The Federales arrive

It's Federales ride into town today, and while it seems as if Macro Man should be tense/excited/worried, somehow he just cannot envisage a likely scenario where the apple cart gets upset too much.   Call it the first few minutes of Once Upon a Time in The West rather than the Gunfight at the OK Corral.

To be sure, the data has not been uniformly on the Fed's side since the pow-wow last month; if anything, it's been the opposite.     It's difficult to see them getting too alarmed, however, given that the economy grew at a pace of roughly 4% for the final three quarters of 2014.  A little pullback is not altogether unexpected.

Indeed, 'twould be more worrisome if confidence were starting to fracture.   If anything, however, the opposite is the case.  Most measures of consumer confidence are at their highest levels since before the crisis, so it's hard to see the Fed (over) reacting to a few weeks of soft patch.  Indeed, the only thing rising faster than the Gallup consumer confidence index, pictured below, is the US dollar.

To be sure, people are long dollars, and positions are always at risk when there are shocks; just ask some erstwhile longs in EUR/CHF!  That having been said, while the position may be broad, Macro Man doesn't have the sense -yet- that is is especially deep.   That may be hard to credit given the 30-figure move in EUR/USD over the last few quarters, but long-time FX punters will know that short euros has generally been a difficult position to carry.   Now that we are finally seeing a secular change in the trend, good opportunities to sell have been few and far between.


Perhaps the greatest near-term risk is if the FOMC mentions the strength of the dollar in any light but one that emphasizes the boost to consumer purchasing power.  It's possible, to be sure, but somehow Macro Man just doesn't see it yet.  Yes, they may well acknowledge the further downward pressure on headline inflation, but generally speaking they still believe that this is a net positive (and your author is inclined to agree.)

So while some commentators may expect a few fireworks today, the best that Macro Man can foresee is a few strains from a lonely harmonica.


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Anonymous
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January 28, 2015 at 8:01 AM ×

Apropos of not much, I took a look at the DXY chart for as far back as I could find it. By my reckoning, every Democratic president left office with the $ at a higher level thane when he entered, and every Republican president left with a weaker dollar. I know, small sample size, lots of stuff going on, etc. But it strikes me as interesting.

- Whammer

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washedup
admin
January 28, 2015 at 1:31 PM ×

"That having been said, while the position may be broad, Macro Man doesn't have the sense -yet- that is is especially deep"

Very interesting point - needs to be read, re-read, and very carefully reflected upon by everyone.

As long as they aren't high, I suppose - but yes, I do get the sense that many punters have a little, but the big whales and/or corporates for that matter haven't been fishing in these waters.

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Polemic
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January 28, 2015 at 1:34 PM ×

Next macro event - 1994

Gosh I can't believe I said that as spent the last 8 years saying this is not 1994

But who about a bond and equity sell off? If so .. where the heck do you park your meagre savings? Unilever stock as you'll always need toothpaste and blogroll? And God forbid the day we can't even get bogroll

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Skippy
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January 28, 2015 at 1:53 PM ×

I think it was LB last week who suggested that central bank bombs come in clusters.

Does the MAS (Singapore) "easing" signal that something is coming from that large central bank to the North of Singapore that shall not be mentioned? I'm just sayin'

Note the EURCNY cross, quite close to the all time low. Europe is clearly an important export market for China.

Lunar New Year is coming up.

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Anonymous
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January 28, 2015 at 2:08 PM ×

I"ll wait for 2016 for a turn..if not, then..Be gone you Asshole...you have no idea.

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CV
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January 28, 2015 at 2:40 PM ×

Interesting Polemic, so you think the the big bad taper is coming back? That would certainly make me head for the bunker very quickly ... I suppose that could also portend the next move higher in bucky!

Meanwhile, the deflation scare is deafening, and I cannot help but think we are sowing the seeds for inflation in the next 12-18 months, Goldilocks doesn't last forever after all.

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Anonymous
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January 28, 2015 at 2:55 PM ×

Weaker/Stronger dollar... blame Bush/obama. Never Greenspan/'Nanke (I fought in 'NAM) /Janet Smellem.

Never.

Fed can't really be hawkish without talking up the dollar in the face of major companies bitching about dollar strong hurting rev's.

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Polemic
admin
January 28, 2015 at 3:01 PM ×

CV .. i just can't see value anywhere. US, as discussed here is suffering being the first runner up and thats done and SUD strength kicking in.. Europe has done the huge rebound I was playing since october silliness.

We have now had QE and Bons are on their knees and Periphery debt is trading on EU Backup credit only as 2% or some such for holding periphery risk for 10 yrs makes my primordial stem cells fire warning signals.

So I just don't know what next. If i was to follow my normal rules we need to get hyperextension on euphoria somewhere but perhaps just because I m tired today I can't see why anyone can be euphoric about anything. Maybe tomorrow .. But for now .. Meh ..

