Bringing a bazooka to a gun fight

In the end it was a dovish pass, and so Yellen rolled up to the Rate Hike Corral carrying a bazooka to a gun fight, laying waste to those cowboys brave enough to be short the front end of the curve.  There's a lot that one could say about yesterday, so let's start by ticking off the checklist from yesterday's post:

* The rate decision:  As expected, unched.


* The wording around the decision:  On balance, quite dovish.  They inserted the line about global unruliness, but threw only the skimpiest bone to the solid domestic activity situation.   Most importantly, the policy/guidance section of the statement was completely unchanged, thus offering no prospect that their fingers are on the trigger, waiting for the market to settle down.

* Growth and inflation forecasts.  Despite the increase in its 2015 growth forecast, the committee managed to nudge down its 2016-17 forecasts while simultaneously reducing its unemployment rate forecasts.  Naturally, inflation forecasts were chopped across the board.   This was more dovish than Macro Man expected.

* 2015/16 dot plots.  As expected, these were marked down, with the central tendency marked down by 30 bps per year.   Although the market characterized it as dovish that one member pushed back their rate hike vote to 2016 (edit: and another to 2017), frankly given every thing else Macro Man thought that was pretty neutral.  Bizarrely, one member decided that after six years of this nonsense, now it is finally appropriate to push ahead with negative rates.  One can only presume that this was Kocherlakota, who finally pissed away what few remaining shreds of credibility that he retained after summarily firing his economics staff for having the temerity to disagree with him.

* Longer run dot plot.  A bit lower, as expected.   What's interesting is that there are fewer topside outliers than there were a few quarters ago; this reflects both the composition of the voters (Plosser was clearly one of the outliers), and an admission even amongst the hawks that rates will be low by historical standards for a long time to come.

* The press conference.   To her credit, Yellen gave short shrift to the negative rate thing and tried to carefully characterize the liftoff as the removal of an emergency policy setting rather than an attempt to tighten conditions to restrain the economy.   This is a point that will need to be stressed if they are to get on with it.   As for the rest....jeez.   Long (and to Macro Man's ear, repetitive) lectures on inflation and its outlook suggest that she and the Fed are still believers in the Phillips curve, that 2% is an appropriate target, the Easter Bunny, and that O. J. didn't do it.

Here's a fun fact for you:  Over the last 20 years, the core PCE deflator has been at or above the 2% threshold just under 25% of the time.  If we remove the GFC from the equation and just look at the decade from 1998-2007, we find that the core PCE deflator was at or above 2% just over 33% of the time.  The 20 year average of the core PCE deflator is 1.70%, which might suggest that the FOMC's stated 2% target represents more than a little wishful thinking.

Moreover, see if you can spot the trend in industrial capacity utilization over the past 30 years; might this have something to do with the secular downtrend in inflation?


Yellen also trotted out the usual boilerplate fluff about needing to see more improvement in the labor market.  The current unemployment rate is already below the 20 year average (6.0%), and indeed is in the lowest 1/3 of all readings since the data begins in 1948.  To be sure, the current rate masks some hidden fragilities in the labor market (such as the ongoing inability of friendly punter/bloggers to find a gig), but still.   Yesterday's unadjusted jobless claims were the lowest since 1973, fer cryingoutloud!

Sadly, we need to acknowledge that calling the FOMC has absolutely nothing to do with economics (cue a round of 'I told you so' from the peanut gallery.)  For someone to be calling for negative rates with the economy and financial markets in their current state is frankly an embarrassment to the institution, as is their apparently never-ending search for an excuse to stand pat.

Janet Yellen tried to re-iterate several times yesterday that the vast majority of the committee expects to raise rates by the end of the year.   The market just laughed at them, with January Fed funds ripping to a new closing high.


Not ripping, of course, was the S&P 500, which tried to rally but then faded sadly, closing down on the day.  It's tempting to view this as a vote of no-confidence in the Fed's credibility, though more prosaically it's probably got quite a bit to do with a triple-witching expiry today as the index hovers around a key psychological level with plenty of open interest.

The next few weeks will tell the tale of how the market really views the Fed.  If Macro Man's views on the impact of Fed uncertainty are correct, then risky assets should struggle.   It really is a patent absurdity for the head of the Federal Reserve to declare that every meeting is "live", but that they need to gather more data to be confident about the labor and especially inflation outlook.

Seriously, what kind of data could realistically be released in the next month that would change their minds on inflation?   It seems difficult to fathom.  Listening to to Yellen speak about the data on Thursday, it sounded like they were a long way away from being comfortable on inflation, however misguided their target may be.  And yet a large proportion of the committee still expect to raise rates this year.   That, in a nutshell, is why the Fed's credibility is at a very low ebb indeed.  What that means for asset markets depends on your belief in the Fed's apparent omnipotence.

