A tale in five bullet points

It was the best of times, it was the worst of times, it was the age of vicious sell-offs, it was the age of face-ripping rallies, it was the epoch of surprising hawkishness (BOC), it was the epoch of surprising dovishness (COPOM), it was the season of light, it was the season of Darkness, it was the spring of hope that oil would bottom, it was the winter of despair that it dropped another 5%, we had buying opportunities before us, we had a falling knife to spear us, we were all going direct to Heaven, we were all going the other way- in short, this period is so like a normal market, that some of its noisiest authorities insist on its being received, for good or evil, in the superlative degree of comparison only.

There's a lot to mention and Macro Man's pressed for time, so he has to resort to a few bullet points:

* The publication of yesterday's little ditty captured the low of the day pretty nicely.  For the first time in the entire downmove, the SPX has put in a bullish candle, in this case a hammer at the lows.  If it were ever going to mount a rally, now should be the time.

* Macro Man has been asked a few times in the comments for his view as to whether this is a correction, a crash, or a crisis.  For now, his view is that it is a correction and a targeted, not general crisis.  For one thing, earnings continue to remain near their highs, and expectations (which were marked down this time last year) have edged higher.   While one might wish to pooh-pooh the utility of earnings expectations, Macro Man has found them to be very useful, particularly in the absence of other alarming signals from his model (which is still bullish, by the way.)



All this having been said, there is clearly a crisis in certain segments of the global economy, namely oil producers and some other EM.  History suggests that such crises can generally remain isolated; however, we've never had a crisis where the countries in question owned so many foreign financial assets.   Common sense dictates, therefore, that one keep an open mind and that confidence in one's view should be somewhat less than usual.

* Fiscal dominance in Brazil?  The COPOM's failure to hike would suggest that Tombini believes so.  As a reminder, Brazilian CPI has risen another percent since Macro Man wrote about it in September.  Today's reaction in BRL will be fascinating.  It should get curb-stomped on the lack of real interest rate protection and the notion that Dilma is wearing the trousers, so to speak, when it comes to setting policy.  That USD/BRL has crawled quietly higher in recent weeks would suggest that positioning is probably not too big.  On the other hand, a rally in global risk assets may lift even the smelliest of turds, as indeed it did when the BRL closed higher versus the $ on the day that Levy confirmed his resignation as FinMin.  Gun to the head, Macro Man would guess that USD/BRL gaps higher and then dribbles down, though of course that's predicated upon the SPX following on from Wednesday's closing rally.


* Fun trivia fact: including yesterday's New York close, USD/CAD has rallied 13 days in a row.   Since 1990, the previous largest winning streak was 11 days, in early 2001.  Perhaps not coincidentally, that was when USD/CAD was on a long slow journey to 1.60.  It's kind of amusing how USD/CAD shrugged off yesterday's relatively hawkish BOC statement but fell out of bed when Spooz mounted their late day recovery.

* Yesterday's ECB "sources" story on MNI downplayed the chances of any policy shift at today's meeting, but it would be a stratagem worthy of Machiavelli id Draghi were to plant such a story and then deliver the "missing" easing from last month.  Then again, it was "sources" stories that first hinted about pushback against Draghi's dovish agenda within the governing council, which of course produced last month's ECB fiasco.

Still, Macro Man wouldn't lay odds on an unchanged ECB, because unlike last month the asymmetry is clearly skewed towards the upside on even a modest policy action.   Assuming that they do nothing, however, it will be fascinating to see what sort of tone Draghi takes.   Is he resigned?  Defiant?  Nonverbal cues may well provide a useful hint for how the March meeting will shape up.
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Anonymous
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January 21, 2016 at 7:14 AM ×

Great intro, Dickens would be proud :)

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Anonymous
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January 21, 2016 at 8:13 AM ×

BOJ in the market (again).

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Rossco
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January 21, 2016 at 8:21 AM ×

The BoJ has given it to anyone who dared be long some Yen for 2 days running now. I feel the market will soon get tired of fighting them

Regarding spoos. Feb Vix looks like it has put in a short term top to me. Relief ?

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Anonymous
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January 21, 2016 at 8:23 AM ×

PBoC (SAFE) also in the market overnight and as we speak... bidding oil, equities etc.

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Anonymous
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January 21, 2016 at 8:27 AM ×

Rossco - Yep agree re: BOJ. Re: spooz, I think we need to see some consolidation before a sustained move higher (unless more central banks start buying). I'm not seeing ECB/Fed buy-programs as yet though.

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CV
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January 21, 2016 at 8:44 AM ×

Brilliant MM!

Good to have you here to keep us safe ;).

Anyway, what a clusterf;ck yesterday. A lot of blow-out candles with high volumes in my single names, some even managed to rally into decent gains towards the end of the game.