But as for Sov bond markets .. I can't see how an unwind can be orderly considering the sizes and where we are now, even if ECB does say 'I ll have the lot'. Well actually if ECB does say ' I ll have the lot then it will be errr.. interesting and enough thoughts there to write a post on its own.

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Polemic
admin
January 28, 2015 at 3:09 PM ×

By the way if you need light relief (no not hand relief LB) I've put a quiz together at the other place.

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washedup
admin
January 28, 2015 at 4:01 PM ×

Pol - sorry to be the village idiot, but what 'other place?'
if its a closely guarded secret for the coolest of the cool kids then please disregard my question. Imagine its a new warehouse every day...

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Polemic
admin
January 28, 2015 at 4:06 PM ×

Washed - sorry sir, No secret - Trying not to make it look like a self-promotion of my Polemic's Pains blog open to all at

http://polemics-pains.blogspot.co.uk

Used when thought gets too long for here or just stuff of lesser quality than MM levels.

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washedup
admin
January 28, 2015 at 4:27 PM ×

really like the blog - adding it to my too short for my liking too long to actually get through reading list

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Polemic
admin
January 28, 2015 at 5:05 PM ×

Ah right so you are adding it to your 'don't like it cos its too short and don't like it because its too long 'reading list. Well thats 2 reasons not to like what's in that list I suppose. Shame I didn't make the 'like it because its neither too short nor too long list' .. but hey next time huh? ;-)

jeez this sounds like a goldilocks story .. which reminds me .. no don't worry,

Thanks washed - pol

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washedup
admin
January 28, 2015 at 6:19 PM ×

actually, 'don't like it cos its too short and don't like it because its too long' adequately describes my portfolio any given day as well.
One day this board will teach me how to be a source of +ve and not -ve alpha.
Thx again for that Pol.

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hipper
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January 28, 2015 at 7:15 PM ×

Well ok. Everything is really bling and goldilocks but they can afford to be "patient". Looks quite hawkish to my untrained eye, only except for the patient thingy.

Great depiction MM, must feel really lonely for dame Janet out there when every other CB in the world gets to party with monetary orgies.

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washedup
admin
January 28, 2015 at 7:22 PM ×

it was hawkisher than the mkt expected, but was based on a Jack Nicholsonesque read of the economy (you don't see what I see..) so I think just a tad confusing to most.
Now lets see if spoos can keep up their streak of rallying on every fed release for the last 2 years!!

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Bruce in Tennessee
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January 28, 2015 at 7:57 PM ×

Don't look now Lefty, but somebody is buying the bonds you've been selling.

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Anonymous
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January 28, 2015 at 9:58 PM ×

Oh, my...after the bell, someone bought 15,000 FEB $VIX 10 strike calls for 10.40

http://www.marketwatch.com/investing/index/vix/options

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mattyboy
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January 28, 2015 at 10:06 PM ×

hmmm that would be me buying, Bruce. as i said in the comments section from a few MM posts ago, the US long bond suite is on its way to the first floor and fast. the only thing that reverses the move in my mind is the Fed not only walking back this hiking nonsense but unveiling another round of QE even bigger than before to stem the USD rally and counteract what the ECB and BOJ are doing. I honestly believe the FOMC will be loathed to pull a u-turn like this as their credibility will be in tatters...i guess to be fair it already is, since I think people are slowly coming around to the idea that the game is to create inflation by debasing your currency and that's all they have left. so to the extent that they push forward with this silly hawkish rhetoric then the curve will keep flattening and bonds will stay bid and everyone will keep asking why. if they actually go ahead and hike then it just presses the fast forward button on the process and USTs are heading to JGB/bund land. good luck tomorrow all

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Anonymous
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January 28, 2015 at 10:11 PM ×

Digging Deeper into Deteriorating Sales and EPS Estimates

"So to conclude, we've shown that the level of estimates is low (negative for the top line), estimated growth has been revised down significantly over the last three months, and the decline in aggregate estimates has been caused by widespread rerating of expectations."

http://gavekal.blogspot.com/2015/01/digging-deeper-into-deteriorating-sales.html

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Anonymous
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January 28, 2015 at 10:17 PM ×

"We're in a new era in which central banks have largely lost their power to ease." Ray Dalio

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Anonymous
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January 29, 2015 at 12:27 AM ×

Barclays Research...projects U.S.

-0.4 1Q15 CPI


http://imgur.com/8MpwDfb

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Nico G
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January 29, 2015 at 6:50 AM ×

Yesterday price action within Europe was typical of blind asset allocation:

a resilient Dax trying to bounce off morning weakness (only to be sold again post-Fed, but great price effort nevertheless)

while....

Greek banks were all losing 30%. That day.

