A Chinese take-out

One of the few redeeming features of Macro Man's ongoing bronchial saga is that it permits a guilt-free phone call to the local Chinese take-out.  Hot and spicy noodle soup, complete with chilis, works wonders for unclogging the respiratory pipes, if only temporarily.

However, his is not the only Chinese take-out on the menu.  Holders of all manner of Chinese assets are also "enjoying" a take-out....behind the woodshed for a thrashing.  At the time of writing, Chinese equities have been halted because of downside volatility for the second time this year month week.  Indeed, as your author was writing that sentence, news hits that they're done for the day.  Macro Man is pleased to offer a video summary of today's trading for those who missed it:



 Although current prices aren't too far below Tuesday's open, from a technical perspective there are closing to zero redeeming features of the chart:



 
At the same time,. PBOC ratcheted the fix in USD/CNY up by half a percent to another fresh high.  Cue the usual carnage in oil, Spooz, etc.   Something has clearly changed about Chinese FX policy, right?   USD/CNY is ripping higher, and the onshore/offshore spread has also widened tremendously...



Well, perhaps, but it's still too early to say for sure.   One thing is clear, however...we're rapidly approaching the point where we'll know one way or the other.   Actually, correct that:  it does appear that something has definitely changed with the Chinese FX regime: they really do appear to be targeting a basket rather than the USD bilateral exchange rate.   It's funny how a stronger USD gets one to broaden one's mindset, innit?

In any event, Macro Man has updated his spreadsheet on the CFETS basket that was announced last month and, lo and behold, it has still not breached the 100 level that it started at (and that supported it twice last year.)

Granted, we are knocking on the door...hence the comment above that we'll soon know one way or another.  If it's business as usual, then we should expect the RMB to stabilize and/or strengthen against its basket constituents soon.   If the 100 level goes, on the other hand...then it's a clear policy choice to devalue, and the question then becomes by how much.   Speculation of 20% devals on a basket level are wide of the mark- it would inject too much disruption into the global economy and markets, and expose China to substantial puhsback.   But a 2-3% deval would probably be a reasonable guess, and still leave room for larger moves on a bilateral basis.

Insofar as the null hypothesis on China should be that they will zig when everyone else zags, however, Macro Man will hazard a guess that nothing has changed for the time being.  As such, he would be inclined to take at least partial profits on long USD/CNH around here, pending the release of December FX reserve data and the next few days' fixings to see if 100 holds on the basket.

Price action in USD/CNH after the fixing would suggest that Beijing might have had enough of FX frolics:


That's the thing about Chinese take-outs.   Ordinarily they're great, but there are few things more dis-appointing (and literally gut-wrenching) than a dodgy one.

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Nico G
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January 7, 2016 at 3:06 AM ×

What Is Really Bugging the Market

By David Rosenberg, Gluskin Sheff + Associates Inc.
Excerpted from Breakfast with Dave, January 6, 2016

The overriding problem for the equity market remains one of valuation – not that we are in bubble territory, but more that the stock market is still quite expensive.

The price action of 2015 failed to resolve one thing, which was to correct the excess valuations that held back the market last year as it likely will this year too.

The trailing price-to-diluted earnings multiple is 21.4x versus the historical norm of 17.5x, while the forward multiple on the S&P 500 is 16.8x, and again, the mean has been closer to 14.4x. The Shiller cyclically-adjusted price-to-earnings (CAPE) ratio is 26 and the long-run average is 23. Capish?

So here we have the stock market, according to many measures, trading close to three multiple points above historical norms.

Like the personal savings rate in the macro world, the price-earnings multiple in the financial world is a behavioral aggregate – a signpost of confidence, if you will. A lower savings rate is symbolic of higher confidence over income or wealth prospects, and similarly a higher multiple is a characteristic of rising investor confidence over the outlook for market returns.

The problem is that we do not have the clarity, certainty or visibility across the globe, whether it comes to policy, oil prices, regional conflicts or China, to warrant multiples being this far above the norm, if at all.

So, 2016 is likely going to be a year of transition and one where uncertainty is going to dominate the macro and investing landscape.

Oil prices

The fact that oil prices could not catch much of a bid given the conflict between Iran and Saudi Arabia should have the bulls shaking their heads.

The reality is that supply is an impediment at a time when there has still not been a dent in U.S. production and OPEC has been pumping out 32 million barrels per day (far above its quota) for seven months in a row.

Geopolitics

The severing of diplomatic ties between Iraq and Saudi Arabia could be problematic for investors risk tolerance if the situation turns worse, as in some form of military response. At a minimum, it complicates efforts to resolve the internal crisis in Syria.

It also further exposes the failure of U.S. foreign policy under the current administration (underscored by the surge in Aerospace & Defense sector stocks last year).

The Fed

Several monetary policy makers, including San Francisco Fed President John Williams (who is reportedly close to Janet Yellen), struck a hawkish tone at the regional bank’s symposium.

