Survey results

Macro Man is in a personal fast market, so he can't really write about everything he wishes to this morning.   However, given that yesterday's survey generated some interesting responses, he wanted to get the charts out with a brief commentary.

1) SPX at the end of Q1 (1880 at the time of survey)

Somewhat surprisingly, MM readers skewed slightly bullish relative to the market.  Although the average response was somewhat less than the levels prevailing at the time of the survey, both the mean and the mode skewed higher than the spot price.   In contrast, the expectation was that the market tilted slightly more bearish, with the mean and median both slightly below spot (albeit with a mode slightly above.)  In other words, the aggregate message was that "I'm a bit bullish but think everyone else is bearish. "   Gulp.



2) SPX at the end of 2016

 Interestingly, on a longer-term basis the distribution was pretty broad, but centered almost exactly on the prevailing levels.   The relative flatness of the distribution indicates a clear lack of consensus, though the fatness of the tail at 1550 or below is telling, and not mirrored by an equivalent upside tail.



3) WTI at the end of Q1 ($29.19 at the time of the survey.)

There's a reasonably clear skew here, with readers looking generally more bullish than they perceive the street to be.  Interestingly, there was also a bullish forecast skew in the last MM survey, conducted 3 months and $15 ago...


4) WTI crude at the end of 2016

Gulp.  There's a heavy skew to the topside here, with less than a quarter of respondents looking for price declines into year end.   In the last MM survey, the most heavily bullish skew was directed towards European equities, and my didn't that end well.....


5) Midpoint of the Fed funds target range by year end (0.375% at time of survey)

At least market pricing makes sense.   The average  forecast was almost identical to the rate currently priced into markets at 0.59%.   What is very, very, very notable is that of the 166 respondents, exactly one forecast four or more rate hikes by year end...y'know, the sort of magnitude that the Fed has suggested is a possible if not likely outcome.   A plurality of respondents expect no change to rates, and some even expected cuts.  Probably not surprising given the vehemence of the equity melt-down, but interesting nonetheless.

So the BOC delivered nothing today (except a somewhat hawkish commentary), and the latest "sources" story suggests a similar outcome from tomorrow's ECB.   Meanwhile Macro Man's least favourite EM basket case, Brazil, has a COPOM meeting this evening.   Tombini knows that he should raise rates (by a lot!), but the pressure from Dilma must be immense.   If the COPOM bottles it, it could be "Tchau, real...."
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JB
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January 20, 2016 at 4:24 PM ×

Interesting survey results MM..... Is the skew of a higher oil price just reflecting the hopes of us that want to do some dip buying at some stage being as EVERYING with correlates to commodity prices?

http://money.cnn.com/data/fear-and-greed/ Fear index reaching extremes. Although I must confess I'd like to see the capitulation flush lower before I dip more than a toe in. Eminis just held shy of the Oct 2014 Low as I type. Is it me or does it feel strange that despite the big moved YTD the sell off has been fairly orderly?

I don't often post here but read the blog and comments religiously. Thanks MM hope the VIX spike in the personal fast mkt is short lived.

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MrBeach
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January 20, 2016 at 4:28 PM ×

MM - Thank you for your regular thoughtful posts.

Please consider the following as the title for your next post: Correction, Crash or Crisis.

1. Is this a garden variety correction - one that used to happen before the pumps of QE distorted market behavior? It very well could be and once the hangover wears off (if the hangover wears off), will we be back to the races?

2. Are we headed towards a crash - the setup has been seemingly right - but it doesn't seem to happen. The market just grinds downwards. Panic driven selling, where price is news, is apparently present in some places, but not the broader indices yet.

3. Is this a crisis driven by oversupply of oil causing rot in balance sheets worldwide, forcing currency devaluations and forcing sales from SWFs?

My take: I want to believe it is #1, but I'm concerned it is #2.

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Anonymous
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January 20, 2016 at 4:31 PM ×

Take a moment to reflect...

Q: What caused the GFC?
A: Central Bank stupidity; specifically they encouraged reckless credit expansion causing an unsustainable debt crisis, and a credit crunch that damaged financial markets.

Q: Post GFC, what caused the SP500 to rise from 600 to 2000?
A: Central Bank QE encouraging more credit expansion. Specifically leading to asset bubbles and wealth inequality.

Q: What is now causing commodity carnage and equity meltdowns?
A: Central Bank stupidity; specifically the unwinding of credit expansion in China, commodity carnage and a hit to equities due to excessive debt - all fostered by Central Bank policies.

There is a pattern and the finger of blame points directly at Central Banks.

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Anonymous
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January 20, 2016 at 5:21 PM ×

Mr Beach it's #2 with some of #3 thrown in. We're gonna see at least a 50% correction in the spoos this year.

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Anonymous
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January 20, 2016 at 5:25 PM ×

Mr Beach
I don't have an answer to your questions. Just one question of my own. Easy money policy blew margin levels from 2009 to late 2015 to the usual crazy highs and beyond. My question is simple, can we expect to unwind that leverage in a just a coupe of months? I'd guess if we could it would be a waterfall issue not unlike '87. On that note I'd say however it unfolds we almost certainly have more to come this year face-rippers notwithstanding.

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Anonymous
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January 20, 2016 at 5:25 PM ×

DJIA down -500... we're all gonna die....

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Anonymous
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January 20, 2016 at 5:39 PM ×

Crude Oil down -7% just today ! HAHAHAHA

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Bruce in Tennessee
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January 20, 2016 at 5:45 PM ×

10 year @1.94? Good call Lefty....(but I bet you're not closing your position...)