Congratulations to the many of you who played the EU bounce pre/post DragQE

Sell your winners while you can

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checkmate
admin
January 29, 2015 at 7:30 AM ×

Nico.
I don't think there's much doubt in my mind that the Draghi bump put European equity into short term overbought territory. I think the jury is still out on what happens as it works that out.

My main concern is the US equity situation, because when I think that is going to be weak (and that is what I think) then I also see that has a problem for equity elsewhere. I suppose it will depend upon how strong rotation might be.

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Nico G
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January 29, 2015 at 11:42 AM ×

could not agree more my discomfort at present is seeing the 2009-2015 equity locomotive spoo out of breath once all kind of QE, earning multiple buyback zirp voodoo has slowed down or stopped

am not sure how much of US upside performance was contagious to other equity universe but one can be sure a (finally) strong US correction to say, 1600 would not be taken lightly by world managers

eerie feeling, that Draghi had to spit his QE to avoid a complete melt down and then what? the equity bears are gone while commodities are still hard down, credit/rates all around the world can't be compressed much more so...

hard to imagine equities would survive in 2015 and survive well. European equity culture is nothing like the American or Japanese casino i doubt macro funds positioning would be enough to keep those markets afloat and again i do not think that European exports can save Europe to decouple from the whole world cheap euro yes but most of Europe's best customers are broke(n)

for those who seek yield the coming years it might be time to start and mind their very own businesses instead of herding on inflated assets worldwide

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Nick
admin
January 29, 2015 at 12:31 PM ×

One interesting point with respect to Greece situation is the state of freight market, BDIY Index is back to 2008 lows. Greek shipowners are not making any money, and are afraid that the new government is going after them. Can't be good for Europe and other creditors.

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Bruce in Tennessee
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January 29, 2015 at 2:34 PM ×

Agree, Matty...Janet can't do a U-turn here...after all this FOMC strength we've been reading about...some might say she started driving without sufficient instruction...

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checkmate
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January 29, 2015 at 3:46 PM ×

Denmark is having a reverse Viking moment. Please take back everything we ever pillaged.

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washedup
admin
January 29, 2015 at 3:49 PM ×

there you have it chaps - the cash under the mattress syndrome is beginning - who would have thunk on a day in Jan of all months...

1. Bonds down
2. Equities down
3. Crude down
4. Copper down
5. Dollar down
6. Gold down

All as your neighborhood banks try to barricade their parameter via NIRPs.

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Anonymous
admin
January 29, 2015 at 4:17 PM ×

An interesting read . . .

Open letter to the German readers: That which you were never told about Greece

http://syriza.net.gr/index.php/en/pressroom/253-open-letter-to-the-german-readers-that-which-you-were-never-told-about-greece

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Anonymous
admin
January 29, 2015 at 4:21 PM ×

Deflation has arrived in Germany. Jan CPI has dropped to -0.3% YoY, lowest level since Jul2009.

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Anonymous
admin
January 29, 2015 at 4:27 PM ×

CRB @211 .....counting down to CRB 200

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Nico G
admin
January 29, 2015 at 8:26 PM ×

Dutch news channel has just been taken hostage

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Leftback
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January 29, 2015 at 8:27 PM ×

LB sharing Polemic's feeling of whiplash and confusion. Indeed it was strange for Mr Market to show up for his monthly date with Janet only to find out that she had a headache and that even hand relief would not be forthcoming yesterday.

If someone bought a big chunk of VIX Feb calls, then that means someone else sold that chunk of calls. Since options sellers habitually make more money than options buyers, it makes one wonder whether a nice juicy bout of vol selling might be on the way?

Catastrophe enthusiasts have now seen the following volatility stimulative events come and go: Greek election (with Brussels nightmare result), SNB de-pegging (with accompanying FX speculator pain), Draghi QE leak and announcement, and FOMC January meeting (with slightly hawkish overtones). Yet one must admit that really sweet FA has happened in the greater scheme of things.

Holding bonds that yield 0.34% or lots of puts that don't deliver becomes expensive. Punters will tire of this, note the yield opportunities elsewhere and they will go to work outside of safe haven govies.

1994? It's possible, MM, but that was a much more robust economy and global demographics were quite different. Can't see Janet making the mistake of tightening into a slowdown, even if she did have a headache yesterday.

Note that my view entails a continued easy Fed as a NEGATIVE for USTs, as capital exits to seek risky assets and many of these will be outside the US.

Polemic has mentioned the 800 lb gorilla already and it is China. Probably the only available source of meaningful demand and monetary easing now. We can expect stimulus from that direction.

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Leftback
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January 29, 2015 at 8:46 PM ×

So far we have enjoyed Tspiras of Syriza telling the EU where to stick its Russian policy, describing Kiev as a neo-Nazi puppet regime and halting the fire sale of Greek public assets to the private equity vultures. But it didn't do our minuscule Greek equity positions much good.

