The Case of the Missing Record

It was mid-morning on a mild December's day in the year 20-- that I received a wire from Mr. Sherlock Holmes requesting the pleasure of my company for lunch at Sweetings restaurant on Queen Victoria Street.  It had been some months since I had seen my old friend, though I had followed his adventures in the singular case of the missing Greek revenue with avid interest.  Finding and plugging the hole in the Greek budget had made Holmes the toast of all Europe, and he had spent several weeks as a guest of the German government consulting on matters too sensitive for the public domain.

Earlier in the year I had sadly departed the rooms on Baker Street for less salubrious digs in Southwark.  Although our old landlord, the Widow O'Dea, had not put the flat up for sale, out of the blue she received a stunning offer financed by cheap bank credit and a grant from the government.   Having little choice but to accept such a magnificent sum, Mrs. O'Dea had sold up and with the proceeds purchased a small county in the west of Ireland.  County Mayo I think it was....or perhaps it was Sligo.

The new owners, anonymous behind an offshore company called Big Kahuna LLP, had increased the rent five-fold overnight.   This was too much for the meager income from my practice, and though Holmes offered to pay my share, I could not in good conscience accept such charity from my friend.   He, of course, was amply endowed with funds thanks to the stunning success of his well-known monograph on the criminal aspects of high-frequency trading.  So it was to Southwark that I embarked, and what I saved in pecuniary terms I lost in companionship from my old friend.

It was with great pleasure, therefore, that I exited the Underground at Mansion House and made the short walk to the restaurant.   I noticed that a number of the shops had long queues extending out onto the street, but thought little of it as I was eager to see my friend.  Holmes was waiting for me at a table, and rose to shake my hand warmly.  "Capital, Watson!   So glad you could make it.  I wouldn't count on that oil investment financing your way back to Baker Street, however."

I had already sat down before Holmes' remark struck me like a thunderbolt.   It was true that after agonizing over the decision in front of the Financial Times, I had purchased some energy exploration shares earlier that morning after being convinced to "just buy the dip."

"Come now, Holmes!" I exclaimed.   "How the deuce could you have known that?"

"Let us order before I explain such a trivial deduction," he replied.  Turning to the aproned waiter that had appeared at his elbow, he asked for two Dover soles and a bottle of Pouilly-Fuisse.  "Now then," he resumed, "I have spent enough time in your company, my dear fellow, to observe that you twist the left side of your moustache when contemplating an investment, and I see it bunched up this very moment, suggesting that you were recently thinking of taking a plunge into the market.   Your hair is slightly elevated into a quiff, which could only happen if you leant your forehead upon the palm of your hand; I have only seen you do this when thinking of an investment you believe to be inherently dangerous.  Moreover, your right elbow is slightly discoloured with what looks to be newsprint.   I know that the FT had a feature on beaten-up oil stocks in this morning's edition which you no doubt read- what could be more logical than that you were convinced to have a flutter?"

"Brilliant, Holmes!  I can see why the Germans kept you on!"

"Ah yes, the Germans," he said.   "But before I recount a few of my adventures with them, there's one thing you should know about oil."

"What's that?"

"There's too much supply," he said flatly, before livening up to regale me with tales of his remarkable activities in Germany.  After an hour, the wine bottle was empty but our fish had still not arrived.   Holmes signaled the waiter in irritation.

"I say, fellow, this is taking an awfully long time.   Where's our sole?"

The waiter grabbed his forelock.  "Begging your pardon, Mr. 'olmes, sir, it's these new regulations.   Ever since the FX fixing scandal, no shop in the City is allowed to pre-position inventory in anticipation of customer demand.   As soon as we got your order though, sir, we wired down to the coast.   With any luck them soles 'as been caught and are on the fast train to Cannon Street.   Won't be more than another hour or two, sir."

"That's preposterous!" I burst out.

"I know, sir," said the waiter, "but them's the rules, begging your pardon.  It's more than my job's worth to buy fish too early.   'arry 'awkins at the chemists down the road bought a carton of Vick's Vap-o-Rub that 'e thought was cheap, but the Old Bill said 'e bought it too early and told 'is mate in Leadenhall what 'e was doing.   Got the sack right quick, 'e did."

"Come Watson," said Holmes, rising and handing a couple of notes to the waiter to pay for the wine, "let's repair back to Baker Street if the rules prevent us from dining upon fresh fish in a timely manner.   I'm sure we can find a kebab somewhere that will cleanse the palate after this excellent wine."

An hour later we were ensconced back at Baker Street.   My favourite chair, and indeed all the old furniture, was gone, replaced by the type of ultra-modern designer appointments that look dated a fortnight after they're installed.  I raised an eyebrow and gestured towards the egg-shaped chair that had taken the place of the old lounger.

