A perfect mix

Well, Super Mario looked happier and more relaxed yesterday than he had in quite some time, n'est-ce pas?  Obviously, there were no fresh policy initiatives to unveil given that the ECB has yet to commence the implementation of the QE purchase program previously announced.

Nevertheless, Mario had a twinkle in his eye, perhaps because he had some forecast upgrades to deliver on growth this year and next.  Indeed, in aggregate the ECB now expects the Eurozone economy to be nearly 1% larger by the end of  next year than they did just three months ago.  The evolution of the forecast profile is nicely sketched out in the table below, from Jefferies:



Of course, some of that upgrade is a function of the ECB itself, and the announcement of the QE policy.   The assumption of "we have done something, ergo it will work" is often a dangerous one that begets complacency, as we have seen all too often over the past few years.  In fairness, though, things do seem to be ticking over a little more.   As Draghi proudly noted, the credit impulse is sparking to life a wee bit, and basic measures of sentiment are now pointing higher.


From a currency punter's perspective, meanwhile, the policy and economic mix appears to be a perfect one to engender currency weakness.   Tight fiscal policy?   Check.   Loose monetary policy, with a commitment to remain that way for a (ahem) considerable period?   Check.   The growth outlook improving, and with it the prospects for C/A surplus-dampening domestic demand?   Check.

Who knows, we might even see a reduced private sector demand for some segments of the EZ bond market.   After all, Draghi noted that the ECB would not buy bonds through the deposit rate (currently -0.20%, and likely to stay there if the forecast profile materializes.)  By a stunning coincidence, Schatz (i.e German 2 years) closed yesterday at...wait for it....-0.20%!

Of course, as Swiss franc traders will attest, just because a CB puts an implicit (or explicit!) floor under something doesn't mean that the floor will hold ad infinitum.   That having been said, holding bonds offering negative yields is a position that costs money to carry, so the at the very least reducing the prospect of capital appreciation surely diminishes their allure for some holders.   Bobl (5 years) at -0.07% in many ways looks even worse!

Regardless, the chart of these things would appear to suggest that the party is over, for the time being at least.

While it would be nice to focus on the medium term prospects for the euro given the perfect policy mix for shorts, the realpolitik of modern macro for many punters is that today's payroll figure is now more important, for the time being of course.   Given the intense focus on the Fed's "patience", a misstep on the data front could shift the market's timetable presumptions, perhaps engendering the sort of short squeeze that we haven't seen all year.

Macro Man has often scuffled in March, and he isn't alone.   An analysis of the CS macro hedge fund index reveals that since 2000, March has been the worst month of them all for the industry.  Now, that in and of itself is not a reason to slash risk...but assuming that the market has not become exclusively populated by 30-year old "know-it-alls", it might be reasonable to posit that punters with as much gray hair as your author might be somewhat sensitive to signs of a trend reversal at this time of the year.



For what it's worth (admittedly not much, given the noise in the data), Macro Man's model yet again looks for a somewhat lower than consensus reading for payrolls, forecasting a print of just over 200k.   In the unlikely event that his forecast were to prove to be spot on, it's hard to envisage too strong of a market reaction, unless there was disturbing news on the unemployment rate or wage front.  To be sure, any sane central bank wouldn't be troubled by a 200k print.....and most crazy ones wouldn't, either.

In any event, Macro Man's little PA portfolio has had a nice start to the year, so as noted previously he has trimmed some of his short euros.  He also took a little profit in fixed income as well, just enough to feel emboldened to add if there is a silly rally after tomorrow's figures.

These are merely tactical adjustments, however.     After all, the perfect policy mix doesn't come around too often....so when it does, you really don't want to spend too much time on the sidelines.
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Anonymous
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March 6, 2015 at 12:47 PM ×

FT says:

The ides of march proved fatefull to Julius Caesar;
Will they bring some serious pains to the crowded positions (Long equities; long USD; short commodities...)?

For those old enough, the present period is eerily reminescent of the 1997 / 1998 years; remember Thailand in 1997 (hello to victor:) which brought a full scale EM crisis in July 1998....

China slowing down hard, Russia, Turkey and Brasil in pain just to mention a few....
All those balance sheet loaded with USD debt which makes liabilities going up by the day...

Conclusion: we can expect within a few weeks (months?) a serious correction which will by no mean mark the end of the bull in equities as the Fed will be prompt to tone down the hawkish rhetoric.
Things seem to be accelerating: BRL and TRY collapsing; macro data slowing down (europe, who could believe it, being the bright spot, it seems) and equities mildly stretched.

I think we wont have long to wait; the perfect window is March June.

