Panic

With apologies to the Smiths...

Panic on the streets of London
Panic on the streets of Amsterdam
I wonder to myself
Could I ever be long again
The Bund rallies as yields slip down
I wonder to myself
Hopes may rise in the blogosphere
But Honey Pie, longs aren't safe here
So you abort
To the safety of a short
But there's panic on the streets of Moscow
Dublin, Beijing, Dusseldorf
I wonder to myself

Buy up the dollar
Sell the blessed euro
Because the QE they constantly play
It does nothing for me to shrink bond yields
Sell the blessed euro
Because the QE they constantly play

The Bund rallies as yields slip down
Voldemort nowhere to be found
Sell the euro, sell the euro, sell the euro
Sell the euro, sell the euro, sell the euro
SELL THE EURO, SELL THE EURO, SELL THE EURO
SELL THE EURO

Actually, Macro Man has covered a third of his short today, because it's come a long way and prudence dictates banking a little.    If form holds, he'll be selling it back out at lower prices.  It probably bears repeating that unless you're in your mid-30's or older, you have:

a) never seen a proper dollar bull market
b) never seen a free-floating EUR/USD  (i.e., absent the impact of FX reserve managers, who are currently dealing with their own issues instead of fannying about with other people's currencies.)

Believe it or not, this is what markets used to be like.


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washedup
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March 11, 2015 at 11:56 AM ×

nice one MM - and to this I would add

c) Never seen an EM credit crisis brought about expressly via dollar strength

On the flip side, they did get to enjoy substantially more liberal mores and better undergrad parties in the late 90's/early 2000's than we did a decade before.

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Nico G
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March 11, 2015 at 12:53 PM ×

“If we should see that for a longer period of time we still have a large part of the market at negative yield, that’s something we have to think about.”

some idiot at ECB

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washedup
admin
March 11, 2015 at 1:44 PM ×

lol thats funny nico - it translates as:
'Hmmm, I've been buying a bunch of this stuff that no-one really willingly wants to sell - really puzzled by why the price keeps going up'

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Max
admin
March 11, 2015 at 2:14 PM ×

Heh. I wrote a similar parody back in 2008 over at CR. So many memories...:

Panic on the FTSE
Panic on the Nikkei 225
I wonder to myself
Could we ever see a gain again
Square mile pub stool you just sit down
I wonder to myself

Hopes may rise on a bailout
But can it stop the stock rout?
So you run on
To the safety of the bonds
But there's panic on the floors of Wall Street
Hang Seng, Bombay, Shanghai
I wonder to myself

Burn down Bernanke
Hang the blessed maestro
Because the nonsense they constantly say
I does nothing to help improve my life
Hang the blessed maestro
Because the nonsense they constantly say

As the ARMs reset they just mark down
Unpaid interest compounds
Hang the maestro hang the maestro hang the maestro
Hang the maestro, hang the maestro…

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Anonymous
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March 11, 2015 at 2:27 PM ×

http://www.wsj.com/articles/boj-helps-tokyo-stocks-to-soar-1426065432

BOJ officials used to be cautious about purchasing equities, worried that it could distort market activities and put the central bank’s own financial health at risk. But under pressure from politicians following the global financial crisis, the bank changed its stance.

“We led the cows to water, but they didn’t drink it, even though we told them it tasted good,” Miyako Suda, who was a board member then, wrote in a 2014 book discussing monetary easing. “So we thought we should drink it ourselves, showing them it was tasty.”

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Anonymous
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March 11, 2015 at 3:50 PM ×

He was right on U$,now he says 10 oil!

http://www.bloomberg.com/news/videos/2015-03-09/getting-ready-to-see-next-leg-down-on-oil-shilling

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wcw
admin
March 11, 2015 at 4:09 PM ×

That reminds me of this:
http://www.economist.com/node/188181

That article bottom-ticked Brent, which more than doubled by year end.

Now, the last thing I expect is a double; I expect the Saudis to keep their foot on the neck of crude for a couple years. But at $10 Brent, everybody stops pumping.

Might be good for the planet, but I don't think it'll happen.