Also, Cleveland’s Fed President Loretta Mester sounds very hawkish and has openly argued that the Fed should turn a blind eye to the stock market (the rotated voting membership this year has a slightly more hawkish tilt than it did in 2015).

Finally, there was nothing out of Fed vice chair Stanley Fischer to suggest that the Fed is going to stop at one or two hikes.

The Fed has never hiked rates with the ISM manufacturing moving below 50, let alone for two straight months now. This a transition, first away from quantitative easing, and now away from zero interest rate policy, but with a twist since the central bank has never tightened policy with manufacturing under so much duress.

Earnings

The consensus is looking for around 8% S&P 500 earnings growth this year and yet the analysts have dragged the earnings revision ratio down to the lowest levels in eight months (to 0.55x for the three-month ratio in December from 0.58x in November and 0.74x in October; declining now for four months running).

Another transition will be what rising wage growth will do to profit margins – a case of what is good for Main Street may not be so good for Wall Street (call it mean reversion from the past six years of 18% equity returns and a mere 2% growth trend in the broad economy).

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Nico G
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January 7, 2016 at 3:07 AM ×

Local politics

Another transition this year is the U.S. election this November and if Byron Wien is prescient on his “surprise” pick for the Republican nominee being Ted Cruz, and the Democrats take over control of the Senate – well, it will likely be tough to build a positive market view from such heightened uncertainty.

As well, Donald Trump is not going out with a whimper either – there may be blue-collar voters who would be happy if he became President but I’m not sure the stock market would take it well (ditto for Ted Cruz with a Democratic-controlled Senate ushering in more years of gridlock).

China

While I am personally not bearish on the economy, it remains a “show me” situation and many pundits are becoming concerned over possible capital flight from any additional yuan devaluation.

Also, signs that the rebalancing from fixed investment and industrialization towards the consumer and services may not be going as smoothly as earlier believed are unnerving investors too.

Europe

There is uncertainty over how the influx of migrants will affect Germany; how the U.K. will vote on the European Union referendum; signs of foot dragging from Greece on pension reforms; and secessionist pressures surfacing in Spain.

The European Central Bank is at or near the bottom of the barrel when it comes to monetary easing at this point – the laws of diminishing returns may be setting in.

That said, some of the recent data flow has been encouraging.

Japan

Uncertainty in Japan regarding the efficacy of Abenomics and whether the Bank of Japan has done enough, notwithstanding how aggressive it has been, to fully thwart the ongoing deflation threat. But at least the latest recession last year managed to get revised away.

U.S. growth

While autos, housing and consumer spending are doing fine, exports, commercial construction, transports and manufacturing clearly are not.

That the Atlanta Fed’s GDP “nowcast” is tracking growth for Q4 at a 0.7% annual rate, down from 1.3% just a week ago and 2.0% back in mid-December – that is a sharp downdraft in a short time frame.

Manufacturing may only be 10% of GDP, but it does touch a lot of other ancillary sectors and only six of 18 industries polled by the Institute for Supply Management posted any growth at all in December.

Inflation

This comes back to the Fed and maybe the bond market, but if there is complacency out there, whether in the bull or bear camp, it is that inflation is dead. It is not. It may be comatose, but not dead.

I sense that 2016 will bring with it more price gains in rents, big accelerations in health services, health care premiums, and wages. Core service sector inflation is already approaching 3% – imagine if the dollar stopped going up and commodities stop going down, as such preventing goods sector deflation from acting as an antidote?

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Nico G
admin
January 7, 2016 at 3:07 AM ×

Bottom line

As I said on CNBC yesterday (yes, Joe, I am also a strategist), I am not looking for a down year for the S&P 500 but am cautious over the near-term (flat is the new up).

Since I do not see a recession, and you only get successive down years in a recession, I doubt therefore that we will suffer the ignominy of another retreat in the S&P 500.

That said, after seeing returns more than triple this cycle and price-to-earnings multiples above historical norms, it goes without saying that we have borrowed returns from the future in a very major way.

As was the case in 2015, if you are buying the market, be happy with the reinvested dividend comprising much if not all of your total return.

Again, like 2015, the key to doing better than that will involve agility, opportunism, more discipline than normal (as in raising and deploying cash at the appropriate times), and having concentrated positions in the right sectors (such as being long the U.S. consumer last year which would have garnered an 8%+ return).

In general, anticipate an environment where active will beat passive investment management. We had a taste of this in 2015; expect much more of the same this year.

As for the economy, I think we will be just fine, and there will be more of the “neither boom nor bust” cycle.

Consumer spending in real terms is up 3.2% on a YoY basis. New home sales are up 9%. Housing starts by 16%. And both auto sales and production are up 6%. So while still soft overall, keeping in mind how tight monetary policy is given the dollar strength, the restraint in financial conditions from the surge in high-yield credit spreads, and a still restrictive fiscal stance, the economy is doing all right.

