Change that tune!

Another day, and two more Fed speakers clamber down off of the fence to come out in favour of more tightening as early as April.  While neither Williams nor Lockhart will be confused for a member of the Fed's dovish coterie (dubbed "the Internationalists" for the time being, until a new rationale for standing pat is required), that both came out apparently contradicting the tone of last Wednesday's Fed statement and press conference is certainly curious.

Perhaps it's just coincidence that the first three speakers after last Wednesday were in favor of more tightening soon (though in Bullard's case, only recently so.)  It's hard to credit that developments over the last week could possibly have changed anyone's mind.   Sure, breakevens have widened...but that just continues a trend that was already well in train at the time of the meeting.

A literalist might argue that everything that the recent trio said is consistent with what was in the statement and the dot plots.  Perhaps...but there's a cornucopia of evidence that virtually nothing the Fed says can be taken literally, particularly the dot plots.   It will require confirmation from another fence-sitter or erstwhile dove to actually deliver, but as things stands it looks like there may well be 4 votes already for a hike next month (the trio above plus Esther George.)  It's tempting to step into the breach once more on the short end; Jan Fed funds is pricing just over one rate hike by year end, and in the grand scheme of things the pullback after Wednesday was fairly modest despite the dovishness of the release.   That divergence is telling.


A fanciful alternative explanation for the apparent volte-face is that a few members of the FOMC nipped down to the pub after Wednesday's meeting and sank a few pints.  One can imagine the banter after a few jars of Stella, with Bullard, Lockhart, and Williams challenging each other in a modified version of "Name That Tune."

Williams:  Boys, I can change that tune in six days.

Lockhart:  Guys, I can change that tune in four days.

Bullard: Lads, I can change that tune in just two days!

Williams and Lockhart:  Jim, change that tune!

This amusing scenario raises the question of what other game shows that central bankers or other market participants might wish to play.

The Price is Wrong:  Contestants play a number of amusing and silly little games to try to get prices correct, failing more often than not.   Culminates in the Showcase Showdown, where participants are tasked with pushing price levels close to an inflation target without going over.  Sadly, most come nowhere near.   (Macro Man struggled mightily, and successfully, to avoid linking to an Adam Sandler film for this one.)

Wheel of Fortune:  Contestants spin the wheel, which lands on various sizes of asset purchases, and then try to spell out how it benefits the real economy rather than merely holders of financial assets.

Jeopardy!:  At press conference time, central bankers have all the answers...but can journalists ask the right questions?  The show's title refers to the profitability of  punters' eurodollar positions (US version) or euro/dollar positions (European version) at each episode's conclusion.

Who Wants To Be A Millionaire?:  Old version:  retired central bankers hit the lecture and dinner circuit, running a gauntlet of private sector meetings and trousering as many juicy consulting fees as possible while their views remain relevant.  New version:  Billionaire hedge fund managers buy dodgy pharmaceutical stocks or go limit short JGBs.

Countdown:  A staple among the UK student and pensioner communities, in round one contestants are given a jumble of letters and are required to come up with monetary policy programs.   LSAP, TALF. SMP, APP, and CSPP are just a few of the famous winning entries.  In round two contestants are given a semi-random collection of economic data and are required to meet an arbitrary inflation target (or come as close as possible.)   The show's title refers to the price action in bond yields as they are attempting to complete each round.

Press Your Luck:  Fund managers with profitable positions that have had a nice run attempt to navigate the market and add to their winning trades without running into a dreaded "Whammy" that takes away all their gains.  Managers do have the option of eschewing further attempts and settling for the profits that they have.

Readers are of course encouraged to contribute their own ideas.  In any event, Macro Man had better end here, lest he enter his own version of "Family Feud."
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Anonymous
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March 22, 2016 at 8:36 AM ×

Brussells atk,, paris redux ?

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Nico G
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March 22, 2016 at 8:51 AM ×

meanwhile, lower lows in Europe

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Anonymous
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March 22, 2016 at 9:31 AM ×

Yes but as we saw last time from paris, terror dips dont last.

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Anonymous
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March 22, 2016 at 10:06 AM ×

Given how fractious the EU is atm and the current strain it is under, attacks feed into underlying extremist fringe movements, disunity and discord. Its a political risk which is growing marginally but sadly steadily.

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Leftback
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March 22, 2016 at 10:57 AM ×

Dollar bounce continues.

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Error404
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March 22, 2016 at 11:10 AM ×

Referencing MM's article rather than this morning's tragic events....How about the Fed 'retrace' being just another turn of the cogs in the central banks' 'Great Dissonance Engine'? 'Forward guidance' left them with too much egg on their faces, whereas 'forward confusion' leaves plenty of scope for the old "you didn't listen properly" riposte next time they feel a need to move the goalposts and/or surprise the market. Which will probably be quite soon.

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Leftback
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March 22, 2016 at 1:32 PM ×

Dollar and yen both stronger. This is not usually positive for risk assets.

We may not hear very much hawk talk today, there are other far more serious things to think about. Like the fact that Paris (and Brussels) was not a one-off event. These campaigns tend to be long drawn out affairs (e.g. the IRA bombing campaign in London/UK during the 1980s) that leave a permanent mark on the psyche of a generation within the city or nation.

