A visit from Janet Yellen



‘Twas the night before Christmas; yup, that time again
For punters to go limit long dollar/yen;
French SMEs filled out their loan apps with care,
In hopes that the ECB soon would be there;
Rates traders were shorting ED’s in the reds;
While visions of tightening danced in their heads;
Mamma was long AAPL, and I was long Schatz,
We’d just settled our brains ‘round the Fed’s stupid dots,
When the texts on my phone, they gave off such a clatter
I logged onto my screens to see what was the matter.
Away to the news feed I flew like a flash,
Pulled up my price screens quick as Bolt in the dash.
The chart of prompt oil had just one way to go,
With a warning it screamed, “HEY! LOOK OUT BELOW!”
When what in my wondering eyes did I see,
But a small red headline from the FOMC,
With a little old lady who said, “Don’t be sellin’”,
I knew in a flash that it was from Yellen.
More slowly than snails, their changes they came,
She harangued the committee and called them by name:
“Now Mester, now Fischer, now Powell and Plosser!
On Dudley, on Brainard, and Lacker, you tosser!
To the top of the chart! Just you watch NAIRU fall!
Now sit tight, now sit tight, now sit tight you all!”
As energy high-yield, which no longer shone,
Took note of the oil price and dropped like a stone;
Way up to the heavens, the dollar it flew
Against euros and yen, and the Canada too-
And then, in a twinkling, I heard on the floor
The sound of some traders being shown to the door.
As I just shook my head, and was turning around,
Janet Yellen appeared without making a sound.
She was dressed all in gray, from her head to her toe
And she stamped her small feet to shake off the snow;
A bundle of charts she had flung on her back,
And she looked like a bank strat as she opened her pack.
Her hair, it was white like the helmet of Stig
And I thought to myself that it must be a wig,
Her movements were languid and slow like a panda’s
Her voice? It sounded just like Estelle Costanza’s.
She showed me inflation and the U-rate too
I knew for a while there’d be nothing to do;
She said she was patient, no lift-off in sight,
And that when it comes that they won’t get too tight.
I mentioned the secular decline in prices
She claimed it was just the result of the crisis;
“The Phillips curve works- it’s just flatter, you see
Hmmph.   Globalized labor means nothing to me.”
And then she ignored me and went straight to work
I could tell that she found me a bit of a jerk.
And laying her finger aside of her nose,
And giving a nod, equity prices rose;
Then giving a wink, and a shake of her hair,
That’s the last that I saw of the tiny Fed chair.
But I heard her exclaim ere I opened a beer,
“Happy hols to you all and I’m hiking next year!”
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119 comments

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VandalsStoleMyHandle
admin
December 23, 2014 at 3:05 PM ×

Fantastic stuff! Happy holidays!

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Leftback
admin
December 23, 2014 at 3:28 PM ×

Sublime, maestro. we are not worthy.

Current conditions reminded me in some ways of this classic, penned for another holiday that proved to be the calm before the storm:

Dollar, Dollar

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Gus
admin
December 23, 2014 at 4:08 PM ×

Wonderful work MM ... it made it all the way up here to Alaska! Happy holiday greetings to everyone and enjoy the nog.

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December 23, 2014 at 4:30 PM ×

Clever and inspired. Happy holidays sir!

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Anonymous
admin
December 23, 2014 at 4:52 PM ×

Marvelous ! Happy holidays sir !

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Anonymous
admin
December 23, 2014 at 7:01 PM ×

This is lovely.

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Anonymous
admin
December 23, 2014 at 8:49 PM ×

Wonderful Xmas...but I get confused..Which one of those fed members is the one with the red nose?

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anony
admin
December 23, 2014 at 8:53 PM ×

FF!

Have a Merry Christmas!

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Anonymous
admin
December 23, 2014 at 10:40 PM ×

This blog and the comments are a great foil to the rest of the BS. I always enjoy it.

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amplitudeinthehouse
admin
December 24, 2014 at 12:41 AM ×

Merry Xmas, MM and TMM and everyone else...

ps.thx mate, those blinkers seem to work.

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k1
admin
December 24, 2014 at 4:42 AM ×

That.was.awesome. Spit my small-batch classic Connecticut moonshine on the "Plosser/tosser" couplet.

One wonders whether that might have served as condensation nucleus for the entire thing?

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Anonymous
admin
December 24, 2014 at 8:26 AM ×

'estelle costanza' brilliant! merry xmas MM

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CV
admin
December 24, 2014 at 9:27 AM ×

Bow, at the waist, MM ... Merry Christmas everyone!

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December 24, 2014 at 9:28 AM ×

Happy holidays to everyone!!
pay attention to next kilos!!!

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Polemic
admin
December 24, 2014 at 9:31 AM ×

Nice. Better than my attempt on exactly the same theme 2 weeks ago.

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Anonymous
admin
December 24, 2014 at 4:45 PM ×

Merry Christmas to MM and all the posters here. Have a wonderful holiday.

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Leftback
admin
December 26, 2014 at 4:18 PM ×

2015 is going to be a very difficult year in the US. One wonders how long we will have the Teflon dollar, economy and Spoos once the rest of the world sees the growing civil unrest.

For those who aren't paying attention, NYC is now arresting people for what is perhaps best described as Thoughtcrime, using the same criteria for citizens as are applied to terror suspects. Orwell would be proud.

Arrests for Thoughtcrime

Nazi Germany was very quick to stamp out dissent against the SS and the Gestapo. The current crony capitalist and militarized police regime represents a slow but inexorable march towards 1930s Italy and Germany, Franco's Spain, Pinochet's Chile and Argentina under the junta.

If you think I am exaggerating, we already have the following: Mass incarceration, extrajudicial executions by police, unequal application of the tax and securities laws and suppression of many forms of free speech and opposition to the regime.

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Anonymous
admin
December 26, 2014 at 5:01 PM ×

sorry LB, you can make the same point by not comparing contemporary NYC to any of that.

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Anonymous
admin
December 26, 2014 at 5:24 PM ×

Anon5:01... care to elaborate? You think this time is different?

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Anonymous
admin
December 26, 2014 at 11:29 PM ×

All problems stem from Obama, the great divider. DeBlasio is a symptom of what's been going on here since 2008.

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Leftback
admin
December 27, 2014 at 5:18 AM ×

I also forgot to add the similarities between our surveillance state under the Patriot Act and Erich Honecker's Stasi during the East German regime. What is the difference between the NSA and the Stasi? Can anyone tell me what the point of the US monitoring all communications between citizens and giving tanks to police forces could be - other than totalitarian rule by fear?

In a day or two we can get back to discussing the Spoos, but it's important to realize that the USD (critical regulator of many other asset classes) trades as it does in part b/c of a perception of US political and social stability that may not really be justified at the moment. A summer of protests and riots and we might see a lot of things change. I'm afraid it's coming, there's no way to put the genie back in the bottle now. Just something to consider.

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Anonymous
admin
December 27, 2014 at 10:16 AM ×

Leftback. The point is whose interests are protected by the NSA etc.

Paiting a dark vision of the US it's the rulers interest which are served. Not the citizens.

http://talkingpointsmemo.com/livewire/princeton-experts-say-us-no-longer-democracy

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washedup
admin
December 27, 2014 at 11:47 AM ×

LB - this is all a bit heavy for me - can't you put your posts in sonnet form??

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Anonymous
admin
December 27, 2014 at 1:45 PM ×

well, it's the end of December. when does the market begin to discount a summer uprising?

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Sarah Moran
admin
December 28, 2014 at 2:45 AM ×

Will not be mass riots in US. More Mexicans than blacks in US and they work, they don't riot.
With decline in gasoline prices, US economy set to soar, far more likely to be too hot than cold.

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Leftback
admin
December 28, 2014 at 4:23 AM ×

Another bloody plane has gone missing. Air Asia this time, also based in Malaysia. May as well close those airlines and airports down after this one, who's going to risk it?

Perhaps NYPD should go and investigate this and leave guys alone who are selling loose cigarettes.

