2014 at 4:18 PM ×

Pol, Bucky has kicked my arse from DX 86 to here, and I did make that call about seven times. Consider me chastised. Yes, I do think we are just now starting to see the end of the run, and that the underlying weakness of the US economy has manifest itself again in the retail data among other sloppy US macro. Knowing that this would inevitably happen a bit ahead of the actual event was not an advantage in this instance.. again !!

This week's NFP Bingo might be more interesting than most. As the current holder of the MM bingo trophy, LB is first on the tee, and will open the bidding at 171k. Eyes Down!!!

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CV
admin
December 1, 2014 at 4:36 PM ×

The survey of 230k will be difficult to beat, so I am going for 195k ... neither hot, nor cold and ensuring maximum boredom and, fingers crossed, an early finish on Friday to make it to the pub ..

Claus

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Polemic
admin
December 1, 2014 at 4:42 PM ×

LB.. wasn t me mentioning your usd demise calls twas C .

NFP? NFI.

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Anonymous
admin
December 1, 2014 at 5:12 PM ×

C Says
I wasn't being critical per se. More like pointing out that we have more opinions than we know what to do with ,all of us. It trips us up hence my less is more approach to markets.

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Anonymous
admin
December 1, 2014 at 6:42 PM ×

Venezuela default probability jumps to 83%

http://bloom.bg/1A4XlpB

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Anonymous
admin
December 1, 2014 at 7:25 PM ×

HYG decline acclerating ...breaking through $90 has set off some liquidations i suspect

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Anonymous
admin
December 1, 2014 at 7:33 PM ×

CBs rock. Nikkei @ fresh 7yr highs only goes to prove we should all be monetizing all our debt apparently

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Anonymous
admin
December 1, 2014 at 7:41 PM ×

GDP estimates getting lowered...

http://imgur.com/EWZt83q

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Leftback
admin
December 1, 2014 at 7:44 PM ×

Anyone got intelligent opinions on what set off the massive V-shaped move in the shiny stuff today? (If anyone says, a massive short squeeze, we'll respond with, "No Shit, Sherlock!", or "Innit!").

It could be, um, well, you know, um, a USD Top? OK, I'll get my coat.

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Polemic
admin
December 1, 2014 at 7:49 PM ×

I think we saw combined commodity capitulation over the last 2 days . shiny stuff too.

http://polemics-pains.blogspot.co.uk/2014/12/capitulation-count.html

shiny stuff, russia, oil etc all fit the pattern.

But still waiting for someone to say its Brevan Howard liquidating that commodity fund they just closed. Which it won't be of course because no one says they have closed a fund and THEN do the trades.

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Anonymous
admin
December 1, 2014 at 7:54 PM ×

C Says
At this juncture the gaps opened post OPEC are literally begging to be closed.

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Mr. T
admin
December 1, 2014 at 8:43 PM ×

I'm nibbling on some NA shale names. The HY crisis seems theory seems a bit premature. This is incremental pressure on the names, not a death spiral. Plus, it seems crazy that the powers-that-be will sit on trillions in assets trying to generate a recovery and watch it all come crashing down for lack of maybe 10bil in bids in HY. Yes, CB's to the rescue - the Yellen put works just as well in HY as it does for spoos.

I've also got an eye on some NA coal names. There are several reasons why this oil crack is actually good for them, its possible the market is in the shoot-first stage here. For example, shale reductions may help to clear up some of the rail problems that have been really hurting coal. Also, capex/drilling reductions will affect natty production too.

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December 1, 2014 at 8:58 PM ×

Interesting article on BBG today about HY index... oil related is 16% of index... good part but not enough alone...
What's really worrying me is the invincibility of balanced asset allocation... when we'll see a simultaneus fall of equity and bonds (govies and IG) we'll see blood...
About rebound of commodities.. well, it's a rebound, every CTA is short, first day of month...rebalancing... at least they are the only asset historically cheap :)

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Anonymous
admin
December 1, 2014 at 9:04 PM ×

Portugal : from 6% to 2.8% ...on a junk rated BB+ bond .....lowest yield in history even back to its AAA rated years

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Anonymous
admin
December 1, 2014 at 9:07 PM ×

If oil prices fall and stay below $65 per barrel, JPM estimates that 40% of high-yield energy bonds could default.
http://blogs.wsj.com/moneybeat/2014/12/01/falling-oil-prices-could-lead-to-massive-junk-bond-defaults/

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December 1, 2014 at 9:17 PM ×

ECB have erased credit risk..where are bond vigilantes??? BURNED!!!
Now mkts think that periphery govies have same risk and double/treble yield.. but only if politics are in the same boat...Greece tells us a lot!

