That was....surreal. It kind of says everything you need to know about yesterday's statement and SEP that the first question Yellen answered yesterday was "does the Fed have a credibility problem?" Her incoherent reply to that query, as well as further attempts to defend the indefensible, represented one of the worst performances that Macro Man can recall seeing since Brazil's implosion in that World Cup semifinal a couple of years ago. In that vein, let's look at some "highlights" of the press conference through the prism of football chants:
On the heels of higher than expected core PCE inflation and a fresh high in core CPI released yesterday, the Fed leave its 2016 core PCE forecast unchanged and marks down its 2017 forecast:
YOU DON'T KNOW WHAT YOU'RE DOING! YOU DON'T KNOW WHAT YOU'RE DOING!
Despite recent upside surprises in core inflation and a nascent bounce in commodities, the Fed median dot drops 0.50% in 2016 and 2017. At this juncture it seems clear that the only purpose of the dots is to be marked lower.
YELLEN'S DOTS ARE FALLING DOWN, FALLING DOWN, FALLING DOWN YELLEN'S DOTS ARE FALLING DOWN SCREW THE MARKET!
After blithely ignoring international complaints during the entire QE era, the Fed suddenly finds religion about the significance of global developments. Yellen goes so far as to cite the always volatile Japanese GDP figures as a reason for concern.
WHERE WERE YOU, WHERE WERE YOU, WHERE WERE YOU WHEN THINGS WERE GOOD? WHERE WERE YOU WHEN THINGS WERE GOOD?
Yellen trots out the usual song and dance about the dots not being a forecast, the committee reserves the right to change their minds, etc.
ONE RATE HIKE ONLY, YOU'RE DOING ONE RATE HIKE ONLY. ONE RATE HIKE ONNNLLLYYYYY....YOU'RE DOING ONE RATE HIKE ONLY.
Incredibly, Yellen seems to claim that the recent pickup in inflation is being driven by things that aren't significant over time. You know, like shelter, medical care, and other disposable luxuries like that.
YOU'RE WRONG....AND YOU KNOW YOU ARE. YOU'RE WRONG....AND YOU KNOW YOU ARE. YOU'RE WRONG...AND YOU KNOW YOU ARE. YOU'RE WRONG...AND YOU KNOW YOU ARE!
No doubt the rest of the dovish coterie will appear on the wires shortly to rationalize the farcically cherry-picked (and presented) stance:
WE'VE GOT YELLEN, JANET YELLEN, WE JUST DON'T THINK YOU UNDERSTAND....SHE'S NEVER GONNA HIKE, THERE'S NOTHING THAT SHE LIKES...WE'VE GOT JANET YELLEN.
Perhaps we should leave the last word to Yellen, speaking in a personal capacity....
Truly, an almost incomprehensible fit of March madness. Which is fitting, given that the NCAA college basketball tournament starts Thursday. As a public service to readers, Macro Man has created his own financial market version of the March Madness bracket. Fill it out when you're done with your hoops version.
Just remember, a top seed has never lost in the first round. After Wednesday's performance, however, Macro Man has grave doubts the top seed in his tournament....
On the heels of higher than expected core PCE inflation and a fresh high in core CPI released yesterday, the Fed leave its 2016 core PCE forecast unchanged and marks down its 2017 forecast:
YOU DON'T KNOW WHAT YOU'RE DOING! YOU DON'T KNOW WHAT YOU'RE DOING!
Despite recent upside surprises in core inflation and a nascent bounce in commodities, the Fed median dot drops 0.50% in 2016 and 2017. At this juncture it seems clear that the only purpose of the dots is to be marked lower.
YELLEN'S DOTS ARE FALLING DOWN, FALLING DOWN, FALLING DOWN YELLEN'S DOTS ARE FALLING DOWN SCREW THE MARKET!
After blithely ignoring international complaints during the entire QE era, the Fed suddenly finds religion about the significance of global developments. Yellen goes so far as to cite the always volatile Japanese GDP figures as a reason for concern.
WHERE WERE YOU, WHERE WERE YOU, WHERE WERE YOU WHEN THINGS WERE GOOD? WHERE WERE YOU WHEN THINGS WERE GOOD?
Yellen trots out the usual song and dance about the dots not being a forecast, the committee reserves the right to change their minds, etc.
ONE RATE HIKE ONLY, YOU'RE DOING ONE RATE HIKE ONLY. ONE RATE HIKE ONNNLLLYYYYY....YOU'RE DOING ONE RATE HIKE ONLY.
Incredibly, Yellen seems to claim that the recent pickup in inflation is being driven by things that aren't significant over time. You know, like shelter, medical care, and other disposable luxuries like that.
YOU'RE WRONG....AND YOU KNOW YOU ARE. YOU'RE WRONG....AND YOU KNOW YOU ARE. YOU'RE WRONG...AND YOU KNOW YOU ARE. YOU'RE WRONG...AND YOU KNOW YOU ARE!
