How the Market Stole Christmas!

A trader's lament, with apologies to Dr. Seuss:



You’re a mean one, Mr. Market
You really are a heel
It is your common practice
Bloody awful’s how we feel
Mr. Market
You make the whole strasse trade like an imbecile!

You’re a monster, Mr. Market
My book’s a giant hole
I added dollar/ruble
Any my money you then stole, Mr. Market.
Why didn’t I trade with a
Czech, Turk, Hungarian or Pole?

You’re a vile one, Mr. Market
Lower oil’s good for stocks
But now energy high yield’s
Cracking underneath your shocks
Mr. Market
Given the way you make me trade I feel
Dumb as a big ol’ box of rocks!

You’re a foul one, Mr. Market
You’re as nasty as a skunk.
My payroll buy of dollar/yen
Is now a bunch of junk,
Mr. Market.

The three words that best describe you
Are as follows, and I quote
Stink!
Stank!
Stunk!

You’re a rotter
Mr. Market.
You’re the king of stupid grinds
Buy and hold just seems much better
Than trying to use our minds
Mr. Market

My book is an appalling dump heap
Overflowing with the most disgraceful
Assortment of deplorable rubbish imaginable
Mushed and crushed in this unwind.

You nauseate me, Mr. Market
Central banks all had my back
ECB is nice and easy and
Abe’s selling market crack
Mr Market!

Even if the Fed’s just “patient”
Spooz must rally hard
To get me on track!

Will the Market make away with everyone's holiday goodies, or can someone, anyone bring joy to the Whos of Whoville?

Tune in this afternoon to find out!



 


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washedup
admin
December 17, 2014 at 2:56 PM ×

Nice one MM - once again kudos on managing to pull off that most psychologically hard of moves, namely to sit on your hands and wait things out.
What would you do if you were Putin?
Wait, I think he would do exactly what you just did..

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Macro Man
admin
December 17, 2014 at 2:59 PM ×

I'd hire Michael Bay to produce a trailer for my press conference, of course!

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washedup
admin
December 17, 2014 at 3:06 PM ×

that video is awesome - think he may be preparing to declare world war III - contrary to popular myth it was supposed to be fought with pieces of worthless sovereign bonds, not with stones!

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Leftback
admin
December 17, 2014 at 4:20 PM ×

Nice one, squire.

I suspect that Putin has more patience and a slightly longer attention span than the 5 minute macro merchants at the hedge funds that shorted the RUB. Once the price of crude stabilizes and the algorithms start to sell USD instead of buying, they will start losing money, we will see the Mother of all Short Squeezes, and this edition of Currency Crisis will be over for the time being.

In the greater scheme of things, this is not as taxing to the Russian people as the siege of Stalingrad, although a bit annoying if you were planning on buying the kids Apple products for orthodox Christmas. Still, they have until January 7th to get the shopping done.

Russia default talk has been complete nonsense, look at their debt to GDP ratio, and compare that to another well known oligarchy that is near and dear to our hearts.

[Ducks to avoid abuse from Commie-hating red-blooded, Apple Pie-loving Patriots]

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Polemic
admin
December 17, 2014 at 4:23 PM ×

Well done MM . True MM style with a fave MM background theme.

As for Russia. I ve had a think what I'd do if I was Putin and posted them in another place. Depends really which hat he is wearing, or which of his multi personalities he wakes in the morning as.

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Anonymous
admin
December 17, 2014 at 4:33 PM ×

The world is consuming approx 3.6 billion barrels of oil a year. In May, at the $107.50 high, that much oil cost $3.6 trillion. At today's $53.60 low you could buy that quantity of oil for $1.8 trillion.

Suddenly a lot less demand for dollars

Steen Jakobsen:

“You want to be long euros and short dollars in 2015...”

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Polemic
admin
December 17, 2014 at 4:40 PM ×

That assumes that all those dollars spent stay in dollars, they don't. USDs are a method of like payment like paypal but they all end up having to pay local staff on producing countries, global equipment suppliers, shippers etc and in the end the profits are handed out to share holders in local currency. USd pegged currency producers such as Saudi of course will have uses coming in and may be more prone to hold them but in general a loads of the USDs used to buy oil find their way back out to other currencies.

