Hi ho silver

Although oil seems to be hogging the headlines in the commodity space these days, there is plenty of interesting price action in other markets as well.   Specifically, silver has been on a ripper recently, taking out all sorts of resistance levels on the weekly charts and looking primed for more gains.  Indeed, the chart is starting to remind Macro Man of GDX, which continues to perform strongly.


Although regular readers will know that your author is not an adherent of metals, be they tin foil or otherwise, he's as much a sucker for a good chart as the next guy.  It's interesting, therefore, that not only is silver trading strongly on its own right, but it's also broken what looks to be a key level against gold as well.


Why is this interesting?  Well, generally speaking silver is a high beta play on commodity strength/dollar debasement...so when it breaks interesting technical levels, it at least throws up a flare that something of note may be going on in the broader market.   Although it's a noisy relationship, over the last dozen years trends in the gold silver ratio (inverted) have generally tracked developments in broad commodity indices fairly well (the chart below shows the CRB in yellow.)


Are there legitimate reasons to think that these moves may have legs, other than chart monkeys piling in?  Quite possibly yes.  Macro Man's work suggests that in addition to trends in the dollar exchange rate, one of the most important explanatory variables for changes in broad commodity prices is the change in real interest rates.  In this sense, the ongoing compression of nominal yields thanks to QE/NIRP/global yield deficit, combined with the recent uptick in inflation, offers a potentially powerful tailwind for commodities- particularly those of a quasi-monetary bent.  As the chart below illustrates, the one year change in real US 10 year yields is close to its most negative level in nearly four years.  Needless to say, much of the intervening period saw increases in real rates that coincided with the collapse in commodities.


China, of course, is the elephant (or is that the dragon?) in the room.  Macro Man's growth proxy remains quite downbeat, hovering near its lows.  That being said, the surge in credit growth is very notable and has yet to really show up in the data comprising the growth indicator.  Moreover, the sell side is getting more constructive as well; both MS and GS have come out this week with upbeat pieces on the near term growth outlook for China.  Should those forecasts materialize, you could add that to the list of factors supporting commodities.

Finally, what of commodity currencies?   Macro Man re-ran his model on AUD/USD for the first time in five months, and what do you know.  Although the model thinks the Aussie should be a little higher than it is now, generally speaking the magnitude of the recent rise is bang in line with what the regression would suggest.

The message, therefore, would appear to be caveat vendor, both for the AUD and for many commodities sensitive to liquidity conditions.   Of course, should commodities rally far enough, that could (and clearly should) have implications for the trajectory of monetary policy in places like the US.  Should that become start to become priced into rates markets (as even Rosengren would like to see), then that would be the obvious time for longs to head for the exits.  Until then, it may well be a case of tuning in to the Lone Ranger for profitable trading advice.

This will be the last missive of this week, as Macro Man is taking off with the Macro Boys for the second half of this week's school holidays.  Normal service will resume next week.
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Anonymous
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April 20, 2016 at 7:13 AM ×

Great, we are going to get some market madness so. 1000 comments by Friday.

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henner
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April 20, 2016 at 8:03 AM ×

sorry, but I don't really get the last passage. (probably because of not being a native English speaker).... Macro Man is gathering lots of small bullish cases for commodities and is then saying one should be a vendor (= seller) of AUD and commodities. how come?

I think markets are slowly getting ahead of themselves in commodities. Clearly there's been a couple of constructive things happening for them - weakening USD, chinese old-school stimulus and housing recovery which pushed many shorts out. To me this looks rather temporary however and has rather given a lifeline to many steel, iron ore, metals producers which will ramp up output again. I'm watching so far but would probably sell into it, if we move up another 10% in let's say Iron Ore, Coal, Metals

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Anonymous
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April 20, 2016 at 8:44 AM ×

he means (short)sellers beware by playing on the original caveat emptor which means buyer beware

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Anonymous
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April 20, 2016 at 8:48 AM ×

Washed
"but one struggle I have is that this market (us equities specifically) is unlike any I've ever seen , and I've seen a few just like you - when was the last time we kept threatening to take out old highs for almost two years? "
True for the SPX, but the Dow got into it's topping range as early as April '99. Did go marginally higher Dec '99 and was still topping in April '02 before it finally went south. Hate to say it ,but when it comes to topping I feel people are trying for too much accuracy in describing it. The fact is on monthly charts the US equities look like shit , that is distribution. Not looked because they are not my market ,but I would bet money the breadth looked equally crap.
Take a look at monthly's is my way of getting away from the noise which seems to be appearing in the blog more and more courtesy of JBTD. Personally the latter is going to win small until it loses big and becomes a 'wash' forgive the pun.

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Anonymous
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April 20, 2016 at 8:50 AM ×

Hey ,but of course the JBTD winners are going to be in touch with their crystal ball called hindsight and they'll be out with the tiniest of losses ....kiss my arse chaps.

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Polemic
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April 20, 2016 at 8:52 AM ×

No Henner - "caveat Vendor' = seller beware i.e. watch out if you are thinking of selling. MM's cunning opposite of caveat emptor "buyer beware"

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Skr
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April 20, 2016 at 9:40 AM ×

MM-Touche! Enjoy the hols.

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April 20, 2016 at 10:04 AM ×

I dont have short term views nor are we in the business of "urs-mine" technical trading so my two cents on US EQ in general is that price action is telling and seems we are likely to see higher levels for a week or two. But it makes no difference imo. However, what we are more certain about is that looking at the two year windows of our US model, inflation is likely to creep up to target possibly as early as end of this year. At the same time growth dynamics continue to decelerate and wiggling below trend. Must add the above outputs are absent of any shocks as we know it today, and let me tell you there are a few potential ones out there. Summa summarum, the macro environment is not EQ friendly at all going forward.

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Anonymous
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April 20, 2016 at 10:25 AM ×

what is Summa summarum ?

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Polemic
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April 20, 2016 at 10:27 AM ×

Has google stopped working today?

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Anonymous
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April 20, 2016 at 10:32 AM ×

first few links were German so thought it was slang.

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amplitudeinthehouse
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April 20, 2016 at 10:55 AM ×

You enjoy you holiday , Macro Man. Parents out there understand that since leaving your last job you have.......move on. Leave a poor mug alone.

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Anonymous
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April 20, 2016 at 10:56 AM ×

anon 8:48 & anon 8:50 - Can you stop the childish trolling please? No-one is interested in trolls always buying or SELLING. Frankly you guys are as bad as jbtd and if anything less transparent in your calls. You really bring down the tone of this blog.

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Polemic
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April 20, 2016 at 11:11 AM ×

MM- I'm fully on board with the commodity thing. Look at Rio's performance over the last few days. Up another 3% today. The bombed out dogs are barking again.

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Amplitudeisofftothebettingshop
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April 20, 2016 at 12:27 PM ×

I kid you not, Pol..this question just come up.

"4.6 Why are there superstar cricketers but no superstar plumbers?"

(Hubbard 305)
Hubbard, Glenn. Essentials of Economics, 3rd Edition. Pearson/Australia, 42217. VitalBook file.

There you go , I even referenced it for you.

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washedup
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April 20, 2016 at 12:45 PM ×

@anon 8:48 - of course thx for the reminder not to over-focus on spoos - I have a bias towards thinking the people who look at Dow are the ones who still insist the internet is just a fad, but that doesn't mean it can't be useful.

@MM I think there has been an unwind of the strong dollar trade from commodities - its that simple - these things are simply not liquid enough to withstand small re-allocations. Your prediction, therefore, is tantamount to calling the demise of the bullish dollar trade - not saying you are necessarily wrong, but I think the reflation/goldilocks stage is likely to be very short - more likely we careen from (fears of) deflation to stagflation, back to deflation like we supposedly used to in the 70's.

If you are right about the 'catch up' trade then the long bond is a screaming sale - can't think of a better risk reward. Spoos and Blues up 10-11% for the year is simply not normal something needs to give.

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Polemic
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April 20, 2016 at 12:51 PM ×

Amps - I hope you explained that it all depends upon your definition of Superstar. If you have ever used Pimlico Plumbers in London by their bills you would think= they are, in F1 rhyming slang, a bunch of James Hunts.

