A few thoughts from Monday night NY time

Well, that was interesting.   Macro Man wishes to extend apologies to all readers for not informing them of his presence at a beach yesterday; the short trip to Rhode Island was a spur-of-the-moment thing, and your author didn't think that the "world goes to hell while he's on holiday" rule applied.  Mea culpa.

That having been said, those souls portraying yesterday as some sort of "Black Monday" were well wide of the mark.  Macro Man can only assume that they were literally playing with black crayons in 2000, and figuratively in 2008-09.

To be sure, the market liquidity environment was execrable, from the Chinese meltdown to the Nikkei meltdown to the DAX meltdown to the Spooz meltdown to the ETF meltdown to the USD/JPY meltdown to the subsequent meltups....and back down again.

Yesterday's hastily scribbled assertion that the time might be nigh to don the kevlar gloves proved wide of the mark; that having been said, the 30 level in the VIX did serve its purpose to a tee.  Spot VIX obviously gapped through the level (when it could be bothered to print at all!), but notice how the 30 level held almost to the tick on the equity uptrade before Spooz rolled over again and VIX rebounded.



If anything, this strengthens Macro Man's conviction of the utility of the 30 level as a tell.  While it is obviously nice to use massively oversold conditions to cover profitable shorts, Macro Man would be leery of running even the most tactical of longs until the VIX breaks that 30 level and heads lower.  Otherwise, that's not a knife you're catching with those kevlar gloves, it's a neutron bomb.

Still, it's been a while since Macro Man's been able to suggest a trade on Friday (short Nikkei) and have it some go nearly some 15% in the money on an intraday basis on Monday.   For choice, he would cover half of it here (17910 at the time of writing) and run a stop at the entry level on the balance- while being prepared to roll that down if and as the index makes new lows.



The reaction to yesterday was quite telling.  The closer you are to a P/L, the more interested you were to keeping your head down and figuring out what would happen next.   The closer you are to political office (current or desired), the more interested you were in casting blame for the unspeakable fact that markets went down.  Such is the realpolitik of markets in the brave new world of the modern regulatory environment.

What does make the current environment different from 2000 or 2008, of course, is the prevalence of algos in the market and the lack of presence of banks as risk-warehousing intermediaries.  Macro Man saw an interesting stat suggesting that while there were a record number of trades in S&P minis yesterday, there was not a record volume because the average ticket size was a mere 2.57 lots.  That's fairly astonishing, given that the minimum size is obviously..err....1.  Whether that meager size was down to the algos doing the trading in intentionally small sizes, an abject lack of liquidity, or both is of course an interesting subject for debate.

Macro Man looks forward to the report in 5 years' time damning some poor bugger living over his Mum's garage for causing today's meltdown.

In seriousness, however, the air pockets observed in so many of Monday's markets do not speak well of the micro-structure.  While China is of course a source of duress, imagine how bad it would/could be if the locus of distress was in the domestic real economy rather than speculative foreign financial markets.  It's high-hanging fruit, but regulators would do well do address issues related to "liquidity providers" and their movable feast of participation, even if they can't raise the sort of cash generated by LIBOR and FX fixings.

(As an aside, how do the regulators square the fines levied for those scandals with the paltry one levied on Citizens Bank, which was found guilty of literally stealing customer money?)

In the meanwhile, the structural failings of the market merely add to the volatility unleashed by the tightly coiled spring that has snapped back.   As Macro Man wrote on Twitter yesterday, Monday's price action was extraordinary- almost as extraordinary as the SPX remaining confined in a 5% range for 6 months.  You only need to observe one episode like this to learn that the longer that volatility is suppressed, the more violent the rupture when the low-vol environment breaks.

As for the Fed, obviously the deeper and longer any market correction, the less likely it is that they move this year.   That having been said, Macro Man does not agree that the chances have already telescoped to something approaching zero.  That the dollar took a bit of a beating yesterday- at least against the euro and yen- should give at least a little pause to the USD caveat expressed in the minutes, though of course on a TWI basis the dollar's weakening was less notable.

More to the point, while Macro Man has given the Fed plenty of stick over the years, even he doesn't think them so obtuse as to not recognize that this sort of reaction was at least somewhat possible in the run-up to any tightening.  As a result, he think that they'll play it by ear and not rush to judgment either way, a sentiment more or elss echoed by Dennis Lockhart's speech yesterday.

