The blog-o-meter bottom

Perched on the edge of the abyss, stocks took a peek down yesterday and then stepped back from the brink...for now.  Was the market over-sold and due for a bounce?   Were dip-buyers emboldened by the proximity of the head and shoulders neckline as a risk parameter against which to buy?  There's probably an element of truth in both of those explanations.   But the real cast-iron rationale for yesterday's rip was the klaxon blaring from the Macro Man blog-o-meter, as traffic has jumped this week and  really took off yesterday.

In fairness, yesterday's post was linked at the FT's excellent Alphaville site, which is usually good for a nice traffic boost.  But it's hardly the first time that's happened, and the chart of yesterday's traffic outlier speaks for itself.   If anything, it under-sells the story, as Macro Man took the snapshot at 7.30 EST last night.  It's a well-known phenomenon that traffic picks up when equity markets go south, but to see an increase like that (rubber-neckers or lost souls seeking guidance?) is surely suggestive of at least a short-term crescendo.

In any event, it's not like every market in the world has gone south this year.   Macro Man got a friend to run a screen on Bloomberg, and sure enough a few bourses have started the year off very well:



Tunisia! Jamaica! Laos!  If you had the perspicacity to dump Spooz and Eurostoxx and put your money in those markets last month, Macro Man tips his cap and will cheerfully admit that you are a better investor than he is.  If not, well...it sort of says everything that two of the top ten performers are in the red.

One very notable feature of yesterday's trading was the lack of participation by fixed income.   Hell, white, red, and green eurodollars were actually up on the day!  While this would ordinarily be a cause for grave concern, Macro Man does recall that rates were a bit slow to rally in the early stages of this year's equity sell-off, only to catch a strong bid afterwards.   Perhaps the same dynamic will work in reverse if stocks continue to rally (and that remains a big if.)

One thing we can say for sure is that we're at absolutely vital levels in the Treasury curve.  2's - 10's is at 120 bps, resting on a support line that has held four times since 2008.  A break of this level should a) lead to a pretty strong flattening  b) probably mean 10's are bid  c) quite possibly start to raise alarm bells if the flattening were to be vicious enough.  It's one thing for a single bellwether asset price to sit on key long term support.   But when a couple (SPX, 2's -10 's) are in the same boat, Macro Man generally sits up and takes notice, because the possibility of either confirming or diverging price action tends to make for unusually useful price signals.

Anyhow, now that equities have given punters a chance to catch their breath, it's worth considering what actually drove the sell-off.  While China obviously kick-started things last week with its currency and equity weakness, things have stabilized more or less where they were supposed to.  Indeed, Macro Man's CFETS basket calculation has inched back above 100, suggesting that the authorities continue to view this area as a place to stabilize the currency.

Oil clearly remains a focus, though it's far from clear that it has acted as a specific driver of market weakness over the last couple of weeks.   The "equity crack" spread discussed the other day is largely unchanged on the year, and high yield (the transmission mechanism from crude to broad markets) actually fared OK last week before rolling over again over the past few days.

While growth and earnings are perennial concerns for stocks, data on the former has been mixed and we're about to kick off the season for the latter.   In fairness, anecdotal reports on the holiday season have generally been poor, and perhaps this is contributing to a negative narrative in the absence of hard data.  What data we've had, at least in the US, has continued along the same tone as the last several months, at least judging by the Bloomberg economic surprise index.


Given the relative fortunes of equities and fixed income, one might ordinarily cite pension rebalancing as a possibility, but given that both asset classes were flat last year it's hard to make a case why any institution should rebalance now.

Of course, one could cite Fed tightening, but that argument would be more persuasive if the market had done anything but price policy action out of the curve since the Fed put rates up last month.  It would be easier to swallow the argument that the end of ZIRP means a reversion to "normal" market valuation principles if those principles were in any way being applied to fixed income markets, which are still very expensive relative to nominal GDP (especially with the lack of CB demand.)

While some combination of the above factors probably explains why people may have been looking to lighten longs are try a cheeky short, ultimately it strikes Macro Man that "price is news" has been the main driver- i.e., falling markets turn all manner of people into momentum monkeys who sell because the price is going lower.   This holds for professional as well as retail punters, and in this case it's not hard to understand:  if you had a game plan for selling only to see global equities collapse out of the gate, what would you do?  Chances are, you'd hit the bid, which is what the street has done.

From here, it obviously gets a bit trickier.  Depending on your viewpoint, a further bounce can be seen as either a golden selling opportunity or a gateway back into the range.  Macro Man has to confess that while he has layered some trades this week that will benefit from a further bounce, his conviction  level that we go back to 2000-2100 is pretty low.  Fortunately, as discussed yesterday, he has the ability and the wherewithal to structure trades to hold for several months.   Which is just as well, because in the near term he's frankly happy to have the market tell him where it's going rather than trying to predict the nearly unpredictable.

Unpredictable, that is, unless the blog-o-meter gives a few more signals....
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Nico G
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January 15, 2016 at 7:20 AM ×

the gaps on Eurex equity futures are unforgiving - considering true ranges of late, stops would have to be to 3% or they will run them

anyone remembers Luther King week end of 2008?

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Anonymous
admin
January 15, 2016 at 7:43 AM ×

Hell yes!!! i remember delta hedging everyday a short skew on the ftse that was flattening nicely despite a market going down steadily nearly everyday that month... i remember most vividly buying into that weak close on the spoo that opex friday night while at the pub bragging about that nonsensical january risk asset..... only to lose my pants on monday morning thx to that massive kerviel c*** at socgen.....
stunned by the ressemblance too nico, very much indeed..... that would mean a nice round close at the august lows today, giving buythedippers like me lots of confidence for a vindicative next week....only to see a low of 1737 on monday.... despite the opportunities this would bring (agreed, too good to be true), argh and glups.
that also means the clearer of bear market signal to, for tens of billions of investors this time....

JJ

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Anonymous
admin
January 15, 2016 at 7:43 AM ×

NIco - thanks for the reminder on THAT ML King Kerviel event! No reason to be long into this weekend. While you wouldn't expect a repeat, I'd rather wait until Tuesday.

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Anonymous
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January 15, 2016 at 7:51 AM ×

Also, first anniversary of SNB floor pull.

