How ya left?

So Greece is not, after all, leaving the euro....yet.  The recent agreement was as uninspiring as it was unsurprising, a classic example of the type of can-kicking that has led us to this point, some 5 years after Greece first descended into chaos.

That both the arguments and the solutions have not moved on tells us quite a bit about the situation; the interests of the Greeks on the one hand, and the Troika (or, to cut to the chase, ze Germans) on the other, are implacably opposed.   Neither can credibly give ground on the areas of fundamental dispute: the Greeks, because they literally cannot afford to pay and there is no realistic hope of changing that dynamic, and the Troika, because to forgive debt would open a Pandora's box that would likely result in the end of a few political careers.

Perhaps justifiably, the euro has essentially yawned at the news of the agreement; after all, Greece seems to go through showdowns quicker than some people go through bottles of shampoo.  And so how are we left?

* The dollar remains off of its highs...but not very much so

* The SPX and DAX are at all time highs

* Indices in Madrid and Milan, on the other hand, are at or below levels prevailing last June

* The US economy seems to be in a bit of a soft patch after several quarters of stellar growth

* The recent spate of horrible weather in the northeast doesn't seem likely to improve that in the near term

* The US short end is too low to add to shorts but too high to take profit on existing ones

* Crude oil seems to have stabilized, for the time being


* The ECB cranks up the QE machine soon

* The Fed seems unwilling to cause pain to anyone except owners of volatility

For Macro Man, it's a bit of an uninspiring confluence of factors- for the time being at least.  To be sure, it's always easy to find reasons for equities to go down...but then again, it's also easy to find reasons for them to go up- at the moment, it's hard to find much conviction.

As such, your author could easily see himself sticking with his positions- a modest EUR short, owning some downside and small steepeners in ED's- without doing much by way of adjustment this week.  It's one of the more refreshing aspects of trading for one's self- there is no implicit pressure to do something for the sake of doing it, such as one often finds on a professional trading floor.

More thinking, less doing.  That's the power of the home office!

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aw
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February 23, 2015 at 8:05 AM ×

Pretty good summary MM.

As you say, equities could justifiably head either way here, and the hardest trade seems to be long vol as nothing seems to have much impact anymore...

I, of course am long downside puts (ASX200); so am well accustomed to the difficulty of the trade, from a P/L standpoint at least!

And having the 'Home Office' setup is liberating, but I find you miss out having people so close to bounce ideas off, and to keep you from getting too excited and trying to out-trade HFT machines!

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Polemic
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February 23, 2015 at 10:58 AM ×

Agreee the 'difficult to play anything huge with conviction' idea. Except selling Bunds of course ;-)

Was great to see the fire break out in the EURDKK nightclub on Friday.

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Anonymous
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February 23, 2015 at 12:00 PM ×

Polemic, why you are so convinced about selling Bund, I am not that convinced, we are close to month end extensions, I do not expect Yellen to be that hawkish, plus ECB is coming into to town for some shopping!

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washedup
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February 23, 2015 at 1:05 PM ×

Pol I had the same tht as anon 12:00 - while I love the idea of selling bunds vs us govvies, I don't like the idea of selling em outright - this assumption that just because QE led to yields going up in the US means the exact same thing will repeat in Europe is just that, an assumption, and a very strong one at that.

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Anonymous
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February 23, 2015 at 1:28 PM ×

Washedup, it's not a bad assumption historically and it makes economic sense on the first bond QE'd. Worked in Japan too.

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Polemic
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February 23, 2015 at 1:52 PM ×

Globally Growth is returning.
EU growth is at a Nadir and is turning up.
QE is in the price (the only unknown is if they DON'T do it)
Bunds been safe haven through Greece ( diffusion of Greece focus should see spreads bund/periph tighten)
The deflation meme has been the cornerstone for many trades and a flip to the thought of inflation will be dramatic on bonds. .
Risk premia to return to bonds in general.
And finally -ve yields are an abhorrent aberration


I am not considering Yellen to be of influence.