Your author can recall thinking in the immediate aftermath of Hurricane Katrina a decade ago that there was no way that the Fed wouldn't pause its tightening cycle to assess the (much more real) damage; two weeks later, and it was obvious that they were going to keep on truckin'.

Now obviously, that was Greenspan, not Bernanke (let alone Yellen!), and there's a massive psychological difference between continuing and starting a monetary cycle.  That being said, the point of the recollection was to illustrate how swiftly sentiment can change in a matter of a few days.  Intellectually, something close to a critical mass of the FOMC seems to have decided that they'd like to ditch ZIRP; as such, the news will have to remain bad for them to abandon that intent.

Maybe it will happen, maybe it won't, but with markets pricing only a 50% chance of any tightening by year end (versus 50% for September less than a week ago), the risk-reward is starting to look pretty good.  Macro Man sold a small initial clip of January Fed funds futures yesterday, and is hoping for a further rally so he can add to the position at even nicer odds.   It will take a hell of a lot in terms of news and price to push that totally to zero, so it should be an easy position to hold even if stocks take another downleg.

Finally, China.   A few minutes ago, Macro Man saw that USD/CNY fixed lower on the day, which surely illustrates the authorities' emphasis on FX stability as the rest of their world apparently crashes down around their ears.   There are some truly fantastic numbers being thrown about regarding intervention amounts, with the linked article suggesting $200 billion in the two weeks since the deval.

Simply put, PBOC could not extract that amount of RMB from the system without sterilizing (RRR cut/buying shedloads of T-bills) or causing a major money market rupture.  To date, neither has occurred, so Occam's razor suggests that the intervention size has been much smaller.  That having been said, the whole debate illustrates the opacity of the whole Chinese FX and monetary regime.   One thought that presents itself is that the next release of Chinese FX reserves will be very closely watched for clues as to how much firepower has been spent.

One cute trade would be to do a calendar spread, selling FX vol expiring before the release and buying some expiring soon after.  Bid/ask might be prohibitive, particularly in any sort of proper size; nevertheless, trying to figure out a way to game the idiosyncratic opportunity provided by a generally obscure piece of data is one way for the humans to kick the Matrix where it hurts.


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Anonymous
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August 25, 2015 at 7:18 AM ×

Some Chinese agencies involved in economic affairs have begun to assume in their research that the yuan will weaken to 7 to the dollar by the end of the year, said people familiar with the matter.
The research further factors in the yuan falling to 8 to the dollar by the end of 2016, according to the people, who asked not to be identified because the studies haven’t been made public. Those projections, adopted after the yuan was devalued this month, compare with analysts’ forecasts for the yuan to reach 6.5 to the dollar by the end of this year.
While the rate used in the research isn’t a government target, it reflects the view that China may allow the yuan to fall further after a depreciation in which the currency was allowed to weaken by nearly three percent on August 11 and 12. The government said it made the adjustment to bring the yuan into alignment with market expectations.
The rate used in the research constitutes reference levels used for economic assessments and projections, according to the people. The People’s Bank of China didn’t respond to a fax seeking comment.
A dollar-yuan rate of 7 would be a more than 8 percent depreciation from Tuesday’s level. At an Aug. 13 briefing on the yuan, PBOC Deputy Governor Yi Gang dismissed the idea that China would devalue the yuan by 10 percent to boost exports, calling it “nonsense.”
There is a 9 percent chance the yuan will be at or weaker than 7 per dollar at the end of this year, according to Bloomberg calculations based on implied volatility levels from the options market. A level of 8 or weaker a year from now is given less than a 5 percent chance.

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Anonymous
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August 25, 2015 at 9:28 AM ×

Anonymous said...
...I predict his call for global armageddon means the market bounces here...
August 24, 2015


So far so good...