"The new landlords replaced all the furniture when  I was in Germany," said Holmes sourly, "then bumped to rent up another two hundred quid a week to pay for it."

I was about to reply when I heard the tell-tale sound of feet on the stairs, followed by the familiar ringing of the bell.   Holmes rubbed his hands.   "Well, well, Watson!  It's been a while since we've tackled a case together but with any luck that's about to change."

He opened the door and ushered in a pair of gentlemen, one in his late 20's and the other middle-aged.   Both wore sport jackets and open collared shirts, dark pressed jeans, and expensive-looking shoes.  While my powers of observation came a poor second to Holmes', even I could plainly see that these two were fund managers.

The younger one handed his card to Holmes, who glanced at it and passed it to me.  On a heavy cream background, the name "William H. Beta, Esq." was emblazoned in elegantly embossed letters. Before my friend could speak, this fellow interjected, "All right, Mr. Holmes?  Nice gaff you got here....lovely furnishings."

"Thank you," said Holmes, and started to turn toward the older man before Mr. Beta burst out, "I'm Billy Beta, Mr. Holmes, perhaps you've heard of me?  Named Fund Manager of the Year in 2012, 2013, and 2014?  No?  Hmmm.   Anyhow, you've got to help us Mr. Holmes, you've just got to!"

"Calm down, Mr. Beta, and have a seat!  Now, sir," said Holmes, turning to the elder of the two, "who might you be when you're not investing in credit?"

The older man blanched, then smiled ruefully at Holmes.   "I'd heard you were brilliant, sir, and now I can see for myself that your reputation is well-deserved!   I am Thomas Ulysses Richard Deville, managing partner of Credit Recovery Asset Partners.   That's a nice picture, by the way," he added, gesturing to an amorphous blob of paint splattered over the canvas hanging on the wall.  "How in the world did you know that I am a credit investor?"

"Nothing could be simpler," replied Holmes silkily.   "I observe that you have a stain on your lower left leg that matches the shape of your right toe.   Having seen market pricing this morning, it was obvious to me that the sort of man who is kicking himself must be a credit investor."

"Ah, too right Mr. Holmes, and that's the nub of why we're here."

"Very good, said Holmes, "and I trust there are no objections to my associate Dr. Watson sitting in as well?  No?  Splendid.  Now why don't you gentlemen tell what the problem is."

"It's the bid, Mr. Holmes!" burst out Billy Beta.   "It's vanished! Gone!  Poof!  That and me new Wu-Tang Clan album that I paid good, heard-earned brass for."

"What my associate means," said Mr. Thomas Deville, "is that the bid for our particular brand of investments has vanished without a trace.  Here," he added, handing over a sheet of paper to Holmes, "is the performance of Billy's global asset strategy.   As you can see, over the past few years he made excellent returns..."

"Fund manager of the year three years in a row!" exclaimed Billy.

"Yes, I believe you already mentioned that," said the other.  "Well, as you can see, Mr. Holmes,  Billy's strategy was the business and made big money for three years with little drawdown.  Things started to get a little more volatile last year, but then over the last six months the performance has really tailed off."

"That's because the bid has vanished!  Anyways, I'm still doing better'n you.   Show him your stuff!"

"Ah yes," said Thomas Deville uncomfortably, "I've been facing rather a sticky wicket, I'm afraid.   I formed Credit Recovery Asset Partners several years ago to profit from what I perceived to be attractive valuations in so-called risky credits.   Thanks to my investing acumen.."

"Harrumph!" coughed Billy.

"...I was able to make substantial returns for my investors and, of course, myself.   When I noticed a deterioration in market conditions last year I was excited, as dips have proven to be excellent opportunities to double down by buying more.  However, this dip has continued and continued.....I am afraid that like my colleague Mr. Beta here, the bid for my stuff has just vanished.  What we want to know, Mr. Holmes, is where has our bid gone?"



"An interesting conundrum, gentlemen, and one which I look forward to entangling.   I beg of you a couple of days to investigate the matter, after which either Watson or I will be in touch.  Good day!"  Holmes opened the door and, gesturing with his arm, saw the pair of beleaguered fund managers out.  After closing the portal behind them, he turned to me and, rubbing his hands with a glint in his eye, said, "Excellent, Watson, excellent!  Something tells me that this will be an fine example to add to your case-book.  Now, if you'll excuse me, I have some research to do.   You can kip in the spare room if you like.  Grab some of your things...I might need you if it gets a bit hairy later on."

I returned to my lodgings in Southwark to fetch a few days' clothes and my old service revolver.   By this point in the day the share market had closed; upon checking the settlement prices, I discovered that Holmes' intuition had been correct.  The price of crude oil had plunged another seven percent, and my shares a further ten.  After placing a call to my broker to stop out at the following day's open, I hailed an Uber hackney carriage and made my way back to Baker Street. 