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washedup
admin
December 17, 2014 at 4:57 PM ×

correct Pol/anon 4.33 - the decreased supply of dollars if oil price falls exceeds the decreased demand.
Remember the US and China, which is quasi-pegged to the USD alone account for 33% of world imports of oil, and the eurozone which accounts for another 33% actually funds the majority of its purchases in euros.
There are of course good sentiment and positioning extreme related reasons to expect a correction in USD (I am waiting for it to buy), perhaps a big one, and those have been laid out well by LB and some others - but fundamentally there has and still remains a negative correlation between USD and oil, especially Brent although I have to point out that another 3 MM bbl increase in production out of the US, likely or not with these price falls, plus a lifting of export restrictions, would make the relationship essentially neutral in the long term.

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Leftback
admin
December 17, 2014 at 5:08 PM ×

I believe short USD may indeed prove to be the theme for 2015. Long metals and miners, energy, emerging markets, AUD, Europe, you name it.

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Leftback
admin
December 17, 2014 at 5:15 PM ×

Right now, Mr Shorty has to be feeling the heat a bit. Anyone who was short RUB, oil or XLE overnight just signed up for some "alternative interrogation techniques" to be administered by Mr Market. Still, I am sure Dame Janet will bail out all those shorties with some big-time Hawk Talk .... right?

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hipper
admin
December 17, 2014 at 5:46 PM ×

Re oil: yes indeed looks very interesting. OPEC may succeed in pushing the shale producers to the gutter for some time, but will they be able to do it infinitely?

Have a feeling that shale technology is continuously improving, pushing down the brake even price. Even if pretty much all the OPEC countries posses lower cash production break even than their competitors, their competition is getting closer. OTOH, are the shale producers running out of time with the debt clock?

Oil might bounce but demand growth looks to be too sluggish to allow it to return it to $100, and too much potential production looking to pop back in long before that. It will probably settle much lower but not this low below $60 (excluding scenario that shale producers really start going bankrupt, then OPEC might get longer time to breath). Potential supply now is a serious constraint for keeping prices high.

The next question is about vertically integrated big oil. Are they able to sustain divis with oil at $70-80, leaning perhaps more at the former?

I'd still say that offshore drillers are at greatest peril here, obviously having the highest break even and debt loads of all. As Admiral Ackbar is telling for the ultra high oil bulls:

https://www.youtube.com/watch?v=mNLuq0lW50k

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Leftback
admin
December 17, 2014 at 6:39 PM ×

Don't know much about oil but I do know some nice Fibonacci numbers. A 61.8% retrace from $53 from $103 would be around $85. Rough numbers, but you get the idea. Midsummer, if I had to put a time on it, peak at July 4. :-)

Dame Janet might be hawkish today, but if she was, BUCKY would probably take off, oil would fall sharply again and the major driver of US inflation forwards would be crushed. Now what is the #1 sworn public enemy of Dame Janet and her fearless band? Oh yeah, deflation, closely followed by flattening yield curves.

She ain't stupid...

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Leftback
admin
December 17, 2014 at 6:46 PM ×

Only Trichet among recent central banking tools would be stupid enough to hike with 2y2y breakevens close to zero......

We are looking ahead at a year in the US with inflation <1% and rates at zero for almost all, if not all, of 2015. It's hard to be too bearish equities at the moment with this macro backdrop (even for me). Easy credit will continue which makes high yield a decent bet too. Again, the major threat to HY would be a stronger dollar and lower oil, leading to defaults in the oil patch. So, no hikey....

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JohnL
admin
December 17, 2014 at 6:47 PM ×

Getting technical with oil eh?
Chris knows something about that....
http://blog.kimblechartingsolutions.com/wp-content/uploads/2014/12/crudeoilwhichcountrycouldthishurtdec17-675x314.jpg

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Anonymous
admin
December 17, 2014 at 7:14 PM ×

so they will be patient for a considerable time. the oil rebounced nicely and the bet on oil stock paid off.

