Commodities: long and wrong?

Although price action in some equity markets yesterday was meandering and indecisive, there was no such fence-sitting when it came to the dollar and the commodity complex.  With the voting emphatically in favour of the former and against the latter, it's shaping up as one of those "oh ****!" instances where markets have found themselves positioned too heavily the wrong way; it's all the more galling given that long USD was one of the default macro positions for much of the past couple of years.


Indeed, one wonders if the RBA's Glenn Stevens worked for the Looney Tunes organization in his youth.   Not since Mel Blanc was in his pomp has Macro Man seen as elegant a rendition of one of Wile E. Coyote's cliff jumps as the one the AUD has performed since the release of CPI last month.

Regular readers will know that Macro Man has been involved with GDX since January, holding a core long while trading around a speculative adjunct to the position.   Although he sold some of his length last week, he's beginning to think it may not have been enough.  The stock is regularly putting in 5% + days in either direction, with yesterday's 6.4% move coming the wrong way.  That type of vol is clearly indicative of instability in the market, which would be fine if punters were short the gold story and at risk of a squeeze.   The reality looks rather different, as the first chart above illustrates.  Moreover, the chart of GDX itself is starting to look a little ropy, at least tactically; yesterday's sell-off broke through a little support line.


The $64,000 question, of course, is whether this is just a correction or the start of a bigger dollar move.  On the face of it, you might be tempted to say the former...after all, US fixed income is rallying, and one might expect the dollar to require a more solid rate backing to develop a sustainable run.    Perhaps, but the fact is that the correlation between the dollar and US rate expectations has really dropped this year.   On a 60 day rolling basis, the current correlation between changes in the DXY and changes in the 1st vs 5th eurodollar contracts is just 0.1.

Many readers will be familiar with the notion of the "dollar smile", wherein the dollar rallies when things in the US are going great (yield premium, etc) and rallies when things generally are going to hell (USD/JPY and USD/CHF generally excepted) on risk aversion from more speculative bets.  It sells off when things are just generally blah and there are more interesting returns to be had in non dollar currencies.

Macro Man supposes the recent flirtation with a commodity reflation mini-theme in some ways represented an upgrade from "going to hell" to merely "blah".  (The framework is actually more sophisticated than this, but let's just keep it simple in this discussion.)  However, that may have run its course.   The Chinese look increasingly concerned over leverage, and it seems that much of that commodity rally may just have been debt-fueled speculation, after all.   As noted yesterday, iron ore futures (among the first to rally) have shown signs of peaking, and have now broken the uptrend of the entire rally.


Meanwhile, it seems as if the market has decided that the Saudi oil minister can be more bearish crude after all, after reports emerged that the previous incumbent was prepared to agree a production freeze with OPEC before getting yanked home.  A relapse back to the mid-30's would clearly send alarm bells ringing and provide a further bid to the dollar.

And lest we forget, earnings outlooks look pretty lousy in most places, especially China.


It's relatively easy to see how this has and might play out:

In this framework, we're currently in the red portion of the cycle.  If this theory's correct, then there's further to go in commodities and the dollar (and, alas GDX.)  Macro Man is likely to make further adjustments along these lines, pending further evidence and confirmation.
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Anonymous
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May 10, 2016 at 9:47 AM ×

Hi Macro Man,

thanks very much for your blog. I like it a lot and follow it since years. I would like to ask you about the following two topics:
1. Greece: given recent Eurogroup discussions, there is some positive momentum. Part of it is speculation of PSPP inclusion which would have a significant impact in an illiquid market (even if they "only" buy like in Cyprus for very limited periods). In general, what is your view on relative value of Greece vs. the more distressed EM countries?
2. What is your view on setting up shorts in Italy (outright or relative)? The political timeline seems to indicate potential stress ahead in the next 6 months (local & potential national elections if referendum fails). Coupled with supportive positioning (market seems long given that Italy trades at lower yield than Spain) this could be an interesting trade idea. Appreciate any thoughts on this.

Thanks very much

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Amplitudeisofftothebettingshop
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May 10, 2016 at 10:43 AM ×

"Commodities: long or wrong?"

no, it should be..

"Commodities: Ascot or Cheltenham"

Can't wait to sneak in the old boy and party on.




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Polemic
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May 10, 2016 at 12:50 PM ×

Agree MM, but feels like everyone is bearish China again and that supports the momentum of teh 'lets sell commodities, it was only a spec leverage rally' theory. So what I suppose I am saying is the story has got too easy again. and easy stories normally have a sting, look how the 'usd/jpy is DEFINATELY going to 105 now that BoJ did nothing' surefire story is panning out. 109 again.

