Ruh-roh Raggy, or I Love It When a Plan Comes Together

Price action since last Friday's stonking payroll figure has been rather telling, wouldn't you say?  Two trades that have worked a treat in recent months- long Spooz and long USD/JPY- have come under the first threat of any kind since that gut-wrenching roller coaster ride in mid-October.

Price action in the latter has been particularly troubling, as the first two trading days of the week saw a breathtaking 4-figure swoon before recovering, albeit modestly.  Having lived through, as the Prince of Frankfurt might say, the slings and arrows of outrageous markets for most of the year only to end on an apparent high, tolerance for further drawdowns must be miniscule indeed.



Macro Man noted last month that some of the recent price action in  Japan reminded him of 2005-06.   Punters of a certain vintage may recall that after a solid rally in 2005, USD/JPY cracked back brutally in December that year before eventually resuming its upward trajectory in spring 2006.

 As noted risk manager Scooby-doo might say, "Ruh-roh, Raggy!"

On a somewhat happier note, US rates- particularly your author's favored EDZ5 contract- have behaved rather more as expected in the wake of the payroll number.  Macro Man has not written about many specific trades during his renewed tenure at the helm of the good ship MM, but he has noted 3 specific opportunities with respect to EDZ5:

* Selling the EDM5/Z5/M6 futures fly at -8

* Buying the EDZ5 99.00/99.12/99.25 call ladder for a 3 tick credit

* Buying the EDZ5 99.25/12/00 put fl for 3

Of these, the first has drifted slightly against him after an initial flurry in his favour, currently sitting at a 2.5 tick loss.

The option structures both have optimal payouts with the future at 99.125; after flailing about in a range all year, at the time of writing we're at 99.09, a mere 3.5 ticks from the haven of max profits.


Unsurprisingly, the option strategies have performed very well indeed; the call ladder's currently valued at 8, with the fly at 6.5.  Thus far, Macro Man's view that a strong payroll would be more accurately reflected in rates rather than FX thanks to positioning has proved correct.

As noted punter Hannibal Smith might say, "I love it when a plan comes together!"

Discretion is, of course, the better part of valour, and while the last few months have been a fun (ahem) ride, we're now at the stage where noise trumps signal in determining price action.   Your author has therefore started cashing out this week, and anticipates finishing the job before the options expire on Friday afternoon.

Call it a triumph of proper macro; the call ladders sat on his book for 8 months untouched, and have ended up delivering a handsome reward.  It made a welcome change from "OMG have you seen the last 30 pips?!?!?!" that characterizes so much of today's 5-minute macro world.


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Leftback
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December 10, 2014 at 3:55 PM ×

+1 for "stonking". Nice one.

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CV
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December 10, 2014 at 4:31 PM ×

"Why should I cut production?" ... yeah, I suppose, why indeed. Oaktree still buying up distressed debt in the US HY sector here?!

Great post. Am I right to infer that most of the chaps here are calling it a year, City-style, and going on holiday already this week?

Next few weeks of "low volume" could make for some pretty spectacular price moves, although I am, as of yet, undecided on where I think it will go.

Claus

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Polemic
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December 10, 2014 at 4:34 PM ×

YEs MM .. well done.. that usdjpy / Nikkei trade is still the one for me that has most SNAFU in it.

Well done with the wibbly wobbly rates trade that is far above my head.

CV - No. What's a holiday?

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Polemic
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December 10, 2014 at 5:34 PM ×

I wonder how much of the move down in oil is being caused by producers hedging and if so how much is done and how far out they are now hedged. The hedge books are the key.

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December 10, 2014 at 6:30 PM ×

There's blood around here.... Oil is 2008 style now...dramatic year for contrarian.. Paradise for CTA s

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Anonymous
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December 10, 2014 at 6:32 PM ×

Venezuela's 5yr default probability - seen by credit mkts - jumps above 90%

http://imgur.com/GJnkbal

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Anonymous
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December 10, 2014 at 7:18 PM ×

More pain in energy credit. Sabine Oil & Gas bonds plunging today

http://imgur.com/otdJUnU

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Leftback
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December 10, 2014 at 8:04 PM ×

One's mild irritation at not having every single one of the right trades on today is ameliorated by the fact that one of them (long JPY, short Nikkei) is now working BIG STYLE and that somewhere across town, over at Biggus Dickus Asshole Management, someone's book has to be completely blowing up. Which, as a matter of fact, is a thought that I have always enjoyed. You can't be in this game without enjoying a little Schadenfreude from time to time.

Leverage, it giveth, and it doth take away.

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CV
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December 10, 2014 at 8:10 PM ×

Well caught on the carry unwind clusterf'ck. Oh and apologies Polemic, I should have realised ...

FX moves just baffle me here, good thing I don't dabble (much) in that market ... that is just a recipe for getting your b'lls shot off at the moment.

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December 10, 2014 at 8:21 PM ×

@Lb: i can understand you.. Luckily low risk in portfolio but everything losing... Let'see how hedgies will close 2014... Last chance?

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Mr. T
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December 10, 2014 at 8:34 PM ×

I still think you gotta buy the dips.