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Booger
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April 20, 2016 at 1:02 PM ×

To me, the commodities story, equities story and risk story is mainly due to the dollar correction. I think we have another 2 weeks of this. The backdrop to this rally is terrible though. I agree with Nico, that we are probably at the verge of a major breakdown sometime later this year.

A negative Q1 GDP print is very possible and if this does not freak out the market, then a smaller than expected Q2 bounce could. Everyone keeps saying the U.S is not heading for a recession this year, and yet, it does look like this is distinctly possible. The fears about this in January were premature, but they aren't now with housing starting to roll over. Anyway, the market has an ADHD-like attention span, so we could move from the current bullish focus to the other end in May.

I think spoos has reached target, I am still waiting for aud.usd 0.8 to get short and am waiting for a final plunge in DX to 90 area.

Maybe I am missing something but it seems the current rally presents a very uncommon opportunity to get positioned to short risk with very good risk:reward potential.

Price creates it's own narrative and it seems currently: the turnaround in China and resources are at a bottom are being touted as reasons for the commodity rally. Another interpretation is that the fundamentals are still terrible but the price movement has been driven by dollar weakness and positioning from one end of the boat to the other. The spec long interest in aud.usd is getting very juicy and although not quite ripe, I think we are getting close to it and I'll be watching 0.8.

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Amplitudeisofftothebettingshop
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April 20, 2016 at 1:33 PM ×

Pol , again economics was telling you the negative externalities were cumulating when brokers and price fixers saw demand rise for commodities that had only been isolated within a monopolistic market. Once the big players saw how easy it is to create pure competition they duly moved into the market. This has created a saturation of traders with a psychological bent of that they would be the second last buyer before moving into another market but still with shares in an annuity set up within the last one and along with not having to put up any risk.
Quite clever traders, indeed. But here at Macro Man where players too...we loooooooooove to get down and dirty in our research department where our analysts work around the clock trying to create alpha positions from the unforeseen negative externalities that become embedded within fellow players books. ha!

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Anonymous
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April 20, 2016 at 1:49 PM ×

I could be wrong but my impression is that sliver is often the last guest to a party.

And the MM vacation indicator has a much higher hits rate than some obscure MA crossing signal as far as I concern. So I am trimming my long today.

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washedup
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April 20, 2016 at 2:14 PM ×

oh snap - anon 1:49 - thx for reminding us of the MM vacation indicator, the biggest, meanest alpha machine ever created.
MM - I highly suggest you ditch your weekly MA crossover charts and your CTA models and instead analyze your past itineraries - for all you know your future vacation bills may come to be paid by an algo wielding quant fund.

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Leftback
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April 20, 2016 at 2:45 PM ×

Going long volatility as soon as MM boards the plane has been a winner for years. Enjoy the trip, mate. Btw congrats to MM and anyone else who rode the GDX up from 13-14, we looked at that several times early in the year but never pulled the trigger, although we participated via a few miners we bought late in 2015.

So we have had a load of debate here for a long time about reflation/deflation etc.. and we really need to consider the possibility that there is actually sweet FA going on here, growth is slow and rates are low and it's going to be like this for years. However, b/c of CBs dicking around with Unconventional Policy, there are going to be rolling waves in the USD, for example, that will serve to generate and amplify (via leverage, the mother of reflexivity) little bouts of reflation and deflation.

We are seeing one of these now, of the Reflationary type, exemplified by the enthusiasm for all kinds of commodities, AUD and EM equities, and I believe that it is short-lived. The underlying reason for my position was pointed out by MM himself above. The reflation trade is a leveraged bet on the health of the Chinese economy. Real data suggest that this is very slow or slowing, and that official data are nonsense. Resource demand remains relatively weak around the globe and supply has remained firm in almost all commodities, especially crude oil. AUD in particular is leveraged to China.

Bottom line, it may be too early to short the Reflation Complex, but equally it is probably too late to get long, and a quick look around at the punters getting on the bus (the media) should give one pause as to where this ride is going to end.

Within the next 30 days, we are going to wake up to simultaneous USD and JPY strength, and the proverbial "repricing of risk" will be upon us once again. Who knows what the trigger will be? An unexpected US data point? A subtle shift in Fed dots? Hawk Talk and another media outing for the Hawks and Hikers club? Some kind of accident in the Chinese bond/equity markets, auction failures in Japanese or European bond markets, who knows? Another downturn in the oil price will almost certainly feature, with renewed stress on US high yield markets. Latecomers to the commodity party and other lazy sunbathers are going to be taken unawares.

Hawkish shift and seasonally stronger US data are far more of a risk than is currently appreciated, and that could impact USTs and equities together, at the same time as earnings weaken. Bucky might be the safe haven of choice once more.

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Nico G
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April 20, 2016 at 4:54 PM ×

Booger and co

if at the end of January among maximum fear they would have told you they'd handle you 2100 SPX late April anyway, what trade would you have planned?

this short opportunity sounds too good to be true indeed. And whoever had the resolve to hold their longs and not sell the hole and are not trimming their US equity portfolio today is plenty greedy and potentially abysmally stupid, the next 30 days will tell.

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Anonymous
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April 20, 2016 at 4:57 PM ×

ROFL @ Nico.
So equities and risk assets are soaring higher, no bad news can derail them, and your thesis is sell because they are too high?

ARE YOU F*CKING STUPID?????

Fade Nico.

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Anonymous
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April 20, 2016 at 5:04 PM ×

Of course price being too high is THE reason to short. That is the definition of bubble.

The timing of entering that short position then is determined by risk events. This is where a serious discussion is needed IMO.

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Nico G
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April 20, 2016 at 5:07 PM ×

by all means, fade me

i trade price, not news.

the day i'll start to worry is when i don't get abused by 26/28 year old traders on this forum

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Anonymous
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April 20, 2016 at 6:27 PM ×

The ironic thing is that if you faded nico you would have shorted the hole at the last bottom... Kinda ironic for the bullish inclined...

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Anonymous
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April 20, 2016 at 6:29 PM ×

OK my point is, one generally looks for some confirmation that the market is indeed acting according to one's thesis, and/or have tight risk control.

This market if just grinding higher, day after day, week after week. Shorting because of some arbitrary measure of "too high" makes no sense imo. Sure maybe you're right once, but overall you are trying to pick tops in a bullish market - never a wise move. However, don't let me stop you.

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Anonymous
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April 20, 2016 at 6:31 PM ×

anon 6:27 - no, Nico's last call (no offense to Nico on this) was short Eurostoxx & S&P circa 1 month ago. Both markets have surged higher, leaving those positions very much offside. Nico did not post updates to his trade, so I have no knowledge of how his actual trade went, but the trade call failed. Fading it would have made money. Sorry.

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Nico G
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April 20, 2016 at 6:41 PM ×

a brief reminder for those who were still in high school in 2008

double bottom of 1250 (January and March) in first quarter, followed by a 15% bounce into May while everyone resumed calling for new highs

you probably heard of what followed next. Difficult summer, Lehman autumn.

the 1800 mark today is as important as the 1250 pivot of 2008

it will be revisited later this year so plan your trade accordingly. Personally i am switching off machine and holding big (stoxx) shorts until this happens, sort of a self imposed holiday

good luck and beware of a potential bull trap (fake break out) the coming sessions

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W_it
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April 20, 2016 at 6:55 PM ×

If a winning strategy is btfd for years something is not right. The steroid QE programs and NIRP and ZIRP has become general knowledge. Dentists now know about them as well and the outcome. Draghi and or Yellen will come in and lift the market back up. Heck, I wouldn’t be surprised if taxi drivers soon start talking about Yellen and Draghi and what they should and should not do next. We all know what happens when cab drivers start discussing the market. Not enough taxi fares for me these days so I wouldn’t know when to sell though.

Something that interest me currently is the fact that the oil nations are selling assets. Saudi apparently sold off a bunch of eq lately. Are they done or is there more to come?

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Anonymous
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April 20, 2016 at 6:58 PM ×

Nico - Look, you are entitled to your opinions. But let's be clear, they're just opinions. The S&P "may" re-visit 1800 (like 2008) or it may rise much further (like 1998/99). If you want to post trade positions, you should also post your stop levels and risk amount. Otherwise it's just a kind of silly ego-thing - and you're better than that.

Fwiw I wish you luck with your call. I may be younger than you but I have no wish to see you lose big money. Personally though I think equities continue higher.