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Anonymous
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January 15, 2016 at 8:25 AM ×

In the reflections of my trading screens I see the four horsemen of the apocalypse. Mark my words, death & destruction are coming to the bulls...

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Rossco
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January 15, 2016 at 8:37 AM ×

If someone had bet me last year that we would see both WTI sub 30 with S&P at 1900 I would have taken that bet hands down....hell I probably would have given them odds

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Nico G
admin
January 15, 2016 at 9:01 AM ×

well what about July 2008 Ross.... S&P already down 24% from high, Europe much worse, world growth stalled and WTI hitting world record it was much more absurd back then

(if you argued that cheap oil is good for world economy today blablah)

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Anonymous
admin
January 15, 2016 at 9:05 AM ×

The only investment that makes sense here is long gold.

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Anonymous
admin
January 15, 2016 at 9:10 AM ×

after 4 gap ups interesting to see how spoos trade today...feel better chance of multiday tradeable bounce if we get gap down rather than gap ups which are sold straight away...

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Anonymous
admin
January 15, 2016 at 9:14 AM ×

I'm trading Energy commodities (power, gas, oil, coal, carbon certificates). It's pure carnage out there.... It's been in structural decline since years but the intensity of the sell-off right now is pretty amazing. don't buy anything commodities / em related

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Nico G
admin
January 15, 2016 at 9:20 AM ×

just bought tens tons of diesel for next sailing season in Greece... record low diesel price before they are tempted to raise taxes, and they will (let's note how Greece has disappeared from the radar albeit current hellish into hell. Check ASE the land of the permanent dip)

commentometer super promising today i am 70 bid for this thread

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Anonymous
admin
January 15, 2016 at 9:26 AM ×

@Nico G: that makes sense as you're nicely playing the contango as well. cheap storage is valuable. maybe you got some boats left

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Nico G
admin
January 15, 2016 at 9:29 AM ×

if only we could rent a tanker

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CV
admin
January 15, 2016 at 9:34 AM ×

"if only we could rent a tanker"

I am sure if people here chipped in a tenner, we could do it with the price of ships these days.

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Hotairmail
admin
January 15, 2016 at 10:17 AM ×

There's plenty of derelict petrol stations littering our roads if anyone wants to store some fuel.

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Anonymous
admin
January 15, 2016 at 10:18 AM ×

With opex & a US bank holiday looming, risk off sentiment dominates. People here closing their books already, view from energy guys is that oil goes to sub-20. I think we see a 30+% fall in spoos in H1 2016.

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Anonymous
admin
January 15, 2016 at 10:29 AM ×

In this weeks news:
UK 'think tank' proposes scrapping guarantees for savers' deposits...
EU plans bail-ins for all future insolvent banks...
NZ has already scrapped savers' guarantees...

So it begins. The powers that be know we have another 2008-style crisis coming (did you know banks having been selling toxic CDOs again, since 2015? That the world-wide real-estate bubble is bigger than 2007? That commodity-related debt alone is a crisis in the making?). This time, all savers will have their wealth confiscated... 99% of people were too stupid to see this coming before the GFC and are too stupid now...

(To be fair to Nico here, he has been warning of similar for some time).

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Anonymous
admin
January 15, 2016 at 10:32 AM ×

I fail to see the 08 comparisons. Bank b/s are almost fortress like now with the mount of k buffer, don't buy the energy loan book story. Uderlying econ is actually ok in us/uk and even eu. Yeah so earnings exp were ridic, we knew that. Mkt loves a good panic but I don't see any blow ups that should follow thru to real econ at this juncture. Rates rally will Peter out soon imho, buying cheep downside for now, keeping it light and med term as per MM (and hard hat in reach).
Good luck y'all.
JL

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Nico G
admin
January 15, 2016 at 10:36 AM ×

yes i was MM resident 'caution' grandpa all those years funny how quickly various layers and different shades of shit hit the fan

there is just too much leverage everywhere - on FX trading (cf. the Swiss bomb last year, severe enough to close a few shops)(and the carry unwinding killing EM currencies) on oil trading as liquidation there seems to be never ending, and soon NYSE where they punted record margin on stocks last year

all those US equities people are waiting to get out on the next 'bounce'. Not an easy market environment by a long shot

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Booger
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January 15, 2016 at 10:50 AM ×

MM: I think you are perhaps too sanguine on China. Using your powers of deduction on the detective case at hand,

We have the murder subject (Mr. Oil). But near the crime scene are the bodies of numerous other commodities. The common feature appears to be their close association with Mr. China who says he is still very well thanks very much. But suspiciously making acking noises in the background, like he has an Ebola like virus.

More curiously is Mr. Gold, who some say was brought by a bank associate of Mr. China from the crime scene just this last week (some people say out of desperation). Mr. Gold is in fact as dead as the other bodies, but Mr. Market does not seem to have noticed yet...

A very strange crime scene indeed.

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Leftback
admin
January 15, 2016 at 11:23 AM ×

Looks like we may be recycling the U-G-L-Y post. Intestinal fortitude is going to be required today, my friends...

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CV
admin
January 15, 2016 at 11:38 AM ×

+1 LB ... bears in control. No need to argue here. That S&P 500 neckline is a sitting duck. Hang tight everyone.

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Booger
admin
January 15, 2016 at 12:06 PM ×

Jan 20 RBC decision should be very interesting. If oil continues to move like this, and if there is an RBC rate cut next week, I will look for short position on USD.CAD.

If oil gets to $28 and RBC cuts, these factors and the positioning in CAD will be a recipe for a potential short squeeze. Either that or it goes down the rabbit hole to 1.5, but I would guess a bounce first.

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Macro Man
admin
January 15, 2016 at 12:14 PM ×

@ Booger, not to be pedantic, but RBC is a private sector bank. BOC is the central bank.

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Booger
admin
January 15, 2016 at 12:22 PM ×

MM: an embarrassing error on my part, how could I confuse the Canadians for NZ or Australia ?

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January 15, 2016 at 12:29 PM ×

To me that's not a H/S on the S&P500. Throw the fundamentals indicators out the window, trade the action.

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Bruce in Tennessee
admin
January 15, 2016 at 12:37 PM ×

"if only we could rent a tanker"

...You spelled banker wrong....!