From Macro Man's perch, policy error normally gets punished in one form or another, sooner or later.  The conundrum this time around is that the punishment (lower risky asset prices) will only perpetuate the error.

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Nico G
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September 18, 2015 at 8:06 AM ×

to say it is a seller expiry in Europe is an understatement..

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Anonymous
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September 18, 2015 at 8:47 AM ×

thanks MM for the quality of posts on this.
Chris

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Polemic
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September 18, 2015 at 8:53 AM ×

good stuff again MM.
I m sticking with my Mar 16 first move that I snarkely chiseled in stone 18mths ago.

as for markets. vol collapse leading to risk parity creeping back in, bond discount rates to eqs to help eqs too.

Think we are going to see a carry creep grind up in risk killing recent 5 min macro shorts. Once done we can think again.
More here http://polemics-pains.blogspot.co.uk/2015/09/good-thats-out-of-way.html

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CV
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September 18, 2015 at 8:56 AM ×

+1 Chris ... MM has upped the tempo here! Not exactly sure what to say about the Fed. Given the clear dovish slant of the statement (at least from my perch), the fact they didn't raise really does seem incredibly weird to me. I.e. they missed a chance here to pull a fast one, and get one in through a "dovish hike" narrative.

Not sure where this ends really, but I reiterate my view. Don't short too aggressively here! I think the current range will eventually clear to the upside. Meanwhile, for those of you fishing in Vertu infested waters, mainly punting daily, 240 min charts etc ... well,

https://www.youtube.com/watch?v=72Yh67e9lRo

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Nico G
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September 18, 2015 at 10:01 AM ×

Europe is very weak am taking some profits there. need to decipher whether Draghi is really preparing something into year end or if it's just noise

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Anonymous
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September 18, 2015 at 11:27 AM ×

I perfumed my cock and it smells not bad at all

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September 18, 2015 at 12:08 PM ×

Agree with the unwarranted, not supported by data from this planet, overemphasis on Philips curve....

Walking a tightrope now:
Super dovishness helps EM on the margin...

but now non-US DM under severe pressure (Japan/Europe).

Likely results in a race to announce more QE in Japan/Europe to get the currencies moving down

The Fed can't hike now but still forecasts 6 rate hikes by 2016 and 10 rate hikes by 2017.

Just wow.

Some additional thoughts

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abee crombie
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September 18, 2015 at 1:33 PM ×

I was listening to Cramer ranting last night about how smart Yellen is, and while I do think the guy has a good read on the market here, given how narrow leadership has trended towards GoGo names, I think he is off the mark. He thought the DOW would be down 500 points had the Fed raised. I think we would have had a short sell off but then a nice rally, anyways, moot point as we will never know.

I'm thinking current weakness is more related to Europe than anything, but this narrow US stock leadership isnt going away and it doenst bode well until it turns. Keep on eye on Russell as an easy proxy....

Hopefully we get a retest of recent lows in S&P, and with EM FX stronger that bodes well for it holding.

I'm looking to sell AUD soon

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CV
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September 18, 2015 at 1:45 PM ×

I definitely think a "double-bottom" and a re-test is in the cards Abee, but would be buying such an event as per my comments earlier. In my own little world, the risk has definitely increased that the ECB will be bullied into something this year. Which is of course absolutely bonkers given what the economy is doing and where inflation is likely to go in 12 months. But in the world of modern central banking etc, the consensus has already made it out to be a crime if Mr. Draghi DOES NOT do anything.

Hence, why I think buying nominal assets/inflation is not such a bad thing. Inflation will eventually restrain the CB's ability to move, but first comes the late cycle delusion.

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Polemic
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September 18, 2015 at 1:51 PM ×

Well I was wrong. MM nailed it perfectly.
I was/am a fool hardy long.
Perhaps FM can tell me where to put my stop loss.

Fed steady -> EUR/USD up -> Dax Down -> DM eq down -> OMG OMG -> Fed steady

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Macro Man
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September 18, 2015 at 1:59 PM ×

There is nearly a 300k OI in 1950 strikes. You've been warned.....!

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CV
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September 18, 2015 at 2:07 PM ×

So that is a Penrose staircase then Polemic?! ;) ... it's all gone pear-shaped in Europe today. Mr. Draghi is being bullied. Consensus now expects more QE before year end ... Hint: real M1 (the best macro leading indicator we have in the EZ) point to GDP growth about 2% annualised in the next six months.

