1999

A song in honor of the Nasdaq Composite reaching 5000 again, a mere 3,907 weekdays after it first achieved that lofty perch, with apologies to Prince....

I was dreaming when I bought this
Forgive me if it goes astray
But when it comes to Fed tightening
You can wait until Judgement Day
The screen was all flashing
There were people buying everywhere
Trying to run from cash destruction
You know they didn't even care

Two thousand zero zero rally over,
Oops out of time
So today I'm gonna buy 'em like it's 1999

I was dreaming when I bought this
So sue me if it goes up fast
But markets just rally, and rallies aren't meant to last
War is all around us, my mind says it just ain't right
So if I gotta buy I'm gonna listen to my chartist tonight

Yeah they say two thousand zero zero rally over
Oops out of time
So today I'm gonna buy 'em like it's 1999

Lemme tell ya something
If you didn't come to buy 'em
Don't come knocking on my door
Got funny money in my pocket
And the market's just ready to roar
Yeah, everybody's got a bomb
We could all die any day
But before I let that happen
I'll leverage my blues away

Two thousand zero zero party's over
Oops out of time
So today I'm gonna buy 'em like it's 1999


Author's note:   While stocks and other risky assets have undoubtedly been pushed up by the panoply of uber-aggressive montary policies around the globe (as discussed ad nauseum in this and other spaces), the current market doesn't really resemble 1999 very much at all.  The current trailing P/E is roughly 17.5- in 1999 it was pushing triple digits.  And lest we forget, the pace of the rally in the bubble era was truly eye-watering.....



 



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CV
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March 3, 2015 at 10:04 AM ×

Bravo MM! The striking/scary thing about this chart is that if you compare the two lines, you can easily why the next step in the NDX comp is to double, fast, in the final leg into the stratosphere!

Lest we forget, there is no longer any corporate debt bubble*, so the issue debt at zero/buyback circus can easily continue.


* I know you are bored with this, but this little "revision" has seriously screwed up my global asset market bubble compass.

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March 3, 2015 at 12:49 PM ×

The young, but impressive businessman looks at young student who gets an interview in his eyes: "I like to have control of the situation!" Only the imagination of inexperienced Anastasia can not travel that far ...
Watch Fifty Shades of Grey Online

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washedup
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March 3, 2015 at 12:50 PM ×

Very nice MM - this is exactly why I hold you in higher esteem than David Tepper (seriously its not just all about the money) - when he made the same proclamation it wasn't even 10% as entertaining.
Only problem is, depending on whether it is Q1 '99 or Q4 '99, a radically different playbook would be called for!

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washedup
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March 3, 2015 at 12:55 PM ×

CV/MM - regarding the corporate leverage conundrum - would an explanation of the data revision be classified/protected? Can't one of us simply call the federal reserve and ask for it?

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Polemic
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March 3, 2015 at 1:07 PM ×

HA good one..

though numbers are matching we of course have 15 years of inflation (of a sort) to factor in and the usual index biases. Totally agree that the markets don't match in many other ways. The mood is nowhere near 1999. the Taxi Driver Index hasn't even flickered and the Dinner Party Index is still geared to housing and subsidised alternative energy projects.

But as a bond bear I am reminded of an equivalent Prince piece done in this space a couple of years back

http://macro-man.blogspot.co.uk/2013/02/bonds-dump-them-like-its-1994.html

that probably needs an update

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CV
admin
March 3, 2015 at 1:41 PM ×

@WashedUp: It is not a secret. The claim is that they have introduced data from a new database that has increased the number of redemptions. Now, of course, that database is a sub only data set. But the argument for the revision, as it were, is simple.

They appear to have underestimated/counted redemptions, and presto non-fin corporate debt-to-GDP is now lower than in the beginning of the 2000s.

Color me skeptical, but this is the message. Same with the new McKinsey debt study apparently showing that non-fin corporates have delevered(!) to the tune of 2% of GDP since 2007.

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washedup
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March 3, 2015 at 2:04 PM ×

Thanks CV - i guess there are 2 options when someone points you to a flying pig - you can a) use your common sense, your newspaper reading ability, and your general awareness, to conclude that the gentleman in question must have recently shot them out of a cannon, or b) believe his claim that swine can now fly due to revisions, discrepancies, and miscellaneous innovation that your tiny brain cannot possibly comprehend.
This was a very long way of saying I share your skepticism.
Now back to buying nasdaq on margin - onward ho!

