Glittering

First off, a hearty thank you very much to everyone who responded to yesterday's call for help.  With any luck,  Macro Man will be able to enroll several of you to lend a hand which will prevent him from being an ever-present thorn in your sides.  He is much obliged.

Yesterday's  market action was generally quite listless.   Whether punters were nervous that Janet Yellen would emerge from the White House armed with a monetary bazooka, were concerned about the onset of earnings season, or were reluctant to slap on fresh risk ahead of the this weekend's key oil summit is up for debate.  What is clear, however, is that most asset prices didn't show much giddy-up.

That oil continued its recent bounce was perhaps not a surprise; there seems to be some guarded optimism that next weekend will draw a line in the sand to support the crude price.  Macro Man is somewhat skeptical but will admit that this is largely a tourist's view, so he isn't risking any capital on it.  You'd think that last month's highs around $42 or so should offer stiff headwind ahead of the summit.

While gold also enjoyed a solid day yesterday, the real star of the day was Macro Man's old friend GDX, which rallied some 6.5%.  He sold a third of his position just above $20 during that mass of consolidation last month; it seems safe to say that the consolidation period is over.  Although last year's high near current levels yeah encourage a bit of a pause today, above there it's little but fresh air for another $4 -$4.5. 


It's worth highlighting again by just how much GDX has under-performed the underlying.  Some of this could well be a currency effect; virtually all of the largest members of the benchmark index are foreign-listed, which means that GDX owners are also taking risk being long CAD, AUD, ZAR, etc.  Of course, that cuts both ways, and with the dollar sagging recently it's all been sweetness and light.  If Dilma's potential impeachment goes through, that could potentially provide a further positive impact to beaten down commodity currencies.


Obviously the higher it goes the more downside risk there is (the reason that Macro Man liked it to begin with was largely because of the technical set up), which warrants caution. But with such a massive underperformance gap versus both the underlying and its own history, Macro Man still likes the upside- particularly if the Fed remains willing to play fast and loose with inflation.

It's true that all that glitters isn't gold...sometimes it's the drill bit of the gold miner.
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Anonymous
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April 12, 2016 at 9:23 AM ×

@Nico G from yesterday
"I am not sure who will crash first - Japan or Europe - but they will collapse for sure. Same social rigidité - the impossibility to reform and awful demographics all plagued by a strengthening currency against their will. "
Against their will?!
Actually both Japan and the Eurozone are strengthening their currencies via chronic current account surpluses and negative interest rates.

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Anonymous
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April 12, 2016 at 10:10 AM ×

Oh look another EU session where the Euro is sold off by the ECB and EZ equities are bought on the back of the FX move. Come the US session the USD will be sold off by the Fed, and round we will go... *yawn*

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Anonymous
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April 12, 2016 at 10:13 AM ×

Also worth mentioning that equities are being bought here across the board (US, EZ and JP). The low was last week, they will be pushed up to March highs and beyond. Any down moves are purely stop-runs.

You can bet against central banks, but you will lose.

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Rossco
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April 12, 2016 at 11:47 AM ×

why is it "worth mentioning"?

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abee crombie
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April 12, 2016 at 2:12 PM ×

Mm, could it also be that materials is. the best performing sector year.

I've been long detour gold for a while, still like it.

Nico, I'm gonna have to agree with anonymous here...how is strengthening currency a sign of blow up. Agreed thier stock markets sucks ( and my biggest mistake so far) but I feel like it's a lot of fast money chasing over themselves. They are both going to keep rates low for a very long time ( under current regime) equities are the only option for asset allocators..Let's see. But man your call on cad keeps getting better and better. It's so strong here.

The ultimate condolence game for me is still S&p. Nothing else compares.

Who was it that liked juniper? Any updated thoughts? I think networking is poised for disruption. Sdn, for hyperscale and outsourced cloud operations hurt traditional guys the most imo.

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abee crombie
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April 12, 2016 at 2:13 PM ×

Confidence game. Not condolence. Bah

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abee crombie
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April 12, 2016 at 2:13 PM ×

Confidence game. Not condolence. Bah

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Bruce in Tennessee
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April 12, 2016 at 3:23 PM ×

Nico,

I am also expecting an equities crash, but unlike you guys I'm just waiting. I thought I had seen the inflection point at the start of the year, but I'm patient and willing to wait. I do plan to short the markets again, and I expect to make money doing it. I also just think there are too many drawbacks to ZIRP, and that they outweigh the benefits. I guess I just don't think like a central banker.