The key will be when net exports finally stabilize and at what point the business sector will feel more comfortable over the outlook to start expanding. Not until these two areas start to gain momentum can we talk about the U.S. economy, in aggregate, reaching or exceeding a 3% annual pace.

Now that would probably justify multiples closer to where we are today, but is a trend that has remained elusive for a long, long time – we have not seen a “three-handle” on real GDP growth since 2005. Is that you, Godot?

I mentioned the High-Yield corporate bond market so I will finish off there. This is where the best risk-reward opportunities may well reside for the coming year.

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Bruce in Tennessee
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January 7, 2016 at 3:44 AM ×

Nico,

Thank you for your comments. I will relate a tale that Lefty has heard me tell, but probably not most of those who visit here.

In 1998, as I've stated before, I took the plunge and bet every nickel I could find in the tech bubble. At that time, I had a circle of friends who were very much like me...we all made in the low to mid 6 figures yearly, and all had quite a bit of excess money to invest in the stock market. Several times a week we'd meet early in the morning...(you can probably guess if you think about it exactly where we were) and discuss stocks and what we were doing and what we had our money in. Well, long story short, I sold all of it in April 2000, BUT to a man, all my friends thought there was quite a leg up further to go. I can honestly tell you that each and every one of my friends lost millions in the following year...from 3 million to a high that I was aware of of 12 million. Some completely lost their way, turned their investments over to, ummm, pros and were rewarded with further losses. None wished to short the markets that had been so kind to them.

The point? If this is a turning point, as I believe, it is possible to completely screw it up, even after you've figured it out most of the way. I very much grant that this may not be the time to go short, but I see the economy doing rather poorly as the year develops. I understand your reasoning, I guess I just don't believe in the continuing story.

I'm an just an interested investor who pays attention to the markets. I know even the chairman of the Fed itself can misread the tea leaves, and I hesitate to state my position with any degree of certainty. But then again, I'm pretty sure not many were surprised by this week's comments that the Fed realized it had pushed on a string to make equities rise with ZIRP and QE...the question is how this reverts to a more normal state and will this happen in 2016.

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Anonymous
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January 7, 2016 at 6:20 AM ×

"The China Securities Regulatory Commission issued a rule during Thursday’s market halt, capping the size of stakes that major investors are allowed to sell at 1 percent of a company’s shares. The restriction, which will stay in place for three months, replaces an existing six-month ban on any secondary-market stock sales that’s due to expire Friday. The CSRC also called an unscheduled meeting on Thursday to discuss circuit breakers and market conditions."

Time for a China rally on Friday?

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Nico G
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January 7, 2016 at 6:39 AM ×

hey Bruce those 3 comments were from David Rosenberg

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Nico G
admin
January 7, 2016 at 7:29 AM ×

European bears are taking no prisoners

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Anonymous
admin
January 7, 2016 at 9:24 AM ×

Those dip-buying the "oversold" spoos yesterday not looking so clever now...

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Eddie
admin
January 7, 2016 at 10:16 AM ×

Marshall,

a couple of follow-up thoughts regarding inflation.

China seems to be eager to export more of their latest favorite, namely deflation. I remember some punter saying that CNY should reach 7 by end of 2016. Given recent fixings 2016 may become as short as a Chinese trading day...

On the other hand we might see a pretty big nasty El Nino that will devast crops in 2016, i.e. maybe some higher prices for agricultural commodities. Not so sure about this though. And this is just agri and does not account for the oversupply in oil and metals.

My bet would be rather deflation, at least in the medium term. Which would make Leftback's favorite, the long bond, quite interesting.

My 2bps.

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rp
admin
January 7, 2016 at 10:27 AM ×

Wow if things carry on at this rate I'll be finished for the year by the European close.

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Anonymous
admin
January 7, 2016 at 10:32 AM ×

RP - i think a lot will be!

And yet, we have seen no real panic. A little overnight in low liquidity. But not sustained panic.

If an algo screams in the matrix does anybody hear it?

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Anonymous
admin
January 7, 2016 at 10:43 AM ×

mm agree with your CNH comment- i have taken profit after the reversal this morning...could go further but everybody seems to be watching that now - even punters who couldn't tell cnh from cny are following that price...had a good run ( not on big enough size though) and I'm stepping aside

meanwhile eu data continues to improve ....nice 10% ish pull back , shipping in some eurostoxx on this carnage...will overwrite with some calls on rip
in addition dax 10d calls look good as well to won for a pop

spoos no cares , still short, though buying teeny calls to cover just in case




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Booger
admin
January 7, 2016 at 10:49 AM ×

Today was an awesome day for short sellers of AUD pairs.

Technically speaking AUD.USD has broken the bottom of the wedge/upsloping channel at 0.7080. Fundamentally, the oil price is factored in, but there is possibly further potential for macro-fundamental deterioration that is not. In fact the employment numbers at the end of last year were in some ways too good to be true and if there is deterioration in that, GDP or retail sales in the next few months, there is the possibility of a further RBA easing being more priced in.

AUD.CAD may well have topped out and there may well be a potential 1000 pip move in the next month or 2.