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Nico G
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December 10, 2014 at 8:42 PM ×

anyone who lately put unreasonable risk on trying to boost a meagre 2014 performance deserves a stroke. Once upon a time investing was serious and based on talent, not children fairytales

this is not very Christian of me for i am not christian and after last Draghi dribbling on NOvember expiry day i want to savor a bloody revenge every tick down

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Leftback
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December 10, 2014 at 8:45 PM ×

Also was long some EURUSD, so that was working too. CV, it does seem like we are going to get one more vicious USD squeeze before the year is finally put to bed. The energy sector seems to have its own dynamics now that have nothing to do with FX.

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Leftback
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December 10, 2014 at 8:54 PM ×

No worries, the market will not close below the 50 day before Christmas. That would be un-American. Let the vol selling begin....

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December 10, 2014 at 8:56 PM ×

Nicog i hope top some damage for option seller... They've been too much lucky this year...

There are opportunities now to buy assets at distressed price and FX with my euros.. Longer term view difficult to apply at mid december..at least in serious size

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Anonymous
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December 10, 2014 at 9:37 PM ×

Re oil whatever the reason it sure looks ugly. Shouldn't natural longs already be hedged? Heard somwhere some HFs took long bets last week. That's part of the selling we see perhaps?

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Nico G
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December 10, 2014 at 10:54 PM ×

what's the REAL price for a barrel of oil

haha

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Anonymous
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December 10, 2014 at 11:10 PM ×

Biggest DOE builds that I can recall. Must be all those protesters walking instead of driving.

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Anonymous
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December 11, 2014 at 1:11 AM ×

U.S. annual inflation to fall to 0.0% - that's zero - in the middle of next year on the back of the slump in oil prices, says Barclays

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Anonymous
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December 11, 2014 at 1:15 AM ×

"A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans".

"The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets."

http://www.washingtonpost.com/business/economy/congressional-leaders-hammer-out-deal-to-allow-pension-plans-to-cut-retiree-benefits/2014/12/09/4650d420-7ef6-11e4-9f38-95a187e4c1f7_story.html

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Anonymous
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December 11, 2014 at 10:11 AM ×

We are correcting the insane run from mid october lows a bit earlier than anticipated (but isn't it always a bit earlier or a bit later...)
To put things into perspective, NDX is down 2.6 % from its high and Spoozzz 2.3%.
Market internals deteriorating: check
Late comers to the party being squeezed out: check
A nice echo scare reminiscent of 2/3 years ago which is right on time to force the ECB into action: check
A short squeeze into year end: no check yet but loading the ammo

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Nico G
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December 11, 2014 at 1:22 PM ×

well reaching 2070 on spoos with still 14 trading days to go in 2014 one had to expect a pause/retracement

meanwhile other things are not retracing, but breaking

Greek stocks, like crude oil, like Apple reaching $700 two years ago.... should remind us what happens to trades crowded with so much leverage

After worst day since 1987, then a loss of 1% the next day that would act as a 'bounce', Athens is down another 5% today

simply no way to get out. It will happen to spoos too, the refuge for all. One day.

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washedup
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December 11, 2014 at 2:08 PM ×

think USD is done testing its channel bottom with this retail sales number - see you at 90 - equity morons will obviously buy spoos on that - it has become an obsession of mine to think about how, when, and why that correlation fails, because the day it does, a few asset classes, portfolios, and EM economies go kaboom. My hunch is sometime in Q1 - we will see.

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Anonymous
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December 11, 2014 at 3:42 PM ×

@washedup,

We have only one month till the next earning season when the strong USD will affect multinationals earnings negatively. I am willing to bet that the next FOMC press conference is the start for a correction of USD bull trend.

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Leftback
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December 11, 2014 at 3:54 PM ×

Yes, washed, it is still all about the USD for the time being. Today's squeeze was anticipated. So, are we going to see a run for 90, or is the Top already in? On the answer to that question, much now rests. Gold, silver and US10y have already voted. They think Bucky will turn downwards.

Expecting we will probably see a 59 handle on wti any day now, but I don't think we'll be there for long. Once the nutjobs come out calling for $30 and $20 oil, you can be sure that we are getting near the end of the carnage.

As far as the all-powerful Fed is concerned, the fall in oil has now baked in headline inflation <1% for 2015, so why on God's green earth would they hike rates? Especially as we are going to start to see some pretty shonky economic numbers out of the US in Q1. Expect to hear more dove talk from Dame Janet, the Dove of Doves (that's why she is FOMC Chair and not someone like Plosser).

Love her or loathe her, Yellen is not going to do a Trichet and hike into the teeth of a recession. Oops, Let the cat out of the bag there, yes we are going to have a mini-recession in 2015. Hope I haven't gone all ECRI here.... Why? Well, it's Bucky, too strong for the US economy and it's the credit markets, showing signs of illiquidity.

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Anonymous
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December 11, 2014 at 3:57 PM ×

Greek 3yr ..... 3.21% exactly 90 days ago . Today ? 10.15%

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Anonymous
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December 11, 2014 at 4:04 PM ×

Nobody notices Japanese 5yr CDS going from 31+ to +66 ?

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Mr. T
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December 11, 2014 at 4:08 PM ×

As far as the all-powerful Fed is concerned, the fall in oil has now baked in headline inflation <1% for 2015, so why on God's green earth would they hike rates?