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Nico G
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April 12, 2016 at 3:31 PM ×

i hope that you will be as lucky as last December with your 17500 Dow entry, It'd be unheard of for the market to be as cute as to give you a perfect entry for a second time. I expect the spoos to put everyone to sleep and out of the game, before they turn lower

Europe is a much bigger zoo for bears - am trailing monster profits since end of quarter. Italy is a scandal

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Anonymous
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April 12, 2016 at 3:39 PM ×

Nico, the italy fund news you think is no good then ? I am a tourist in europe...

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Anonymous
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April 12, 2016 at 4:38 PM ×

Anon 10:10/13 here.

So are you bears enjoying the equity buy programs I mentioned earlier? We're now up over 1% since that post. Helped by our friend oil, and some production freeze rumors, we are seeing a heavy bid tone in equities across the board. This will continue into opex. Don't say you weren't warned.

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Anonymous
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April 12, 2016 at 4:42 PM ×

March 18th position management:
Closing Emini overal scratch.
Closing Dax. Price action into Opex a concern.
Glad I closed that Brent position last week.

Be happy to sell any oil blowout from here in. Might get some tonight but think waiting for the weekends events best. Doha and IMF gathering.

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Macro Man
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April 12, 2016 at 5:33 PM ×

@ Mr. I told you so: Gloating every time the market goes up is pretty useless, particularly when in the grand scheme of things it has gone nowhere. It's really not welcome here.

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Nico G
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April 12, 2016 at 5:45 PM ×

anon 3:39

don't be a tourist, read past the news headline - it takes 20 seconds to get the details: FIVE billions or so for the bullshit fund to help cope with THREE HUNDRED AND SIXTY BILLIONS of bad loans. Like pissing in the Pacific

as always in this Mickey financialtasy world, folks at government/CBs need to be 'seen doing something'

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Anonymous
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April 12, 2016 at 5:50 PM ×

A UK-centric article, but explains why housing/debt/NIRP/QE have f*cked up the UK because it suits politicians to do so...

http://www.theguardian.com/commentisfree/2016/apr/12/house-prices-money-cheap-debt-planning?CMP=share_btn_tw

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Leftback
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April 12, 2016 at 6:45 PM ×

LB is becoming pretty sure that we are going to see another mini-banking crisis in Europe, if we are not already seeing it today. The only real question remaining is WHEN will it matter to investors in the U.S.? We are quietly scared to death to be long any risk at all, even though we are back in the hammock over here. This seems like another wonderful day to do a bit of quiet selling of equities and buying of UUP, and so that's what we will do.

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Polemic
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April 12, 2016 at 7:19 PM ×

Europe is a slow burn disaster I agree, but the game is, as ever, timing and regional disruption. Debt and its distribution around the zone is of course the problem but as long as ECB throw everything they can at the problem, ie keep lending to the regional subprime, then we can't yet see that implosion. Economic OKness will mean that bears could get ground out of the position.

It's very much like carry creep where we have that saw tooth price action of creep and dump. I'd rather play a Eurocrisis by just having stop entries below rather than trying to catch a top and be beholden to disaster happening now rather than next year.

I know that Italy is the junk du jour but we must keep an eye on Greek seasonality and the farcical act on stage as the EU try to keep the PR positive as we head into a UK brexit referendum. If I were the Greeks I'd be pushing the limit with demands as Greek trouble, or Italian come to that, before the Brexit vote could really swing the vote. Europe is playing the wolf in sheep's clothing at the moment

I note that the IMF are now out warning of Brexit being a major threat to the global economy and this is being used as further reason to vote to stay. But if Brexit really is that great a threat, isn't that incentive enough for thee rest of the World to renew trade agreements along the lines of existing EU ones as fast as possible to defuse that threat. It smacks of ' cake and eat it'. Threaten that trade agreements won't be renewed as UK shouldn't get special treatment but then say its UKs fault if they exit and lack of trade agreements messes with global economic security.

So yes, Europe has pile of problems right now and holding Euro is pretty risky. General stopping of positions along with the fall in USD in general may well, in my mind, be coming to at least a temporary end.