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washedup
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February 23, 2015 at 2:06 PM ×

anon 1:28 (feel like I am responding to biblical verses with this addressing convention!)

The issue I have with the assumption is that a sample set of 2 doesn't make it statistically robust, so one must assess the similarities and differences qualitatively - the effectiveness of QE in taking yields up has nothing to do with actually stimulating activity and inflation breakevens, and everything to do with how stinky govvies can be made to look vs other alternatives.

It so turns out that US tried QE at a benign point in the EM cycle, with decreasing risk aversion, a weak dollar and (in hindsight) tepid P/E multiples, not to mention raging energy capex. Note that even after the recent 'carnage' in bonds, US 10 yr and 30 yr are both lower than when QE was started!

I am not sure its 'worked' in Japan either, other than for brief windows where risk was on globally, only to eventually come back and hug the eventual asymptote.

I would humbly suggest that the starting point for European QE is less than sub-optimal - if it works, it will be because global IP, led by the US, picks up for (and this is key) reasons completely independent of European QE, and not otherwise - if you have any doubts that correlation is often confused with causation to disastrous consequences, a re-read of the Old Book may be in order!

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1.58
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February 23, 2015 at 4:04 PM ×

How much impact can the stronger dollar have on American exporters?

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Anonymous
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February 23, 2015 at 4:29 PM ×

The ON RRP idea...
" What if the Fed announces the long-awaited interest rate rise, the Fed starts paying banks 50 bp on reserves and.. nothing happens. Deposit rates stay at zero, treasury rates stay at zero. Congress notices "the Fed paying big banks billions of dollars to sit on money and not lend it out to needy businesses and households." Mostly foreign big banks by the way. Nightmare scenario for the Fed."

http://johnhcochrane.blogspot.in/2015/02/liftoff-levers.html?m=1

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Anonymous
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February 23, 2015 at 4:31 PM ×

I do not understand how bunds or HG credit in Europe can be considered investable assets any more. Yields are through 100 year tights in a fiat system with a central bank declaring war on deflation and depreciating their currency. The crisis that destroyed growth and inflation in Europe was the 2011-2012 Eurozone credit crisis + the fiscal adjustments made in 2011-2014. I don't get how we are past all that now and things are turning up but rates are down here but then my record on macro is worse than a monkey and a dartboard so no doubt a bearish view on 10y bunds at 36bp will be slaughtered over the next 6 months with momentum and qe.

It does feel like a mania though, the end result of one of the most powerful trends in recent times

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Anonymous
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February 23, 2015 at 4:32 PM ×

The North Dakota Department of Mineral Resources says prices would have to fall as low as $20/barrel to halt oil production in North Dakota.

So be it...we will get there.

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Gus
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February 23, 2015 at 5:10 PM ×

Anon @4:32

Any reason(s) why you think oil will go to $20/barrel in the relatively near future (e.g., before December)?

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Anonymous
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February 23, 2015 at 6:21 PM ×

"A fracking well doesn’t take 20 years and billions of dollars to bring online. It takes $5 to $10 million. And it doesn’t produce for decades either. In terms of significant production a fracking well rarely operates beyond 18 months."

"“Beset by falling prices, the oil industry is looking at about 50,000 existing wells in the U.S. that may be candidates for a second wave of fracking, using techniques that didn’t exist when they were first drilled. New wells can cost as much as $8 million, while re-fracking costs about $2 million, significant savings when the price of crude is hovering close to $50 a barrel."

http://www.forbes.com/sites/timworstall/2015/02/10/citigroup-oils-heading-to-20-and-opecs-days-are-over/

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Leftback
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February 23, 2015 at 6:24 PM ×

"I do not understand how bunds or HG credit in Europe can be considered investable assets any more. Yields are through 100 year tights in a fiat system with a central bank declaring war on deflation and depreciating their currency"

Agreed, there is nowhere to go but EU equities and alternative markets. Fast Money will run for the doors as soon as prices start to fall and eventually dear old stuffy Real Money will finally rotate out. As this occurs, even the long UST trade will begin to look unattractive and our beaten down Emerging Market cousins will see renewed interest.