That suggests some of the air, at least, has been cleared. Not really wanting to put cash to work to be honest. Let us see whether it holds ... in the end, many punters probably saw it prudent to cover into Draghi today. They will be back for more ... can't say that I am optimistic here. Best case is that it really puts on its running shoes and does a screamer into a "sell in May, go away" story ... but then it will probably still end flat to down on the year. A lot of damage has been done here.

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Nico G
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January 21, 2016 at 10:09 AM ×

it would be best for market to rally without any central bank's help - to work out oversold conditions by itself

CBs have messed financial markets for too long. Now everyone grow back up and stop acting like children. Time to ponder the macro reality without the quantitative carrot and stick

it is completely pathetic to see world equities follow oil tick after tick. Oil was $10 in 1998. Oil was $147 in 2008. Oil price fluctuates, what is the fucking big deal? Excusez my English

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USIKPA
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January 21, 2016 at 10:13 AM × This comment has been removed by the author.
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USIKPA
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January 21, 2016 at 10:15 AM ×

The deal, Nico, is that there are no MORE Petrodollars. On the contrary, there is lack thereof

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Ghost of FunnyMoney
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January 21, 2016 at 10:49 AM ×

My colleagues and I completely agree with Nico G (10:09). However I wonder if CBs have dug themselves into a hole here. Soros' reflexivity might suggest that there is a two-way set of forces at work here... market disruption encouraging CB action which in turn causes more market disruption which in turn... Will be very interesting to see what the ECB do later, and more importantly how markets respond.

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Anonymous
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January 21, 2016 at 10:56 AM ×

following my comment from yesterday morning, we did get a gap down , and recover. need follow through here but does feel like a wash out in short term.
iwm got creamed the most and led the charge...might get some tradable bounce to 1950 spoos...and nay close and post open looked like solid liquidation....targetiing 17500 in a week there

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CV
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January 21, 2016 at 11:06 AM ×

Just to be clear

"it would be best for market to rally without any central bank's help - to work out oversold conditions by itself"

I agree with this. But what I want to happen, and what I think will happen are two different things. These guys are the world's biggest asset managers now, for better or worse.

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Anonymous
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January 21, 2016 at 11:39 AM ×

MM how are you pulling out the 12m fwd earnings

I get a very similar chart with BBG but a distinctly different last few weeks... Have earnings being downgraded, rather than upgraded

Am using 'best eps' with the 1bf period override

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Booger
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January 21, 2016 at 11:40 AM ×

BOC hawkish outcome was unexpected but the strength in USD.CAD despite this was also unusual. Like they say, don't look a gifthorse in the mouth or something like that.

USD.CAD is looking very strong, I would not be surprised to see it go to 1.49 after a week or so of consolidation. If this does occur one supposes it will be because the market is betting Poloz will take back the Hawkish talk when the frying-pan of low oil and EM crisis hits him in the face again. This happened last year when he was optimistic about the economy then had to do a surprise rate cut.

Brazil, I guess there will still be some genuine surprise when it blows up. Russia managed their currency crisis well last year. The Brazilians not so much and it will be interesting to see if they can get through the next 6 months. Interestingly, 12 month Riyal forwards jumped to the highest level since the last EM crisis (1996) and the Saudi's banned speculators from shorting the currency. Oil is going to cause something to break soon I would think.

The main benefit of a peg is to reduce the cost of funding with that secured exchange rate. It encourages borrowing in USD. But when there is increasing perceived probability the peg will break, everyone who borrowed at the peg rate will be looking to get out before it breaks.

Euro: I don't think Draghi will announce much. Everyone seems to have forgotten that he was exposed and publically castrated last meeting by the Germans who said they are not putting up with more scaremongering QE anytime soon and they are definitely not into debt mutualization. They have already amassed large twin surpluses thanks very much. Besides which euro data has generally improved since the last meeting, so the ECB may be hard pressed to even reduce their forecasts except on the basis of oil. But that is not enough one would think to call anyone's bluff after the antics of the last meeting.

Personally, I am looking to short AUD.USD on the bounce.

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Booger
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January 21, 2016 at 11:51 AM ×

The Italian banking situation cannot also be doing much for Draghi's credibility at the current time, given that he was the Italian CB Governor before the ECB position. He must be kicking himself for misreading the last meeting and playing bluff when he did. Still plenty of time for a comeback later in the year though.

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Ghost of FunnyMoney
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January 21, 2016 at 11:58 AM ×

Rajan (Head of India's CB) is unusual for the following reasons:
a) he actually knows what he's talking about
b) he was one of the few people to see the GFC coming
c) his policies have worked
He makes the following comments today at Davos:
- China and oil prices were trigger for market fall
- Market prices were looking for a correction trigger
- Not excessively worried about growth in China
- Monetary stimulus has run its course
- Developed markets need to look at structural reforms
- We don't seem to have succeeded through really low rates

Bottom line: ZIRP & QE hasn't worked. At some point they will have to be cast aside and the asset price bubbles they begat will implode.