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Anonymous
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August 25, 2015 at 9:38 AM ×

FT: the PBOC is likely to confuse causes and consequences. They devalued and mayhem was unleashed; however, it's quite obvious that devaluation was a consequence rather than a cause . I believe they will be slow to let the yuan go and will first try the monetary spigot. I would vote for some sort of action by mid-september; a mix of rate cut and local authorities credit lines...possibly some infrastructure plan. I would think they are busy figuring it out as I write this;

This would definitely mean a serious rebound in the commodity space which is getting a tad oversold. DMs equities should fare nicely after september if not earlier. The FED should hike 25 bp by december at the latest and that's what will unleash the next bull phase (wave 5 like) in DM assets.
The question mark is precious metals: there are 2 precedents: 1998 where PMs kept churning down for 2 more years or 2005 where concomitent with rate hikes, PMs started a nice bull run into 2008.
I'm not sure but we should know within 3 to 6 months.

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Nico G
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August 25, 2015 at 10:02 AM ×

well the real reason for Monday sell off finally came from that financial blog

http://www.thedailymash.co.uk/news/business/share-plunge-may-have-been-caused-by-bad-cocaine-admit-stockbrokers-20150825101431

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Anonymous
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August 25, 2015 at 11:06 AM ×

I wonder what has become of Banana trader man.....

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Anonymous
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August 25, 2015 at 11:25 AM ×

Anonymous said...
...I predict his call for global armageddon means the market bounces here...
August 24, 2015
So far so good...
August 25, 2015


Et voila:
China Cuts RRR Ratio By 50 Bps To 18%, Cuts Interest Rates...
JBTFD ;-)

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Anonymous
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August 25, 2015 at 1:08 PM ×

FT: actuallythey were not busy figuring it out when I wrote...they already had

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Nico G
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August 25, 2015 at 1:18 PM ×

juicy gap on spooz - that coyote over the cliff feel when they open might be worth a quick scalp short

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CJ
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August 25, 2015 at 1:19 PM ×

The reason that a Sep FED hike is actually bullish for risk assets is that it removes this idiotic cloud of uncertainty that a 25bp rise in short rates will spell doom for financial markets. This is especially true since I believe the FED will accompany any hike by significantly reduced this dots and thus signalling that the terminal rate in this cycle will be in the low 2s. In that sense they could actually ease by hiking by having Yellen (4th dot) reduce her medium Fed Funds projection for the long-term by 50-75 bps.

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Anonymous
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August 25, 2015 at 1:41 PM ×

FT @CJ : spot on but considering how timid they have been about it (in fact they probably have realized by now that they committed a big policy blunder by not hiking earlier and are fretting about the window closing soon) I think they will wait for October or Z5 which guarantees another 2 months of back and forth until we are finally liberated....one caveat: if the Sep unemployment is strong again and equities go back to unch, they probably will pull the trigger (with a lot of qualifiers as u said)

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CJ
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August 25, 2015 at 2:19 PM ×

agree... that's why selling FFF6/EDZ5 is a good punt at these levels... NFP comes in decent and we have to at least px in something. Let's be honest, rightly or wrongly, the policymakers at the FED have come to the conclusion that zero-rates is at the margin now a net negative for the economy.

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Macro Man
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August 25, 2015 at 2:43 PM ×

Yes, agree, which is why I was selling the FF's last night. 90% of the optionality is in your favour.

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Macro Man
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August 25, 2015 at 2:57 PM ×

Half an hour in and VIX is holding 30...

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Fade Nico
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August 25, 2015 at 4:14 PM ×

@Nico - you still short into this equities rally?

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Nico G
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August 25, 2015 at 4:23 PM ×

if you read the previous thread i am now long eurostoxx under 3000 for 3270 retest

and scalp shorts on the shortest timeframe, sure

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Fade Nico
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August 25, 2015 at 4:48 PM ×

@Nico - Thx, just found it:
Nico G said... looking for a higher low on stoxx.
August 24, 2015 at 8:04 PM

Interesting fill, since Eurostoxx only dipped to 3033 on that HL...

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Leftback
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August 25, 2015 at 4:56 PM ×

VIX slightly sub-30 now, but it's the closing print that counts, innit. That is certainly an interesting metric to monitor.