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Anonymous
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March 3, 2015 at 2:45 PM ×

In one way valuation was worse in 1999. The S&P 500 and Nasdaq were way more expensive then than they are now. In another way today is worse than 1999. In 1999 there were a lot of really cheap investments: REITS, EM Debt, EM Equity, Small Value, TIPS, anything commodity related. A well diversified portfolio suited you well in the decade following 1999, I am not so sure we can say the same from here.

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Anonymous
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March 3, 2015 at 2:55 PM ×

Rampagingruss says
Kostin of GS has a great chart showing that S&P had a higher average valuation in 1999 - but the median valuation is much higher now! The only thing lower is FCF yield - which of course may be the important thing...

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amplitudeinthehouse
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March 3, 2015 at 3:21 PM ×

We interrupt this gravy train with a short message..

"Fuck you , Rick Santelli" :)

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Macro Man
admin
March 3, 2015 at 4:19 PM ×

Just.....no. Cut it out.

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Anonymous
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March 3, 2015 at 7:56 PM ×

What is the other side to the debt reduction?Someones assets have to have reduced.

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CV
admin
March 3, 2015 at 8:20 PM ×

@washed: I could not have put it better myself!

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Leftback
admin
March 3, 2015 at 9:39 PM ×

Groundhog Week again. Here comes another edition of BLS Bingo on Friday, but before the Powerball, first we have the appetizer: the drawing of the pick 4 game, i.e. the ADP number tomorrow.

I prefer the Wednesdays, they print a ridiculous number and we get to trade the reaction to it. Then on the Friday we get the whole ridiculous Three Bears charade as usual, "this number is too hot", "this number is too cold", "this number is just right and Goldilocks is going to eat it all up".

One day out there in the not-too-distant future, the effing Bears are going to come in and eat everyone's effing lunch, Goldilocks included. For now, though, it's Groundhog Week....

Of more immediate interest, the Greeks have a T-bill auction. That will have a big influence on the Greek govies curve and coincidentally influence a lot of safety trades to boot. We're guessing it goes well, a few punters decide they like the yield, and the world doesn't end, but Schäuble scowls, even when Mangler tries to tickle him for grins.

CV, all my European energy longs are working out OK. Eni, ÖMV and Lukoil best of the bunch so far. Bucky could help a great deal by going south for the Spring, but that's too much to hope for...

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Leftback
admin
March 3, 2015 at 9:43 PM ×

JGB and bund yields backing up to more sane levels has to happen, and it will be good news for a while, reflecting rotation into riskier assets. But at some point there will be paper losses, and then a few people will panic and there will be real losses, it's not clear to me how Real Money will respond. Like all of us here, I worry about what happens when that big herd of stupid slow-moving but incredibly powerful elephants starts running in one direction. As a wise man once told me, missing out on the big dumps is the most important survival skill in this business.

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Hotairmail
admin
March 3, 2015 at 10:10 PM ×

Whilst the p/e's look better and are obviously not as worrying as in 2000, I am concerned at whether we are in a 'profit bubble'. The level of profits and capital's share of value added seem too high to be sustainable to me.

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FunnyMoney
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March 4, 2015 at 12:31 PM ×

My father was a disciplinarian worthy of the Victorian era, my school a strong believer in corporal punishment, and my nature was to frequently break rules. The result was often painful. In an attempt to re-create those halcyon days of childhood, I often like to day-trade both FX and the Dax with high leverage.

Here's my thoughts on recent forays at 'the coal-face':
- Much EU news flow is turning +ve, but Euro weakness is painfully persistent.
- Cable is hard to read, but I like AUDUSD.
- USD bulls haven't given up the fight.
- Looks like Asian names have been in the market.
- I'm wary of further downside risk in US equity indexes here (Nasdaq yesterday).
- There were large bids around 11200 (Dax cash) & interestingly Eurostoxx showed stronger PA than Dax early in today's session. Quite telling.

In summary, my previous view of EU equity indexes showing a pullback (not downtrend) seems sound. FX pairs have been exhibiting volatility compression lately, making longer-term positions hard work. When we see some higher time-frame break-outs in FX, I won't be fading them.