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Anonymous
admin
December 28, 2014 at 6:48 PM ×

“One reason that risk premiums may be low is precisely because the environment is less risky… The Fed has long focused on ensuring that banks hold adequate capital and that they carefully monitor and manage risks. As a consequence, banks are well-positioned to weather the financial turmoil.”

- Janet Yellen, July-September 2007

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Anonymous
admin
December 28, 2014 at 8:59 PM ×

"We are entering the phase when the pundocricy will stretch their narrative to “Its good that the Fed is /going to raise rates.” There is still a serious gap to fill on the way back to normal, the old normal, the normal normal, the normal before the credit orgy. The 5 year note yield plus some fudge for inflation should track Real GDP. As of this morning (depending on your fudge factor), that gap is a massive 2.5%. My sense is the Happy Days of bullish curve flattening are ending.

One more thing about normal time…people get hurt."

http://thecontrariancorner.com/?p=15019

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Mr. T
admin
December 29, 2014 at 2:36 AM ×

I've seen plenty of these long term USGG charts that imply that very low real rates is more common than what we may be accustomed to. If we are collectively waiting for all types of inflation to raise rates and keep real returns "very low" it could be a long wait still.

I think the 1H2015 rally is going to be based on yet another round of pushing back the "liftoff" date for rates. Absent inflation (and I don't mean asset inflation), the arguments for rate increases are simply too weak against the narrative of 1937, political pressure, DX strength etc. Breakevens are probably the best tell for when they are actually going to raise rates. I'm long the whole curve but putting more weight on the front end with all of its sensitivities.

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Anonymous
admin
December 29, 2014 at 10:48 AM ×

grandissimo!!!!

Buon Natale Terry...

ciaooooo

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Anonymous
admin
December 29, 2014 at 1:56 PM ×

Bloomberg headline this morning: Japan’s Topix index gained 0.2 percent, set for its highest close since Dec. 9

Let's kick some tires and look at what's going on here:

Japan’s real cash earnings plunged -4.3% YoY in November

Japan’s industrial production down-3.8% in November. Vehicle sales down -12.2%.

Japan’s household savings rate is now BELOW zero at -1.3%.

Japan non-resident investment in Japan sinking

Japanese sovereign bond yield for 2 year bonds NEGATIVE

Japan housing starts fell -14.3% in November

This is a joke, right?

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Bruce in Tennessee
admin
December 29, 2014 at 2:01 PM ×

LB,

Why so glum, chum? We've ignored the Long Tail of global debt now for years, you are getting off message:

Just Trade, Baby!

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washedup
admin
December 29, 2014 at 3:09 PM ×

I think LB is just frustrated because he can't find the right instrument to short the NYPD.
Relax left - goldman/citi/barclays are designing it as we speak.

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JohnL
admin
December 29, 2014 at 3:24 PM ×

Anon at 1:56 PM
I don't think fundamentals matter re: Topix/$NIKK.
At this point it's only supply and demand, GFIP and BOJ have funds to deploy. They look like they can over power any out flows.
BTFD (dollar hedged)looks to be the theme, till Abe inflows taper.
http://www.bloomberg.com/news/2014-12-28/the-94-plunge-that-shows-abenomics-is-losing-global-investors.html?hootPostID=76bf7e8139a68e66

Hope Everyone had a great Christmas, LB rum and eggnog can work miracles cheers.

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Anonymous
admin
December 29, 2014 at 4:03 PM ×

"Average [Japanese] worker incomes have been rising at a mild pace for most of this year. They fell 1.5% from a year earlier in November, but the figure may have been distorted by a shorter data-collection period. The headline averages likely also understate the true extent of wage gains, as new entrants to the workforce, particularly women who are more likely to work part-time, drag down the averages."

"There is market pressure for higher wages [in Japan]. The labor market is at its tightest in years, with 112 job postings per 100 available workers in November."

http://www.wsj.com/articles/abenomics-finally-gets-working-for-average-japanese-heard-on-the-street-1419831539

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Anonymous
admin
December 29, 2014 at 6:35 PM ×

World GDP Consensus has largest one day cut...

http://imgur.com/iDmAzab

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Nico G
admin
December 29, 2014 at 6:57 PM ×

do not understand the fuss about Japanomics besides a nationalist third reich effort political bravado of Abe

it is so obvious that most Japanese spend their pocket money abroad, any extra purchase power has been neutralized by the zimbabwing of their currency, so who cares, who would benefit besides hotels in Waikiki and Paris, and what gives?

what 'would' work for US consumers who mostly stay at home cannot work for champions travellers and on that note Japanese are very much like Germans

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Anonymous
admin
December 29, 2014 at 7:10 PM ×

When you have 92 million plus people of working age without a job...

US Homeownership Rate

http://imgur.com/SKDwmRK

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washedup
admin
December 29, 2014 at 7:14 PM ×

of course we americans don't travel abroad - ever heard of the E! channel and fox news? now aaa don't know abt u fawren guys but aaa gawt maw window to the world raaawt in maa living room

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Anonymous
admin
December 29, 2014 at 7:23 PM ×

"Apparently the S&P500 will close out 2014 without ever having suffered four down sessions in a row during the year. This is the first calendar year ever in which the index has avoided four consecutive days of declines."

Is it possible to have a recurrence in 2015?

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Leftback
admin
December 29, 2014 at 7:39 PM ×

Mr T said: "I think the 1H2015 rally is going to be based on yet another round of pushing back the "liftoff" date for rates. Absent inflation (and I don't mean asset inflation), the arguments for rate increases are simply too weak against the narrative of 1937, political pressure, DX strength etc. Breakevens are probably the best tell for when they are actually going to raise rates. I'm long the whole curve but putting more weight on the front end with all of its sensitivities."

Excellent logic, and eloquently expressed. LB is in agreement with almost all of the above. The front end will be pushed up for a while but will eventually see an almighty yield crash at some point in Q1, as people realize that there is a huge gap in 2y yields between Swiss, Schatz, etc.. and USTs. The dollar will already be falling by then. DX strength will be a story again later in 2015-16.

As for the Dollar, the rally can probably sputter on, running on fumes, and should survive the next [Dec] employment number (Jan 9), but the [Jan] number out in early February will be the end for the DX rally, if it hasn't already dissipated. Expect to see one more dump in crude oil, energy stocks and emerging markets before this DX move is finally done.

AUDUSD 0.80, EURUSD 1,20 are out there and will probably get tagged. Not that I want this to happen, but I am resigned to it. The Greek exit chatter alone will probably get us there. Mini Europanique ahead, between elections in late Jan and "troika" negotiations in Feb. At this point, we would rather be long February vol than January.

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Anonymous
admin
December 29, 2014 at 8:18 PM ×

"For all the hoopla, I am baffled by the economic acceleration certainty that nearly every respected voice has endorsed. Will Q4 GDP be as robust as the 5% in Q3? Not likely. Will Q1 2015 be better than the average of 2.1% sub-par growth that has existed each year since the Great Recession ended? Probably not. For one thing, lower bond yields have been warning U.S. investors that the world’s stagnation alongside regional recessions will eventually weigh down the U.S. It is one thing to pretend that the U.S. is a self-contained economic island, yet quite another thing to ignore the reality that close to 50% of corporate profits come from overseas. Moreover, there are a variety of potential crises that could sap the world (and yes, the U.S.) of economic demand, from a disorderly slowdown in China to an emerging market credit collapse to a second iteration of a euro-zone break-up scare.

Need proof that scores of investors remain unconvinced by the notion that all is perfect in stock-land? In spite of the rosiest government data on jobs and GDP – in spite of strong retail sales as well as consumer confidence readings – which ETF asset classes proved most resilient in a month of volatile price movement? Utilities and REITs."

http://www.investing.com/analysis/weakness-ahead-for-rate-sensitive-etfs-236984

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washedup
admin
December 29, 2014 at 8:31 PM ×

Weird to me that there is such a consensus on low rates on this board, but the opposite consensus of high rates among economists and non-macro traders.
An interesting sample we find ourselves in, I must say.
From memory (appreciate if one of u punters could reproduce the link), MMs late Sep survey on which hail mary trades would work into yr end has generally proved quite accurate, although if you had a heart condition, it was probably sub-optimal to watch the performance of that portfolio day to day in Q4.
Presume we get a new one (given MM's recent predilections, probably in sonnet form) soon - look forward to it.