One thing I would be grateful fo , from your US readers, is their feelings of likelihood of UK voting to leave the EU. I get the feeling that there is a lot of nonchalance that it will be a remain vote. Am I correct ? Or are you all positioning for the risk that it isn't?

I bought 1.4000 sept cable puts today as I still think one day soon the rest of the world is going to wake up to how close this is. And, considering David Camerons statements, THAT COULD MEAN WAR !!!!! ( nice to see gold off after that dire warning though).

Pol

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washedup
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May 10, 2016 at 1:25 PM ×

@Pol "Agree MM, but feels like everyone is bearish China again and that supports the momentum of teh 'lets sell commodities, it was only a spec leverage rally' theory"

You really think so Pol? this may be one of those classic 'look at what they do, not what they say or feel' type situations - I will be the first one to admit positioning can be a bitch to ascertain, but there has been a stampede into commodity/reflation/china themes in the last couple of months - the fact that many, if not most of these punters were erstwhile china bears, probably makes them go 'WTF was I thinking' just that much quicker.

And GDX has been pushed up relentlessly because its a no brainer trade - I think the guys who have a 10 year holding period on it will do A OK even from here - the problem is, most guys who are long it only 'think' they have that holding period, when they actually don't..

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Booger
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May 10, 2016 at 1:29 PM ×

Dollar index back in the range. What a tricky market to trade this month.

Short term:
Retail sales on Friday should be interesting. The expectation appears to be a stronger number, but this is already being priced into the dollar. Unless it is a very good number, I wonder whether the dollar will correct again. There is not interest rate support for further dollar strength and unless there is a major crack in equities, one suspects there is not the risk aversion to sustain DX above 95 either.

Long term:
U.S and world growth has been slowing for the last 18 months. There is a risk that at some stage in the next 6 months it stumbles into recession. I think this is what Yellen is worried about, to the degree that she has stopped caring about having any interest rate cusion to cut when there is a recession. I guess if they hike at 0.25% per 12 months, one would have to hope the next recession does not occur for another 2 years so they are back to 0.75% by then.

I tend to think that if there is a recession later this year, there would be further soft data and we would need to price out further rate hikes going forward for USD. If there is a recession later this year (which there may not be), then there is one further correction in the dollar before a major rally.

Commodities I think will just follow the USD here. China will be happy to stimulate/stop and the Chinese show can keep going until there is a U.S recession.

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Polemic
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May 10, 2016 at 1:29 PM ×

Hands up those who think the spike in commodities was short covering / spec led, with China hugely involved in it and is now over.. and it's pretty clear that metals are not going up for a while..
See washed ? a swathe of hands.

Pol

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Macro Man
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May 10, 2016 at 1:31 PM ×

Now hands up if you're positioned for that....tumbleweeds. What normally happens when the market has a view but not a position, Pol?

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Polemic
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May 10, 2016 at 1:39 PM ×

Ah ha . king pawn to king 4 I see MM..

I ll go my king pawn to king4 with and expect you to go Queen knight to Queen bishop 3 with 'they start to put the position on and chase the view and ride self-generated momentum'

To which I will have to counter with King Bishop to Queen 3 .. "Unless they have talken it as read, won't touch the commodities and are proxying the view through AUD and general defalatioanary trades"

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Macro Man
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May 10, 2016 at 1:43 PM ×

@ Anon 9.47. The Greece call is a tricky one, because ultimately you are betting on politics rather than economics, and the former is generally even less rational than the latter. It seems to me that you are really making a binary bet, particularly after today's GGB rally: if Greece gets defined debt relief and the can is kicked for several years, then there is a further rally. If the talks fall apart, then it gets shellacked. I am not even sure that "value" comes into the equation, because there are multiple equilibria based on the political outcomes. While it is true that momentum currently seems positive, all I can tell you is that I for one would not feel comfortable betting on the EZ to "do the right thing" with respect to Greece, and I don't feel that I have any sort of analytical advantage in breaking down the situation. Pass.

Vis a vis Italy, for while now I have been, if not banging the drum, at least tapping the bongo about being short BTPs. Not only do you have potential political risk, but the damned if you do/damned if you don't aspect of the bad bank proposal. Oh, an ongoing weakness in EZ banks generally, which isnl;t good for Italy.


See here, for example.

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St James
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May 10, 2016 at 2:03 PM ×

Hi Pol,
Happy to give my tuppence on Brexit. Nationwide it looks like it breaks down as London, SE England and Scotland are in favour of Remain; the rest of the country leans towards Brexit. I think this is important for non-Brits looking in as those in the financial services industry are likely talking to Londoners or Edinburghers who in aggregate are pro-Remain. My British colleagues and friends to a man/woman think it is too close to call though if pushed almost everyone ultimately thinks Remain will prevail (again, London bias?).