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Anonymous
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February 23, 2015 at 6:27 PM ×

On oil; twitter guys dacenergy & energyrosen worth following. Cushing could be full by June. Refinery strike won't help though run rates same. European storage filling up too. VLCCs in demand for super contango. Saudi upped production with Oman. Libya back in action. Im not the anon from above.

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Leftback
admin
February 23, 2015 at 6:29 PM ×

People who trade oil (and commodities in general) [and I am not one of them], seem to be:

1. Massive Drama Queens.
2. Always talking up extreme scenarios.
3. Peak Oilers to a man at $100/bbl.
4. Awash in supply everywhere at $40/bbl.
5. Almost all too emotional to pay attention to.

[Ducks to avoid drill bits, hard hats, etc..] Right now if I want to find out about the oil market I take Polemic's advice and follow the spot price of Brent while ignoring the yammering about supply. What happens in a few fields in North Dakota isn't actually the biggest influence, Bucky [and by extension, Yellen and Draghi] is.

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washedup
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February 23, 2015 at 9:39 PM ×

haha left i fully agree - a crazy number of oil traders pore over eia and rig efficiency reports while not realizing that currency markets about 50x the size of their chickenshit asset class actually have always driven the long term trend - if the dollar keeps rallying and supply falls off the cliff, you will a massively backwardated crude market at $25, and if the dollar turns around and supply keeps gushing, say hello to $90 oil and big contangoes.
Now all we gotta do is figure bucky out - easily done, rt?

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Anonymous
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February 23, 2015 at 10:28 PM ×

Did someone just throwaway 1.3 million?
26,004 March $VIX 42.5 calls were bought at 3:04 today for 9 cents

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Polemic
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February 23, 2015 at 10:36 PM ×

re vix +42s. Sounds like a tail risk hedge against something else rather than a punt. Unless the punter's punting Putin. Or is Putin.

Or the greek gov who have worked out that they can repay their debts quicker punting the market ahead of what they say and are lining up a real biggy

But actually it is most likely to be some model that has worked out a vol curve RV trade and you just haven't seen the other legs

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Leftback
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February 24, 2015 at 5:28 AM ×

I suppose that might be a punt on Dame Janet being a tail risk tomorrow, which seems to us to be so unlikely as to be the very definition of tail risk.

More likely Dame Janet will confuse and obfuscate at the Humphrey-Hawkins testimony, and nothing much will happen.

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Anonymous
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February 24, 2015 at 7:43 AM ×

@washedup

A commods monkey myself, some of us are attuned to the influence of $ on prices (why else would I be trawling the comment section of MM?) But a move of -60% in crude while the dollar index was up only 20% plus the move to a massive contango suggests that supply might have something to do with it.
The idiots who are bullish at $100 and bearish at $40 are the same species as the guys calling EURUSD to parity or making outrageous calls in any asset class. They're usually not (primarily) traders.
Baker Hughes etc are useful as far as they go, but agree that people probably are getting far too excited about these than they should, especially if unable to put any context to the numbers. Especially the macro/tourists. No need to come scratch around in the chickenshit with us - we're fine playing in the corner by ourselves.

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washedup
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February 24, 2015 at 10:57 AM ×

anon 7:43.
Apologies if my comment came across more disrespectfully than intended.
My point, rather my assertion, is that when it comes to crude PRICES (and patently not TIME SPREADS), if s/d is pointing one way and currency/macro the other, 75-80% of the time macro wins.
FWIW I traded physical crude and NG for about 10 yrs before switching gears, so tht I had some comic immunity!