We are long eurostoxx as well from yesterday, although we are temporarily inclined at the moment to play this as a one or two week bear market rally. So accordingly, we plan to "sell the rips", at least until we see vol selling and evidence of higher lows on a pull back from here. The EM bounce was truly impressive, the most obvious beneficiary of PBoC RR cuts. This one currently has more of the feel of the 10% face-ripper getting started after a deep correction than a new stealthy bull move, and doesn't eliminate the possibility of lower lows later in the Fall. Charts for the US market especially look technically impaired at this point.

The Fade Nico stuff is a little bit jejune, don't you think? Likewise the Funny Money baiting could be done on a significantly more intellectual basis. Let's elevate the level of debate, perhaps, can we? [I am now expecting to see Overturned Hammock posting stuff here...] Our dumpster dives into Brazil and energy are also looking good today, but we doubt the carnage is over.

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washedup
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August 25, 2015 at 5:00 PM ×

Nico is mahatma gandhi - I am not sure how I would respond to a question by 'fade washed-up', but it would probably not be nice!

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Nico G
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August 25, 2015 at 5:06 PM ×

Fade Nico

one last time - read the thread again, if you have nothing better to do. i was looking for a higher low as a confirmation of a constructive bounce in Europe, in order to trail the lucky sub-3000 fill

the shopping done on EM yesterday was also on the long side - Bovespa futures ripping higher as we speak if you were busy making money you would probably not waste this forum space come sit on my lap and take a lesson

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Overturned Hammock
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August 25, 2015 at 5:23 PM ×

hi guys

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August 25, 2015 at 6:10 PM ×

Why should I care that anonymous handle VandalsStoleMyHammock top ticked this or bottom ticked that. Who posts this kind of crap? Let's talk ideas, which by their nature are prospective. I don't care what anonymous internet geniuses did yesterday, nor am I straining to scour the tape to see who called what when. It's just imaginary internet points, you know?

If there's one thing I've learned in my time in the markets, it's that people who're the keenest to tell you how much money they're making, aren't actually making any money. Call that Vandals' Iron Rule #1.

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hipper
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August 25, 2015 at 6:24 PM ×

BLX is the instrument I've used for LatAM exposure (sold @29 last time), well run bank imo. It might not be a bad guess to expect the bottom of oil marking the bottom for EMs in general, and was looking for the $30-35 range. Of course if it were to happen, it would probably depend, and coincide with the global carnage extending from Friday and Monday for the rest of the week which we might or might not get.

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Nico G
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August 25, 2015 at 8:11 PM ×

the proverbial reversal Tuesday might be all the upside we get this week indeed hipper -

Vandals the sum of twenty years of trading losses here amounts to $26 million - there is nothing wrong with discussing losers, too

but good point otherwise

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Polemic
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August 25, 2015 at 8:12 PM ×

There has been a polarisation of opinion with regards China (the root cause of all this). 'Tail end charlie' research units are now calling Chinese recession where 4 weeks ago everything was fine. Not saying there won't be, but the flip of opinion over the course of 3 weeks with ridged to the long term forecasts that should be taking in slow changing indicators is laughable. But we are left with the markets suspended between the buy the dippers (I m in that camp) and the doom n gloomers.

Resolution can be spotted in Vix but that doesn't mean that volatility will fall as we all know Vix is put biased. I am watching all the usual culprits and Oil especially. To get a really good 'that was a muppet bottom' the whole lot should go up again, commodities, equities, HY, the lot. They have not yet and so I ll leave fine tuning VIX micro trigger levels to the quant gurus and take a higher top down view.

If this is make or break we can afford to lose the odd 3% of move for the sake of information resolution rather than trying to bepoint picking heroes.

The China meme has sucked in Macro tourists and armchair generals, and we know we have peak armchair generalness with Field Marshall Robert Peston BBC TWT CNT(bar) appears on TV telling us how the worlds biggest calamity has only just emerged over the last 3 weeks.

China's middle classes have be found lacking when it comes to splashing the cash but it hasn't happened in a hurry, though thing a whacking on your margined SHCOMP (Small unrepresentative index), may mean you think twice about buying a new Audi A8, but housing is still looking OK.

I have some very clever friends who are telling me this is the start of a new economic phase and that China is having its own 1929. Not just those predictable overlay 'look these look similar if I change the scales' charts, but in societies overall investment and development phase. I have sympathies with this but the problem as ever with China is that it is so hard to work out what is really going on there. Which makes me laugh all the more that we are getting some exceedingly detailed prognostication over not only China's outcome but the 3rd derivatives of if western individual stocks.