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Leftback
admin
December 29, 2014 at 8:35 PM ×

washed, the economists are paid by the Street, and the sell side wants them to tell the same story every December, b/c they want retail punters in equity funds with their 401k money and not in money market funds. retail doesn't understand bonds, except sometimes they do a bit of high yield. if you looked at where the sell side economists personal money is you would find a somewhat different story. So this is in essence not a true forecast and should be ignored.

The gap between German and US bonds was and is one of the single most important factors in fixed income trading, and something that was completely missed by most observers last year. Until that yawning yield gap closes substantially, it's hard to see where the selling of USTs can make much headway, even at the front end.

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Anonymous
admin
December 29, 2014 at 8:49 PM ×

"Lost in the bull market euphoria is the reality that economists have been dead wrong about the direction of asset prices, particularly bond prices. Last December, when 55 of the most prestigious economists across a wide range of institutions had been polled by Bloomberg about where the 10-year yield (3.0%) would end the year, each of the 55 professionals anticipated higher rates. The average of those estimates? 3.41%. And yet, the 10-year will finish the year closer to 2.25%. That is one heck of an astonishing miss for the entire professional community."

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Nico G
admin
December 29, 2014 at 8:49 PM ×

E! channel just made predictions everything 2015 up up up and in dee air

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Anonymous
admin
December 29, 2014 at 9:36 PM ×

washedup "Weird to me that there is such a consensus on low rates on this board, but the opposite consensus of high rates among economists and non-macro traders."

one has to consider always the way that the sell side of the street is compensated. its going to be tough for syndication to pitch new deals if the house economist's view is a gloomy one! i'd also make the point here that this optimism bias exists not only on the sell side but on the buy side also. as a buy side asset manager, having a negative outlook on the economy and by extension certain asset classes can be very difficult to defend. when every client wants to know when rates are going to rise and how you are positioned for rates to rise, you start to understand how difficult it is to have a bullish outlook on rates.

as a related aside, i find it interesting (and scary) that net spec positioning is now *shorter* US rates than it was at the end of 2013 when positioning felt extremely stretched... it seems that specs are now more willing than ever to put their heads in front of the proverbial steamroller, since this is the year the Fed will hike so rates have to rise, right? for example, top story on bloomberg this am: "U.S. Bond Sentiment Worst Since Disastrous ’09 as Fed Shifts" - "With Federal Reserve Chair Janet Yellen poised to raise interest rates in 2015 for the first time in almost a decade, prognosticators are convinced Treasury yields have nowhere to go except up. Their calls for higher yields next year are the most aggressive since 2009, when U.S. debt securities suffered record losses, according to data compiled by Bloomberg." here we go again

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hipper
admin
December 30, 2014 at 11:58 AM ×

LB yes I don't doubt that there are angry people and problems in the US originating from those, who exercise power in a corrupt manner.

But relatively speaking I doubt things are that much better in the EU, either. Despite what politicians say about deregulating, free markets, liberalism etc. the state control and regulatory noose is seemingly continuously getting a tighter grip and I feel there is a rising dissent of people loosing complete control for their own lives.

It's all getting terribly Orwellian also. A new centralized, controlling fascist regime is rising, only under a different alias. The new leftist fascist regime is preaching about all the "monstrosities" off the old fascist regime, and as a result people are blinded on the similarities, which are happening today. Only today and tomorrow should be relevant.

In economic terms I would probably say that all will continue to be fine until the day sovereign debt stops flowing and prevents paying all the social benefits. If that stops, societies are going to collapse. That's why the sovereign debt problem is what it is, and cannot be solved. In fact, the only thing that can be done without blowing the Union or single states up, is to continue treating it the same style which created it - rolling it over in the sea of debt and watch the ball getting larger.

So the deep core problem of Europe is different from other parts of the world. In other parts of the world, poverty and disparity are "allowed" and as a result, in other parts of the world there aren't benefit programs with horrendous economic costs. But in Europe, everything relies on the state. The state actually needs funding or everything will collapse. By placing everyone in the same boat, why would anyone be willing to take risks as an entrepreneur, putting everything on the line for the sake of the new brilliant idea. The risk takers, if successful, will soon be relieved of their enjoyment of success by taxing them to the ground, anyway, in the "name of solidarity". And it's not easy to get out of it, when many generations have been conditionalized to the truth, that the state takes care of everything.

That's why Europe is different. Lot less risks equal lot less awards which is completely contradictory to America. But on the other hand, as a result disparities are much more smaller, which might be a problem in America. Unfortunately what accompanies all these benefit programs is, that the state a.k.a those who control the state, pretty much controls you. This I think is what people are increasingly getting mad about.

Sorry for what might seem like a OT rant, which probably was quite irrelevant for macro punting. Just trying to show that different systems have different sets of problems creating different economic outcomes. But also that the European welfare-state isn't and never was the type of "paradise" many people around the world might envision.

BTW happy new years everyone!

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Anonymous
admin
December 30, 2014 at 12:31 PM ×

C Says,
The question is what do you do with your cannon fodder when you no longer cull them via labour intensive wars? They grow and their needs (costs) grow and has history shows when you don't meet their basic needs they get fractious and start lopping off non-cannon fodder heads. So , welfare systems and the cost of them are basically an attempt to maintain political stability by meeting basic needs albeit 'basic' tends to move a lot with time and expectations.

So far give or taker the odd wobble it's worked in the developed world for half a century,because afterall most of us do associate the devleoped part of the world with lower political risk. I suppose the question is can that situation continue in the face of current debt levels? Is this really not the heart of this EU quandary and is not Greece the tester to that question which can be summarised as 'how much can you can take away from the cannon fodder before it get's fractious?" Even if fractious in this case does not mean heads rolling just club memberships taking a kicking.

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washedup
admin
December 30, 2014 at 1:21 PM ×

http://www.cnbc.com/id/102299478
21 states raising the minimum wage - time for the bottom few % to share in the meagre spoils of mediocre GDP growth, and the rather rich spoils of indiscriminate asset inflation.
The playbook for the last innings of economic cycles couldn't be being followed more perfectly. Here is a rather dated article from Paul McCully at Pimco that makes the point a lot better than I would.
http://www.pimco.com/EN/Insights/Pages/Principled-Populism.aspx

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Anonymous
admin
December 30, 2014 at 1:50 PM ×

C SAYS,
"Bluntly put: Chair Yellen wants labor to get a fairer share of the fruits of the economy’s productivity: nominal wage gains greater than inflation – real wage gains. She wants Rich’s Ratio to go up!"
I do believe I made the same point myself when I said she wants to see the parcel passed from Wall Street to main Street before she really presses the rate button.

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Anonymous
admin
December 30, 2014 at 1:53 PM ×

Oh dear, my ego was showing up there.
Nonetheless , I find Cully to be one of that small band of people always worthy of reading.

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hipper
admin
December 30, 2014 at 1:54 PM ×

Very well put C.

The point of welfare today (and since Bismarck invented it) is to keep the masses from revolting and it looks to be increasingly getting a very delicate balancing act. Absence of war has allowed the pool of unoccupied to grow to unprecedented levels, which might again lead to problems.

Agree that Greece, being furthest in the debt cycle is a mini model for the developing situation at large. The issue is nab a little away here and there, how low can you go without snapping.

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Anonymous
admin
December 30, 2014 at 2:12 PM ×

C says,
The developing discussion intersects. Are we at least in the US going to see a recognition that policy understands the political and economic dangers of denying cannon fodder the ability to meet it's basic needs even if those now mean being able to order your crystal meth via an App ? Will it be the case that anti growth rates cannot and will not arrive until a trailer park has been entrenched on Wall Street ? Does a selfie of Obama washing the feet of the poor and downtrodden in Lower Palookieville mean policy goals achieved?
New Years resolution buy the dip on consumer equity Janets got your back.

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Anonymous
admin
December 30, 2014 at 2:41 PM ×

Go west young man...and get unionized

All salaries for University of California...

http://transparentcalifornia.com/salaries/university-of-california/

Some other California salaries...

