The elections

So here we are.  It took six weeks, but Spooz are back at all time highs, albeit in the context of fairly unconvincing price action following the the BOJ gap on Friday.  Although it's a cliche to "mind the gap" in the chart of any financial asset, since putting in its panicky lows on October 15 the SPX has executed no fewer than 4 gaps, all of which have held (the first one re-tested almost to the penny.)


The character of the current one, however, seems slightly different.   Not only did it take the index just through the all-time highs, but it's the first gap that hasn't been followed by impulsive upside price action more or less immediately.  From Macro Man's perch, that's a warning sign that the near-term upside might well be exhausted, and that this gap at least is likely to close.   Not that that's going too far out on a limb; with equities where they are and the first "training wheels are off" payroll coming this Friday, longs who held on during last month's white-knuckle ride would be excused if they took some profits (and remiss if they didn't.) 

With fixed income still "too high" relative to equities and the dollar, it would certainly seem that good news might well be bad news come Friday's payrolls.

Of course, today also features mid-term elections in the United States.  Macro Man generally refrains from commenting on politics on this site.  Long time readers may recall the almighty imbroglio stirred up over the health care debate in 2009, which was sufficiently painful that for a time the site required commenters to register.  Needless to say, your author has little interest in a return to that headache.

Moreover, in his four and a half years of residency in the US, Macro Man's observed that a startling percentage of the population labours under the illusion that other people are interested in their political opinions.  Needless to say, this is usually not the case, and "debate" generally takes the form of interlocutors stating the same thing in slightly different language, ad nauseum.

This appears to be equally true in Washington as it does around a water cooler.

As such, Macro Man sees relatively little prospect for substantial policy change, regardless of the outcome.   Even if the GOP wins the Senate, as seems likely (538 ascribes a 75% chance), they'll have nowhere near the numbers required to over-ride a presidential veto, so Capitol Hill will continue to battle the White House for the honor of notching embarrassingly Pyrrhic victories.

If only the Founding Fathers had adopted one of the tenets of Athenian democracy that is sadly lacking in modern politics: the ostrakon.  Each election, Athenian citizens voted not only for members of the Assembly, but also cast votes known as ostrakons.   The "winner" of this ballot was ostracized, which in Athens meant banishment and forced removal from public life for ten years.

Imagine the fun of choosing whether to chuck out Obama or Boehner, Ted Cruz or Nancy Pelosi.   Now that would be an election that Macro Man could get enthused about!


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Polemic
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November 4, 2014 at 9:36 AM ×

Love the idea of the ostrakon. Perhaps the numbers of those cast out could be dramatically increased from 'one'.

Completely agree with political debate just being the recantation of the same old stories, but in more forceful style. Ring a bell? Market commentary perhaps? I've been thinking the same and how it can just lead to boredom for the listener who in the end will just walk away from both camps and try and work something out for themselves from first principals. I wrote it up last week here http://polemics-pains.blogspot.co.uk/2014/10/financial-beliefs-are-like.html

Gap filling, agree this one not as 'follow through' as the rest but there is a saying that I learnt to my cost in 1999... 'never sell a new high'. Though I have to say I am tempted I still think funds are going to chase this into year end and with Japan buying $185b of global eqs, Swedish rates hitting 0 , ECB probably going more negative with rates. China announcing an infrastructure fund and the natural reaction being for every short term player to fade this bounce. I m going to stick to my guns.

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Hotairmail
admin
November 4, 2014 at 10:41 AM ×

It is much easier to understand the nature of debate (and humour in general) in the USA if you simply think of most of them as being really Germans who speak English as a foreign language.

(Apologies to any of our cousins offended by this appalling sweep of my arm)

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Anonymous
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November 4, 2014 at 2:20 PM ×

JPM cuts US Q3 GDP from 3.4% to 2.9%

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Nico G
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November 4, 2014 at 2:54 PM ×

there will be no Santa this year

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Nico G
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November 4, 2014 at 3:56 PM ×

and whoever wanted to go long stoxx short spoo last time.. this is 4% under water already

there is no edge to Europe

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Mr. T
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November 4, 2014 at 4:08 PM ×

That was my idea, looking pretty bad. I have the trade on very small, seriously questioning my hypothesis.

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Anonymous
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November 4, 2014 at 4:13 PM ×

Paul Singer Elliott Management Corp.:
“Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth...”

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Nico G
admin
November 4, 2014 at 4:18 PM ×

sorry to hear that T

could see where this idea comes from but as we witness the US can still produce mickey mouse reality when Europe cannot

so you are truly spreading two different human natures here - or rather buying the ones who can't cheat, and shorting the ones who can

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Anonymous
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November 4, 2014 at 4:26 PM ×

nico - calm down bud - its off 1% from all time highs - if it takes out 1960 with good momentum then we will see about shorting to 1910 - still think jury's out on whether the melt up is over - we rallied 15% in spoos 3 weeks from feb 24 2000 to march 15 2000 in pretty similar price action, so for a topping process this could go to 2100-2150 in a month and still be within historical norms - i think long euro/jpy and (short) BRL/INR are way better risk/reward trades than anything to do with spoos, atleast from purely a trading standpoint.