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CV
admin
March 11, 2015 at 4:12 PM ×

Great one MM!

Those doctors you were talking about LB, they just arrived to take me away! I don't think I can look at bond markets in Europe anymore. Thorazine shot imminent now ...

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Polemic
admin
March 11, 2015 at 4:22 PM ×

I have just gone very quiet watching my bund position get put further into the back of the drawer.

I just can't bear to jump on a train doing 80mph just feet away from the buffers. I blame accountants and regulators (well I actually blame myself) for creating environments that make people do otherwise silly things. Banks are having to buy stuff now for regulatory reasons that is meant to protect them from risk. But of course it just compresses risk into other places.

For some strange reason my portfolio obviously has ebola and is haemorrhaging money from every orifice - other than me old euro growth stuff which, as we are talking about economist cover alerts, they kindly identified the base in with their Oct 24thish issue.


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Mr. T
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March 11, 2015 at 4:58 PM ×

@anon2:27 - thanks for that link.


Something seems wrong with the data in the article. Here is the BOJ spreadsheet they say has all the purchases in it. If you sum the first col its around 16billion yen (2014-onward), where the plot in the article shows them buying ~32billion yen worth per day. I think they are off by a factor of 100 - its not 32billion its 320mil. Also, a sanity check on the liquidity of the ETF's shows that even at 320mil yen they are about 4% of the daily volume, which is going to leave a big mark. (The BOJ guys are crazy if they dont think they are capable of causing things to overheat.)

Also, the 6T yen/year target is nuts (unless I'm totally munging up my data). I see top-5 liquid non-levered, non-inverse, JP-listed etfs doing about 8.4B /day in yen-volume. At 6T/yr, 250 days/year, thats 24B yen/day, or roughly 300% current volumes. I must be screwing something up here, or the numbers are way off.

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Leftback
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March 11, 2015 at 5:00 PM ×

Gordon Bennett, guv'nor! EURUSD going down 1% every day, BTPs closing in on 1%, OATs at 43 bps (WTF?), bunds at 17 bps, negative Bobl, yes, all extremely healthy and normal...

An amazing and beautiful Divergence (word of the week) is setting up between bunds/OATs and gilts/US10s, but with the FOMC next week and the threat that Dame Janet FInally Loses Patience, one presently has reason to fear the Reaper, or at least the fact punters will run from USTs for a few more days and set up a very large short position that will invite a delightfully well lubricated entry for those on the long side.

Here at Deeply Embedded Knife Capital, it has been a difficult quarter, especially for our High Beta Shredded Kevlar International fund (SKINT), but we remain confident that recent events are transient, and more normal market conditions will recur...

Meanwhile, MM is clearly Having It Off in a big way, so it's hats off to the Guv'nor, who is almost giddy with excitement over the Strong Dollar, and is talking up a Proper Dollar Bull Market, no less. In fact, MM is acting like the bloke who just copped a cheeky snog with the blonde intern in the stationery cupboard behind the photocopier. Good on yer, cocker, but MM, if this goes on you and Bucky need to Get A Room...!!

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Leftback
admin
March 11, 2015 at 5:25 PM ×

For those punters who are long REITs and may be interested in JBTFD and/or getting long TLT again, we think your patience will soon be rewarded. If we see NLY slip below $10 again, and AGNC flirt with $20, then you're getting the green light. TLT might have made a bottom at 123, but we remain a little bit wary that a lower low might lie ahead. If the 30y gets anywhere near its 200 day, just above 3.00%, fill yer boots...

Finally, for anyone who followed our Shredded Kevlar International fund and tiptoed into emerging market debt, e.g. EMB, EMLC and the like, we were obviously a bit early, but this week is going to be another great time to dip a toe in. No filling of boots as yet, but if we were to get a default event this year, even a Mickey Mouse one like Venezuela or Ukraine (which wouldn't affect anyone's funds), then we may see panic and it would be time to wade in deep.

Capital may indeed spend some of her time holding hands with Zero, but when it comes down to it, Capital loves a Nice Big Yield, and will soon return to its Heart's Desire. Take a peek at Brazilian govies if you want to view some Yield Porn, but don't post any Brazilian charts, remember this is a Family Blog...!