Walter Shuld, San Pablo Police Chief, earned $440,983.
Malcolm E. Miller, Oakland Police Officer, earned $436,256.
George R. Silva, Hayward Battalion Chief, earned $428,457.
488 North Bay municipal employees earned at least $50,000 in overtime alone.
Angel Bobo, Richmond Fire Captain,, made $279,105 in overtime and $508,893 in total compensation.
Marc Palechek, Richmond Fire Captain, made $241,578 in overtime and $450,942 in total compensation.
Stanley Eng, Vallejo Police Corporal, made $221,073 in overtime and $425,660 in total compensation.

http://transparentcalifornia.com/

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Leftback
admin
December 30, 2014 at 5:24 PM ×

A setback for Bucky and Spoos today in light trading, likely this is just setting up yet another dip buying and vol selling opportunity.

More indications today that crude has some way to go to establish a floor, and that may continue until the Northern hemisphere gets some winter weather. Chinese data overnight may not help.

Signs of life again for precious metals and miners, with producers benefiting from lower energy costs, all in all, possibly an early indicator that Bucky is maybe just maybe running out of steam.

It's been a good week to do nothing.

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Nico G
admin
December 30, 2014 at 6:18 PM ×

LB your best idea in Q4 was for a January 2nd 'high of the year' it is interesting how you have changed to think otherwise

i sail in Greece six months every year believe me, the life of the average Greek is about 10000 better that the one of the average American

hipper regarding your excellent post it should be reminded every time needed that

Europe might curb your risk taking, but all infrastructures are top notch, medicine and education are free

in the US (where i spend 4 months every year) risk is rewarded where 60% of population live in debt slavery, infrastructures scary old, medicine and education scary expensive

the developments and arrests in New York show nothing of a free world, patriot act, NSA and all show the nation controls his population is a much cunning way than Europe

...where you are still free to go down the streets and bark, and do fuck all, until the magic mountain of debt collapses into the sea, eventually

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Anonymous
admin
December 30, 2014 at 6:42 PM ×

C Says,
'Die Bucky ,die damn you' Ok LB that was my belated xmas present to you.

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Nico G
admin
December 30, 2014 at 6:45 PM ×

"The point of welfare today (and since Bismarck invented it) is to keep the masses from revolting"

last time i defended Europe and criticized the US someone called me a socialist, whatever that means

hipper i can tell you one thing: if you ever need a heart transplant, and if you are ever too poor to pay the 200k that go with it

you will cherish your European welfare, where such heavy surgery is free, while folks in the US have to raise charity money to have a shot at it

enough bashing - let's just agree that one country is made for risk taking where you build your own comfort, while the other one is just cosy

one country is 200 years old, the other entity is 1000 years older, with the history of social benefits that goes with it

it is pointless to compare such two different animals especially when investing (no matter what Barron's magazine has recommended lately)

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Anonymous
admin
December 30, 2014 at 6:54 PM ×

Some so much better off Greeks getting some fresh air...

http://www.youtube.com/watch?v=Twss-yuEWP4

"the life of the average Greek is about 10000 better that the one of the average American"

"For the past few years, Greece has been in the hole of austerity and recession. Our gross domestic product contracted by over a quarter between 2008 and 2013, with household wealth dropping by 23 percent since 2007, according to a September report produced by the Julius Baer Group. The percentage of Greeks at risk of poverty or severe deprivation has climbed to 35.7 percent, from 27.6 percent in 2009."

"Consequently, more and more people are falling deep into debt, with over a billion euros in nonperforming loans being added each month to the bill (of at least 75 billion euros, or over 34 percent of all loans in August). Tax debts were at €70.16 billion in September. Just as the economy’s contraction has made public debt an unbearable 174.9 percent of G.D.P., the lack of credit and ever higher taxes have ravaged businesses, pushing unemployment up and keeping it high. (After six years of recession, the economy is expected to grow slightly this year.)

"The middle class has been devastated; it has borne the brunt of higher taxes but will not be able to do so for much longer. Apart from a small primary surplus (when loans and interest are not counted) and a surge in tourism, investments and production remain low. Greece managed to remain in the eurozone, but the longer austerity continues, the deeper the hole we’re in."

Nikos Konstandaras (managing editor and a columnist of the Greek daily newspaper Kathimerini.)

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Nico G
admin
December 30, 2014 at 7:41 PM ×

this is so typical. let me try one more time: when i compare the life of a Greek to the life of an American i compare two philosophies of life, i do not compare financials

Greeks live slow, take pleasure in small, simple things, they have a highly poetic way of expressing themselves

it is all about friends, family, a slow celebration of life in the sun with great food and great wine. This ain't a cliche, it is really what it is

i agree that such values are not to be fully grasped in a trading blog populated by fast paced, highly successful individuals

Greeks still take care of their grandparents, who live and die in their house. It is still a very traditional society

in the more efficient north of Europe, and in the US, grandparents die in retirement homes, yes people are so much richer, but they have lost touch with humanity

I have lived in Scandinavia, which is said to be the most accomplished social democracy in the history of mankind.

It is rich and efficient and all that. It is also the coldest society in the world with the highest rate of depression and suicides.

if i say happiness should not be measured in monetary terms i will probably be called a fucking commie hippy but let's try

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Anonymous
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December 30, 2014 at 8:24 PM ×

As far as I appreciate Greek's ancient philosophy, I still need financial numbers to make trading decisions.

I do not know how long the average Greek people can endure the current economic hardship, but withhout the improvement, there must be a day that they decide that enough is enough.

Maybe they are going to stick to the current course this time, betting economy will turn around. I surely hope so since I am betting on USD's weakening.

But, if there is no turning point, there is going to be a day...

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Nico G
admin
December 30, 2014 at 9:07 PM ×

what numbers? there are no pertinent Greek numbers (other than your derivative theta vega)

a few months ago folks were discussing Russia here, trying to apply Western numbers where it did not apply. One guy was even trying to assess a bottom of the ruble at 41 vs. dollar using PPP

i warned that there was no accounting in Russia, nothing to be trusted - then all hell broke loose, what a joke of a nation

well the same goes for Greek accounting, and European at large. Brussels is forced to lie to keep things together, invest at your own risk

Greece, like Italy, has a massive parallel economy going. Greeks, like Italians, have never trusted their highly ineffective, corrupt governments

so those guys are happy nevertheless and there is no accounting for the cash circulating over there (plenty)

i will give you one example: there is a very famous beach restaurant in Mykonos where yachts anchor and spend large. He nets more than 1 million euro per day, mostly cash, every day in high season.

The owner hires 300 employees but has declared 18 only. He owns 40 millions of tax to the government,that he will never pay. He only has to pay 100k now and then, to the right persons, to be let run his operation

do you get this mentality? he is making hundreds of millions each year, but shockingly, will not spend one euro more to the government, there is total despise that you could call a lack of civicism but this is how it goes over there

no accounting. hope that helps.

MM it would be nice if people had to choose 'names' here in this forum it would be much easier to follow

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Anonymous
admin
December 31, 2014 at 8:27 AM ×

Never turn your back on a Greek,

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Anonymous
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December 31, 2014 at 9:06 AM ×

C Says'
Nico,
"you will cherish your European welfare, where such heavy surgery is free, while folks in the US have to raise charity money to have a shot at it"
Except of course it isn't 'free' at all. It is 'free' at the point of delivery ,but it is paid for via the tax channels. In other words it is funded by the ability to raise tax revenue. Which brings us back to close that loop asking how do you sustain such activity when you are struggling to raise the revenue to pay down the existing debt. You know all those past heart surgeries .or if you like those little used Greek marinas ,or those 10km roads to nowhere in places like Fuerteventura. Sorry ,Nico , whether it's surgeries or favourite project De Jeur none of it is free and that really is the issue we finally face.

Welfare in any form is NOT free and that actually really is the whole point here. What happens in the West when we have to face up to that fact. Do we find a way of redistributing GDP to meet the costs of welfare ,or do we increase political risk by undermining the economic welfare state that has grown to maintain it? Come on what do we think the whole Scottish thing was about? The Spanish and Catalonia etc etc. Basically we have an increasing number of entities showing disatisafction with the current blowback on the way revenue is raised and then distributed.