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Anonymous
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February 24, 2015 at 2:32 PM ×

Could be the buck stops here.

http://www.financialsense.com/contributors/chris-puplava/extreme-usd-sentiment

Rossmorguy

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Anonymous
admin
February 24, 2015 at 2:34 PM ×

WSJ:
JPMorgan to unveil fees on nonoperational deposits...aims to reduce affected deposits by 100 billion by end of 2015
http://on.wsj.com/1LxtYjI

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Anonymous
admin
February 24, 2015 at 2:42 PM ×

Slowest YoY rise in Eurozone Core CPI on record

http://imgur.com/9wolhs8

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Anonymous
admin
February 24, 2015 at 2:44 PM ×

Biggest MoM decline in Eurozone CPI on record, falling 1.6%

http://imgur.com/oQ4GiET

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Leftback
admin
February 24, 2015 at 3:19 PM ×

Dame Janet is speaking in her Humphrey-Hawkins testimony:

"Sadly, I am ashamed to admit that I embellished the story of riding along on famous Fed SEAL Ben Bernanke's metaphorical helicopter raid code-named 'Zero Dark Thirty Year Rates'. In addition, I did not serve in Special TARP Forces but I was there when Ben answered the phone from Hank.."

Bill O'Reilly, on the other hand, had no comment on Fed interest rate policy or the Strong Dollar or recent comments on DX reversal, but did add that he "was coming after you with everything he has got. You can take that as a threat." Such a nice man....

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Leftback
admin
February 24, 2015 at 3:21 PM ×

I don't suppose we can send a negotiating team to talk to ISIS?

O'Reilly, Brian Williams, Jamie Dimon, Schwartzman, Blankfein. No, maybe not, Lloyd would just sell them Syrian default swaps and leave town with a profit.

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Mr. T
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February 24, 2015 at 4:19 PM ×

I cringe every time I hear Yellen talk. I see nothing but a fluffer for financial markets. So lets get this straight - you pump a ton of liquidity into the system at the same time you remove virtually all yield from fixed income, then you have the balls to pretend to be concerned about equity valuations? Come on. Lets call a spade a spade - monetary policy is just another method to try to implement trickle down economics. The fed gets defensive when people say they have just blown bubble after bubble. Well look at this - they are out here, yet again, actively endorsing what can only be described as 'optimistic valuations' in several markets.

It's my job to see the forest through the trees, read between the lines, etc and I think I can do that, but it does not make me any less repulsed by whats going on.

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washedup
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February 24, 2015 at 4:45 PM ×

T - reading between the lines, u sound bullish equities!

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Polemic
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February 24, 2015 at 4:48 PM ×

THink we are about to hit 5th wave madness up on equites - the euphoria spike. 'No reason to buy other than they are going up' type stuff. Always had 2150SPX as the kick off for this but hey, 2100 - 2150 is close enough.

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Leftback
admin
February 24, 2015 at 4:56 PM ×

"Lets call a spade a spade - monetary policy is just another method to try to implement trickle down economics."

+1, Mr. T

However, this week's Clear and Present Danger does seem to have passed uneventfully, and the US fixed income and equity markets aren't exactly screaming in fear. REITs have badly budged, down about 1% in the MORT. For the time being, happy to have no position in Sposs although if I did it would not be short just yet.

Still a little unwilling to buy USTs until we see some evidence that the global fear trade that has driven govies to negative rates is partially unwound. When bunds start to move up, the same reflexivity that dragged US10y lower will operate in reverse.

More pertinently for some of us here, Bucky may be running out of support in the near term, at least from fans of central bank arbitrage. Yellen is telling us that the Fed will do it, and Draghi has already announced the QE program - so both events must be assumed to be fully priced in.