Morning. Welcome to the world of Gartman. Whiplash and volatility are the words for the month. If you change your positions often enough.....well, you still lose money.

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Bruce in Tennessee
admin
January 15, 2016 at 1:03 PM ×

http://www.bloomberg.com/news/articles/2016-01-14/a-towering-chinese-debt-mountain-looms-behind-market-gyrations

"China is nowhere close to reining in its debt problems," said Charlene Chu, the former Fitch Ratings Ltd. analyst known for her warnings over China’s debt risks and now a partner of Autonomous Research Asia Ltd. "It is one of the key factors weighing on GDP growth and one of the reasons why foreign investors are so concerned about China’s trajectory."

...Boys and girls...this is the inherent flaw in all of this..fighting a debt crisis (or credit crisis if that makes you feel better) with more debt...I surely don't know if this is indeed the inflection point I'm been pondering for years, but it feels like it...I don't own any kevlar, but when it gets hot in the kitchen, sometimes that might be a good idea..got soaking wet on the hike yesterday, so I suspect everyone had a better time of it than I did..

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Booger
admin
January 15, 2016 at 1:28 PM ×

Bruce: at some stage things will go down the rabbit hole, if not this time then the next or the next. The alternative way of viewing QE is that it actually crowded out productive investing and took away returns from the future. It is so insane when you think about it. Imagine if the Fed or BOJ said they were going to buy 2T worth of housing stock tomorrow to get a wealth effect, which will improve the economy in the long term. Somehow it is ok if they buy bonds instead though ?? History may show that most of what Bernanke championed (QE, the positive wealth effect from QE, the savings glut etc etc) was absolute balony. A positive long term economic outcome from a wealth effect from QE is predicated on a belief against allocative efficiency and the rationing function of prices.

On a sidenote, I wonder if EUR.USD also gets squeezed here. With the ECB out of the picture for the next few months (they already moved recently) once wonders whether that outstanding short interest will get really pumped at some stage in the next month.

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Macro Man
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January 15, 2016 at 1:43 PM ×

All aboard the Flattener Express. Next stop: Oblivion, by way of Recession, TX?

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Anonymous
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January 15, 2016 at 1:49 PM ×

It seems likely that the Retail Sales & ES Manufacturing numbers were leaked (again), hence the larger than usual sell-off by algorithmic programs in the EU session.

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Anonymous
admin
January 15, 2016 at 1:55 PM ×

Qe or no QE there's only so much margin to be inflated and as Nico already said above "there's already too much everywhere" so the only question is how wide will that exit door be by the time you personally decide that you want to use it.

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abee crombie
admin
January 15, 2016 at 2:01 PM ×

oh wow, Eurodollar/short end US curve is blowing out. WTF. Perhaps some more risk off due to Kroda's talking UP the Yen.

These markets are for day traders. This is impossible. I thought maybe after a 90% down day followed by a 90% up-day maybe we could put in a short term bottom in US Equities. Well that obviously was too easy, with bad Dec retail sales, Empire and weak Asian trading. Meh

CAD and Aussize on a one way trip with oil/commodities to who knows where. Maybe negative ;-). But Longer term these are getting attractive.

If there ever was gonna be a flash crash, my bets are for when we hit 1850. If stops starts blowing out near that level, its gonna be hands off, for algo and human traders alike.

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Eddie
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January 15, 2016 at 2:04 PM ×

Howard Marks: "But note that we may be just in the early stages of a downward spiral in corporate performance and credit market behavior. Thus, while this may be 'a time' to buy, I’m far from suggesting it’s 'the time.'"

Well worth pondering...

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washedup
admin
January 15, 2016 at 2:06 PM ×

MM the flattener is the one thing thats worked - its really hard to see the fed pressuring the front end for much longer though - the dollar could fall a fair bit here as it becomes obvious that the US and China just lent their growth to Europe (an especially bad idea for the latter through the peg) , and as the damage to spoos gets worse, the phrase 'coordinated global CB response' will start to get bandied about rather more than the currently in vogue 'currency war'.
Whether or not that works remains to be seen.

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Anonymous
admin
January 15, 2016 at 2:16 PM ×

We are watching liquidity in equities & futures decreasing day-by-day as HFT pull liquidity in an effort to cause price gaps and run stops.

You're welcome.

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Polemic
admin
January 15, 2016 at 2:17 PM ×

Suggestion for tomorrow's post title
P-A-N-I-C

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Anonymous
admin
January 15, 2016 at 2:19 PM ×

Central banks have broken the economy and financial markets. It's time people started lobbying congress to have them jailed.

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Macro Man
admin
January 15, 2016 at 2:23 PM ×

Polemic's Asinine Nearterm Investment Call? :)

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Bruce in Tennessee
admin
January 15, 2016 at 2:23 PM ×

I have an alternative title:

The Emperor's New Clothes... A tale of central banking...

(Spoiler alert: In the whole story, the word "demand" is not used even once)

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Leftback
admin
January 15, 2016 at 2:26 PM ×

Another test of the capitulation hypothesis today. Whatever oversold conditions due for a bounce bus it is that we are on board, this guy is pretty much on board with us.

Howard Marks Oaktree Capital Memo

We're going to be disciplined today and use the sharp drop in rates to sell our very last tranche of fixed income. It's amazing how long it took for yields to respond. We had even agreed with Mr Gundlach who called this drop below 2.00% on US10s but somehow we didn't think it would happen here so soon.

One has to wonder seriously whether there is any way that the Fed hikes again this year, it now seems inevitable that March will be taken off the table very soon. There are some signs already that the Fed is realizing that the strong dollar has been doing some damage all over the world, and they will have to back off fairly soon. If this does happen, it's very likely we will see a reversal in DX and regime change in FX so that a lower USD means higher global equities, with EM > DM once more. Lower for Longer remains our base case.

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Leftback
admin
January 15, 2016 at 2:35 PM ×

Some punters on margin are clearly having trouble finding a bid for their FANGs. Silly sods all of 'em, for chasing momo vehicles higher, it always ends badly, like dogs chasing cars. Unfortunately it makes a huge mess for everyone else to clear up.