Of course as one wag pointed out, if he goes on like this the CIA will engineer a Greek Spring (the Olive Revolution, perhaps), replace the democratically elected government with a military junta or another neo-Nazi puppet regime that will suck Brussels appendages and then all the fun will be over.

On the whole, we think Super Mario delivered at least what was expected and I think he will have some success if we look at the QE over an 18 month time period, although the "negative control experiment" of doing nothing will not be available to us. "Success" will be measured by:

EURUSD firmer, if not higher than 1,2500.
EuroStoxx higher (by >20%).
German 10y back over 1%.
US 10y back over 2.50%.
UK 10y back over 2.50%.
Greek yields <5% (no Grexit)
DX < 90.
Brent > $60/bbl.
EU bank stocks soaring >50%.
EU inflation small but positive, +0.5-1.5%.
EU employment and GDP improving gradually but measurably.

Regular readers will recognize this as another of LB's daring mean reversion aka TWINE predictions (The World/Europe Is Not Ending), and will find it all very non-controversial in the rear view mirror of 20/20 hindsight. For now though, we must expect hoots of derision and catcalls, hate mail and very few lady punters throwing their underwear on stage. [No, chaps, please, for pity's sake....]

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checkmate
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January 29, 2015 at 9:27 PM ×

"Note that my view entails a continued easy Fed as a NEGATIVE for USTs, as capital exits to seek risky assets and many of these will be outside the US."

Well,they can "hoot" at both of us. Overpowering conviction for mean reversion, no, but enough to position to get some alpha, yes.

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Leftback
admin
January 29, 2015 at 9:50 PM ×

Look out Mr Shorty, the vol selling action may already have begun this afternoon. Apparently Dame Janet has now recovered from her headache and Mr Market is feeling his oats as a result.

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washedup
admin
January 29, 2015 at 10:52 PM ×

Left - I thought you were bearish US equities as a corollary to your dollar view - change your opinion?

Also, not sure why the 'hate mail' comment - the shorts need people like you so they can manage their PnL and survive - no one would last very long if they only chatted with people they agreed with. I for one respect the die hard conviction.

Speaking of die hard, I watched a cable re-run in unconverted HD the other day while on the elliptical - the price at the gas station outside Nakatomi plaza (circa 1989 presumably), 75 cents/gallon!
Geronimo, mofos.


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FunnyMoney
admin
January 29, 2015 at 10:53 PM ×

Why do you all try to be so clever (and fail)? The BoJ and PBoC are buying EU equities as we speak. The ECB will soon flood Europe with liquidity. The Fed will NEVER significantly raise rates again in your lifetimes.
My portfolio is 200% long equities on a 70:30 EU/US mix. I will outperform all of you combined by year end.

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washedup
admin
January 29, 2015 at 10:54 PM ×

@Funny Money - send me your a/c information in Nigeria I will wire you money to invest immediately.

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Mr. T
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January 30, 2015 at 12:15 AM ×

Interesting earnings season so far. Lots of messy quarters out there, with uncomfortably high multiples behind them. I think there is an interesting sentiment shift underway for US centric investors where people are starting to see QE as a zero sum game. When we were doing it, it was the cure for global stagnation. When everyone else is doing it, we get hollow eps beats driven by balance sheet leveraging on weak bottom lines.

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Nico G
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January 30, 2015 at 6:54 AM ×

i only wear swimming trunks no underwear to throw - but why would DragQE success bring EURUSD back to 1.25. Besides 1.25 being your pivot level haha

i fail to see why the EUR deserves a premium over the USD. In terms of economy/innovation dynamics and also with adverse rate differential to come, parity would still be generous

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Nico G
admin
January 30, 2015 at 7:01 AM ×

Jack Ma is so brilliant

http://www.hulu.com/watch/742836

his vision of wealth... "one billion is not your money it is trust - the trust people have in you to use that money better than they would'

you gotta love his ethics of responsability - 40 minutes spent listening to him are worth 2 years of financial blogosphere...

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Bruce in Tennessee
admin
January 30, 2015 at 12:21 PM ×

Lefty,

You know that I enjoy your posts. No hate here. The only thing that I might do differently than you, is when I get up every morning and do my due diligence, drinking coffee, is I ask myself a question (sort of). And that question is: Has anything changed overnight that makes me want to rethink my investment conclusions?

That basically, is what I've been doing for years, and especially now. Turns out I had to become more agile as I got older, something not especially easy.

Questions? Only a ton!

How does China go forward, not with their economy necessarily, but how will their central planners react, and what will that do?

Have Janet and the posse come to the conclusion that we've had enough QE? If that is the reason, then tightening is inevitable, no matter global strength. If not, they may change their tune...it is more difficult, as you know, to invest on the movement of a few rather than Mr. Market...

And so on. It seems to me the new Greeks ain't the same as the old Greeks, and that Grexit is possible.

But I enjoy, always have, reading your well thought out positions. I just have to bounce your ideas off mine...