All day yesterday and into this morning, this is all I hear from every corner. They are not going to raise into this, and everyone knows it (or are starting to realize it). Does not really matter for DXY though, because not doing anything is hawkish relative to G10 peers.

I'm nibbling on the US long end, and in HY as well. Hard to imagine a meaningful default cycle with rates at zero and an entire planet full of risk-on yield hungry investors. BTU 2018's north of 9%?

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washedup
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December 11, 2014 at 4:24 PM ×

T - think in energy HY the prevalent concern will soon be return of capital and not return on capital - what worries me is (talking to old colleagues) how little HY has actually changed hands - what you have seen so far is just bids/offers backing off - the price to make things trade may be way worse than what is reflected in those indexes, probably not a surprise to some of u seasoned punters.
Also, unlike the choose ur own fancy acronym mortgage structured product orgy of 2005-2007 which led to a significant 2 sided mkt, in the current avatar of yield chasing vehicles in energy there is just a bunch of buy and hold guys long HY - interpret it how u want.

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Anonymous
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December 11, 2014 at 4:35 PM ×

Strong consensus here for a break lower in US equities (the reasons are legion from strong USD to EM or European contagion).
Once again, it reminds me of the mindset post october 98.
We remember what happened then: the entire world's speculative capital rushing into USD assets leading to strong USD AND equities.
Sure, we will have a third crash (2000/2003; 2007/2009; 2015 or 16 /2018) but before that , my friends, To Da Moon.
No rationalization will ever explain bubbles 'mindset; we are heading straight into the mother of all

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Leftback
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December 11, 2014 at 4:39 PM ×

Good reasoning. Quite sympathetic longer-term to that view about HY, Mr T, but usually Mr Market exacts a bit more pain as one eases into obvious trades before they come good.

With the differential between US and German 10s at 150bps (someone suggested this was a fixed spread today, which made me laugh), nibbling at the US long end will certainly be well rewarded.

More Grexit commentary from the ink-stained wretches today as Greek YC inverts again. This USD rally has gone on so long there are some really remarkable FX dislocations out there. We know about the RUB b/c of the media shrieking every day, but have you looked at Scandies lately? USDNOK now higher than the Eurodollar squeeze of '09. This is Silly Season stuff.

Politically speaking, there are some TV tossers saying that this was all a part of a brilliant US or Obama plan to screw Russia/Venezuela/Iran. First of all this assumes Obama can move the gigantic FX market when he can barely take the dog out for a crap, and if that was indeed the case, why would he be screwing Sven and Olaf at the same time?

Expect the "considerable time" language to remain next week. Removing it at this moment in time might destabilize the world's markets even more. Even at this level, DX strength has been really very deflationary to an economy that has barely got off its knees since the crisis. "Mind The (Output) Gap", there Janet.

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Leftback
admin
December 11, 2014 at 5:15 PM ×

A stronger dollar is also an own goal for the domestic energy producers This article on Bloombags discusses HY debt consequences.

http://www.bloomberg.com/news/2014-12-11/fed-bubble-bursts-in-550-billion-of-energy-debt-credit-markets.html

Note that $55 crude is getting some air time as a critical risk level there. Bet you we don't get there, and bet you we don't get DX 90.

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Polemic
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December 11, 2014 at 5:33 PM ×

thing with oil is that as long as there us over supply then prices can keep falling.. and go to 0. Econ 1.0.1 says that price adjusts until someone stops supplying. and ..you know in all this excitement I seem to have lost count.. so you feeling lucky punk? are ya?

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Anonymous
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December 11, 2014 at 6:13 PM ×

This is a pretty good look at U.S. oil demand trends: http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/

-Whammer

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Anonymous
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December 11, 2014 at 6:40 PM ×

Can anyone name a CB that isn't panicking about their fx at the moment? Ecb & Boe maybe. The rest are non-stop whinging. Spoos rally was savage off open. Algos deleted memory of last nights close.

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Nico G
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December 11, 2014 at 7:37 PM ×

i am now using "considerable time" in everything i say. it covers my back.

'Hard to imagine a meaningful default cycle with rates at zero and an entire planet full of risk-on yield hungry investors."

the entire planet is silly leveraged on the SHY trade - a silly high yield that is too low to be high you know, one day i will explain my children

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washedup
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December 11, 2014 at 8:11 PM ×

didn't hilsenrath claim 'considerable time' will be dropped? not sure why this is even controversial - doubt he would go out on a limb like that if he didn't have good info - the only thing that would change that is if the market/inflation expectations crashed between now and the meeting, but obviously that is impossible in December, or so I am told.

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abee crombie
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December 11, 2014 at 8:25 PM ×

BUY OIL

for a trade not forever. watch it come back to 70-75.

Everyone is scared now. The final swoon probably comes in Q1-15 but for now we get a bounce

High yield has problems but many HY have to hedge for a few quarters so its not like they are all gonna default next Q. For those more spec, try some PDVSA. at 30cents, as long at Citgo is still there, you are going to recover something. I would like to see the RUB stabilize though before getting more bullish on black gold.