Good point on the 1950 MM (well, I didn't know that, but interesting info!) ... it will be a monumental fight.

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Polemic
admin
September 18, 2015 at 2:12 PM ×

ICV - I feel as though my portfolio could have been drawn up by MC Escher

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Anonymous
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September 18, 2015 at 2:17 PM ×

Draghi will print or ..

DXY going down more..88

https://www.tradingview.com/x/IVBuCOq8/

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Ghost of FunnyMoney
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September 18, 2015 at 2:32 PM ×

Polemic said... "Perhaps FM can tell me where to put my stop loss."

Whilst I'm sure this wasn't meant as a genuine question, I'll answer it anyway... Although FM received negative comments for being short-term on 80% of his trades (many of them being intra-day), he did so for precisely this reason. This last 6 months has seen some of the tightest ranges in the SP500 in years (not ideal for running trades), and August has seen extremely strong whipsaw action in equities (as Nico & now yourself will attest to). Sometimes short-term isn't a bad place to be.

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Polemic
admin
September 18, 2015 at 2:44 PM ×

Thanks GFM fully understand shorter preferences.

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Anonymous
admin
September 18, 2015 at 2:54 PM ×

These people are starting to really worry me...

BOE Chief economist...negative interest rates and a ban on cash is necessary

http://www.telegraph.co.uk/finance/bank-of-england/11874061/Negative-interest-rates-could-be-necessary-to-protect-UK-economy-says-Bank-of-England-chief-economist.html

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Macro Man
admin
September 18, 2015 at 3:00 PM ×

Yes. Good thing that ABC here in the US is running a documentary series on global central banking.

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Anonymous
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September 18, 2015 at 3:18 PM ×

Isn't it also reasonable to think that the fed is talking USG's book? After all, if the Treasury suddenly had to pay even 5% the Federal debt-service payment would become an enormous monster.

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Anonymous
admin
September 18, 2015 at 3:39 PM ×

This plunge in income is precisely what macro bulls miss . New jobs created mostly min wage & why so many drop out
Peak income adjusted for inflation was back in 1999 for the United States. It has declined 7.2 percent since 1999. Congress, thru trade treaties and tax policy, has off shored our industrial base and forced American workers to compete against the worlds labor market:

http://www.advisorperspectives.com/dshort/updates/Household-Incomes-by-State.php

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Nico G
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September 18, 2015 at 4:05 PM ×



FM

read your last post you did NOT answer Polemic question !!

there is a lot of noise on this forum, and telegraphed trades are being questioned, mocked, and missed.

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Ghost of FunnyMoney
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September 18, 2015 at 4:16 PM ×

@Nico - Firstly, it's GoFM. Secondly, can you re-phrase your gibberish in English? Your posts are all greek to me...

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Shoeless
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September 18, 2015 at 4:29 PM ×

Here is the biggest problem I see at the moment. $/yen is absolutely crucial to market direction and a dovish Fed is not $ supportive. In order for spx to get a bid, the yen must weaken further. Hard to do if Bucky remains offered. Sort of a catch 22.

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Anonymous
admin
September 18, 2015 at 5:34 PM ×

@shoeless,

No more easy money, qe

https://twitter.com/markminervini/status/636599935647911936

http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/09/spxknockknockattemptingtogetbackinchannelsept10.jpg

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Nico G
admin
September 18, 2015 at 6:15 PM ×

FM i cannot write real English here to you they would delete my post

let me try to bowdlerise an aparté for you, other folks can disregard what follows:

those markets are fucked, completely fucked by retarded JBTFDers like you who made everyone and themselves and their nanny believe that trading was easy, 6 years too late in the party. In 2009 if you were not in college you were all crying and dreaming of farmlands and swearing you'd never touch stocks again (until 2014) while a few others were buying sub-700 spoos with all the margin that IB could allow. I have had enough Zeta beers today to confess that i HATE making money when others suffer but such is the life of a contrarian. You are an idiot, and as long as you or your ghost or the sister of your ghost insists on posting 8th grade logic here, i will refrain, for it flatlines people into pissing on what two decades of derivatives trading experience might otherwise have to say - and would rather let 'trademark FM' embody the viciously abnormal new new new normal that is the soon gone QE era.

