Correctamundo

February has not exactly gotten off to a wonderful start for a number of consensus positions in macro-land.  The euro, for example, has strayed back to the neighbourhood prevailing around the time of the ECB announcement.....



...though it must be said that the attention paid to this development in some quarters is hardly commensurate with what has, after all, been a very modest correction given the magnitude of the move.    Those prescient (or at least brave) enough to have bought USD/CHF after the SNB carnage and held onto it remain close to their high water mark on the trade.

A  roughly 20% rally in the price of oil over the span of 72 hours would ordinarily have the klaxons blaring.....these days, however, it almost literally barely registers on the chart.   Of course, anyone unlucky enough to have allocated into trend followers at the end of January will no doubt be feeling the pain.


Perhaps not coincidentally, high yield has continued its drift higher, with HYG registering its highest daily price close since the end of November.  Your author has difficulty in believing that equities can meaningfully top without substantial and sustained weakness in credit as a predecessor.



That having been said, there are times when the near-term outlook for stocks appears somewhat less rosy.  While a number of indicators, particularly those capturing the financial liquidity environment, continue to flash "all systems go", others- such as those driven by earnings growth- may be starting to flicker somewhat amber.  

While Macro Man's "predicted 12 month return" model continues to love love love the SPX, another model that he runs in conjunction with it is less upbeat.  He has assembled a simple 5 factor scorecard (don't ask what the factors are, 'cause he ain't telling), with each factor generating a +1/-1 signal.  

Since the spring of 2010, the scorecard has been rampantly bullish the SPX, registering its maximum signal for every month but one (US downgrade fever in the summer of 2011) over that period.  Actually, make that every month but two- when he ran the model at the end of January, one of the factors had flipped negative.




Although a scorecard reading of 3 continues to warrant equity length, Macro Man's research suggests that positioning should be less aggressive than with a maximum signal.  Whether this is a prelude to something bigger or merely a temporary blip or correction remains to be seen; it's often been said that one should not pre-empt or predict a model's evolution, and in Macro Man's experience that is correctamundo.
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washedup
admin
February 4, 2015 at 12:12 PM ×

MM - have you run granger causality on global equities and/or DXY vs crude? I have been getting much higher readings than usual for crude 'driving' these other markets in the last 2 weeks on a rolling basis, not just being correlated - I suspect that if I had access to intraday tic data that it would be an even higher read.
If the answer is 'yes all you have to do is figure out what crude will do next' then might as well fold here - liking crude here is a bit like falling in love with a stripper - many superficial reasons to do so with a higher than normal probability of making a costly mistake.

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Polemic
admin
February 4, 2015 at 12:16 PM ×

I'm confusing myself with my thoughts.

Oil has just proven that the steering on its price direction has at least 20% of slack in it due to spec. As proven over last 3 days as you don't get 20% moves on real change in supply an demand. Only expected and the rest i spec from there on. So, having known that specs were short and that was a fk fest in CTA land I m left wondering what next . so have closed my oil related longs.

Commodities though .. they are looking tempting for the next super cycle.

further confused thoughts at the other place

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washedup
admin
February 4, 2015 at 12:26 PM ×

"they are looking tempting for the next super cycle."
Hope you are a young man, Pol.

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checkmate
admin
February 4, 2015 at 1:33 PM ×


Pol.
"at least 20% of slack in it due to spec". I think you could make some other comments that arise out of that statement. Namely to do with liquidity and the lack of any 'fundamental' anchors.

My summation of markets in general is found in the title of this song ;
"Tried Used Loved Abused" and interesting that the lyric goes " I am a promise you will break".

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Polemic
admin
February 4, 2015 at 1:40 PM ×

Washed up - I am a 19yr old. ( at least thats what my wife tells me)

checkmate - yes .. add all of that in, but what ever it is it means its subject to huge whippiness other than the real global extract/burn supply/demand side.