The move in global attention from Greece to China is stunning and I just wonder if the ADHD will fade attention as swiftly once we get the first modicum of 'OK" data.

Yes its rubbish there at the moment, yes commodities have taken a pasting, yes the Chinese middle class have decided to save some money and yes SHCOMP is back to being 'only'' 40% up from a year ago, but jeez folks, China has gone red on the taxi driver index and we have had the associated flash crash with all associated stops cleared. We have a lot resting on an assumption that the Chinese State has lost control of its economy and be derivative association we are all fkd.

SO I'm betting the other way from here.




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Anonymous
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August 25, 2015 at 8:47 PM ×

Polemic - watch the shadow banking industry in China, Wealth Management Products will be the next big correction... will be a slow traincrash... there is no free lunch

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Nico G
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August 25, 2015 at 8:53 PM × This comment has been removed by the author.
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Nico G
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August 25, 2015 at 8:56 PM ×

very weak price action in spooz

Pol you said the one true thing, 'that it is so hard to work out what is really going on there'. So why take the other side? The other side of what exactly, if you say noone has a clue

imho if you want to punt chinese equities jump with the momentum after a clear break out, short when it gets vertical, get out when they trash it (not here yet) and repeat. Super basic.

back to world assets personally i find the chain of events completely consistent:

- commodities take a hit ( a LONG time ago) for the big reason that we'll call 'suspicion' of Chinese slowdown
- EM follow where both currencies and equities dive accordingly
- while tension emerges on EM credit

- oil finally follows other commodities and put a new, high stress on the developed economies among its producers
- new tension on energy credit arises, threatening to spill over developed credit at large

- some smart folks FINALLY take the warning seriously this summer and take profit on their DM high growth stocks, and never in a subtle way. SO you could not miss it
- all the while European equities, after such a long Greek distraction, realize there is noone left out there (EM kaput) to buy the A8, no matter how cheap EUR gets
- especially when the yuan gets even cheaper! duh

so it seems that the yuan devaluation has been the clear catalyst but if you had been sleeping until then, with the aforementioned chain of events, you clearly had big distractions in your life or big fees to secure at the cost of your intellectual honesty

to make the whole farce whole you are starting to read today about the insiders who bought into the top. Oh really, again, the impact of corporate buy back in US indices was a warning in itself of how fragile the whole market was

in conclusion: expect more liquidation, if China has cooked its booked the same way Greece did, and they did, for as long as they did, expect a very long train crash




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Anonymous
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August 25, 2015 at 9:01 PM ×

Well the fat cat bounce was more of a splat....

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Nico G
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August 25, 2015 at 9:09 PM ×

we are in full 2008 mode here where gaps up crap and liquidations take over in the afternoon. Sold the Europe position which should catch down tomorrow barring 50000 trillion yuan unleashed overnight

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Polemic
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August 25, 2015 at 9:09 PM ×

Hi Nico, I'm taking the other side in the conviction that China is total doom, due to me believing that you can't know exactly what is going on there so to put in a 100% call must be wrong. I feel that the consensus on China is massively if not totally negative. Very Greek.

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Anonymous
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August 25, 2015 at 9:14 PM ×

It's going to take weeks for VVIX to come back down under 100. Will keep premium in $VIX options above normal into Thanksgiving, most likely

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Nico G
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August 25, 2015 at 9:21 PM ×

ok Pol, a fair opinion as long as you do not wish to trade anything opaque. Look at Greek banks today... and the beautiful minds who bought them as out of the money call on Greek deal well, they lost the premium. The head of Greek stats, who organized the cooking, escaped a life sentence in jail this summer. Generation of swine, to quote the doctor

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Polemic
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August 25, 2015 at 9:33 PM ×

Hi Nico , I can trade something that is opaque if I know that its price is built on 100% certainty. If there were 10 boxes (possible outcomes) and in one of which was the reality, I'd happily bet evens that the person who had selected the one box was wrong whether I knew the actual box or not.

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Anonymous
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August 25, 2015 at 9:34 PM ×

“It's a strange world. Some people get rich and others eat shit and die.”