And Hilsenrath missed on the strong possibility. Fisher is actually minority.

lots of information here!

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Leftback
admin
December 17, 2014 at 7:18 PM ×

Quite fancy some gold and silver miners once people have had time to figure this out. It's like Janet came out and said, "Look, I'm easy. I'll always be easy. You can have your way, any time you like in risk assets. So it was a bit silly to buy all those dollars, wasn't it?".

I can hear screams outside the window. Must be the VIX falling....

JohnL, Kimble is a great charter, but if you trace back to that descending support line you get to at least $70. Janet is just NOT HAVING IT with DX 90, she means business, so the commodity carnage is coming to an end.

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Leftback
admin
December 17, 2014 at 7:24 PM ×

Let's see if we get the 50 handles in Spoos that Mr T predicted.

It's Mr T versus Mr Shorty and Theta in a foot race here, with options expiration ahead of us. Mr Shorty might try to get out ahead, but he is getting heavier and heavier with every step, and Theta is always going to catch him. As for Mr T, he has all the time in the world.....

It's been a very decent day for Team Macro Man, not to mention the Official Macro Peanut Gallery of commenters and punters.....

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Anonymous
admin
December 17, 2014 at 8:04 PM ×

uh oh:

"IT IS IMPORTANT THAT MONETARY POLICY BE FORWARD-LOOKING. THE LAGS IN MONETARY POLICY ARE LONG."

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Leftback
admin
December 17, 2014 at 8:09 PM ×

Fans of correlations will notice that the very strange Impossible Trinity of USD/bonds/stocks all up together vs JPY is now apparently at an end, and we are back to a much more familiar correlation with USD v EM FX, commodities and risk assets of all stripes. Now we get to see who wins tomorrow, after punters have had the opportunity to parse the thoughts of Dame Janet.

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washedup
admin
December 17, 2014 at 9:07 PM ×

noticed the correlation breakdown - great call on the spoo rally starting today LB - any targets in mind for SPX into yr end?

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Leftback
admin
December 17, 2014 at 9:17 PM ×

I think almost everyone here saw that rally coming, washed, no clue on targets, but this is clearly not a market to get in the way of at the moment and I plan on sitting here for a bit as other punters scramble to hop on board the train into year end.

Enjoy the ride.....

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hipper
admin
December 17, 2014 at 10:07 PM ×

Well they praised quite a bit the improving labor market with job gains and dissipating under utilization of labor resources and rising household spending, but seemed to pin the blame on sluggish housing and energy, expecting energy to be a "transitionary" effect, e.g pass through event which would correct itself. Which it will probably not be for quite some time, this is the real deal.

OTOH perhaps they are just jawboning and wasting time so super Bucky has the time to wreck some havoc on earnings, shake the market and generally deteriorate economical confidence while waiting for a few weaker job reports. This actually seems more likely, they're clearly afraid to just do it and waiting for the eventual excuse to appear for not doing it at all.

If that's the case I would very much agree with LB for ZIRP running into the foreseeable perpetuity along with the dash for trash.

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Gus
admin
December 18, 2014 at 2:14 AM ×

Sberbank up 23% today, but still less than the ticker CUBA (up 28%). Of course, a company called Cuba Beverage Co. from San Diego was up 79%, due to mistaken investors thinking that it did business in Cuba, but actually does not.

http://blogs.wsj.com/moneybeat/2014/12/17/cuba-the-energy-drink-company-soars-140-on-cuba-the-country-news/

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Leftback
admin
December 18, 2014 at 2:31 AM ×

MM started a discussion a while ago on whether the lower gas prices were stimulative for the economy. Bear in mind that if you spend $1 on gas, it doesn't disappear it is part of GDP, but if you save it, Zippo.

Americans and Gas Price Savings

So, assuming that people actually DO what they say, which is always a big if, this means most of the "savings" on gas will be used to pay down debts (lots of people incurred huge heating oil bills and went into debt last winter in the Northeast, credit card debt, student loans etc..). That makes this recent event somewhat DEFLATIONARY, consistent with what we had seen recently in long rates.