Now, regarding NFP, my vote is 185 k

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Polemic
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March 6, 2015 at 1:22 PM ×

FT - you closing out my guess ? of 187?

As for where there is pain and therefore a correction. You have to look where we are coming from. What you cite is already known. The path of growth in Europe is upwards, ECB are the new cash cow, I cannot see there being a sizeable correction without a new seed of doom flourishing . the old ones are old and wilting.

Remember an old saying - never sell a new high. unless of course its bunds !!( have to be consistent)

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Leftback
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March 6, 2015 at 3:27 PM ×

My guess was +295k !!

US economy approaching Escape Velocity!
Also, Janet Yellen gives lap dances at FOMC.

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Polemic
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March 6, 2015 at 3:29 PM ×

FT - unless of coruse the bond sell off becomes a rout.

bonds down commodities down equities down - cash is king today

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Leftback
admin
March 6, 2015 at 3:32 PM ×

Pinocchio is posting for me again.....

Jobs increase must be all in those important growth categories: "snow shoveling guys" and "ice-melt spreaders" in the North East, "pool boys" and "actress/waitress" in the West, while in the Northern Tier, there was a small decline in the categories for "exotic dancer" and "rental property agent". Hourly wages flat for those new jobs, though.

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Leftback
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March 6, 2015 at 3:34 PM ×

The US10y-bund spread is back with a vengeance.... the next few days could be a great time to add in US fixed income, gold/miners and submerging markets.

This was a really good week to hold some cash.

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washedup
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March 6, 2015 at 3:36 PM ×

out of all dxy length today - been a good ride from 88, but feel like the next leg up will be better played via usdjpy heading to 125-130 - a 16% weight on JPY and 57% on euro u see...
would have liked better outperformance from GDX as a hedge (being as cheap fundamentally as it is etc) but when the market sees a baby seal it sees a baby seal.
Nice call on rates MM - u win that one - i personally am waiting for the 10 yr to get to 2.35-40 (i.e. 30 at say 3.10?) but still feel like the long trade is the right one eventually - this mkt is on drugs if they expect strong wage inflation - we will get to 4.5% employment and no one will get pay raises because u see, you can't employ bubba who was working the drill bit in Alberta as a valuable contributor to Apple's dream car project - the enemy isn't so much overall tightness as much as it is the construction and math of the inflation index and the massive and growing bipolarity in the labor mkt.

That said, I agree with Jim Paulsen when he points out that 7% wage growth with 5% inflation is the same as 2% growth with no inflation

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Anonymous
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March 6, 2015 at 4:14 PM ×

On next Monday, when ECB starts buying bonds and traders sell their bonds with a profit, where will be the next place for those traders to park their cash?

Equities in EU and Japan are front-run right now. Is commodity finally the only place with yield to chase?

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Anonymous
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March 6, 2015 at 4:16 PM ×

Posted this chart a month or so ago,saying looked bullish..

http://stockcharts.com/h-sc/ui?s=$tnx&p=D&b=5&g=0&id=p41298869661

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Leftback
admin
March 6, 2015 at 4:28 PM ×

"On next Monday, when ECB starts buying bonds and traders sell their bonds with a profit, where will be the next place for those traders to park their cash?"

Emerging market credit (Brazilian govies) and commodity stocks. Ka-ching.

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Leftback
admin
March 6, 2015 at 4:37 PM ×

Hmm. See the upper Bolly band for 10s at 2.493? Wonder if Mr Bond is elastic enough to stretch that far? It is only another 22 bps from here.

The TLT chart is saying "Not. Just. Yet."

I feel a bit like MM must have done in 2011, he felt Euro was trading way too high but it just kept on going.... he was right but of course it took for ever to return to Earth. Might be the same here for USD.

This Spring reminds LB of 2010. Solid jobs numbers that nobody believes (Jan-Apr) including one monster number, but soft wages, lots of talk of escape velocity, 10s zooming skyward towards 4%, LB the last bond bull left standing.

Finally, it was Sell in May and Go Away, yields falling quickly, we had three successive months of NEGATIVE jobs growth, Il Correzione Grande, the Flash Crash and lo and behold, before you know it, The Bernank is leaking to Hilsenrath at the WSJ and announcing QE2 at J-Hole.

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hipper
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March 6, 2015 at 5:16 PM ×

I kind of agree here, not the best possible time for Mr. Bond yet, let the Goldilocks scenario run for a bit longer. When Mr. Market picks a theme, it is just going to crush and steamroll everything in it's path regardless of how much wise words of doubt you throw at it, because it's basically made out of a collective lunatic asylum with a manic depressive disorder.