Keep them coming.

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checkmate
admin
January 30, 2015 at 1:23 PM ×

My mean reversion doesn't include the Euro recovering that much. Just enough to encourage some wonder about the Draghi 'break' circa 1.15. Indeed the idea mean reversion is more a case of what level of rotation could we get from the over valued /FX US equity play into an undervalued new FX weakness play in Europe.

As for the FED let's be frank about all we know is they have now gone from considerable time to patient on route to a future date of measured increases. The latter though is an unknown to us and indeed (if they are honest) to the Fed. It will be data dependent. Contrary to other views mine is this now starts and ends with Europe. Europe has been the weak boy in town for last medium term and that has pulled their trading partners down. As well as the US is doing they will be lucky to keep doing that well with a currency this strong. For me the question really is whence goes Europe so goes the world. If Europe are on the slow road back, which I think they are, then ultimately it should start to benefit everyone globally. That includes China who need that to happen.
Ironically the best policy for China and the US at this stage is don't do anything screws up Europe. Greece I'm not concerned about. They're a sideshow and I'd use them to buy anything I wanted at times of volatility and we know there will be some.

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mattyboy
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January 30, 2015 at 4:50 PM ×

Do not sell treasury bonds into this

this is what i said:
Theme 2/ No Fed QE = rotation into high quality liquid assets from illiquid assets. by now I trust most punters are aware of the effect the *flow* of Fed QE has on risk assets. In the post-crisis era, removal of this flow of liquidity has ushered in periods of higher mkt vol and liquidity premia. USTs are the most liquid asset in the world and CB QE interventions are steadily removing govt bonds from the mkt. In addition, other factors (macropru, central clearing OTC derivs, Basel 3, liquidity coverage etc. etc.) are all having the same effect: encumbering increasingly scarce high quality liquid collateral

this is what just happened:
Danish C. Bank Stops Sale of Govt Bonds to Halt Currency Inflow
By Frances Schwartzkopff
(Bloomberg) -- Denmark’s central bank says it has asked the finance ministry to cease issuing debt until further notice.
Says stop in sales will contribute to reduce in long rate curve and thereby limit currency inflows
Central bank says sales have exceeded borrowing need
Central bank says decision was taken in light of currency situation
Central bank comments in statement

"Danmarks Nationalbank expects that stopping the issuance of government bonds will contrib-ute to reducing the interest-rate spreads in the longer maturity segments and thereby limit the inflow of foreign exchange."

High quality collateral is being removed from the market. do not short treasury bonds

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Dan
admin
January 30, 2015 at 5:01 PM ×

@NicoG

The rest of the world has figured out that the internet, as we generically understand it, is a rich petri dish for growing massive natural monopolies. Take one look at GOOG and you should begin to question the trend of Silicon Valley's dominance.

Financial asset prices are derivatives of trader sentiment, no? Financial asset prices are socially-driven and we know what happens when one side of a trade becomes too crowded, right?

I am not making a case for a final low in the EUR/USD cross today or now, but that is the mindset for the other side of the EUR/USD trade.

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Dan
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January 30, 2015 at 5:40 PM ×

It is so easy to overlook how liquid human capital is. Even more, the failure to appreciate how liquid information is. Throughout history, the dominant governments have always been the ones who attracted the brightest minds, capitalized them and guarded them. These empires, if I may call them, have collapsed when the bright minds have left for greater opportunities abroad or for safety.

At an empire's peak, its government believes its power is relatively absolute and that it can contain its brightest minds or, worse, it can do without them. Reflexively, the trend will reverse itself just like any social phenomena and the rest is history.

Critically reading between the headlines, one would maybe spot the hot war going on in information technology complete with spies, romances and fortunes won and lost. The reality is that information has always been the most liquid asset, but never before has it been as liquid as it is today. See Snowden leak.

Jim Rickards fell short of the mark with his currency wars meme. To be certain, currency is information and we are in a global war over information dominance. There is lots of fog, but analyzing the world through this lens will probably help make sense of all of the sorted skirmishes flaring up.

If power is a relative social phenomena, the strongest move is for the weakest player(s) to undermine the strongest player(s). The weakest player never immediately becomes the strongest player...except for when the weakest sells-out. See Amjad Bashir.

Germany has the entire EU resting in its palm without firing a single shot. It needs Greece more than it needs any euros or they lose all of that easy power when a precedent for secession is made. See US Civil War.

The rest is history.

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Anonymous
admin
January 30, 2015 at 6:36 PM ×

i know how liquid human capital is - i worked on a trading floor where people peed in their pants all the time.

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Leftback
admin
January 30, 2015 at 7:20 PM ×

Things are about to get very interesting. German 30y below 1% today, which is really pretty f*cking insane. That is going to look like a very indifferent piece of asset allocation within a month or so. (This buying of bunds is in fact our old friend "option on the reintroduction of the DM" play that TMM has discussed here over the years).