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Nico G
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August 25, 2015 at 9:39 PM ×

and it might get worse if they let THAT guy happen

http://dailyreckoning.com/donald-trump-fascist/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+dailyreckoning+%28The+Daily+Reckoning%29

got it Pol, it was almost poetic, thank you

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Mr. T
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August 25, 2015 at 9:49 PM ×

Well that was ugly. Nico I think your general long term view looks right, but price matters. The commodity space has been completely smashed from end to end - spots, price decks, producers. The same way we saw this bifurcated market with the nifty-50 roaring keeping the indexes afloat, its possible that the market has already appropriately discounted commodities enough that this morphs into a "value over growth" market with little net impact to the indexes.

I talk to people involved with different aspects of markets. The only ones who are really bearish are the same ones who are always bearish, calling for ~400 on the spoos, basically a 80% type of decline. There is noone looking for tactical short ideas. I would feel a lot better about outright longs if there were more people betting on short term declines.

My base case here is a sizeable shift from high beta into defensives with an outperforming energy sector. A fair amount of this can be captured with a simple long-spoos / short-qqs. I'm somewhat optimistic about the HY space - the fall revolver talk in energy is getting way ahead of itself, and I continue to believe that one of the surprises in 2016 is going to be the ability of the E&P's to get FCF neutral (or close enough). If you can buy into that there are some great risk-adjusted returns in FI.

FX space has become feisty but I think theres room for some long USDCHF action. It seems late to pile into the multi-year declines in the big commodity currencies {AUD,CAD,RUB..}.

Times like these I keep an eye on a proprietary system (not overly clever, trust me dear reader) that tries to detect wholesale portfolio liquidations. So far, nothing. I suppose I see this as a half-glass-full (its not the end times yet), but it also takes away from the idea that we saw full-on panic on Monday morning. Maybe we were, but it was not of the form of portfolio liquidations.






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Anonymous
admin
August 25, 2015 at 10:11 PM ×

deny deny deny

http://www.smh.com.au/federal-politics/political-opinion/this-simple-graph-explains-why-politicians-around-the-world-are-struggling-to-revive-their-economies-20150825-gj6x83.html

watch the video, market falls 8% and news doesnt mention it....... if we dont talk about it , it never happened, mark my words the shadow banking sector is way way worse then this stuff

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Anonymous
admin
August 25, 2015 at 10:32 PM ×

Although I disagree with Nico on China's real economy, he is right on the trend of the market and price action confirms his opinion.

If the market is waiting for Chinese government to provide a QE like plan then the market is likely to be disappointed. I do not think that too many players are losing huge money in shanghai stock market, except for some local funds and a lot of retail investors. So I do not see a financial contagion right now, unless you believe that banks in China are going to fall tomorrow and PBOC will let them fall just like Lehman Brothers. So 2008 is a little bit off base now.

So in the end, I guess that the DM equity markets just have to decide that China's stock markets are in a different universe and DM equities will decouple from it.

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Anonymous
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August 25, 2015 at 10:56 PM ×

It never starts with the banks, it starts with the shadow banking community.... once enough of that fails, people lose trust with all deposit takers.... its going to be a slow crash this will take months to play out on the ground in china.

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Anonymous
admin
August 26, 2015 at 1:02 AM ×

China cooking books..never..lol

You remember Sino Forest and Paulson!

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Anonymous
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August 26, 2015 at 1:03 AM ×

"Never mind raising interest rates — Ray Dalio, founder of the world’s largest hedge fund, is predicting that the Federal Reserve will launch a fresh round of quantitative easing rather than tightening at its coming policy meeting in September".

http://www.marketwatch.com/story/bridgewaters-ray-dalio-sees-fed-launching-quantitative-easing-measures-2015-08-25?dist=tbeforebell

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Nico G
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August 26, 2015 at 1:10 AM ×