Number 221B was empty when I returned, so I let myself in with the spare key that Holmes had generously allowed me to keep.  After unpacking my things in the spare bedroom, I returned to the sitting room, where I found a note on the coffee table:

Pocketing the note, I headed east to the City Business Library.  After a few minutes' search, I found the directory that Holmes has asked for, checked it out, and was back on my way to Baker Street.   My friend had still not arrived by the time I got back, so I placed the book on his desk and turned on the gramophone, which played some kind of music that I'd not heard before.   Trying vainly to get comfortable on the post-modern settee, I settled down to read some medical journals that I'd brought with me from Southwark.  Before I knew it, my head was nodding and I fell asleep.

I awoke to the sound and smell of bacon sizzling in a pan.  Sitting up, I found that I could barely turn my head, so sore was my neck from lying on the uncomfortable designer sofa all night.   Stretching painfully,  I stood and rotated my torso to see Holmes cheerfully overseeing two portions of a classic English fry-up.  "Ah, Watson, you're awake!   Fell asleep over your journals again, I see....not the wisest choice, I'm afraid."

"You're right there, Holmes," I replied, rubbing my neck ruefully.   "Your interior decorator should be prosecuted for violating the Geneva convention."

"Blame the landlord, Watson.   It's lucky for them that I am a creature of habit and like Baker Street.   The exorbitance of the rent and the paucity of comfort offered by the furnishings would have me looking elsewhere if I weren't.

"And now, to business.  I found the directory that you procured for the library, and this case is proving to be interesting, very interesting indeed. It's a tangled web, Watson, but I mean to unravel it once and for all!"

"What's the next step, Holmes?"

"I have more digging to do, and I'm afraid that your talents will not be particularly helpful, Watson.  What you could do is find out everything about this Wu-Tang Clan that Mr. Billy Beta referred to when he called upon us yesterday.  I am headed back to the City.   Don't wait up; I might be late."

After swiftly devouring his breakfast, Holmes strode into his bedchamber.   A few minutes later, a sour-faced, bespectacled jobsworth in a cheap suit slunk out.  If I hadn't known better, I would never have recognized my friend, a master of disguise.  "Who are you supposed to be, a regulator?" I jested.

"I say, Watson, there's hope for you yet!" he cried.   "Who is the most potent force in financial markets, with the power to prise open even the most closely-guarded institutions and secrets?  The modern regulator!  I have set up meetings with a few City banks and asset managers to see if I can get to the bottom of what happened to the missing bid."  With that, he picked up a battered briefcase from his desk and tottered out the door.

I spent the better part of the day in Camden, trawling the local record shops, reading the musical press, and talking with various persons who professed to know something of this mysterious Wu-Tang Clan.   Holmes hadn't returned by the time I got back to Baker Street in the early evening, so I headed to the local bistro for a quick bite.   After returning to Holmes' lodgings, I found a wire instructing me to invite our old friend Inspector Lestrade, along with Messrs. Beta and Deville,  round at 10 am the next day.   After doing so, I listened to the gramophone again while reading more of my journals, though this time taking care to retire to bed in good time, lest my neck be permanently damaged from another night on the settee.

I rose early the next morning to find Holmes already awake.   "Good morning, Watson!" he cried, rubbing his hands.   "I have freshly-baked bread to break our fast, but first, what news of this Wu-Tang Clan?"

"Well, Holmes, it appears to be some sort of musical collective that's been around for the last two decades or so.   It seems as if they secretly recorded a new album, supposedly called Merry Christmas from Shaolin, of which they made only one copy.  This record was then auctioned to the highest bidder, who was none other than..."

"...our own Billy Beta!" finished Holmes.   "Excellent work, Watson!  The last piece of the puzzle has just fallen into place."

"What have you found, Holmes?   Do you know what's happened to the bid in the clients' assets?"

"Yes, and much more than that.  But come now, Watson, you know me better than to expect me to divulge the secret to the mystery before it's time.   Here, let's listen to some of this relaxing holiday music."  He turned on the gramophone and sat dreamily in the egg chair, eyes closed, until he rose to flip the record, after which he returned to his meditation.   Shrugging, I opened the newspaper to the financial section, in search of the next big investment opportunity.

Our collective reverie was only interrupted by the ringing of the doorbell.  Glancing at my pocket watch, I saw that it was one minute to 10.  As Holmes showed little inclination to rise from his chair, I clambered off of the rock-hard sofa, grunting, and opened the door to a puzzled-looking Lestrade.

"'Morning, Watson," said he, "been some time since I've seen you.   I say, where is Holmes?"   He peered over my shoulder.   "I must confess I was surprised to see an invitation from him.   Retired from the Yard a few months ago, you know."