Santa rally definitely ON though..... more to come.

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Anonymous
admin
December 18, 2014 at 5:45 AM ×

@LB, are you saying the long Treasuries might slump a bit more through the New Year, and then rally in Q1?

-Whammer

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Anonymous
admin
December 18, 2014 at 11:24 AM ×

C Says
The essence of it was where she pointed out she's really looking for an employment level tight enough for real wages to rise courtesy of course of energy deflation. In other words she's not moving meaningfully until the magical transition from Wall Street (return on capital) becomes Main Street (return on labour) occurs. Everythingelse is secondary.

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Gnome of Zurich
admin
December 18, 2014 at 1:28 PM ×

“Now is not a time to be overweighting commodities, [...] For now, the outlook is still negative. It wouldn’t surprise us to see prices go down even further. We wouldn’t be taking any tactical positions.”

Ok, so speaks the mainstream. Time to call bottom for this Gnome and go long commodities for 2015 besides my PIGS. Although I never let go of all my gold.

http://www.bloomberg.com/news/2014-12-18/oil-led-slump-spurring-fastest-investor-exit-since-2008.html

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washedup
admin
December 18, 2014 at 1:51 PM ×

A guy who goes by the moniker 'Gnome of Zurich' and likes oil and gold - what are the odds..
Thx for that link.

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Anonymous
admin
December 18, 2014 at 4:15 PM ×

CL_F 59 to 55

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Anonymous
admin
December 18, 2014 at 4:16 PM ×

C says,
so despite several years of being structurally on the wrong side of the market by buying 'stuff' (oil and gold) some still want to hold onto it. See you in about 2028 for a review. That's based on the last structural cycle where 'stuff' lagged.

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Leftback
admin
December 18, 2014 at 6:35 PM ×

This cycle isn't like most tightening cycles, "C".

We do not have a robust free market economy, pal. We are in ZIRP/QE remember, like Japan, where staying long "stuff" rather than yen worked extremely well, if you simply omit the GFC period where everything was sold to buy USD or JPY.

Like all arguments here recently this is essentially about where DXY is going.

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Leftback
admin
December 18, 2014 at 6:42 PM ×

Whammer - regarding the long bond, for what it's worth, we plan on getting back on board at some point.

Longer term, think long end rates are going lower. G Shilling and J Gundlach think so anyway.

At TLT 127.50ish, we made a double top. That was a good place to lighten up again, as we did in October after the yield flash crash, before buying it back at 121 ish. This time also felt like a good sell, especially as it happened during a bit of a panic, VIX spike and it was time for a Santa rally in equities.

If you're long TLT and REITs, do nothing. If you want to add, wait for a good chart support level or just front run the MuFu buyers by getting long Dec 29-30 or so. No need to panic, here. Have a feeling Jan and Feb earnings and econ data will be a bit ugly in places. Keep your eye on crude oil as the driver of all things inflationary. If we end up going Japanese and German, then a 1% 10y is in the cards......

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Leftback
admin
December 18, 2014 at 6:46 PM ×

Btw, what bold punter would have bet on TWO 40 point days in Spoos, back-to-back? Not there yet but it might happen. After this lot is done, let's see if Bucky takes a breather and then maybe Europe and the EMs can play catch up!! Quad witching and closing of positions for the holidays might make for all kinds of naughtiness tomorrow.