All that remains for punters is to handicap economic growth, which appears to be on more solid footing in the EZ, and weakening in the US. With small specs long USD in general and overwhelmingly short EURUSD it will take every little to ignite a squeeze in the pair. USDJPY seems to be the best proxy for risk taking in the US equity market, on the other hand, so we will keep an eye on that. At some point we see the capital rotation of last year (world to US) reversing to the detriment of more or less all US asset classes.

Which brings us finally to GDX, where we had been anticipating some weakness after the non-Grexit as the fear premium was removed, and a look at the chart shows GDX has backed up to its 50 day, more or less in the zone where we expected it to find support. As such, given these technicals and our fundamental views on DX, we think this is probably a decent time to go long some gold miners.

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washedup
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February 24, 2015 at 4:57 PM ×

Feels that way Pol - can't decide if its here and now or if we get another head fake pullback before we blow the roof off this stadium. Of course if I was decisive like that I'd have more hair and fewer unpaid bills.
Hey FunnyMoney - isn't this your domain of expertise? Pray opine.

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Leftback
admin
February 24, 2015 at 5:03 PM ×

Mr Market is in an interesting place as we approach March. I agree with Pol that this market can go higher, as the 9 stone weakling of volatility is once again crushed into the dirt by the Charles Atlas of global liquidity, in so doing generating the kind of nose-bleed valuations in biotechnology that characterized the dot.com bust in March 2000.

The fly in the ointment is slowing earnings growth, whether in domestic energy, retailers hobbled by the cold weather with business in an already soft patch, or in the big exporters and multinationals after 8-9 months of a rising dollar environment. The Q1 earnings flow in April is likely to reprice the market by 10-15%, but will Mr Market wait? We suspect the Ides of March know the answer.

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washedup
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February 24, 2015 at 5:05 PM ×

I don't think GDX needs a weaker dollar to find some value - what's the alternative? distribute it at soup kitchens for free?

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Leftback
admin
February 24, 2015 at 5:09 PM ×

As an options watcher, LB has often been interested in the higher than normal probability of the first trading day after expiration being a big down day. March 23rd allows for about two weeks of selling ahead of earnings season, perhaps running all the way to the April 15 tax deadline? Several seasonal factors support this scenario, but before then a brief blow-off top wouldn't be at all surprising.

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Leftback
admin
February 24, 2015 at 5:13 PM ×

washed - agree completely on GDX, with a dividend yield now similar to German 30y note (!), also note silver miner PAAS yielding >5%, Aussie Cu/Fe miners similar, so no arguments here, squire.

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washedup
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February 24, 2015 at 5:17 PM ×

Left - that scenario is plausible, since it would also play out a bit like 2000, to which this cycle has borne other important similarities - given how cheap call side vol is, probably not a bad idea to own some upside gamma on the more exuberant indices. Maybe they would just want to see AAPL at its Dr Evil milestone of a trillion!

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Anonymous
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February 24, 2015 at 6:54 PM ×

http://www.zerohedge.com/news/2015-02-23/ex-plunge-protection-team-whistleblower-governments-control-markets-there-no-price-d

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February 24, 2015 at 8:16 PM ×

Here markets are correct... obviously investors bet on higher prices..why not? the only people on the wrong side are central bankers, Fed in primis...
is so difficult to tell that economy is strong enought to move rates from 0 to 0,5%? we'll reach a simoultaneous bubble on equities, FI and credit.. good luck!
in the meantime Funnymoney will buy his second Porsche and we'll meet angry clients telling us that 3% is shit when stocks are doing 1% daily (in the meantime there are some trillions invested at negative rates..)

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Polemic
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February 24, 2015 at 9:01 PM ×

Hear hear bondstrategist.

I'm with you on the timing on the double bubble of doom. I cant see how we can have a rates correction without it hitting eqs too. All part of the yield compression. This spring is being wound so tight in every asset class.