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Hotairmail
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April 20, 2016 at 7:08 PM ×

I agree. The strongest argument for silver et al is Yellen's determination to get behind the inflation curve in the vain hope it will make workers richer through wage growth outstripping cpi (as we mentioned before).

To see the uptick in brewing inflation, the technicals on the charts AND seeming Yellen backing for inflation by determinedly doing little about it, we have as good a set of factors as you could want really.



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Anonymous
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April 20, 2016 at 7:42 PM ×

i have a hard time being bearish here. market breadth has improved significantly. the usd is staying weak and front eurodollars are anchored thanks to janet at least for another month. US crude production is dropping and even when you get bad news like doha, crude rallies. real rates are negative and nothing is going to change that in the short term (inflation is coming off low comps and policy remains extremely accomodative). for everybody shitting on earnings, you have to understand the market is forward looking. the dollar and commodity move won't show up in earnings for another 2-3 quarters. Macro man said it best a month or so ago-the fed sold a usd call to the rest of the world. it's game over-goldlilocks (at least for the next 2-4 weeks). the one thing to continue to keep an eye on is when brexit starts to impact markets. i wouldn't worry about hawkish fed rhetoric. we all know who's in charge and she's a softie.

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Anonymous
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April 20, 2016 at 7:48 PM ×

anon 7:42 - V true. The perma-bears have been wrong for 7+ years now, and while I sympathize with their dislike of Central Bank 'controlled markets' (via ZIRP/QE etc), I fear nothing much is gonna change in the next 7+ years.

I think the Fed and China have worked out a deal re: USD to support risk assets for the foreseeable future.

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Anonymous
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April 20, 2016 at 7:58 PM ×

Given the bull views picking up the next fund manager flows report will be interesting.

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washedup
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April 20, 2016 at 8:21 PM ×

hotairmail/anon 7:42:

No strong opinion on any of your other views, but for me the evidence is building that the dollar is bottoming here (new price low without a momentum low, among other things) - in case you care. As for why it should do so given yellen's dovishness etc etc, I don't know - these things tend to have a mind of their own.

What was that about equities being a puppy, bonds being a monkey, and currencies being a gorilla?

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Anonymous
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April 20, 2016 at 8:29 PM ×

I do not know about the part of "USD to support risk assets for the foreseeable future".

Seem to me Shanghai stock market did not get the notice. All Jan/Feb loan surges achieved is to push property prices in Tier 1 cities in China to the crazier levels. The stock market barely even moved.

I do not know about the bad loan situation in EU, but I trust Nico's assessment on its fundamentals. I just am not sure about the timing of that event.

Regarding the bull/bear arguments made by anon 7:42 and anon 7:48, let me phrase this way, to get an above-benchmark return, there'd better be a deep dip and you'd better to catch it, on both ways. Otherwise you should just put your money in an index fund and go elsewhere.

When is no D, there is no BTFD.

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Nico G
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April 20, 2016 at 8:50 PM ×

true that. our most famous resident dip buying mr jbtfd himself is still waiting for that 1950 dip or in other word, he missed 1970-2100 leg up. You cheer the market all you want if you never caught the move this is an intellectual, 'i told you so' delight at best.

today it is pretty troubling to hear ALL those bullish arguments at 2100 SPX. Where was all that core, sound analysis at 1800? At 1800 most comments were about how bad world/oil/banks/everything was and today it's all goldlocks at 2100.

so one more time, beware of traps (1800 bear trap, 2100..we will see)

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Anonymous
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April 20, 2016 at 9:04 PM ×

Quotes: "Turning to the Dow, it first closed above the 18,000 on December 23, 2014, when it closed at 18,024. Last night it closed at 18,053. So in nearly 16 months, the Dow has gained less than 30 points. But we know it was anything but calm over that time frame. In fact, the Dow has moved a total of 42,204 points (combined up and down days) since that first close above 18,000 in late 2014."

https://lplresearch.com/2016/04/20/a-closer-look-at-dows-18000-level/

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Anonymous
admin
April 20, 2016 at 9:32 PM ×

Nico said... our most famous resident dip buying mr jbtfd himself is still waiting for that 1950 dip or in other word, he missed 1970-2100 leg up.

Nico, reading the posts jbtfd exited his long spoos trade on 1 Apr (SPX closed at 2072). Admittedly he'd closed half of it lower down. However, catching a couple of hundred points in spoos isn't bad even without a full position - not sure this is a great example of hindsight trading, if that's what you're implying.

I agree with anon 8:29, there hasn't been any dip since, which I guess is why jbtfd hasn't bought it.

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Nico G
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April 20, 2016 at 9:48 PM ×

i am happy he made some money. what i am trying to highlight is all the difficulty of trading. This is the only discussion worth having.

let's be jbtfd for a second and say the market continues to 2140. Then dips to 2070. That's a reasonable 3% dip. Do you buy that 2070 dip where you actually sold the previous one?

calibrating your entry is the name of the game - then you need calibrating your stops

if you grow so confident in 2014 and 2015 you end up buying dips very agressively. Then August 2015 comes and you get stopped what? 10 times in a row? after you get 4 consecutive losses you probably freeze your trading. You start again when, November? How many dips have you missed by then

then how many times do you get stopped in January? what's your profit on your next first good trade of 2016? how many dips have you missed? etc etc

cheering a technique is one thing - mastering the dip buying is incredibly arduous. That is all that there is to say to it. I'd love a separate topic in MM blog regarding pure trading

the observations 'it is going up as i said' or 'flat' or 'going down now' are a waste of online ink.

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hipper
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April 20, 2016 at 9:58 PM ×

Tend to agree what's been roughly said in the last weeks. Much lower real yields since January 1st have been a real boon for equities and probably contributed much to the recovery from Feb lows. Though I think it's reasonable to assign it as a temporary anomaly since core CPI is already hovering way above 2% and PCE was last seen kind of shooting up to catch it. Then at some point Fed started saying that "we need to wait and see that CPI is not only a temporary spike" i.e. goal posts got moved again. Though starting to think there really are other reasons for Fed action and inactions for which these stories are only made to cover up. So we probably just have to still wait much deeper into the year (end of Q3 or so) to get relevancy from elections out of the way to get the goal posts reset to where they were before. Nevertheless at some point long rates shouldn't be able to ignore CPI further and that could be the single most important leader for equities to watch. Q1 earnings seem to be continuing on the path of stalling, goldilock results for now and by themselves no reason why indices should go higher were they were in the beginning of the year, though probably the opposite applies as well. So that doesn't help as real yields and other things that originally drove the start-of-year scares are probably more important. What we need is a real inflation panic which should eventually follow after pricing in everything dead, since the truth is usually somewhere in between but the expectations always shift from one extreme to the other.

Agree the EM/commodity stuff way related to DXY. I sold a bunch of them too early. DXY has seemingly been doing nothing but whipping around with no real conviction this year, thanks to the Fed excuses but heading deeper into the year we could expect things to start changing as potential political reasons step aside.

Euro/JAP QE? Does anyone really care any more? Unless they get increased in increments in the €10s of billions every quarter, I think that shock-and-awe effect should be wearing out fast. The patient is already living in the fantasy QE world already sedated to the max, unless the dosage get increases more frequently than before the symptoms should start happening even without CBs doing anything but maintaining status quo.

DM equities generally. Are the stated reasons on which they reached Feb lows solved? How do we know they will not come back to haunt again?

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Anonymous
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April 20, 2016 at 9:59 PM ×

The Middle East SWF's, to carry on another Anon's post. If we revisit Q1's selling, I guess we had the SWF's dumping assets as oil collapsed, along with China panic 2 and Europe follow on from Draghi's Dec movements. It was a cascade of severe bad news. Recent nad news has not been in that realm and we've had CB backstops from BoJ, ECB and FED. This weeks Dax & oil rally has caught me off guard based on fundamentals but, price is price at the moment. Even a Chinese smackdown in Asia couldn't halt the dax.

We might pair gains post ECB tomorrow. Looking at charts, there's a gap from end of Dec to first real trading week in Jan to be filled and played around in before the next leg wherever.

ECB's new QE programs only got going last week. Is this what kickstarted the Dax? Forget euro as ECB has said they no linger consider it the key transition mechanism.