Moreover, it really is worth comparing the outcomes of the way policy has shaped the current economies of the US and Europe. Although I openly admit it is a task beyond my capabilities. Fortunately, the market gives it's opinion on the subject everyday which brings me back to "Die Bucky, damn you, and yes we know why you won't because ultimately you've done a better job at writing down debt and balancing your economic resources thereafter so in future you actually are in a better position to write a cheque for social largesse . What then about that sick litter of puppies known has the EU who can't even agree whether or not they are toilet trained ,or whether they need to keeping pissing in theirown basket'. Well who knows maybe they will be able to keep on supplying that 'free' heart surgery ,but more likely imo we will find out eventually whose actually willing to keep on paying for it.

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Anonymous
admin
December 31, 2014 at 9:14 AM ×

C says,
Nico,
Apologies ,I missed your next post. I recognise the very things you past regarding Greece ,but at the same time I say bollocks. You want to laze in the sun and reflect in your naval. Fine ,it's a wonderful thing. As long has you can afford it! This is where we are at. In essence, Germany for a start doesn't want the bill. I doubt they mind Greeks soaking up the rays and Ouzo ,but hey don't send the bill for welfare you can't afford to Northern Europe.
In essence , the EU split is about paying your way and if your way does not produce enough to pay for the Sun and Ouzo then parrt of Europe is saying thanks ,but no thanks we don't want a collective bill for different lifestyle choices.

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Anonymous
admin
December 31, 2014 at 9:22 AM ×

C Says.
LOL....and by the way Greece and Italy do has you suggest also share along history of a broken tax system. The irony though is you can't pay for high levels of welfare indefinitely using a broken tax system. Appears to me all that has happened here is that history has been interrupted by the collective currency. Once upon a time Greece and Italy resolved domestic policy failure via devaluation and now they can't do that so they instead wish to 'socialise' the problem via the entire EU budgetary purse strings.
I freely admit I have no idea how such a conflict of interests can be resolved harmoniously.

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Anonymous
admin
December 31, 2014 at 12:11 PM ×

Hi C,
I fully agree with your post.

Regarding the overall cost of Welfare, notably health. Certainly the heart transplant is not free for society. But when comparing with the US, the strenght of Northern Europe is that the cost of healthcare to GDP is much much lower and you get a much wider coverage for all. Isn't it after the final goal of a developped country ?

So as a system, it pressures health service provider to reduce their costs ( yes Doctors here in Europe can earn a lot less than in the US and there are probably less intermediary skimmming off fees from end users). All in all, the European system for health is quite efficient.
Travis

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Anonymous
admin
December 31, 2014 at 1:11 PM ×

C says,
Travis, yes I take your point. In effect Europe has applied a higher social benefit to healthcare than the US historically. That it the state intervenes to keep the cost lower than the US. All well and good ,but healthcare is just one part of welfare costs. For example what social benefit value would you apportion to the EU funding 10km of roadway complete with utilities that leads to nowhere that can ever in a million years repay the costs incurred?. The EU is full of this crap and it's no accident that much of it are in those places where current political tensions now run high. I suppose the psychological message to take away from this is that welfare costs are very very sticky.You will anger people more by giving them something and then trying to take it away than by never giving it to them in the first place.

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hipper
admin
December 31, 2014 at 1:20 PM ×

Not to get all one sided guys.... Mark Cuban on the trillion dollar student loan bubble, guaranteed by the US government:

http://tinyurl.com/mwzh634

I very much agree on the great quality of a welfare state educational and health system. However I wonder how we are going to cope with the deleveraging or austerity process that is set to follow. This will put additional strains if we want to fund these services, e.g. partially "pay-as-you-go" and further elevating tax rates.

There are already visible signs that the private sector is starting to fill certain gaps left behing by the public services, which in turn means that if we want to guarantee services, we are going to have to subsidize the private sector at the same time parallel to public services, through the customers that now choose to use the private sector. We might assume that leaving the tap open when the receiving end intends to use any means necessary for an increased profit, probably the outcome will not be that good for the society.

What this in essence leaves the welfare state societies is the elevated tax exposure while at the same time requiring the quality of services to be decreased. The issue northern Europe now has is, that no-one wants to be the one to pay the bill when the deleveraging (or austerity) process starts, because in essence you're paying for nothing. Or put differently, paying more and getting less. Under these circumstances it might be quite difficult to convince, why the carefree lifestyle in the south should be subsidized.

Really a huge mess and big tug-of-war, but so far the only true winners seem to have been German and French banks. I would also suspect that Germany and other intra EU-trade surplus countries are gaining more from the EU-setup than loosing. So their trade is supported by debt the deficit holders in the south are getting. Ultimately I think they are going to give way to SovQE and all the other monetary things that need to be done.

On the euro currency. Is there really anyway it can go but down? I mean, if Greece decides to leave, it will weaken confidence on the whole Euro Zone. But if it is subsidized by more debt, it in essence is the same as QE. Are there other possible interpretations?

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Bruce in Tennessee
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December 31, 2014 at 1:39 PM ×


On the euro currency. Is there really anyway it can go but down? I mean, if Greece decides to leave, it will weaken confidence on the whole Euro Zone.


...Hmmm. If Wimpy, who always wanted a hamburger today, but was only willing to pay you next Tuesday, were to suddenly move to London, wouldn't you have more hamburgers for the paying customers? Probably everyone would be glad he's gone...

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Anonymous
admin
December 31, 2014 at 2:51 PM ×

C Says
"The issue northern Europe now has is, that no-one wants to be the one to pay the bill when the deleveraging (or austerity) process starts, because in essence you're paying for nothing."
My argument is the opposite. If you refuse to underwrite welfare costs then you increase your exposure to political risk and all of the costs theirin.

So ,we have a different view. By paying up you are getting something ,you are getting greater political stability. I would have thought the question might be what is that worth?
For the way current wealth is distributed we might even think of it has a cost of doing business !

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Anonymous
admin
December 31, 2014 at 2:56 PM ×

@Bruce

"Hmmm. If Wimpy, who always wanted a hamburger today, but was only willing to pay you next Tuesday, were to suddenly move to London, wouldn't you have more hamburgers for the paying customers? Probably everyone would be glad he's gone..."..good point!..less customers and the price of burgers have to come down...you know no demand and no increase in GDP:-). No Wimpies, NO Capitalism! Why did GS invented BRICS?

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Anonymous
admin
December 31, 2014 at 3:11 PM ×

Greek 3yr from 3+% to 13% yield in last 100 days

Any thoughts on when we will see that in Japan?

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checkmate
admin
December 31, 2014 at 3:59 PM ×

Japan, I would have thought it was far more logical to be looking for the hit via the currency rather than the price of debt. Greece can't manage their currency hence the hit arrives directly in the debt. With Japan I don't see it happening that way at all.

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Anonymous
admin
December 31, 2014 at 4:58 PM ×

christ who took the jam out of Nico's doughnut?

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Leftback
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December 31, 2014 at 5:40 PM ×

Nico,

I revised my forecast for 2015, the high is going to be Jan 5! Seriously, I have no idea mate, but I am certainly not betting against the vol selling, Spoos buying machine at the start of the year.

LB bought some very cheap options on the dollar today, just in case Bucky fails to reign supreme in his hegemony over the globe. We really think there will be some improvement in conditions in Europe and that will drag the emerging markets (aka 2014's submerging markups) along with it.

If we are right, then emerging market debt in local currency could have a very good year indeed, since that asset class offers yield and potential appreciation if the dollar stalls. (Think of the money that was made in peripheral European debt in 2013). The EM stocks that aren't directly commodity-related should also have a solid recovery if this is the case, with utilities and telecoms coming to mind. Not hard to imagine a year when Yen and Bucky in combination are the funding currencies again.

Fwiw, if I was penniless and/or needed health care, I'd far rather be doing it in Greece or Portugal than in the US. There really is more to life than GDP, per capita earnings and asset prices.

Btw, Russia will be stable as long as the price of vodka remains steady. Otherwise, look out.