Bruce: the problem with bull markets or bear markets is you can feel like a genius and blow up easily. There is nothing like going broke to teach some important lessons though and it is probably not the end of the world. Some people are cautious and can avoid that pitfall. Others (like me) aren't and are more risk takers. They have to learn that by blowing out. I think your friends were probably normal blowing up in the tech bubble. But the correct course of action would have been to dust themselves up and start over again, and hopefully not blow up again in the same manner. I can attest to the fact that blowing up twice in my life has really taught me some important lessons.

Like your friends, I also blew up in the tech bubble and stopped investing for a year or 2. It was painful and I even went and did a year of a Masters in applied finance course (part time) to try to learn something. Unfortunately, it didn't teach me anything useful about investing or trading and I blew up once again when the resources bubble popped in 2008.

So I think you are a bit of a freak for not blowing out in the tech bubble and perhaps your greater than average fear of blowing up has preserved you. But never fear, because blowing up once or twice is not all that bad !

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Anonymous
admin
January 7, 2016 at 11:56 AM ×

Looking at August 2015 as an analog, I'd like to re-assure the buyers here that there's probably only another 200 points of downside in the spoos...

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Leftback
admin
January 7, 2016 at 12:00 PM ×

ES at 1943 having bounced off 1931 this morning. NOW THIS IS OFFICIALLY GETTING QUITE UGLY.... !!

Things are looking a little better here at the Hammock where we remain long large amounts of USTs and our long yen and TLT positions have been improving steadily overnight. We might be looking to cash those in at some point today.

Today is going to fill a gap that had been sitting in SPX around 1955. Bears beware, however, b/c we now have a chart with various gaps created all the way back up to SPX 2040. At some point those gaps can be filed during a vicious face-ripper.

For now it's really hard to find a decent level of chart support much above SPX 1890-1900... you get that one from drawing a line off the August and September lows down at 1870-1880.

AUD pairs were a good short, weren't they? Coming to the end of the year AUDUSD looked a bit short term overbought and just didn't seem to have anywhere to go. But in fact it did have somewhere to go. Down!

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Anonymous
admin
January 7, 2016 at 12:16 PM ×

Looks like Syrian airstrikes have only pushed ISIS into Libya..

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Leftback
admin
January 7, 2016 at 12:33 PM ×

MM, let me offer my congratulations for your headline today. Simple. Witty. Appropriate. A Chinese Take-Out indeed. I liked your analysis here b/c it offers a better method of spotting a near-term low than looking at a load of SPX charts with the ruler and the blue pencil, and one that is directed more accurately at the source of Mr Market's gastrointestinal disturbance.

We did offer the comment here earlier this week that we might see a Sell The Rumour, Buy The News kind of week in terms of the jobs number, but none of this action really has anything to do with the jobs number, of course. It's all China, as you point out above, CNY devaluation in progress, carry unwind and just plain and simple people selling over-priced markets.

The jobs number itself is now frankly irrelevant - to all but US bond market participants, but it might (as is often the case, by virtue of its Friday am release) become the excuse for shorts to cover and the pivot for a squeeze on Friday to end the week. Next week is OpEx, so options punters are going to start closing out positions as early as this afternoon, or even earlier.

There is, of course, one more "trading session" left this week for the Chinese "market", or what remains of it after another day with the Early Closing sign going up in the window (remember those from the UK, 60s and 70s, anyone?). More misery ahead for the poor saps who are long what are, in many cases, companies with highly dodgy accounting and criminal management.

A tip of the cap here to David Cui and Stephen Roach (and numerous others including some members of the MM peanut gallery) who have warned US punters to stay the hell away from China for a year or so. This week has really been an absolute debacle, but it was always predictable once the signs of capital flight became apparent, and especially after that episode last Summer where the Chinese government intervened in the equity market to prevent it falling. Never a good idea. [Activate irony detector here, anyone who saw or read the Fisher interview on CNBC].

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Anonymous
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January 7, 2016 at 12:37 PM ×

Based on recency bias, we're all expecting a face ripper at some stage. What if it doesn't come? It didn't in oil, at least not for a ling time. And, oil drifted lower without any real panic selling.

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fencer
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January 7, 2016 at 12:41 PM ×

I am surprised that there is no more buying pressure on the Euro. With all this Open Interest, it should be a prime candidate for liquidation.After all, the only positions on the dollar right now are C$ and Euro ... US stats have been weak , minutes of the Fed quite cautious .... If you look GBPEUR , even if you are on support right now ,the trend seems quite strong and indicate some downside to close the gap of January 2015.

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January 7, 2016 at 12:45 PM ×

The Chinese markets are not "real" markets - there is no price discovery with a variety of mechanisms that distort prices. So the market in China becomes a game of gaming the regulators/government.

I believe the global equity rout provided cover to let the price level go lower....