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AL
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January 21, 2016 at 12:05 PM ×

Agree that the chances of any action today by the ECB are slim at best. Nevertheless 5y5y breakevens have collapsed and this one is an indicator that the ECB is looking very carefully. EUR TWI is almost 4% stronger than at the beginning of December, and this is another factor that the ECB is watching. Finally, with ghosts of banking crises around the Euro Zone reemerging the risk here that the flow of credit get suddenly stopped, just when was starting to flow again is pretty high.... this is the crucial factor that will make the ECB nervous.
A preemptive strike would be sensible.

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Macro Man
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January 21, 2016 at 12:12 PM ×

@Anon 11.39, it's a synthetic 1y fwd index that I create using the BEST EPS function. Basically takes current year and next year EPS and weights them to get a 12m fwd figure.

Also, is it just me, or is this follow through from yesterday very disappointing? DB share price looking bloody miserable....

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AL
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January 21, 2016 at 12:22 PM ×

No MM, you are not alone on this feeling. Follow through is miserable indeed so far.
DB preannouncement was rather poor and this doesn't certainly help in this context. Looks like price insensitive flows are going through on a daily basis ... this SWFs just need the cash for other purposes.

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Corey
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January 21, 2016 at 12:26 PM ×

Yeah some follow through! Going to have to go lower and hope it doesnt break before putting in a bottom. Reading last ECB meeting minutes now and nothing inspiring but they drop some pretty heavy clues as to what they are looking at.

Two questions:

-If no one was/is short how can we have a face ripper?
-How does ECB easing solve EM, MENA, China, etc., finance problems (seriously other than a psychological impact I dont understand)?

And yes Rajan is the man.

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Leftback
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January 21, 2016 at 12:36 PM ×

Cable being Pounded. Love saying that....

Everyone waiting on Dr Aghi.... Asian session was weak but USDJPY is stable today. Agree with commenters here that it will be Draghi's "forward guidance" that matters here, rather than any actual action. "We will look to bring forward the schedule of bond purchases and may announce this as soon as March" might be one way of signaling the ECB's concern at the ongoing wave of deflation washing over its shores, and "We will continue to do whatever it takes" might be another. Bazooka Time.

Some here think the ECB and FOMC are complacent, but we think the ECB definitely sees the imminent danger ahead, and the Fed is at least watchful, if still deluded in thinking that the US economy can keep growing alone in splendid isolation and that they can continue to hike rates. The BoJ has clearly shown concern and a willingness to defend against anyone bidding the yen aggressively higher, so they clearly don't want all their work to go to waste and I am sure Draghi doesn't either.

The Ray Dalio interview from Davos is actually reasonably interesting. He espouses a view shared by several punters here, e.g. by Funny Money, myself and others that the Fed hike was a policy error similar to Trichet's pre-GFC rate hike, and that they will not only take it back, but likely proceed with QE4, in order to prevent a wave of deflation that would otherwise create a Depression. This implies weaker US growth in 2016 and a weaker US dollar once the inevitability of a policy reversal is clear.

Dalio Feds Next Move Toward QE

The guys who bet against four rate hikes in 2016 in the Fed funds market have already done pretty well, and to me that was one of the safest trades on offer late 2015, Dot Plots or no Dot Plots. Lower for Longer, or QE infinity as some would say...

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washedup
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January 21, 2016 at 12:39 PM ×

Corey/AL - yes given the timing and programmed nature of this selloff its likely this is institutional liquidation with middle eastern SWFs a possible culprit - it also explains why bonds were struggling to rally till very recently when the s@3t truly hit the fan. I am not quite sure if this is an every day for the rest of the quarter thing, or an episode, but certainly a big headwind. On the flip side there has been little to no buyback flows so far this year, but there will be a ton eventually (the way this works, probably at a time when everyones bull towels are on the floor and the market is super short, especially me!)

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Leftback
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January 21, 2016 at 12:40 PM ×

Corey, only the Fed can solve the dollar shortage that is fast creating an EM credit crisis, and only FISCAL initiatives around the world can really set the global economy on a healthier path, but we will continue to see endless MONETARY tinkering.

There was clear evidence yesterday that some groups of short sellers were covering in specific sectors. There are shorts.

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Anonymous
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January 21, 2016 at 1:05 PM ×

"Crisis" is a relative term.

If you're about to lose your job say in Big Oil or IBM, that's a crisis. The Central Banks of this world have warped reality, along with governments not exactly being truthful (when have they been). Those who have been successful will most likely remain such, the rest will either be naked when the tide goes out, or for those unfortunate to be poor will remain so.