Demographically the over 50s are much more keen on Brexit than the younger generations. Brexiteers are also much less likely to change their minds between now and the referendum while there is at least a 10% that still hasn't made up their minds yet.

So too close to call and definitely a chance we get a panic-up nearer the time like we did with the Scotland referendum. For choice I would play the referendum through FX - who knows what Gilts would do under Brexit (who wins? safe haven buying flows v foreign selling?). Cable vol is off a fair bit from April's highs but its still not a cheap trade and vol will collapse on a Remain outcome so it will hurt. Put spreads might be better in my opinion.

The market does feel a bit complacent but FRA/OIS spreads for example have widened and stayed wide since February.

Lastly the Cameron/Bojo farce from yesterday really does nothing to further the intellectual debate of the pros and cons of Brexit - they'll wheel out Private Frazer from Dads Army next. Much more to say but the day job calls.

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Anonymous
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May 10, 2016 at 2:13 PM ×

@pol - (U.S. reader) It seems the UK would be better to leave the EU, and I assume that it will... eventually. Regardless, we aren't positioned for the end of the world at this time. Though, after reading the above post, maybe its time to re-think our long position on gdx. Like the rest of the 'mericans, we expected it to go on forever. All the best.

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Macro Man
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May 10, 2016 at 2:19 PM ×

@Pol re Brexit. What I find interesting about the whole debate is that the Brexiteers seem to offer little by way of concrete argument as to how and by what magnitude a Brexit will improve the lot of the country, and appear to focus their energies on mocking the (occasionally mock-worthy) claims of the other side. In a sense, it's a very Donald Trump-like movement: playing upon populist arguments, resorting to mockery, and playing to emotions rather than brainwork. Perhaps they should just promise to make the EU build a wall around Calais?

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Amplitudeisofftothebettingshop
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May 10, 2016 at 2:53 PM ×

St James.."V= (again, London bias?)."

F##k yeah!

I wouldn't tell'em anything if even knew the sun wasn't rising tomorrow!

IT ALL A BIG JOKE ISN'T ..

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Leftback
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May 10, 2016 at 3:01 PM ×

LBs take is that the Brexiters have no plan at all for how to deal with the economic discontinuities that would accompany a Brexit other than some half-baked nostalgia for the 1960s, "don't panic, we'll just eat cheap butter, wool and lamb from Ireland and New Zealand. We're going to embrace the Commonwealth again". But, um, sorry chaps, you gave the Commonwealth the finger 40 years ago and the Kiwis already sold futures on that produce cheap to India and Pakistan, and Paddy has a sweet deal with the EU, so now you're screwed. Back to the Buy British movement, with a huge bump in inflation as GBP becomes another second-rate declining oil reserves nation currency, less attractive than NOK. Mind the gap, indeed...

Re: the US economy. People who are saying well, that was a seasonal soft patch, and it will pick up, but all that's priced in to DX etc. are just over-thinking it. It isn't priced in, b/c it hasn't happened yet and people are still positioned the wrong way, so when better US data happens (and even stochastically this is inevitable) then a lot of punters are going to be caught offside. MM is correct about the commodity bounce, btw, fueled by speculation and leverage and not organic demand growth.

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washedup
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May 10, 2016 at 3:46 PM ×

@MM/Pol/Left - I have a different take on Brexit - you know we get big secular rallies and selloffs where price leads fundamentals, then lags, then leads again, with faders invoking rationality and occams razor multiple times along the way and pointing to how historically overvalued or undervalued things are - the same concept applies to themes like deregulation and globalization - so if brexit doesn't happen today, it will happen in a few years - ditto for the EU breakup, and more, not fewer controls in China and Asia over the next decade.
For the next decade, capital goes home, nationalism grows, trade suffers, and disinflation is replaced by true inflation, but nothing crazy - the Reagan/Thatcher movement, which frankly created the multiple Asia miracles, is slowly crumbling and this is just in the 2nd inning as a secular theme - its tough to swallow for people like us who grew up in the 80's and 90's and take the opposite for granted - id say we are in the denial stage (or at least CNBC is).

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Anonymous
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May 10, 2016 at 4:41 PM ×

BBG:Commodity bounce...

"Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame."

