A multiple choice quiz

Yesterday's minutes reveal that the Fed is:

a) Justifiably concerned about the lack of global demand

b) Ignoring nascent signs of recovery in Europe, so get ready for another U turn

c)  Tick watching the dollar TWI

d) Proving that when push comes to shove, they don't have what it takes to leave ZIRP

e) Clueless

f) Actually "Funny Money" from the comments section, so JBTFD; heck, JPTFO!
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Anonymous
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February 19, 2015 at 9:08 AM ×

what's JPTFO? Google didn't help

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Polemic
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February 19, 2015 at 9:48 AM ×

just pay the f'ing offer?

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Anonymous
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February 19, 2015 at 9:50 AM ×

a)yes
b)just a reallocation of currency gains - from US/Japan back to EU, so rightfully ignoring the upturn - will fade in Q3
c) yup
d) no, actually unearthing that NIRP from the lower drawers of janets desk
e) => d
f) ?

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1.58
admin
February 19, 2015 at 12:19 PM ×

1. Yourself, and a handful of other voting participants enter a room and try to reach an agreement on monetary policy. On one hand, not raising rates and pin pricking an asset bubble sounds like a solid decision. On the other, raising rates would be good in such that interest income can be meaningful and compensate investors for their real risks. However, since it is a relatively high profile decision and being economists, but "not traders", they seek to maximize their outcomes by not destroying their own careers, and in doing so, have a chair when the whole "monetary policy does work" music stops and everyone realizes there were actually never chairs to begin with but that's tangential at best.

What do you do, assuming a rational decision making process -- pick any process, as long as its defendable in a whispered private conversation.

A) Cloud around and reverse tone from the last hawkish meeting -- because fuck everyone (this job sounded good when the recruiter first pitched it.) As it stands today, June is way the fuck too early to raise rates and skirt the blame for buggering up capitalism as we know it. Let the capitalists hit the trampoline after a fifth of scotch and some cigars that you so courteously supplied as a gracious host at the party. It wasn't you who insisted on finishing the bottle. Monetary Policy: Cloudy with a chance of pleading the fifth.

B) Go ahead and raise rates anyway -- because fuck everyone. If not now, then when -- on both accounts. ZIRP and QE were meant as crisis resolution tools. Though politically popular to stimulate through lowering interest rates (GET YOUR FREE LUNCH HERE,) without a backbone of growing demand/income it's agreed its mirthless. At that moment, back then, everyone in the room agreed that the short term costs of not lowering rates outweighed the medium and long term costs of the riskless rate of return. 6 - 7 years later, every rug store has been searched for a carpet large enough to sweep the pensions and insurance companies under but alas, the search continues.

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Macro Man
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February 19, 2015 at 12:30 PM ×

Perhaps unsurprisingly, Polemic is right on JPTFO.

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Mr. T
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February 19, 2015 at 1:04 PM ×

I think they genuinely want to raise and normalize policy, believe in the strength of the economy, but are terrified about market dislocations from lack of CB coordination resulting in capital flows they cannot control. They have opened a Pandora's box. I guess that makes my choice "D".

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Bruce in Tennessee
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February 19, 2015 at 1:19 PM ×


" As it stands today, June is way the fuck too early to raise rates and skirt the blame for buggering up capitalism as we know it."

...Do you mean the capitalism of the last 7 or so years, or capitalism we used to, er, "know"...whatever that was.

...D. And thank you.

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1.58
admin
February 19, 2015 at 1:37 PM ×

Capitalism as it was known 7+ years ago. Whatever that was, and interpret that as you will.

I'll also just leave this here: http://money.cnn.com/2015/02/18/technology/snapchat-19-billion-valuation/

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Leftback
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February 19, 2015 at 2:44 PM ×

a) yes
b) yes
c) yes*
d) yes - Dame Janet writing a QE4 speech for J-Hole.
e) yes
f) possibly - you think FM is Kocherlakota?

*Corporate America is calling every time DX gets near 95, so they are certainly watching Bucky like a hawk.

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Leftback
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February 19, 2015 at 2:51 PM ×

IN other news, Mangler and her underlings have turned down yet another marriage proposal from the Greeks. Regular readers of MM will recognize this week's events as Panto, European style.

"We're going to leave you for Vlad"
"Oh no, you wouldn't"
"Oh yes we would"
"We want an extension"
"Oh no, we won't"
"I bet you will"

etc...

What we are watching at the moment is a domestic pantomime staged for the benefit of Mangler and Schäuble's core CSU and CDU supporters, who really don't want those profligate Greeks to get any more of the Schwäbische Hausfrau's hard-earned savings etc... (they will, though!!)

