The Federales ride into town

Saddle up, the Federales are ridin' into town.

Now obviously, no one expects an actual policy shift out of the Fed, so the issue is really going to be how much of a climbdown there will be on the growth and inflation forecasts.   Some acknowledgement seems inevitable; not only has oil tumbled some 30% peak-to-trough since the day before the December announcement (carrying inflation expectations with it), but most growth figures have been poor as well.  Although the Atlanta Fed GDPNow model is not a replica of either the staff or FOMC members' forecasts, it does provide a useful publicly-available historical snapshot of the growth forecasts of a solid macro model.

                                                                    Source: Atlanta Fed

As you can see, as of late November the forecast was tracking at 1.8%, slightly below a reasonable estimate of trend growth.  That's now quite a bit lower.  Of course, the Fed would tell you that they are much more concerned about 2016 growth than that of Q4 2015, but they have had a tendency to forecast through the rearview mirror, and why change the habit of lifetime?

Of course, a lot of this has been priced, courtesy of both the equity market and fixed income.  (Which doesn't stop certain fund managers well known for being long fixed income baying for more support from the Fed.)  Jan '17 Fed funds, for example, has taken out a full 25 bps since December's rate hike and is now priced just 28 bps below the Jan '16 contract.  They only have to go one more time to essentially break even on shorting this, and everything on top of that is gravy.   If you are structurally short equities, this looks like a fantastic hedge (given the likely equity market scenario that would require the Fed to do no more tightening this year.)


Certainly Apple's earnings announcement did little to suggest a nascent recovery in either US or foreign demand, though whether that reflects a tapped-out global consumer or merely fatigue with Apple's particular brand of gewgaws remains to be seen.  (Samsung earnings are released on the 28th, and will add another data point to elucidate whether the entire pie is stagnant/shrinking, or merely Apple's slice of it.)  Either way, it looks like the company has entered the "cash cow" phase of its lifespan; then again, Microsoft's been there for years and currently trades at a substantially higher multiple than Apple (albeit with a somewhat higher dividend yield.)  In any event, the days of Apple earnings being the ne plus ultra driver of equity market sentiment look to be permanently behind us.

Tomorrow, at least, policy calendar is the driver.  As the NY Fed suggested in 2012, equity market out-performance on Fed days has been, in the parlance of the 1990's, "real, and it's spectacular."  Well, perhaps it's not quite as spectacular as it used to be.  At the time that study was released, the performance of the SPX on Fed announcement days from 1994-2012 was 95% annualized.   As is so often the case when you publicly identify an apparent anomaly, mis-pricing, or arbitrage opportunity, much of the juice has vanished.   Since that Liberty Street blog post was made, the annualized return on Fed days has been "just" 25%.

Oh, and if you're wondering how the market has reacted when the Fed is on hold (i.e., not moving rates, or doing QE, or changing forward guidance, or doing the Twist, etc.) over the past couple of decades, the answer is "pretty well."   In 82 observations over that period, the annualized return is 65%, with solid results observed even over the last year or so.


Perhaps the correlation is spurious, though the strength of the relationship would suggest probably not (something like 57% of the cumulative price appreciation in the SPX since February 1994 has come on the day before and day of Fed announcements/policy changes.)  Moreover, one could argue that the macro environment (viz. the withdrawal of petrodollars from the global financial system) is now different from that of the period comprising the vast bulk of the sample.   Still, it's a fun little stat, and in the spirit of making a verifiable market prediction based on central banks, Macro Man will go ahead and forecast that the SPX will rally 0.258% tomorrow, the average daily move for "on hold" decisions in the entire 1994-2015 sample.   As an added bonus, Spooz are currently down half a percent at the time of writing, so you even get a bit of "central banks supporting equities" mumblety-swerve for free if the forecast is right!


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Anonymous
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January 27, 2016 at 9:44 AM ×

http://www.businessinsider.com/institutional-investors-bailing-out-of-stocks-2016-1

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Bruce in Tennessee
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January 27, 2016 at 12:50 PM ×

http://www.bloomberg.com/news/articles/2016-01-26/world-s-biggest-wealth-fund-speaks-out-on-liquidity-banks-miss

"The comments echo concerns raised by other finance industry executives and policy makers, including Blackstone Group LP CEO Steve Schwarzman, who said last week that in times of stress, fixed-income markets have “huge gaps” where dealers are no longer able to facilitate bids, resulting in “huge losses.” Schwarzman went as far as to say that “regulation has made the world more dangerous” on certain levels."