No doubt the rest of the dovish coterie will appear on the wires shortly to rationalize the farcically cherry-picked (and presented) stance:
WE'VE GOT YELLEN, JANET YELLEN, WE JUST DON'T THINK YOU UNDERSTAND....SHE'S NEVER GONNA HIKE, THERE'S NOTHING THAT SHE LIKES...WE'VE GOT JANET YELLEN.
Perhaps we should leave the last word to Yellen, speaking in a personal capacity....
Truly, an almost incomprehensible fit of March madness. Which is fitting, given that the NCAA college basketball tournament starts Thursday. As a public service to readers, Macro Man has created his own financial market version of the March Madness bracket. Fill it out when you're done with your hoops version.
Just remember, a top seed has never lost in the first round. After Wednesday's performance, however, Macro Man has grave doubts the top seed in his tournament....
87 comments
Click here for commentsAfter her performance I might be hearing this shortly "YOU'RE GETTING FIRED IN THE MORNING"
ReplyMarch Madness indeed MM. I'm astonished as well: the economic projections have been adjusted only slightly; the forecasts for the unemployment rate in 2017 and 2018 have even been lowered by 0.1% and 0.2%, respectively – but that was accompanied by a further decline in the estimate for the longer-run equilibrium unemployment rate. The Fed has moved the goalpost once more. And against the fact that core inflation measures have all been surprising on the upside in recent months, it looks very strange that the median inflation forecast for year-end 2016 was left unchanged, while the number for year-end 2017 was even lowered..... weren't they "data dependant"?
ReplyWith these inconsistencies, I am not so sure the market will like it beyond the short term reaction.
http://www.businessinsider.com/policymakers-shouldve-done-nothing-2016-3
ReplyWhilen I know jbtfd is creaming himself, I have to question the price action over the last week.
ReplyECB goes all guns blazing. I can accept the sell the news during conference but the bid in the last few days has been tepid, despite it being opex week. And the banks today had a stinker.
Then, FOMC, the initial reaction was strong but, unlike after a night on the Guinness, there was no follow through. It's early days yet but reactions have been underwhelming i. Equities thus far.
@Anon 10:47
ReplyLook at oil, EM and DXY. All three responded quite directly to the Fed. Going from 4 to 2 hikes suggests a number of things: 1) Things have changed from December when 4 hikes were on the table. 2) Things could change again. Can 2 go to zero?
So what changed since December? The PBoC, ECB, and BoJ have all indicated concern about growth. All three have acted. For the Fed to maintain their 4 hikes today would have precipitated a disaster. We would have repeated Jan&Feb in 15 minutes.
Going forward, either we're really in a growth scare and valuations for equities are overstretched? Or we plow forward at ever increasing velocity.
My primary concern is the oversupply of oil. There is no equivalent of QE for oil - the Fed doesn't own its own storage facility where it can bank oil to maintain prices. Should the oil oversupply continue, we risk bankruptcies and defaults.
Someone earlier pointed out @energyrosen on twitter as a guy to follow. Useful stuff on his feed.
I'm currently well overweight on EM.
Anon 10:47 & l'm also the @energyrosen fanboy poster on here. :)
ReplyExactly my point on the price action. All others "got it" and acted accordingly. Equities rally was pretty stilted though, same for ECB.
Personally, I expected to see a serious bid into the close on this shift in stance. It didn't come and volume was terrible. Next few days will tell more I guess.
Brilliant MM. Well done. Love the passion and vitriol applied in such a wonderful terraces pastiche.
ReplyI am convinced both ECB and Fed are so busy academising inflation projections that they are nissing the bleeding obvious and will be either so far behind the curve when it comes they will make jbtfd look like an Amish presbiterian, or they will have to flip back so hard by Sept they will look like the Russian gymnastic team on steroids.
So as for markets.. Fed easy.. ECB pumping.. BoJ dovetastic and a rather growthy set of UK unemployment figs and a small bizz friendly budget.
Can it get much better? Well yes.. corps could make some money but hey, whilst they can rush into the bond market and issue your amount at sweet FA coupon you have to wonder who you d rather buy.. the issuer or the buyer. Issuer for me and that means their stocks. Add that to the above primordial soup of monetary policy and you are hoing to evolve Tyranosaurus Rex of stock valuations PDQ.
Household formation is on the rise. Yes, the echo boom generation of 87 million, (larger than the baby boomers) is actually starting to move out of their parents basements, dorm rooms, and sardine packed apartments, and guess where they're headed? No,they would never move to the suburbs, and actually have children? And (demand is dead)actually spend money on another giant generation? Most of you guys seem to see bubbles everywhere, even in markets that have been collapsing for years. And if you don't see bubbles, you see inflation. How about the massive inflation that caused my first mortgage rate to be north of 10%. There does seem to be an appalling gap in the middle. A gap in which most things don't exactly happen the way we think they should, but in the end the only real bubble turns out to be the one in pessimism.