The new Greeks are much better at this game than the old Greeks, and I guarantee the Brussels guys are now really peeing their pants, even if they aren't on a trading floor. As Syriza realizes, the EU don't give a monkey's about Greece, but they do care about the paper losses on the books of EU banks, and the prospect of delivering Greece into the embrace of Vlad the Impaler. The market is seeking safety, not just b/c of the Greek govies, but b/c of what this implies about a Spanish government run by Podemos.

In other news, the US data was "Goldilocks" if you are an equity bull, (which at the moment I am b/c rates are completely insane), or fairly miserable - if you look at the employment cost data. I am going to have to part company with MM's 1994 scenario (although we may get a miniature version of it). Right now, I think that Dame Janet needs to get busy talking down the USD, as the signs of global and US slowing are becoming obvious. Jawboning the USD down again would be the easiest form of stimulus available to the global economy.

Jump to it, Janet, start talking ... or next Friday's jobs number will dump this market into a very bad place. With that policy adjustment, some China stimulus and an EU fudge on Greece (absolutely required to save the EU banks), the equity and commodity markets are going to absolutely take off.

Sell USD and sell silly overpriced haven trades like German 30y. This is already sillier than Silly Walks...

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CJ
admin
January 30, 2015 at 7:34 PM ×

Williams on the wire sounding pretty hawkish... the FOMC really wants to focus on the positive trend in personal consumption and look through the transitory decline in inflation related to the oil shock. It's impressive that Dame Janet has only these guys talking from the same sheet of music.

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Gnome of Zurich
admin
January 30, 2015 at 7:40 PM ×

I respectfully disagree - and I still own quite a few Greek stocks, but no more banks.

The childish new Greek government will get cut off ECB and other lifelines soon if they don't behave as grown ups.

The Germans (and especially the Spanish) would prefer to make an example of Greece to encourage the other to stay on the course. If they let have Syriza its way, protest parties will soon rule half of Europe. But if Greece plunges into the abyss, the others will see that there is no alternative. European Banks don't have much exposure to Greece anymore. The Greek hand is weak. Think of Cyprus...

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Leftback
admin
January 30, 2015 at 8:00 PM ×

Gnome,

From the purely economic point of view, I don't disagree with your analysis, which is fairly sound and 100% correct, but only if we were only talking about Greek debt in isolation.

But the interesting thing about the EU is that the finance guys aren't operating in a vacuum, there are political considerations as well. In this case, the Greeks can play two trump cards: the Greek oligarchy remains a useful tool and is connected to big money in the EU, so the shock waves would extend beyond Greece, and more importantly, the paranoia within the US and certain EU countries about Russia means that Greece has another suitor waiting in the wings with a few $B in cash ready to acquire new markets, real assets and warm water ports, which would be eagerly accepted.

This is why Greece isn't Cyprus. Ukraine hadn't happened and the Russian Bear was asleep then.

Market reaction this week suggests far more than GGBs are in play, this is politics of a high level and a very high fear premium is being paid as a result. FInally, for everyone in Greece except the oligarchs, there is little to lose in a return to the drachma. "Nothing to lose but your chains..."

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washedup
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January 30, 2015 at 8:08 PM ×

Left - 'things are about to go very interesting' and 'I am an equity bull because rates are completely insane' is an odd contradiction in terms - I do agree with the bulls needing a big dose of mama yellen's motherly milk soon - timing may be iffy in as much as she did a closed door session with schumer's democrats yesterday (how very independent of her!), so they'll have to corner her with a mic somewhere for the next dose of valium..

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Anonymous
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January 30, 2015 at 8:25 PM ×

Consider the fact she could not be the Madam without the help of these senate democrats, you really cannot blame her for paying back her due.

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Anonymous
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January 30, 2015 at 9:34 PM ×

Arent you guys still underestimating the black swan. Greece cuts off EU, not the other way around. Devalues and becomes the top travel destination in Europe. Maybe some emergency funding via china or russia but thats hardly even needed in this tourist export scenario. All other Pigs observe the succesful development and later tries to copy, creating a mediterranean currency war.

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Polemic
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January 30, 2015 at 9:47 PM ×

There s a lot of clever stuff in the comments above. But I think the worlds biggest problem is that people think deflation is recession and inflation is growth.

The way the world is positioned at the moment the biggest mind fk would occur if oil went up taking out the headline deflation that policy is muddling with recession. That would cause policy to switch from being wrong on the deflationary side to being wrong on the inflationary side. And THAT will be the real disaster. By comparison what we have now is a picnic.

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Corey
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January 30, 2015 at 9:51 PM ×

@ Left. What to say other than, "haters gonna hate, hate, hate." Your probably all right, just a matter of timing. For me thou 138 was short term top for TLT and I expect the long bond to correct first. Oil even caught a bid and Lord Draghi hasnt even started buying in earnest yet. Give em time they'll see.