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Anonymous
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March 22, 2016 at 2:08 PM × This comment has been removed by a blog administrator.
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Anonymous
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March 22, 2016 at 2:19 PM ×

Richmond Fed's manufacturing survey exploded from -4 to 22 in March. This is the 3rd highest print ever (in 23 years) driven by the highest level of New Orders in 6 years. Positive recent data prints such as this are extremely bullish for US equities. On the flip side, if data declines, central banks will print more money, which is extremely bullish for US equities ;)

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Anonymous
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March 22, 2016 at 2:53 PM ×

Nico G said... meanwhile, lower lows in Europe

Very much a temporary move (as suggested by someone else above). In fact the speed with which risk assets reversed upwards shows to me that equity markets want higher prices. Look at the present situation: we have poor EZ economic data, Italian banks with NPLs, huge terrorism & immigration problems and equities are rallying. What do you think will happen when data improves? These indexes are gonna go through the roof.

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Anonymous
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March 22, 2016 at 3:14 PM ×

Markit flash pmi disagrees

https://twitter.com/SoberLook/status/712295597064232961

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Anonymous
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March 22, 2016 at 3:16 PM ×

Paris response shows terrorism is to be faded, but it doesnt in itself indicate rally (As we found out in jan)

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abee crombie
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March 22, 2016 at 3:33 PM ×

Citi US Eco surprise index is getting ready to turn positive. Not to sound like a cheerleader, but I think given how long US ECO surprises were negative (almost all of last year) it could really help sentiment (and EPS revisions) for next few months. I dont really see economy accelerating to new levels but not going to stand infront of a risk rally either.

I'm guessing that when the Fed surprises the market next meeting (or 2) with a more hawkish tone, and all risk assets are held by dip buyers we see a big turn. But until then I'm agnostic

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Anonymous
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March 22, 2016 at 3:56 PM ×

Paris & London attacks had similar results in equity markets. I can kind of get the Paris, having had a weekend to digest and the ECB big one looming at the time.

Trading the price action this AM, I initially thought it would be different this time. Once cash got going. Market bottomed out on news of secondary attack at metro and that was it. In terms of price action, I find it fascinating. You can see & feel the turn. I'd get it if the market was down. 4/5% but dax only did a relatviely normal move.

Where to from here? Not as a short term trade, but for the EU and Eurozone.

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Anonymous
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March 22, 2016 at 4:58 PM × This comment has been removed by a blog administrator.
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Corey
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March 22, 2016 at 5:54 PM ×

Agree w Abee & 404 - they are purposely trying to introduce uncertainty into forward guidance as they've complained that mkts take them too literally. Next surprise will be hawkish relative to expectations.

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washedup
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March 22, 2016 at 6:42 PM ×


"they are purposely trying to introduce uncertainty into forward guidance "

awesome - so now the fed has gone from grossly competent and clueless to a cat toying with a mouse it just killed before eating it.
I prefer the mundane explanation -namely that the fed is noisy because the data is noisy - this is one of those situations where communicating less is better than the alternative - but good luck getting these future goldman applicants to keep a low profile.

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Anonymous
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March 22, 2016 at 7:43 PM ×

so dollar and bonds reversing course a bit...spx look ripe for a test of 1975 area

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Anonymous
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March 22, 2016 at 9:38 PM ×

Feels like the Middle East has come to Europe in a big way. Via Turkey.

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Leftback
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March 22, 2016 at 10:49 PM ×

MM Comment-O-Meter and VIX both at Q1 lows here. Usually this has been a sign of punter complacency and indicates that sentiment is peaking, a reversal is at hand, and a short-term top is close.

Not a Permabear, just a swing trader sensitive to sentiment shifts. Just sayin'....

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Polemic
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March 22, 2016 at 11:43 PM ×

Not so sure LB. the commentometer is more vix like than pure turn signal. It has a directional bias and lack of comment on boring grinds can go on a while, just as markets can unwind technical overboughtness whilst going up, albeit a lot slower

Perhaps a subset of 'never sell a dull market'. as 'dull' is reflected/indicated by lack of comment. Except for this comment which is based on dullness.

As for direction in markets from here. I know I have been labled here as an uberbull, but I'm really not, I'm a trading tart and though I think equities have every reason to carry on up, if they don't and turn sharply down just when I think they have every reason to go upwards, I will happily short them as if they can't go up with etc etc etc .. then they are screwed,

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washedup
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March 22, 2016 at 11:57 PM ×

Pol - left is merely suggesting a top may be close in price and/or time, not that we've already seen it - I think this is one of those classic situations where the rally creates its own weather system - if we go up a bit further there are enough shorts in the market that there is a decent chance we go parabolic with mad covering, institutional benchmark chasing and CTA buying. If we turn around people will say 'I can't believe we made it up to such and such level and I didn't sell/short' and pile on like crazy - at the risk of throughly muddling an already confusing picture, I daresay the 2 way range here for the next 30 days is bigger than the recent docile price action would suggest.

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hipper
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March 23, 2016 at 3:18 AM ×

Mr. Market with the exception of unpatriotic anti-dollar trades commodites/EM and mREITs has basically done nothing this year. Well ok, it dipped and melted slowly back up so it wouldn't be surprising if complacency were sky rocketing now, since bears have been completely humiliated. Still with the inflation overhang, earnings going nowhere at best and historically rich multiples in that context just seem ominous for the medium term. So what are the fundamental catalysts here? And its hard to see the inflation that's about to be produced in anyway healthy inflation for profits.

Probably one of the biggest structural problems created by QE was the rapid rise in housing compared to household income. With tying larger portions of future income into serving mortgages than before its bound to reduce spending from other sectors which could've potentially been better for the economy. Housing as a driver seems pretty much a dead end and a financial black hole.

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Anonymous
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March 23, 2016 at 6:57 AM ×

MM and washed talking "price and time" - what is this a Gann site?

Pol - excellent trading on getting long equities.

hipper - completely agree.

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