Replyanon 10;47
Replyif you read last week posts during Draghi first hard down correction mr jbtfd was expecting the market to go lower, to 1950 and even 1900. he clearly missed the dip and is not creaming ahything but his bedsheets at night dreaming he is long at 1975
until the dipsters give their actual market entry (and exit) in real time all their prose remains financial dungeons and dragon
@anon 1:40
ReplyThank you for the interesting thought on the underlying movement which could largely increase AD. Now my question is where their spending power come from given they are also the most indebted generation (student loans). This is why Sanders has his appeal.
Should we first burst the debt bubble to take advantage of their consumption increase?
Nico - knew you be back. Can't leave us hanging...
ReplyAnyways,
I am in the $ as the main driver camp. Fed sees BoJ/ECB/China and co all easing while $ rips. So $ effect (persistent + lagging) is showing up in the past year - corporates w/ non$ revs don't look so good in addition to already poor top-line growth and capex projects. Well, the $ did the tightening for the Fed.
After December hike, Yellen takes a step back and realizes there's not much rope. Risk markets expensive and price (USTs, 5y5y) expectations falling.
Supply of $s down. Trade weighted $ up. Fed continues easing with crossed fingers.
It reminds me back in the day when I was short a big pile of gamma. Premiums were fat along with the position size and when it blew a hole in my PA. That sick feeling is what the Fed must be feeling right now.
Nico is back, oh happy day!
ReplyWhat is the fed afraid of ? Was it inflation expectations ? Why did they feel the need to walk it back when markets have already recovered ?
ReplyMM - AGREE FULLY - fed's a fucking joke now.they had a perfect layup but now they are boxed). if inflation starts moving higher rather than "transitory" they wi create much bigger ripples in the bond market which is now gunning for 2 will go to 0. i am selling some edz6 and z7 this am and loving some USD..
Replylooking to short( add to some i should say) spoos post expiry
It's psychological. Crowd behavior. They'd rather be wrong together than look stupid alone if they make a mistake. The penalty for being late in this game may seem to be smaller than the penalty of being early. The bias could be much greater than we think, and more persistant.
ReplyAnd if you think I'm wrong, please take a look at what's happening in Sweden. Is there any other explanation?
nico good to have you back. can you give me some calls so i can fade them and make some bucks? thx.
Replyseems like a lot of people want to talk about the fed "easing" - they didn't ease, they just didn't hike
Replyhave to wonder whether there were some threats made at the G20 the other week which us mere mortals aren't privy to
feels like jstfr to me here .....just sayin
@Anon 10.22 Don't be a twat, please.
ReplyKocherlakota, The Fed's Hidden Message, BloombergView, Mar 16, '16:
ReplyExplains the dots exercise and concluyes:
"U.S. inflation has been below target for nearly four years. This outcome is sometimes viewed as a sign of monetary policy impotence. But the Fed's projections tell us that many, if not most, officials are actually aiming to keep inflation below target for an extended period of time. In other words, low inflation in the U.S. reflects a lack of will, not tools."
A long time back I said that there would be no sustainable economic without a bombed out commodity sector AND a real increase in incomes. That's where we are heading albeit slowly. I'm going to suggest the central bankers are not idiots and understand this also. However, the confusion arises because what they know they need to do AND what they say to the markets are not the same thing. In that therefore though they keep threatening the inflation killing increases in rates they will without a doubt keep those behind the curve and ensure that the primary driver for inflation is Labour costs. How you choose to play that is up to you ,but that is the theme I continue to follow ignoring the ever existent noises from all quarters.
ReplyI find myself in complete agreement with MM here. The picture is now very clear. Central banks are behind the curve, and the current state of Goldilocks is apparently going to last forever. It is no coincidence that gold, commodities etc have recovered here, but alas ... no one is talking. Inflation protection is now key to survival.
ReplyI think we are about to move into a classic late cycle story. It will start with erstwhile dogs (financials, commodities, EMs etc) outperforming and curves steepening. Everything will be fine for a while, because investors like central banks like when things are calm and rosy. We might even get to a story where higher rates "are o.k." because, you know, the economy is strong and the central banks understand where we are, and where we are going. But they don't, and eventually will panic. 2017/18 will be an enormous sh't show ...
March madness indeed, but it could be very good for risk.
More proof that central bankers are frauds:
Replyhttps://twitter.com/JasonZubris/status/710256048595193856
Welcome back, Nico.
ReplySo what happens to the shale guys ? They get a reprieve and live to pump another day ?
ReplyBOJ clearly in the market selling yen
ReplyTim don't be silly...
Replynico, take a chill pill, my positions are all here in the blog. I have been long from the Feb lows in spoos, but exited 0.75 of my position after a nice run hoping to reload at 1900-1950 (as you mention). I did not get chance to reload and watched the market go higher with 0.25 position intact. Polemic however did get long for the final run, I hope he locked in profits.