Here's a picture of a sequentially placed rate hike expectation through to 2017. It looks really nice and tidy but I dunno in the real world, I would prefer to think that what ever hiking sequence they start this year is going to run out of time and steam pretty shortly. They might not care about super Bucky and what decelaration is going on in the rest of the world right now, but they will start caring once it comes back to bit them in the ass.

Now that's not to say I don't suggest any hike at all, it's already a matter of credibility now to not be done at all. But what I am saying that every option is on the table after the first one.

http://soberlook.com/2015/03/debate-around-2015-rate-hike-intensifies.html

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Anonymous
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March 6, 2015 at 5:35 PM ×

Leftback said...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.

Leftback said...March 6, 2015 at 3:27 PM
My guess was +295k !!

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washedup
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March 6, 2015 at 6:11 PM ×

hey anon 5:10 - u ever heard of sarcasm?

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checkmate
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March 6, 2015 at 7:48 PM ×

Far as the US is concerned have we morphed from bad economic data is good market news to good economic data is bad market news?

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washedup
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March 6, 2015 at 7:54 PM ×

@check was wondering the same - what i find interesting is that the yield curve is steeper, inflation expectations are higher, and defensives and gold are getting smoked, so this smells like a garden variety correction to an overbought condition as opposed to the start of something big.
I suppose we will find out soon enough. I think it is possible (to ur point) the fate of the US economy and that of us equities may begin to diverge somewhat.

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Leftback
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March 6, 2015 at 8:55 PM ×

Anon, yes that was a sarcastic "Pinocchio" post, this morning. LB wasn't seriously claiming to get the number right. My point being also, the NFP number was also a bit of a "Pinocchio" job. Talk about a lagging indicator, they don't seem to have caught up with any of the oil patch layoffs yet. ND, Texas are experiencing most of this and not just in drilling but in associated service industries, RE and banking. That's all in the pipeline now, Keystone or no Keystone, you know that's going to arrive at the BLS eventually as a "soft patch" in employment.

I don't feel at all bad about not being long or short US equities here, now I can concentrate on whether I should be long Europe and EMs, and how long. We have to be careful with the narratives of why Spoos are going down ("good data = bad news" etc..) and just confine ourselves to the fact that it is, you know, going down, and that some of the former market leaders are now lagging.

At some later date this Spring we may find that Q1 GDP was about zero or worse, and that (esp. large cap multinationals) Q1 earnings are very disappointing, and then that narrative will be retro-fitted on to the market decline from here into April. In other words, for now, it's "good data = bad news" but later on it might be revised to "bad earnings = bad prices".

Gold and GDX both pierced the lower Bolly band today. Usually when that happens there is some follow-through selling but it is short lived. We'll take another look at those Falling Knives on Monday. Mr Bond also has further to fall, I think.

Goldfinger and Mr Bond cliff diving together, along with Spoos. Only Bucky stands tall. FX trading has clearly dissociated itself from the macro data (where EZ macro first derivative has been much stronger than US for months) and become a pure game of central bank monetary policy arbitrage. Strange days... can't rule out Bucky pinning his ears back and making a run at 100, which is total madness really.

Beware CBs being misled by lagging indicators and/or sharp commodity price changes. (That's what led to Tricky hiking rates right into the teeth of the Global Financial Crisis). Dame Janet's smarter than that, isn't she?

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Leftback
admin
March 6, 2015 at 9:12 PM ×

Tax season is looming...

Let us imagine there is a punter, we'll call him Peter Punter, who had it off last year and the year before punting Tesla, Apple and a pile of biotech stocks and made a load of wonga. Mrs Patty Punter spent a load of that doing up the kitchen or whatever, so Peter was Bertie Bigbollocks in the Punter household.

This year, as March rolls around, old Pete finds that he isn't doing quite so well punting those vehicles, and in fact he's lost quite a bit of wonga. Now he's looking at his statements and realizing he is facing a bit of a tax bill for having it off last year but the Mrs has spent most of it, and he isn't coining it any more as a lot of his stocks are going in the crapper.

So it looks as though Peter Punter is going to be liquidating some of his beloved biotech holdings in order to pay his tax bill. By the time the Ides of March rolls around we may see this snowball. Now you can say, pffftt the big smart money isn't going to sell for that reason, but that presumes that the big smart money didn't already slide out the back door leaving Peter Punter holding the bag, right?

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checkmate
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March 7, 2015 at 6:13 AM ×

Actually LB, if you wish to 'take care' do so by realising that when you are repeatedly wrong it's probably because you are countertrend. I refer of course to your unending soliloquy about the US$.

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Anonymous
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March 7, 2015 at 9:13 AM ×

In a world of over-inflated asset values, the strength of the dollar is resulting is a rapid tightening of global liquidity as emerging economies (and indeed the Swiss) stop printing money to buy the US dollar.