I had no interest here other than mingling with some good brilliant light spirits, for trading on the screen is a damm lonely job, but immature pricks like you have ruined it. Last night some anonymous (you) defy a 6 minute old position because it is 6 points out of the money. 8th grade stuff. Where did you get stopped? I am doubling on sposs close tonight. You are the Donald Trump of day trading, this era of agonising idiocy is made by and for you so embrace it, perhaps you're really lucky and your P&L no, your fleecing investors allows you to marry a minor Kardashian

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washedup
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September 18, 2015 at 6:45 PM ×

shoeless - u nailed it - $/yen will be an angry ostrich around risk afficionados' neck for the foreseeable future - as a matter of fact, the only thing that will prevent the yen from doing a full frontal and going to 107-108, is that it may get sideswiped by draghi's actions, but I doubt thats in the offing for a few weeks - unless of course Ms Yellen is openly suggesting QE4 by then, in which case I have a whole other set of trades.
The zillion $ question is this - is the market completely insane piling into the long end US bond as a flight to safety candidate today? US data is not that deflationary at all (although i agree that may change), and a great case can be made for bull steepening based on yesterdays action, provided one is able to weather the actions of 5 minute macro punters.
And Nico - you don't have to respond to every idiot who criticizes u - people who have been following this blog for a long time know all too well who to pay attention to and who to ignore.

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Anonymous
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September 18, 2015 at 6:48 PM ×

Nico- Hear, hear!

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Shoeless
admin
September 18, 2015 at 6:59 PM ×

Nico,

Don't let the fuck wits get to you. Bear markets leave everyone in tatters eventually. It requires actual skill to navigate a market that no longer responds to external stimulus. The market is starting to realize that it's on its own and it doesn't know how behave without supervision b/c it has been so long since it's had to do this that we will find the market untethered and completely rudderless. Bon chance to all.

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Anonymous
admin
September 18, 2015 at 7:20 PM ×

Funny Money or his/her ghost..

a)create your own blog. Those who care to read your wisdom will follow you.

b)post your real time trade at a trading blog like this:
http://evilspeculator.com

Mole is always glad to see good traders and ideas!

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Signalman
admin
September 18, 2015 at 7:33 PM ×

I'm some lowly engineer reading some of your trading talk with amusement. I have a (possibly newbie) question for you wizened macro traders: how do you execute volatility trades on the SPX? Do you take out options on popular index ETFs? Do you buy S&P e-mini contracts? Or do you buy options on the VIX at CME? Or is the answer all of the above?

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washedup
admin
September 18, 2015 at 7:37 PM ×

signalman - spy options are the best way to go provided u keep things simple - VXX is the long vix etf but has problems galore, such as roll costs etc that make it not a great choice. I wouldn't mess with any CME products in retailville.

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Signalman
admin
September 18, 2015 at 8:06 PM ×

Thanks for the reply washedup. I figured SPY etf options would be the way to go for us small-time retail folks, thanks for the confirmation. Honestly most of my money is just sitting in cheap index funds, and I'm trying to get the balls to make some small-time bets on SPX moves. I'm getting nervous with the low variance of the SPX recently - I want to make some trades that have the potential for positive skewness rather than ending up in the same ditch with all the other zombie longs.

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washedup
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September 18, 2015 at 8:18 PM ×

"I'm getting nervous with the low variance of the SPX recently"
Can I please borrow ur time machine?
Be careful with options sir - small is best if ur starting out, and don't be short tail risk - not that its impossible to lose ur shirt being long volatility, as proud owners of sep 18 straddles purchased for 30 vol will attest - highly recommend natenberg's option trading book for practitioners before u venture forth - good luck.

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Anonymous
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September 18, 2015 at 8:40 PM ×

i thin k best trade here for next few month is long eu equities vs spy
this was quite a crowded trade and look alike recent position has been unwound...moreover eu valuations much more attractive and thrown in an insane qe increase and think this is a big winner


thoughts chaps?

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Anonymous
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September 18, 2015 at 8:59 PM ×

But, if QE1 by ecb has equities back where they started, why would QE2 be any different?

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Mr. T
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September 18, 2015 at 9:05 PM ×

And that, boys and girls, is why you don't take the other side of Nico! What a shitshow.

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Macro Man
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September 18, 2015 at 9:08 PM ×

Anon @ 8.40: I agree!

@ Anon 8.59: They need to keep a lid on Bund yields

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Anonymous
admin
September 18, 2015 at 9:20 PM ×

Can you trust the German carmakers anymore after VW's little mishap today? 500k recall and potentially 18bln fine.

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Macro Man
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September 18, 2015 at 9:27 PM × This comment has been removed by the author.
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Macro Man
admin
September 18, 2015 at 9:30 PM ×

How big would he fine have to be for VW to pull out of the US market and tell the US regulators to get stuffed? It's a bad thing they did, but $37.5k per car seems off the charts crazy.