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Leftback
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December 31, 2014 at 5:50 PM ×

Some other decent bets for 2015 involve:

1) another non-Grexit, NBG calls are a steal here if we assume that Syriza doesn't declare Greece a socialist republic with the drachma and the world doesn't actually end. We can expect much punting and media noise on this theme however before the election takes place.

2) Gold and silver miners might have a good quarter or two if the dollar stalls. Metal prices only have to stay stable for these to take advantage of lower energy costs and outperform what are extremely low expectations.

3) Most of the big integrated oil companies are going to be able to ride the oil price dump and not have to slash dividends. The likes of BP, Statoil, Total, ÖMV and Shell with refining and retail businesses should come out of this relatively unscathed. This is not to say that the xle is a buy, we think it goes lower once the earnings of the oil services companies and drillers dribble out. As for the shale plays, that was a bubble.....

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Anonymous
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December 31, 2014 at 7:22 PM ×

http://evilspeculator.com/wrapping-up-the-year/#disqus_thread

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Anonymous
admin
December 31, 2014 at 9:17 PM ×

Happy new year!

Thank you for the insightful posts and comments in 2014 and I learned so much.

See you in 2015.

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Anonymous
admin
December 31, 2014 at 11:51 PM ×

I'll second that! Happy New Year to all, as a "Retail Johnny" this is always very instructive to me.

- Whammer

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washedup
admin
January 1, 2015 at 3:25 AM ×

Left - as much as I have come to respect your views, can't tell you how wrong you are in your predictions.
Commodities are NOT a mean reversion trade - they will not go up simply because 'they have come a long way'.
Crude is being priced at 75/BBl by credit, and energy equities. If it goes to $40 and stays there, it will not be the normal expectation - it will be a surprise to the smug illuminati who sound like they have it all figured out - by 'it', i mean demand creation, supply destruction, price thisandthatization, etc etc- after all, us guys who have been in the commodities business for 20 years and have heard of things like commodity cycles, and own houses in Houston that haven't moved in 6 months couldn't possibly know better, right?
See. these things called 'commodities' are not hard to find, wonder why the name - no one mentioned social networks in James Joyce's works, but they did mention gold miners - sure, maybe its uneconomic at $400/oz, but $1200/oz? naaaah. We miss the fact that the 7-8 year periods when they seem like they are hard to find are something, well,special, but they are not compared to the millennia when you could kick the dirt and find em.
See,I feel bad for you guys that read zero hedge in the last decade but did not live through the 1997-98 commodity crisis, or read a newspaper in the early 80's.
One fact, and one only, you need to remember - energy, EM equities, and EM credit are still discounting $75/BBLcrude - if it goes to $40 and stays there, which would quite nicely still fulfill the definition of the word 'commodity', all energy asset classes are anywhere from 30% to 50% overvalued.
Yeah, still, after the 20% selloff from the ALL TIME highs.
But who cares, trying to catch falling knives is sexy in their own way - just because some of us may have college plans to worry about doesn't mean all of y'all do - and just because Nico dates models doesn't mean washed builds good ones in excel!
Good luck in 2015, friends , from one washed up surfer to others, I love this board, and right or wrong, i want it to keep riding the waves.
Oh. and yes, long US 30Y - little washed gets a little bigger just thinking about the gaping jaws as it saunters to 1.5% - on this even left and I agree!
Happy New Year!

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Bruce in Tennessee
admin
January 1, 2015 at 12:53 PM ×

http://www.theautomaticearth.com/the-year-in-5-narratives/

Lefty,

I appreciate your posts, and the rest of the illuminati here. I enjoy reading this fellow, and I suspect you do, or will find this of interest.

Good trading in 2015.

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Leftback
admin
January 1, 2015 at 5:36 PM ×

Oh dear.... we've stirred up a hornet's nest here. Bruce, always good to hear your perspective.

First, we explicitly stated above that we don't fancy US energy stocks, for the reason you state (washed), and for additional reasons that will come into play, like US slowdown in 2015 and a rotation away from US risk assets by global money. We like European energy stocks for that reason, as they are already inexpensive.

Second, of all the overwhelmingly crushingly one-sided consensus viewpoints expressed in the last few years, the only one that matches "stronger dollar in 2015" was "bond yields higher in 2014" and that was dead wrong. That alone should make you pause.

Third, the € is so important to the trade-weighted dollar, and is so widely disliked, that we should think about why. The narrative is as follows, based on three universal assumptions:

a) that US is recovering strongly and hiking in 2015,
b) that the EU is in a miserable decade of depression,
c) that massive ECB QE is a foregone conclusion.

I suggest that all of these three are erroneous. The next few months will see a lot of weak US macro, and we doubt that there will be any rate hike in 2015, while Europe is doing much better than you might think, especially Spain. The ECB is not the Fed, and definitely not the BoJ. Massive QE is out of the question b/c of Buba opposition, and a lot of asset purchases have in fact already been priced in at ~ EURUSD 1,2000, which is a strong support zone for this pair. Right now, "everyone" has EURUSD going to 1,000 within the year. What could go wrong?

Fourthly, with regard to commodities, it's all about China, and we know that growth is slowing, but it is still a very large economy and these things don't just stop on a dime. So while the dollar's rise has coincided with slower growth around the world, economic activity isn't actually ending. We are going to see production and supply start to decrease in a number of commodities fairly soon, and that will stabilize prices sooner than many think.

The strong USD has now become a destabilizing influence not just on emerging markets, but the US as well, via the shale and energy industries. We expect the Fedspeak to be very dovish in Q1 as US data become soft and that this will soon drive US risk assets lower, the Fed dot plot will move out into 2016 and FX markets will eventually turn USD negative until Q3. At some point in Q1-2 there will be an almighty squeeze in precious metals and emerging market debt and equities as more and more are caught offside. Btw, we are not and have never been gold bugs!

As of early January, the only US asset class we like is the long bond, and REITs. In our defence, we did get the rates call spot on in 2014.

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Anonymous
admin
January 1, 2015 at 7:07 PM ×

http://www.bloombergview.com/articles/2014-12-22/who-gets-hurt-when-oil-falls

From Gary Shilling:

"The U.S. stock market, while pointing up now, may yet have a negative response to declining energy costs, suggesting that the financial risks from falling oil prices may outweigh the benefits to consumers. If a full-blown global financial crisis unfolds, along with an accompanying worldwide recession, investment strategy will no doubt shift from the current “risk on” stance to “risk off.” In that scenario, you would expect to see a rush into the safety of Treasury bonds and the U.S. dollar and a stampede out of commodities and stocks globally.

Interestingly, most of this is already in tow. Treasuries are rallying as Americans and foreigners pour in; yields recently hit 2014 lows. The dollar has been robust against the deliberately devalued yen and euro, as well as the currencies of commodity exporters Australia, New Zealand, Canada and Russia. And commodity prices, from oil to copper to sugar, are falling.

Only stocks remain to turn down decisively, and even that could change if oil prices keep sinking."

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Nico G
admin
January 2, 2015 at 4:11 AM ×

aaaah nice one washed up big fan of Joyce here, and his contemporary heirs Pynchon and Vollmann. i wrote about $10 oil some time ago, it was 1998, people already used cars and flew commercial planes back then

commodities are a joke of a market ever since CFTC allowed the big desks to punt futures big - the fair value of anything has become as stochastic as the jam on my morning donuts

good luck for 2015 everyone greetings from Oahu

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Anonymous
admin
January 2, 2015 at 11:28 AM ×

C Says,
Happy New Years to everyone.
Already there is a front runner for my favourite market expression of the Year;
"stochastic as the jam on my morning donuts".


My New Years Resolution is the same has last years which is to remind myself often that I know virtually nothing about what will happen in the markets this year.
Indeed , please remember when you find your self repeatedly wrong on the same issue then you can be fairly sure you are refusing to acknowledge a trend in motion ;) Such is the life for top and bottom pickers.

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Leftback
admin
January 2, 2015 at 2:31 PM ×

Spanish 10s now 60-odd bps safer than US10y.