This should be seen for what it is: a clear tightening of global liquidity. Traditionally these periods of dollar strength are highly disruptive to emerging markets and often end in the weakest links blowing up the entire EM and commodity complex and sometimes much else besides!

Investors ignore this at their peril.


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Anonymous
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March 7, 2015 at 1:57 PM ×

For Putin fans:

"I am against bloody revolution, I am for peaceful transformation. Putin has 140 billion US dollars ... It's easy to understand he will try to protect this money and his freedom and his power. That's why we must think about a marathon. Not a sprint, but a marathon." - Boris Nemtsov on Day 6, February, 2012

Boris Nemtsov's marathon ended when he was gunned down late last Friday night in Moscow. He was shot four times in the back within sight of the Kremlin. The Russian government has denied any part in the crime. ..Garry Kasparov, a close friend and political ally of Boris Nemtsov, says the murder sends a message that "no-one is safe."

http://www.cbc.ca/radio/day6/episode-223-terrorism-and-mental-illness-charity-gone-wrong-gary-kasparov-and-more-1.2984599/gary-kasparov-on-russian-activists-no-one-is-safe-1.2984699

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abee crombie
admin
March 7, 2015 at 2:10 PM ×

Thanks anon for bringing up that topic. I was reading a commentary about the amount of debt in the word, 200t vs 70t of GDP according to a new McKinsey study. And while we all have our thoughts on too much debt and possible debt deflation and hose effects on different markets, I wondered, that 200t of debt, is also an asset to someone else, ( I am pretty sure). Could it not be that the world is drowning in debt, but in assets.

Like some posts called out earlier, it's easier now than ever to create technology assets ( that don't have a meaningful business model yet) and use those assets in the real world ( the VCs in snapchat surely show their lp the value which they then use for their own valuations etc).

While EM debt is scary and perhaps overlooked given the dollar strength here I wonder if debt is the real problem and not just too many assets. As the world gets older, more advanced, we are just going to create more and more assets, on perhaps less and less real gdp growth. Something to think about.

No idea on st interest rates. I think fed wants to raise in order to get some breathing room. But who really knows.

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Polemic
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March 7, 2015 at 10:40 PM ×

Yes one mans debt is another man's asset. The interesting questions how much debt and asset belong to the same person, effectively netting off. CB's balance sheets are huge and so contribute to huge amounts of debt, but they have assets to match.

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Anonymous
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March 8, 2015 at 12:36 AM ×

LB "At some later date this Spring we may find that Q1 GDP was about zero or worse..."

Atlanta Fed agrees...we are going down...

https://www.frbatlanta.org/cqer/researchcq/gdpnow.aspx

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Anonymous
admin
March 8, 2015 at 11:24 AM ×

"Cyprus style" bank-bail in's starting in Europe:

http://www.telegraph.co.uk/finance/comment/jeremy-warner/11455671/Austria-is-fast-becoming-Europes-latest-debt-nightmare.html

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Anonymous
admin
March 8, 2015 at 3:53 PM ×

Peter Cauwels & Didier Sornette...

"The ECB’s QE announcement of Jan 22 has had a very significant impact on Global Markets.
Since then, we see a massive formation of bubbles with unprecedented warning signals
showing up in European Equities and Global Fixed Income:

56% of all the European Stoxx Equities Sector Indices give clear warning signals. A month
ago, that was 0%. We have never seen an increase in warning signals on such a grand
scale and on such a short time period before;

85% of all Fixed Income indices, globally, show clear warning signals. There we saw the big
jump already last month;

Interestingly, even though all our risk indicators are flashing red, the implied volatility, a so-
called fear gauge for global markts, has dropped very significantly over the past months;
It is difficult to anticipate market movements in these global markets that are guided by central
banks’ extraordinary measures. In any case, as all our risk indicators are in the red, investors
should not have a false sense of security from the low implied volatility"

http://www.er.ethz.ch/fco/FCO_Cockpit_March1st_2015.pdf

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FunnyMoney
admin
March 8, 2015 at 7:22 PM ×

Anon 3:53 PM said:
It is difficult to anticipate market movements in these global markets that are guided by central banks’ extraordinary measures.

Very true. We are indeed awash in funny money.

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Nico G
admin
March 8, 2015 at 10:47 PM ×

i don't wanna sound American but Putin is more like, totally worth $500 billion

there are so many (filthy rich) clowns doing the carry of his wealth around the world... that Putin's wealth will forever be a mystery and also quite impossible to spend in a lifetime - unless you buy really expensive shit like German politicians, zum Beispiel

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