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CV
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September 18, 2015 at 9:44 PM ×

Agree with MM, no way the fine will be that big! But it is part of a trend, US regulators are fining companies extraordinary amounts ... 18bn would be a quarter of the market cap!

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washedup
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September 18, 2015 at 9:45 PM ×

MM - VW has certainly pulled out of the US before in the late 80's/early 90's - however, they kinda need the US market right now given the goings on in the eastern hemisphere.
FWIW I think EUR/JPY is the sale of the century into the end of the year.

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Polemic
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September 18, 2015 at 9:49 PM ×

No point in being a big co. Better a swarm of small component cos so you can sacrifice small parts when hit by regulator. Bees vs elephant

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Shoeless
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September 18, 2015 at 9:53 PM ×

MM,

great call on the spx 1950 tractor beam today. Monday is a whole new ball game!!

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Signalman
admin
September 18, 2015 at 10:40 PM ×

Knowing something about how to program firmware, I think it is hilarious that VW did something so simple - they essentially just made the car lie when the 'official government emissions monitor' is attached. If VW is doing this, I bet everyone else is too...

The government emissions tests that rely fully on the customer's equipment to not lie about emissions is the real joke.

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Signalman
admin
September 18, 2015 at 10:41 PM ×

Also "bowdlerise an aparté" is brillant, gonna have to remember that one...

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CV
admin
September 18, 2015 at 10:55 PM ×

I agree with Signalman, or more specifically, this could easily turn into a he says, she says about emission testing etc. The thing is; this is exactly like the banks. The regulator expects a settlement, VW probably want to settle too, cue some lawyers and we have a transfer of money from VW to US car owners ... Plus some slightly more well off lawyers, rinse, repeat ...

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CV
admin
September 18, 2015 at 10:56 PM ×

One thing is for certain, it will interesting to see what the VW share does on Monday, already down 30 %from the high!

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Anonymous
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September 18, 2015 at 11:06 PM ×

Yep, they probably all are. And will probably be looked at in the EU on back of it too.

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Ghost of FunnyMoney
admin
September 18, 2015 at 11:53 PM ×

Nico,
Interesting little outburst:
- "FM... markets are fucked... by retarded JBTFDers like you..."
Yes, I'm sure FM wishes he could personally control the world's equity markets but unfortunately even he cannot quite manage that - however feel free to keep personalizing things that way.
- "You are an idiot... let 'trademark FM' embody the viciously abnormal new new new normal that is the soon gone QE era... immature pricks like you have ruined it..."
FM's been called worse I'm sure. But your incessant angst regarding QE etc, leads me to believe that you must have lost a great deal of money trading in recent years. Hopefully I'm wrong, either way, I'll pass on the suggestion that he emulate the great maturity you have expressed here.
- "You are the Donald Trump of day trading"
FM would like this one - Trump being the (outspoken) outsider who is currently outperforming...
- "...this era of agonising idiocy is made by and for you so embrace it... your fleecing investors..."
Back to that angst regarding current market conditions again? Oh, and nice factual comment about fleecing investors there too... objective comments not being this blog's strong point of late...

So tantrum aside, you basically wish not to have FM, or anyone who works with him, comment on this blog? No problem.

-----

Anon 7:20 PM - Thanks for your comment & evilspeculator blog reference. I'll pass it on.

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hipper
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September 19, 2015 at 2:33 AM ×

What is the Fed "data dependency" exactly? Maybe it really just means equity-index data. It's not like the market wasn't expecting it with 2y at over 0.8%, the highest since March 2011, just to get smacked down again. So if they're trying to protect something, they're actually doing more damage by not doing what the market wants at this point. October deadline for me and then I'm done (mentally) with waiting. I suspect to be part of a much larger crowd too.

September LEIs, like the last ones in August still point India and EZ the having the only acceleration now. I've been relatively heavy cash for months (for a buy and holder type) but I'll just reiterate that it's tempting to see the seeming value in EZ equites at this juncture. Of course the not-so-popular subject, namely migrant crisis might have some pain in storage for Q3 earnings (borders shutting down doesn't usually sound promising and might go on for a while longer considering the utterly inept, even idiotic EU leadership) but I just think it's one more reason for Draghi to execute his fantasies, very soon even.

Still, considering the lack of real conviction which has been the case for a relatively long time, maybe MM words of wisdom are still the smartest ones at this juncture: "another 10-15% washout will make it a lot easier to be constructive."