PS As a parting thought: Crude Oil (someone's buying).

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washedup
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March 4, 2015 at 1:17 PM ×

"The details of my life are quite inconsequential... very well, where do I begin? My father was a relentlessly self-improving boulangerie owner from Belgium with low grade narcolepsy and a penchant for buggery. My mother was a fifteen year old French prostitute named Chloe with webbed feet. My father would womanize, he would drink. He would make outrageous claims like he invented the question mark. Sometimes he would accuse chestnuts of being lazy. The sort of general malaise that only the genius possess and the insane lament. My childhood was typical. Summers in Rangoon, luge lessons. In the spring we'd make meat helmets. When I was insolent I was placed in a burlap bag and beaten with reeds- pretty standard really..."

Sigh - just let us know when your net worth hits a trillion FM. Hope Mr bigglesworth is having a good day.

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FunnyMoney
admin
March 4, 2015 at 1:28 PM ×

You're sounding a little washed-up there... bad day again?

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washedup
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March 4, 2015 at 1:38 PM ×

more frustrating sideways type stuff than anything - got any strong opinions on gold btw? It's developed a weird anti-corrlelation with the euro that I find a touch puzzling.

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CV
admin
March 4, 2015 at 1:56 PM ×

Yes LB, these things will prove good bets in the end. Actually, my view here is pretty simple. I think the EUR and crude will rally in unison, and holding EU energy plays here unhedged as a GBP investor will be pretty good. Elsewhere, I have a little punt on Brazil.

Other than that ... not much really. I agree with FM that a little washout is probably coming, but the market is still setting up for a classic "Sell in May, go away" scenario because eventually the market will get spooked by the prospect of Yellen being bullied into tipping her toe in the pool.

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Anonymous
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March 4, 2015 at 2:42 PM ×

FT says:

Regarding Gold: I guess the new narrative is taking hold; gold priced in dollars tended to firm when the USD was weak (and vice versa).
Gold now has a life of its own...it's a bet on political and central banks' eventual failure; those are not directly correlated with strength or weaknesses in this or that currency.
In a recent survey, 37 % of german investors expected a form of Euro failure within 12 months (Grexit, Podemos having a parliamentary majority next december?)
If some european investors buy Gold and get rid of euros at the same time, we could see a rising XAU/USD and a weak EUR/USD.
Still, I think Gold could have a final wash; I suspect some miners are very uncomfortable here and have to do a bit of hedging. If we don't see that last leg down, we will see a slow rising trend developping which will accelerate only when global equities have a serious correction due to disappointing growth (not just 2 to 5%) and the FED hints at QE 4 (still a few months away)
Still, I'm long through 1 year options; it helps keep an eye on things and be ready when the timing will be right

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Leftback
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March 4, 2015 at 4:47 PM ×

Interesting longer term perspectives, which I find quite persuasive. Not being a gold bug at all, in any way shape or form, the fact that I am long GDX and have accumulated some little miners for pennies should tell you something about my view on gold.

I am another member of the "QE4 in September" club. Months ago I had a vision of Dame Janet announcing it at J-Hole in August, by which time it would have already been leaked thoroughly front run. With an election in 2016, the Fed's virginal independence might not allow them to tweak the economy next year so they would have to get any stimulus in this year instead. The need will become painfully obvious by May, in any case, at which point the US will (nearly) join in the (almost) global recession.

To all the members of the "All-American Hiking Club", I would ask you this: why on Earth would the Fed resort to rate moves when it is clear that they haven't even made any real effort to reduce the existing balance sheet? Even maturing MBS have been reinvested. If they really were going to hike then surely they would take steps to reduce the balance sheet first? All this in accordance with Bernanke's philosophy of "unusual tools".

I know this is a different take on Fed policy, but it does have some real intellectual underpinnings. This is a minority view, but this is after all what I am here for, isn't it?

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Leftback
admin
March 4, 2015 at 5:02 PM ×

ECB meeting tomorrow. This is a big one, for many reasons, not least b/c of Super Mario's well developed sense of the theatrical. There are ample reasons to expect a juicy squeeze in EURUSD (and hence in many commodities, including Brent), in EZ equities and corporate credit, and in Greek bonds and banks. This isn't going to be a good day to be long dollars, gilts or bunds. Remember the onset of US QE1?