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Bruce in Tennessee
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January 21, 2016 at 1:11 PM ×

Morning. While I often agree with many of the posters here, I am afraid I'd disagree with the overall tone. What we need is a recession, and a change in capitalism from our recent history. If we get more QE/ZIRP here, where will that lead us? Even further concentration of wealth into an increasingly narrow elite? What good is that? As an ongoing concern, democracy will eventually fall if it fails to grant equal outcomes to its citizenry based on a gamed system. Sure, maybe as traders we hope the Fed and the other CB's will continue what they've done in the past but this is Charles Dickens and Oliver Twist. More Please! Why? Because the equity markets know that QE/ZIRP mainly gets funneled back into equities and benefits the already super-well off more that the majority of citizens. This needs to stop.

And fellows, we've had many years of this...as I noted to someone yesterday...integral calculus is the same as when Newton invented it...time makes things worse...it compounds the defect in the system....how many decades will it take? Global Japan?

Why do you think so many are cynical? Give it a little ponder time......

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Leftback
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January 21, 2016 at 1:20 PM ×

B in T. We have pondered QE endlessly, here and elsewhere, recently and back in the day. We don't love it any more than you do.

I will echo CV above by saying that whether or not I think QE is a good idea is irrelevant (I don't, and believe fiscal policy should take over during demographic depressions), b/c I have to trade/invest according to what I believe is going to happen (more QE, largely b/c governments are too spineless to implement good fiscal policies).

Now let us all listen to Dr Aghi.

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Anonymous
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January 21, 2016 at 1:20 PM ×

I am beginning to think when amp is cogent and on meds, he posts as Bruce....

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Bruce in Tennessee
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January 21, 2016 at 1:33 PM ×

Well, Lefty, I hope your trades are stellar today....I too, watched the follow-up during the day yesterday, and took the same conclusion that many did, that the follow-up looked a bit weak...

I also think this is fundamentally different from 2008...my reasoning is kind of what I just wrote...we've lowered rates and encouraged, Strongly encouraged debt, and now we do now see the onset on decreasing liquidity...and for the reasons I've posted in the past, including the Economist, it appears the time to be wary is in times of decreasing liquidity...

...I think the big question here is not really so much about central banks, although they are what we focus on...rather is the globe as a whole rethinking whether loaning money is a good idea in 2016...Has the tone changed?

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Anonymous
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January 21, 2016 at 1:48 PM ×

Draghi "...there are NO LIMITS to the policies/instruments we will use to meet our targets..."

BOJ/ECB move to "QE Infinity". Good luck with that guys.

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Corey
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January 21, 2016 at 1:51 PM ×

Well Left congrats on ECB march call. I think you and I are perhaps the only ones who read last meeting minutes, "Finally, to indicate that a general review of the technical parameters of the APP could take place in spring 2016."

Bruce you've been right but dont get too complacent. As long as these idiots are willing to give the mkt what it wants, the risks may be asymmetric to the downside but as much as it's despised they still salivate when CB's ring the QE bell. Eventually, eventually when the market is given what it wants and doesnt react, that's when you'll know the jig is up. Of course that's assuming something doesnt implode first.

On shorts I was thinking people who are short areas like S&P as opposed to Oil/Energy. That seems to be the tone of this board and things like: http://www.wsj.com/articles/hedge-funds-have-a-hot-idea-retreat-1453316547

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Bruce in Tennessee
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January 21, 2016 at 2:01 PM ×

Corey,

Oh, I am not the complacent type...what I wrote about antacids I took nightly during the tech bubble is the truth...

I try to take emotion out of selling my Purchases...that's why I use stops...Mr. Market is too driven by lemming psychology to let my purchases be governed by my own individual psychology...

"How can the market not see what I'm seeing!" Somehow they don't, and their vote counts.

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January 21, 2016 at 2:21 PM ×

Draghi has no limits. He's God.. only martingale strategy for him!
Please solve banks CEOs' profitability problem also...

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Anonymous
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January 21, 2016 at 2:23 PM ×

@11:58

LB and most commenters said that here since QE was first implemented...so,is your friend Rajan reading this blog?

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Anonymous
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January 21, 2016 at 2:37 PM ×

B in T

"What we need is a recession, and a change in capitalism from our recent history. If we get more QE/ZIRP here, where will that lead us? Even further concentration of wealth into an increasingly narrow elite? What good is that? As an ongoing concern, democracy will eventually fall if it fails to grant equal outcomes to its citizenry based on a gamed system. Sure, maybe as traders we hope the Fed and the other CB's will continue what they've done in the past but this is Charles Dickens and Oliver Twist. More Please! Why? Because the equity markets know that QE/ZIRP mainly gets funneled back into equities and benefits the already super-well off more that the majority of citizens. This needs to stop."