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Leftback
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November 4, 2014 at 4:30 PM ×

"the US can still produce mickey mouse reality when Europe cannot"

Oh, that's good. Wish I had come up with it. Snorting here in NY, coffee going up LB's nose.

It might be a bit early to evaluate that pairs trade. Let's wait for the next plunge, shall we? After all, the Europeans don't panic quite like Americans do.

Q3 GDP revisions already, US factory orders down in Sept., is the DX surge already beginning to bite? Anyway, never mind that, let's just obsess on the latest release of the ultimate lagging indicator, this Friday...

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Polemic
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November 4, 2014 at 4:33 PM ×

Anon 4.13

I would guess longer than Paul Singer Elliott Management Corp. can fight it. As he has a track record of suing people who don't pay up on distressed debt perhaps he s planning to sue the USGov. which is pretty pointless as even if he won he d just get paid in fake money!

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Nico G
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November 4, 2014 at 4:36 PM ×

i am all cool 'bud' - i am short EUROPE and mucho in the money. i meant there will not be Santa in Europe but it wasn't clear

i only trade spoos on Sunday night - the only time when it acts like a normal market

as you say opportunities are not in spoos - gunning for a last (VERY hypothetical) 5% when you can lose 30% ain't good for the heart

you gotta feel for the guys punting for Santa over 2000

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Polemic
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November 4, 2014 at 5:03 PM ×

And I ve got twitchy and lobbed my JBTFD post Fed SPX purchases.

Saudi Arabia have very kindly joined in with QE. Only theirs is adding Oil liquidity rather than money. But at least where Money QE opened up the wealth gap between rich and poor even more, Oil QE has benefited even the poorest.

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Anonymous
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November 4, 2014 at 5:20 PM ×

nico/lb any thts on correlation between spoos and usd going forward, say into year end? I am assuming zero to slightly +ve at this point, but welcome counterarguments

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Anonymous
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November 4, 2014 at 5:36 PM ×

JPM reckons Fed QE created large wealth effects of around $9tr in US equities + $2.5tr in US real estate through yield compression alone

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abee crombie
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November 4, 2014 at 5:47 PM ×

Spoo's are all about rotation. thats why active managers cant beat it this year. so hard to figure out what will be the winner from month to month. Europe yeah its lagging, and maybe you make money shorting it. I still think its higher in 2 years time, not lower. If I'm wrong then I am probably really wrong.

But the big question is OIL. Does it now buy the fed some more time. Does EM explode. Do MLP names take another dive lower at some point. Or is it all just good news for consumers. I happen to think the consequences are much worse. 'Brutal' moves in any asset tend to expose those swimming naked. Canada oil sands, Russia, Venny even the great hope of argentina is based a lot on oil. watch this space

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Leftback
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November 4, 2014 at 6:56 PM ×

Europe bets are all secondary on what happens to EURUSD at the moment. Overwhelming consensus is we see 1,2000-1,2100 area before we see 1,2900. Not sure if that is correct. Dr Aghi really just can't QEase freely like the other CBs, so EURUSD (and especially EURJPY) might just drift upwards and carry STOXX along.

As for Spoos, it looks like we are still in a USDJPY carry environment, so correlations between USD and Spoos are predicted to be +ve if anything, into EoY. If and when that breaks, watch out.

The issue as I see it for Spoos is this: Let's say Harry Hedgie and Priscilla Performance Chase do indeed manage to stage a Santa rally and chase the Spoos up all the way to the open at New Year. OK, now we can already see that the Q4 earnings for US exporters and banks are not going to be very clever, and those corrections are usually made by Mr Market before the meat of the earnings season arrives. So we might have a very sticky start indeed to 2015.

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Anonymous
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November 4, 2014 at 7:28 PM ×

Japan's September GDP down for first time since April

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rohini
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November 4, 2014 at 7:56 PM ×

love the "first time since ( wait for it) april!

what a farce

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Anonymous
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November 5, 2014 at 12:54 AM ×

Crude:

http://www.dailyfx.com/forex/technical/elliott_wave/oil/2014/11/04/eliottWaves_oil.html

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River
admin
November 5, 2014 at 10:06 AM ×

Good as gold:

http://www.dailyfx.com/forex/technical/elliott_wave/gold/2014/11/04/eliottWaves_gold.html

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Anonymous
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November 5, 2014 at 1:16 PM ×

C Says (kiss),
I was taken the otrher day by the comment "what if the Fed didn't have your back". Speculative musing ;Putin shows his muscle meanwhile Saudi have trouble in their backyard with Isil; this at a time where this US admin has been basically withdrawing from it's Mid East peacekeeping role;So what if hushed conversation US to Saudi goes you help us bring Putin to his knees and we help you with Isil. In which case US foreign policy currently trumps the Feds desire to see a weaker dollar. Japan simply adds kerosene to the already stoked fire.