BondStrategist, pleasure to have you aboard the MM team. But I think you are looking at the wrong Sabine Pass. Check out CPQ or even LNG's stock.

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Anonymous
admin
December 11, 2014 at 8:39 PM ×

A rethinking on strong $ and weak oil:

Suppose a multinational has 50% of market in the US and 100% of production in Asia.

It looks like that this multinational benefits from strong $ just like the Japan exporters. Then weak oil further reduced the cost.

So only the multinationals with domestic production will be losers before considering oil price.

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abee crombie
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December 11, 2014 at 8:52 PM ×

Real carnage in HYG, JNK. energy names leading it lower but selling across the board. real divergence here with S&P 500.

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December 11, 2014 at 9:45 PM ×

Thansk abee... Oil and US hy now are a buy... And also em FX... Oil has fallen for the same news of yesterday.. Patience will reward

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Anonymous
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December 11, 2014 at 9:45 PM ×

A side notice: across curve has been back since 10/2013...I just found out right now

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Nico G
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December 12, 2014 at 6:41 AM ×

16-17 December FOMC
17 December Greek elections
18 December European council meeting

2 days before monster Dec expiry

will short cover some into those meetings
or will long carefully take 2014 profits off the table

fasten your seatbelt

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Nico G
admin
December 12, 2014 at 7:11 AM ×

Please read today's piece from le Café Américain is VERY important. The level of moral depravity and financial crime between New York and Washington is beyond belief and the US population is too ill-informed to react to anything. This is worse than medieval time, it would be like landlords and kings breaking serfdom bondage to rob them of every last possession. This website is one of the few monitoring the crime of the century.

"This is the contempt in which they hold the majority of American people and the political process: the common people are easily led fools, and everyone else who is smart enough to know better has their price. And they would beggar every middle class voter in the US before they will voluntarily give up one dime of their ill-gotten gains."

Simon Johnson

from le Café Américain:

Congress is crafting a bipartisan deal to allow retiree benefits to be cut.

"A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans.

The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets."

As you may recall, Congress responded to business lobbying by allowing their pension plans to make outrageously optimistic assumptions about future returns, so the corporations could divert more of their money from pension contributions to short term profits.

Now that corporate profits are at record levels, someone has to take up the slack and that must be the elderly. Let's just rewrite the contracts after the fact, and take the money from them.

In a conversation today some were tut-tutting this decision. But after all, someone has to tighten their belts in hard times. It certainly can't be the privileged class, so it may as well be the pensioners.

I hope people are so sanguine when the Banks come to seize their assets to make up their derivatives losses, which emboldened they will almost certainly do. First they come for the pensions, and then they come for the savings deposits and IRAs. It is a sign of the times.

Speaking of a sign of the times, the Manhattan based 2nd US District Court of Appeals knocked my socks off today, with a ruling that basically overturns 80 years of securities principles, and probably does more to erode the 14th amendment than Citizens United.

2nd US District Court of Appeals Issues the Equivalent of the Dred Scott Decision for US Securities Markets

Here is the money shot in the decision that overturned the insider trading convictions of the infamous ring involving SAC and what looked like an organized conspiracy to violate securities laws.
"Although the government might like the law to be different, nothing in the law requires a symmetry of information in the nation's securities markets."
Barrington Parker, 2nd U.S. Circuit of Appeals Judge

And I will wager that if you have not seen this here and a few other places in the blogosphere, you would not even understand what the heck was going on. The mainstream news stories made it seem like the conviction was overturned on insufficient evidence.

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Nico G
admin
December 12, 2014 at 7:12 AM ×

(following)

Well technically it was. Especially if you maintain the perspective of a servile tool of the corporate media. To paraphrase Mario Savio, would you ever imagine a manager in a firm making a statement that is in contradiction to his board of directors?
In its attempt to give a get out of jail card to some of the particularly well-connected, the appeals court has set a precedent that is noxious and repugnant to the Constitution, particularly the 14th amendment. Its willingness to torture the law should make us wary of what other things that the crony capitalists have in mind with regard to overturning bank reform and confiscating assets.

If this stands, there is no excuse for any foreign investor to complain when they are robbed blind by the US markets. At least those in the US can make the case that getting all their money away from the US banks is an onerous task. The character of this government is being writ large for all to see.

Other than this, I just don't have the words. The stench coming out of New York and Washington is getting so bad I can't breathe, whether it is from being water-boarded, or slammed to the ground and choked to death for a cigarette, or being robbed blind by white collar criminals who have friends in high places. Don't bother to do anything. Sit back and relax. They will come for you and yours too, sooner or later.

To paraphrase Martin Luther King, never forget, everything they do will be 'legal.'

If French or Greek were in this country Manhattan streets will already be on fire

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Anonymous
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December 12, 2014 at 10:27 AM ×

C Says
Oils and EM buys then ? Flip a coin and make sure you are suffering from recency effects when you call it. Thought we had capitulation the other week ,but no it was not so. Will there be vicious covering rallies? Almost certainly ,but unless someone is seeing info I don't have then I don't see how we call a bottom on this.
I sidestepped this and indeed any need to move the portfolio prior to year end because thin seasonal markets and meaningful events are coinciding. With no means of knowing which way outcomes are going I don't need the pain of being on the wrongside.
It would be ironic if next week the Greeks voted that Draghi and indeed Europe were made to pay for being long talk and short action on monetary policy. Imagine that ,it would be the Roman colloseum all over again with Nero giving the thumbs down for a bloodbath. Although the greek markets have already been preempting it for themselves.