Was reading down the comments and getting ready to type similar thoughts, and saw you beat me to it. Exactly right. It needs to stop. Either the rigged markets get devastated by a return to pre-1987 central banking and reforms that lessen rent extraction, or democracy (including that quaint notion of a market-based economy) fails. We're past the fork in the road and heading down the failure path. Waiting to see if TPTB have the collective will to turn around. I'm not hopeful.

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Jim
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January 21, 2016 at 2:45 PM ×

Theme this morning at the office...find out our exposure to DB

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Anonymous
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January 21, 2016 at 2:49 PM ×

Nico et al getting hosed here...

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Anonymous
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January 21, 2016 at 2:55 PM ×

DB at its lowest since being listed in USA in 1999

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Bruce in Tennessee
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January 21, 2016 at 2:58 PM ×

In regards to market openings...and previous thoughts...if you take the last hour of yesterday's market and the opening to today's market...yes, I think you could make the case for a disappointing response to the 500 point decline..."What follow-through?"...

Day to day stuff, though, is tough on seers....

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January 21, 2016 at 3:21 PM ×

This is not a vicious move ..macroman..its a psycho move. You never take on a psycho wave head on. Mother nature has done us the good karma of unleashing her fury of greed and unleashed it upon wall street for us hapless souls to marvel at. Feed the plebs bread and circus's from the other side of the equator. When Rome eventually collapsed it fell into the dark ages..these days traders fall into their local GP. A good flush of funny money leaves behind the gold relics.

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Anonymous
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January 21, 2016 at 3:46 PM ×

I'm a little surprised at how Dovish Draghi was. I felt he should have learned a lesson from overselling back in October. Traders certainly have. Either he has not learned his lesson or, he is going to deliver big time. The markets want to believe but recall how their collective butts felt in Dec.

How oil handles DOE could be indicative of the rest of the day.

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Anonymous
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January 21, 2016 at 4:16 PM ×

"How oil handles DOE could be indicative of the rest of the day. "

Big signals there at the moment. THis Snow storm ptting in the bid I guess. When you look at Gasoline inventories

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JB
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January 21, 2016 at 4:23 PM ×

Anon 3.46 Dovish was the very least Draghi could be. Being as the eurostoxx were some 700 ticks lower at one point this week from the December meeting he couldn't do a lot else. Outside of more negative rates what can they really do though? Hence the rally failed to gain traction shortly after.

That said, the market does feel long overdue a bounce....... albeit of the dead cat variety!!

Oil through yesterdays high, whether or not it will last beyond the aggressive selling into the 7.30pm 'fix' will be another thing.

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Anonymous
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January 21, 2016 at 4:24 PM ×

I have the same opinion as BinT, but my expectation on the market is closer to Left.

Guys, I do not want to turn this board to political discussion, but many could find some useful discussion from a Karl Marx's book on capital and labor.

Anyway, if a higher than expected crude oil inventories number cannot beat down the stock market today, then we really have a confirmed rebound on our hands. In two weeks we will have China's Spring Festival and a long holiday season in many parts of East Asia, which is likely to take out one of two bearish themes for market even only temporarily, though they are lame excuses in the first place IMO. Of course, in China everyone is trying to grab cash for the traditional new year, so the liquidity has already been in shortage and will stay there for the next two weeks. Watch out for PBOC's liquidity injection move.

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January 21, 2016 at 4:43 PM ×

Wall street the last place on earth Id ever set up shop in todays enviroment. Leave a poor pleb alone

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Anonymous
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January 21, 2016 at 4:49 PM ×

Kolanovic warns of major risk in the SP500 "The Macro-Momentum Bubble"

http://www.zerohedge.com/news/2016-01-21/beware-negative-feedback-loop-kolanovic-reveals-next-significant-risk-sp-500

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January 21, 2016 at 5:03 PM ×

Its looking like their going to have to get rid of the poor plebs in this cycle since he wont kow tow anymore to the data releases..or you could just leave a poor pleb alone. Jokes up guys.

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CV
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January 21, 2016 at 5:20 PM ×

Lots of great comments here, and (erm) some bad ones ;).

In the main; Draghi probably will ease further in March. You need to listen to his points on low oil prices and headline inflation. They are both looking and reacting to that. Nevermind that core inflation is probably melting higher slowly this year.

The cut-off date for the March staff projections as around 10th-15th February, and unless oil really puts on its running shoes, it won't matter much. The forecast will be downgraded, again!

Meanwhile, on the question of whether "it matters" ... look, it matters because it helps keep yields low, and that is important to extend and pretend in the EZ, and allow the veeery slooow process of clean-up and reforms to continue

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Anonymous
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January 21, 2016 at 5:29 PM ×

@CV

"Meanwhile, on the question of whether "it matters" ... look, it matters because it helps keep yields low, and that is important to extend and pretend in the EZ, and allow the veeery slooow process of clean-up and reforms to continue"

Well, I suppose the question that needs to be asked about continuing this 'process' is, "Who benefits at whose expense?"