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Leftback
admin
March 11, 2015 at 5:37 PM ×

Btw, BBC has a post on the Mighty Dollar today noting the 25% rise since last summer. Getting late???

In other news, the "Bubbles" have threatened to seize assets of the "Ethels"* in retaliation for Germany's failure to pay reparations for Nazi Germany's actions in Greece during World War II. After decades of bleating about national responsibility for the crimes of the past, let's see if modern day Germany can put its money where its guilt-ridden angst is....?

* Translation available on request...

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Anonymous
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March 11, 2015 at 5:50 PM ×

http://www.zerohedge.com/news/2015-03-11/how-boj-stepped-143-times-send-japanese-stocks-soaring

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Anonymous
admin
March 11, 2015 at 6:30 PM ×

Farmer,

@LB,

While a high yield bond is always in demand, but there is also MM's worry on a secular Dollar bull market and its impact on EM currencies. Last time I check, the Dollar bull caused the East Asian Financial Crisis. Today those EM corporation's dollar debts could be a big problem for your plan.

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washedup
admin
March 11, 2015 at 6:47 PM ×

@LB
Re: NLY and AGNC I like the mREITS too, but interestingly they have borne the wrath of investors for the REIT/utility sector in general - baby with the bathwater I suppose - not sure if people understand its a yield curve structure and not a yield curve level play, at least in the long term.
No currency risk there thats for sure (except in the 3rd derivative) - worth a look on the basis alone - if u ask me they are better plays than piling into Brazilian bonds without knowing conversational portuguese -"obrigado por seu dinheiro estrangeiro"

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Anonymous
admin
March 11, 2015 at 6:56 PM ×

JPM:By some estimates the USD is already assuming ~100bps of hike already

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Anonymous
admin
March 11, 2015 at 6:57 PM ×

DAX 8500 (mid Oct sell off)
DAX 11800 (Mid March Madness 5 months later)

Up nearly 40%

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Macro Man
admin
March 11, 2015 at 7:26 PM ×

It's almost as if the world's largest exporter has a hypercompetitive exchange rate against most of its trading partners and competitors!

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Anonymous
admin
March 11, 2015 at 7:47 PM ×

About 23% (in 2014) of exports to US,UK & China. The rest was mainly Europe (French no.1 off all countries) & Russia....... France (8.8%), United States (8.1%), China (6.4%), United Kingdom (6.2%), and Netherlands (5.8%)

Products: Cars (11%), Vehicle Parts (4.1%), Packaged Medicaments (3.6%), Planes, Helicopters, and/or Spacecraft (2.4%), and Refined Petroleum (1.3%)

All those par-timers in the US planning to purchase a new 5 Series? Or the lads let go from the oil industry maybe.

The commodity collapse not saying something about China?

What will the German people do with their new found wealth? An extra week in Lanzarote? Retire earlier? Save some more in the event it all goes Pete Tong?

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Leftback
admin
March 11, 2015 at 7:48 PM ×

Good one, MM, yes The Ethels (aka Ze Germans) are enjoying the present conditions.

"By some estimates USD assuming 100 bps of hike"

The All-American Hiking Club is growing by the day. By "other" estimates (LB, "permabears", Gundlach, those 100 bps of hike are not coming (or should not be coming) any time soon.

Btw, 30y mortgage is at 4% now. Is that going to persuade people to buy assets that are still as much as 40-50% overpriced relative to incomes in some areas of the US? We are going to see another stillborn Spring housing market. It's 2010.... all over again.

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Leftback
admin
March 11, 2015 at 8:19 PM ×

Much Gisele Bundchen baiting in the mainstream financial media today, in memory of her request to be paid in Euros (which marked a Top in EURUSD).

Perhaps so much negative press exposure for Gisele today might be signs of a Bottom in EURUSD? or even a real Brazilian bottom?