Btw, anyone who was short into FOMC has an obvious disregard for their own safety.... ;-)

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washedup
admin
December 18, 2014 at 6:57 PM ×

The assumption of the oil and gold bulls seems to be that that we will re-enter a regime where the fed has to throw even more kindling on the fire, or at-least not hike rates in perpetuity and so on and so forth, thus setting up a currency debasement race to the bottom which benefits hard assets - in this environment gold and spoos can both go to 3000 and thats that.
That's great, and as a trader I will need to find a way to make money if this comes true - my issue is that there is a certain level of global aggregate demand that needs to show up for this to work - i.e. the hard asset inflationistas seem to forget that they implicitly assume (whether they realize it or not) that at SOME point money velocity in OECD will need to ramp up to create a catalyst for real asset inflation - I have seen no signs of this in either Japan, or the US, or the EU, and rallies in these asset classes for the last 5 years have basically been based on hopes and dreams, not hard reality.
Also, the train leading to the uber-perpetually dovish fed and ZIRP forever goes through enough global growth scare stations which make the case for US long end bonds way better than for hard assets - as someone who has traded commodities at macro shops for a long time, I can assure you that the chief error I have seen my macro colleagues make on commodities is to focus far too much on the demand side of commodities and their relationship to money supply, and far too little to technological innovation and supply response in that arena.
So - good luck to everyone getting their heads cleared - I do think 2015 sets up some good opportunities all around, and I sure feel glad this board is as brimming with thoughts as it ever was.

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CV
admin
December 18, 2014 at 7:04 PM ×

"Btw, anyone who was short into FOMC has an obvious disregard for their own safety.... ;-)"

Indeed! I wasn't thankfully, I just did nothing and stayed long ... and I today I feel like a BSD. It will end one day, but not today!

1% on the US 10ys? LB ... You have been riding this like a boss, but seriously, US nominal GDP is humming at 4%; can this divergence last?

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washedup
admin
December 18, 2014 at 7:18 PM ×

US real GDP on a MA basis (remember polar vortex?) is more like 2.75%, more likely to slow than accelerate because of the global slowdown and energy capex, and we are getting rather generous doses of deflation not inflation from dollar strength - what I do find somewhat inconsistent about LBs concept (call it a friendly disagreement) is the idea that the long bond COULD go to 1% eventually (I second that) the same time that spoos and hard assets rally - perhaps there is a timing (i.e. one is a trade the other is a structural theme) meme that I am missing.

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Gnome of Zurich
admin
December 18, 2014 at 7:58 PM ×

Although I have a natural fondness for the treasures of Mother Earth, herding PIGS has been my main activity over the last 3 years - and very rewarding despite some interference by the Holy Spirit.

I have been completely out of oil since 2012 and still don't like it, too much supply due to stupid overinvestment. Same for iron ore. But some of the more neglected commodities like nickel, zinc, bauxite, even copper and the grains look quite compelling again.

But I am more of a bottom-up guy: I don't see much new mines built in the commodities above and some of the exisiting producers make decent free cashflows (which producers of oil, gold and iron ore don't) - so I don't have to pay much for the potential upside.

But of course there's always the macro risk: I just don't buy the another global recession in 2015 storyline - yet.

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Leftback
admin
December 18, 2014 at 9:01 PM ×

Santa is really not messing around this year !!! A 40 point day followed by another one. Now let's see if the EMs can catch a bid. Take a nap, Bucky...?

Don't feel clever today (insert snarky comments here), will address all that complex stuff later. But yeah, I am a raging bull on EM equities and oil in the short term (b/c they have been beaten senseless and USD is overbought) but remain structurally bearish equities and constructive on US fixed income as long as that juicy 150 bps gap exists between bunds and US10y.

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Mr. T
admin
December 18, 2014 at 9:24 PM ×

Fed pretty much inline. Goosing stocks is the closest they can come to creating inflation. US equities feels like a bear market rally, just minus the bear market.

Seems to me like its going to be hard for EM to get a bid - lots of EM is commodity based, and the whole Russia thing is forcing people to re-evaluate what risk in EM really means. Yet another tailwind for US investments.

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washedup
admin
December 18, 2014 at 9:38 PM ×

I think to LB's point, its all about the dollar - DXY is either on the verge of putting in a big double top, or on the verge of a massive breakout. The fate of a lot of EM type stuff depends on which way it goes.
As for equities - picture yourself at the scene of a 4 car pileup at a busy intersection with the paramedic trucks already howling in the distance - 'oh wow I need to get involved in this' is generally not the right attitude unless of course you are just a CPR expert.
Yup - things are pretty broken here guys - can't figure out if this is Santa or the grinch dressed like Santa, but just be very very careful.