Replylol, nice @bankofengland...thanks MM
ReplyCommodity currencies get to live another day. This sure seems like the time to buy BRL, you know with millions in the streets and Lula digging in his heels. if you think american politics is messed up, just take a little glance at what is happening at the rising star of brasil. Truly sad, though I hope they are able to get Lula and Rouseff outta there, but they are not going down without a fight
So yes buy CAD & AUD (even though the only reason they didnt cut rates was bc the FX mechanism was working so perfectly for them) and take all the funds to the cleaners with CNY. While we are at it lets buy some GBP into Brexit. Euro equities still looking like rubbish. US banks cant breakout either
We probably get some upside PMI's over the next 2-3 months, if Philly is any indication. EM, like CV mentioned, probably outperforms. I guess my 200 day moving avg trade is done. Will exit shortly
http://www.barrons.com/articles/asia-cheers-as-yellen-succumbs-to-cry-bullies-1458196496
Reply" Jobs and inflation are improving and markets that early this year were predicting no rate hike until 2017 were yesterday betting on another hike as early as July. Yellen has surrendered after achieving victory."
Well, I don't know so much about that, but in 2 years we'll have the length of the GD upon us....if the Fed and other CB's continue to prop markets and ignore major deficiencies the way we have the last 8, I wonder if we'll be in the slow growth mode where prices advance when companies buy their own stock, where governments build things the citizens don't use, where manufacturing in the west continues to hollow out, and so forth...
8 frickin' years...and it actually does look like Janet doesn't quite grasp the thread..
"until the dipsters give their actual market entry (and exit) in real time all their prose remains financial dungeons and dragon"
ReplyWell said, Nico.
Nico - great to have you back - imagine you were at an island no one had heard of rather enjoying urself till one of the natives said something that sounded like 'anon' - thats just how they say hello mate…
ReplyThe logical thing to do here is to hold one's nose and buy commodities and steepeners - it is of course distressingly hard to do so given the potential carnage if one turns out to be wrong, which is largely a function of how much they have run already - buy dips, perhaps, may be a more appropriate idea there.
As long as you buy dips, also buy tips - nice recent breakout there.
taking a 2nd look at worldwide FX, the Fed's credibility is pretty clearly downgraded. I guess just like the suggestion of the end of QE marked the tail of the Dollar bear, perhaps yesterday marked the end of the dollar bull, especially if a lot of the hopes for future rate hikes were baked into ppl's models
ReplyDollar bear markets, at least the last 2, have been associated with "growth" periods outside of the US > than US. While we may get some upside PMI good news in the next few months, I still think EM's are going to be in hangover mode for a while but are due for a cyclical bounce.
But for now, short dollar, long commodities, long value, long EM seems like the play the markets are liking, which are all pro growth trades. We'd need to see either these trades roll over or growth rollover to change the regime.
DZ hit it out of the park again with his end of FX wars forecast
@MM/Others - any reason why Kuroda san does not have corporate credit on his shopping list? Surely its not a matter of principle? Wondering how catchy Draghi's new toy turns out to be. It is also interesting no one raised that question at yesterday's presser, but if energy credit does start looking like the weak link here, I imagine Apple and Exxon will own accounts at the federal reserve in short order.
ReplyNM - of course BoJ are already buying corporate bonds - duh.
ReplyHow on earth can you move long commodities with the massive overhang in supply—we are only at the beginning of the downside in the dead commodities supercycle. EM exporters growth will continue to wobble, current accounts into deficit, curtailment of investment all smack of weaker EM currencies. USD weakness is but just a blip.
Reply@Abee: Re. FX wars. I see this as an intensification of the FX wars. The Fed isn't so stupid that they don't see brewing signs of inflation. They are constrained by the need to prevent futher USD strengthening. Otherwise the US manufacturing sector will get incinerated. Anyone note Caterpillar's earnings announcement today?
ReplyDiscerning Yellen's motives here is really important to understand where we are headed. I see three options (a) they truly are captured by the elites, who care only about maintaining the value of financial assets, the health of the real economy be damned; (b) they really are stupid, and think that either (i) there is no inflation or (ii) the trickle down wealth effect will revive the world; or (c) they aren't stupid, know that there is growing inflationary impulse, but are boxed in by the actions of the ECB, BOJ etc.
"until the dipsters give their actual market entry (and exit) in real time all their prose remains financial dungeons and dragon"
ReplyMmmn do as I say, not as I do methinks. Anyway, some people here need to get over themselves - this business is about P&L not an ego game of who called what.
washedup ---
Reply"- any reason why Kuroda san does not have corporate credit on his shopping list? Surely its not a matter of principle? "
you may know that Japanese corporates have massive share crossholdings of each other. also, when you look at their balance sheets there's a thing called 'other assets' that holds the book value together... guess who owns most of these things?
correct anon 2:01 - thx very much for the refresher - If I were a conspiracy theorist I would conclude future US CB policy is always first beta tested in Japan.
Reply@Canuck Banker & Potatoe. I agree with you fundamentally and it will bear out at some point in the future, that I am pretty certain of.