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abee crombie
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January 20, 2016 at 6:01 PM ×

Interesting to see that S&P predictions were not lower, IMO, and this is coming from someone who is constructive. I guess until we dont see everyone predicting a lower equity markets, they will continue to grind lower

IWM getting interesting. 900 or so is my level to start nibbiling at more small caps. Never mind the nay sayers, there is lots of value in individual stocks, most of whom are down >20% already.

As for the end of the world bc QE is over and rates are rising. How about EARNINGS. Follow earnings and tune out the noise. The bull was helped by multiple expansion (from QE) but so is every bull. But earnings were the base. SPX earnings were $84 in 2007, in 2015 they were probably ~110. Thats why we had a bull market.

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Bruce in Tennessee
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January 20, 2016 at 6:02 PM ×

We have, of course, by the market moves since January 1, managed to bring the .1% closer to us!!

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Leftback
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January 20, 2016 at 6:04 PM ×

B in T. We are out of fixed income finally. Give the credit for rates calls to Gundlach, he was right yet again and perhaps he will be again in the future. Congrats on the X-ray vision over New Year's, that took some insight, and your success dealing with this 5 sigma event. We are reminded of Ritholtz's aphorism that "crashes don't happen in overbought markets, they happen in oversold markets". This, my friend, is an oversold market, and that's making us nervous today.

Oil-producing countries are really all standing in a circle shooting at each other with sawn-off shotguns at this point. It's hard to see who benefits. Someone will duck soon.

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Nico G
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January 20, 2016 at 6:06 PM ×

relax folks anon 525 - going so low so fast may extinguish selling pressure - 1800 spoos is quite a level on which to build

prepare for a not-so-gentle bounce and do NOT sell here :D

everytime i see Eurostoxx at -5%.. i buy for a 2% trip but this time it is tempting to put stop at entry and trail - the 2830 low 'feels' right on the chart

the corporate buybacks above 2000 in Spoos look so smart today. Those guys should be fired, and the ill gotten gains on their compensation package. US capitalism is broken i want to write more on that later

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Bruce in Tennessee
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January 20, 2016 at 6:10 PM ×

Where did you put the proceeds from the fixed income? (If you don't mind the question....)

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Anonymous
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January 20, 2016 at 6:12 PM ×

Abee ,
As a framework I would rather follow margin employed levels. Whilst I applaud bottom-up selection I'm pretty much of the view topdown is easier to ride. Individual picks that do well when the flow is against the market deleveraging is a hard way to make your money.
On the subject of margin use neither of the last two risk off implosions bottomed out until margin employed was flushed. It's a bit of a lagging viewpoint on the data ,but there again I don't try to catch tops or bottoms.

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Anonymous
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January 20, 2016 at 6:39 PM ×

Suspect that for the time being, at least, Mr Shorty's work here is done.

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Anonymous
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January 20, 2016 at 6:40 PM ×

Nico,
I suspect we've both been around long enough to know that in truth we have no idea what will extinguish selling pressure. It all depends on how the herd wants to move. Just how frightened it can get leading up to that mega sized puke. More oft than not we can spot the extreme cases of this and that's the best on offer from what I have seen. I am relaxed ,very. I'm not changing my position at this point. Unless I see something recognisable as an opportunity for change then I am already set for most of this year.

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Nico G
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January 20, 2016 at 7:31 PM ×

i agree - but i feel a duty to warn some who have not been around long enough to not sell into a hole

as much as i warned newbies the previous years to not buy a late stage a in 6 years rally

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Nico G
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January 20, 2016 at 8:04 PM ×

by the way who the fuck are you

lol

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Anonymous
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January 20, 2016 at 8:13 PM ×

"who the fuck are you"
They seek him here they seek him there that.... :)

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JohnL
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January 20, 2016 at 8:38 PM ×

The Scarlet Pimpernel???

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hipper
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January 20, 2016 at 8:45 PM ×

The real issue re QE seems to be not that it inflated asset prices, but rather to what extent did it inflate the real economy as well, and how much earnings? Housing perhaps, commodities known all too well, China overinvestment but something else? The general idea seems to be not that much at all because it supposedly didn't work, which would mean reversing and some tightening shouldn't accordingly deflate the real economy either. So multiples reverting back to long term averages in the face of a modest slowdown on the back of QE reversal, that seems normal.

If that's the case, then what's going on now is rather a financial mess rather than a real economic mess, barring the cyclical slowdown which will happen regardless. The difference between 2008 and now is that 99% of the financial institutions lie ready and waiting to deal with contagion and the problems are well documented, and as such feared by the market and are contagious through the lemming effect. But really in the short term it's always only a matter of "what the market knows" or rather what it thinks it knows. It knows generally what the revenue-through-clicks headlines tell it augmented by some data telling that China is growing the slowest since x amount of years. The headlines primary function is certainly not to be objective, because being objective doesn't usually equate being catchy.

Re tommorrow it might be reasonable to assume that Draghi was left somewhat traumatized from the November event. Will he fall for the same trap of under deliverance yet again? I hope not since I again went long SPY and BP for now...

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washedup
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January 20, 2016 at 10:37 PM ×

MM - your reaction to the survey suggests that you think of the MM community as representative of the equity marketplace and they are a bunch of lemmings who should be faded - is that based on a back test, or just your inner cynic talking?

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