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Leftback
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September 19, 2015 at 2:39 AM ×

LB has quite enjoyed the Summer of FM, Ghost of FM etc.. and wishes the banter could continue on a civilized level. So don't go away, just Chill, dudes. I mean, you don't catch LB and CV slagging each other off on the blog when we have a disagreement, do you? Mind you, we rarely do. There was a time in 2010 when MM was away, and Pol and cpmppi were in the house, and LB fancied the Long Bond and 50 different blokes were short bonds and slagged him off every day - then the 30y yield fell 125 bps in 6 months and the Haters faded into thin air .. anyway, play nice, chaps, or MM will have to hire a bouncer.

Today was another good Hammock Day. Amazing how many there have been. We're looking for a deep dip from here to get long into. CV and LB likely singing from the same hymn sheet again, so let's see who else joins in and makes the Bottom call here next week. We do like Pol's idea of slow grind up in risk assets and USD/JPY. Vol sellers have had a bad couple of months, but they do win most of the time, remember. If the market stays weak here, then Oct hike disappears and so soon enough will Oct vol. as well, driving another mini melt-up. It's going to be just as tedious as the last few month though....

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Leftback
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September 19, 2015 at 2:43 AM ×

Hipper, I really think Fed data dependency simply means this: Dame Janet watching consensus inflation measures such as CPI and the 5y5y breakevens, I don't think it's any more sophisticated than that. Once crude oil prices become clearly firmer, then we may finally get a tiny hike. As long as the main US inflation input remains so weak, Dame Janet isn't going anywhere.

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Captain Obvious
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September 19, 2015 at 2:47 AM ×

Would you really expect Dame Janet to hike into this, knowing what we do about her inflation fetish?

5y5y Forward Inflation Expectation Rate

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abee crombie
admin
September 19, 2015 at 3:47 AM ×

Yellen goes when the market forces her. Which will be in the next 6 months barring a bigger drop in the equity markets which pose the biggest reflexive systematic risk here. Though I guess em could still flare up as well, with oil too. But there is always some risk. Sometimes it's easier to see and sometimes it's a bit cloudy. Not taking big risk here. Waiting for more ...don't need to swing at every pitch.

Which bring me to Howard marks latest memo. Perhaps this isn't a distressed value investing crowd but I found a lot of his rules that argue against some simple truisms about the market very unhelpful for those more macro oriented. Anyone else have any thoughts.

What's up hating in gosht of fm. If you can make money short term trading go for it. Many ways to skin a cat. Just be sure not to cause a flash crash....lol.

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Eddie
admin
September 19, 2015 at 10:27 AM ×

Signalman, re option trading I recommend Euan Sinclair's (aka Filthy) books. Just sayin...

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Anonymous
admin
September 19, 2015 at 10:35 AM ×

Blog makes me laugh. Nico couldn't hit a barn door for ages then get's a purple patch and goes from zero to hero. As for insults, his fuse couldn't get shorter so what goes around comes around. You want reason then show reason. Rather biblical really.
In any case I have to say this blog over the years has gone from being excellent quality based upon MM being amongst the best of his kind to what we see today which is the usual egoridden pissing contest between people who live to receive kudos.
A comment from an increasingly infrequent visitor.

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washedup
admin
September 19, 2015 at 11:29 AM ×

abee - my biggest insight after reading the howard marks article was that AAPL may be the short of a lifetime!

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Anonymous
admin
September 19, 2015 at 11:44 AM ×

Anon10:35

"A comment from an increasingly infrequent visitor".

Amen!The Oracle has spoken!

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CV
admin
September 19, 2015 at 12:07 PM ×

I believe MM operates a full refund policy here, so feel free to apply within ;). It is true that the the tone tends to deteriorate at times, but I put it down to emotion and vested interest in a certain view. Ego is your biggest enemy in this game, and we have a few bigguns at the moment.

Meanwhile, I concur with the points about about Yellen and her reluctance to move given inflation expectations. She is really just taken a page out of Draghi's playbook, and it seems that the ECB's discourse is increasingly running the show, even if my base case is that the Fed will, eventually (as in the next six months) move.

Meanwhile, the likes of DBK, SAP, and even dare I say VW (etc) could all be winners in Q4 and Q1 I think on the back of a general return of investors into EZ benchmark equity indices. If you're bold you might even have a sniff at Repsol, but the link with Latam here means you need to don the big set of cojones. The signal-to-noise ratio is always low in a pissing contest, and I am a big believer in having a firm view (makes it easier to change your mind if the world doesn't go your way).

I think ...

- MSCI world will be comfortably higher in six months. EEM too, and Stoxx/FTSE too. If you're in the U.S. forget the index, you need to pick the right ones to perform here now.

- I think USTs and Bunds will do rather well in Q4, and that is as far as I want to go here. If CBs are seen as being behind the curve on inflation, the steepener might, (finally) work, but I will leave that call to Gundlach and LB ;).