I said that I did not, and invited him in.   He whistled when he took in the new decor.   "Bit trendy for you, isn't it, Holmes?" he inquired of my companion, who slowly rose from his seat to shake the hand of our visitor.  

"Indeed it is, my dear Lestrade, but it is a landlord's prerogative to furnish his property as he sees fit.  It is not to my taste, to be sure, but living on Baker Street is, and so I bear up as best I can.  In fact..."

Holmes was interrupted by the sound of the bell announcing the presence of the clients at the door.  As I was closest to the portal, I opened it and admitted Mr. Billy Beta and Mr. Thomas Deville into the room.  While the latter of these seemed calm and composed, the eyes of the first darted from myself to Holmes to Lestrade and back to Holmes in quick succession as his hands wrung themselves, seemingly involuntarily.

"Well now, Mr. Holmes, what have you got?  Have you found our what happened to the bid?   What about my album?"

"Yes, Mr. Beta, I know everything."

"Do you now, Mr. Holmes?" inquired Mr. Thomas Deville, with the hint of a smile on his face.   "By all means, fill us in."

"As you wish.   Point the first: it took little research to find that you both are known associates of my old opponent Professor Woodford and his nonsensical doctrines of forward guidance and central bank credibility.   I had thought his influence had perished in Switzerland last January at the Reichenbach Falls, but I must confess to have been mistaken on that score.

"Whilst in the City yesterday I observed a few punters reading from a penny dreadful.   While it was generally full of half-baked literary parodies, I did glean one interesting insight looking over someone's shoulder.    Here."  He handed sheets of paper to Beta and Deville, and then passed one to me as well.


"As you can see, a very substantial amount of the ex ante expected return of risky assets, in this case the SPX, derives exclusively from abundant liquidity conditions and the dearth of yield on offer.  However, it has been well-telegraphed for some time that the Federal Reserve was going to put rates up, as indeed I believe they did last week.  Quite why one would think that an interest rate increase would have no impact given the remarkable liquidity conditions in place over the last few years quite eludes me.  And that doesn't even speak of dealers' inability to hold inventory in anything but government securities due to regulatory pressures, thus making illiquid assets vulnerable to wild price swings."

"B-b-but what about the ECB?  The BOJ?" sputtered Billy Beta.

"They are almost, but not quite, pushing on a string" replied Holmes.  "Yes, they can effect change in local asset prices and currency values, but it is difficult to believe that they can meet arbitrary inflation targets in the face of massive global over-supply and disinflation from the downside of the commodity supercycle.

"In short, your bid has vanished in line with ZIRP, and in line with demise of Woodfordism.   It has become apparent to all but the most naive observers that central bank publication of their intent and a policy of open communication only enhances credibility if they can deliver.   Poor forecasts and policy flip-flops, on the other hand, can do more harm than good.....as you gentlemen have found to your cost...and your investors'."

"Well, well, Mr. Smarty-pants Holmes!" sneered Thomas Deville.  "You still haven't found Billy's Wu-Tang album!"

"Ah, but I have, Mr. Deville," replied Holmes airily.   "It is right where you left it.....on the turntable of my gramophone!"

"What!" I exclaimed in unison with Billy Beta.

"Yes, Watson.  My letting agent telephoned me last week to inform me that one of the landlords was going to let himself into the rooms to deliver some phonograph records to the flat.   I thought little of it, though I was a bit surprised to see that he had already place one on the gramophone.

"When these two stopped by the other day it spurred a thought in my head.   With the help of the directory that you procured for me, I was able to find the proprietors of Big Kahuna LLC, the owners of 221B.  You will now not be surprised to learn that they were listed as "Mr. Thomas U.R. Deville and associates."   It takes little deductive power to realize that Mr. Beta is one of those associates."

"So it was these two who jacked up the rent so high?"

"Indeed it was, my dear Watson, just a few weeks after Professor Woodford met his demise in Switzerland.  In the mind of the criminally stupid, this must have seemed an apt opportunity to dispense some sort of so-called justice."

"But what about the Wu-Tang record?   Why would Deville steal it from Beta, and put it here?"

"As you know, Watson, Mr. Beta paid an exorbitant sum for the record as a sort of "look at me" gesture.  No doubt he was compensating for something.  It became clear to me a few weeks ago that Woodford's agents were preparing to move against me, but I had little clue what form it would take.   It was only when you told me the back story of the Wu-Tang record that I realized that a perfect way to eliminate me would be to frame me for the robbery of the album.   There," he said, cocking in ear towards the doorway, "I believe that I hear London's finest as we speak."

Immediately afterward, there was a sharp knock on the door and a guttural voice shouted "Open up! Metropolitan police!"  Mr. Sherlock Holmes opened the door himself and invited the officers in.   After a few minutes' conference with my friend and Mr. Lestrade, who had witnessed the entire entire exchange between Holmes and his "clients", the Met officers led Mr. Thomas Deville and Mr. Billy Beta away.