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Leftback
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January 27, 2016 at 12:50 PM ×

Ahead of the Fed, we have written here repeatedly on the prospects for mREITs in the event that La Paloma Blanca does a 180 and retreats from the folly of eight rate hikes by end of 2017, thereby relieving the icy grip of King Dollar on the chilling global economy. Mr. Gundlach reviews a variety of instruments that offer value in an environment where the dots come down and move sideways and rates rise m-u-c-h more slowly than forecast. We could have spoken/written every word of this:

Jeff Gundlach On How To Get Yield

Price action continues to back and fill. Market reaction in equities/commodities today seems utterly predictable. Hawkish Fed = sickening plunge. Dovish Fed = screaming neck-snapper. Rates might trade according to how traders are positioned today, with a dovish Fed actually triggering an unwinding of safety trades leading to higher US10y rates. FX moves also fairly obvious... USD is poised to fall against most currencies, except perhaps JPY, which is apparently a risk-off currency.

We are long BP, and starting to like the prospects for GBP and UK equities in general for the first time in a while. Sterling, oil and the commodity complex have been beaten to a pulp, but that trend may be coming to an end. Among other beaten down names, Aberdeen Asset Management is an interesting little value proposition at recent price levels, but if oil goes lower, it may well follow.

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Bruce in Tennessee
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January 27, 2016 at 12:59 PM ×

http://www.telegraph.co.uk/finance/economics/12123413/Rush-for-the-exits-why-Chinas-capital-flight-carnage-will-continue.html

Claudio Piron, a Bank of America Merrill Lynch strategist, said that China’s current problems were the result of its struggles with the impossible trinity, or “trilemma”. Policymakers cannot control capital flows, monetary policy and the currency all at the same time.

Mr Piron said that the outflows have captured the “conflict between easing monetary conditions on one hand and contradictory attempts at foreign exchange intervention to target the yuan’s strength against the dollar on the other”.

The policy uncertainty causing the outflows “may only be resolved once the market has regained confidence in China’s ability to restore a robust recovery and China’s monetary has come to an end”. Mr Piron suggested this would come in the final quarter of 2016 at the earliest.

...all they have to do is bluff their way forward another nine months...and they don't even have to buy diapers for it!

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AI
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January 27, 2016 at 1:26 PM ×

LB... worth a look at the tech set up for UKX as well. Check out the hourly chart and there is a pretty clear neckline not far from here. Not really most people on here's time frame but the chart is a nice one.If broken it targets 6250 so back to unch on the year

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Skyguy
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January 27, 2016 at 1:45 PM ×

I'm still bearish here.

Despite minimal rallies:

1) My long yield has been kicked in the teeth.

2) Global fundamentals seem lackluster.

3) Market action seems terrifying.

I could distill these sentiments. Fed jawboning today distorting outcomes (Buy the Jawbone, sell the lack of news?). Treasuries and HY not invited to the rally party. Oil thrashing around like an angry drunk at the bottom of it's range. Etc. But that would be "rationalizing" in the psychological sense of the word. I see no positive reason for sentiment to turn, and things should get a whole lot worse before revulsion sets in. So I'm slowly taking on hedges.

Regards,

Skyguy

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hipper
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January 27, 2016 at 2:09 PM ×

The real story in Q4 earnings seem to be that the revenue depression continues, especially for the industrial complex and the ancillary energy equipment sector. Look BA, UTX, ITW slowdown today. Everybody hates talking about China but still it's probably very much related to the process where these Chinese investment excesses start slowly discharging (hence as a result somewhere in the chain demand for durable goods drop). AAPL growth slows down to a crawl compared to earlier years.

The industrial weakness should eventually come back to haunt the one thing that's still strong - services, and this should apply even stronger in EZ. When that happens there will be nothing left. At least that was precisely part of the plot that Zulauf was saying is going to happen. Maybe the only possibility then is to again ramp up government deficit expenditures. Overall the tingly spidey senses say something is not correct here. For those who believe in cycles the already above average length is another cautionary note.