- I think EURUSD is rather boring, and generally don't really look at FX. My base case has always been that we need to see a break-out in US 2-year yields for EURUSD to really run lower. I have been positioned accordingly through short EDZ Dec 16, but I don't need to tell you how THAT is going :). My call on EEM obviously implies some sort of relief for the worst downtrodden EM turds.

- I think EUR credit will outperform US, especially HY if you can get hold of something.

There you have it ... of course, there is absolutely zero chance that I could be wrong ;).

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washedup
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September 19, 2015 at 12:13 PM ×

"In any case I have to say this blog over the years has gone from being excellent quality based upon MM being amongst the best of his kind to what we see today which is the usual egoridden pissing contest between people who live to receive kudos.
A comment from an increasingly infrequent visitor"

I have been following his blog for a decade, and I can assure you that it always had its share of ego ridden pissers - its human nature to think of the past as halcyon, if only the current 'crop' would just conduct themselves the way we used to - just ask any tea party member! You do have a point that other than MM's posts, its recently been light on actual charts and data from contributors and heavier on, well, opinion, but I would like to think its a cyclical (like EM) and not secular (like commodities) shift, largely a function of most of the punters here trying to save money and pay the bills while unemployed.

All that said, I will take this blog with all its imperfections any day - I just have to ignore a few occasional nut-cases who engage in childish brawls to walk away with great food for thought from the vast majority of its regular posters? Acceptable trade-off to this frequent visitor. Plus, there is nothing wrong with a little entertainment while you try and divine what the dark passageways in yellen and draghi's brains lead us to next.

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booger
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September 19, 2015 at 1:13 PM ×

Abee Crombee: on aud.usd I have been watching that too. I think it is too early to short it though. There have been 2 bearish rejection candles the last 2 days on the daily chart:
https://www.mql5.com/en/charts/3961879/audusd-d1-oanda-division11
I think there is a good chance we will bust through the 0.73 level next week. Given that the fed has held, I am waiting for 0.74 before shorting AU next week hopefully. There are no major releases due in terms of Australian data next week. I think also a move to 0.74-0.75 will make the RBA move to an easing bias.

Also after catching 2020 short Spoos, I closed yesterday. I am thinking maybe there could be some chop up and grind for a bit now.

Short aud.cad though has my eye:

https://www.mql5.com/en/charts/3961902/audcad-d1-oanda-division11

I think Canada cannot get a great deal worse in the next 6 months and will probably improve and Australia has a big fat recession target written on it's back. I think 0.97 is the topside and 0.95 currently is not a bad entry so did that on Friday.

Also piquing my interest was the breakdown in natural gas on Friday below 2.63:

https://www.mql5.com/en/charts/3961906/natgasusd-d1-oanda-division11

So I entered a small short there also. Natural gas has been really compressed lately so it is likely to spring one way or the other:
https://www.mql5.com/en/charts/3961916/natgasusd-w1-oanda-division11

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abee crombie
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September 19, 2015 at 1:56 PM ×

Canada has an election and left leaning NDP is doing well..it's a big risk for cad. Heads up. I don't think it's priced in. On aud yes I'll wait for 74 too..but not day trading it, more of an insurance em risk trade. I think chances that it goes much higher than 75 by year end is low.

Appl short of a lifetime I dunno...it has the best brand loyalty of any product today, it's cheap, and unlike most other device company's they understand how to build for today's users. You short fads or unsustainable trends not great companies...or short crappy companies. Imo tesla better short, or under armour or something like that. But be careful shorting momo in this market.

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washedup
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September 19, 2015 at 2:19 PM ×

abee - all that is just 'first level thinking' isn't it? the whole point of your recommended article was that their is a major difference between cheap and crowded and valuable and contrarian.
In any case appreciate the advice - the last thing I need is to pick a battle with a company that houses itself at the address 'one infinite loop'!
I think canadian banks may be a value trap and their housing sector woes haven't really hit full force yet - usually a leading indicator down for the currency - frankly the AUD and CAD are a race to the bottom but for my money I'd say AUD wins eventually just because Canada can borrow some US strength more easily.

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signalman
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September 19, 2015 at 4:34 PM ×

Thanks for the options book recommendations. I got a copy of Natenberg - seems like a good introductory text. On the last page there's a handy "table of strategies". To use it, the prospective trader to pick "bull" or "bear". I'm not willing to bet on the long term movement of the mean of the SPX - but one thing that seems clear is that volatility has become high recently.

CV - my earlier statement about variance being low is true except for days - like yesterday - where there have been wild swings. Looking at the large swings over the past few weeks, one gets the impression that the PDF of the SPX has fat tails.