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January 21, 2016 at 5:31 PM ×

America stock market is totally out of the question if wanting to invest. Have you been watching the same chart as i. Or have you just left you lookback period sitting there too long mate.

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Bruce in Tennessee
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January 21, 2016 at 5:37 PM ×

http://macroblog.typepad.com/macroblog/

Are Long-Term Inflation Expectations Declining? Not So Fast, Says Atlanta Fed

"Finally, we note that TIPS and SPF are based on CPI rather than the Fed's preferred personal consumption expenditure (PCE) measure. CPI inflation has historically run above PCE inflation by about 30 basis points. Accounting for this difference brings our measure of the level of long-term inflation expectations close to the Fed's 2 percent target.

To summarize, our analysis suggests that (1) long-run inflation expectations remain stable and anchored, (2) the seemingly large correlation of market-implied inflation compensation with oil prices arises mainly from the dynamics of the TIPS liquidity premium, and (3) long-run market- and survey-based inflation expectations are remarkably close in terms of level and dynamics over time."

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MrBeach
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January 21, 2016 at 5:41 PM ×

Canadian ETF is doing quite well today on the bounce in oil. Interesting potential play should a bigger bounce emerge in the near future.

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abee crombie
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January 21, 2016 at 6:19 PM ×

Follow through day is here, if we have another tomorrow we could have a tradable bounce. The test will then be what happens if we can get to unchaged for the year/2000/ 200 day at 2050 or so. Coincidentally we will have to watch how the laggards in this sell off perform. If they lead it will be a bullish sign. S&P pierced the August low but didnt close below it. That is potentially a warning sign or also a bullish sign if it can sustain momentum. Gotta love technicals.

Ghost of FM, thanks for the Rajan comments. He is smart and should be listened to. And if he stays on, another reason India is a winner longer term

I dont get what all the fuss about QE is about. Fed created reserves that sat on bank balance sheets. They repressed interest rates in a time of low economic growth, much like they did in the 1950's. In the search for yield, PRIVATE investors poured money into commodties which are now going bust, further pressuring inflation but a net benefit to consumers. I dunno, until I see inflation, I dont really get what the harm of QE was.

What we didnt get is a complete collapse and an austrian cleansing of financial prices? Ok maybe that would be good for the super liquid cash rich ppl on this forum but I cant see how it would benefit most of eveyone else. Look what happened in the 1930's, you dont always have a "cleansing" and then robust growth right away. The scars run deep. I'll take QE anyday over that time period.

Also comparing a 10% sell off in Spoo's to 2008 is a bit premature. I'll take the otherside of that bet anyday. You wont get a 2008 event again when everyone is looking for it!

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January 21, 2016 at 6:20 PM ×

Bear with me macroman..were not models, actors, politicians or male hookers..we're punters, and always will be. So it does'nt matter where we travel or how long the road, we keep researching until we drop.

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January 21, 2016 at 6:38 PM ×

While I'm here having a laugh why not give a shout out to my polski girlfriend. Oops!

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Anonymous
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January 21, 2016 at 7:05 PM ×

Amp, your ramblings are harder to figure out than the markets.

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January 21, 2016 at 7:25 PM ×

I give to you in plain english ..anon. I rather be a guest of Her Majesty than live and work in America..and more to the point be paid fifty dollars and hour taking responsibility for the CdC swap spread desk. This horse is broken down do you want be to ride it through the rail and do the horse a favor from the trainer.

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AB
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January 21, 2016 at 7:47 PM ×

I prefer trailing 12-month GAAP earnings.

Index / Index level / current 12 month earnings / recent peak (with date) / pre-2008 peak
S&P 500 / 1865 / 93 / 107 (Nov 2014) / 86
S&P 400 / 1254 / 43 / 59 (Dec 2014) / 50
Russell 2000 / 995 / -0.1 / 21 (Feb 2015) / 27
Nasdaq 100 / 4155 / 193 / 203 (May 2015) / 65
MSCI EAFE / 1518 / 87 / 107 (July 2014) / 155
MSCI EM / 693 / 64 / 98 (august 2011) / 84


Multiples of trailing GAAP earnings are still at their highs. Yes, Russell 2000 earnings are negative for the entire index. Aside from the Nasdaq, are there any large market cap indices that have seen significant increases in GAAP earnings since 2007?

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washedup
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January 21, 2016 at 7:56 PM ×

AB - I get your larger point, but I am bit surprised a bit in that NASDAQ seems fairly valued at 20X - I presume the russell issue is from the small E&Ps that are duly on the ropes.
The next act in this drama boils down to whether the ill winds from North Dakota reach silicon valley - we shall see.