ReplyBut markets right now dont care. Doesnt mean you have to play. But does mean you shouldnt be fading at this moment, IMO. Yes CAT missed, but the stock is up. Perhaps a sign sentiment was already too washed out. I think you need sentiment to flip the other way, too bullish before you can really play the bear side. I've seen this movie before with dip buyers, dont feel like pulling out my hair over them. happy to take my losses shorting 200day and move on
Nico I remember you stating strongly that we were in a bear market. Now that DJIA have rallied and are about 2000pts higher, how do you reconcile that? Let's face it you were very wrong.
ReplyNico trades europe....
ReplyAnon I wasn't asking you. Nevertheless Dax etc is 1000pts higher since then. He has been wrong across the board. If he's asking people to be transparent, he should be transparent in his own calls, especially as he has been proved wrong so often.
ReplyDow flat on the year. Next stop all time highs (as predicted by jbtfd)? Good call.
ReplyIf you guys want to obsess over each other's P/L's, find somewhere else to do it. It does absolutely nothing for anyone who wants to think for themselves. If someone says "I will buy here, and sell/stop here", then fine, evaluate that on its merits. (Nico has generally provided his levels). Anything else is just wankery, and this space dos not exist to provide sweat socks for you all to do that.
ReplySpoos green on the year. We're in a bull market folks.
ReplyEverybody here now wishing they'd JBTFD in US equities lol...
ReplyWeeks ago, LB predicted in this space that one of the alternate paths for the SPX was to fill the 2016 opening gap to 2040, and that has happened today. We are shaking our heads over this, but there it is. It's quite clear that it has been closed.
ReplyAnother improbable event we predicted 3-4 weeks ago was a complete collapse in volatility, and that has also come to pass. Finally, we and others suggested that FX regime change might occur, i.e. that the tight correlation between USDJPY and SPX might uncouple, and be replaced by a more familiar correlation (like the one between AUDUSD and SPX, for example).
With this in mind, it seems to us that the dollar is due to bounce here, and that AUDUSD and the entire commodity complex are now short-term overbought and highly over-extended. So we are looking for the recent trend to reverse (bullish interpretation) or for the counter-trend rally to end (bearish interpretation). Note that we are agnostic on the interpretation of such a move.
From the Koolaid monster
ReplyJanet’s performance yesterday was nothing short of stellar. She delivered what was no doubt the most dovish message of her entire central banking career, and she did it without a single communication mishap. Her message contained three key points:
1. The balance of risks for inflation is lower, and there should no concern associated with any temporary inflation overshoots.
2. Employment gains have been strong, but there’s still more work to be done in bringing excess labor market slack back into the workforce.
3. The international situation poses a great danger to financial stability, and thus should be a key factor in determining the timing of future monetary policy moves.
Now to be sure this was not an easy message to convey. The unemployment rate sits almost on top of the NAIRU, and all the major core inflation measures are straddling the target of 2%. A simple rule from the fresh water macro crowd would be screaming for rate hikes towards 3-4% rapidly. But thankfully Janet has treated those nugatory recommendations appropriately! She was at the G20 meeting in Shanghai. She understood perfectly well that the Chinese monetary policy link to the US "directly" extends the reach of Fed policy far beyond the US borders. And she has surely been scarred (like we all have) by the PBOC moves of August and January.
Thus, in my opinion, Janet fully complied with the “détente” concept which we have been writing about in these notes for many weeks. She called off the DXY rally, and implored her colleagues at the ECB and BoJ to do the same. And as we saw over the last week, both institutions complied!! Everyone at the G20 table realized that monetary policies involving a currency devaluation by the Europeans and Japanese, or monetary policies involving currency appreciation by the US, would be counterproductive. They would unleash a full-blown CNY devaluation – something that would make the August and January moves look like child’s play.
So where do we stand now? Well, the Europeans and Japanese will basically be leaving interest rate policies alone. Mario dumped forward guidance, and Kuroda drew a “theoretical” line in the sand at -50bps for the Yen deposit rate (his "practical" line may even be higher). These gentlemen are now only free to pursue DOMESTIC credit easing policies with their balance sheets - such as DOMESTIC corporate bond purchases, DOMESTIC equity purchases, and DOMESTIC funding for lending schemes. Importantly, they do not have access to the policy lever associated with driving short term risk free real rates lower. That is the détente agreement. In addition, the FOMC will refrain from pushing short-term risk-free rates materially higher, also keeping the DXY in check. These implicit agreements now allow the Chinese to carefully unwind their domestic asset/debt bubble, and slowly decouple the CNH from the USD. Of course this is a fragile agreement, because if any one party deviates, the peg breaks and the 1998 style fireworks begin.