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mattyboy
admin
February 4, 2015 at 1:48 PM ×

@washedup: love the analogy!!

further to my comment last night on US longs. what has cheapened has gotten a little cheaper this morning on the back of this ADP print. longs at around 2.42%, higher by 5bps. crude looking a little wobbly but hard to read too much into these intraday price swings, they just distract you. a continuation of this backup in yields to the 2.50-2.55 level you referenced as prior resistance would be my "back up the cruise ship" level. exciting day ahead i'm sure.

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Bruce in Tennessee
admin
February 4, 2015 at 3:20 PM ×

Polemic said...

Washed up - I am a 19yr old. ( at least thats what my wife tells me)

Ha! Mine tells me I am, and will always be, 8 years old.

(Gotta go, time for my juice and nap.)

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Mr. T
admin
February 4, 2015 at 4:27 PM ×

Biotechs with another down day on the same thesis as a couple weeks ago, namely long term pricing pressure. Between PBM's negotiating and a broad set of biosimilars coming online, its only a matter of time until this thesis gets a lot more airtime. I'm no biotech expert, but the sector has been a cornerstone of the US equity rally.

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Anonymous
admin
February 4, 2015 at 9:16 PM ×

What happened in the last minutes?

Is something happening?

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hipper
admin
February 4, 2015 at 9:51 PM ×

LOL. Well no surprise actually, considering what the Mangler told us already a while ago: Greece isn't strategically important.

So maybe they actually are willing to make an example out of it after all, for other ugly ducklings that are watching closely and considering if they too could get their way.

Maybe this is just a negotiation tactic: if their administration yields, fine, if they don't, bye bye. No hard feelings either way.

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FunnyMoney
admin
February 4, 2015 at 9:51 PM ×

Nice opportunity to load up on more equity longs - this recent statement from the ECB is completely over-hyped: http://www.bloomberg.com/news/articles/2015-02-04/what-the-ecb-s-move-on-greek-government-debt-is-really-all-about

I reckon SP500 etc will be making new highs by the time the snow melts...

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jowsef
admin
February 4, 2015 at 10:21 PM ×

Pretty sure this is not over-hyped. Syriza is not going back down because their whole mandate is against "programmes". This means grexit sooner rather than later, euro to parity and snp to the toilet, probably by the time the snow melts

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washedup
admin
February 4, 2015 at 10:50 PM ×

@funny/@jowsef
its time u (both) admitted ur the same person - we're on 2 u.

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Nico G
admin
February 4, 2015 at 11:07 PM ×

some people should do more reading on Greece, or travel there to understand how serious things are there. Syriza is a collection of revolutionaries, nothing like the sold politicians you and i have been accustomed to since the day we're born.

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Polemic
admin
February 4, 2015 at 11:12 PM ×

Greece should sell all their landmass apart from one office in Athens to another EC country (lithuania?) but under autonomous rule . All the debt will be in one filing cabinet. A bit like burying nuclear waste.

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Dan
admin
February 5, 2015 at 12:07 AM ×

@nico

yanis-v is a self-described "ilbertarian-communist". that is a paradox, no?

before we start using dropping adjectives like revolutionaries to describe people, let's agree on what that word means in the context of thousands of years of human history as well as in the present day.

i don't see anything revolutionary about asking for a write-down which is the fundamental plank of the syriza platform, correct?

a financial revolutionary would be more along the lines of advocating for a capital formation and distribution system that wasn't based on credit growth.

yanis (see leadership roster) can't be a political revolutionary if he wants to stay in the EU.

hot air, my man.

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Anonymous
admin
February 5, 2015 at 1:02 AM ×

Didier Sornette:

There is evidence of an imminent Risk-on to Risk-off switch in global markets.

http://www.er.ethz.ch/fco/FCO_ETHZ-Cockpit_1Feb2015.pdf

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Leftback
admin
February 5, 2015 at 4:15 AM ×

The game of bluff and counter-bluff continues. ECB has too much to lose and only needs to pay a small price to Greece to keep all the other plates spinning. Agree on the hype surrounding Syriza. They are socialists, but not nihilists of the Islamic State variety.