I think of think Yellen is in a box here. If she starts retreating now or too excessively, or notably, that will undermine Draghi's and others efforts. She'll need to continue with the current narrative however, being the path of least resistance, still balancing and gradually bringing down the growth expectations. So no major plot changes at this point. Really a lot of perception will be needed to note the small downward revisions that will begin to happen.

LB agree with the mREITs. The thing in the drivers seat in the short term is/has been probably the hike expectations and might be most of the reason why the industry has been pummeled. But the longer term issue might still be the yield curve. I think at these 10-15% yields it might still be sensible to allocate some in the common stocks like TWO (low leveraged) or some ETF. Though I don't know what will happen from here if divis get cut and potentially how far can they get cut, but to some extent probably baked in already.

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washedup
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January 27, 2016 at 2:12 PM ×

left - agree with gundlach's comments, but as someone who currently walks funny on account of exposure to mREITs, its not clear to me why the discount to NAV wouldn't increase in the event of a further selloff in equities which he seems to be quasi-implying - he also glossed over the impact of the recent captive insurance ruling, which I suspect has impacted sentiment at-least a little bit.

dollar is breaking a big bear flag on the daily charts - things could get very interesting if a selloff gained traction - was just thinking we haven't seen a risk-on combined with dollar down regime for a long time - not predicting we are starting one here and now, just pointing out that that particular confluence is everyone's lowest probability outcome currently.

acumen's annual letter had some interesting observations about the impact of index outflows from Canadian equities on non energy sectors in Canada - I am not exactly a value investor (recent travails in reit space notwithstanding) but thought it was worth a read.

http://assets.pershingsquareholdings.com/2014/09/Pershing-Square-2015-Annual-Letter-PSH-January-26-2016.pdf

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Corey
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January 27, 2016 at 2:43 PM ×

The comments of Messers Zulauf and Gundlach mirror those of Raoul Pal who has been arguing the same since at least late 2014. You can get the of "law of unintended consequences" for free which pretty much has laid out things to a tee so far.

But, that was then and this is now - all of those things except worst case has been priced into markets. The case is predicated on a dollar bull which I have a hard time making the case for right now given the Fed's reaction function. I think it's a little premature to call a 25bps hike a mistake after one month. They still have tons of room to maneuver via forward guidance and continued dollar strength to me would have to come from a more hawkish than expected Fed or the last major not to deval vis a v dollar which is Yuan.

Who is the one of the largest benefactors of low oil prices: China. Yes they face an impossible trilemma and interesting to see such luminaries as Dr. Bernak on the subject. I havent had a chance to read his paper but my take is worst case they will devalue by a good chunk and that will be the end of it. If its by enough and at a defensible level then I would say that will stop their capital flows problem.

Petro dollars - what is the difference between US exporting dollars to oil producers and global investors "exporting" dollars to oil producers in exchange for treasuries?

On CB buying - yes Greenspan admitted to having the PPT. But going from an emergency market stabilization mechanism to one that is endlessly supporting markets daily is a massive stretch. If CB's are buying equities then they also at some point must sell them or it becomes apparent that a constant accumulation would show up somewhere. And whether they are or not doesnt matter. There need not be a "reason" for the market being up. All you need to know is that it is and the reason is that there are more buyers than sellers or visa versa.

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Anonymous
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January 27, 2016 at 3:20 PM ×

Your humor-moment from The Fly:

"After today’s Fed meeting, you’re gonna miss Bernanke so much, you’ll create shrines for him in your house."

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Anonymous
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January 27, 2016 at 3:37 PM ×

Oil up 8+mm barrels .... thats still an epic disaster ..... how was this build possible ? gasoline up 3+mm barrels to new all time high!

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Macro Man
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January 27, 2016 at 3:40 PM ×

Well, if oil can bounce on that, perhaps we have put in a tradeable bottom.

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Anonymous
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January 27, 2016 at 3:45 PM ×

Can't figure BA getting creamed.

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Belektron
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January 27, 2016 at 4:07 PM ×

Oil is holding so well solely on spec interest. Check USO holdings. If spec will continue to happily pay for excess supply the question is what gives first - will supply/demand balances stabilize or will the world run out of storage.