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Anonymous
admin
April 20, 2016 at 10:02 PM ×

Nico, yes I fully agree with you on the difficulty of trading. These are all valid points. Added to the trading difficulty is the difficulty of running risk in a zirp environment where we have never been before (thus many previous correlations etc are no longer valid).

anon 9:32

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Anonymous
admin
April 20, 2016 at 10:36 PM ×

Treasury bond yield is finally rising today: TLT dropped below 130, the first time since the beginning of this month. My 2 cents: it really needs to drop to 120 level to make a equity market correction possible at this time.

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Leftback
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April 21, 2016 at 12:05 AM ×

Some signs of life in the dollar today. A reversal candle in EURUSD, which we have been led to believe "isn't going anywhere" at the moment b/c both ECB and FOMC are out of the game for now. A lot of assumptions are going to be tested in May.

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Leftback
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April 21, 2016 at 12:10 AM ×

To accompany the action in EURUSD, we also saw a striking example of an "outside day" reversal candle in GDX. That is usually one of the leading members of the Reflation Trade posse, so one wonders if this is a sign of things to come.

We are short GDX, btw, in addition to other hyper-extended reflation vehicles (USO, AUDUSD, CADUSD, IWM) and long UUP.

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Indexer
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April 21, 2016 at 12:51 AM ×

SPX has hit all time highs, which is exactly what all rational people should have expected:

- Predictions of the end of QE crashing equities have proved false
- Predictions of a peak in margin debt crashing equities have proved false
- Talk of negative household flows is nonsense (they have been negative for 20 years)
- Talk of a rally based on buybacks is false, equities have continued to rally in the absence of significant buybacks
- Falling GDP predictions have also had no effect (GDP is growing at 2.5% and equities are rallying)

The reality is the US economy is growing steadily and there is no sign of any imminent recession. Equities are forward looking and priced accordingly. The market is completely rational.

We would expect SPX to be higher still by year end.

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Anonymous
admin
April 21, 2016 at 1:17 AM ×

this is anon from 7:42 again...

lb, while the dollar could rally against EUR and JPY short term, i think EM FX will still be well supported. i will admit that you are starting to see eurodollars creep lower, but i believe that is 100% because of oil and higher oil prices are a bigger boon for equities than a slightly stronger dollar vs eur/jpy. you have to understand when it comes to equities though that DXY has come from 100 to 94 and change since Dec. Meanwhile, equities are unch. That means equities haven't yet begun to price the impact of this weaker dollar and also why i think we will see new all time highs in the next month. What allowed us to get back to flat is that credit is behaving a lot better now but the tailwind from fx will get us to new highs.

with respect to reflation trades-i have no argument on the GDX. gold in my eyes is a risk off instrument and we have been decidedly risk on. i like selling gold skew here (upside is very bid) to finance other protection.

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washedup
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April 21, 2016 at 2:18 AM ×

@anon 7:42 - interesting stuff - you seem to have made up your mind, so this is more to clear my own thoughts as I look at your arguments than to convince you out of your thesis, which could absolutely be correct.

Re: dollar - i would argue that given the lags in currency effects, earnings have only shown the impact of the dollar index in say the low 90's, and spot at 94 is higher than the long term MA (400 D) - so I don't yet see the dollar move as a tailwind to earnings, more as a subsiding headwind. Also don't lose sight of the fact that about half the move down in the dollar is a byproduct of JPY strength, which is the 'wrong' kind of dollar weakness for risky assets.

Re: credit - based on JNK and HYG, we have made our way back to the levels from last Q4 which precipitated a couple of panicked crashes - to be commensurate with new highs, wouldn't you want to see them at least at last summer's levels? That would require another 10-15% upside in those names, and crude at a minimum of $50, since thats what drives those indexes.

And yes, equities may indeed be higher a few percent YoY by Dec 31st, so say 2150-2200 is not unreasonable - but do you really think the path from here to there won't have even a few potholes? I am finding it hard to see this year going like 2013.

Also, the supply response in crude (both shale and the saudi strategy) has nothing to do with the dollar, does it? the only way a weak dollar would help EM is by relieving financial conditions (or more specifically by taking major downside risks away) and perhaps starting a new credit cycle, which may help miners a bit, but I am highly skeptical it will have the same effect on the margin as it did previously.

Like I said, not saying ur wrong…..

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Anonymous
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April 21, 2016 at 2:28 AM ×

@indexer,

Are you recycling old articles from last year?

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Leftback
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April 21, 2016 at 4:06 AM ×

USD strength/weakness isn't tightly correlated with US economy strength, b/c: 1) there is a delay in the transmission mechanism (higher dollar hurts manufacturing/exporters) and 2) 70% of US economy is domestic consumption, a very high percentage.

However.... USD is obviously tightly connected to commodity prices including crude oil, EM FX and EM equities, precious metals and so on, and by extension (via rates and oil prices) is also connected to high yield credit and small cap equities, both sectors with a lot of drillers. So even a brief episode of stronger US data or more hawkish Fedspeak can have an effect via a stronger USD. Just because an apple hasn't fallen in three weeks doesn't mean that gravity has been abolished.

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Anonymous
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April 21, 2016 at 11:45 AM ×

Commodity trader explains how Central Banks are co-ordinating efforts to generate inflation by buying commodities:

http://www.zerohedge.com/news/2016-04-20/one-commodity-trader-writes-what-happening-has-absolutely-no-reasonable-explanation

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Anonymous
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April 21, 2016 at 11:52 AM ×

This is for Nico:

https://www.youtube.com/watch?v=NNfPiFuM49Q

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Anonymous
admin
April 21, 2016 at 12:41 PM ×

A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits. As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark. Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.


Thanks Janet.

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Booger
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April 21, 2016 at 1:09 PM ×

Washed: I want to buy dollars here but I'm unconvinced that it has bottomed. Oil looks like it wants to head to $48 and we may need a clearout to DX 90 for a real bottom.

LB: stronger U.S data, a pickup in rate hike expectations and a stronger USD later this year is the consensus.

I think the surprise would be if data was weaker than expected and this was the start of a recession. The complacency about a weak Q1 GDP print is very high. There was slow growth in the first quarters of 2011, 2014 and 2015 before, so everyone is used to this and expecting a pickup therafter.

But we are much weaker here than last year:
Business inventories (mo/mo) :
January's (revised) - 0.1%
February -0.1%

Business sales
January (revised) -0.8%
February -0.4%

Retail Sales
Jan +0.2%
feb -0.1%
Mar -0.3%

Industrial production:
Feb - -0.5%
March -0.6%

Housing starts flatlining in Q1 and permits appear to have rolled over.
The main bright spot is that the labour market appears to be holding up still.

There is some evidence that the inventory cycle has turned from January this year and the U.S consumer is croaking. Which is not surprising since real wage growth has been low in this recovery and likely has peaked with inflation starting to tick up slightly and no wage pressure to speak of, despite the unemployment rate.

What appears not priced in at all (particularly in the equity market) is the risk of recession this year. Which would be my main reason for shorting spoos at these levels. The market is looking everywhere else except this and it would be the thing that would bring on the next bear market. 7 years into a recovery and the economy at close to stall speed, one would think this risk would be more priced in, but we have been here so many times before that the market has become habituated to this danger. Like Bertrand Russell's Christmas turkey !

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Hotairmail
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April 21, 2016 at 1:13 PM ×

I don't really have anything to add about the state of markets. Nor do I have the foggiest about currencies (and never have) even though I recognise that is a hindrance to trading other assets. All I can do is observe them as I don't really have any other data than that in my armoury.

Just to say, I try not to get into arguments on t'internet about my position in case I get wedded to them and it becomes a matter of honour.

Basically, I just try and trade like a Far Eastern football supporter. See who's winning and then support them. We are extended here, but weakness in equities hasn't set in yet. I get the feeling the equity buying of the central banks is having an extraordinary effect on top of Yellen's change of heart. No point in jumping the gun and shooting like a hero.

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Anonymous
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April 21, 2016 at 1:24 PM ×

Agree with Hotairmail, thats why I find chest beating here (bull or bear) redundant, you are just introducing bias into your decision making process (however small).

Much better to have just discussion of themes (bull or bear !)

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washedup
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April 21, 2016 at 2:54 PM ×

Left/Pol/Abee - has MM cleared security at the airport yet?
Timing is everything...