ReplyLooking ahead, I will refer to this detente structure as the "holy foursome” of central banking. And it is worth noting that this agreement not only benefits each of the big four, but it takes enormous pressure off of Emerging Markets, which would have no doubt been crushed by a full blown Chinese devaluation move. I personally cannot think of a better outcome for this very complex global situation than what occurred at the G20 "currency peace" summit. That said, there will likely be plenty of near term confusion in markets as folks try to trade off of the old weak currency/strong equity market correlations. My guess is that correlation is about to break hard – and a bunch of black box systematic correlation junkies are about to get their heads handed to them. It’s going to be a very interesting next few weeks in trading. But that complication aside, I cannot help myself in commenting on the overall performance of our favorite trade for 2016 - spoos and blues. It held up amazingly well in the turmoil of January/February, and obviously the currency peace agreement has been a huge boost to it's recent performance.
I suppose the core of my thinking on spoos and blues for this year was more of a generic idea that Janet always wanted to run the economy hot. If there wasn't a China excuse, she would have found another "headwind". That said, right now I suspect her mentors, Arthur Okun and James Tobin, are looking down from Keynesian heaven with big smiles. Good luck trading
Fack Nico mate!! good to see you back !!
Reply@ abee The TL;DR version of that comment is "heroin addict thanks dealer for providing more smack".
ReplyNot to go all Zerohedge, but one might think that Zervos might look at JEF's pisspoor rates trading revenues over the last year or two and realize that ZIRP/NIRP has clearly negative consequences. Then again, given JEF's role in helping two-bit wildcatters acccess capital markets, perhaps he knows what side his bread is buttered on after all.
What I am interested now is the baml report to see if managers in cash start to pile back.
ReplyOh dear abee - I don't know this zervos guy that well (the nice little guy with the beard whose on TV a lot yes?) but I for one do appreciate your putting his thoughts here - all commentary is welcome to this bloke trying to make a living in his pajamas.
ReplyLeft - on equities, are we in the happy-clappy phase, the bear tranquilizer gun from the forest ranger phase, or the elephants eating trees phase? FWIW I think its the last, but who knows.
MM - your cynicism levels seem dangerously elevated these days - like off the charts - maybe watch nothing but the cartoon network for a few days? Seems to work for me.
Am noticing MM's posts/comments are getting increasingly ZeroHedge-ish... interesting...
ReplyDo you remember:
Reply- when China was gonna crash the financial system? (Jan '16)
- when commodity carnage was gonna bankrupt our energy complex and banks? (Jan/Feb '16)
- when Europe's banks were all gonna collapse? (Feb '16)
- when everyone drew charts showing the SPX analog of 1929 and how we were gonna fall off a cliff (Jan-Mar '16)
now, oil is rallying as hard as it fell, spooz are going thru the roof and all is well... :)
'What a difference a day (or few weeks) makes'...
@ washed how can you not be cynical when seeing yesterday's performance, and Zervos's reaction to it?
Reply@ Anon 6.48, if you think the level of work I put in here on a day to day basis is ZHish, then just leave now. I am sick (literally), and tired of having to corral trolls intent on having a willy-measuring contest. If you think people who regularly go on TV don't talk their own book....well, I don't know what to tell you.
@anon 6:53 - yes we remember all that quite well - thats what happens in markets - frankly, on the scale of sentiment change whats happened in the last few months barely registers - also spooz aren't 'going through the roof' by a long shot - they are more or less where they've been for the last 2 years - they have been transferred from the suicide watch ward to the convalescent patient area for sure, and if you want to whip urself up into a frenzy over that of course you are entitled, but there is nothing unusual about these proceedings.
ReplyIf we pivoted into a genuine inflation scare in the next month or so then yes I would be impressed. Now that would be a 180.
Happy Clappy? Well, it is St Paddy's Day in New York... why not be happy? "In Brendan Behan's footsteps I danced up and down the street". We have been selling all day, mainly in energy, miners, Aussie banks, EMs in general, especially Brazil.
ReplyLook, if the leprechaun bots want to bid my stocks today, they are more than welcome to fill their little tiny robotic boots. We view today as a great day to raise trading cash for future opportunities.
The Bollinger bands on a number of risky asset vehicles are stretched tighter than a fat tart's knicker elastic right now.
Twang..
Hey, MM, I just had a thought for the Op Ex post tomorrow...
Reply"Happy".
Far too many Willy-measuring contests lately.
ReplyAs always, it's noteworthy how many of the contestants are carrying magnifying glasses.... just sayin'..
@lefty: Agree with you. I've been selling all day. Closed out my EM, Canadian and Australian index positions. In the process of closing out S&P positions. Keeping REITs and Europe for now.
ReplyPerhaps a few things still out there to drive equities higher: PBoC and/or BoJ stimulus at some point? Not counting on any of them just yet.
Oil and EMs seem quite stretched. If the two projected rate hikes disappear, driving USD lower, then perhaps EMs will continue rising?
MM- you do realise ZH actually likes you as they tweet out your blog posts. Unfortunately, it attracts some vocal posters who just don't add anything to the discussion.
ReplyThe sooner we finish with CB's and opex tomorrow, the happier I'll be to see the trading picture.
Euro banks smoked today, back into ECb lows. That is interesting.
I have two scenario's in mind. CB's are going to stoke inflation big time this year. Or, this is a bear trap. Van all that carnage really just be swept under the carpet and forgotten?
