An inauspicious start

It's been an inauspicious start to the new year chez Macro Man, as both your author and his firstborn  have been struck down by a nasty bronchial infection over the past week or so.  It's left both of them feeling pretty washed out, so readers will excuse the brevity of this post and those forthcoming until Macro Man regains his former vim and vigor.

New year's resolutions to get fit are something of a cliche; ironically, Macro Man resolved to fit more rest and recovery days into his cycling regimen this year, so that at least has been a stunning success so far.  In any event, many readers may feel as if they have already spent much of the past year on a treadmill; if so, Macro Man cannot blame them.  The total return of US equity and bond markets were both within a stone's throw of zero despite all the hand wringing, dip-buying, and doom-calling that were features of various corners of the financial market in 2015.

Although Macro Man's bond data only goes back to 1999, this was far and away the closest to nowt that investors have received from stocks and bonds combined in the 16 year history of the dataset.


The question then becomes whether there is any sort of relationship between the previous year's returns and the start to the new year.   On the one hand, one might expect the major macro drivers of asset returns to be serially correlated, thus driving a positive relationship.   On the other, one might argue that pension funds rebalance when things get too far out of whack, which was an argument used to explain the early-2014 reversal of 2013's prominent trends.

In fact, there is little evidence of any strong relationship between the previous year's returns and the start to the new year.

So there you have it.   We went nowhere last year, but in any case the data is close to useless for projecting where we'll start this year.   Viva el macro!

In any case, predictions are easy and a dime a dozen this time of the year.   When he recovers strength, Macro Man hopes to revive an old tradition and make some non-predictions of his own.  In the meantime, enjoy the hand-wringing over the latest Middle Eastern diplomatic dust-up, and may you stay free from bronchitis in 2016.

Good luck.  

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Anonymous
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January 4, 2016 at 7:42 AM ×

Good luck with the recovery -- that bronchitis stuff is no good....

- Whammer

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Reddy
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January 4, 2016 at 7:57 AM ×

Happy New Year MM, thanks for some excellent posts in 2015. More of the same in 2016 pls.

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CV
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January 4, 2016 at 9:49 AM ×

Speedy recovery to you and your son MM!

As for the market, well ... I should have listened to LB and bought some bonds it seems! Not the best start for my portfolio to be honest, making the good December look very dim and distant. At least, I held back and increased my cash position, which is a small comfort.

All part of the plan, though, ... Q1 should be good overall, yes ... we still believe that up here! Hope springs eternal, right ;)

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Anonymous
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January 4, 2016 at 11:15 AM ×

Are we actually surprised that a communist country can't manage capital markets?

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Bruce in Tennessee
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January 4, 2016 at 12:50 PM ×

Born July 26, 1877, Shrewsbury, Massachusetts
Died November 28, 1940, New York, New York
Cause of death Suicide
Occupation Stock speculator
Net worth US$100 million (1929), US$5 million (1940)

...Most probably know this one...

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washedup
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January 4, 2016 at 1:38 PM ×

Bruce - clearly the boy plunger did not relish the move from the top 0.000001% in 1929 to the top 0.01%.

interesting comments all around, not to mention the overall market action - I suspect there will be more than a few 150 point round trips in the next few months - think of this market as a beach ball giddily bouncing on a trampoline stretched increasingly tight over a rather deep canyon.

What, exactly, if I may ask, is the surprise in China? And unless Jet Li is now bearish, who in their right mind still thinks selling stocks in mainland China is a good idea, not matter how many pairs of Nike shoes one owns?

LB - you say bonds are doing great - I say yes, but, their lack of exuberance in risk off episodes leaves this treasury bond bull with a vague feeling of disquiet and dissonance.

Happy new year, everyone.

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CV
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January 4, 2016 at 2:01 PM ×

For the record, I am not convinced about long US bonds for anything but a very short punt. I think bund yields are going up, and I think 2.6ish is perfectly reasonable for the US 10-y at some point in Q1.

THEN you buy ;)

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FunnyMoney
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January 4, 2016 at 2:21 PM ×

I've heard that a retail piker in England put a 1-lot on the offer today and caused this global crash in equities. Can you please all alert the SEC, CFTC et al? Thanks so much! Oh, and Happy New Year!

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abee crombie
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January 4, 2016 at 6:46 PM ×

Nico, regarding your long CAD trade, Above 1.40 is good value (ie LT trade) just not sure anything is going to fall Canada's way this year. Perhaps Oil bottoms or Fed disappoints. But the way its trading, I think you get time to average into a position

Washed I hear you on who is surprised by low numbers in China, certainly it isnt new news, however it is very negative price action the major markets are developing, with Nasdaq finally catching up and R2K right near previous lows. And of course as a manufacturing play, European stocks are down big as well

ISM Man. now below 50 for two months in a row, since September, the highest its been is 50.2. If we get a NON-Manufacting below 52 that could be one more straw to break the markets back.

CNY fixed a lot lower as well. I cant see that as good news either.

Fingers crossed for Turnaround Tuesday but if not I'm going to hedge pretty quick

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Nico G
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January 4, 2016 at 7:34 PM ×

i hear you abee i would be ready to double up at a couple of points higher but already happy with current 1.39 - i doubt Canada will become low cost - America for ever if it only were on the labour front

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Leftback
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January 4, 2016 at 8:54 PM ×

Just walked in the door in NYC. Happy new trading year, dip buyers! It's nice and warm in the hammock, despite the chill wind.

Washed, share some of your concern re: bonds, should have been a massive buying day today. Let's see what the next few days will bring. Fund flows should help to provide support for bond prices this week as well! Although it's not working in Spoos.

How 'bout that yen buying? We are long some yen, so it's quite interesting. That is Asia's risk off signal, remember.

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abee crombie
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January 4, 2016 at 10:26 PM ×

http://www.bloomberg.com/news/articles/2015-12-23/jpmorgan-says-japan-inc-must-prepare-for-yen-below-100-a-dollar .... interesting thoughts on yen

Some nice late day buying but we will need to see follow through tomorrow, especially in EU

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Macro Man
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January 4, 2016 at 10:53 PM ×

@ Nico If ski resort prices were useful as exchange rate determinants, then anyone spending a few days at Verbier would be long EUR/CHF until about 2.00........

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Nico G
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January 5, 2016 at 5:17 AM ×

MM

brits ruined Verbier a long time ago and could only be the nth confirmation that bankers are paid too much - there is much less attitude in Whistler

anyway skiing is one detail amid a perfectly organised country with stable politics, very limited corruption, outstanding equipment etc the new Trudeau wants to deversify the economy away from pure oil, at oil peak 1 USD would get you 0.90 CAD and 1.40 CAD today seems kinda at-the-other-side-of-sentiment-spectrumish

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Nico G
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January 5, 2016 at 5:19 AM ×

what i mean is, Canada got the same 'oil is dead' currency treatment as Brazil or Mexico .... c'mon

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