The rise of the fringe

"Now is the winter of our discontent."   So sayeth the voters in Germany, where Angela Merkel's CDU received a stern rebuke in state elections as yet another protest party moved in to fill the gap.  So too in Brazil (OK, there it's the summer of discontent), where a record number of demonstrators turned out to protest against Dilma's kleptocracy.

Although Macro Man attempts to keep this place studiously free of partisan political commentary, the phenomenon of political protest and the rise of fringe candidates/parties is too notable to ignore.  That the movement really started in the Middle East is an irony that has escaped at least one notable anti-establishment candidate (as well as indeed the primary beneficiary of Merkel's scuffles in Germany.)  Ultimately, this bespeaks a deep-seated unhappiness with the state of the world that is a product of both the aftermath of the financial crisis and idiosyncratic local factors.

Obviously, as the Brexit vote approaches and the US presidential election kicks into high gear, the volume of noise generated by political considerations will grow ever louder, rendering this even more of a trader's market.   While this may of course be obvious, sometimes Macro Man finds it useful to repeat obvious things as a way of remembering them!

In the meantime, we of course of the other two G3 central banks announcing policy this week.  Little is expected from the BOJ after the chastening rejection of its descent into NIRP at the end of January.  In fairness, the Topix banks index has nearly hit the 61.8% retracement level of its plunge after the previous BOJ meeting, though it's still way below its highs of last summer.



The yen, of course, remains very much at the strong end of its range over the last year or two; Draghi paid lip service to the G-20 "no deval" mantra....will Kuroda?  The chart at least suggests selling it 40 pips or so above current levels (113.90) with a stop just above 115.



As for the Fed, Macro Man will address them further in coming posts,   Suffice to say, however, that given oil's up 20% since the last meeting, the SPX is up 5%, and there was a large positive surprise in the core PCE deflator, it really is remarkable that just 3 of the 90 economists surveyed by Bloomberg expect a rate hike.  Well, perhaps "remarkable" is the wrong word; "sad" is another one that springs to Macro Man's mind (though not, of course, those of certain outspoken individuals who own several hundred billion dollars worth of bonds.)

From a purely selfish perspective, Macro Man sure would like to see a little "fringe" monetary policy out of Yellen and co.  In the meantime, it wouldn't be a surprise to see a little profit-taking in a lot of the trades that have done well over the last few weeks....

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Hotairmail
admin
March 14, 2016 at 9:03 AM ×

The lack of "fringe" monetary (and fiscal) policies has created a rich soup to breed in.

Discontent encourages malcontents.

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Anonymous
admin
March 14, 2016 at 10:30 AM ×

"though not, of course, those of certain outspoken individuals who own several hundred billion dollars worth of bonds"

this and the above comment point to the heart of the issue - the debt obsession. We have a system that is now intensely fearful of debt based leverage, a fairly understandable reaction after such a crisis. It is only in reversing this ideological or emotive obsession with fiscal fundamentalism (in politics, economics and finance) that we can really move forwards. Fiscal space et al is only tinkering at the margin, the IMF / BIS / Economist etc are 4+ years too late to start changing their tune, and given the manifest inability of the mainstream media to educate or debate I don't really see how you get out of this economy numbing paradigm. Stop obsessing about debt/gdp! Start questioning the data (esp gdp) and reframe the debate! Secular innovation is here, send stagnant Summers back to his cave. Moan over...

Still 2-3% growth is no recession imho
Cheers MM, JL

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Adrem
admin
March 14, 2016 at 11:23 AM ×

Well in any debate there has to be another side, but if NIRP, or nil price, means anything it is that a lot of participants believe there is an excess of debt.

Allied to this is a fear that when pricing is re-established which people believe will hold that there exits among debtors a net asset value one can believe in.

It may take some time for that to show up. Years? Who knows? Certainly more than a few months.