Regardless of the price action in China equities, up, down, whatever, the fact that the markets are not "real" at this stage of economic development (no futures, no shorting, no selling, inside info rampant, poor companies that don't earn returns, state subsidized lending/credit problems, margin debt, no free flow of capital, halt stocks when going down) is in and of itself exceptionally BEARISH.

Crackerjack's 2016 outlook and predictions to poke fun at, a few days late...

CJF 2016 Outlook

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Booger
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January 7, 2016 at 1:02 PM ×

LB: against the consensus, Fri NFP could surprise on the upside and cause continuation of USD strength, further yuan devaluation, SPX pain etc.

Something even more interesting is the Aus retail sales figures out tomorrow. Other than the number, the reaction to the number should be illuminating.

Oil, it will be interesting to see if it reaches the $30 target.

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Anonymous
admin
January 7, 2016 at 1:06 PM ×

http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=7&mn=0&dy=0&id=p85033383808&a=309848344

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Bruce in Tennessee
admin
January 7, 2016 at 1:08 PM ×

Sorry, Nico, I thought you were David Rosenberg........(grin).....

Booger...you are right. My friends just couldn't see the end of the tech bubble. Wouldn't believe the party had ended. But as for me, this was quite different from what I'd done before...and betting such a huge bet on techs made my stomach hurt at night...antacids nightly during that time. I couldn't enjoy my time off much either. Over Christmas during that time we flew out to have Christmas with my brother in the Silicon Valley for several days. I even had to call my broker during that vacation, and stay next to a computer. Even though I am in SDS now, it isn't with nearly that degree of all or nothing in regards to my net worth. I'd be foolish to try that...I am quite happy not being Uncle Warren..

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abee crombie
admin
January 7, 2016 at 1:39 PM ×

Nico thanks for the Rosey update and while I hear what Bruce says, in light of a multi year bull market, I still think the market is trading off Asian fears, as the Yen and CNY are driving capital flows and speculation. As the fearmongers come out extoling how china is going to crash (now Soros?) its hard to stand in front of that train, so I wont. But I wouldnt extrapolate so much of what is going on in Chinese equities as to the global economy. The global economy is slowing, not crashing and remember lower oil prices are a tailwind for global consumers. YES it is, even though capital markets might have loved the excess petrol reserves, consumers worldwide will benefit from lower commodity prices. Perhaps like rosey says, though it may not be good for the stock market. I leave that up to you.

US equity valuations are not extreme, not even in the same vicinity as 2000 tech bubble, and do not have nearly the same degree of retail participation. Its all fast, hedge fund money these days. They all play the same game, shoot first. Thats what the market is doing now. Look for the Yen to rebound before going opposite this stampede, or Vix to overshoot (whatever that means)

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abee crombie
admin
January 7, 2016 at 1:42 PM ×

AutoNation CEO Warns of Glut in Luxury Cars - December was not the month everybody thought it was…. the industry has a hard time spotting changes so I am acting as the canary in the coal mine here. We are entering a new chapter. Yes, sales will still be above 17 million this year, but the quality of those sales in terms of lower incentives are now a challenge

http://www.wsj.com/articles/autonation-ceo-sees-slowdown-in-premium-luxury-cars-1452080663?mod=pls_whats_news_us_business_f

On Tuesday, results showed that the U.S. auto industry achieved a record in 2015, with 17.5 million new vehicles sold. Those results eclipsed the last sales peak of 17.4 million set in 2000. The average transaction price—the amount customers are paying to buy—also hit a record of more than $34,000. Trucks and SUVs accounted for 55.7% of U.S. sales last year while cars were at 44.3%, according to data provider Autodata Corp.

Despite the celebration, there were some signs that not everything was right. The industry’s seasonally adjusted annual selling pace fell to 17.3 million in December from 18.2 million the month before. It was the first time since August the selling rate had failed to come in above 18 million.

Shares in AutoNation were down nearly 11% at $50.76 at 4 p.m. in New York Stock Exchange trading on Wednesday.

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washedup
admin
January 7, 2016 at 1:50 PM ×

@Bruce - Nico confused for David Rosenberg?? Thats like mistaking Samuel Jackson for dame Judy Dench...

Rosie was good once, but my respect for him as been steadily wearing away when, after making some astute observations back in 2012 about how a bull market in equities, a la 1982, was quite unlikely given the rather different starting states for various macro-economic variables, mostly bond market related, coolly flip flopped into a bullish posture as the market rallied by burying his gaze on cherry picked positive US economic data (fwiw that still more or less remains the case).

Confirmation bias can be a bitch - its still a bit hard for people raised in the 80's and 90's markets to digest exactly how and why crashes in developed markets can emanate out of China - even the good ones.

Plus there is the monkey infestation highlighted by abee yesterday and wittily added to by anon/MM....

Treasury bulls should be very worried - this may be a short spoos and blues year. Nothing to do with fundamentals, just feels like CBs need to sell them to raise cash and that may trump every other effect.

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Anonymous
admin
January 7, 2016 at 1:53 PM ×

I guess the Chinese will come back to gold..old true and tried storage of value?