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Anonymous
admin
January 15, 2016 at 2:38 PM ×

>>> Central banks have broken the economy and financial markets. It's time people started lobbying congress to have them jailed. <<<

Personally, have smaller fish to fry here. Such as preparing to turn against this crowd and step into the burning building - maybe after the w/e headline-induced final flush - or whenever the price action guides otherwise.

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Bruce in Tennessee
admin
January 15, 2016 at 2:52 PM ×

http://www.cnbc.com/2016/01/15/feds-dudley-rates-to-rise-gradually-outlook-unchanged.html

http://www.cnbc.com/2016/01/15/wal-mart-to-close-269-stores-as-it-retools-fleet.html

..I'm sure everyone has the same response to the WMT story I did...that is, if WMT had not decided to raise the minimum wage, would the smaller less profitable stores be closed or would they still be open?

2 cents....

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CV
admin
January 15, 2016 at 3:00 PM ×

Indeed MM, that flattening feeling! 1.2 handle on the 5-year looks inevitable!

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CV
admin
January 15, 2016 at 3:14 PM ×

"that's the one"

Or the N-H-i-Q1? ... New Highs in Q1 perhaps? ;)

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Polemic
admin
January 15, 2016 at 3:24 PM ×

And back at you ... Yo

Macroman Opinion Towards How Equities React Ferments Unexpected Collapse, Kills Economic Recovery.

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DownWithTheBeanCounters
admin
January 15, 2016 at 3:50 PM ×

Bruce, did the WMT article you read mention that they are opening more stores than they are closing? Point being that The Neg is strong at the moment and the headline writers know this.

We have secondary confirmation of the blog-o-meter bottom. Peak foolishness may be at hand. Zerohedge is offline due to traffic.

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fencer
admin
January 15, 2016 at 3:50 PM ×

I do agree with amplitudeonthehouse. I doesnt really looks like a HS for me. i think market will play in and out with this line. If it turns uglier, it will be in some months. After more price action. And then it will may be turn as an HS or a continuation triangle.

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Booger
admin
January 15, 2016 at 4:00 PM ×

LB: the perception that the Europeans and the Japanese have stolen growth from elsewhere with their exchange rate policies probably hampers any coordination.

The Chinese would probably feel aggrieved with the last euro move to expand QE when superficially, the European economy appears to be improving. That and the Fed move is a big FU to the Chinese, so one would expect with conditions deteriorating, the Chinese may want to say FU back. The Japanese economy is such a basketcase they can get away with further QE, but the Chinese may well care more about that.

So to my mind there is a higher probability of a real currency war (CNH.JPY and CNH.EUR back to levels of 2012) before any coordination. From my estimation, CNH.JPY would have to depreciate 25% and CNH.EUR would have to depreciate 10% to get back to levels of a 4 years ago.

On top of that the Chinese can always get on their high horse and say they did the right thing with their fiscal expansion in 2009, so their turn to hide the deval pony now, because nothing else has worked so far...

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Anonymous
admin
January 15, 2016 at 4:04 PM ×

@Pol 3:24 lol, v good.

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Booger
admin
January 15, 2016 at 4:09 PM ×

Last reply should be to Washed 2:06pm actually.

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Anonymous
admin
January 15, 2016 at 4:29 PM ×

BTFD!!!
BTFD!!
BTFD!
BTFD
TFD
TFD
TFD
TF
TF . . .
WTF?
WTF??
WTF??!!
WTF???!!!

LOL

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Anonymous
admin
January 15, 2016 at 4:40 PM ×

Markets can always bounce off supports and truer still when supports have held before multiple times. Of course supports can just evaporate like mist. Personally when I see margins still at these elevated levels with so much more to give before we approach normalised levels I don't really see the attraction of a possible support bounce.

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adamantic
admin
January 15, 2016 at 4:42 PM ×

If I was a braver man I'd take off more of my hedges today, after cashing in about half my market short midday yesterday.

We're more or less where we were on Wednesday, only with a lot more panic, so we must be closer to the bottom.

Must be at least a couple of capitulations today. If US valuations were a couple of points lower I'd feel pretty good about the whole thing. Time also matters - we're quite a way from April highs.

I'm no macroman but I wonder if it was actually the rate rise - reminds me of Trichet in 2011 when he kicked off another round of eurocrisis (was it the second?). Outsize movements, but hey, as far as I can tell no-one really knows how much small rate rises by the central banks matter at times like these. Good luck all

http://1.bp.blogspot.com/-DuD5KXWpNOU/TtPEs8dA3wI/AAAAAAAACQU/wv-GBjMGuXc/s1600/spreads_bunds_chart.jpg

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Bruce in Tennessee
admin
January 15, 2016 at 4:54 PM ×

There is one other thing about central banks that occurs to me Lefty, out here in flyover country...that is, I have this thought that perhaps our central bank felt in 2008 that it was US banks that would bear the brunt of a collapse...that is JPM and of course Lehman and so forth...(Bush's this sucker's going...you know)...Now that time has passed and our Fed revisits what the situation is in 2016, they may feel that the US banks have had time to strengthen and they can't continue ZIRP...so, even though equities are having taper tantrum II, the worst damage will not be US-based, so they are holding their nose and raising rates...

Feel free to drive all over this thought...how's it hanging today? Any toe-dipping in leveraged shorts? Come on over to the dark side,Lukeback...

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Anonymous
admin
January 15, 2016 at 5:28 PM ×

I have cast my divining sticks and the portents are ominous to say the least.
January 14, 2016 at 11:05 AM

In the reflections of my trading screens I see the four horsemen of the apocalypse. Mark my words, death & destruction are coming to the bulls...
January 15, 2016 at 8:25 AM


It is as the omens foretold. Don't say you weren't warned...

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Anonymous
admin
January 15, 2016 at 5:35 PM ×

Turnaround Tuesday anyone? The mother of all Rip-Snorters? But only after a huge gap-down?

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Leftback
admin
January 15, 2016 at 5:41 PM ×

It certainly qualifies as bum-clenching today, to use the phrase CV offered earlier... rates are holding around 2.00% on US10y. Meanwhile the dividend yield on XLE is 4%, HYG 6.8%, BP 8.3%, MORT 11.4%. You know the way yield hogs think. This isn't making a whole lot of sense today, but that doesn't mean to say things can't get even more irrational before options expire.