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Leftback
admin
December 18, 2014 at 10:15 PM ×

It's been a perfect week for those poor souls who are acting as financial advisors to the great US public. Here's how it always goes down in the local office during the Santa Claus rally...

"Hello, Chad, do you want any fixed income?"
"what's that, then?"
"bonds"
"?"
"like, corporate bonds or government bonds, Ginnie Maes, Treasuries, munis"
"what's the interest rate?"
"well, maybe 2-3%"
"a day?"
"No, that's per year"
"fuck that shit, Charlie, put me in something that goes up 3% every day"
"Hmm.. not sure...
"Jackass, Da Market. 3% every DAY, Jackass"
"equities, then?"
"say wha'?"
"stocks"
"yeah, stawks, that's the ticket"
"Europe? Emerging markets?"
"Fuck that noise. I'm AMERICAN, dammit"
"Right, Spoos and Qs it is then"
"YEAH, baby, that's what I'm talking ABOUT"
"Right. All set, Chad"
"OK, see ya next year, Charlie"

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Anonymous
admin
December 19, 2014 at 9:50 AM ×

C Says,
Jesus, whatever happened to the better class of scammer. I declare I feel a little bit insulted.

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Anonymous
admin
December 19, 2014 at 11:44 AM ×

C- What could be a better class of scammer than illuminati loans ?

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theta
admin
December 19, 2014 at 12:25 PM ×

Dear Mark Brookly,
I am very interested in this loan. However, while the rest of the terms seem fine to me, the interest rate is a bit higher than I would have hoped. At the moment a nice lady, called Janet, is offering me an interest of less than 0.5%. Could you please match or improve from that and then maybe you have a chance to get my business.
Thanks

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CV
admin
December 19, 2014 at 12:47 PM ×

*In MM's deep menacing voice*

Don't feed the troll/scammer chaps ...

;)

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Leftback
admin
December 19, 2014 at 1:10 PM ×

LB doesn't know where the USD is going. He also doesn't know what is going to happen to the price of oil, or to Russia. So he is going to seek wise counsel from those more intelligent than himself. In observance of the proud tradition of TMM's patented Magazine Cover Indicator, we offer the following thoughts and commentary today [warning: new readers should engage irony detector now!]

First, the DX. This is an easy one. EVERYONE knows the answer to this. It is going to go up, b/c the Fed is going to hike, the US is growing but mainly b/c Europe is a dead parrot:

Europe Is A Dead Parrot

Second, we move on to oil. Another easy one. EVERYONE knows the answer to this. It is going to go down, b/c the shale guys and the Sheikhs are engaging in a price war:

Sheikhs v Shale

Finally, Russia. Another easy one. EVERYONE knows the answer to this. It is going to go down, b/c the Russian economy is a wounded bear:

Russia's Wounded Economy

Cor, guv this predictions business is easy. All you have to do is a bit of reading innit?

[You may now disengage irony detector]

Given the record of this indicator, it does make you think a bit, doesn't it?

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Anonymous
admin
December 19, 2014 at 2:23 PM ×

Awesome - just look at economist covers and do the opposite - let me go start shaking that money tree right away...
If this is such a great source of arbitrage shouldn't it have gone away by now? Just asking.

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JohnL
admin
December 19, 2014 at 3:23 PM ×

LB though you were going down a different path there for a moment....more along these lines.

Europe Is A Dead Parrot
Sheikhs v Shale
Russia's Wounded Economy

Have a great weekend.

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Leftback
admin
December 19, 2014 at 3:42 PM ×

Quality, I will check that lot out later on.

BP is looking very strong today, wonder if it can fill that gap overhead to $40? I think someone is getting squeezed in the oil patch. Go on, my horse, pin yer ears back.....

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Polemic
admin
December 19, 2014 at 3:42 PM ×

Tullow oil is my preferred play to BP

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CV
admin
December 19, 2014 at 3:59 PM ×

BP is a good bet here I think too LB, but if I was a betting man I would "wait" for the double bottom. I have no view in Tullow Oil, but I am allergic to that thing, I have punted it before, but have been chopped to bits.