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washedup
admin
March 14, 2016 at 11:28 AM ×

MM - to me the big take way from the election cycle is that the big secular reversal in international trade that has been one of my pet themes since 2012, is being confirmed via a political voice. Its kind of strange, but this is the one cycle that strategists, punters, and asset managers simply take for granted will never turn, simply because it violates the laws of comparative advantage and people are supposed to be 'rational'
Prepare for a world where your socks are 'made in America', and forget about that deflation import from EM for the next two decades. In all fairness, who can disagree that international trade has been quite better for the erstwhile farmer turned factory worker in Sichuan than for the laid off technician in Michigan who is now casually expected to learn Python and get on with it.

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Booger
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March 14, 2016 at 12:57 PM ×

Trump does in fact tap into some major themes. Other than being free trade unfriendly, he appears to be generally business friendly otherwise.

And he is definitely anti-establishment. He'd probably make a fine president. There have probably been more psychopathic candidates in the past. He is probably getting demonized by the press.

It wouldn't be surprising if the people voted for anti-establishment this time. Real wages have gone down in the last 20 years. The corporate profit share as % GDP is higher than ever.

I wonder if Trump would have a significant effect on the Fed/monetary policy. I wonder if his protectionist rhetoric would have much of an effect on the USD.

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washedup
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March 14, 2016 at 1:42 PM ×

Boog - all interesting questions - I highly doubt the Fed would be impacted by who becomes president - everyone talks a big game but once they achieve power they are loathe to immediately blow up the system (obamas continuation of the financial crisis superstars being a case in point).
The interesting thing is politically, infrastructure spending or demand led fiscal stimulus now seems to be getting a lot of traction - this would be inflationary, but the impact on the dollar is too complex to nail down without specifics. Of course even if it were to happen its unlikely before the market forces their hand, and not before 2018 - I do think that's where we are headed.

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Anonymous
admin
March 14, 2016 at 2:42 PM ×

Trump is the greatest threat to the United States that I've experienced in my life time. Last Friday I had an up close (non-participatory) view of the vicious forces his campaign is unleashing. Go see for yourself and decide if what he's doing is "all part of the game".

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Anonymous
admin
March 14, 2016 at 2:49 PM ×

Leave the non-trading politics out before you annoy our host ppl...

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Macro Man
admin
March 14, 2016 at 2:52 PM ×

Yes, please do. Perhaps I should create a catch-all politics thread that I can ignore and people can use to vent their opinions....

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Polemic
admin
March 14, 2016 at 3:07 PM ×

Individual political thought is irrelevant in this place but the anticipation of majority thought is massively important as it drives policy decisions via election of representatives of that thought.

Economic data is a representation of behaviour and we quite happily use that to predict the future of prices, but just as much focus is needed on politics which is more macro than the subsequent econ data.

Politics ultimately lead everything but must be the hardest thing for those pesky algos, that are so much more of our markets these days, to read. I am sure this is where will maintain our edge.

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Leftback
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March 14, 2016 at 3:19 PM ×

I don't want to fill this space with politics either but "the rise of the fringe" clearly invites such commentary. There are some unnerving echoes in the US at present of European events in the 1930s, and we would ignore these at our peril.

Anyone feeling Yennish this week? MM proved to us last month that long JPY can be the best of all unpopular hedges at times. With BoJ and FOMC ahead this week, if there was a Strong Dollar and Yen ETF I would buy it here. Maybe just short €?

From the Hammock.

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Bruce in Tennessee
admin
March 14, 2016 at 3:36 PM ×

http://www.drdoug.com/blog/15-best-practices-i-have-observed-over-the-years/

15 Best Practices I have Observed over the Years
Feb. 1, 2016 Comments

15 Best Practices I have observed over the years as a Peak Performance Coach to PMs at Hedge Funds


1) Ask yourself, “Is today a day to make money, do very little or limit losses?”


2) Always think, “If I had no position on right now, what would I do?”


3) Learn to endure the pain of your gains.


4) The path of the trade is much more important than the idea behind the trade.


5) Listen to observations rather than opinions.