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Polemic
admin
January 15, 2016 at 5:47 PM ×

Anon 5.35 . 19th JAn has been the mythical turn date in my calendar since end of last year so yes.. Shame my ADHD got the better of me earlier this week and promted me to stick my hand in the toaster to see what happened as it warmed up. Fortunately only a couple of slices burned. Turnaround Tuesday has fast become 'last chance Tuesday'

Let the Price be with you
Pol

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washedup
admin
January 15, 2016 at 6:20 PM ×

bear market or not, can't be fun to hold 30 vol on spoos (with skew thrown in) over a 3 day weekend.
I know, I know, there is a difference between high and expensive - we will see.

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abee crombie
admin
January 15, 2016 at 6:28 PM ×

FANG seems to be holding in pretty well, they are not the problem. Take a look at Russell 2000. Massive H&S and looks like we are going a few percent lower for sure. I'd like to see some strength there b4 calling a bottom.

Yes the world is ending, Fed rates, China slowdown, oil,blah blah,
So what are stock markets
1) the amorphous beasts that swing widely based on human emotion
2) the (weighted) average price of a bunch of individual stocks. Every stock, every bond, has a price or a range of prices that are reasonable.

I think Oaktree was trying to say, start examining the prices you can buy some assets nowadays. They are not so "un"reasonable anymore. "Un" bieng the appropriate word. Since 2014 I would say almost all assets were expensive.

I dont have my head in the sand, noboby knows for sure if this is the start of a real economic slowdown, a bear market or something inbetween. To have kevlar gloves means you first need to have cash. That is the most important part

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Anonymous
admin
January 15, 2016 at 6:28 PM ×

C-A-R-N-A-G-E:

Oil Extends Losses As Oil Rig Count Drops By Just 1
DOW FALLS 500 POINTS; NASDAQ OFF BY 4%
Nasdaq Collapse Leaves No Major US Equity Indices Positive Post-QE3
S&P 500 falls to lowest level since Oct. 2014

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Anonymous
admin
January 15, 2016 at 6:29 PM ×

@Nico

I too remembered that Friday in 01/2008 and I too bought at the end, only to be shocked on the next Tuesday.

I might miss the rally this time but I have cut my loss and resist my urge to further spend my small capital today.

The FX charts are so ugly that most support levels have been broken and there is not a single rebounce.

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Anonymous
admin
January 15, 2016 at 6:33 PM ×

Good, pertinent, article:
http://ibankcoin.com/jeffmacke/2016/01/15/market-panic-your-action-plan/

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Anonymous
admin
January 15, 2016 at 7:25 PM ×

"guess no wants wants to hold for a 3day weekend"- certainly not in europe where estoxx tagged 2900 after hours.
i have stuck my hand and bought some at 2930...3 day weekend is 2 way risk and given how much we streched could snap aggressively ( hell we were 3067 last night!)
china rate cuts always possible over weekend plus ecb next week- i am surprised the minutes didn't get much attention- thought they were pretty dovish- should set the tone for ecb thursday

defintely hard to hold longs ( especially for someone like me who is long term bearish but for the first time during this 2 week selloff things felt panicky.)

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Nico G
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January 15, 2016 at 7:26 PM ×

Anon as a good contrarian, with so much fear in the market i will buy the close (in Eurostoxx at time of S&P close). If 2008 repeats so be it but in normal abnormal times market would reward such week end with a gap up. Let's see if we get normal abnormal or 2008 abnormal Monday

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Anonymous
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January 15, 2016 at 7:30 PM ×

Nico- agree

Anon 7:25

(Funny this is a guy looking for a rip after infinite V shaped rips past 3 years did his head in!)

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AL
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January 15, 2016 at 7:32 PM ×

.... And 70 bid you have Nico ... :-)

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Macro Man
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January 15, 2016 at 7:35 PM ×

I have noted in the past that 30 on the VIX is, during normal times, usually a sign of capitulation. Consider that another marker in evaluating whether this is a "normal" market or not...tho in fairness, in August the break of 30 was followed by that shitshow mini Flash Crash, and VIX remained above 30 for a week or so therefter.

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Bruce in Tennessee
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January 15, 2016 at 7:37 PM ×

http://www.firsthandfunds.com/index.php?fuseaction=funds.tvfqx

...I will share another story of the tech bubble with you bubbas...When I finally got up enough nerve to put my big bet long on the tech bubble, like all of you, I read everything I could. I narrowed my choices down to 4 things, one of which was tvfqx, Firsthand Technology fund that was rated, I think, #1 for 1999..(the year that was encompassed by my 18 months saga) Well, the fellow who ran the fund was touted as a "genius",uh, during the bubble....BUT when tech stocks broke..tvfqx became the worst or next to the worst performing fund in the universe of funds. When the, ummmm, manager was interviewed his basic answer was.."Well, everyone should know that I stay nearly 100% invested long all the time in techs.."

I had safely negotiated the minefield, but found his thoughts really puzzling. I would have thought the gentleman's chief concern was to make as much money as he could, and to minimize losses. I'm not sure if he could short in this fund, but certainly he could have reduced his exposure...

I see now that it has morphed into a closed end fund...

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Nico G
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January 15, 2016 at 7:40 PM ×

am not expecting a V shaped anything except an ice cream cone this week end. Operating at a day-to-day level those are fantastic dips to buy for a 2% trade, you cannot expect more when swinging against the trend, it would be greedy, but expiries are known to print extrema, and -3.5% days on Eurostoxx are extremely rare for such a mammoth large liquid benchmark market.

normally if you buy when people are stupid puking in panic mode, and if you sell at peak market idiocy you do all right as a contrarian good luck everyone AAND enjoy the Kerviel week end !

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Bruce in Tennessee
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January 15, 2016 at 7:41 PM ×

By the way, the NAS was, I think, 5100 in the spring of 2000...

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Anonymous
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January 15, 2016 at 7:46 PM ×

nico - i was referring to my frustrations with the rips...not making any digs at you-have too many scars of my own to be bothered heckling others

good luck all- definitely an interesting start to the year

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Eddie
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January 15, 2016 at 7:57 PM ×

Abee, I think Marks was specifically talking about bonds and loans. Oaktree has an equity fund but Marks is a dyed in the wool distressed guy.