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Anonymous
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January 27, 2016 at 4:10 PM ×

German 5 yrs = -23 bps

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Bruce in Tennessee
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January 27, 2016 at 4:25 PM ×

Gentlemen,

I am still puzzled how all the world knows that the Fed will reverse course here. I am afraid I just don't get it...I know that has become the mantra of choice since we've begun this little correction, but it seems the real news the Fed itself has released is minimal...

I noted as the pro football season went on this year that Peyton Manning had a bad early year, very un-Peyton-like and was replaced by his understudy. Groupthink had formed the opinion that Peyton had thrown his last pass. If you looked closer, this was opinion, not based in fact, and his coach and Peyton didn't once state his playing days were over. In fact, he was injured..

..Now he's once again in the Super Bowl...

...Journalism, it is not getting better. Are you really comfortable trading the rumor?

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Anonymous
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January 27, 2016 at 4:30 PM ×

Central Bank algo's in effect again this afternoon. In FX selling EUR and JPY. Buying Oil and equities. The naysayers here now looking like fuckwits again.

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Anonymous
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January 27, 2016 at 4:32 PM ×

If we get through the FED without oil collapsing, $VIX likely gets crushed by close.

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Leftback
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January 27, 2016 at 5:05 PM ×

Oh dear, Martin Feldstein, 76, is a COMPLETE tool. Another members of the Hikers and Hawks Club. He wants eight hikes by the end of 2017 because he is worried about inflation. Not really sure where he has been for the last three and a half decades of disinflation, or if he understands the damage done globally by a too strong dollar. Someone please give him his Thorazine.?

Feldstein says fed should keep hiking rates

I agree with Gundlach on this, eight hikes is totally bonkers. In fact, the entire idea of "getting ahead of the curve" on inflation is f*cking nuts here. Fighting the last battle, not the one in front of us. Please save us all from these geriatrics, including the House Republicans, who are for some reason fighting the palliative care of a society in a deep demographic depression by the exercise of sane fiscal and monetary policies. I know, I sound like Krugman and Summers. But the thing is, they are right...

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CV
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January 27, 2016 at 5:51 PM ×

On the question of U.S. rates, my conviction is low, but I tend to lean towards LB's reading of things. Meanwhile, I think U.S. 10-year yields (and indeed, German, UK etc) are going up as we head into spring. I suppose this fits with a steepener scenario in which Yellen does not hike the sh't out of the economy in the short run. Could be wrong here. As I said ... conviction is low on the long bund, which is kind of annoying, but hey, I need to think more about it I guess.

Elsewhere, UKX, ADN ... ?! Welcome to the dark side chaps, its funnier over here, I promise ;). I do indeed own some ADN shares (proxy for EM inflows, right and nice little yield!), but let's just say that my average price is not really where I would like it to be! I have high hopes for it, though! I also think FTSE could do well, but it could be a short and sweet kind of trade as Brexit fears could dominate at some point.

Has anyone noticed that no one is talking about Brazil/Latam too? Right, sorry I'll stop ;).

More generally, this 1-to-1 correlation between Spoos, SHCOMP and oil was always a bit silly, and it isn't that odd that earnings season seem to be ushering in a little bit of differentiation. About time, and as LB noted ... the steady decline in vol which tends to follow when markets "rationally" look at fundamentals tend to point constructive market action.

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washedup
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January 27, 2016 at 6:02 PM ×

MM/LB/Others do you know if China's recent inclusion in the SDR basket in any way limits their ability to impose capital controls?Thx.

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Macro Man
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January 27, 2016 at 7:14 PM ×

Here's the thing...market is priced nowhere near 8 hikes by the end of 2017...it's less than three...so railing against that particular straw man is pretty useless. I do find it ironic that are guys whining that the Fed can't hike rates now because of the unwinding of imbalances build up and capital that was misallocated as they were whining that the Fed shouldn't hike rates 3-4 years ago.

TBH there is no point quoting Gundlach, Dalio, et al. They are long bonds, they say the same thing every time, and they evidently see no negative externalities to their policy prescriptions.

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Macro Man
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January 27, 2016 at 7:14 PM ×

@washed, well, China already has capital controls. They are a bit leaky, but they are there nonetheless.

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Anonymous
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January 27, 2016 at 7:18 PM ×

I have no idea about China, but it seems to me that inclusion in the SDR basket means "we promise not to make our currency gyrate up and down like a teenage pole dancer", and that the imposition of stringent capital controls would be frowned on.