"And now, Watson," said Holmes, "why don't you play that gramophone record again.  It's a bit of a departure from their usual oeuvre, but I must confess that I like it."   As I placed the needle upon the record, I glanced at the label.  Sure enough, it said Merry Christmas from Shaolin.  For the first time, I listened to the lyrics of the song:

High yield roasting on an open fire
Swiss franc shutting down your book
Central banks are now seen to be liars
Martin Shrkeli's a bloody crook

Everybody knows that Netflix and some short euro
Help to make your year alright
Tiny dots moving to, mostly fro
Will make it hard to sleep tonight

You knew that Liftoff's on its way
Despite QE that ZIRP just couldn't stay
And every credit long is going to cry
If they see another bid just wave good-bye

And so I'm offering this simple phrase
To punters both far and those quite near
Although it's been said many times, 
Many ways, good luck trading next year!
 
 





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49 comments

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Anonymous
admin
December 23, 2015 at 7:24 AM ×

Angus -
Brilliant MM ! The best ever.

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Eddie
admin
December 23, 2015 at 7:54 AM ×

Simply excellent, sir !

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Quarrel
admin
December 23, 2015 at 9:00 AM ×

MM,

just fantastic. Love your work.



--Q

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Anonymous
admin
December 23, 2015 at 9:44 AM ×

I deduce Sir that you are either a speed writer , or prepare well in advance.

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amplitudeinthehouse
admin
December 23, 2015 at 9:49 AM ×


"The enemy of my enemy is my friend" Sherlocks says..F##k your a dog Mick.

Merry Christmas!

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Leftback
admin
December 23, 2015 at 11:16 AM ×

"Stone the crows, Mister 'olmes! Blimey! E's done it again, Doctor Watson...."

Great work, MM. Flying home tonight. I was already desperately homesick by the time they ordered the Dover Sole.

A little music now, for those who are going home, to or from Baker Street, or anywhere else for that matter today:
Baker Street

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Leftback
admin
December 23, 2015 at 11:25 AM ×

Another mystery here, hopefully one to be solved in the year ahead. Greenspan's Conundrum revisited and the Yield Curve examined by Caroline Baum.

The Perplexing Conundrum Of The Flattening Yield Curve

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Anonymous
admin
December 23, 2015 at 11:46 AM ×

Genius, MM.
Thanks for all the insight this year and a merry Christmas.
Chris

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washedup
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December 23, 2015 at 11:55 AM ×

Bravo - happy hols!

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MN
admin
December 23, 2015 at 12:56 PM ×

You genius!
Well done MM - Thank you for yet another superb post
Plus you cured my hangover

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December 23, 2015 at 1:10 PM ×

The 2015 market was about as difficult as 2011. Both years much harder than 2008-2009.

Macro and equity traders may remember that Nike's business accelerated in September in a controversial China backdrop. It happened again last night, Nike business in China EXPLODED to the highest futures orders in years.

Nike's China business explodes in the current quarter

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washedup
admin
December 23, 2015 at 1:47 PM ×

CJF - clearly when punters, brokers, and bureaucrats are all trying to outrun the gestapo (or whatever they are called in China), Nike apparel is a necessity.
Jokes aside, its been puzzling to me why this hasn't been reflected in sales numbers from adidas, puma, and under armour - haven't seen this kind of stuff since the late 90's when enron found a way to beat earnings every quarter - I know Nike isn't marking to market shoe sales out to 2050, just saying...

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Bruce in Tennessee
admin
December 23, 2015 at 1:59 PM ×

Great post MM..I have enjoyed this site immensely...and have enjoyed the posters here very much as well. I have been reading Lefty's posts for many years now (rumor is he's older than dirt) and appreciate his keen wit. (And he appreciates it more than I do, it is said....)

Merry Christmas, everyone!

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Anonymous
admin
December 23, 2015 at 2:45 PM ×

When will they realize that what they are doing is not working...

http://imgur.com/kN3M6Ux

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Anonymous
admin
December 23, 2015 at 2:49 PM ×

€487 Billion of QE...

http://imgur.com/881iNN2

More to come...much more

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Bruce in Tennessee
admin
December 23, 2015 at 3:53 PM ×

https://ycharts.com/indicators/durable_goods_orders

US Durable Goods New Orders is at a current level of 238.78B, up from 238.70B last month. This represents a monthly annualized growth rate of 0.38%, compared to a long term average annualized growth rate of 4.19%.

http://www.rttnews.com/corpinfo/economiccalendar.aspx

12/23/15
08:30 AM
Durable Goods Orders Ex. Defense (M-o-M)
NOV
-1.5 %
3.0 (R) %
United States

...Well, I've been watching the non-defense DG orders for some time now, and it appears to me, as the Chicago Fed reported, that we are seeing declining activity in the good ole US...