I wonder sometimes why this asset wealth inflation isn't spreading to inflation via wealth effects elsewhere and keep coming back to the thought that those that own the assets that are going up arent the ones that spend. Bonds in pensions or cbs equities by the rich half of the population, and the companies that are sitting on rich valuations either sit on cash piles or do buy backs with the re ipients just spending the buy back cash on different stocks or more of the same pyramiding prices higher.

I am still sure that the bond market is the key now not stocks. Stocks can go into stupid land but i dont think you watch stock prices to know when the turn is coming. It s bonds.

As LB says, the day of bond reckoning is going to destroy real slow money. I m really sorry if I m being a bond ZHer, I'm not really, it's just where I see all the james bond death lasers focussing.

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Leftback
admin
February 24, 2015 at 9:27 PM ×

Death lasers always focus on maximal stupidity first, then maximum greed.

Stocks will go into stupid land soon, but that's not going to be the only set of stupids to get nailed. Buyers of negative rates gonna get what they deserve as well.

For me the key right now is to just ignore the US market (which has no price discovery mechanism for now, so you can't short, but you can't be long with great confidence), and just buy value and yield in Europe and around the world, look at emerging market fixed income, and European peripheral equities, for example. Many more unfashionable pockets of value. Eastern Europe, Australia, Brazil. Take your pick and be prepared for a bumpy ride.

Pol is right, eventually there will be US fixed income yields that you can actually buy, and then it will all be over for equities, if not sooner. For now it's just best to watch the US from the sidelines and profit from Dr Aghi's slowly expanding balance sheet.

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Anonymous
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February 24, 2015 at 9:34 PM ×

@Polemic,

Why didn't the wealth effect stimulate the economy? Well, based on previous studies I read, wealth in housing equity had a roughly 30% of impact on consumption and stock market wealth only had somewhere close to 10%. With flat wage growth, here you have it: the booming stock markets really did not affect the consumers as a whole. Some lucky ones like FM can go out and buy Ferrari, but that is it. And those luxury toys are mostly imports anyway.

This also leads to the question: why businesses won't invest, no consumption growth means no returns of investment, of course businesses would rather buy back shares to support stock prices.

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February 24, 2015 at 9:38 PM ×

My firm blocked us access to Blogger.. stupid IT policy...
and to write by mobile make me nervous..
it's sad but we have to admit reality... as Polemic told..When we'll have real CPI inflation?..maybe end 2015 taking in account YoY oil collapse.. because it seems the only starting point for CBs. Until then they'll keep closed eyes on everything, asset prices included :)
in the meantime Piketty ^2

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Anonymous
admin
February 24, 2015 at 10:30 PM ×

2yr has rallied from recent high of 0.666% to 0.555% at close today ....... and what that means i have no idea

ooops..Heating oil futures down over 9%

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Anonymous
admin
February 24, 2015 at 10:39 PM ×

Short-term Canadian government bond yields

http://imgur.com/aPuHLaE

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Anonymous
admin
February 24, 2015 at 11:25 PM ×

Mr. T was right about supply side economics, and Pol applies the coup de grace by saying "the thought that those that own the assets that are going up arent the ones that spend"

All the BS around "job creators need tax cuts so they will hire people" has been exposed right here ;-)

-Whammer

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FunnyMoney
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February 25, 2015 at 12:37 AM ×

@washedup 4:57pm Hey FunnyMoney - isn't this your domain of expertise? Pray opine.

Here's what I think: Some DM equity indexes are getting short-term over-extended (Nasdaq?). Beyond that we go higher.

Here's what I've done: Last week I reduced some long equity posns. Today I reduced further.