6) 45% - 55% is the average winning % of Long/Short Discretionary traders (successful trading is not about being “right,” it is about making more when you are right and losing less when you are wrong.)


7) You can have 1000 reasons to get in a trade, but you only need 1 reason to get out.

...Waiting on Wednesday...#1 was written by you, Lefty?

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Anonymous
admin
March 14, 2016 at 3:49 PM ×

I don't grasp why every JGB and PIIG bond isn't dumped for UST .... whole world knows the yields are artificial

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washedup
admin
March 14, 2016 at 4:40 PM ×

@BinT - here is one have come up with - completely original I promise:

8) Punters who have a liking for pithy trading wisdom that can fit on a napkin, usually end up with a huge collection of napkins and no capital.

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Anonymous
admin
March 14, 2016 at 5:16 PM ×

Adrem: "a lot of participants believe there is an excess of debt"
This is the problem, it's a belief. Just because the #s keep getting biggerer and scarierer is meaningless and this is the level of most of the discussion of the "debt problem".
So then take the next step and say ok, well the ratios have worsened. Really? Automatic stabilisers kick in as a result of the largest recession in 100years and that's reason to panic? Jokers.
OK let's take it to the next level then, the real denominator. Then debt in relation to wrongly measured gdp is an unnecessary and unjustified obsession. As you imply of course there is an asset to back it up, and I don't see the need for exit doors given the need to hold financial assets of one kind or other (forced saving you could argue), usually weighted towards debt, and when regulators seem to prefer a hold to maturity world, neither is there sufficient impulse for high inflation (wages or commods) so rates are not going to 5% in a hurry.
Financial repression is what's happening, it's the most reliable way of deleveraging at a sov level, but it is fundamentally destructive to economic growth and totally unnecessary when you have a sluggish recovery characterised by deficient demand (not supply).
Markets are correctly doubting the gdp value add of additional monetary easing (altho I think in EZ boosting bank b/s still important, but the onslaught of BRRD is possibly too strong a headwind); so who are we left with to invest govt or corps?
I would direct you to Eichengreen's most recent Project Syndicate post, rather than Rogoff's valid but less urgent call for structural reform to enhance the supply side (and as ever not sure what kind of reform that entails).
Meandering rebuttal over...
JL

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Bruce in Tennessee
admin
March 14, 2016 at 5:34 PM ×

I like it Washed....

something I read over the weekend...(paraphrased)




Money first, then ethics.

Bertolt Brecht 1898-1956



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Bruce in Tennessee
admin
March 14, 2016 at 5:43 PM ×

If there isn't an excess of debt, then why not raise rates?

If there isn't an excess of debt, then why is demand lagging? If there were excess cash in one's pocket, you wouldn't have to Wimpy it...(I will gladly pay you next Tuesday for a hamburger today...)

If CB's around the globe are actively increasing stimulus, then why? Isn't the underlying reason that debt/credit has a long tail? When debt went from short term to long term (8 yrs) doesn't that make it much harder to normalize?


@anon @5:16...

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abee crombie
admin
March 14, 2016 at 7:01 PM ×

interesting points JL, i do think ppl over emphasize the size of debt but I do think that there is an good correlation between all the credit/money creation and the current lack of demand. We have pulled forward consumption and investment.

Therefore excess debt (which is just the accounting identity of someone else's 'excess' asset) is probably a concern. You've got all this money floating around out there, it has to go somewhere. So while the US does have a lot of assets the most common way to value an asset is a DCF. NYC real estate is worth a lot bc you use a 2 or 3% cap rate. but in general when you dont have the cashflow/earnings etc GROWING, its hard to support asset prices, especially when equity markets are growth junkies.

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Anonymous
admin
March 15, 2016 at 2:03 AM ×

Russia pulls out of Syria, and in return SA cuts oil production?

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Anonymous
admin
March 15, 2016 at 8:32 AM ×

No on Russia. Won't be surprised to see them enter again once Turkey shows its hand and goes in.

Also, Syria is about blocking Qatar gas pipeline to EU

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