China's stock markets have always been a different universe indeed, down when DM recovered, strong up while EM were tanking etc that could change now that the rest of the world needs China as the buyer of crap of the last resort, as the ultimate growth relay for there is a cruel development over there:

it looks like the Chinese government decided to bankrupt its middle class. I know it sounds absurd, but to have pushed so much retail into the stock market, ON MARGIN, knowing the sick propensity of Chinese for gambling... what exactly was your scope as a nation? to forget Mao and become the biggest float in the world? if you wanted to bankrupt retail you'd sell it to them from 3000 to 5000 and buy it all back when you liquidate 'em at 2000. It is a wild parabole but China is not a reasonable country. All that land selling bullshit, that overall malinvestment, those cities built and never occupied, those high speed trains built on the cheap, and what not. This ain't normal, this is not precedented in human history, that level of mindless greed, with the highest disregard to environment and quality of life at large, to culminate with the opening of 48 MILLION margin accounts for financially uneducated masses

and yes, the Chinese shadow banking system will be even more opaque to ponder. SO all in all, it seems that Chinese middle class purchase power just got nuked. Margin speculation on top of the crack down on corruption. And then some devaluation to top it off. Who wants to buy the Maserati now, who is booking the Venice holiday? What noone seems to acknowledge regarding the formidable accumulation of wealth in the 2010s by the 0.001% is its terrible consequence on the economy. One thousand millionaires will buy 1 secondary residence and a $20k watch but one Jack Ma billionaire doesn't need 1000 of them. Chinese consumption of foreign goods is going the doodoo way of global commodities. This is where i am terribly pessimistic regarding Western economies whose middle classes have been decimated too, not gambling on equities (European don't), but through mind boggling tax increases to cover increasing debt service and (for the European) the Greek mount Athos sized debt to boot.

DM equities were priced 1) like infinity pools discounting flows with ZIR. Oh the heresy 2) with absurd, unsustainable growth projections on their already nuked EM clients + China

someone said CBs can still do anything, i beg to differ. They have shot themselves in the knee and have their back against the wall. For sanity sake look how hard it is to take 25bps away from the QE junkies. Me think many many folks are sweating between DC and Wall street on what awaits us in September. There might be value at S&P 1600 on equities but this NYSE margin at record is bound to be called hence you could reach that level by the end of August, so brutally that it won't stop there and as an end game the Fed IDIOTS + Draghi & co will have lost all credibility.

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Nico G
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August 26, 2015 at 1:17 AM ×

Ray Dalio has completely lost it, he should stop liking tv appearances so much and go back to being as secretive as he was for decades. What is current Globex price action telling you? More sellers than buyers, the rest is noise

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Anonymous
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August 26, 2015 at 4:46 AM ×

@Anonymous 10:56pm

Shadow banking problem is over-blown IMO. The media gave shadow banking a really bad reputation. One way to understand the shadow banking is that it is actually mostly market driven financing activity. So official Chinese banks misallocated capital because they often lend money based on political commends. On the other hand, shadow banking mainly worked on economic returns and risks, demand and supply.

Since 2010, shadow banking has been subject to doom and gloom media coverage almost every month. Of course it could develop to some sort of 2008 MBS problem, but so far the risk in that community is still contained, and you could find the sign in official bank rates if there is any systematic risk being developed. Majority of capital for the shadow banking comes from official banks. So you won't miss the sign.


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Carry Trader
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August 26, 2015 at 5:32 AM ×

Feels like the US step behind the Chinese slow down.

http://www.afr.com/real-estate/pilbara-property-investors-suffer-as-prices-plunge-67pc-since-2011-20150824-gj68nj

Chart in the middle of the article shows it all. Mining heavy states like Western Australia and Queensland has been feeling the slowdown in the last 18months.

It is not a coincidence AUDUSD peaked at the same time and follow the same downtrend.

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Mr. T
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August 26, 2015 at 6:11 AM ×

Just for a bit of perspective here - sentiment is so negative that it's probably enough of a catalyst for global equities to rally because SHCOMP didn't shit the bed, again, after multiple consecutive practically limit-down sessions. Hand wringing about fundamentals is fine but takes a back seat to good old fear and greed when it comes to setting market prices. In the short term, I think fear has had its run.

I also agree with Anon446 - "shadow banking", like "dark pools" is a perfectly valid function with a horribly ominous name.

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Anonymous
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August 26, 2015 at 8:38 AM ×

"I think "
The most abused two words in the financial lexicon.

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Marian Law
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August 26, 2015 at 2:30 PM ×

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