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Nico G
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February 25, 2015 at 5:43 AM ×

why would anyone expect a 'wealth effect' from risky assets into one given economy when most of the risky assets are held offshore, and the wealthiest hardly pay any tax

everyone sees mounting national debts, and an increasing amount of mega billionaires by the minute. that my friends, is the only wealth transfer: from nations to a bunch a monster happy few

this is the worst concentraction/extraction of wealth ever witnessed in human history and everyone seems to find this normal while anyone else lamenting such situation will be called a commie

it is a befitting that Gates, Jack Ma and Zuckerberg and genuinely good guys, but worrying that the rest of the population gets stoned on more on else legalized smoke and watch TV and have stopped giving a shit

it is painful to read forum like here when funnymoney becomes a personality and half guru in 4 weeks. That herding, that complacency, that quest for instant financial gratification is just plain miserable, partially compensated by MM excellent cultural input from time to time

don't get me wrong if i sound bitter like Mish i still enjoy my socially useless job of day trading it pays for a sick lifestyle but hearing the very same idiocy in 2015 that you could hear in 2000 and 2008 is just depressing. This is not a generation cycle guys, it was just 7 years later, and 7 years now again.

i really miss Zappa and Hunter Thompson who could paint the American society like it is although they would probably shoot themselves watching the current circus ping ponging between DC and the street and i bet that even Jon Stewart got tired of laughing

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CV
admin
February 25, 2015 at 7:01 AM ×

Great thread, I think I am going to take the day off and just reproduce quotes from here ;).

I think we have two key themes now which are already present but will continue.

1) Re LB; Spoos can do absolutely nothing even as selected EM and European markets offer some real nice treats on the long side. Brazil comes to mind! Also, I am still bullish EUR energy.

2) Fixed income markets will get crazier, but it is a bubble and I have to side with Polemic that ultimately, this cannot be resolved without pain.

I remind myself of course that with the corporate debt bubble just being revised away (?!), that maybe this can go on for much longer than we imagine. I hear the next big rollover ticket for US corporates is in 2019! Will we have to wait for that?



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Polemic
admin
February 25, 2015 at 8:08 AM ×

And as for irony.... at least bankers bonuses got spent. Not paying them left them in company hands or with shareholders who dodnt sell the shares or just reinvest the divi.

BRING BACK BANKER'S BONUSES! They defeat deflation!

I bet I can find a correlation between antibank bonus regs and falling inflation !

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FunnyMoney
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February 25, 2015 at 8:42 AM ×

@Nico G ...it is painful to read forum like here when funnymoney becomes a personality and half guru in 4 weeks...

I hear you, but I think the real pain, and in essence the point of my being here, is to highlight the way society & market participants have created the 'Cult of the Omnipotent Central Banker' in recent years - and the ramifications of that paradigm.

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Anonymous
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February 25, 2015 at 2:22 PM ×

The 100 wealthiest people in the world possess well over $2 trillion, which is equal to the amount shared by the 4 billion people at the bottom of the world's income scale.

The richest 1 percent of the world's population currently controls well over half of the world's total wealth.

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hipper
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February 25, 2015 at 3:24 PM ×

Re: wealth distribution and the universal theory (as viewed by all the CB's) of real economic growth driven by asset price inflation:

This theory is kind of missing the point. The point is that people have basic needs, survival being the lowest. Only after way beyond that you start getting to all the lifestyle/luxury stuff.

So if your poor, your number 1 priority is to survive with all the basic stuff. After that you start spending to all the extra stuff which are generally known branded as Porsche, BMW, private jets, yachts, high quality residence etc. which are major one off investments and probably employ a lot of people to manufacture.

So the issue with the theory asset price growth as a driver of real economic growth is that propping up the people on the top level, the spending increase is only very marginal, because more likely than people at low levels they already have enough stuff.

So I can pretty much guarantee you that giving 2 million units of moneyto 1 guy is going to increase aggregate demand for stuff. But at the same time I can also guarantee that giving 50k money units to 40 guys is going to increase aggregate demand a heck of a lot more than the former option.

So there you have it IMHO, if u want real growth, prop up the middle and low class.

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Macro Man
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February 25, 2015 at 3:38 PM ×

@ hipper, this is why the Fed (and I) view the decline in energy as a positive- it increases the disposable income of a much broader range of spenders than benefit from high prices.

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