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Anonymous
admin
April 21, 2016 at 4:05 PM ×

I thought Indexer was joking, but here is his/her source:

http://www.financialsense.com/contributors/urban-carmel/new-all-time-high-spy

Urban is a smart guy. He does not say that the market is entirely rational or that he expects anything in particular by the end of the year. He just argues that the new SPY high is not surprising. I wasn't surprised. It's a helluva bubble!

Rossmorguy

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abee crombie
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April 21, 2016 at 4:21 PM ×

The stock market internal rotation is taking its second leg. While Materials led the first leg up (after being over sold and reports that China stimulating & cutting production) along with oil and value stocks, it looks like now were are seeing phase two, as investors look past poor bank earnings towards a brighter future (at least until some turd comes out of EU in the next two weeks) and start selling off the safe haven sectors of Utilities and Staples, even as tech lags (though big tech earnings coming out soon)

With banks and now auto getting a little bit of a bid, look for EU and JP to play catch up.

IMO, this is more a market to play sectors than the headline as I doubt we are going to rocket higher from here (though it is possible we go up another 100pts in spoos). As long as dollar stays contained, DZ's call for EM carry looks like the way to go IMO, paired with a short in over owned staples & utilities.

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Leftback
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April 21, 2016 at 4:43 PM ×

Look, I don't give a monkey's about everyone chest beating, but let's face it, this rally was led by short covering in commodities and a weaker dollar and has since then been sustained by the usual unholy Trinity of algos, momos and FOMOs. To continue to fly higher from here in the face of supply/demand data, it requires leveraged monkeys and the oxygen provided by a weaker dollar. Now let's examine the current case for further dollar weakness...

1) A more dovish Janet? Puh-leeze....? A firm Super Mario or Kuorda supporting the Euro/Yen? Don't make me larf.
2) Global slowdown. Well, yes, but we are already there, especially in China, and that would attenuate the dollar selling.
3) A sneaky ol' US recession. Oh come on, we are not cheerleaders for the US by any means, but LOOK OUT OF YOUR WINDOW.
http://www.marketwatch.com/story/jobless-claims-fall-to-42-year-low-2016-04-21?link=MW_latest_news
4) Unexpected Q1 '16 weakness in the US? Um, people, that was being priced in to USTs and USD back in January.
5) A surprise H2 '16 recession in the US that drags down the dollar? Come on, we are going back to 2% trend growth.

Basically I am with MM here, we are at the upper end of a range-bound market between (1800-2010) SPX, (30-45) WTI and the lower end of a range-bound market between (94-100) DX. Nothing more exciting than that.

10y rate differentials between US and Japan/Germany are signaling a move higher in the dollar b/c the US is not in recession. We have just exited another seasonal soft patch and going back to another 2.0-2.5% Q2. Boring.

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Anonymous
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April 21, 2016 at 4:48 PM ×

You can read Urban directly on his fatpitch blog.

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Leftback
admin
April 21, 2016 at 4:49 PM ×

*2010 = 2100. DX (93-100)

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Anonymous
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April 21, 2016 at 4:56 PM ×

"We are in the upper end of a range bound market between (1800-2010) SPX" that we have been in since 2014. The dow crossed 18,000 two years ago, and has gone nowhere. Two years is a pretty long time for a consolidation phase. Trailing PE's may be pricey, but forward PE's are around 15 if 12 month forward estimates are close to being accurate, which they usually are baring a recession. This is not a cheap market, but valuation depends on what happens next. While it is entirely possible that we are headed for recession, the historically best models show a very small chance at present.

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Anonymous
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April 21, 2016 at 4:57 PM ×

Agree with LB on dovish Janet: Her word cannot be more dovish after the last few speeches. She can only be more dovish if she says
1) no rate hike this year or for the next few years;
2) cutting rate this year;
or 3) starting a new QE.

So short of these actions, she is already at the extreme of the dovish side and can only be interpreted to move to the hawkish side from now on.

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washedup
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April 21, 2016 at 5:03 PM ×

lefty - am I supposed to convert your cryptic message to binary first?
Too late - didn't realize it was self destructive…

indexer - thx for that article from the urban gentleman - I did think it was a very long winded way to say 'markets can go up in spite of everything'. I am guessing the last time the battle hardened punters on this board were surprised by anything, they were 12 and opening a letter from Reader's Digest while visiting grandma.

Abee/Left - interesting debate - I am more in Left's camp - great case can (and was) made for US equities to not fall apart earlier this year - the case for them to continue into outer space would need a better spaceship than 'see it couldn't go down, that can only mean one thing….'.

In my opinion, in other words, equities may have reached a permanently high plateau, but its probably wider than 50 points!

Booger/Nico had some price targets that make a lot of sense to me from a risk/reward standpoint - we will see.

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Leftback
admin
April 21, 2016 at 7:03 PM ×

Anon @4:57 has it right.

The only way Dame Janet could be Easier than she is at the moment would be if she walked into the FOMC presser wearing six inch heels, a bikini bottom with Juicy on the bum and a tank top that says Do Me. Luckily for all, this seems quite far-fetched at present.

Draghi, with his bazooka, knows he is going to have to be Real Easy. Kuroda? Love Him Long Time for Happy Ending. Dame Janet may end up looking the firmest of the bunch by midsummer. What a shocker that is going to be.

Doji alert. Yesterday in Spooz, and we have had near-dojis for days in IWM. IWM first gap at 110. There's another one at 103, and one at 97. Don't lose your lunch when we get there. Oh, there is that other one at 85, dates back to 2013 and the launch for the multiple expansion space rocket we have all been traveling on. Even money we see that filled, but only very late this year, especially if the economy and the Donald appear to be doing well, with inflation percolating around 2% once crude oil has finally stabilized. That's a recipe for a far more hawkish Dame Janet. "Beware your Recency Bias", as The Great Ritholtz might say.

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Leftback
admin
April 21, 2016 at 7:08 PM ×

FXI gaps at 34, 32 and 29. Enjoy buying the dips in that pile of pig excrement....

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Leftback
admin
April 21, 2016 at 7:16 PM ×

For those who love China and still see it as the land of investment opportunity, take a look at a long-term chart of Shanghai and then lay it on top of this with a 19 year lag.... that's the demographic lag between the populations.

Long-Term Nikkei Chart

Kanpai!

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Anonymous
admin
April 21, 2016 at 7:21 PM ×

PIMCO explain how the Fed could be manipulating the Gold market:

https://www.pimco.com/insights/viewpoints/viewpoints/rumpelstiltskin-at-the-fed

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Anonymous
admin
April 21, 2016 at 7:47 PM ×

I honestly wonder how much china steel rally is due to real demand from actual stimulus. My family sells yellow iron in china and we have not seen any demand pickup at all.

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Anonymous
admin
April 21, 2016 at 7:56 PM ×

Re anon 7:47:

Remember the stock market rally in China in 2014? Nowadays, retail investors are rushing to open their future-trading accounts to trade steel futures. It can go a lot higher from here as so many people try to win some fast money in that market.

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Anonymous
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April 21, 2016 at 8:12 PM ×

Yea I am familiar with the chinese gambler mentality so thats y I wonder. Some of our clients are involved in Africa (Chinese in ghana, congo, gabon etc) And prior to aug last year they were planning to order equipment from us to expand mining and logging operations there. Since then its all gone dead and even with the recent rally in commods (I suspect their financing has gone although I cant be sure).

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washedup
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April 21, 2016 at 8:13 PM ×

@anon 7:47 - do retail investors in China own currency printing presses? HTF do they have the capital to speculate after what happened last year?
And Left - yes - China is very much a Japan in the making - welcome to the lost decade. Ironically, much worse for the rest of the world than for the Chinese.

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Anonymous
admin
April 21, 2016 at 8:14 PM ×

washed- anon from 742 again

i want to just state that I am hardly stubborn when it comes to markets. I've never been a jbtfd'er and will fully admit i missed the first 150 handles of this rally in my bear suit. given that, you would probably be right to bet against me, but let me respond to a couple of ur points...