So Dame Janet did the right thing, which is to say she did nothing much. This would be a good time for the Fed to just leave the markets alone to work on rates and not to try to push them up and down with Fedspeak and other random utterances.

Overall, today is a bit of a snoozer, but vol continues to fall from the panic peaks of recent weeks, and as noted above, that's usually bullish equities. As MM pointed out, the price of oil managed to rally on bad news, which usually tells its own story.

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washedup
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January 27, 2016 at 7:23 PM ×

thx for the answer MM.

And now to the part where markets thrash around like drunk buffoons, knocking over china and injuring people for a good 30 minutes before figuring out which way to exit the bar.....

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Anonymous
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January 27, 2016 at 7:29 PM ×

@Washedup,

No, SDR has nothing to limit the capital control in China and China is strenghening it right now. Of course, even 20 years ago the control was not water proof.

Now FOMC is out of the way. My question is: do you think that Iowa Caucus would affect markets in anyway?

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washedup
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January 27, 2016 at 7:37 PM ×

anon 7:29 - I still have a blue welt on my wrist from MM's brass buckle for inadvertently starting a political comment chain a few weeks ago - all yours!
But short answer, unless you think it impacts oil, no.

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Macro Man
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January 27, 2016 at 7:53 PM ×

@ washed, discussing how politics might impact markets is fine- say oil, or Clinton's possible impact on pharmas. Saying WOOO Trump! is not, for reasons too numerous to list.

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Leftback
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January 27, 2016 at 8:28 PM ×

Ha, on that topic, I know this might be considered madness (and I am definitely not going WOO-Trump!), but let's just for a second or two contemplate a Trump Presidency... so he's a developer, right, and a bully? He buys land and covers it with bricks, right? Is it just possible that Trump would beat the Republican Congress senseless and enact fiscal policy initiatives, e.g. useful transportation infrastructure projects, medical research, and other things that create high paying jobs? I mean NYC alone has the ultimate in 4th world infrastructure - embarrassing airports and the oldest most decrepit subways anywhere. Trump/Palin is hardly one's dream ticket or administration but is it just possible that he might do some good? Just asking b/c it is our job to think about these things, isn't it?

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Nico G
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January 27, 2016 at 8:33 PM ×

taking 5mn off Balinese hammock holiday to mention how constructive European equities are + oil

if you try long equities i suggest Europe vs spoos - spoos tape clearly shows how much leverage/margin is still there to be messed around

good luck and see you next week

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Corey
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January 27, 2016 at 9:04 PM ×

Well there goes that correlation ;) Dont think markets were really expecting anything else, but clearly they were hoping for something different.

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CV
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January 27, 2016 at 9:40 PM ×

@LB ... Look, Chelsea probably wont be relegated this season (we hope!), and Trump won't be president. Let's just agree on that ;).

On another note, I do have some sympathy for MM's point about Gundlach and Dalio. I read Dalio's piece in the FT this week, and I have to say, it is all a bit too obvious. This doesn't mean that it isn't a good idea to fade the hawkish rate hike narrative mind. It sure does seem as if punters are very eager to test just how far down the rabbit hold Yellen is willing to watch Spoos go, before she starts crying foul play!

Good points on falling vol and rallying oil. The "portfolio" has done relatively well in the past week which signals to me that the market is not in panic mode anymore.

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Skyguy
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January 27, 2016 at 9:49 PM ×

@washedup 7:23. Skyguy is honored to have his pithy throw-away simile picked-up, dusted off, and updated with some value added wit by washedup...

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Bruce in Tennessee
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January 27, 2016 at 9:58 PM ×

The Fed raises 3 more times in 2016

Liquidity problems persist

Some portfolio managers go off the deep end

SDS manages its slow but persistent climb in 2016..

BinT raises his stops at intervals...



...Shooting fish in a barrel, as someone once said...

(Lefty, Mr. Market had a tiff because groupthink expected a sign that QE was comin'...such a petulant child!)

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Bruce in Tennessee
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January 27, 2016 at 10:07 PM ×

http://finance.yahoo.com/news/indexes-dragged-down-apple-oil-150246819.html

"But some on Wall Street had hoped an even stronger indication that policymakers might scale back the pace of future interest rate hikes.