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washedup
admin
December 12, 2014 at 12:24 PM ×

"16-17 December FOMC
17 December Greek elections
18 December European council meeting

2 days before monster Dec expiry

will short cover some into those meetings
or will long carefully take 2014 profits off the table

fasten your seatbelt"

y nico agree we could see some big moves next few days - the fact that this isn't 'supposed to happen' in december just sets up some interesting possibilities.
I hope i end up having some profits to take off the table at the end of it all - unlike you,however, i am likely to do so carelessly!
and C hear u on the recency bias - as someone who traded natty/crude for the last 15 years, don't think there is adequate realization of how far and how fast this stuff can crash - so good luck catching that falling machete perched on a swirling helicopter blade. There are markets where a belief in mean reversion is helpful, and wisely contrarian - this ain't one of those. Look at the chart of the greek or cyprus stock market, and u'll get the idea.

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Anonymous
admin
December 12, 2014 at 12:39 PM ×

The US 10y with current spreads still very much look like a safe haven now when everything seemingly is blowing up and going deflationary. For the life of me just can't figure out how these issues will start defusing.

-Russia is pretty much out of the game now and as a substantial trade partner will smack extra EU exports.

-China is slowing down and turning a bit more introverted = again smacking EU exports and commodities = deflation.

-German extra EU trade getting hit = Germans are going to start saving = no intra EU trade growth. Over 2/3 of German current account surplus from extra trade.

-Other OPEC countries living with a budget relying 100% on current year oil income start blowing up, Iran, Venezuela, Nigeria and a dozen others (but maybe this is pretty insignificant for world trade)

-All the regulatory code in Europe isn't helping one bit intra EU trade.

-If the world indeed is getting more energy efficient, then even high cost producers going offline might not be enough to return the oil to levels that keep US energy sector contributing meaningly to GDP growth as demand diminishes.

-Slowing RoW will begin dragging US export oriented growth instead of US dragging RoW up

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December 12, 2014 at 1:07 PM ×

Guys you're right about oil..it's a falling knife OK... But to be a PM means how much you risk for every trade... for me in a portfolio contest makes sense to add them now..limited size...later id decise if add or not

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washedup
admin
December 12, 2014 at 1:16 PM ×

@BondStrat other than the fact that its 'fallen a lot' what makes u like oil? would u still like owning it if we'd gone to say, 45 2 weeks ago and it had rallied back and was now trading 60?
Not a rhetorical question - curious abt ur reasoning.

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Anonymous
admin
December 12, 2014 at 1:54 PM ×

If you take equities out of the equation and just look at fx, bonds and commodities; you'd be thinking something was up!

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December 12, 2014 at 1:58 PM ×

OK... Consumption will act with some lag... Record number of cars sold worldwide... It's a stimulus... If you think that someone will default no supply...and a lot of project blocked... Some price adjustment need to be priced...and yes..it's fallen a lot

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Macro Man
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December 12, 2014 at 1:58 PM ×

TBS: There is certainly nothing wrong with playing for a bounce from falling knife conditions, though personally I am always more comfortable with call spreads etc than with buying a tiny bit of the underlying. It's nice knowing one's max loss up front. Yes vol is high (for a reason!), which is why spreading makes it a little more palatable.

NicoG, while the circumstances you describe are indeed lamentable, they are sadly neither new nor unique to the US. Consider a certain Signor Berlusconi, for example.

Or read Martin Chuzzlewit- 170 years ago Dickens was lamenting the American penchant for lying, scheming, and stealing to chase that almighty dollar.

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Anonymous
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December 12, 2014 at 2:03 PM ×

German 5-yr inflation breakevens fell below 0 on Thursday

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December 12, 2014 at 2:03 PM ×

Apart s&p& co There's huge confusion
Panic mode around

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abee crombie
admin
December 12, 2014 at 2:13 PM ×

Call spreads are intersting here MM, I am thinking of adding it on some oil names... for sure I can be wrong about oil

Russ

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abee crombie
admin
December 12, 2014 at 2:22 PM ×

Russia falling apart. The corporate bond market there is looking really horrible. Sberbank trading at 10% yields. My guess is there is no buyers and frankly I dont want to add to my 50% offside position either

Yes the oil price is the headline story here but the amount of corporate USD debt to russian companies is the black swan. Watch this space

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Anonymous
admin
December 12, 2014 at 2:39 PM ×

IEA cuts global oil demand forecast for 4th time in 5 months.

10Yr Bund yield just hits fresh low of 0.645%

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Leftback
admin
December 12, 2014 at 3:12 PM ×

We're kicking some tires today in energy. It's worth noting that Russia is up today. Buying a few short and long-dated calls in names like BP and ESV is probably not the worst idea ever while we watch our small starter positions wobble around.

Santa is out there, perhaps looking a bit like Shinzo Abe with an elf who looks like Yellen. Don't wanna be short when he pops down the chimney.