-i honestly don't know what the delay is (Whether it's 2q or 4q) for fx to show up into earnings. i'm not really going to get into the nitty gritty of that, because when i look at the chart, the dxy is at the lower end of where it's been over the last year. tough to argue we are not at the low end of the 1y chart... http://www.marketwatch.com/investing/index/dxy/charts

-i think it has less do with absolute level of spreads and more to do with 1) liquidity crisis/panic diminishing. we have gone from bonds gapping down 10 points at a time to "normal" trading in high yield. 2) refinancing- while spreads may not get back to 2014 levels, the Fed's march anouncement has kept the entire yield curve anchored. a lot of these companies won't exist if the fed hikes 4 times next year, which is certainly a scary thought, but that's exactly what her dovish rhetoric served to dismiss

- i definitely think there will be potholes. things i'd watch out for 1) brexit 2) stagflation in the US as commodity prices rebound and continued poor growth/inflation numbers out of eur/jp (i might be crazy but i think the decoupling in inflation b/w US and eur/jpy continues) 3) china deciding to stop artificially prop up half the commodities sector (inventories of steel and copper have shot up as margin lending has been eased. housing has been strong as well, but i expect that to continue in china as people look for hard assets to store their money).

my call was moreso for a short term rip. it's hard to fight the market breadth here, rebound in commodities (Artificial though it may be in metals), neg real rates which are tantamount to a rate cut, and easy global financial conditions. I don't see a catalyst in the next month to derail that.

separate from the above, but one trade i've been thinking about is to be long em fx and short em companies. em eps has been and will continue to be shit, outside of maybe brazil where you probably see a bounce due to super easy comps at some point this year (but this is already priced).

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Leftback
admin
April 21, 2016 at 8:26 PM ×

So this is my point, ANON. Look, at some point last year DX was pricing in FOUR hikes in 2016 (DX 100). Now we are pricing in about HALF a hike, down at DX 94. So if we actually get ONE or TWO hikes, we get a stronger dollar, maybe DX 97?

After all we know what the rest of the CBers are going to be doing, don't we? Kuroda and Draghi are standing on street corners leaning into cars and offering easy virtue. In contrast, our very own Dame Janet looks positively dignified.

I do wish more people on this board could occasionally think in a more nuanced way, and not be so cray-cray all the time. I mean, can we please eschew ALL-IN DEFLATION, ALL-IN TIN FOIL HATS, or ALL-IN HYPERINFLATION GOLD-PLATED FAUCETS?

Just askin'...?

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washedup
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April 21, 2016 at 8:28 PM ×

@anon 8:14 all good points - fully agree on your inflation thesis - I am not sure I see upside in commodities as much as remind myself that inflation is a change, not a level, so stabilization at these, or even slightly lower levels would be enough to let the other factors (wage inflation, productivity losses, real estate frothiness) start to dominate.

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Anonymous
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April 21, 2016 at 8:35 PM ×

@washedup,

Compared to the property market, the p2p lending, and all those wealth management products, the money from the stock market in China is peanut. Future market is much smaller, thus it is going crazy right now, its size and impact on overall household wealth is still pale in comparison.

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Anonymous
admin
April 21, 2016 at 8:40 PM ×

did the macro man close his short, and re-load?

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Anonymous
admin
April 21, 2016 at 8:58 PM ×

The lack of intellectual flexibility shown in the past weeks here has seriously detracted from meaningful discussions. LB, China is slowing and changing, and while that will continue to be true it does not necessarily mean China=Japan+19, nor does that comment mean that one who makes it is "in love" with China, or even invested there.

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Leftback
admin
April 21, 2016 at 9:00 PM ×

If you have been watching US10y, it has had a very soft 2-3 days. Someone out there who is connected has seen some data, and before too long the rest of us are going to be reading a strong US print, and then the shit is going to hit the fan for the late entrants into the most recent and amusing miniature version of "DGDF"- the long commodity short dollar carry trade.

Maybe someone got a "flash" of the the PMI "flash" reading [due tomorrow morning] already? Ha, it's not possible, eh? Or some other little nugget of US data. Or maybe they were paying attention to the lowest initial claims data in 40 years? In any case, the Treasury market, that's the Smart Money, see, the connected punters. We were watching REITs trade like shit this week and we were selling common shares of NLY and so on b/c we saw the move to higher yields getting started.

Steepeners like that rarely occur for no reason, and they are usually accompanied by, or closely followed by FX moves, especially when US YC steepens more than Schatz-Bund, for example.

Anyway, JBTFD. Call me a Jackass, b/c all you 12 year old ES punters know more than me. Janet's got your back.

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Anonymous
admin
April 21, 2016 at 9:17 PM ×

@LB,

Based on the disappointing earnings and the large drops in the aftermarket prices of GOOG, MSFT, SBUX, tomorrow is likely to be a bloody day. Treasure bonds should rebound accordingly. If not, then it will be interesting because it means that some big real money holder is selling, which is possible a sign for potential trouble somewhere.

For those always boasting about buying equities, I wonder if they would announce their trading activities tomorrow. If there is a dip, will they buy? I am curious about the decision-making process of this group of traders.

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Leftback
admin
April 21, 2016 at 9:24 PM ×

Interesting! Google missed paid clicks, and earnings expectations and Apple delayed reporting by a day, which is, you know, always a good sign, right. Not to worry though, JBTFD. After all, earnings and P/E ratios, that shit really don't matter, it's all just a punt on Central Banks, the economy, profits, revenue, all that is meaningless. Weak/declining earnings, strong employment data, that's all great for the Market, right?

Oops, what's that? Oh, Mister Softy missed as well. No worries, tho, right? JBTFD, dudes. Party On, and I am sure Dame Janet will come and wipe your bum on that big down morning when you 12 y-o ES punters on margin have all shit your pants.

Excuse the unusual lack of civility, but the level of the commentary here from the "longs" towards Nico (for example) has suggested that a load of E-Trade babies have been let loose over here on a blog that features some seasoned and battle-hardened traders, many of whom negotiated and survived the 2000 bubble and crash and the 2007-08 bubble and crash.

Bonne chance, mes petits.

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Anonymous
admin
April 21, 2016 at 9:34 PM ×

Didn't Goog and Amazon lead the Q4 leg up last year? Intel, Goog, MSft etc. No one talks about Apple that much anymore. Funny isn't. Well, their results are gonna be important now.

Europe squeezed me by the short & curlies this week. I am eager to see price action off the cash open in the morning.

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jbtfd
admin
April 21, 2016 at 9:39 PM ×

@LB - You're ofc fully entitled to your opinions/comments/criticisms. Although I'm perplexed why you're singling me out, as I haven't even posted here recently.

Following the US cash close I scalp sold NQ futures (position now closed). Long live us bears!

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jbtfd
admin
April 21, 2016 at 9:55 PM ×

@anon 9:17 - Yep if I buy a dip I'll announce it (have done so before). As to my thinking, I'm basically watching & waiting. Will tomorrow be a 'bloody day'? Maybe. Truthfully, I have no idea. Will I buy the dip? No, because there is no dip - we've barely started moving down in US equities. Let's take out a swing low and see a proper downwards correction, then we'll see what set's up. Hope that helps some.

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Anonymous
admin
April 21, 2016 at 10:47 PM ×

JBTFD, the acronym predates your arrival on this blog. If i named myself Janet i could also feel similarly disabused from the comments.

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jbtfd
admin
April 21, 2016 at 11:11 PM ×

@anon 10:47 - Thx, yep my bad, I misread LB's post. Like your analogy though :)

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Anonymous
admin
April 22, 2016 at 12:15 AM ×

Pattern?

Oops, Daimler: BREAKING: Daimler says it is conducting an internal investigation regarding US emissions certifications upon the request of the Justice Dept

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Amplitudeisofftothebettingshop
admin
April 22, 2016 at 12:45 AM ×

Listen Pal..I'm not interested in anything you do or say. It's pretty clear, move on with you calls of buying this and selling that and blah blah blah.......please go your own way.

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Mr. T
admin
April 22, 2016 at 12:45 AM ×

Softness in the big names might raise some eyebrows, but it does little to change the relative value argument for equities vs other asset classes.

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Anonymous
admin
April 22, 2016 at 1:28 AM ×

anon 9:17 here,

@jbtfd, your plan looks reasonable to me. I actually will add some long position on some single name stock tomorrow if the price drops. So good luck on your plan!