Just sayin...

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hipper
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January 15, 2016 at 8:09 PM ×

Did a punt in BP here, only because oil seems to be positively locked to everything else and vice versa. Really I'm terrified with oil fundamentals and wouldn't expect anymore than a max $2 bounce. To see a real, sustainable change some high profile E&P or driller would need to blow up, which will probably happen later but not now. I have no idea but fingers crossed for any potential general capitulation.

What's the real news this week anyway? Appalling IP and utilization in EU/US, not so bad China exports, OK trade balance and a hick-up in the US retail sales. Well if that constitutes apocalypse so be it, but like August this too shouldn't be a straight line even if it eventually does end up in 1600? We're already half way from 2100.

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AL
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January 15, 2016 at 8:50 PM ×

@ B in T:
I totally understand your point which makes a lot of sense and the comment of the Firsthand Fund manager, well, could have been better crafted.
On the other hand I would highlight that funds have specific restrictions which investors should well be aware of before investing, for example: the small equity fund I manage can't be invested less than 80% in, ehm, equities. My job is to try to deliver the best possible return by selecting the stocks that are in the fund, but it is not my job to decide the asset allocation for the investor. If you buy an equity fund, you are supposed to get exactly that. Imagine if you are bullish and decide on tuesday to buy my fund to play the rebound and then you discover that I am only 50% invested in equities because I am bearish..... I am pretty sure you wouldn't be very happy.
Same goes for several pension funds: the most aggressive line of a small pension fund we manage has a 90% equities as benchmark and can't invest less than 70% in such asset class .... If the investor is bearish, it's his duty to switch to a less aggressive line.

That is also why, when I post here, I always refer to my positioning in relative terms ... And must admit I feel pretty small compared to the valuable insight that many of the contributors here provide.

Have a good weekend.

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Bruce in Tennessee
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January 15, 2016 at 8:56 PM ×

http://www.bloomberg.com/markets/economic-calendar

Empire State Mfg Survey

...in the lexicon of words economists are allergic to..if Unexpected is a 4, then Grim must be a 10....

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Bruce in Tennessee
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January 15, 2016 at 8:59 PM ×

Thanks, AL...I wouldn't have your job...good luck next week...

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Leftback
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January 15, 2016 at 9:15 PM ×

Phew. What a week. We bought some BP calls and sold some bonds today. It's tough to stay sane but we think sanity will prevail. Good on yer to all those punters who called this carnage and enjoy the weekend.

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Anonymous
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January 15, 2016 at 10:28 PM ×

I was looking for the opex rally since Monday morning. It happened so fast and so acute, they overdid it. Once lost they control on Thurs it was game over.

China never bounced and oil only held the line for CL opex.

Where to from here? I think Monday will see China falling further (if the media there are allowed to print bear market headlines!) Sans intervention. We keep looking for PBOC intervention but they haven't done anything material.

Dax still has to test 9300, the Aug and Sep lows with the esx and cac already done. After the puke, will we drift up into ECB? I am eager to here Draghi's words... If only for the craic.

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MrBeach
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January 16, 2016 at 4:54 AM ×

A couple of interesting bits on oil prices:

1. "The bearish narrative that pushed oil prices below $30 a barrel on Friday is compelling, but three anomalies in the data suggest the outlook may be much less bleak than meets the eye." Pimco: Higher Oil Prices Ahead? Looking Past Today’s Bearish Narrative

2. "The world is oversupplied right now, by some 1 mb/d. But the industry is shelving nearly 3 mb/d in future output because of conditions today. " Oilprice.com: 27 Billion Barrels Worth Of Oil Projects Now Cancelled


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Bruce in Tennessee
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January 16, 2016 at 12:58 PM ×

http://www.cnbc.com/2016/01/04/the-market-will-drop-20-in-2016-pento-commentary.html

"Why will 2016 bring about the long overdue equity bear market? It is not just because the Fed has finally started to raise interest rates and will continue to slowly do so until the U.S. economic recession fully manifests. But also the catalyst for this imminent recession is that debt levels and asset prices have increased to a level that can no longer be supported by incomes and underlying economic growth."

...Morning. It's early, and I'm doing my daily reading. I found this this morning, and of course this bubba could be one of the permabears who have predicted 20 of the last 2 recessions. BUT this one paragraph sums up the way I see things too, and why I bought SDS after the DOW broke the support level I'd set as the entry point. My thought of CB's fought a credit crisis with more credit is not nearly as elegant as the above. Good luck next week.

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Anonymous
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January 16, 2016 at 3:33 PM ×

What if there's no bounce. What if 2016 is different. We have a LOT of oil supply (from Iran) hitting the market next week, and indexes are poised at key levels. We could see oil crash down to $20 (or less!), the spoos crash thru the Aug 2015 lows, and hundreds of corps go bust when they realize they've got too much debt on their books.

Lots of conjecture. Here's a simple fact: every 6-7 years equities undergo a significant (30-50%) correction (due to the 'business cycle'). We're overdue a correction. This could well be it.

See you at 1400 on the spoos.

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Anonymous
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January 16, 2016 at 4:01 PM ×

@B in T

Do you mind pointing out the DOW support level you used? Sorry if this question is too personal.

Thanks,

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abee crombie
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January 16, 2016 at 5:07 PM ×

Oaktree's Marks was for sure talking about loans and bonds in his letter, but it's all related nowadays. Distressed assets all have high commodity beta, along with value and low quality stocks. But at some point the price is asymmetric for a buy.

This market is worried about FX specifically China, doing a one off devaluation, imo That is what is overhanging. Don't ask me what the odds are but until that clears the room, it's risk off. Also we need to see some divergence within risk assets. When beta is high among interest rates, fx and equities it's not a good risk on sign. Seeing financials outperform would be good too, but they are not even close.

Apparently there were big market on close buy orders yesterday.

But Be prepared for a swift move down next week if the same regime holds. Oil in the 20s is a screaming buy. Too bad the forward curve is still steep. Gs made a good note they you get bullish when the curve is flat.