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washedup
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December 12, 2014 at 3:38 PM ×

LB thx for sharing - fwiw I'm seeing XLE pretty overvalued relative to wti/brent/NG - think buying the commodity itself, especially NG, is a better idea to play a bounce.

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Anonymous
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December 12, 2014 at 3:42 PM ×

RBOB Gasoline Futures for Jan is $1.61/gallon. Nice.

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CV
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December 12, 2014 at 4:08 PM ×

Hmm watch out for the lemons LB! Meanwhile, it is pretty much stalemate as far as I can see ... I still think Santa will turn up, eventually, but to second anon above

"If you take equities out of the equation and just look at fx, bonds and commodities; you'd be thinking something was up!"

Have a great weekend!

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Anonymous
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December 12, 2014 at 4:36 PM ×

Looks like equities got the memo.

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abee crombie
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December 12, 2014 at 4:37 PM ×

http://imgur.com/NdAVRwi

BKLN shares outstanding. Big sell of there

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Anonymous
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December 12, 2014 at 5:07 PM ×

OBAMA: FANNIE, FREDDIE TO EXTEND 3% DOWN PROGRAM TO OIL PURCHASES :)

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Anonymous
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December 12, 2014 at 5:22 PM ×

C Says,
LB, have not been able to get on your page for awhile and today is no different. Far as I am concerned BP/Shell et al are in the same place retail supermarkets were awhile ago. On a recency basis they looked cheap, but still had to cough up the substantial change in divi policy. I'd say the FTSE big hitters in oil are now in that boat.When the release comes stop will get blown.

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December 12, 2014 at 5:32 PM ×

@mm good idea a call spread 60 65 also if to have some delta you have to spend...

Russia govt @70... Abee you're right.. But now a lot other things are in disarray... Nobody killed on rates???

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Nico G
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December 12, 2014 at 5:58 PM ×

"Don't wanna be short when Santa pops down the chimney."

this is precisely why the market tanks down (in Europe), with NOONE (bear) on board, for only a fool would short a fairy tale combo Santa Draghi etc nowl look where Europe is back at today

Granted, they are aligning nuclear missiles (FOMC, Europe council AND those Greek elections that are ALWAYS scheduled right before expiries. Why the heck don't you vote on the week end?) one day before or at December expiry to potentially squeeze big

but if they fail to squeeze on the 17th, look for a potential bloodbath. 'if'

I hear you on Berlusconi LB but what is the point of throwing Mafia plagued Italy in the discussion, it's like a Russian saying 'Stalin was bad but Mao was bad too'

this brings nothing to the discussion:the US need to be bashed on their own, and with special treatment for they are meant to lead the free world, you know

so the combo of

- financial cronyism (deregulation, insider trading on a massive scale, and the white collar crime gone unpunished)
- NSA free style
- recent police/racial tensions etc

really put the US in a class of 'bad' of their own at present.

I think everybody should lighten positions ahead of next nuclear week and this forum can turn into a holiday joke contest

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Mr. T
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December 12, 2014 at 6:01 PM ×

USDRUB @ 58, Venezuela in the hopper, oil sub $60. But does any of this really matter outside of E&P and some sov debt? There are haunting parallels to "subprime being contained", but I always make more money being optimistic rather than being haunted by the last bear markets memory.

Ultimately equity markets are the classic prisoners dilemma. With oil crashing (is it safe to use that word yet) and risk-on sectors like biotech still red-hot it sure seems like the shocks here are limited (at least so far) to a sector and unlikely to spread.

What would be the signs that its spreading? Biotech weakness? HY is creeping higher outside of energy, but its not alarming yet. Consumer confidence numbers were very strong (I personally put little value on them). I've not heard of widespread job cuts yet, nor of reasonable warnings from indirectly related companies like Ford. UTX last night was a little weak but really in the noise. There was a surprising story about WMT selling heavily discounted iPhone6's (why discount them if demand is so high), but I'm not going to get bearish on this.

More macro oriented tells like swap spreads and breakevens are pointing to low inflation, but I just don't see any kind of liquidity concerns (yet). CHIS screens are weak, but they have been for years. I'm just not worried about China.

It's a bit scary out there - I've been lucky enough to seem to have avoided the major landmines, but don't see obvious signs of contagion yet. If I'm missing the flashing light, please let me know!


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Leftback
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December 12, 2014 at 7:13 PM ×

No global meltdown this time, esp in credit, not with the liquidity spigots wide open as they are, but some uncomfortable moves in illiquid vehicles that might look discontinuous.

Bucky looks like the biggest macroeconomic risk factor out there. He must be stopped !!! That isn't going to happen until at least Wednesday. We have the Abe election USDJPY rally to get through first.

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Nico G
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December 12, 2014 at 7:58 PM ×

Mr T

the shock will come from Europe

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washedup
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December 12, 2014 at 8:43 PM ×

so - statistically significant outperformance by the DXY relative to Russell and SPY last 2-3 days (t-stat wise anyway) compared to the last 3 months - the obvious beneficiary US 10 Y naturally - things atleast make sense to me now somewhat with USD starting to inflect into a risk-off mentality - don't think I buy into the dot-com playbook of US equity = US dollar - for the simple reason that this ain't that time, and thats that.