In other news, New York and Connecticut have signed a new contract with Malaysian Airlines to take over the railway system from Metro North, as this will "result in a dramatically improved safety culture", said Govs. Andrew Cuomo and Dan Malloy. LB is staying indoors for a bit with his snow shovel handy before commuting again.

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CV
admin
February 5, 2015 at 7:30 AM ×

One thing people are missing here I feel is that while Syriza has a political mandate to get a better deal, it does not have a mandate to run the economy off a cliff! The ECB/EU know this ... and in secrecy it is pretty obvious that they are (also) pushing for the coalition to break up ... new election, with a more lenient opposition.

Syriza's position is not strong. Also, the whole idea of a paradise of cheap olive oil and feta cheese after a 50% devaluation is naive to the extreme. Sorry guys, what do you think will happen to Greece as member of the POLITICAL EU after a huge competitive devaluation AND a default on its main trading partners. Do you think Germany will just ... oh, well ... water on the bridge, let us buy some cheap Greek goods?! Do you think Portugal, Spain will do the same or join the rest of EU in driving Greece to the dumps?!

An example will be made of Greece, and this is exactly what the EU is communicating to Syriza. For this to work, Greece (Italy, Spain and Portugal) would need to take the reins, as it were, and team up ... I don't see that happening with Draghi doing what he is doing ... much better to stay in with a dovish ECB than trying to make it outside.

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Anonymous
admin
February 5, 2015 at 8:14 AM ×

"don't ask what the factors are, 'cause he ain't telling"

Heads = +1
Tails = -1
rinse and repeat 5 times?

that can go toe to toe with most black box hit ratio / alpha generation models....

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FunnyMoney
admin
February 5, 2015 at 8:33 AM ×

Last night I said: "Nice opportunity to load up on more equity longs - this recent statement from the ECB is completely over-hyped..."

Dax up +0.7% so far this morning, SP500 & Nasdaq also rising... :)

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Cityhunter
admin
February 5, 2015 at 9:36 AM ×

@FunnyMoney, I admire your courage to BTFD but the blog is not about showing off...It's about INTELLIGENT DISCUSSION. U aint going any far in ur way.

ECB is clearly teaming up with Merkel, which is probably part of the conditions for ECB to go QE.

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checkmate
admin
February 5, 2015 at 9:50 AM ×

"ECB is clearly teaming up with Merkel, which is probably part of the conditions for ECB to go QE"

I wondered when this would get aired. Certainly occurred to me also if only because the timing of events suggested the possibility of same.

As for FM ,oh great one thou style might 'reek' ,but I can't say I see it differently in this case. Indeed your stance is not mutually exclusive to the above statement. Bright shiny new monetary policy from ECB rubber stamped in Germany in the expectation of Greek gamesmanship all targeted to reduce contagion of same so that 'what happens in Greece stays in Greece' :)

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FunnyMoney
admin
February 5, 2015 at 10:10 AM ×

@Cityhunter/checkmate et al...
There's nothing intelligent in these markets - in a way that's my main point: intelligence gets penalized.

The CB's are run by assh*les, who will print forever. As Jim Rogers correctly says, they know nothing else.

Nevertheless, I've made my point, and I understand why you don't want to hear anything further from me. I'll now depart & leave you all in peace.

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checkmate
admin
February 5, 2015 at 1:08 PM ×

No one said "they didn't want to hear from you", but I would say to you ask yourself what was your goal in coming onto this forum and posting as you did? What were you looking to achieve? If you didn't achieve your goal and judging by your 'exit' you did not then ask yourself could you have presented your ideas in a different way and received a different response?

As to 'intelligent', or lack of it, there's been enough content here in the last couple of years to suggest differently. That's just my opinion of course.