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Macro Man
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January 7, 2016 at 2:01 PM ×

@ washed Out of curiosity, would you rather a guy stayed bearish and wrong in 2012-14 rather than flip bullish and right? (I have never been a particular admirer of Rosenberg but obviously do have sympathy for those putting views out to public scrutiny)

I would agree however re your point on Treasuries. The decade-plus long tailwind of CB buyers has vanished, potentially replaced by headwinds of rebalancing sellers- China's FX reserves dropped quite a bit more than expected in Dec.

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washedup
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January 7, 2016 at 2:37 PM ×

nope MM - I would absolutely not prefer that, but he was a bit cavalier dismissing China concerns back in 2014 as if we were still back in the 90's and there was no need to fear a hangover from the EM party, which by all evidence was much bigger than anything we had ever seen - he was rather fortunate with a US centric focus in 2007 because thats what led us down, and more recently that same bias has proven to be his undoing.
Finally, I really much less about his opinion is than may may have come across in my note! Certainly there are far worse offenders in the ostrich mode area (zero hedge, to cite one).

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Anonymous
admin
January 7, 2016 at 2:58 PM ×

Puff..China just suspended it's stock circuit breaker rule

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Anonymous
admin
January 7, 2016 at 3:14 PM ×

@Bruce, similar tale here, worked and invested in the heart of the tech bubble, offloading the lot near the top when my fear exceeded my lunacy tolerance levels. Smaller numbers than yours but enough capital to walk away from the race. Also sold the lot into crude's final parabolic stage in '08. Thrill days are past and now operate like a conservative family office, albeit with a lot less zeros at the end!

Now, none of my compatriots sold near either the tech bubble highs or the oil bubble highs, choosing instead to hold to the lows. Too, almost to a man, none have ever touched markets again in any meaningful way.

Per abee, methinks mass retail participation in this stock bull market just hasn't happened in the way it did in the tech and resources bubbles. People loved those markets, but they've always hated this one. Without Joe Numpty aboard, long and strong, I have difficulty seeing how this one gets the full toilet flush.

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Anonymous
admin
January 7, 2016 at 3:21 PM ×

Anon2:58

Puff ... as in: The Magic Dragon?

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Leftback
admin
January 7, 2016 at 3:25 PM ×

Interesting thoughts on price action in Treasuries, beginning to get the same feeling here, and a good point regarding the role of China in all this, via the selling of their liquid dollar-denominated assets (USTs) to support CNY. That's why we hang here, to be exposed to thoughts from the other side. We closed our yen long for now.

So we are doing much better than our benchmark YTD, but not really making much money b/c we didn't have the best trades on. I am reminded of the 2008 action. Bear markets are tough, even for the Bears. We do enjoy a good bear market rally though. Nothing more fun than getting on board a rip snorting face-ripper and riding it for a cool 5% or so.... not enough fear yet.

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abee crombie
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January 7, 2016 at 3:28 PM ×

It feels like August 2015 all over again. And the Pavlovian market response to increased Chinese uncertainty is always to sell first and ask questions later. I spent a lot of time writing in August and September on why the Chinese induced dip in developed market risk assets was worth fading. And I have no reason to change that view 6 months later - except that I'm less interested in European and Japanese risk assets and more interested in US risk assets (hedged with blues of course). That said, I will reprint a note from the day after the August RMB devaluation and leave it at that. I really don't have anything new to add to the China risk-off discussion than what I said back then. - Dr Z

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Anonymous
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January 7, 2016 at 3:53 PM ×

abee ... who is Dr Z?

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Nico G
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January 7, 2016 at 4:14 PM ×

i hear you abee - yet considerable technical damage has been done overnight on spoos so watching 1980 make or break level now

once in a while i swing long on eurostoxx and today was the day but i MUCH prefer scaloing short on a bull trend, than buying liquidation... truth be told what i thought was liquidation at auction this morning wasn't and they printed agonising lower lows

looking much better now - but trend is down until/unless they repair the tape quick

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CV
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January 7, 2016 at 4:27 PM ×

Am sympathetic to Zervos's recent missive, even if he is a the alpha to Hussman's Omega. I too find the obsession about China a little bit odd. The thing about China is that the risk are unquantifiable, which is why, I guess, we are now supposed to worry a lot about a falling SHCOMP even if we didn't care that it went up 150% in the first place.

In short: Whether YOU/WE think China is in muddle-through mode or not, a market starting to fret about them losing control is a market that goes south very, very quickly. I persist that China is a super tanker and not a huge firecracker, but it doesn't matter what I or Zervos think in the end. Meanwhile, I am much more in tune with this from MM;

"would you rather a guy stayed bearish and wrong in 2012-14 rather than flip bullish and right? "

Now, if this is indeed a bear market (and comments here suggest the majority is leaning towards that), then it requires a whole new thinking. I believe I am on record for pleading with people here to buy the dip in August/Sep 2015 and ride it towards new highs in Q1. That is still possible, but this week's price action has put some rather big question marks on that thesis. And this matters. Because if the sell in May and go away pattern does not repeat itself, this year could be ugly!