"It sounds like they are unimpressed with what has happened in the markets, that it has been insufficient to change their plans. That's the takeaway and it's why the market is going down," said Stephen Massocca, Chief Investment Officer of Wedbush Equity Management LLC in San Francisco."

...a taper tantrum because of a non-reversal? Petulant!!!

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Anonymous
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January 27, 2016 at 10:24 PM ×

“Ranges in the Night” from "Strangers In The Night" by Frank Sinatra:

Ranges in the night, exchanges dancing
Bears put up a fight, what were the chances
we’d be saved by doves before the day was through ?

Some hawks have retired, no more in-fighting
Statement changes glow with blue hi-lighting
But something in my chart told me it wasn’t true

Ranges in the night
Both sides were equal, we stayed range-bound through the night
Up to the moment when the Squawk Box crew said “Go,” fiddling like Nero
Cramer’s mouth will dance away, a Fed-debasing rant -- Hooray!

And SPY just took a dive, no more white feathers
“Swing low’s” back in sight, that bearish tether
This turned out so right – the Rangers win tonight !

Scooby-doooby-doo, do-do-do-dee-da …

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Bruce in Tennessee
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January 27, 2016 at 10:28 PM ×

MM has some real competition!

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washedup
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January 27, 2016 at 10:31 PM ×

Bruce - glad the move worked for you, but frankly equities are down because of what apple, that darling of retail-ville, did yesterday and today - I get the sense there is very little macro i.e. totally risk on/risk off interest in equities right now - all the fed did today with what I thought was a very neutral statement was get some intraday punters crossways and the dice ended on red instead of black - could have easily been the other way - I think spoos are currently at the mercy of what individual heavyweight stocks do - very rotational - if energy rallies and tech stops falling then spoos will go up as much as it takes to castrate John Q Short, whose clan has multiplied and blossomed in the last couple of weeks - on the other hand crude to 25 and apple to 80 say hello to a 1700 handle.
Will say the same thing I said 2 weeks ago - no point getting involved at 1880 - something stupid will happen - soon - I can feel it.

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Macro Man
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January 27, 2016 at 10:37 PM ×

Anon- FAN-tastic. Don't think I've ever done Frank, more the fool me, because your effort will be very very difficult to beat.

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Polemic
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January 27, 2016 at 10:42 PM ×

Yes really was good
Only one Frank song on this blog .. http://macro-man.blogspot.co.uk/2011/10/thats-why-lady-is.html
But yours beats it ..

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Macro Man
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January 27, 2016 at 10:54 PM ×

Oh, actually I did that one as well.

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abee crombie
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January 27, 2016 at 11:05 PM ×

Re: AAPL, yes they are slowing down, but I would hardly put them in the MSFT malaise bucket just yet. They have enough cash and resources to do a lot of things and I would hardly call them old tech like CSCO, EMC, HP etc. Not saying you buy the stock ( I havent) but its hard to call the company expensive at 9x. MSFT and AAPL had their low P/E's in the past 5 years at 8.2 or so, FYI for value hunters.

And in terms of new tech, FB beating with 50% revenue growth shows you what is working in this economy. Again, its a big index component so I'd be careful buying, but this isnt a company that is worried about China deflation.

True most "normal" companies are missing the top line (nothing new, IMO) but wouldnt you expect that with a surging dollar and a manufacturing recession in most of the world? The fact that most industrial companies were still able to beat on earnings shows you actually how resilient big business is today.

My big worry is more to Hippers point, if services are just delayed reacting to industry. Certainly a declining barometer of confidence, stock markets, dont help if they go lower.

I've been more bullish than bearish and trying to figure out where I might be wrong. While I respect Gundlach and Dalio, I agree with MM, they seem to always be talking their book on rates. When I try to dig into most arguments to be bearish, the constant themes are China (and capital flight) and the debt super cycle has ended (fracking debt, high yield etc). There are lots of intelligent arguments for and against each issue but I think the main point is if the US Equity market makes new lows it could have a reflexive influence on sentiment and exaggerate moves. And while everyone is pretty bearish we need to get some solid positive "surprises" particularly on the business cycle/industrial cycle (ECSU on the Bloomby) to put some cold steel under the shorts for things to turn the other way

Until then, I say watch FX for clues in terms of risk behaviour

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Polemic
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January 27, 2016 at 11:08 PM ×

Abee., re watching FX for risk clues.
FX markets are clueless for risk clues and just follow any current risk du jour asset market so if you follow them you are just following something else anyway.