...I realize there are any number of outcomes to the present credit mess the globe is in, but I do think the tech bubble was a once-in-a-lifetime opportunity to become really wealthy, and it is my hope that I get a chance here to try something like that again. Markets are controlled by thoughts...and at times we are all sheep (or lemmings)...I just am hopeful I am reading the tea leaves properly this time...

...Good trading 2016...

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Anonymous
admin
December 23, 2015 at 4:10 PM ×

Great piece MM

And really great blog for 2015. Merry Christmas everyone.

On NIKE, Under Armor had not really engaged in Chinese market. I do not know what happend to Addidas, but Puma is in dust in China right now.

And it is also the same for some Chinese domestic sportware brands, i.e, Li-Ning, which almost vanished from the major local markets.

So NIKE's success is more to do the company itself than the industry trend. NIKE is eating its competitor's pie in China.

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Cheesehedge
admin
December 23, 2015 at 7:46 PM ×

Fantastic work, MM- Sherlock Holmes pieces on the missing bid becoming as much of a Christmas tradition as egg nog & ugly sweaters!

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hipper
admin
December 23, 2015 at 8:37 PM ×

Great piece MM. I think Sherlock is ultimately right about professor Woodford, just wrong on the timing, which tends to make fun of everyone at least once in a lifetime. It's hard to surprise anymore with forward guidance as most of the cards have already been laid on the table and a general time decay continues whittling away their control of the market. Of course there's always the potential joker called China.

I'm stuck with the idea that inflation could actually go up while growth does not. Some claim that without draining money supply first, raising rates could actually contribute to increasing money velocity, which could end up badly combined with the negative yoy commodity base effects dropping off. If the global economy picks up it'll be bullish commodities, if it doesn't it could be bullish through lowering the expected tightening trajectory. Wouldn't it be natural to drain money supply first? Common sense says putting pieces back together always happens in the reverse order. Rates zero -> QE and QT -> rates up, not the other way around. Or does it really matter?

Anyway we've probably gotten past the "bad news is good and vice versa", so it could be plausible to expect that the real economy and earnings start mattering more than they used to. And with the slowing sales growth and potentially slowing pace of buybacks, the mask could come off bringing into everyones attention the - at best stagnating net incomes. Though don't know whether analyst expectations have already anticipated or adapted to the reality. If this year was a year for breaking market breadth and wide vol between different sectors then perhaps the next one could be about cracking the last fortresses which have been holding the indices up? Not to get too specific but would expect e.g. AAPL to wither away through a very long term decline.

Happy holidays everyone.

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Polemic
admin
December 23, 2015 at 9:23 PM ×

"Ever since the FX fixing scandal, no shop in the City is allowed to pre-position inventory in anticipation of customer demand.   As soon as we got your order though, sir, we wired down to the coast.   With any luck them soles 'as been caught and are on the fast train to Cannon Street."  


Oh yes.. oh bloody yes. Superbly expressed. Thanks for another great year

Happy Christmas all.

Pol

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Anonymous
admin
December 23, 2015 at 9:30 PM ×

A really wonderfully written Holmes story!

Re Nike preorders in China:

When anything that is sold by multiple vendors becomes highly sought-after and demand outstrips supply, would-be buyers order from multiple vendors and after they get delivery from one cancel the remaining orders. The vendors get caught up in the craze and order from their wholesalers in like manner.

Perhaps this is happening to Nike...

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Anonymous
admin
December 23, 2015 at 11:22 PM ×

Speaking of AAPL, maybe the "edifice complex" is about to catch up with them. If you haven't seen this it is pretty interesting: http://www.ibtimes.co.uk/apple-campus-2-new-drone-video-shows-progress-spaceship-headquarters-1524660

I don't live too far from there, and drove by the other day -- that pile of dirt you see in the background is enormous now -- I'm guessing 70-90 feet high.

- Whammer

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Anonymous
admin
December 23, 2015 at 11:23 PM ×

JBTFD wins again: http://i.imgur.com/o7AI87k.jpg

Happy Xmas.

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Anonymous
admin
December 24, 2015 at 4:57 AM ×

http://www.nytimes.com/2015/12/23/opinion/bernie-sanders-to-rein-in-wall-street-fix-the-fed.html

Bernie Sanders: To Rein In Wall Street, Fix the Fed

"To rein in Wall Street, we should begin by reforming the Federal Reserve, which oversees financial institutions and which uses monetary policy to maintain price stability and full employment. Unfortunately, an institution that was created to serve all Americans has been hijacked by the very bankers it regulates."

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Eddie
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December 24, 2015 at 5:28 PM ×

@hipper: GAAP earnungs are coming down since Q2 already. Don't look at the funny stuff they make up over a glass or two... even that stagnates. Combine this with retreating margings and stagnating sales and we might see the end of this profit cycle right now.