ECB Points to Watch

The Greeks of the new Syriza government have already submitted to being probed with Schäuble's night stick and all kinds of other unpleasant indignities, so we can now expect the debt colony to be rewarded with some goodies, the most important of which is that Greek govies will be released from the fixed income leper colony.

Last month the ECB suspended an exemption that had allowed Greek banks to post junk-rated Greek government bonds as collateral for ECB loans, forcing banks there to rely instead on more costly credit from the Greek central bank. Mr. Draghi will likely be pressed on when the ECB might reinstate that exemption, and I think it will be very soon, if not immediate.

Bucky has become a major deflationary force in the US and EZ, so expect the CBs to begin to wage war on him in order to generate a driver of higher levels of inflation that we will see later this year.

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Leftback
admin
March 4, 2015 at 5:10 PM ×

Bingo Anyone?

We are due for a crappy number. LB is going with his usual wishy-washy guess of 174k. Not too hot, not too cold, effing Goldilocks has scoffed all the porridge yet again.... yawn.

Expect the usual 10 bps short squeeze in US10s...

Tedious in the extreme. The ECB is the bigger event this week. No-one will be watching US macro, b/c, like, it's improving, right? Escape velocity is just around the corner, ya?

I like those Delayed Reaction Mondays after NFP, where whatever the number is, weak, strong, just right, people find an excuse to talk up the US equity market, then pre-market Monday it's a case of:

Drop It While It's Hot

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Anonymous
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March 4, 2015 at 6:46 PM ×

I agree with you, LB, on the trend of these economic indicators.

But I have a little doubt on how market reacts to those economic data. Sometimes, markets follow economic data, sometimes markets just do not care.

Now seems to be the period that markets ignore almost every economic indicator out there (on FX at least). Only two forces look to be relevant: Super Mario might say something explosively dovish and Fed officials seemed to be determined to raise rates despite the recently weak numbers.

And as an amateur chartist, EUR looks really ugly right now.

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Leftback
admin
March 4, 2015 at 6:46 PM ×

So a lot of people have slagged off Polemic for his short bunds idea. German 10s have moved out 10 bps from 25bps last week to 35 bps today.

Last Friday's buyers are underwater. Let's say we see punters take on more risk after the ECB, pretty soon we are talking 45 bps and someone is losing money. As we know, it's only when people start losing money that the selling really gets started....

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Leftback
admin
March 4, 2015 at 6:50 PM ×

Anon, Anon-ji, Anon-ski, Anon-san...

The dovish utterances of Dr Aghi are behind us. The possibility that he would now increase the QE is zero. We already know what the QE is and more or less when it will take effect. So it's Buy The News, no?

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washedup
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March 4, 2015 at 7:16 PM ×

@left

"Bucky has become a major deflationary force in the US and EZ, so expect the CBs to begin to wage war on him in order to generate a driver of higher levels of inflation that we will see later this year"

1st - bucky going up unleashes deflation in the US and China (peg) , but reflates EU, Japan, and Aus (hence the logical argument that since those equities are cheapish to start with, they could go up in LOCAL currencies

2nd - the fed SHOULD be very worried abt lending rather precious and scarce inflation to our European and Japanese friends through the unfolding buckapaloosa, but I take them at face value when they say 'what, me worry?' I personally don;t think the wise men of the fed know as much as they should abt how currencies impact economic growth through mkts - as I have mentioned many times in the past, currencies are always the X factor, the proverbial gnat in the soup,the fly in the ointment to the idea that CBs control everything, everywhere, everytime (otherwise known as the Funnymoney theorem).

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Leftback
admin
March 4, 2015 at 9:34 PM ×

At this point, MM would usually point out that PhDs know d*ck about the real world...

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Anonymous
admin
March 4, 2015 at 9:47 PM ×

post from Bill Cara...

My friends from Europe and UK who took employment contracts in Bahamas (where the B$ and US$ trade at par) used a strong Dollar to their advantage, but got hurt when the Dollar sold off.

When the Dollar got strong these European brewmasters, engineers, construction managers and the like could easily pay their bills at home and could even save money. But after the Dollar weakened many were forced to return to their home country.