I'd love to think that the technicals will rule over this market and see a turn, but I have flipped to thinking that the growing feeling that global CB's are behind the curve and that perhaps faith in their inflation forecasts is based on a lot of circular arguments will drive things higher still. I really don't want to sound jbtfd ish, but one more explosion higher with true bear capitulation would fit with a typical first 3mths of the year 'screw the fave trades' blow out ( USD strength looking dodoesque) before we can get our teeth into some new themes that don't involve deflation.
ReplyWith commods ralling, EM up and a general laggardness of new highs I am messing around with FTSE at 6220 levels. Been a solid top but am hoping the upwards pressures will crack it upwards
Interesting comment here from Bloomberg and ZH. TL;DR s follows:
Reply- we're experiencing the third longest (8yrs), most central bank-supported, bull mkt in history
- investors are pulling cash from stocks at almost the fastest rate on record (due to bad news)
- corporations have unleashed the biggest debt-funded stock buyback spree in history (keeping equities supported) mainly funded by debt at ultra-low interest rates
http://www.zerohedge.com/news/2016-03-14/bloomberg-stumbles-only-one-buyer-keeping-bull-market-alive
Fully agree with MrBeach/Anon that CBs are trying to stoke inflation. Also with Polemic about CBs and jbtfd.
ReplyNico! You are like the favorite grumpy uncle I never had...
ReplyMM: I have never seen you angry at central banks like this before. Which is the right thing to be, yes, but - you have always been such a coldblooded veteran focused on trading what you see and not worrying about what "should" be. I hope that when even you are here, then it's time for that view, the emotional view, to be right.
The scenario here is not 2007, or 2000, but 1972. They're making it clear that they really will tolerate higher inflation. So they're going to get it, hard - but slowly to start with. In a decade the price level will be much higher, real purchasing power from buy and hold equities will be somewhat lower. There will be several smaller cycles on the way (something which probably started in 1996), but this cycle is nearly done. The problem is - leverage is much higher and liquidity is much lower than back then. So the down moves could well be very sharp and very short.
you're gonna miss the bus again
Replythe downhill bus that is. it is pathetic and ridiculous and annoying to see (smart) people 'wary of another push higher' after 240 points above last bottom
this is May 2008 again
2100 before 1800? Or is that too neat.
Replyhere is my current takeaway on equities at this very interesting juncture, collating the views of the cognoscenti on this board:
ReplyLeft: Neutral/Bearish
BinT: Bearish
Al: Bearish
Pol: Bullish (froth detected on screen)
CV: Bullish
Abee: Bullearulliearish? I will go with cautiously optimistic
Nico: No idea, but would be great to know
Mr T: Gone baby gone
MacroMan: Mostly just seething in fury - some unconfirmed rumors that he ordered effigies of Janet Yellen and a can of gasoline...
Anyone I'm missing?
@ Swifite I am grumpy because I am catching bronchitis (again) from my son and feel like crap. More generally, if the Fed wants to stoke inflation, fine. I am OK with that (even if I disagree with some aspects of the decision.) But if that's the goal, then they should abandon the lip service to intellectual honesty and data dependency, ditch the dots, and go back to calendar guidance.
ReplyIt's this BS veneer of academic rigor that cloaks a "conclusion first, then cherry pick facts" M.O. that i find loathsome, particularly when I think they blithely ignore the negative externalities of their decision. Again, all of this is exacerbated by feeling like crap.
Oh, and inflation is bad for equities. Anyone buying because they think inflation is good will be in for a rude surprise, I suspect. (PS I do not think this is 2008 and never have.)
re washed 833
Replyim in bearish camp up here, esp post expiry after having done ok on the pop- though short spoos from 2020 here with some 2060 calls as stop. spy up 6 weeks now so loosk like a good slot and valuation wise is worse than jan so happy to ship in puts which are just ridiculous premium with with at 14
preparing for bonds down and spot down next leg with Yen headed to 120 and USD bid - yes farked up but that what I'm playing with some teeny calls
in addition, mean reversion all over except in eu/us equate...thats been the DOG in my book
what a cluster fark today- close to worse day in 2016 for me
Talking about the view on market, I would think that the equities still have room to run as bond yield is still too low to be attractive.
ReplyCommodities on the other hand are close to a correction. An 50% rebound had occurred which should cause some to take profits and chasing commodity prices higher from here is no longer attractive IMO.
So there should be a rotation from energy and materials stocks to other sectors, maybe biotech?
Also, someone mentioned household formation on the rise in the comment. I wonder where that information comes from as I did not find any evidence for that trend.
MM- COMMENTS COUNTER 75 - PROBABLY CLOSDE TO A TURN IN MARKETS??!
ReplyJPM Announces $1.9 Billion Buyback One Month After CEO Jamie Dimon Buys 500,000 Shares In The Open Market... What A Coincidence...