In the end there will be some odd semantic solution to the impasse and everyone will be happy, but mainly at Deutsche Bank, when all the tail risk options they sold expire worthless. The fact that they already extended the ELA to the Greek banks was a pretty good indication of where this will end up, and it isn't Cyprus this time, or Grexit, for the time being.

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Leftback
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February 19, 2015 at 3:00 PM ×

P.S. Has anyone noticed that the old "wti-Brent" spread is back with a vengeance? Since there really and truly isn't much exchange between those two markets, we are starting to see this manifestation of two distinct dynamics of supply/demand.

In the US, we are awash with the stuff, we are pumping like there is no tomorrow, our currency is too high and our economy is actually slowing. These are all good reasons not to be long US energy producers. In the rest of the world, supply is tighter, and demand is likely to be firm as Europe recovers a bit and China, India and Japan remain large consumers of oil.

So as a pairs trade, not only does long Brent short wtic make sense, but so does long European integrated energy companies and short XLE.

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Polemic
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February 19, 2015 at 3:23 PM × This comment has been removed by the author.
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Polemic
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February 19, 2015 at 3:24 PM ×

As a new armchair oil sheik, I having been watching that WTI/Brent 20% spread with interest. And I am noting that Brent is leading WTI for general direction .brent started the up leg before WTi and dragged it up and Brent put in a lovely doji on he charts 2 days ago and has technically led the way back down.

But then it is the master oil, the reference rate. WTI is but a secondary, even if the US think it makes the world go around.

Brent is soccer to WTI's American football.

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abee crombie
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February 19, 2015 at 3:36 PM ×

apparently Brent storage is gonna fill up soon, something to watch we go forward

It should therefore be clear to everyone, even after yesterday's free shot, that the big story is not in Club USA. We have to follow the stronger beat and the more aggressive QE. My top choice is Frankfurt, but I could certainly spend a few weekends a month in Tokyo! Most importantly though, one cannot afford to arrive at this international party scene too late. The tables are going to get much more expensive as we move through 2015 and into 2016.....BTDD!

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Leftback
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February 19, 2015 at 3:41 PM ×

Next big story, massive rotation of hot money / safe haven seekers out of US and into Europe and other global markets. Even noted non-bears like Jack Ablin have already noted the mismatch in dividends and P/E ratios that make the US far less attractive here.

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Polemic
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February 19, 2015 at 3:43 PM ×

On that subject today LB

http://polemics-pains.blogspot.co.uk/2015/02/today-i-saw-couple-of-references-to-eu.html

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FunnyMoney
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February 19, 2015 at 3:53 PM ×

d) Yes.
e) Very much yes.
f) Lol, but yes JBTFD.

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Bruce in Tennessee
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February 19, 2015 at 4:58 PM ×

" As it stands today, June is way the fuck too early to raise rates and skirt the blame for buggering up capitalism as we know it."


...Thanks for the response, 1.58, and I fixed it for you:

" As it stands today, June is way the fuck too early to raise rates and blame the skirt for buggering up capitalism as we know it."

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Mr. T
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February 19, 2015 at 6:00 PM ×

If anyone else out there has access to the PJ AMZN report this morning its definitely worth a read. There is no question its a ballsy call - he is way out of consensus and is giving a 2020 model. But the way he is discussing the business and valuation seems aggressive. (Not to mention the frequent references to robots as a driver of capex-free profits) From the note:

..especially as many have criticized its public valuation using what we believe are
overly simplistic and, in the case of company that grew gross profit at nearly 30% in its 21st
year of existence, archaic measurements of value


or

while Amazon is trading at 53x our 2016E non-GAAP EPS, this is not an especially
“premium” multiple given our modeled non-GAAP EPS growth of 80% in 2016


There is much more in there, but in the end he is backing out roughly 30% cagr in ebitda through 2020, and guess what amazing things happen. I bring this up not so much because people care about AMZN, but from a bottom-up perspective this is whats driving (or at least justifying) multiple expansion in the markets. Maybe this guy is right. Maybe AMZN will be doing $168bil in retail revs ($190bil total) in 2020, but is that driven by growth or taken from traditional retailers? Apple has really opened the prospects for what appears to be limitless growth from already huge bases.

Oh and at $475 price, AMZN will have EV of about $240bil on OCF of ~$7bil and FCF of about $2bil.

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Polemic
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February 19, 2015 at 6:03 PM ×

Great stuff mr T

Far too complicated for me. Do I buy it or sell it?

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Mr. T
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February 19, 2015 at 6:13 PM ×

Do I buy it or sell it?