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abee crombie
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December 12, 2014 at 9:39 PM ×

The shock is coming from Russia. Wow no support for the Eurobond.

Nico yeah next week is killer to be long risk but I think if we get through it, there is some good deals in HY.

Isnt lower oil good for Europe.

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Anonymous
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December 12, 2014 at 10:02 PM ×

..There was a Captain named Jamie who would lead other fisherman out on the river every morning. There he would fish all day, as would the fishermen with him. There were lots of fish in the river, and they consisted of two kinds of fish....hatchery raised, and those raised in the wild.

...Now the way these fishermen would fish was peculiar. Often they would talk with the fish before ever putting out a hook and the fish, all of them, were smart. They could all read. Jamie and the fishermen, often would let the fish read about what they were doing before they actually started fishing. However, the part about using a hook with a barb was always redacted.

...At the end of the day Captain Jamie and his fishermen always caught fish and always went home happy.

...Moral of the story? There will always be a need for hatchery raised fish.

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theta
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December 12, 2014 at 10:30 PM ×

@Nico
There are no Greek elections on the 17th. It's merely the first (out of a maximum of three) votes in the Parliament to elect a President of the Republic, essentially a non-event, as only there's zero chance of electing a President in the first voting session, and a very small chance even on the third (on the 29th of December), which will lead to the elections that will take place late January or early February.

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December 12, 2014 at 10:54 PM ×

Can i wait one more day??? Wtf....
Mrt... I see a lot of distress.... Maybe you're US based and you see other price action but take a look to EUR carry trade implosion

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Anonymous
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December 13, 2014 at 9:25 PM ×

Nico, you are welcome to join the socialists...good luck

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Anonymous
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December 14, 2014 at 3:35 PM ×

Middle East stock markets rout - 3% - 7.5% in panic selling. Much drama as crude fallout obviously reverberating across global markets.

We are immune from this?

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Anonymous
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December 14, 2014 at 10:11 PM ×

yes - we are.
you happy now?

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Anonymous
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December 15, 2014 at 1:21 AM ×

First priority...

Australia's central bank says staff locked down in Sydney HQ, all safe and accounted for RBA

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Nico G
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December 15, 2014 at 6:35 AM ×

i have traded Europe successfully for 20 years i do not give a flying fuck if you guys agree with my views or not especially if you post as 'anonymous'. Do us a favor and register a name here if you want to engage.

from Edward Hugh

" The reason for the market panic is that should the Greek Parliament be unable to summon sufficient votes for the government candidate for president to be approved in the final vote on 29 December, then general elections would become inevitable. If elections are held then there is a significant possibility that the radical left coalition – Syriza – would win, and in that eventuality some sort of confrontation or stand-off with the EU Commission and the Troika would become inevitable."

so technically theta you are right but in my head i have the 17th as an event risk nevertheless, i dubbed it an election albeit being a parliament do.

good luck for this week and for 2015 i am done posting here.

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theta
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December 15, 2014 at 1:38 PM ×

Nico,

I would say that probability of finding the 180 votes in the third round is 10%, and in the first round (i.e. on the 17th) 0.1%. It would only be a risk event if indeed a miracle happens and 180 votes are found on the first round (again, extremely unlikely because even if you are sitting on the fence you know you can wait until the third round with no consequences). In that case, European markets will probably recover last week's losses instantly. But I think it's even less likely than Germany volunteering to do full blown QE on their own.

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Anonymous
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December 15, 2014 at 2:03 PM ×

There goes Mexico...

http://imgur.com/WRLdNTO

Oil...destroying one socialist nation at a time. I wonder if the US will bail out Mexico as it did in 1995.

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Anonymous
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December 15, 2014 at 2:07 PM ×

JUNK goes no bid...

http://imgur.com/4MUI5xw

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Anonymous
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December 15, 2014 at 2:39 PM ×

2 Year Swap rate does not imply any fin stress within the system...yet.

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Anonymous
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December 15, 2014 at 2:54 PM ×

C Says,
Quote..
"If you look at capitalism," Dalio said, "it's the spread that is the transmission mechanism: everybody's looking for spread. And it's that spread that makes lending go through

Boys and Girls ,this man should be compulsory reading in your curriculum.
I think it sia truism that really bright people can take quite complex issues and explain them very simply. Dalio is really really bright.

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abee crombie
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December 15, 2014 at 4:22 PM ×

RUB getting destroyed. This is worrying

Nico, have a good holiday. I always enjoy your thoughts. I've traded europe but since i dont live there, its different. It certainly is a different beast vs the US. Actually trades technically much better, IMO


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Anonymous
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December 15, 2014 at 4:48 PM ×

Sell Programs are now Cascading. Someone kicked off the Fireworks, an Institution of course, and Now They Are ALL HITTING SELL

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Leftback
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December 15, 2014 at 4:50 PM ×

Agreed with you completely on Dalio, "C". NOw, to keep things simple, it's all about the USD and that's all about the Fed.

Almost every active trade today seems to be totally predicated on FOMC changing the language this week. I suggest that this will not happen and that everyone who has a highly leveraged trade of the form [Long USD-Short X] is going to take a bath later on this week, as the already weakening DXY rally terminates abruptly as Queen of the Doves Dame Janet coos softly in the market's ear.