Happy holidays everyone!

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AL
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December 24, 2015 at 10:06 PM ×

Thank you MM.
I wish you, your family and loved ones and all the guys that contribute to this space a peaceful Christmas.

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Booger
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December 27, 2015 at 12:24 PM ×

Great article, as usual. Amusing, stimulating and insightful. Hope you had a great Christmas and have a good NY, MM.

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Paperboy
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December 28, 2015 at 7:36 AM ×

Hipper - Interesting comment amount rising rates being inflationary. Not sure if I agree, but I think the converse has been proven true somewhat. Rock-bottom global rates and easy credit conditions have encouraged excess allocation of capital to commodity projects that has led to overcapacity/oversupply and thus sharply lower prices. Supply should (and will) leave the market, but unless demand picks up then it will take a while for the overcapacity to works its way out and for prices to bottom out (and therefore for inflationary forces to return) - especially since a lot of the overcapacity (particularly in ferrous and non-ferrous metals) exists in China.
[note: I am a "chicken-shit" commodities trader, so might not be qualified to weigh in with the rest of the macro-luminary old guard who post here!]

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Bruce in Tennessee
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December 28, 2015 at 1:01 PM ×

http://www.bloomberg.com/news/articles/2015-12-26/deutsche-bank-sees-taper-tantrum-echo-ahead-for-u-s-treasuries

"The lull won’t last, according to Dominic Konstam, global head of rates research for Deutsche Bank in New York. He predicts the Fed will catch bond traders wrongfooted by raising rates in March. That may prompt a smaller version of the market “tantrum” seen in 2013, when the prospect of an end to Fed bond-buying fueled a sharp selloff in Treasuries.

“We call it a ‘baby tantrum,”’ Konstam said. "The idea is that the Fed’s tightening will look somewhat benign, and then you’ll realize that rates are rising to 1 percent. That’s a lot of stress" for markets."

...Certainly things could get interesting in a hurry.....

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Anonymous
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December 28, 2015 at 2:43 PM ×

With a Fed hike the currency wars will begin in earnest, magnifying the deflationary storm already wreaking havoc in industrials, energy, and materials. No sector or strategy is going to be immune, and we’re all going to suffer some casualties.

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Anonymous
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December 28, 2015 at 3:45 PM ×

High Frequency Trading caused the Flash Crash. Of this, we are sure.

http://www.nanex.net/aqck2/4150.html

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Vincent Vega
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December 29, 2015 at 3:06 AM ×

Fantastic. As always.

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CV
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December 29, 2015 at 10:23 AM ×

Unrivalled! Bravo ...

I am sure Mr. Holmes' adversaries will be back as QE4 hits the headlines, but for now, they're nicked!

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Leftback
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December 29, 2015 at 10:35 AM ×

Morning all, from England, where the beer is warm and the BoE remains on hold...

I see the Hawks and Hikers Club are out for a stroll again (see above). Sorry, but you're all off your rockers, chaps. US economic data is near-recessionary at this point, Midwest and manufacturing already in recession, junk spreads haven't finished widening, and $wtic hasn't bottomed out yet. Surely, even the idiots in the Eccles building are not going to pull a Trichet and hike again into the teeth of that lot, especially with one of the US few growth industries of recent years (shale) on its knees?

What we are going to see in the next six months is something quite old-fashioned but with a new spin: inventory glut and a moderate credit crunch leads to a mild common or garden recession but without a yield curve inversion (although we will see 50 bps or so of flattening in 2s10s). Japan has seen this several times since 1990. No prizes are given on this board for forecasting, but given that we still see the huge US-German spread we could potentially see US2y back down at 0.50% and US10y at 1.25%. Somewhere along the road this year we will see EU conditions improve somewhat, the dollar will recede and the Fed may well take back the 25 bps interest rate hike or just begin new asset purchases. A dollar retreat will be a relief for the global economy in general.

This is obviously the opposite of the hysteria we are being fed in the media about bond market blowups. I refer the Honourable Ladies and Gentlemen to the answers we gave previously here over the years regarding the "widow maker" aka JGB. USTs are the new widow maker, folks. Peter Punter has built a huge short position in US10s b/c "everyone knows" there will be four rate hikes in 2016, but commercial participants are leaning in the opposite direction from the speculators here, as they are more concerned about the state of US corporate credit markets, not to mention dollar-denominated emerging market debt.

Happy New Year to all...

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Bruce in Tennessee
admin
December 29, 2015 at 1:32 PM ×

Punters to right of him,
Punters to left of him,
Punters in front of him
Volley'd and thunder'd;
Storm'd at with shot and shell,
Boldly he rode and well,
Into the jaws of Death,
Into the mouth of Hell
Rode Leftback in his assurance.