Ha - I've got no pony in this game but if we are looking at 2020 numbers to justify current prices I'd be pretty nervous. Then again, I can't get through the door at home each night from the pile of AMZN boxes in front of my house.

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Leftback
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February 19, 2015 at 9:21 PM ×

Personally I am always loathe to buy ANY stock unless it:

1) Can pay me >3%/yr to own it (cf. medium-rated US munis).
2) Is priced at less than book value.
3) Isn't priced based on projected earnings growth, clicks or "eyeballs".
4) Isn't owned by huge numbers of retail/pension fund turkeys.
5) Isn't in any way popular to the extent of being discussed on TV*.

*unless they are all telling people to sell, sell, SELL.

Having said that - it's easy to satisfy almost all of the above criteria in Europe, US REITs and emerging markets right this minute.

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Mr. T
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February 19, 2015 at 10:18 PM ×

"eyeballs" - cmon LB, today its mau's and because of all the cash the preferred multiple is EV/MAU. This was a lot of the value call on FB today - apparently @ $140 per MAU is just too cheap based on 50% cagr topline through 2020.

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Anonymous
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February 19, 2015 at 10:23 PM ×

T...Might take the plunge on their R&D alone...

http://tinyurl.com/lmo6yft

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Anonymous
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February 19, 2015 at 11:40 PM ×

@Anon at 10:23 PM -- that is a pretty amazing chart! Also thanks for pointing me to that site in general -- very interesting.

- Whammer

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Anonymous
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February 20, 2015 at 3:16 AM ×

anon 10;23
CHA says
AMZN -so they get the award for spending the most money to loose 52 cents.

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Nico G
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February 20, 2015 at 9:56 AM ×

Michael Pettis wrote a brilliant piece on Greece. In our days of financial imbalances and malinvestment i can't stop loving the successful concept of 'lutte des classes' along the line of discriminatory financial knowledge. Lengthy but really worth the read if it only were for the historical reference

http://blog.mpettis.com/2015/02/syriza-and-the-french-indemnity-of-1871-73/

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Mr. T
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February 20, 2015 at 6:34 PM ×

Out of curiosity, do people here think that Greece actually matters to EUR, Bunds, BTP's, spoos even? Given how the market is jerking all over the place on headlines I'm starting to think maybe I am minimizing the concerns? I've been under the impression it really did not matter, a deal was always going to happen, contagion was not in the cards, etc. I truly don't understand why we are seeing moves that appear to be driven by Greek headlines.

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Gus
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February 20, 2015 at 8:10 PM ×

Anon@10:23PM

Try adding GOOGL and MSFT to your R&D chart, just for perspective.

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Anonymous
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February 22, 2015 at 2:10 PM ×

Weekly Spec Position Monitor

http://imgur.com/y2QpFFh

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Anonymous
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February 22, 2015 at 2:15 PM ×

Got it Gus, thanks.

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washedup
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February 23, 2015 at 12:33 AM ×

MM - regarding your previous post - nothing more than a hunch at this point, but the revisions seem to coincide with the same time US equities took off in early 2013 - perhaps they revised up asset values bringing down implied leverage?

After catching up on the MM postings for the last 2 weeks - clearly, quite the 2 week bacchanalia for the global reflationistas while I was off visiting the only big country with any true remaining inflation, and not just of the bad variety - India has a long way to go to become China, but since that is so 2010s, who gives a s@#t anyway.

So - everything is fine with the world, all we needed was for Europe to 'borrow' some growth from the US through currency transmission, while the oracles provided a gentle burial for Grexit.

But who said Europe was ever the problem anyway? There is a $10 TN beast called China that is a far bigger worry as far as global growth goes, than all of the US and Europe combined. Gotta love the debate over whether Europe may be able to surprise everyone by achieving a 1.1% growth rate in 2015 - no, seriously, it may even pull off a 1.3% if the Euro weakens some more.

In the meantime, the year of the sheep (to the slaughter) promises to generate near flat nominal growth in China, down from a 12% nominal growth just 2 years ago.

Left - re: ur bond trade timing - I (and U, seemingly) have painfully discovered that the Gods have a way of punishing punters who try to make cute timing bets against their core view, but have a strong hunch the right trade on the US long end is still to own it - as u said. need to make some calls on whether its 'beaten senseless' or not, but have a feeling we are close.

And FM, seriously? u are answering quizzes now??? It's taken all of 3 weeks for the cranky old geysers on this board to turn you from the lead character in Clockwork Orange, to Mrs Doubtfire - welcome to the erudite world of MM - hope you like sherry, mahogany pipes, and crackling fires! Great call on equities BTW - I question your methods but in our line of work, results are results.

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