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CV
admin
December 19, 2014 at 3:59 PM ×

BP is a good bet here I think too LB, but if I was a betting man I would "wait" for the double bottom. I have no view in Tullow Oil, but I am allergic to that thing, I have punted it before, but have been chopped to bits.

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Leftback
admin
December 19, 2014 at 4:21 PM ×

The joy of Options during a squeeze, CV.... if you get it right, you can have it off as much as you want for a few days without having to get married.

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hipper
admin
December 19, 2014 at 4:46 PM ×

Uh oh, bucky making a run for it through his prison cell ceiling @ 89.40, and the controversial trinity looking very lively as well.

Maybe this effect actually is just the channel through which the "Euroglut" is relieving itself? I.e. German and other surplus companion savings want safe yield which they just can't get back home. And the US economy being what it is, atleast relatively strong to other ones, the outflow isn't big enough to offset the glut pouring in.

Thinking of the contra strategy here, nobody expects anything from Europe for next year, right? So should in any likelihood the Eurozone make even the slightest surprise (from a lower level than before, even more likely), there might be a potential triple whammer with the strong dollar, higher multiples and the potentially rising rates, that the flow is going to turn around.

It's just a completely one sided trade at the moment, meaning that the US economy won't have very much room to start coughing for the trade to start unwinding.

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washedup
admin
December 19, 2014 at 5:36 PM ×

hipper - if eurozone data hooks up sentiment on the US economy is going to go from bullish to uber-bullish, since 'they are the ones dragging us down' which will keep the dollar argument very much alive on a relative basis, except now mostly expressed through risk on assets like small caps and spoos - very much like 1999, if I may say so - it may also set up a bear flattening on rates.
The REAL shock to the market, and one no one is prepared for, is a weakening of US data alongside with some real strengthening in EU and Asia - that would create some nasty surprises for recent trades de-jure.

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Anonymous
admin
December 19, 2014 at 6:07 PM ×

New Fed paper out on decline in LFPR ...

"once USA employment returns to its LT
trend, it will grow much more slowly than in the past,
with employment gains of under 50k per
month"

PDF format
http://t.co/u1kpR7XQbB

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Leftback
admin
December 19, 2014 at 7:01 PM ×

"there might be a potential triple whammer with the strong dollar, higher multiples and the potentially rising rates, that the flow is going to turn around.

It's just a completely one sided trade at the moment, meaning that the US economy won't have very much room to start coughing for the trade to start unwinding."

That, my friend, is extremely incisive thinking, and very much the point of my magazine cover post this morning. Of course, I am always early.

After almost a week of watching EEM, BP, EWZ and RSX options while wearing Depends*, LB has decided to follow the example of our mentor and host and is now: OUT. Happy holidays to all.

*not to be taken literally.

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Mr. T
admin
December 19, 2014 at 7:13 PM ×

WTI/XLE spread looks juicy. While everyone is looking for the hidden outcome the status quo continues to perform. Maybe the long term effects of coordinated CB policy is not "multiple expansion" but a large reduction in ERP. You can get some pretty bullish-whacky (NPV of 4k+) numbers by seeing spoos as purely a yield vehicle with a sub-100bp ERP and trailing 5 year div growth rates. If you want to really want to make Excel barf, assume corps play along and buybacks get reallocated to divs.

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Anonymous
admin
December 19, 2014 at 11:15 PM ×

thanks to the shale revolution the US deficit continues to shrink so less dollars being supplied to the world via current a/c, no more dollars being supplied to the world via QE pushing US investors out in search of yield, and now capital is rushing back to US assets because it's the beacon of light in the global economy?!? what we are seeing play out is a dollar squeeze... look today: DXY, USTs, US stocks, all up..it is this capital flow, the rush back to US assets, that will cripple the EM complex. please read:
http://tinyurl.com/ktqh46w

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Leftback
admin
December 20, 2014 at 3:32 AM ×

We have had dollar squeezes before. They always produce a slowing of the US economy and currency crises in emerging markets and are met with looser US monetary policy. This one will be no different.