Dr Aghi once again proving to be the Olympic gold medalist of Jawboning. He has lowered EURUSD to 1,20 w/o doing anything, much as he lowered peripheral yields w/o actually whipping out his mythical bazooka. Iterative logic suggests the same will be true of his massive QE package, which will likely not be all that massive after all.

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Leftback
admin
January 2, 2015 at 2:42 PM ×

German 5y yields now negative, if you want to see a truly bizarre chart, look at the Swiss yield curve.

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Leftback
admin
January 2, 2015 at 2:46 PM ×

Even Ambrose has opened a FX desk and is punting long dollars now.... is this a sign? He's even called a 1,08 target for EURUSD. Tool Time?

Ambrose Loves Bucky

Cue a wealth of weak US data in 3, 2, 1....

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Anonymous
admin
January 2, 2015 at 3:10 PM ×

Another socialist cesspool about to fall off the cliff. Maybe Sean Penn will bail them out...

http://tinyurl.com/kgptfk9

Changing their definition of reserves ROFL!!

Following the script of England and Italy ( GDP includes hookers and drugs )

What a wonderful criminal world.

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Anonymous
admin
January 2, 2015 at 3:31 PM ×

Another day, another scheme...

'With one stroke of it's pen, the government ( Japan ) would be free of it's obligation to repay the debt"

http://tinyurl.com/m7vtxrz

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Leftback
admin
January 2, 2015 at 3:40 PM ×

Well, Bucky lovers, if you enjoyed that lot of weak US macro (and the innards of the ISM were really dire for December, more like a midsummer doldrums report), then you are really going to love the January data, culminating in the Jan employment data release on Feb 6, which will include all of the un-hired seasonal retail help as well as the laid off drillers in ND and TX.

So, punters, do you really want to sit it out in USD and Spoos and wait for that lot to land on you, or would you rather chase some yield in other places that look far more attractive on a valuation basis? After all, in Europe you have nothing to fear but fear itself (of jawboning and mythical US rate hike).

In other news, we see that the Bond Bears are off to another fantastic start this year. Well played, sir.

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washedup
admin
January 2, 2015 at 4:32 PM ×

bad US data for bucky, is more like the news that the fireproofing in the only house currently left standing in a badly burning neighborhood may not be that sound. It would be one thing to react to this news by donning a fire suit (aka treasuries) and wait for the firefighters, but quite another to go rushing out naked into the burning streets loudly screaming 'i can do better than this'.
Global capital goes home to hide under the table in 2015 - some comes back smiling and is welcomed by family, some, alas, in bodybags.

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Anonymous
admin
January 2, 2015 at 4:53 PM ×

Germany's 10yr Bund yield drops below 0.5% for first time ever.

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Anonymous
admin
January 2, 2015 at 5:43 PM ×

C Says,
LB,
The US doesn't need to be punching out great macro data every week to support the dollar. It just needs to look better than the wall to wall crap elsewhere. If the latter ever looks like changing that relationship then some of us dollar lovers would be happy to join your side of the fence. Meanwhile a trend is a trend until it isn't.

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Anonymous
admin
January 2, 2015 at 6:58 PM ×

"trend" is measured at the margin.

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Leftback
admin
January 2, 2015 at 7:05 PM ×

@washed:

1) there is no shortage of Treasuries and cash on board ship here, so no worries there, we'll survive.

2) there is an astonishing correlation between the US centricity of US-based investors and the US equity markets and USD. While I can see that this is to some extent predictable and even logical, it means that punters are always buying USD near the top when they should be looking out at opportunities elsewhere.

3) the fear and loathing within the US of the EU, the €, the ECB and the dreaded "socialist economies" of Europe is really beyond irrational and not data-dependent at this point.

4) the 2008 analogies bandied around are absurd, when credit is easy almost worldwide and there is ample liquidity in the credit markets. this is the fatal flaw in the sky falling arguments this time.

5) what goes around, comes around. once markets see clearly that Europe has already accelerated from oblivion to blah, while the US never really did get ahead of blah after all, FX regime change will be swift and bloody.

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washedup
admin
January 2, 2015 at 7:46 PM ×

if you are arguing for a brief cyclical downtrend within a broad secular up move for the dollar, I can see that anytime - it would be completely moronic to assume anything can just go up in a straight line (ironically, its the China cheerleaders, not dollar bulls, who have suffered that malady for a longer period) - but if anyone is looking for the EM industrialization leads to high commodity prices leads to reflation leads to dollars going abroad leads to weaker dollar story as the reigning paradigm for the coming decade, I have a unicorn petting zoo you are cordially invited to.
Sure, at some point Janet may thrown in the towel and re-engage in QE - and then gold (notably not EUR or JPY or anything EMish) may be the principal beneficiary, but I'd give it atleast 6-9 months before its worth even sniffing that bone out.

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Nico G
admin
January 2, 2015 at 8:57 PM ×

you gotta love how Draghi had to say 'something' for the first day of 2015 trading - really felt like comforting parents walking their toddlers to the first day at school

only, the kids were already crying their milk out after an hour or two. CBs pampering of markets reached kindergarten psychology today

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hipper
admin
January 2, 2015 at 9:07 PM ×

Anon 3:31, re: Japan

wouldn't be surprised if that ultimately happens. First kill the debt markets and turn them into complete zombies, and when that doesn't work, sink the unwilling end users directly with new currency. Although in the case of Japan it would probably do what it did before, spill into financial assets all across the world. Might work quite a bit better in EZ.

We might be a long way off, but the signs for the end game are slowly and steadily becoming more apparent atleast IMHO.

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Anonymous
admin
January 2, 2015 at 10:11 PM ×

@washedup, "but if anyone is looking for the EM industrialization leads to high commodity prices leads to reflation leads to dollars going abroad leads to weaker dollar story as the reigning paradigm for the coming decade, I have a unicorn petting zoo you are cordially invited to."

I would not count India out, whose infrastructure is probably even worse than China in 2000.

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washedup
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January 2, 2015 at 11:03 PM ×

sure - maybe India will spot the immense windfall being presented to them via low commodity prices, move at warp speed to move the cows out of the street and double the no. of lanes, clean up their decrepit electricity infrastructure, appropriately jail 95% of their sitting politicians who are wanted for various crimes, quickly re-vamp their labor laws to enable giant shenzhen style export zones, all to finally favorably compete with China at selling cheap toys to western countries in an environment where global aggregate demand is about as energetic as a lung cancer patient on chemo.
I do think India will do fine in the long run because demographics and human capital always wins, but they'll have to find an internally funded, tech and consumption driven closed system economic model for success which is patently not the china, brazil, russia formula.
But yeah, I grew up there, so trust me you couldn't find a more complicated bundle of India cynicism and optimism than me!

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Anonymous
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January 3, 2015 at 12:22 AM ×

@Washed(11:03)

x2!

You forgot to add this new program the ruling the BJP has introduced,"return home(ghar wapsi"..converting minorities(Christians,Muslims,Sikhs)back to Hinduism!

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hipper
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January 3, 2015 at 12:37 AM ×

Now what's this? An affiliate of the Mangler say's Greece is no longer strategically important for the Zone and as such possesses a very diminished ability to issue blackmale. And elections are still over 2 years away, could he/they really mean it?

http://www.reuters.com/article/2014/12/31/us-eurozone-greece-germany-idUSKBN0K90LM20141231

Well if there is even a hint of truth in that, it will make some progress to vindicate the peanut gallery expectation of a volatile 2015.

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hipper
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January 3, 2015 at 12:43 AM ×

Or maybe they actually meant that Greece is not relevant for German banks....

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Leftback
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January 3, 2015 at 5:02 AM ×

"if you are arguing for a brief cyclical downtrend within a broad secular up move for the dollar,"

Exactly. Although like most FX moves, when it comes along, it will be larger and of longer duration than we expect, possibly 1-2 quarters and a 50% retracement of the move in 2014.

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Leftback
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January 3, 2015 at 9:05 PM ×

So it's been a while since we did this, but a review of available yields can be quite instructive when punters are a little confused by a combination of recency bias, rising DOMESTIC asset prices, and competing central bank interventions. In fact they are absolutely intoxicated with the dollar, and all things American, oblivious to the faux growth and all of the buybacks and accounting tricks that generate the miracle of smoke and mirrors that is US EPS.