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washedup
admin
December 1, 2014 at 9:23 PM ×

LB - on ur ? regarding gold - heard there was some CB gold buying (no names but my guess is russia, and i can't explain why) - caught the mkt bad with the post swiss referendum positioning - nothing more specific I'm afraid.
also on that issue - venezuela has 70% of its reserves in gold still - it will be interesting to see what they do with it if they can't roll over dollar debt.

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Mr. T
admin
December 1, 2014 at 9:30 PM ×

CB's: In for a penny, in for a pound. In all seriousness though, take Portugal - in the event of default recovery rates are likely to be quite high, with what appears to be minimal (at least diluted by non-defaulting euros) FX risk. It's not the worst bet out there. Compare to say buying JGB's @ 41bp with significant FX risk. Whats wrong with this thinking?

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December 1, 2014 at 9:47 PM ×

Russia CB buying gold??mhh probably today they've been engaged on other activities...

@MR.T: yes Portugal is again an interesting convergence trade... based on the assumption that Germany&co agrees to mutualize... it's believe or not.. at least now the emperor is naked!
About JGBs... it's a dead market..just a question: do you know someone owning 5-10 JGBs in their portfolio (in size i mean..).. there are only a lot of passive investors in world govies bmks that don't know the size of their exposure to Japan

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Polemic
admin
December 1, 2014 at 9:58 PM ×

re chance of Venezuela default .. 83%? sounds spuriously accurate! Or is it from some bond pricing or css pricing? If so there is a gulf between real probability and default and market pricing of it due to money management and also sorts of cross product arbs,

If I were they and knew i wasn't going to get my loans rolled I d definitely default and not bother paying the maturity. I mean why bother?

But local bonds are different to USD bonds. As seen in russia you can keep the local stuff alive by messing with your own currency levels.

As for european bond levels yes 2% is low for Portugal but its chances of defaulting really are very low and perhaps always were if the market would have believed the ECB, which they didn't.

As for the JGB world govvy benchmark holders ,, I guess they don't care either as , being benchmark holders they only care about the benchmark. "We out performed benchmark by 1bp blah blah " Ad they wouldnt sell even in a crash, In fact they d probably have some reweighting program telling them to buy more.

nuts innit!

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Anonymous
admin
December 1, 2014 at 10:04 PM ×

Just an observation: before the beginnings of previous recessions or the tops of SP500, yields of EU sovereign bonds had been often lower than the US treasury bond yield for more than a year.

Not to say that this time is different. But just want to point out that it still has a long way to go before the music stops.

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December 1, 2014 at 10:13 PM ×

I can theorically agree with the level of credit spreads for Portugal if ECB does sovQE....BUT can i disagree with the absolute level of this yield??? how much am i paid now for all the risk?
same thing for IG corp... credit levels/absolute yields ratio is really skewed towards the first one!!
the bedding is very thin.. but these are the markets nowadays

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abee crombie
admin
December 1, 2014 at 10:51 PM ×

Venny wont default, bc if it does, PDVSA's assets will be siezed and then the gov't wont be able to pay the aristocracy and they will be overthrown.Its a giant mess there agreed (worse than you imagine if you havent looked at it closely) but the reason they havent defaulted yet isnt bc it was in thier interest to do so.

Oil has been selling off into the first of the month as contract expire and then bouncing mid month only to sell off near contract expiray as the glut of physical needs to find a home somewhere. I'm a good seller at 75-80 if we get that bounce

Gold I have no idea.

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Anonymous
admin
December 2, 2014 at 3:35 AM ×

Venezuela’s 10 year sovereign YIELD is above 20%...

http://imgur.com/qb0qMD6

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