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washedup
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December 20, 2014 at 6:31 PM ×

fully agree - whats weird to me is even very smart people seem to be jumping ahead to that end point, especially on equities, and effectively saying, hey all adollar squeeze will do is prevent the fed from doing anything, so lets go load up on equities at all time highs.
Well, not so fast - the road to get there is replete with some fairly big potholes and speed bumps in the form of growth scares, dollar funding concerns, and even a potential EM default or two - if we start see a continuation of the dollar rally at the same time that US yields refuse to go out, I would be extremely wary of being long spoos for anything more than a short term move.
I keep coming back to owning US bonds 10+ - is it riskless? oh hell no - but if3 out of 4 possible states of the world point me to a trade that if anything is crowded the other way, I will take those odds all day long.

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Leftback
admin
December 20, 2014 at 8:05 PM ×

washed - as long as the spread between bunds and 10s is as wide as this there will be demand for USTs. Add in more global growth scares and a default or two (not Russia) and US bonds will remain bid in 2015, imo.

2015 - the year of the speed bumps, potholes !! we are going to be in and out like Ronald Biggs.

this group will be more than ready to comment from the peanut gallery when MM decides to pen his Annual 2015 Non-Predictions. Yes, the range of opinions here is quite interesting. LB is beginning to wish I hadn't made that non-prediction about DX not reaching 90....

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hipper
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December 21, 2014 at 9:10 PM ×

Interesting chart here, yield curve vs SP500 and some notes on it:

http://stockcharts.com/freecharts/yieldcurve.php

During the 21st century, the last couple of declines in the stock market during 2000-2002 and late 2007 - early 2009 were accompanied by dropping short term yields, kind of like "reacting flexibly" for worsening short term economic conditions. And during the booms till late 2000 and during 2002-2007, the short term yields always went up to converge with the long term yield. So atleast in the last couple of occasions yield compression has been preceding recessions and they pretty much always occur during tightening cycles.

However what's interesting is that since the boom from early 2009, the low end has stayed down, as if the economic conditions have stayed in a recession like environment. If it went like the couple of previous booms, short term should've already gone up. Now, the only thing that has been going on is the long end has been falling down.

So with these factors could we assume that a beginning of the tightening will again cause yields to converge (and probably precede another near term recession)? Since short term has already collided with the ocean floor, could we assume that this time the long term yield will stay relatively put, while short term is going to do the heavy lifting?

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washedup
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December 22, 2014 at 12:46 AM ×

hipper - yes - my working thesis here is that the 2's/10's will be flatten central, while 10's/30's are a closer call - if global growth does stall or contract, the end game would be for nearer term yields to race towards, as you said, the ocean floor, with some re-steepening - one step at a time, however.

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Leftback
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December 23, 2014 at 3:06 PM ×

Bucky reaches 90, had a feeling that was going to happen, although it's interesting that FX traders chose the backward-looking Q3 GDP data (US was growing at 5% in August) over the contemporary data (durable goods orders down 0.7%).

In FX, we are closing on a bunch of big figures, namely USDJPY 120 (already there), EURUSD 1,20, AUDUSD 0,80 and GBPUSD 1,55 (already there). Mr Bond didn't react very much to these data, though, so perhaps he knows something we don't about Q1 '15, having already voted on Q4 '14. Herr Bund is once again reflecting Grexit fears.

2015 1H might see something a bit unexpected, a naughty combination of slower US activity (USD hurts big exporters and energy producers) and weak employment (regional recessions in TX, ND). Now add to the recipe a soupçon of European and Japanese recovery, an increase in margin rates, and even a slight pick up in inflation as Bucky reverses trend and a squeeze in oil and metals sees commodities catch a bid, and you have a recipe for indigestion for the über-bulls.

Not the consensus position, we know, but nor was lower US rates throughout '14, which we predicted last December. Enjoy....

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