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Macro Man
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January 27, 2016 at 11:29 PM ×

Yes, was just having the conversation with someone today about how FX is a third order asset class at the moment. That can change, obviously, but right now the big dollar is less interesting than it has been, and taking its cues from others rather than vice versa.

Abee, my point re Apple was not to disparage it (I am long, FWIW), but merely to point out that its era of explosive secular growth has ended. There is absolutely nothing wrong with spitting out enormous volumes of cash, and on my time horizon I'd much rather own Apple than 10's at an identical yield and the former on a single digit PE.

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Anonymous
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January 27, 2016 at 11:39 PM ×

Remember this guy:

http://www.marketwatch.com/story/navinder-sarao-didnt-cause-the-flash-crash-study-finds-2016-01-27?dist=tbeforebell

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Polemic
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January 27, 2016 at 11:41 PM ×

Yes, pretty sad that no one nowadays will believe the bleeding obvious until someone has written a paper on it. Of course he never caused the crash,

On that point did you see that the Libor brokers have been let off, which leaves Tom Hayes in the interesting position of being put in prison for conspiring with no one.

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Anonymous
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January 28, 2016 at 12:09 AM ×

Maybe those Libor brokers or their bosses had friends higher up..cronies.

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Leftback
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January 28, 2016 at 2:17 AM ×

USDJPY and Spoos up o/n on reports of PBoC injecting liquidity once again. Spoos looking range-y again for now, maybe a couple of days chop between today's extremes of 1873 and 1917, but the path of least resistance may be upward now as vol continues to decline. We're happier being long Spoos than 10s at the moment, just as MM is happier being long AAPL.

One of the puzzles for us is what happens when we do finally see USD reverse hard and create a tiny bit of reflation? Do EMs and commodities rally and carry all markets with them, as a rising tide lifts all boats? Or does unwind of USDJPY create a sell-off in Spoos and drag other equity markets down as well? Perhaps the place to be when the Buck stops is ... you know, precious metals, GDX, AUDUSD and the mining heavy indices like the ASX and FTSE? Will that be the trade of Q2 '16?

The usual cyclicality dictates that precious metals and mining lead, then other commodities and energy follow, and then the remaining reflation trades (steepeners, financials, TIPS v nominal Treasuries) follow along in their wake. Not sure markets other than FFR are ready to accept the evidence of a softening US economy yet, but when they do the move down in USD will be sharp and swift.

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abee crombie
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January 28, 2016 at 2:59 AM ×

POL and MM, you really think FX is just reacting to something here ? Perhaps on the day to day but I see a lot of the recent bigger trends as a result of FX, most specifically the USD. The higher dollar has exaggerated commodity moves by allowing countries like aud, cad etc to keep steady production bc local prices soften the blow. FXmoves have killed Em debt, and now FX is putting major pressure on trade weighted CNY. And I didn't even get to Japan or Europe.

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Bruce in Tennessee
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January 28, 2016 at 3:14 AM ×

Anonymous washedup said...

Bruce - glad the move worked for you, but frankly equities are down because of what apple, that darling of retail-ville, did yesterday and today -

...Granted. But Apple is not why they are down for the year.

...Come on over to the darkside, Washed...sometimes the boy plunger was right...

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Leftback
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January 28, 2016 at 4:20 AM ×

Someone else thinks the Aussie may have bottomed:

Inverted H&S on AUDUSD?

This is definitely something to keep an eye on, especially for those of us who have been thinking about mining and metals but are not at present long those instruments.

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Anonymous
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January 28, 2016 at 5:19 AM ×

LB, post last aug/Sep audusd carved out a distinct double bottom, only to be taken down further in jan. Not sure if this time will be diff

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washedup
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January 28, 2016 at 1:26 PM ×

Bruce - trust me I don't have an aversion to the dark side, just don't like flighting the gaggle of kids iin dark vader masks falling over themselves to get in (not you of course - you are sitting inside selling tickets, counting the moolah and smiling!).
When the youngins are ushered out of the R rated movie I will be sure to purchase multiple tickets, I assure you. If that never happens, well, cycles are cyclical so will get more stabs.

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