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abee crombie
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November 5, 2014 at 2:02 PM ×

NFP lottery guess? 250 for me

Hoping Dec15 EuroDollar plays the range, to the downside ;-)

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Anonymous
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November 5, 2014 at 2:07 PM ×

C says at 1.16

Good points C always like your input( by the way pls stick with C says - its a MM tradition ) . At some stage external factors are going to weigh on markets. However,

Saudi has already squared Isil by funding Egyptian troop deployments along their frontiers. US troops are already in Jordan.

Putin has to move in the next couple of weeks before the sea lines to Crimea become ice hazarded, Land access ie Mariuopol becomes a necessity. Will a low oil price hurt in this timeframe. Will more Ukraine woes unsettle a market waiting for Draghi magic ?

As someone suggested earlier its the strong greenback that may start to let air out of Spoos. Q3 earnings are set to be bad enough but Q4 at 1.20 to the € ?

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Anonymous
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November 5, 2014 at 4:27 PM ×

Rydex bull assets hit a new 7 yr high yesterday

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Leftback
admin
November 5, 2014 at 5:10 PM ×

So we have the predictable knee-jerk reaction to the elections, namely that elephants are good for the market and good for the $. For a day or two.

So far, so good, we have almost kissed USDJPY 115, which was most punters' first target, but EURUSD is holding up fairly well. Bucky must be a little bit knackered after leaping 200 pips in the last week, and he's likely to need a nap now into the weekend.

EUR bounce is likely tomorrow as Dr Aghi can hardly pull a BoJ. His bazooka is still really more of a water pistol.

NFP lottery guess? 250 for Abee. Well, we usually take "the under" as regular readers are aware, and this time we are going to go for 215k.

As for Mr Market, we think he will Sell The News on Friday, whatever it is, hot, cold or Goldilocks, and take some porridge off the table. As for rates, that's anyone's guess here, stuck in a range, don't want to get involved at this point.

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Gus
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November 5, 2014 at 5:12 PM ×

Paul Singer's Elliott Management wrote in a third-quarter letter to investors:

“Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth. When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.”

http://www.bloomberg.com/news/2014-11-04/singer-s-elliott-says-optimism-on-u-s-growth-unwarranted.html

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Anonymous
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November 5, 2014 at 5:53 PM ×

Looks like a message to the House of Saud.

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Mr. T
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November 5, 2014 at 6:22 PM ×

An interesting tidbit from the US Shale oil patch. WPX - one of the more under-the-radar names had earnings yesterday. On the call today they said that in their fields they will see 50% IRR's @ $80 oil - substantially higher than at least this punter was expecting. Driving this is really amazing improvements in drilling costs and times (avg drill time from 39 days to 13 in the last year). It's worth noting that one of the things US shale has going for it is a nice technological / innovation curve. Middle east costs are pretty much static.

I think the takeaway here is that $80 oil (or even potentially much lower) may not crush US shale production the way many are expecting.

Call Slides

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Leftback
admin
November 5, 2014 at 6:33 PM ×

USDRUB 45. Before anyone else chimes in. The RSX is actually green on the day.... nobody left to sell.

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Leftback
admin
November 5, 2014 at 7:46 PM ×

The MM Comment-o-Meter is falling gradually, along with the VIX...

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Leftback
admin
November 5, 2014 at 7:52 PM ×

MM's gap 4 was filled yesterday, almost perfectly to ~SPY 200 (IWM 115). The next one down (MM's gap 3) is at 196 (IWM 111).. just sayin'...

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Anonymous
admin
November 5, 2014 at 8:51 PM ×

Question is at what point investors are willing to go back int russian stock market? I think it's only a matter of time (not long) b4 Mr P will start acting nice again. Russia are so much more dependent on Eu n the US than the other way around. Sanctions are biting along w the cheaper crude. /S

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Leftback
admin
November 5, 2014 at 9:26 PM ×

A new Cold War makes no sense for anyone at all.

We think everyone will have to make nice and do a bit of international kissy-face in order to keep Europe (and Russia) in business this Winter. Not worth risking a deep recession in a hissy fit over the control of three Ukrainian pickle factories. Russia will keep control of Crimea and a few odds and ends, though. Possession is nine tenths of the law, after all.

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Polemic
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November 5, 2014 at 9:31 PM ×

"hissy fit over the control of three Ukrainian pickle factories."

One day LB I hope you become the modern day Homer. Trojan wars being fought over a lady have nothing on LBs epic about the war that was fought because of a hissy fit over the control of three Ukrainian pickle factories. Class stuff my friend. Still giggling.

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Leftback
admin
November 6, 2014 at 2:48 AM ×

We strive to inform, Polemic. When we cannot inform, we must amuse... :-)

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Nico G
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November 6, 2014 at 3:17 AM ×

Pickles are only the second most important export industry in the Ukraine, after bombastic women

Legend has it Catherine the Great acknowledged the Ukraine as a powerful commercial hub but lamented the uglyness of its people

so she decided to send a few coaches full of gorgeous Rus to pimp up the gene pool. Pinochet repeated that same old trick in Easter island

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CV
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November 6, 2014 at 6:59 AM ×

+1 LB

"We strive to inform, Polemic. When we cannot inform, we must amuse... :-)"

He he

I agree on Russia and Ukraine incidentally; mutually assured destruction is highly unlikely.

Claus

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