As for Greece they are not the first govt to come to office promising that which is impossible to deliver. There's almost certainly a deal for them ,but will it be enough for them to sell to their voters? The deal whatever it turns out to be will almost certainly be formed in the knowledge that all onlookers will be weighing it up in terms of what precedent does it create for other PIIGS and because of that it's not going to come near to electoral promises in Greece. The real question is does the new party already realise that and have they already factored it into their plans. If as we are given to believe the majority of Greeks wish to retain the Euro then that limits the idea of an exit /default so where are these parties going to end up meeting? This fight looks skewed to the German position unless the Greeks have already got themselves backing from the rest.

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Anonymous
admin
February 5, 2015 at 1:16 PM ×

Chris Caldwell on Greece:
"Greece is a particularly puzzling case. It has debts too large to pay. What usually keeps countries from welshing on their obligations is a concern for their reputation and their national honor. Yet Greece has incurred these debts as a way of staying in a union that aims, whether its promoters admit it or not, to do away with national feeling altogether. Greece, it would seem, is ephemeral. But Greece’s debt payments are meant to echo through the ages."

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Nico G
admin
February 5, 2015 at 1:24 PM ×

don't be assholes book your Greek holiday this year they will need it

wink

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checkmate
admin
February 5, 2015 at 1:36 PM ×

Nico,
Greece is one of my two most favourite destinations. I'll be there twice without fail regardless of what is going on.
That my other favourite is Italy makes me wonder what it says about me.

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Anonymous
admin
February 5, 2015 at 2:53 PM ×

Since 2007, global debt has increased by $57 trillion, outpacing world GDP growth...

http://www.mckinsey.com/Insights/Economic_Studies/Debt_and_not_much_deleveraging

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Bruce in Tennessee
admin
February 5, 2015 at 3:05 PM ×

http://finance.yahoo.com/news/buffett-fed-rate-hike-not-221753590.html

Buffett: Fed rate hike not feasible


Uncle Warren...don't worry your little fat head...I expect you will get advance notice if it comes...

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Gus
admin
February 5, 2015 at 3:15 PM ×

At around 180% of the gross domestic product, Greece’s debt is unsustainable over the long term. Newly minted Prime Minister Alexis Tsipras campaigned on the promise of seeking a write-down on the country’s debt, a “haircut” so to speak, which many European finance and government officials have dismissed as out of the question. A more likely offer from the troika: a deadline extension for Greece to qualify for its next bailout aid installment.

Because of the heavy borrowing that led to Greece’s financial crisis, running a budget surplus was one of the conditions of the European rescue program in 2010. The new government wants the troika to lower this requirement of surplus to a balanced budget, freeing up cash for more government spending. In addition, structural reforms have been points of contention, with the troika wanting to see more labor market flexibility and market competitiveness, while the new coalition is looking to ramp up government hiring and increase the social safety net.

A high level of friction and difficult negotiations between the two sides would not surprise us, but there are great incentives to compromise. Despite the strong anti-austerity sentiment, most Greeks want their country to stay in the currency union. What also hasn’t changed: Greece needs access to international funding. The ECB could potentially purchase Greek sovereign bonds down the road—assuming Greece remains faithful to the outlines of its reform program—as part of their new quantitative easing initiative, thereby lowering borrowing costs and providing more liquidity to Greece. That said, it is also in the best interest of Europe to make some concessions, so to avoid the contagion risks associated with a Greek exit from the eurozone.

Key dates to watch:

Mid-February: The European Union is likely to grant an extension to the bailout timetable.

End of June: When bond payments to the ECB come due.

http://www.blackrockblog.com/2015/01/29/act-greek-drama/

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abee crombie
admin
February 5, 2015 at 3:30 PM ×

MM, you are correct that HYG/JNK is doing ok here, but I have been looking at the more spec side of high yield, the B, CCC and defaulted space. Lots of carnage there (mostly for good reason I might add, look at GYMB, JNY or Claires) That part of the market still isnt giving the all clear and is most likely being propped up by equities, not by flows, as that market is so thin nowadays

For now I would concede HY is in no mans land. Maybe the bottom was put in december, but the current rally doesnt feel to strong to me just yet.