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washedup
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January 30, 2015 at 10:20 PM ×

Today was a good tell on market positioning.
Repeat after me,
"Risk off means commodities up, risk off means commodities up...."
Probably a good time to stop tossing around statements like 'we are bullish or bearish equities' - have to be very specific which sectors.
As for bonds, we could be seeing trend exhaustion, but its an infinitely saner trade to wait for it to to correct 25-30 bps and get long again as opposed to just waving a red flag at the bull wearing nothing but thongs.

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Anonymous
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January 30, 2015 at 10:31 PM ×

sectors such as restaurant, sporting goods, airlines, auto related are still pretty hot in this market. so section rotation works well now, no need to panic about the black bird yet imo

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Dan
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January 31, 2015 at 12:05 AM ×

Set aside bund - UST spreads for a New York Minute.

Who can seriously believe a sustainable top is in on US Treasuries when the retail horde isn't trying to hoard them?

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Anonymous
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January 31, 2015 at 1:05 AM ×

LB & washed up- the lower the price the lower the risk. FCX and CVX con calls made it pretty clear to me that prices are not in alignment with fundamentals. From Chinese hedge funds shorting copper futures in the middle of the night to high cost producers putting down rigs- it's a matter of time. So, to you LB, I toss a pair of virtual girl panties, from one of the apparently? few females who has been hanging out with you guys for years.

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washedup
admin
January 31, 2015 at 2:00 AM ×

Snap! Yowza!!!
Ma'am - if you have a choice in the matter please make 'em fucia or magenta - I believe those are the only 2 missing in LB's collection.
This board keeps getting more and more fun - MM did I mention I'm glad you got this baby going again??

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washedup
admin
January 31, 2015 at 2:11 AM ×

On a more serious note anon 1:05 - I see those two specific names discounting $70 crude and $6500-7000/T copper - so you will be right as long as that happens quickly - just know that's what you are betting on, and be aware of the phrase 'recency bias'.

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Anonymous
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January 31, 2015 at 2:50 AM ×

FCX can produce oil at low $20's from very well executed ex BP platforms with capital that I think they can prob get, so $50 is Ok $70 is awesome. (Irony would be capital from Chinese butterflies.) CVX is a very long game-actually they're both a long game, but short games are just a diversion.

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Polemic
admin
January 31, 2015 at 9:23 AM ×

Can i ask that anons start to use a name. Just any name but a consistent one. There are some fantastic anon comms but striking up a dialogue or trying to apply understanding of thought trains through multiple comments is hard when anon'd. Would be most helpful. The roll call of MM colourful characters welcomes new names!

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Leftback
admin
January 31, 2015 at 2:21 PM ×

Yes, please people adopt a colourful handle. It's so much more fun arguing with an entity than seventeen anons who all think one is a Tool.

Look, I am not going to comment on bonds any more after this. Here's the thing. I love govies. I have been long USTs (and associated low rate vehicles) for ages and ages, especially when Morgan Stanley et al thought we were going to normalize and go back to a 4% 10y, and it has been the easiest trade of all time. But we all know that there are times when the bond markets are invaded by unnatural leveraged participants and by those fleeing risk. This is one of those times. The yield on US10s isn't ridiculously low, but the yield on German bunds is. The spread arb thus created will remain but when bund yields turn upwards, so will EURUSD and US10s as well. Chasing and owning parabolic vehicles never works out well.

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Leftback
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January 31, 2015 at 3:52 PM ×

One hates to lecture punters on the history of Yoorp, but there are some interesting back stories to what is currently playing out with Greece and its chief antagonist, Germany. From the BBC:

"For both Syriza and its coalition partner, the centre-right Independent Greeks, the Nazi occupation of their country during World War Two looms large.

Syriza wants Germany to repay a loan that the Nazis forced the Bank of Greece to pay during the occupation. That would work out at an estimated €11bn ($12.5bn; £8.2bn) today. The Independent Greeks also want Germany to pay war reparations."

This is clever. The Greeks have a long memory of what was a very brutal occupation that is to some extent recapitulated on their beaches and islands every summer. Many Germans are still obsessed with national guilt over WW2, and this will strike a nerve in the national psyche at some level. There is one more thing that Germany would do well to remember, especially Mangler, when she is forced to deal with the Lederhosen-wearing lunatic fringe of the CSU on which some of her power rests.

"Syriza wants a European Debt Conference modelled on the London Debt Conference of 1953, when half of Germany's post-World War Two debt was written off, leading to a sharp increase in economic growth. If it happened for Germany, it can happen for Greece, the party argues."

This is also extremely clever. Germany was granted debt relief even after years of largely self-inflicted destruction brought on by empire building and genocide. Surely the Greeks deserve some relief from the activity of a rapacious and criminal elite?