Whilst talking of usd turns, usd/jpy and nikkei are particularly perky and the lack of commentary associated with the rises other than 'must be stops' has me feeling that we have a set up much like the lows in SPX that saw the moves higher start with ' just stops' and finally push through to ' jeez this shouldnt be happening' to finally end with a 'this is mad, it'll happen one day' grumpy squaring or pushing of losses from the short term book to the long term one.

Whilst SPX behaves as so some one has put a magnet at 2050 my attention is mostly in Japan. and yes contrarian as ever, long usdjpy and Nikkei.



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Anonymous
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April 12, 2016 at 7:21 PM × This comment has been removed by a blog administrator.
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Macro Man
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April 12, 2016 at 7:29 PM ×

@ Pol, have you actually looked at a chart of EZ banks? What about it possibly says "bears getting ground out of a position"? As Nico would attest, the top in EZ equities was a long long time ago; there's no one trying to call the top there, and if one followed your suggestion of stop entries, they'd be...er...short.

As for Brexit, "renewing trade agreements as fast as possible" still entails many many years.

Re: JPY, I tend to agree that it may have done enough for now, but that matters not a whit for the spx on anything but the micro term.If SPX were really trading tick for tick with the yen, it would be ~15% lower now.

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Anonymous
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April 12, 2016 at 7:31 PM ×

Let's recap:
- First we had NIRP making debt generally cheap and allowing insolvent banks to stay alive, preventing any crash in equity indexes.
- Then we had govt bailouts (TARP etc) adding to the above.
- Then we had QE forcing buyers further out the risk curve, pushing up equity indexes.
- Then we had CBs purchasing corp bonds, allowing further equity buy-backs and bidding up equity indexes.
- Then we had NIRP in an attempt to force more lending to push up equity prices.
- Now energy debt is being held off-balance sheet (to prop up equity prices)
etc etc

If I was an equity bear, I'd be thinking "Surely CBs will find yet another manipulation to keep equity indexes bid". So why are people shorting them?

Next stop: CBs buy CL, then ES, then resort to helicopter money.

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Polemic
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April 12, 2016 at 7:39 PM ×

MM, banks suck but Dax is at at the beginning of March and this is by no means an all out old fashioned Euro crisis and until it is I'll bide my time.

Trade agreement - It doesn't have to take many many years and if a global crisis really was going to ensue, I am sure that those that be could get the photocopier out pretty quick.

I totally agree with your last line and you may have mistrued me. Jpy and Japan matters not a whit for SPX. My point is that while US markets are range bound around 2050, I'm moving off to somewhere with more fun in it - namely Japan.

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Macro Man
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April 12, 2016 at 7:48 PM ×

@ Pol "it doesn't have to take many years" Pls provide one example of this. I can provide dozens to the contrary. if the EU is so efficient, why leave?

@ Anon 7.31 Let's recap
-SPX flat on year despite Yellen fluffing it
- NKY -16% ytd
- SX7E -25% ytd
- SX5E -9 % ytd

If you have to ask why people are shorting, you are either quite thick or on the wrong blog. Either way, not a contributor to a meaningful dialogue. On your bike.

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Anon 7:31
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April 12, 2016 at 8:15 PM × This comment has been removed by a blog administrator.
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Macro Man
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April 12, 2016 at 8:16 PM ×

Sorry, this forum is not for children who think 5 years is "long term".

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Leftback
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April 12, 2016 at 8:33 PM ×

Sorry to pile on here, but some people just don't seem to be very bright .... there is a very high probability that we are about to experience something that happened several times in Japan during the 90s. The YC can't invert b/c of CB intervention (which we have been reminded of a lot by Anons..) but when the YC flattens there can still be an earnings recession, and if one or more CBs lack the ability to intervene (in this case FOMC), that can quickly take down equity markets all on its own. Why? Because it isn't a magic asset called Spoos. It's actually a basket of stocks of companies that have earnings. Really, it is. The same with Stoxx. And the Nikkei. Periodically there are going to be reminders of this, and we might be about to get one.

Europe looks absolutely horrible, as MM points out above. There has been a real YC inversion event in Japan and Germany in recent weeks. That just cannot possibly be construed as bullish and those equity markets already reflect it. So although we are still slightly long risk, yet at the same time we can tell you that we are really peeing our pants over here at Hammock Capital, and are gradually getting long UUP, for the time when Bucky decides it is wisest to return to the nest. We have been trimming long held positions in Europe, EMs and energy and holding on to US defensives like REIT preferreds.