...Nice summary of your ideas, Lefty. Indeed I hope that your agility in trading does not leave you this year, and you out-think the boys and girls in the Eccles building. I certainly agree that the Fed could rethink the move, but this sounds a little like the old Greenspan briefcase that was watched eagerly on Fed meeting days to see if it was stuffed or thin. Bets that the Fed will stop and retreat in 2016 based on the weakness of the economy. I suspect you will watch the tea leaves and trade on what you see, not on what you have imagined...

Either way, I think, at this point, that a recession is likely too, and am patiently waiting for a chance to make money in a short period of time. Let's hope all of us do...

http://www.alhambrapartners.com/2015/12/28/still-more-money-market-fragmentation/

"Even more curious, the dispersion in federal funds reported a similar surge at the upper end"....

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washedup
admin
December 29, 2015 at 2:32 PM ×

Left - thanks for your thoughts - you know I sympathize with your views, but will say two things regarding rate hikes - 1) policy makers do make mistakes, so I wouldn't assume that they have a dovish 'tilt' at this point any more than their collective emotional desire to appear correct in their past decisions - 2) the data is sluggish and hinting at recession for sure, but not fully keeled over yet - since nothing moves in a straight line, it is just as likely that we get a hope jag in the first quarter, a crude bottom is declared, and a couple more OK to decent NFPs (say 150-200) get thrown into the ring.
The reality of whether the US is headed to sub 1% growth is rather irrelevant, because it is - the issue is what will it take for the market to come to terms with it, and I hold on to my idea (for now) that we are 6 to 9 months away from the frying pan hitting the wise men and women in the face.

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Leftback
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December 29, 2015 at 5:34 PM ×

Yes. Obviously we will, as always, play based on what we see in front of us. If you get the ball at the kick off and see eight garden gnomes and three fat blokes in front of you, the way you set up is a bit different from what you might do if confronted with the 1953 Hungarian team or the 1970 Brazil side... note that we only care about the bond market's verdict on growth, nothing else.

Note that we were quite careful not to make predictions about spoos, our least favourite trading instrument. That market is always the last to get the message, but you should look at the charts for IWM to see that there are already signs of broad equity market weakness following on the problems in high yield. It's more important to our performance for us to be right about FX and rates than equities, and so that's what we focus on.

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Anonymous
admin
December 29, 2015 at 8:37 PM ×

As we predicted, US equities are rallying towards all-time highs !

We would like to thank the bears/shorts here for lining our pockets through 2015, and trust you will continue to donate your funds to us for the next 12 months. Happy New Year !

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CV
admin
December 29, 2015 at 9:10 PM ×

Hmm that last comment by the artist formerly known as Anon surely indicates a bit of a rough patch in the beginning of January. Don't ya think?

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Nico G
admin
December 30, 2015 at 6:49 AM ×

push it push it amigo i need indices ripe and high at year end

with current breadth at 70% January should be beary beary interesting.

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Anonymous
admin
December 30, 2015 at 8:29 AM ×

Equity indexes are forming a massive break-out pattern. We will likely see HUGE upside in 2016 as central banks go all-in.

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Anonymous
admin
December 30, 2015 at 10:20 AM ×

Very good & happy new year. Thanks for the blog and thoughts MM, and regulars.

northshore

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Anonymous
admin
December 30, 2015 at 11:13 AM ×

I'm not much for attempting to see the future so I'll leave those arguments about Fed direction jumping to others. I do though look at charts of the NYSE margin below and think based upon that discretion is the better part of valour for Equity long positions. Moreover considered alongside recent spreads in HY Bonds even more of a reason to doubt the 'risk on' view. Taken on a top down basis where US equity floats or sinks global equity it's hard to justify having much 'risk on' anywhere. That much referred to hammock doesn't look a bad place to be if one doesn't want to actively try to short sell risk.

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Anonymous
admin
December 30, 2015 at 11:13 AM ×

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX

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Anonymous
admin
December 30, 2015 at 2:40 PM ×

Immigrants are raping and murdering white Europeans, whilst authorities do nothing to stop it:
http://www.zerohedge.com/news/2015-12-29/swedens-first-month-islamic-multiculturalism-rapes-acquittals-severed-heads

Swiss army Chief warns of social unrest, calls upon citizens to arm themselves:
http://www.zerohedge.com/news/2015-12-30/swiss-army-chief-warns-social-unrest-calls-upon-citizens-arm-themselves

I bet Europeans are glad they voted in the EU now.

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Macro Man
admin
December 30, 2015 at 2:47 PM ×

Please don't pollute this space with that rubbish. I have less than zero desire to provide another forum for ZH's views on social issues.

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Nico G
admin
December 30, 2015 at 7:15 PM ×

why do you still let anons post on such a quality place?

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