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Corey
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January 21, 2016 at 8:32 PM ×

Bounce or no bounce I'm moving to TN with the following observations;
-It doesn't seem like most people are positioned for a slow or fast decline.
-As Nico said shorts do provide a bid to the market in covering rally's which we are not really seeing.
-The service economy is that bastion of strength that keeps things chugging along. Services rely on consumption, which relies on confidence which is reduced in greater proportion (to an industrial economy which relies on longer term decision making and "level" headed C suite execs) when the market declines. ie. reverse wealth effect is in, well, effect.
-I'd rather have limited longs on EM/Oil complex than exposure to S&P which just feels like it is riding a unicycle atop razor-wire stretched between two high rises.
-Funny how one quarter ago the market was all like (in regards to Fed): hurry up and get on with it just rip the band aide off already and now after a 15% decline is screaming like a little child to hurry up and put it back on. Even if they eventually do, at this point they are still evaluating the impact to things like lending which will take more than a quarter to come to a conclusion on, let alone reverse prior logic. They should have done what I and many others assumed would be the logical thing to do, which means tightening would be the reverse of how it was implemented - ie balance sheet first then rates.

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Anonymous
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January 21, 2016 at 8:35 PM ×

The Big Five oil producers (in barrels/day) are:

U.S 11 million
Saudi Arabia 11 million
Russia 11 million
China 4 million
Canada 4 million

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Nico G
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January 21, 2016 at 8:36 PM ×

1890/1900 is still the number to beat on your spoos. Good luck

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abee crombie
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January 21, 2016 at 8:44 PM ×

Soros commented at Davos that he is short Spoo's and long interest rates, betting on deflation. Also he says china hard landing is occurring in real time.

Today's bounce is less than I had hoped for. At least HYG is strong. I want to sell some rallies but I think we need to see something first... Also earnings are not coming out so bad, next week is the heart of the season. Tech will be in focus.

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Anonymous
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January 21, 2016 at 8:45 PM ×

From Davos:

Aramco's president Mr Khalid Al-Falih brushed aside the threat from renewable energy and the COP21 deal to cut carbon emissions:

"I don't think renewables or pressures from climate change are going to significantly reduce the long-term demand for oil. If electric vehicles take over, where does the electricity come from?"

He also said: "We can take whatever the market serves us. If prices stay low, we will be able to withstand it for a long time. We have the lowest cost of production on the planet by a big margin, and Saudi Aramco has zero debt on its balance sheet."

“I do feel the market overshot on the low side and by year-end I bet prices will be higher than today.”

Worries about China are overblown: "China’s slowdown affects heavy industries that use coal, not oil."

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Bruce in Tennessee
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January 21, 2016 at 9:28 PM ×

I get so tired of Soros calling me from Davos about how he should be positioned in the market...sheeesh...just let it go to voice mail now....

Lefty, I'm gonna give him your cell phone number next time he calls...you can tell your valet what to if he gets to be a pest! :)

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abee crombie
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January 21, 2016 at 9:31 PM ×

Just looking at the biggest cap stock, AAPL. Using bloomy estimates for flat 2016-2018 Free Cash Flow (way better than earnings, IMO) currently trading for 15% yield!

If the company wasnt so big it would be a screaming buy.

Berkshire trading 1.25x Book, right close to where Buffett said he will start buying back stock.

I dont have positions in either but just something to think about when you think these markets are massively inflated. For sure earnings can turn down and make current valuation expensive (as earnings have a strong correlation with ISM which is now indicating recession) but I think anyone expecting a massive drop is a little too trigger happy. For that to happen you would need to see a significant negative feedback loop to downgrade earnings/eco growth.

I'm not saying go long here, just trying to put it in perspective. TWINE

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Nico G
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January 21, 2016 at 9:42 PM ×

yep - and Hang Seng trading at same book value as 1998 - just before the government litterally bought in to stop the bleeding. Years later they were sitting on ginormous profits

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Nico G
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January 21, 2016 at 9:47 PM ×

watch oil here, knock knock at resistance of January channel and ready to go. If successful momo traders should pile in for a quick 10% up

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Anonymous
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January 21, 2016 at 9:48 PM ×

Schlumberger fires 10,000, announces $10 billion buyback... thank f*ck! I wish CEOs would fire all workers in the US and buy back 99.9% of outstanding stock, then the spoos would go up, we'd see a massive wealth effect and all be richer. Plus no need to go to work, so lots of leisure time to spend our new-found wealth!

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jbtfd
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January 21, 2016 at 9:49 PM ×

Nico G, you long here? I'm tempted to go all-in...