I have seen the reverse phenomenon with vacationers and second home buyers from Europe. They visit in great numbers when the Dollar is weak, but have avoided Bahamas during recent years because of the strong US Dollar. Because at least 75% of the economy here is based on tourism and real estate development, the very strong Dollar has been devastating.

So, currency fluctuations affect many more of us than one might think.

Fact: Instability of international currency markets is the single greatest risk to well-functioning capital markets. Extreme volatility of currencies can force nations and large companies into bankruptcy. Regionally powerful nations in such trouble could lead to economic collapse for an entire region. Threat to sovereignty could even lead to military conflict and war. People die, societies are destroyed. Credit markets seize up. Capital markets (stocks and bonds) crash.

There is a growing probability that international currency markets will fail in the next 12-18 months. A short squeeze in the US Dollar will render at least one large economic power – possibly Russia, Brazil or Mexico — to renege on its Dollar denominated debts.

Geopolitical intervention has led to the short squeeze in the US Dollar, and now the US Fed is unwilling to alleviate the strong Dollar problem with another round of Quantitative Easing given that Congress is unwilling to undergo simultaneous fiscal tightening.

Geopolitical intervention could take many forms, and undoubtedly has. Here are three:

Saudi Arabia has taken action to force oil prices lower, down to the economic break-even in that country but much lower than cost of oil exploration and production elsewhere, done in order to regain global pricing power in the future. The low oil price has pushed up the price of the US Dollar.

Economic sanctions by the US government against Russia on account of their involvement in the Ukraine crisis, along with the low oil price, has led to a run on the Ruble. Political instability there, heightened presently with the murder of the Russian leader of the opposition, is growing. These events have pushed up the price of the US Dollar.

The Fed itself is a culprit. Their balance sheet is out of control, causing traders to short the Dollar, and Congress to threaten an audit of their monetary policy decisions. In order to crush those who would try to control the Fed by shorting the Dollar and enacting laws to control it, the Fed is constantly threatening to raise rates that would strengthen the Dollar even more, causing chaos in government and in financial and capital markets.

With many other central banks now lowering rates while embarking on new quantitative easing programs, the Fed should in unison also weaken to maintain a balance. But then the Dollar shorts would win, and monetary policy of the Fed would be rendered useless in the future. The Fed would not permit that.

Anybody who shorts the Dollar is actually shorting the Fed, which is highly imprudent as an investment strategy because the Fed is a much stronger entity than most other central banks. The European Central Bank, Bank of England, Bank of Canada, Reserve Bank of Australia and the like all pale by comparison. In the face of a Dollar squeeze, the Fed can exacerbate the problem and hang on longer than any other central bank.

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washedup
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March 4, 2015 at 9:59 PM ×

anon@9:47

"In order to crush those who would try to control the Fed by shorting the Dollar and enacting laws to control it, the Fed is constantly threatening to raise rates that would strengthen the Dollar even more, causing chaos in government and in financial and capital markets. "

The phrase 'in order to' ascribes a level of sophistication and Dr Evil (sorry he's just been on my mind from this morning) like skullduggery to the US fed that I believe them to be incapable of. Other than fondling the mike and tinkering with the printing press and hoping for the best, they don't control much - the rest is Mr Markets self created hope and/or delusion, commonly referred to as 'animal spirits' and the like.

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FunnyMoney
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March 5, 2015 at 9:34 AM ×

Update on my observations from yesterday:

- Euro weakness: Check. (Euro fell circa 100 pips from here).
- Cable is hard to read, but I like AUDUSD. Ok not so much.
- USD bulls haven't given up the fight. Check. (USD Idx broke strongly above 96)
- Looks like Asian names have been in the market. Check. (See JPY and Nikkei up +130 in Asian session).
- I'm wary of further downside risk in US equity indexes here. Check. (Dow down over 100pts yesterday).
- There were large bids around 11200 (Dax cash), expect more upside etc. Check. (Dax rebounded above this area for a +200 point move in the US session, rising further from there this morning.)
- Oil: Check. (Even after a -ve EIA report, WTI rebounded strongly yesterday, up +150pts).

Over to washedup et al for some disparaging remarks...

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