I still, perhaps stupidly, think the key is to forget about beta and look at sectors and countries. Lots more divergence than there was in 2008.

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Anonymous
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January 7, 2016 at 4:43 PM ×

Well, you are all too pessimistic. It is just China depreciating. When EU and Japan depreaciated, every broker and their mothers were buying and saying the stocks were going up forever. Now PBOC is determined to take that role from BOJ ECB FED. Very soon the global new carry trade is to borrow CNY and buy USD.

BTFD

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Leftback
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January 7, 2016 at 4:47 PM ×

Crude oil and US rates now appear to trade in lock step, and crude seems to have decoupled from the USD. This has been going on for several weeks now, if not longer, but it is without doubt one of the more weird correlations and couplings that bond traders will have witnessed in their careers. Perhaps this is a sign that the Treasury markets are currently very thinly traded so that the activity of one little group of robots can be so clearly seen. One wonders indeed, "How Long" has this been going on?

How Long Has This Been Goin' On?

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Anonymous
admin
January 7, 2016 at 5:05 PM ×

Lacker: Fed may need to hike more than 4x this year

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Bruce in Tennessee
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January 7, 2016 at 5:46 PM ×

http://www.cnbc.com/2016/01/07/dennis-gartman-a-bear-market-has-now-begun.html

...I have been fishing and landed fish that flopped less than this, ummm, market seer.....

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Anonymous
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January 7, 2016 at 5:47 PM ×

Nico,

I'm extremely wary of any conclusions that people draw after citing P/E ratios without also bringing up where rates are at.

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Corey
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January 7, 2016 at 5:50 PM ×

@LB Re: correlations - I believe it is HY and oil traders hedging a deflationary outcome.

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Anonymous
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January 7, 2016 at 6:20 PM ×

I knew the market was going to sh*t when I heard that even FM wasn't buying this dip...

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abee crombie
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January 7, 2016 at 6:46 PM ×

CV, I hear you about buying the dip but I also recognize the technical dammage done. We are under the 200 day and its starting to slope downwards. What would get me really bearish is a kiss back towards the 200 and a failure.

Either way, I have been trying to hold the bull case, saying that there were lots of "Value" stocks out there that were looking attractive vs FANG holding up the market, so that if you had an internal rotation you could see a much more healthy market. With the recent reaction of M's to poor sales results (it went higher) i thought we might be starting to see a trend, whereby recent losers start outperforming. Alas, even with M, WMT and a few others, the broad majority of "value" stocks are still at thier lows, and the market has decided to resolve the growth/momentum vs value dillema by selling of Nasdaq, which is not the bullish sign I wanted.

Fast money wants to sell China and the technicals line up. So I am not brave enough to really stand in front of this train.

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Anonymous
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January 7, 2016 at 7:10 PM ×

Now it looks like a panic, isn't it?

But unless a temporary bottom of CNY is reached, we would not see the real bottom.

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Anonymous
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January 7, 2016 at 8:05 PM ×

18 YEAR OLD HEDGE FUND MANAGERS SAY THEY CAN'T RECALL A TIME MARKETS WERE THIS VOLATILE
(h/t Stalingrad & Poorski)

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washedup
admin
January 7, 2016 at 8:10 PM ×

To add..

18 YEAR OLD HEDGE FUND MANAGERS SAY MONKEYS NOW TRADING FAR BELOW INTRINSIC VALUE

(h/t abee/saut)

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Anonymous
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January 7, 2016 at 8:17 PM ×

Watch the monkey fall
It draws blood all too often –
Villagers take note

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Nico G
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January 7, 2016 at 8:18 PM ×

hahaha

you gotta think in terms of max pain / max mind fuck - market would like so many to puke into the close to gap up and go tomorrow

there is no way a nice, big flashing green light and perhaps an email to your inbox would warn you of the dip low

Eurostoxx fighting for higher low here. After almost 10% down since last Thursday open, it's been brutal

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Anonymous
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January 7, 2016 at 8:38 PM ×

I want to know what the Dr Aghi is going to do about this, when is he on?

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Nico G
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January 7, 2016 at 8:40 PM ×

ind fuck began in earnest last month - so many bulls waiting to trim their long into end of year/first week of Jan (normally bullish)

and so many on the sideline patiently waiting a safe short entry first week of January

none of that - bulls are trapped in, most bears missed the train

to go further, now that everyone is trapped scared shitless waiting for a rip to trim and/or finally go short... i wonder if market will be that cute

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Anonymous
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January 7, 2016 at 8:50 PM ×

interesting almost all looking for a bounce to sell....so i think theres none coming or we go straight up squeezing people who sell first pop...( as i have felt numerous times on these V shape bounces in spoos last couple of years)...for disclosure i am short spoos but have bought some upside calls for potential event risk /expiry squeeze
this spx eurostoxx spread's been a shitshow...i am assuming all positioning related but is a pain in the ass!