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abee crombie
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September 19, 2015 at 6:58 PM ×

Washed, that's why i don't agree with what most of marks said. You don't always need to do second level thinking. Especially in macro. What you are gonna always be short bonds in the last 30 years. Or only long stocks in bear markets...dont get me wrong, marks is an amazing investor, I even have some OAK stock, but he is not a macro guy.

Either way, shorting stocks is a hard game, it's not mostly macro, it's more micro. If you can get a copy of "the art of short selling"..I found it on torrents.

Canadian banks own Canada. Similar to auzzie banks. Good for a trade not something that is gonna go bust. Better to sell fx imo vs the banks, easier, less micro noise, more technical. For housing u can short reits, or mortgage insureres, though they are littered with short carcasses. Though hcg.cn is taking it now.

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Booger
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September 20, 2015 at 6:51 AM ×

abee regarding aud.cad: yes, I almost forgot that pesky election issue. I have to say, I am not that familiar with politics there, but I would tend to think, based on pure guessing that it probably will not have a huge effect unless the result is a hung parliament. Technically, it could send aud.cad to 0.97. I doubt it will get to 1.0 based on just an election. The Australians for instance dumped their incumbent price minister with another fellow this week and it had little effect on aud ! I will stick with the starter position though and wait until after Oct 19 to initiate a full position.

I am not sure which will do worse in the long term but I tend to think the trade will move in the next 12 months based on relative monetary policy and Australia lagging Canada in the cycle. It appears to be Canada, Australia then NZ in the com bloc. It might be due to the capex in Australia taking a few years longer to get out of the pipeline. So out of those 3, I think Australia and NZ have further to go. Their currencies are nowhere near GFC lows and cad.usd is beyond GFC lows already. To get to GFC lows, aud.usd would be back to 0.6 and nzd.usd back to 0.5. So aud.cad might be worth a thousand pips once Australia turns towards recession or/and Canada has a quarter or 2 of positive growth.

Nzd.aud is another pair I have on my radar. I managed to get a ride from 1.0 earlier this year when it reached multi decade lows, but bailed in the chop around 1.12. I am looking more to play that going down as a bullish ags/bearish metals play when soft commodities start to diverge from hards.

Canadian and Aussie banks I don't watch much and I think are harder to short. I have done little research into them. One expects they would have a long way to fall if there is a recession but they seem to be raising capital now so may have enough buffer when the going gets tougher (although I doubt it). The comm bloc countries do seem to have a housing bubble however. I read somewhere that the average house price in Auckland (NZ capital) is 850k NSD which is bit crazy and in Vancouver it is something even higher. I suppose though with the banks it depends on whether China is effective with blocking their porous capital borders and can be more effective in policing capital controls overseas. If they aren't then the perversely the housing markets in the those countries might get even hotter with Chinese slowdown and capital outflow. The banks in those countries could once again dodge a bullet.

An interesting and amusing effect it has on central bank governors in those countries is they have to send different messages to different market constituents: to the forex market they are saying, more rates coming, to the housing market they are saying, all good, no we are not going to cut anymore so don't expect lower rates. It has the curious effect of making Poloz (and Wheeler and Stevens) look like morons: one minute they are confident that the mining slowdown is transient, then the next month they appear to be crapping their pants with an about-face interest rate cut. Quite amusing to watch.

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abee crombie
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September 20, 2015 at 12:42 PM ×

booger, I agree with the longer term view AUD has more to fall, hence why I want to short it. Just giving you a heads up about the election, as it is a pretty significant IMO. In auzzie yes they threw out the incumbent but kept the party. In canada we are talking about almost 10 years of a conservative government potentially being defeated by NDP, which is the polar opposite. That is HUGE and I wouldnt want to bet against it. Especially when you think that
1) FX Tends to overshoot
2) Canada like most countries seems to have these long cycles of yin and yang when it comes to political preferences. Canadian business men know what NDP is, and they will all panic first.

Similarly in the US, 8 years of Bush followed by 8 years of Obama, polar opposites. Hence why Trump is so popular now and why his chances are probably better than most (me included) believe

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Booger
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September 20, 2015 at 12:45 PM ×

Also, as a bonus, on the aud.cad short is the positive effect of an El-nino weather pattern later in the year if it has a major effect, would tend to depress aud and appreciate cad.

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Booger
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September 20, 2015 at 1:04 PM ×

Abee: on that you are probably right that people will be more worried between now and the election. But unless it is a hung parliament, I think we could see the yearly low for cad.usd just before the election or in the period between the election result and when the result is known.

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