Cheers Mr T. I need to keep an eye on Biotech. it is a good harbinger of the market, IMO

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Leftback
admin
February 5, 2015 at 3:58 PM ×

LB is exiting the last of his US equity longs today (a New Year mistake) on the back of this short squeeze. It's possible that tomorrow's number will fit the current narrative of a strengthening job market and US economy leading to Janet hiking her skirts, but we think risk of disappointment is rising. We have been short the long bond for a bit (which was also a mistake, at least in timing), and we are exiting that today as well.

Lost in the noise about Greece there have been more than a few signs that European macro is improving, albeit from a low level. Take the recent EZ PMIs and growth forecasts, combine those with a possible soft NFP number tomorrow and still very large EURUSD short positioning, and you have the ingredients of a rather tasty FX squeeze.

In other news, we are ignoring the $wtic and remain focused on generally constructive price action in Brent, which is reflected in our long-dated BP calls. The Brent-wti spread is back.

Right, time to start NFP bingo? Eyes Down. LB will start the ball rolling with 145k, although there is a small possibility of a real stinker depending on how many "seasonal adjustments" are involved. Oil patch layoffs and holiday staff roll-offs are coming, either now or next time. Either way, the US equity market feels ripe for a dump.

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hipper
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February 5, 2015 at 4:10 PM ×

Exactly was thinking the same LB, did USD pull a handbrake turn here along with his commodity buds?

Bad current account/unemployment data mirrored off the high expectations vs. nicer looking EZ PMI's and retail sales mirrored from lower expectations. Have to agree with Gus here, probably some kind of bailout qualification extension will be presented especially in the context of majority of Greeks wanting to stay. Surely some more soap opera along it, but Mr. Market might get bored rather sooner than later. Any kind of deal is equivalent for a huge "victory" for the coherence of EZ.

EM/metal/oil risk on? Looking at BBL, FCX etc. and some driller from lower end of risk spectrum like ESV.

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CV
admin
February 5, 2015 at 4:14 PM ×

Hmm 145k LB, that would be a stinker I think! I tend to agree with MM on equities here (down a notch and all that), but I think the key point comes from Abee and how HY is in "no-man's land." I think the same applies for Spoos. I think it is perfectly reasonable to expect this thing to do absolutely nothing as the market weighs when, if, and how the Fed intends to exit the greatest monetary experiment ever. This is not only a question of the US economy potentially being buggered by rate hikes, but also about whether you believe in a world after QE ... Many investors are, as of this point, still undecided I think.

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washedup
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February 5, 2015 at 4:16 PM ×

@LB - agree with all your thoughts, and shorting long dtd bonds contrary to your fundamental view and coming out ahead (I assume!) was quite the ninja move, and one I am not capable of - I have started to nibble away at TLT here though.

As for Equities - they are between a lubricating jelly covered rock and a titanium re-inforced hard place, so I expect pain for both bulls and bears aplenty while the mkt basically goes nowhere for the next few weeks - I guess the brave could sell vol and walk away, but this mkt will too much of a six flags experience for that to be easy.

Currencies are the hardest, but dare i say sideways also?

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Leftback
admin
February 5, 2015 at 4:44 PM ×

hipper - ESV looks the best of the drillers as far as the balance sheet? We are long ESV calls.

washed - actually c*cked the timing of the short TLT trade up six ways from Sunday, just want to get out alive...!!

MM - another Liverpool v West Ham final is still a possibility...?

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Mr. T
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February 5, 2015 at 7:33 PM ×

Does payrolls even matter anymore? It seemed much more relevant back in the day when we felt fed policy was in fact data driven - there was a feeling that a 6.5% print would light a fuse on higher rates. I don't know about the rest of you, but that feeling is 100% gone. The Fed still insists their decisions are based on data, but its really not clear beyond DXY and SPX what that data actually would be. Yellen has talked down the importance of the headline number enough - in favor of her more nuanced look at the data - that the actual report without context to the rest of the incoming data seems meaningless.