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Anonymous
admin
April 22, 2016 at 3:59 AM ×

test

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Anonymous
admin
April 22, 2016 at 7:34 AM ×

For all the bears predicting equities crash today, notice the BOJ engaged in massive Yen selling in the Asia session, boosting Nikkei by +400 points (+2%), they also discussed more monetary easing. EU futures are now also up. Looks to me like central banks are taking it in turn to support various markets.

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Anonymous
admin
April 22, 2016 at 8:54 AM ×

BOJ using negative rates on SBLF (Stimulating Bank Lending Facility) to stimulate bank lending. Yen weaker, Japanese equities higher as result.

(Source BBG)

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Anonymous
admin
April 22, 2016 at 9:07 AM ×

BoAML reporting biggest outflow of equities in 9 weeks. How does that compute with such rallies? Would appreciate an explanation.

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Anonymous
admin
April 22, 2016 at 10:40 AM ×

"BoAML reporting biggest outflow of equities in 9 weeks"

Got a link ?

Not sure if you are sacarstic on the request for explanation.

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Anonymous
admin
April 22, 2016 at 11:50 AM ×

Squawks, no link. Not sarcastic.

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Anonymous
admin
April 22, 2016 at 12:59 PM ×

Latest BofA Merrill Lynch Flow Show report noted equities saw $7.3B of outflows, while bonds saw $4.9B of inflows. In addition, money-market outflows were elevated at $30B. Report pointed out that while government bond funds have seen outflows for nine straight weeks, IG funds have attracted capital for seven straight weeks, and there have been inflows to high yield in eight of the last nine weeks. Furious rally in high yield best symbolized by high-yield steel sector trading at all-time highs. Nine straight weeks of inflows into emerging market debt following huge $102B in redemptions over past three years. European equity funds saw 11thstraight week of outflows (longest since May 2010), while money has now left Japanese equity funds for six straight weeks (longest February 2012). Fits with unwind of strong dollar.

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Skr
admin
April 22, 2016 at 4:18 PM ×

Technical overview of global indices.
http://www.thestreet.com/story/13541165/1/attention-bulls-nasdaq-shanghai-composite-flashing-technical-warnings.html

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Talbakken
admin
April 22, 2016 at 7:08 PM ×

The silver move is also an important confirming signal that the gold rally has legs. Given g/s ratio had blown out to GFC extremes (which were pretty extreme), the fact that it has made steady declines in favor of silver is important. In general, broader gold bull trends concur with a contracting g/s ratio (and g/gdx ratio) while the opposite is also true. Many don't have the stomach for silver's volatility, but keep an eye on its price traction if you are still long gold and/or gold miners.

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Indexer
admin
April 22, 2016 at 9:01 PM ×

MSFT, GOOGL missing on earnings yesterday. Today SLB warned of "full scale crisis" in oil, slashing spending by 50%.

Take note that these are EXTREMELY bullish signals for equity buyers. Central Banks will panic (see BOJ today) and we will undoubtedly see more easing, bond buying, junk bond buying and then outright purchases of equities. (Remember that the BOJ owns over 40% of their bond market and 52% of the entire Japanese ETF market).

As I type, USDJPY is up 250+pips on the day and JP, EU and US equities are rising into the close. We will take out all time highs in the very near future and start a sustained bull run that will crush any semblance of bearish sentiment.

Oil continues to rise, so the worst of equity selling by HFs and SWFs is behind us. Finally even discretionary Macro HFs (always late to the party) appear to have capitulated, shifting from a short to long equity position during April after CTAs capitulated.

Stop being wrong, get long and enjoy the ride. Dow 20,000 awaits.

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MrBeach
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April 22, 2016 at 9:08 PM ×

@Indexer:

Thanks for the advice dude. Should I sell all my positions and buy calls in SPY or would it be safer to buy calls in those 3X etfs? Or would it be better to sell naked puts against those 3X etfs and use the funds to buy calls? I also have a HELOC that I could use. Would that help?

I'm so excited. I wonder if I should start discussing with NetJets now or wait until the summer. I've got my eyes on a Citation X.

I can't wait to tell my mom and wife.

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Anonymous
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April 22, 2016 at 9:27 PM ×

Have to say it was one of the more confusing/frustrating weeks of trading I've encountered in a long time. Normally, I have a decent grasp of what is going on, even if I want the opposite trade.

@Pol - i think i went through the majority of your trade rules this week!

Weekend wind down needed.

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Anonymous
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April 22, 2016 at 9:48 PM ×

It is an unusually quiet trading day. QQQ boringly dropped 1%. With BOJ rumor, others move very little.

Now we will have FOMC and BOJ next week, with the high expectation that BOJ will try again after the failed attempt in January. FOMC, on the other hand, is expected to do nothing and stay ultra dovish on lips. And there is also RBNZ, which probably will also do nothing after the last cut.

Combined these three events, the most likely trade I can think of is to long USD, short Treasure bonds. The April FOMC is going to pass and the June FOMC is coming. The world has not ended, equities are near all time high, bond yield is crazily low, economic data looks stable/good everywhere, oil almost double from its low, and the June FOMC has a press conference on schedule! Surely the probability of a rate hike can only go up, until Yellen gives another speech, which probably won't happen for a while.

BTW, I did not see many "sell in May" mentioned in the news. Anybody has the same feeling? Does it mean that fund managers are working overtime and chasing the benchmark this summer?

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Anonymous
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April 22, 2016 at 11:30 PM ×

"The world has not ended, equities are near all time high, bond yield is crazily low, economic data looks stable/good everywhere, oil almost double from its low"

Pretty much what the 12-year old SPY buying anons here were predicting many weeks ago. Not sure what that says about the markets, or everyone else. lol.

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Anonymous
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April 22, 2016 at 11:37 PM ×

I never meant to cause you any sorrow
I never meant to cause you any pain
I only wanted to see you borrow
I only wanted to see you
Laughing with the stock market gains

Stock market gains, stock market gains
Stock market gains, stock market gains
Stock market gains, stock market gains
I only wanted to see you
Bathing in the stock market gains

I never wanted to be your weekend banker
I only wanted to be some kind of fraud
Baby, I could always steal returns from a saver
It's such a shame our friendship had to end

Stock market gains, stock market gains
Stock market gains, stock market gains
Stock market gains, stock market gains
I only wanted to see the real economy
Underneath the stock market gains

Honey, I know, I know
I know times are changing
It's time we all raise rates
For something new, that means the end to easy money
You say you want a leader
But you can't seem to make up your mind
I think you better buy it
And let me guide you to the stock market gains

Stock market gains, stock market gains
Stock market gains, stock market gains
If you know what I'm singing about up here
C'mon, raise your debt
Stock market gains, stock market gains
I only want to see you
Only want to see you
In the stock market gains


RIP PNR.

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Anonymous
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April 23, 2016 at 7:10 AM ×

Anon,
"Not sure what that says about the markets, or everyone else. lol."
The question invites the question "what do you want it to mean". Now you know all you need to know about market behaviour.

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Anonymous
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April 23, 2016 at 7:18 AM ×

I would think anyone with any insight has already worked out that we are at the end of monetary illusion where policy in pulling forward future sales revenue no longer actually works to do that very well. What we have now is the game of musical chairs where each ineffectual central bank tries to pass the parcel to it's neighbours ,but the speed of the game has increased in tempo in that each pass brings less and less relief to their currency expectations.
We've already had the first backfire in Japan. When we get another such the pretence will be transparently over. Policy failure will be writ large for all to see. The conclusion of the game will be that all will be left at the mercy of what they can do with their domestic markets. Export policy gains will have gone.

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CV
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April 23, 2016 at 7:36 AM ×

Starting to get a little worried about the up-trade too.

Clearly, in hindsight, being able to catch the switch from deflation to "dovish" reflation has been the key, with EM, commodities etc rallying; I made good money on that. Next step in that sequence could be outperformance of financials as long-rates finally rise as they usually do late cycle. It all depends on how long Yellen can keep the rate hike in the bag. Or more specifically, how much milage does another round of Goldilocks have in this part of the cycle? Probably not much.

I noticed that oil and stocks didn't behave last week. I.e. oil up, stocks down. This, I think, is because the market now realises that higher inflation might not be such a good idea if you are chasing the mana from helicopter money. I think a lot of correlations will break down soon, and a lot of both bearish and bullish investors sitting on the trades of "yesterday" will be caught out.