Reply@ Washedup 8:33
ReplyI am in the bearish camp, yes, but I have nevertheless this sort of deja vu of 2005-2006 ..... what was it called back then? The Great Moderation? What I'm missing here to pull THE trigger in equities is the bubble element. I am not talking overvaluation, etc. I mean the BUBBLE.
Back in 2005 I could afford (er, kind of) to play the bearish scenario well in advance as my job was to make money fullstop. Today I cannot afford such approach as I mostly work benchmarked and long only. If I am 50 bps behind one month, two months, maybe three I can explain, after that credibility is gone together with the clients.
I did not do much so far this year. Started the year mildly underweight equities, went up to benchmark in mid January and stayed there until now (February was extremely stressfull and your comments guys helped a lot in this - thank you MM, LB, Pol, Nico, Washed, Abee, CV and all other contributors that make this space great).
Fading very very gently the current rally makes a lot of sense, but on the other hand it is kind of difficult to go massively underweight right here, right now, as it would be kind of hard to justify ... at least only few days after the ECB delivered quite a package of DOMESTIC stimulus, while the Fed, well you know what the Fed did.
And we did not talk about bonds ..... the benchmark we have been given has 40% of bonds with negative YTM and a duration of 7 years ..... and you cannot even hold cash on the account as it is charged at -0,5% by the depo bank. Now this is more like a BUBBLE to me and this one will be very painful .....
Anon 8:22 PM: "it is pathetic and ridiculous and annoying to see" people think this is May 2008 again. As MM correctly says, it is not. There is no parallel.
Replywashedup 8:33 PM: You missed "jbtfd". He is bullish. Always. Annoying, but it seems to work.
MM 8:33 PM: Sry to hear about the chest infection. I hear you on the CB bs. Even the bulls here tire of it.
I wouldn't be surprised if this recent market action was all pre-planned following the last G20 meeting etc. Kolanovic mentioned CB convergence in his recent note, which fits. I think oil & equities grind higher, and vol falls.
Will options expiry tomorrow herald a down/consolidating market for a couple of weeks?
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ReplyCopper demand, while down from the peak when it was being used as collateral for loans in China, has a real baseline demand that does not make current prices look unreasonable. At $1.45 consolidated costs for copper, and $16.17 per BOE (lowest cost US producer?)on oil, FCX looks to be very profitable even below current prices, and the 10 billion debt cut looks doable. Long term for someone with a thimble full of patience $11 a share still looks really cheap.
It hit 80 degrees in parts of the south this week. That's really hot for March. This summer US electricity generation for A/C will use more natural gas than ever due to the number of recently shut down coal plants. Draw downs look to be steeper than expected. NG still looks cheap. Where is the damn bubble? Don't tell me it's in debt, because if you can make the payments, it's not a bubble.
Zis is a massive rotation folks. Can't you zee it. Buy dog shit and sell growth. It goes on until dog crap stops working. Pretty simple, IMO. So I am looking at dog crap and inspecting it for signs of decay. So far so good I guess.
ReplyDJ Transports just went bonkers. Someone got a nice squeeze.
loooool abee
Replywashed 833
Replyi am 100% bearish equities
just covered my USDCAD at 1.30 - nice trade
sold my BRL sold my NOK for lesser profit, but still
also clocked 30% on the Saipem 'more than distressed oil co' kevlar trade - am flat all things energetic
it is a shame i don't trade spoos
hear me out: being given another chance to short the 2015 close after the horrid price action we've seen the first two months is nothing short of FUCKING INSANE
- knowing that rate hikes albeit reduced are still a go
- knowing that the decimation in oil industry has still not been priced outside of the immediate. obvious contagion perimeter
- knowing that China is still hard landing
- knowing that Greece will confirm that the 340 billions are LOST
- and especially knowing that Europe keeps on printing lower highs
this is what i am shorting unfortunately... Eurostoxx ...strongly underperforming spoos - so i do not get 2015/2016 gap filled.. Europe is not Disney Morgan Inc. so i get a lower entry BUT with the ipso facto assurance that i'm shorting a real bear market, not a fabricated market like Spoos
i left the US yesterday after 4 months (and nurturing a 12 hour jetlag) and if anything, those 4 months spent following the election primaries comforted me to never trust anything American
also watched the Big Short in the plane. This is what spoos have become imho... they are the very CDOs of 2016 that noone can see fail.
i do not want to post much here, so i'll post on demand, since you asked. I'll come back to regular posting when Spoos hit 1600 reality i.e. when our duty of market old schmucks will be to tell the tired, the poor, the long-only huddled masses yearning to breathe free, to not panic and try to hold tight.
Not to agree or disagree re the CNH, but isn't the USD weakening more important for beimg able to service all the dollar denominated debt that china and other EM countries have amassed over the past few years rather than as an outright devaluation of CNH?
ReplyI'll come back to regular posting when Spoos hit 1600 reality
ReplyROFL. How long have you been calling this for? 8 years? And still wrong? Spoos will hit 2600 before they hit 1600.
@Nico thx for ur thts - safe travels.
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