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Nico G
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January 7, 2016 at 9:01 PM ×

spx eurostoxx spread does NOT work on most folks' favourite timeframe, it is not deltra neutral - Eurostoxx delta is <1 and you have to edge currency risk

folks who thought Europe would be the 'least ugly beast' in the beauty contest need to ponder again the formidable immobility of its social and fiscal structures, of its mentality, and how about you throw a couple of millions of refugees in the mix to have most people think 20 years - or 80 years for some - backwards

oh, and as ive been saying for years most European banks are bankrupt. You guys still wait for Deutsche Bank

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AL
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January 7, 2016 at 9:02 PM ×

It's been brutal indeed. A test below 3000 in SX5E tomorrow seems inevitable. Nevertheless I feel seasonality is not right for a straight line collapse in equities, even if the US macro has been clearly deteriorating, EU holding up reasonably well and China did not have a lot of new information in terms of data. On the european front, valuations have also come down to attractive levels for some names. I will therefore move to benchmark tomorrow by spreading the purchases over the day, after having run a mild underweight in equities since mid December.

Longer term, It is no mistery that I share the idea that this bull market cycle is winding down and we should prepare to face a bear market for the next couple of years. I just don't see it all happening in January 2016.



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Bruce in Tennessee
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January 7, 2016 at 9:32 PM ×

http://www.cnbc.com/2016/01/07/more-than-4-rate-hikes-may-be-needed-if-prices-surge-feds-lacker.html

How many rate hikes in 2016? Lacker says 4, Evans 2

...One other thing, FWIW. I am an amateur investor that has been doing it a long time. I am a fan of Lefty, he writes cogent notes and has an agile mind. I am shorting equities rather than betting on the long bond because of one thing, I guess you could call it the KISS factor. The fed has tightened for the first time and says they will continue this in 2016. This adds a layer of complexity to one's thinking, just because they may get in the way of rates going down. I do understand Lefty's point that as weakness gets worse the Fed may have no choice, but again, they've gone and become crazy ole Uncle Fester on us, and equities, at least to me, aren't burdened this way. Probably both equities and the bond will behave as Lefty thinks...

2 cents...

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CV
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January 7, 2016 at 9:52 PM ×

"Fast money wants to sell China and the technicals line up. So I am not brave enough to really stand in front of this train."

Same here Abee ... If I am rotating anything here, it will be into cash ;) ...

"Longer term, It is no mistery that I share the idea that this bull market cycle is winding down and we should prepare to face a bear market for the next couple of years. I just don't see it all happening in January 2016."

I could have written this AL. My base was/is 2017 as the year of the bear, with 2016 one of maximum frustration for both camps, but still pockets of upside in some corners.

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Nico G
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January 7, 2016 at 10:00 PM ×

AL

" I just don't see it all happening in January 2016"

noone is, which is why everyone is nervous - next session in China is crucial

i will cover the remaining 1/2 of last April China short this pm (West coast time) and 80% of DM shorts

with a 'mental' swing long on Estoxx - be safe everyone

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Nico G
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January 7, 2016 at 10:05 PM ×

https://www.youtube.com/watch?v=AYrpROr9Gmk

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Leftback
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January 7, 2016 at 10:27 PM ×

There just isn't a lot of value in this market, all we are seeing is overpriced stocks becoming somewhat less overpriced. It's going to continue to fall for a while... Hammock Investing™ looks like a brilliant choice to open the year, for not losing money is clearly the new Killing It in January 2016.

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Nico G
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January 8, 2016 at 1:50 AM ×

the announced max mindfucking is in play, poor close and gap up in the making. A 'tennis shoes' set up where dipsters would have to momo the uptick tomorrow

this is pure trading playground - shorten timeframe, lower size, widen stops and try to get lucky

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Leftback
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January 8, 2016 at 2:16 AM ×

All quiet on the Eastern front at the moment, but there is a long night ahead of us. It wouldn't be a shock to see a squeeze get going in SPX by the morning, but a more sustainable support level probably lies another 40 points lower than today's close - say down at SPX 1905, the extension of a line of chart support drawn from the August and September lows at 1870-1880.

We haven't been terribly successful with options punting this week, as our TLT calls weren't the winner we had anticipated, perhaps next month? Going long the yen worked better for us. SPY, FXI or EEM puts would have been a much better trade. Nevertheless, our radical Hammock style of portfolio risk management (Spoos 0%, Stoxx 0%, EEM 0%, AGG 30%, TLT 40%) has helped achieve capital preservation and enabled us to make a tiny amount of money YTD so far.

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Anonymous
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January 8, 2016 at 2:31 AM ×

Looking at charts, SPX 1960 is now resistance. A weak bounce tomorrow from SPX 1943 up to 1960 as weekly options contracts are closed out? Then maybe resumed selling Monday? The really big support level is down in a much lower, 1890-1905, range.

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