Almost as good as a magazine cover indicator... also seen today, plenty of posts where they have the $ signs with crowns on them, like, you know "King Dollar", like, yeah, Dollar is Strong, yeah - i kno right? (wrinkles nose)

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Macro Man
admin
March 11, 2015 at 8:23 PM ×

Re: Gundlach- I am shocked, SHOCKED that a man who makes his living owning bonds would downplay the possibility of a policy development that would ostensibly cause the price of bonds to fall.

I seem to recall the previous 'Bond King' whiffing badly on the previous Fed tightening cycle as well.

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Anonymous
admin
March 11, 2015 at 9:00 PM ×

Germany has a higher 5yr-5yr Forward Breakeven than the U.S. right now, which is at 2010 levels

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washedup
admin
March 11, 2015 at 9:39 PM ×

Actly the previous bond kind whiffed twice, once via mid 2000s tightening and then via an ironic QE 'twist' of fate that sealed him for good - I heard he got pretty cranky and ornery soon after.
Hard to be more than one failed treasury auction away from armageddon in those seats.
One day, when pig men roam the earth...

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checkmate
admin
March 11, 2015 at 10:08 PM ×

LB,
When Ambrose starts writing about the dollar then you know the 'end' ,even it's only a correction, isn't far away.
Popular hindsight journalism at it's finest sic.

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Polemic
admin
March 11, 2015 at 10:24 PM ×

Re germany. The distortions just mount. As it s Cheltenham week i ll have a fiver on the 500 to 1 outsider that it's them that end up doing a deal with Russia as they are just so outside the rest of Euro at the moment economically.

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Nico G
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March 12, 2015 at 3:09 AM ×

yes after a nearly 40% jump in Dax one can really wonder what was actually wrong in October - i took October warning so seriously though, that the short covered on the 14th was put again to work too early and this trading form of incontinence nicely ate 5 months of profit

2015 has been the strangest market i have ever seen, and probably the most gobsmacking feat of that new international sport - red bull and adidas sponsored - of central bonk front running. On both European bonds and equities at that, so you can be pretty sure academics will write on that folly in about 5 to 10 years time

i am slowly putting a short back on EU equities, sized to a 2 year horizon, just like i did in 2006, prepared to suffer a lot but anytime within the next two years i expect a financial crisis of horrible proportions, incredibly more severe than 2008

It could be triggered by Russia tomorrow, or China in two months, or Greece this summer, or anything and much later who knows but in the end the crash itself will only have to be blamed on the horrible risk distortion forced by central banks since the last crisis.

Everyone chasing European equities today is a herd following pig who deep inside must know the fundamentals do not add up. So trail your profit with German-rigid sell stops amigos. I remember both being so frustrated with my short in 2006 and so excited in 2007 seeing the first signs of shit to come. And well so flush in 2008 to the point of feeling guilty about it

So far Draghi has managed to keep the Greek tragedy impact completely muted on markets, let see who wins in the end, the Brussels sprouts or the will and despair of the people. The money stolen by about 1000 families in Greece, and moved offshore, will never be recouped and there is only a limited money you can make taxing Britons and Teutons holidays. Hence i expect a full blown revolt which kinda sucks because i spend half the year in that amazingly beautiful country.

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checkmate
admin
March 12, 2015 at 10:14 AM ×

The irony is Nico the Dax probably couldn't jump 40% so quickly without those people who decided to short sell it. Irony do it for you ?

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Anonymous
admin
March 12, 2015 at 12:25 PM ×

I think it's ironic how everyone's talking about yield these days and not risk. Shouldn't yield reflect risk? Is there no risk anymore?

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washedup
admin
March 12, 2015 at 12:45 PM ×

nico - ur dax call is essentially a macro one based on europe going into outright contraction at some point resulting in earnings carnage - correct? Reason I bring that up is their multiples despite the rally, in local currency aren't as high as US.

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Nico G
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March 13, 2015 at 2:34 AM ×

checkmate and washed you are both right

mind you europe is already in contraction with their favorite clients: EM/US/China etc all experiencing major domestic contraction so you are damm right

and the anon in between said it all - zero yield = zero risk as we all know oh really, this will make us look so so clever when next financial crisis hits - imagine current leverage on national bonds at present... happilyy front running Draghi

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