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washedup
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January 16, 2016 at 7:10 PM ×

abee - I was convinced oil was done falling on thursday but the Friday price action has me a bit stumped - I think short energy equities vs long oil is a pretty decent risk/reward for what its worth.
As for China, this market is making a big mistake equating it to the 2007-2008 US financial crisis equivalent - things simply won't be allowed to move that quickly over there - this will be a very long drawn out affair with a decade long stagnation as opposed to a hard landing - CNY and CNH may be the closest we get to a 'market' response, but even there I am sceptical that specs will be allowed to have a quick payday a la swissie last year. People forget SNB was able to carry out their asinine defense for almost 3 years before they cried uncle.
Interesting pbservation on MoC buys - has that been a reliable signal of, well, anything in the past?

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Anonymous
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January 16, 2016 at 9:48 PM ×

Washed, Thursdays bounce in oil was options putting everything they had into protecting $30 expiry. They didn't give a damn after on Friday. Iran sanctions just lifted. Maybe, just maybe, this will bring a capitulation low during the week.

Has to be some supply cut somewhere though. Look at what Canadian oil is trading at.

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washedup
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January 16, 2016 at 10:19 PM ×

anon 9:48 - appreciate that color - need to get back in touch with the old mates on oil vol desks - I did note wcs is $15 ish - pretty ugly - I don't think we get outright supply cuts, just ongoing capex cuts and plummeting costs - its never locally rational to cut production, which is why they haven't happened in 30 years and through worse downturns - that said, I do accept we may be towards the lower end of a more sustainable trading range (hence the earlier comment).
The Iran thing is funny - market is acting like the iranians will hit the bid on ice and nymex the day sanctions are lifted - plenty of factors may conspire to keep oil going down but that aint one of them.

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Anonymous
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January 16, 2016 at 10:32 PM ×

US energy industry is on the verge of a subprime-like blow up:

http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale

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Anonymous
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January 16, 2016 at 10:56 PM ×

Anon 9:48 here - article on someone who called oil right.
http://www.marketwatch.com/story/fund-manager-whos-been-right-on-oil-has-a-depressing-new-prediction-2016-01-15?page=2?mod=mw_share_twitter

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Eddie
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January 17, 2016 at 11:24 AM ×

Abee,

I beg to disagree. In the end everything is linked via the balance sheet but there are at least two differences between credit, especially distressed, and your typical ETF resp. equity.

Liquidity in credit is usually thin compared to equity land (and I don't mean equity futures...). If you can trade 5 million of bonds, say, you are usually a happy man. Nowadays it is probably closer to 2. Compare that to your typical ETF.

Second, if you own senior secured credit you usually become the new equity in case of bankruptcy. Whereas your equity becomes something between a lightly done muffin and absolute toast. It can make a lot of sense to buy some bonds for 20c if you can reasonably assume that you get back 40c after restructuring. If you buy the associated stock for 2$ you probably have a nice piece of toilet paper.

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Bruce in Tennessee
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January 17, 2016 at 12:48 PM ×

@anon @4:01

I used 17k...and my thinking was that 1. I didn't and don't believe ZIRP and QE actually changed demand, and we had a Fed governor admit they brought equity prices forward, and probably had used up ammo that they don't have now. 2. I had to pick something that would not get me churned into butter, as you recall the Dow would go up and then go down and investors were like a car spinning its wheels. I figured if the market could convince me it wanted to go down, I was willing to take the chance, and 17k made me think the long stalled market was ready to correct.

...Look, I love Lefty's posts. He's awfully sharp. But sometimes in markets it gets back to BF Skinner's operant conditioning....every time the bell rings on the DOW, the bulk of your trades need to be long, or instead of a food pellet, you get a shock in the wallet. Until you have an inflection point, and this seems like it way may be it...that's why they call it investment cycles rather than investment lines...

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Anonymous
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January 17, 2016 at 12:56 PM ×

Article from UK Sunday (today's) papers: "Middle East stock markets crash as Tehran enters oil war". Summary: more oil supply, more downward pressure on crude, Dubai & Saudi equities down 42% and 38% respectively. Fun & games...

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Bruce in Tennessee
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January 17, 2016 at 12:56 PM ×

I am not sure what "it way may be it" means...it is early..

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January 17, 2016 at 3:32 PM ×

Seems to me if you are trading you want to fade the rallies in risk assets until the market shows otherwise (stops making new lows on successive dips, etc). For longer term and long only equity positions my focus is on quality. Suspect value and dividend growth may come back into fashion. After the medics finish carting the dead and wounded off the field of course.

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Anonymous
admin
January 17, 2016 at 3:52 PM ×

CONTAGION...Coming to a theater near you

"A contagion is possible at any time. Whether we are heading for a contagion in 2016 is unknown. It will not be known until it is visible. If it happens, it is likely to develop without warning."

"The sequence of a meltdown in a contagion is unpredictable. Someone owes and cannot pay. But who is owed and how much is leveraged is not visible until the situation blows up. That is what the high-yield fund scandal is all about. So which sector of junk suffers first is not the issue. The linkages among institutional holders like the Third Avenue fund reveal the trouble spots in the system. Stephanie Pomboy (MacroMavens) notes that, “In the six years since 2009, junk-rated debt has doubled to $2t from $1t, taking it to one-third of the US corporate market.” Last year, after the Third Avenue revelation, we quoted research by Morningstar that listed some high-yield funds that were troubled. Some of them had exposure to foreign debt with currency hedges. We quoted from a Nuveen public document that permitted 20% of the fund to be positioned in this way. Those Nuveen funds were near the top of the Morningstar list. The Third Avenue fund was at the very top. It now has gated investors. “Gated” means the fund will not pay investors immediately if they redeem."

http://www.cumber.com/contagion-risk-big-banks-junk-funds/

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Jim
admin
January 17, 2016 at 6:42 PM ×

Art Cashin: Will the carnage across asset classes continue?

To answer this question, Art draws on the research of SentimenTrader’s Jason Goepfert. Jason notes that the “S&P 500 has now corrected 10% from a near 52-week high for the second time in a relatively short span… this has only happened three times in the last 100 years – 1929, 2000, and 2008. Additionally, 90% of volume has flowed into declining stocks.”