The point I want to make here today is this: recently, everyone has been long America, US equities, high yield bonds, Treasuries, or good old USD. Fair enough, all those assets have risen in price, but only HY offers a yield better than the US10y, so this is purely a price appreciation bet. Of course, everyone is happy, and recency bias also allows this group of punters to know that they are "right" b/c "the trend is your friend", and this is what's working, and furthermore they even have sound reasons based on Draghi v Yellen, which make sense, and b/c everyone shares these views, it has become not an opinion, but a truth.

No arguments... but this is the basis of all momo. USD is a pure momo trade, you must see this for what it is. Like all momo trades, when it stalls, you aren't making much money any more, and even small reversals can lose you money. If we have a flat but undulating year in SPX during '15, you will end up with 2% and endure a lot of volatility along the way.

Now let's step off the US-centric bandwagon just for a second. Imagine you are a European or even Japanese long-only punter who has been having it off a bit in the US, perhaps reaching for yield in USTs to escape the low yields at home. OK, mission accomplished, but you know that hot money can move away quickly if things go sour.

At the same time, your offshore asset management bloke or bird is having a gander at European equity yields, and can see a huge yield differential in Germany between bunds (0.50%) and the DAX (4.5% ish). In Spain, it's 10y ODEs at 1.52%, but equity yields are 6%ish, Santander about 9%. In London, it's gilts at 1.72%, BP and HSBC >4%. In Italy, BTPs at 1.73% or ENI at 8.9%. In France, OATs at 0.78% or TOT at 5.9%. Moving away from these core countries to Eastern Europe, there is all kinds of 6-10% yield to be had cheap in Austria, Hungary and even Russia. Outside Europe, there are the Australian banks (6%), and ooer missus, there is emerging market debt in dollars or local currency yielding 5-7%, and Russia and Brazil for those dumpster divers with Kevlar suits on.

So at some point when the US flatlines, some of these punters are going to say, screw this low income crap sitting in US equities or in my domestic govies, I am having some. My local economy isn't actually in the shitter and unlike the US, I can actually believe some of the data and the earnings, so I am getting a handful of this risk in local equities or even some of this naughty stuff over here in these little countries, including those that everyone has been shorting the crap out of.

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Leftback
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January 3, 2015 at 9:06 PM ×

(Part two, continued from above)

This isn't going to be a flood of funds flowing out, but even a trickle away from the US will be enough to stop much of the low volume momentum trade in its tracks. The US isn't going to crash but it will under-perform other countries like Germany, even if EURUSD doesn't bounce but just sits at 1,20 all year long. Grexit will not happen, safety trades will be lifted, and there will be another enormous squeeze in many risky EU asset classes (not govies this time), and the same will eventually be true in many of the emerging markets, irrespective of whatever the commodity boom/bust cycle happens to be doing.

If you short Europe here, you are doing the same as punters did in the US after QE1 and heading into QE2, and I believe that you will reap the same rewards....

To close, I am not saying that Bucky's rollicking ride is over, but it will end, and sooner than most expect, b/c it is based on unsound assumptions. When that happens, you had better be prepared for some of the dismal consequences of a bit of Carry Unwind in USDJPY as well as the slow pain of being trapped a market that drips lower as the hot money ebbs away, and your profit slowly exsanguinates.

So for the time being, we are going to continue to catch a few knives here and there in emerging markets and other train wrecks, while we mainly sit in long-dated US Treasuries, but begin to move into risk assets in Europe, buying on Grexit panic, Ukrainian saber rattling or whatever other political nonsense is out there. There are no bad assets, but we are moving towards bad prices in the US and good prices in the rest of the world.

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Bruce in Tennessee
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January 4, 2015 at 2:55 PM ×

http://blogs.reuters.com/breakingviews/2015/01/02/japans-cash-helicopter-may-be-first-to-take-off/

"Adair Turner, former chairman of Britain’s Financial Services Authority, has suggested converting the central bank’s government bonds into perpetual, zero-coupon securities. With one stroke of its pen, the government would be free of its obligation to repay the debt. The pressing need for Japan to raise taxes would vanish. The fragile consumer economy, which buckled under the burden of a modest increase in the sales tax last April, would breathe a sigh of relief. This too will be a money-financed tax cut by the back door, without the need for helicopters or debit cards."

Hey, Lefty! Is this guy typical of British governmental financial thinking? I don't think he spent much time working this one out, do you?

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washedup
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January 4, 2015 at 4:28 PM ×

@Bruce - I actually think this is a logical next step once CBs realize there is a limit to asset inflation induced growth - Japan is actually the only country where this is currently socio-politically feasible, but eventually (in 5-7 years) if global equities end badly and there is no obvious technological savior to spur the next round of global growth, fully monetized fiscal expansion (i.e. a 'true' helicopter drop) will be the only recourse - ironically, I think it would be far more conducive to preventing wealth inequality (although probably just as ineffective at actually creating sustainable real growth via monetarism alone) than what we have seen in the last three decades.
It would be interesting to see the long term prospects for the JPY if this scenario came to pass.

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Anonymous
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January 4, 2015 at 7:38 PM ×

leftback-as much as i respect your view points, the bit about eni yields compared to bps or dax vs bunds is just utter garbage
you are not comparing like for like...equites are not based on 1 year cash flows so just inverting pes downs equate to yields.
european equites aren't cheap at all here snce the rally from 2011 earnings haven't moved up at all-so europe might not be expensive but sure as hell not cheap
coming into new year i prefer to be short dax, spy , long 30y us
best

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Polemic
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January 4, 2015 at 9:47 PM ×

Bruce - the irony is that the most famous of all government issued zero coupon perpetuals is bank notes. So it would only be going whole hog with money printing in finally turning QE into proper printed money .. or money on another name. A bit of a convoluted route but they could have just printed notes in the first place.

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Anonymous
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January 5, 2015 at 2:38 AM ×

LB ... thanks for your thoughts ... thoroughly enjoyed reading and thinking about what you wrote!

BTW, got Chinese A-shares in the momo-portfolio yet?

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Leftback
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January 5, 2015 at 2:38 AM ×

Stop running by Tokyo monkeys in EURUSD as thin overnight trading opens the trapdoor below 1,20 to a low of 1,1864. But is this mini-crash to 2006 levels the beginning of a short-term reversal? Not sure Dame Janet or even the Drag himself wants to see disorderly movements in this pair. Likewise, the fall in crude oil will not be a monotonous decline, with weather finally returning to the seasonal norm.

Anon, your comment on equity yields was sadly completely incomprehensible, I have at least three ideas of what it is you were actually trying to say. Look, if the price of a stock doesn't change and it doesn't split etc., then you make the dividend paid, end of story. [We have a lot of preferred shares, so this is quite relevant to us]. If the price/yield of a bond doesn't change, you make the coupon. On this are many value investor comparisons based, in markets that aren't going up for ever...

Btw, although we are modestly bearish US equities in Q1, we are long for a trade at the moment. OK, cue the ritual abuse for even mentioning the slim possibility of not seeing day after day of EGDF.

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Anonymous
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January 5, 2015 at 3:54 AM ×

http://www.washingtonpost.com/blogs/worldviews/wp/2013/10/22/japans-sexual-apathy-is-endangering-the-global-economy/

Japan’s sexual apathy is endangering the global economy:

"Extremely high numbers of Japanese do not find sex appealing. 45 percent of women and 25 percent of men, ages 16 to 24, are "not interested in or despised sexual contact."

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Anonymous
admin
January 5, 2015 at 4:31 AM ×

This WAS SO GOOD!!

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Anonymous
admin
January 5, 2015 at 5:14 AM ×

Death of hedge funds? Vanguard draws record flows in 2014. Perhaps a peak in passive investing?

Vanguard Record Inflows

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Nico G
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January 5, 2015 at 6:48 AM ×

you'd have to ask Japanese ladies the average prowess of Japanese salary men. Sex is so bad over there no surprise they're getting rid of it, minus the occasional prostitution, the one that boosts luxury goods shares

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