Some of you are going to wake up one day soon to that awful feeling in the pit of your stomach when you see that USD and JPY are bid simultaneously, but you are leveraged long risk and global equities are taking a technicolor yawn, led by Europe.

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Anonymous
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April 12, 2016 at 8:38 PM ×

Macro Man - Bet you wish you could delete your losing SPX trades too eh? lol.

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Macro Man
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April 12, 2016 at 8:42 PM ×

There's no need, because that trade isn't a troll or a time-wasting useless twat. Piss off- I don't want you to waste any more of my time.

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Anonymous
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April 12, 2016 at 8:45 PM ×

LB - I'm a fan of your posts and value your opinion. However there is one flaw in your argument. The flaw is that these US equity indexes barely drop a few % before they are followed by massive non-stop buying. For 8 years I have heard daily commentary about how this is not sustainable - and yet it sustains.

Here's the thing. Intellectually I FULLY agree with you. And it annoys me that these markets are so irrational. However, I find myself either forced to be long SPX (or related) or not trade them. It's a crazy world.

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AL
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April 12, 2016 at 8:56 PM ×

While I share the opinion that the situation in the banking sector in the Euro Zone is pretty dire and especially in Italy, I am pretty convinced that the trade to express such view is not through equities, which have been already decimated, but through BTPs. Difficult trade I know, but my sense here is that positioning is rather massive: insurances, banks and pension funds in Italy and most likely elsewhere are full of this up to the eyeballs and should something go wrong, the monthly purchases done by the ECB are just a drop in the ocean (or pissing in the Mediterranean :-) ) to be considered a solid buffer.
Take pension funds: more than a third of the standard euro government bond index is trading with a negative YTM and as a consequence assets have been moved slowly but surely to the remaining portion that still offers some positive YTM. Italy in such case has been the main beneficiary of these flows.
So, in my opinion, the Trade of the Quarter is short BTPs, while on equities I am pretty comfortable with a decent underweight.

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Anonymous
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April 12, 2016 at 9:33 PM ×

@polemic
"
Trade agreement - It doesn't have to take many many years and if a global crisis really was going to ensue, I am sure that those that be could get the photocopier out pretty quick."

Or another Way of looking at it, if the €uro threatened to cease exsistance, because of a cascading chain of unrelated events, I imagine a deal could be done pretty quickly to avoid €uro break-up at all costs.

No intentional tinfoil hat, it just has to be said.

Sucker.

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Anonymous
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April 12, 2016 at 9:40 PM ×

@polemic
"
Trade agreement - It doesn't have to take many many years and if a global crisis really was going to ensue, I am sure that those that be could get the photocopier out pretty quick."

Or another Way of looking at it, if the €uro threatened to cease exsistance, because of a cascading chain of unrelated events, I imagine a deal could be done pretty quickly to avoid €uro break-up at all costs.

No intentional tinfoil hat, it just has to be said.

Sucker.

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Nico G
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April 12, 2016 at 10:36 PM ×

spot on regarding the short BTP trade - leverage is back to 2007 level where a 3% move would wipe our your entire portfolio

what kind of a world have they built, that a Brexit or a 50bps rate hike would be 'a major threat to the global economy '. Everyone is shitting their pants - it's palpable

i would love the Brits to give the middle finger to Brussels and go back to calibrating the curvature of their cucumbers the way they always wanted


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Anonymous
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April 12, 2016 at 10:44 PM ×

@AL - man I had a great time scalping btp futures back on Corzine and the volatiliry for a year after. There's no messing in there when someone's gotta dump!

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Rossco
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April 13, 2016 at 5:52 AM ×

short term - the dxy seems to be on a pretty big level with momentum traders short dollars

longer term - personally (in response to the above re: European banks etc) the European situation makes me think we will see EUR/USD into the 130's within 2 years, the analogue being the JPY in the 1990's

de-leveraging banking sector - check
deflation - check
current account surplus - check
political cover to print diminishing - maybe check
availability of financial assets for public consumption decreasing - check

I could add a few more spurious claims, however, I find it hard to see where the supply of, or indeed the demand for, new Euros comes from

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