Meanwhile the Brexit vote is hotting up too. But again, I wonder whether investors understand what they really "want" here. If the U.K. leaves the CBs will shower us with lower rates and QE for longer, so after the initial "oh shit" I think risk assets would fly. If they vote to stay in, though, the end-game is set I think for CBs to try to engineer a normalisation in dovish rhetoric. And they won't succeed, as per usual.

For now, I have only very few medium/high conviction ideas.

1) I think long-rates are going up (so far looking o.k. in bunds etc)
2) I think now is a great time to open some shorts in the U.S., and a I have done just that.
3) I have a sneaky feeling that natgas has made a very decisive long-term bottom. Call me crazy, but that is my view
4) Insurance/financials is the most attractive global equity sector.


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Polemic
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April 23, 2016 at 8:32 AM ×

I see that the theme of 'bulls are twelve yr olds, bears are clever reasoners" continues in this space. V interesting bias that persists everywhere. More here->

http://polemics-pains.blogspot.co.uk/2016/03/its-not-bigger-and-its-not-cleverer-to.html

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Anonymous
admin
April 23, 2016 at 8:53 AM ×

@Pol - I think it's about the delivery. The shorts aren't runnin around shouting "I'm short your house!" And want to reason their trades. Some bulls want to turn the trolling up to 11.

Makes a bear feel superior. That's within this dome.

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Bruce in Tennessee
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April 23, 2016 at 1:13 PM ×

http://www.bloomberg.com/news/articles/2016-04-22/china-s-great-ball-of-money-is-rushing-into-commodities-futures

“The great ball of China money is moving away from bonds and stocks to commodities," said Zhang Guoyu, a Shanghai-based analyst at Tebon Securities Co. “We’ve seen a lot of people opening accounts for commodities futures recently."

...I don't visit here to see people pound on their little chests. I visit because of thoughtful investors or money managers who are genuine enough to share with me their reasons for why the markets are behaving as they do. I am one of the folks who don't love this market, think there is an opportunity to short and make a lot of money coming up, but until then, I have to invest with the herd.

Those of you who take the time to explain why you are looking at the markets in the way you are, thanks again. You know who you are.

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Anonymous
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April 23, 2016 at 4:57 PM ×

@CV,

I am on the same boat about your idea (1), about to add more positions next week around FOMC. I have the similar view on your idea (2) and (3), but not right now.

What I do not understand is your idea (4), is it because that insurance/financials have already become really dirty cheap compared to their values. Or you think there is some long turn trend here improving their fundamentals?

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Anonymous
admin
April 23, 2016 at 6:44 PM ×

Abbie,
There is a Brookings April 14th video of a panel discussion on China and the global economy followed by another with Yi Gang and Ben Bernanke. The discussion touches on central bank co-ordination, which you have posted on, as well as issues central to domestic China reforms. Bruce, I seriously doubt that the herd has the band width for two hours of thoughtful discussion on challenges facing global economies as well as possible non-cataclysmic solutions by people who are actually informed. They are too busy shorting this market, because they don't "love it", and their primary focus is on making a lot of money, by following the "smart crowd" or the "smart money" instead of forming a balanced, nuanced personal view of where we are. Tactical shorts are one thing, but a strategic short of a range bound market is entirely something else.

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washedup
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April 23, 2016 at 7:36 PM ×

@CV fully agree on 1), but you probably knew that.

On 2) trying to decide between whether its here and now, or wait for spoos to make a marginal new high to suck everyone in for the 'breakout' before going 100%.

On 3) again I agree, but have a feeling people kind of 'expect' a hot summer because of what happened under similar circumstances in 2012 - I think its a 1.50-2.50 range through summer anyway, but then I see a ton of upside.

On 4) I disagree completely - financials are like that chick with the python in from dusk till dawn - value trap written all over it - if they lose money its theirs, if they make money the man will find a way to take it away - ROE's suck and will continue to do so - as for insurance - ZIRP means they can only join asset returns through leverage, and the liability side is as unpredictable as it was - I actually think BRKA is a decent short for the next few years, as an aside.

@anon 6:44 - on 'Tactical shorts are one thing, but a strategic short of a range bound market is entirely something else.,', curious when you would put on such a tactical short, and why you don't think now is a good time.

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Anonymous
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April 24, 2016 at 12:00 AM ×

Washed by tactical short in something like Spoos I meant a short term swing trade, a punt based on short term conditions. By strategic short I meant Bruce's idea of picking a " grand top" to make lots of money on the short side of a major index for a variety of reasons mostly found in main stream media and largely based on emotion. Just go back and look at BinT's list of things that he "knows" about the market. If you look at the people who have been incredibly successful at big shorts, they often short a very specific thing that they have extensive and/or exclusive knowledge about. They don't really call emotional tops or spend years warning of catastrophe a la J Hussman or A.Edwards. Those guys one time may be correct, but so is a stopped clock.

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washedup
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April 24, 2016 at 12:26 AM ×

@anon - thx for your response - I was more trying to understand since you seem to think (and I agree that the odds favor this) this is a range bound traders market, what you think that range is, so share if you care - as for the picking a top idea, I honestly don't know anyone who has done it precisely in any market, but they were large when a general breakdown began to occur and preserved powder so countertrend rallies didn't carry them out. I think the right idea is 'got in relatively early on a multi-year downtrend' with smart preservation of profits as opposed to 'picked a top'.

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Anonymous
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April 24, 2016 at 3:05 AM ×

Washed all I know is that 1800 held in a panicked market, and barring something untoward, I see no reason to revisit that level in the very near future. Earnings going forward will be against easier comps. At 12 months out consensus earnings are generally pretty accurate, unless there is an unexpected recession. Most of the stat people I respect put that at a low probability. So, if nothing goes bat-shit crazy the S&P is trading at about 15 times next years earnings. It's not a super cheap market, but it's not time to make some emotional major life altering short. The top of the range may be last years high or perhaps we move to a higher range. Life is short, and trying to bet on the unknowable will just make it shorter. My opinion is that conditions have been tighter than generally perceived, and Ms Yellen has both internal and external reasons to not raise short term rates until farther in the future.

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CV
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April 24, 2016 at 8:36 AM ×

Hmm, thanks for the comments Washedup, some objections on the banks/insurance call I see. I think the two have to be kept separate to be honest. Banks are a straight late cycle play based on relative undervaluation, and the fact that NIIMs will increase if/when long-rates rise. Beyond that, I can see why they would struggle. A couple of good ones out there perhaps, but I agree that it is a difficult, difficult "investment proposition" ... If they are indeed value traps, it has also has profound implications for "index huggers" who will be sitting with a lot of them. In fact, "beta" hasn't really got any meaning anymore I think given the underperformance of energy and financials who are instrumental in using the equity market for finance.

On insurance; you need to look beyond their reserver/portfolio woes. I think insurance is an underrated product with huge room for innovation. Insurance firms with good core businesses are currently trading a discount due to them being lumped together with banks. That's unfair i think.

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CV
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April 24, 2016 at 8:38 AM ×

Oh and on this Anon;


"What I do not understand is your idea (4), is it because that insurance/financials have already become really dirty cheap compared to their values. Or you think there is some long turn trend here improving their fundamentals?"

In a nutshell, I would say banks are definitely in the CYCLICALLY "dirt cheap" camp, and should only be seen as such. Long-term I am more constructive on insurance.

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Booger
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April 24, 2016 at 1:18 PM ×

Next week should be a corker with Q1 GDP and FOMC. I may be barking up the wrong tree completely, but I am thinking there is a not insignificant chance of
a) disappointing Q1 GDP
b) further Fed dovishness

I think the GDP growth issue is more finely balanced than is currently given credit for. We have negative IP and retail sales on one side and positive jobs (which tend to lag) on the other. So given this balance, the Fed may decide that the Dollar will make a difference to the recession risk in the next 9 months and Ms Yellen may do her best to kill Bucky. It depends on whether the Fed thinks there is sneaky poo H2 recession risk out there.

It's nothing that I would lay a trade on currently but it does stop me from going long the dollar or taking more than a small short Spoos position here. I think the odds are that we will have a further dollar correction and higher highs in Spoos if a) and b) pan out. But that will be great levels to be short Spoos from and long dollars come early May. If a) and b) do not occur, then the dollar may have seen a bottom and Spoos may have seen the top.

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