Jason assigns probabilities to three scenarios going forward:

1) Oversold bounce: 50%
2) Flush lower then bounce: 30%
3) Outright collapse of 5%–15%: 20%

All three extreme events that Jason cites – 1929, 2000, and 2008 – share a common thread: serious deterioration in a sector of the credit markets. There is the source of the pain. The contraction of credit reverses the multiplicative power of credit.

http://www.cumber.com/the-greenspan-put-or-the-yellen-bid/

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MrBeach
admin
January 17, 2016 at 7:15 PM ×

IMHO, Iran's oil coming on market this week may mark a short term bottom to the oil rout. We have relentlessly sold the rumor, it is time to buy the news.

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Anonymous
admin
January 17, 2016 at 7:15 PM ×

"However, a 2007–2009 redux will not occur in 2016. The underlying source of the credit that has dragged down the market originates from central banks. We believe the power of very low interest rates stretched over a long period of time will continue to fuel higher asset prices. A discount rate of zero, 1%, or even 2% results in very large numbers for asset pricing."

"Broad-based market sell-offs such as the one in which we find ourselves are set-ups for massive bull entry points."

"Hope is not a strategy. And fear provides the entry signal."

http://www.cumber.com/the-greenspan-put-or-the-yellen-bid/

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Anonymous
admin
January 17, 2016 at 7:45 PM ×

Mr.Beach. oil has sold the news too. See the last 3 opec meetings. Oil has sold any geopolitical event. Oil would sell its mother if it could. But sure, if we keep calling bottoms, we'll get it eventually.

I've mentioned this guy before and, if you want to know where it's at with oil, follow @energyrosen on twitter. A bit surprised i've never been thanked for that one over the last 12months. Even if I am anon!

It is amazing that people generally still rule out the possibility of further carnage in equities (despite Nico and 1/2 others) when we have had the worst start ever, commodities are fubar, geo politics is the biggest mess in a long time and ventral banks have hit the wall. Bear markets pretty much everywhere except the big one...yet.

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hipper
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January 17, 2016 at 9:28 PM ×

MrBeach thanks for the articles. Just goes to show how much the oversupply situation is hanging by the thread. And Iran has already been selling oil to China for a long time, something like 500-600k/bpd regardless of sanctions anyway. We're going to have and have had a two bladed sword - sell the rumor and sell the news.

I think the likeliest scenario like washedup said is that we're currently in a "bottomish" position of a future trade range. Before we get in the trade range, it needs to undershoot significantly below the range first as every trend follower pukes it out following all the bear headlines. I don't believe the $10 stuff, I think $20 (or in the event overshoot goes to $15) is an absolute bargain with basically 100% of North America and maybe 30% OPEC down under already, and at that level the majority of OPEC nations won't have enough left to contribute their social budgets and will get hurt. The thing distorting is certainly the US supply hedging running through 2016 and now apparently the Fed telling the banks not to mark energy credit to market. The way things have worked so far could mean that it will coincide the bottom for HY, equities and other related risk assets as well after the pukes end. What the Fed is telling banks to do should effectively mean that they're just depressing and delaying eventual blow-ups, but when they happen they'll be that much bigger. The future supply CAPEX that never happened should eventually come back to kick the extrapolating deflationistas in the groin as well.

It's just a pendulum with an extremely wide radius I think. But next week might indeed all be about the puke-overshoot grand finales.

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Anonymous
admin
January 17, 2016 at 9:53 PM ×

Anon 7:45 "It is amazing that people generally still rule out the possibility of further carnage in equities"

Indeed. This is because they are both stupid and blind. I think the psychological term is "recency bias".

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Leftback
admin
January 17, 2016 at 10:41 PM ×

I don't think anyone here rules out anything. This kind of comment is a bit annoying. Nobody here is stupid or a genius. Nobody here is always right or wrong. We are all engaged in calculating a great big probability matrix every day that we trade/invest.

If there is "recency bias" it is currently being expressed by those who are looking closely at last week's/month's action. Or to put it another way, most of us are at the poker table trying to remember what cards remain to be drawn and playing the odds based on our own personal experience of watching a lot of similar games, then deciding whether to stay at the table given the hands we have been holding.

A lot of people are ruling out a relatively dull winter of slow US growth, low rates, so-so earnings and a slowly reversing dollar, with a modest commodity, EM FX and equity recovery. No recession, just slow and low. The Treasury market and FFR futures are predicting a lot of this right now, however, just as the Treasury market predicted a slowdown in US growth and lower US inflation in Q4. To me the "recency bias" begin expressed at the moment is expecting every week to be like the last.

Btw we agree with the comments re: Iran, that agreement has been well telegraphed and the change in projected oil supply/demand balance as of tomorrow morning will be zero. If oil declines further it will simply be a result of leveraged bets being unwind. If you want to see some signs of capitulation, take a look at MENA markets today, especially the Gulf. The bloodbath in energy is much nearer the end than the beginning.

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Anonymous
admin
January 17, 2016 at 11:59 PM ×

"The Iranian stock index gained 1%, making it one of the best performing markets in the world with gains of 6% since the start of the year, while Saudi Arabia's Tadawul All Share Index, the largest Arab market, collapsed by 7% intraday, before recovering to end down more than 5%, its lowest level in almost five years."

http://www.wsj.com/articles/iran-tempers-expectations-on-oils-return-to-global-stage-1453033634

There's a lot of irony in those stats!

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Anonymous
admin
January 18, 2016 at 12:06 AM ×

Michael Pettis on China last week:

http://www.valuewalk.com/2016/01/michael-pettis-china-gives-the-year-a-wild-beginning/

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Bruce in Tennessee
admin
January 18, 2016 at 2:57 AM ×

Nobody here is stupid or a genius.

...Nicely put, Lefty. But what does it mean when you take one of those online IQ test thingys and it says "Quit your job immediately and advise world leaders about solutions to unsolvable world problems..."


Good luck tomorrow..

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Nico G
admin
January 18, 2016 at 5:02 AM ×

China is the green tut tut that Friday buy should be rewarded. It'd better be it's never too relaxing to hold long positions over a long week end but one gotta buy when they puke big.

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Anonymous
admin
January 18, 2016 at 7:09 AM ×

@ Bruce,

Must mean the IQ test is but full of jest: By definition there are no solutions to unsolvable problems.



PaucisVerbis

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