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Nico G
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January 21, 2016 at 9:50 PM ×

a monster hourly candle 28.29-29.94 (on March CL) with 125+k volume today

this is EXACTLY what happened on that first impulse when they brought oil down from 147 in July 2008. I am talking my book, but big players stepped in today and an intermediate low seems to be in

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Nico G
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January 21, 2016 at 9:59 PM ×

jbtfd

yes i had a premature entry at 33 and took another clip yesterday under 29 so have a respectable size at 31+

i am offering 36.50 - the level of the last break (the gap and go down on the 6th)

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jbtfd
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January 21, 2016 at 10:06 PM ×

Nico G, cool. How about equities? They rally soon I think...

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Anonymous
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January 21, 2016 at 10:16 PM ×

@CV The blunt tool of further cuts from the ECB and additional QE will do little to solve the problem of insolvent european banks. For the record, im not in the 'This is 2008' camp but the banking sector is starting to look ugly. The game is up on extend and pretend, lets hope the Italians can strike a viable deal this weekend that doesnt eventulally involve bail ins Cyprus style.

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Nico G
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January 21, 2016 at 10:19 PM ×

long - trailing from Estoxx 2846 yesterday. I only worked on 2% day trips this month but yesterday felt like capitulation on a satisfying spike in volume, so willing to trail that long with stop at entry. Might be a slow and painful process there is a real trauma on the market. 1900 on spoos and 3000 on estoxx are the first and big hurdles

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AB
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January 21, 2016 at 10:43 PM ×

I am so sick of hearing TWINE and "this is not 2008". Great, that is very helpful. Both of those were true going into 1974 and 1930.

The global economy is more sickly than it was in 2007. Time will tell if the structure is more fragile or robust than in 2008. Given the amount of debt, I am skeptical that every weak spot has been reinforced. There are so many signals that the tide has turned on this bull. It doesn't mean that we crash, but I don't want to be the first mouse.

Btw, everyone worries about Chinese currency volatility because the small increase in volatility killed the Sharpe ratio of very large carry trades. Those trades are unwinding and that is extracting a very large amount of liquidity from the system. Now the currency reflects the extent of the run.

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Anonymous
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January 22, 2016 at 12:00 AM ×

AB, frankly I'm sick of hearing that the world is ending. It is an incredibly myopic, infantile, and egotistic view to believe that your small lifetime on this planet will somehow coincide with its end. Also, you don't ever have to be the first mouse, as long as you don't want the biggest piece of cheese.

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MrBeach
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January 22, 2016 at 2:39 AM ×

This is a story from March of last year. But the datapoint about corporate buyback blackout periods is still relevant.

"Buybacks, which reached a monthly record in February and have surged so much they make up about 2 percent of daily volume, are customarily suspended during the five weeks before companies report quarterly results, according to Goldman Sachs Group Inc. With the busiest part of first-quarter earnings seasons beginning in April, the blackout is getting started now." - Buyback Blackout Leaves U.S. Stocks on Own Prior to Earnings

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abee crombie
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January 22, 2016 at 3:24 AM ×

Thanks mr beach. With 2% of the volume hey could by something like 10-20% of the long term buyers in any stock as a lot of trades are just also front running these days. So that seems huge and a likely reason why stocks do perform poorly when they stop.

Guess who is buying back stocks at prices below current book value, it's mReits which can basically liquidate their portfolio at market. But hey the world is ending (apparently no one told that to the repo or intra bank markets yet, but I digress ) and you should keep selling these stocks down. I'd love to buy an. mReit at 30% of book. I can give you more examples too but I'd love to hear some thoughts on why I'm wrong.

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Leftback
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January 22, 2016 at 5:49 AM ×

Spanish face-ripper today +4%. Japanese face-ripper overnight +5%.

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Corey
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January 22, 2016 at 6:47 AM ×

Good call sir and damn glad to see it too. At least that part of markets are still functioning properly;)

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CV
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January 22, 2016 at 9:54 AM ×

Indeed, LB ran across the battlefield and the machine gun nests only managed a flesh wound ... we hope. Still early days, though, but today's swoon does seem to suggest that Mr. Market has decided that perhaps the world is not ending just this minute. Difficult one to call. If sentiment really flips here, seasonality suggests an absolute storming melt-up into May, but we will see.

Six weeks for the market to dream up easing scenarios for Draghi to disappoint in March ... ;)

Sold some U.S. names and flipped into some turds of turds in the U.K. which should benefit if the market really decides to climb. Also, had to ease down the U.S. exposure, because as a GBP investor I really don't want to be hugely overweight USD here given the obvious counter rally which is about to take out punters in GBPUSD.

Still 40% cash ... though.

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jbtfd
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January 22, 2016 at 11:06 AM ×

Equities up +2% to +5% overnight after my "all in" trade. Not bad for a few hours work.

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