Maybe it was always like this, and I misunderstood the situation (seems likely). Either way, I see 230 as consensus with 1SD being 208/248, and feel that it could be -200 or +500 and it would not really matter all that much.

I'm nostalgic for a market when stuff like this mattered.

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Leftback
admin
February 5, 2015 at 8:50 PM ×

"Does payrolls even matter anymore?"

NO, but we're trying to organize NFP Friday Bingo....

Bucky has had a rather limp day since Uncle Warren and others made comments about his recent firmness, and how unwise it would be for Dame Janet to do anything to bolster his rigidity.

LB is completely out of US equity and fixed income longs. It's more fun to be a spectator on BLS Fridays.

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abee crombie
admin
February 5, 2015 at 8:50 PM ×

Mr T, its all about the esoteric Avg Hourly Earnings now. (and hours worked)

Yellen is the labour economist so I hear your pain regarding the insignificance of the headline number, but the fed is of the view that there is still substantial slack in the labour markets. that thesis needs to change, otherwise we muddle along.

I would actually like to see the S&P make a new high. Then if it reverses, fine, short the damn thing as there are tones of divergences here. Sitting in this 50 point range is useless unless you are day trading, where you can probably clean up

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Anonymous
admin
February 5, 2015 at 10:06 PM ×

Steen Jakobsen: Why I've changed my mind on a US rate rise

"Yes, the point is this: Central banks are dogmatic - they want to raise rates, whether it make sense or not... I think there is small risk of pause in yield, but German bunds will be below ZERO sometime this year, and best fundamental value remains in 10Y and to some extend 30Y US, but we are in 8th inning now - FOMC and consensus is too high on growth forecasts in 2015 which will make them
"wrongly" hike...only to reduce in early 2016."


https://www.tradingfloor.com/posts/jakobsen-why-ive-changed-my-mind-on-a-us-rate-rise-3549934

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Anonymous
admin
February 5, 2015 at 10:24 PM ×

S&P earnings estimates for 2015 have collapsed in just one month. On Jan 1, estimates were for $131 (+15%). Today just $119.76 (+5%).

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Anonymous
admin
February 5, 2015 at 10:27 PM ×

US 10y yield headed below 1% says SocGen's Albert Edwards. The "deflationary fault line" on which US sits just as precarious as euro zone's

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Polemic
admin
February 5, 2015 at 11:16 PM ×

Uncle Albert is the zero hedge of respectability.

If Jakobsen can change his mind on US rates he can change them on bund yields.

sorry folks but I'm sticking to my European ang global growth scenario even if US does waiver in its path. And Re the earnings expectations.. so what do we think is keeping stock prices high if it isn't yield differentials?

Sticking with a 1994 rate adjustment and with it a stock shock as everything is about to disconnect.

Oh and can our US readers please lobby their president not to set off WW3 in Ukraine please? Unless they can win it in a day without any colateral damage. But history would suggest unlikely.

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Anonymous
admin
February 6, 2015 at 12:48 AM ×

FXCM CEO in Dec: “Currencies don’t move that much. if you had no leverage, nobody would trade.”

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Anonymous
admin
February 6, 2015 at 2:01 AM ×

Cha cha spent the day skiing for the first time in nearly a decade. She was amazed at how many other 50-60 year olds were out there, but since Cha cha's favorite resort does not allow snow boards, there may be a skew there. So far Cha cha will claim to have nailed the bottom in both oil and copper, although now that she has they will both likely reverse. Cha cha won't care, at least not tomorrow, because she can't ski and think at the same time.

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checkmate
admin
February 6, 2015 at 9:11 AM ×

"because she can't ski and think at the same time"
Yet another myth broken. So much for the age old claim of women to be the masters of multi-tasking.
Men take back your world!

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