This might be an opportune time to look at buying calls in a host of vehicles that are currently being hated on, even as the last of the lemmings stream into the dollar. Leaving crude oil aside (but looking at rock-solid things like Statoil, TOT and BP), there are very cheap options in silver, EEM and EWZ, to give just a few examples of the oversold and the heavily shorted.

If you think about this for any length of time, you can see that what has happened this year has been a pas de deux between Draghi and Yellen, with Kuroda playing the music. EUR was being talked down close to 1,20 by Draghi's bazooka talk even as USD was jawboned higher towards 90 by Fedspeak and the media. However, neither of them is going to do a damn thing at the moment b/c they don't have to. Their aims having already been achieved, they will now do nothing.

A move that is not implausible from here is a quite substantial retracement of the giant move up in DXY this year from 80 to near 90, so 84-85 seems a likely target. EURUSD 1,3200? If this is even close to correct then we are soon going to see an absolutely gigantic squeeze in some assets, starting before the end of the year and going into the Spring. Spoos would not be one of those, however.

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CJ
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December 15, 2014 at 6:10 PM ×

As excess liquidity has been the driver of market action over the past 3-4 years, I am skeptical that you can get a massive squeeze higher in EUR. The prospect of ECB sovereign QE in Q1 makes me think that RM will use pops to hedge and that parity with USD will be achieved in late-2016. This is an acceptable political outcome as well, b/c a stronger dollar is acceptable to US voters and helps EU exports (which are a greater portion GDP than in the US).

I do however think that calls in EWW and EWZ are intersting to play an EM bounce.

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Polemic
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December 15, 2014 at 6:22 PM ×

Hello folks, Well plan A for the 'That shouldn't have happened " equity and positional wash out has world a treat. Picking a bottom for oil hasn't. As the game of breath holding with producers carries on. I hope that some of those shale producers are free divers.

So quelle maintenant? Towels, bathwater and many other things appear to have been chucked.

It's interesting to note that 2014 is ending the way it started. With the mood on EM calling for disaster based on USD expectations in rates and usd fx.

Smells like Teen spirit is getting carried away. I Am going to buy some stock stuff.

Buy buy. Pol.

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December 15, 2014 at 8:12 PM ×

OK... It's collapse... Amen

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Mr. T
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December 15, 2014 at 8:44 PM ×

So is Gazprom cheap yet?

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December 15, 2014 at 8:50 PM ×

Way cheaper.... Than yesterday....

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washedup
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December 15, 2014 at 9:10 PM ×

LB - with all due respect to your obvious insightfullness, I will take the other side of most of what you said.
The reason this mkt believes 'considerable time' will be removed thereby advertising a hawkish tilt, is because hilsenrath outed it, and he has had a near perfect record at this - now its reasonable to suggest that they could be freaking out with a 4% pull back in the spoos in the last 5 days, but their reaction function based on the last bloodbath is more of the order of 6-8%. They are more likely, in all their academic glory, to think of the crude decline as stimulative and look past the short term inflation implications.
Also, I find the idea that the dollar will get hammered the same time that EM and energy rally in a back to risk mode but spoos find a reason not to go up while US 10 Y keeps a bid to it, as a tad inconsistent.
So - respect your contrarian thoughts, but doubt nows the time and place.

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Anonymous
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December 16, 2014 at 12:47 AM ×

washed up, cross-asset correlations makes sense until they don't.

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Leftback
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December 16, 2014 at 12:51 AM ×

Spoos will rally this week into the end of the year, sooner or later, likely at the expense of Treasuries. I believe the rally will be given the green light by Yellen on Wednesday, although it may be front run tomorrow by the usual suspects. After the New Year, as they say, is another story entirely.

Russia has just unleashed its own bazooka, raising rates to 17%, which will make tomorrow's trading interesting to say the least.

Russia Tries Shock and Awe

Might not have been the best timing to be taunting about Gazprom today, chaps. We bought a truck load of RSX calls today, along with EEM and EWZ calls, although we haven't added to equity positions in a long time. Better to be lucky than good I always say, b/c obviously I am a complete tool.

Hope Sydney gets back to normal soon, lovely city, wonderful people.

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washedup
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December 16, 2014 at 12:59 AM ×

thanks for ur thts LB - funny that despite the difference of opinion on everything else, I actually do like (and own) RSX calls as well - some lottery tickets are way too cheap to not own!

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Leftback
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December 16, 2014 at 1:29 AM ×

Quite so. We now have a new and bold central banker to talk about, MM: Elvira, Mistress of the Dark!

Interesting that Citi and JPM are already whining that this bazooka isn't enough. It worked for Paul Volcker. One wonders if certain US banks have an FX desk that is going to get an arse transplant over the next few days! Note that a certain leader recently snuggled with Modi in India and other world leaders who will no doubt think it's loads of fun to buy lot and lots of bonds at 17% and see some US banks get squeezed. Don't underestimate the Russians, or the other emerging countries.

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Anonymous
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December 16, 2014 at 12:14 PM ×

Take a peek at EURNOK, it looks kind of like a panicky contagion.

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