Germans may be at times stubborn (!) but they are also logical and can be reasonable to a fault when presented with a water-tight argument that benefits all parties involved, which is where this ends.

Full disclosure, LB speaks the language, and likes Germany a great deal, even the conservative inhabitants of Bavaria - although a few of them are really out of their minds economically speaking.

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Bruce in Tennessee
admin
January 31, 2015 at 4:14 PM ×

I can't help it. I must comment as a long term but interested amateur. Why shouldn't we chase yield, or the decline in yield from the long US bond?

I own one thing, and it is always the way I've done it..invest in my best idea and work at it...TMF lately. If it doesn't work out, that's the reason God and Lloyd invented stops.

Yes, I like to compare irrational but well thought out ideas against my rational but well thought out ideas, (daily!) and see where I have a puncture as the Brits might say..then I change.

Lefty, keep us informed!

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Anonymous
admin
February 1, 2015 at 12:06 AM ×

Fair point about too many anons. Anon 1:05/2:50 will post, if she ever does again, as "Cha Cha" (as in Muldowney)
Cha Cha has read this blog frequently since 2008, and would like to offer a belated thanks for all of the the effort put in here.

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I'm not a robot
admin
February 1, 2015 at 12:57 AM ×

Lot of LB fans including this anon..and Karen somewhere who use to post here too!

http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/01/dollarabove200smahittingresistancejan28.jpg

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Gus
admin
February 1, 2015 at 6:26 AM ×

Greece: a country where dodging taxes is “part of the DNA”. The habit first began as an act of patriotic resistance against Ottoman rule, but the incompetence of successive Greek governments over the generations has given many Greeks an excuse to continue the tradition.

Greece owes EU troika creditors a massive £35bn in unpaid taxes.

The IMF said in a recent report that wealthy Greeks, along with self-employed professionals such as doctors, dentists and lawyers, continue to evade taxes “on an astonishing scale”.

http://www.telegraph.co.uk/news/worldnews/europe/greece/11381653/Death-threats-forced-me-to-quit-my-job-says-Greeces-top-tax-man.html

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Anonymous
admin
February 1, 2015 at 8:25 AM ×

Holy cow, if Karen shows up, Ben22 and maybe even CNBC_Sucks can't be far behind! There are many more folks whose handles I can't quite remember, way back from the Big Picture days ;-) I think CV (not the CV on this site) is probably permanently retired from blog commentary; living off the grid and spending his mound of nickels.

Hi also to Bruce from TN -- good to see you again! I would think you rode that UUP bus to the moon by now ;-)

- Whammer

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Anonymous
admin
February 1, 2015 at 1:28 PM ×

"SELL THE EURO, against the US$ though, though it will recover if there are signs of a deal late next week or the following week. Please note that I am short the Euro against the US$, up to my maximum limit."

http://www.ritholtz.com/blog/2015/02/sarkar-on-greece/

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Bruce in Tennessee
admin
February 1, 2015 at 1:57 PM ×

Yes, Whammer, it is good to be back! By the way, I always have a problem when my wonderful, well- reasoned theory runs in Mr. Market's STUPID reality! (Makes me cranky....!)

Where is Ben 22 anyway?

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Anonymous
admin
February 1, 2015 at 6:52 PM ×

Bruce, I actually meant UPRO rather than UUP ;-)

I have heard, but not 100% confirmed, that Ben22 is now on Twitter as @FatF1nger. Mainly talking about commodity trading as far as I can tell.

I also see Kid Dynamite on Twitter.

- Whammer

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River
admin
February 2, 2015 at 1:20 AM ×

@Bruce,

b22 is here:

https://twitter.com/@FatF1nger

I-Man here:

https://twitter.com/6Epro

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checkmate
admin
February 2, 2015 at 10:30 AM ×

The JYen/USD is setting up to blow. Is that eleven sessions of compression?

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Anonymous
admin
February 2, 2015 at 2:14 PM ×

A Liberal parliamentarian was quoted leaving the ECB Greek bailout talks as word had it he just decided that talks had been woven decidely beforehand and that any input from himself will only cause more subterfuge behind close doors from ALL parties concern..." within the system of free will, this is a case that never stops giving"

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FunnyMoney
admin
February 2, 2015 at 8:47 PM ×

Above, I said:

"Why do you all try to be so clever (and fail)? The BoJ and PBoC are buying EU equities as we speak. The ECB will soon flood Europe with liquidity. The Fed will NEVER significantly raise rates again in your lifetimes.
My portfolio is 200% long equities on a 70:30 EU/US mix. I will outperform all of you combined by year end."

Well equities are SOARING today - and will continue to SOAR to unparalleled heights - as the WHOLE WORLD goes long. I guess I will outperfom all of you combined by month-end.

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Cindy Dy
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February 3, 2015 at 6:57 AM × This comment has been removed by a blog administrator.
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