“You have far too much credit, money sloshing about, money looking for higher returns,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble.”

http://www.bloomberg.com/news/articles/2016-05-09/world-s-most-extreme-speculative-mania-is-unraveling-in-china

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johno
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May 10, 2016 at 4:47 PM ×

One yank's perspective on Brexit for Pol: looks like a close-run thing, but what I read shows a 4-point lead for remain, stable the past month. Putting more weight on telephone polls, though concerned about voter turnout. My own narrative is that the British are usually admirably phlegmatic and cautious making decisions on matters such as this (unlike us cuckoos in the US who are in thrall to the demagogues from the right and left currently). I'm not positioned in GBP now, but despite my above views, was short as of a few weeks ago on the thesis that there was some wave of hedging to ride, as seen in the trend to riskies through early-mid April. There's a huge stock of foreign investment and only a small percent have to hedge to get very material flows. Also, there's the sizable CAD and the uncertainty likely affects foreign inflows to finance that.
Please feel free to disabuse me of any fantasies here.

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Anonymous
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May 10, 2016 at 4:49 PM ×

444 of 500 companies reported sales -2.4%, EPS -8.9%. 6 of 10 sectors had neg sales growth, 6 of 10 had neg earnings growth.

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Anonymous
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May 10, 2016 at 4:52 PM ×

GERMAN MARCH INDUSTRIAL OUTPUT FALLS 1.3% VS. EST. 0.2% DECLINE

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Leftback
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May 10, 2016 at 5:19 PM ×

JOLTS was quite strong, and Dame Janet apparently looks at that indicator a lot. Maybe a June/July hike isn't really off the table.

SPX closing in on 2080, IWM touching 112. Both levels are fairly strong near-term resistance, so technical types may be tempted to take a walk on the wild side here.

HYG is putting together a head and shoulders medium term top here, and once again there are so many things that can go wrong - higher Treasury rates, wider corporate spreads, The Trump factor, Saudis and Kuwaitis talk higher production, plus seasonal US refinery changes leading to lower US demand and tumbling oil prices ... seems time that this one is ready to break down again. USO, HYG, CAD - they are likely to be roped together like a team of drunken mountain climbers this Summer.

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jbtfd
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May 10, 2016 at 5:20 PM ×

" jbtfd said...
washedup - 1st target zone SPX 2080, 2nd target zone SPX 2100, beyond that trailing stops...
May 6, 2016 at 7:05 PM


First target zone reached. Gotta love these spoos...
@LB hope you're enjoying the +ve P&L.

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AB
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May 10, 2016 at 6:00 PM ×

American here who only gets updated on Brexit by accident. No hedge in place. I do find it interesting that the biggest argument I hear against Brexit is trade. They run a trade deficit of around -5% of GDP, correct?

I am not a supporter of people who want to build physical walls. In fact I think we should be more physically open here in North America. However, I do support the idea that the U.S. (and the U.K.) should threaten Germany, China and others with tariffs if they do not do more to stimulate internal demand. Germany is an economic parasite right now and history will not look kindly on them.

Risk asset inflection point today. A turn down hard from here looks like it would have legs.

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washedup
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May 10, 2016 at 6:02 PM ×

jbtfd - y thx for that - for me its as much a time thing as a price thing - lets see what this is able to do by expiration and where that leaves us technically - then I decide.

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Polemic
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May 10, 2016 at 6:36 PM ×

jbtfd if you are talking H/S formations I was wondering yesterday if S+P would go up and roll at 2080 to make it's own perfect one.. see bottom of this post - http://polemics-pains.blogspot.co.uk/2016/05/the-chinese-san-andreas-fault.html

re Brexit - thank you for your input, and it was the US input I am most interested in, though thanks St James for a view we see in the UK (agree). The Q was Not so much whether our US cousins think we should leave or not or if they are aware how close the outcome is going to be and are braced for the risks. We talk about micro data and Fed policy but that could be diddly squit compared to eth UK surprising everyone with a 'too close to call' run in to the referendum.

It's about the breakaway from an overseas Union that dictates detrimental rules, taxes and regulations. Sound familiar ? (Clue - 1776. Don't think it went too badly for you guys did it? )

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AB
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May 10, 2016 at 6:56 PM ×

Pol - I thought that was your intent. Any question becomes an invitation to soapbox. My sense is that people over here don't consider it a risk even if you do leave. Or maybe we have EU-exit fatigue.

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Leftback
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May 10, 2016 at 7:53 PM ×

SPX 2080 tagged. Is this Trend Trading Tuesday or is it that old chestnut, Misdirection (Turnaround) Tuesday?

A few years ago, M would set the tone for the week, then on Tu everything would trade in reverse, luring punters to the wrong side of the tracks, only to be taken behind the woodshed and soundly beaten on W and Th, before all trades dried up 9.45 on F. This is what happens in dull directionless drifting markets, technicals and options take over and the tail wags the dog.

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Polemic
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May 10, 2016 at 7:55 PM ×

Or are we seeing a front running of the 11th of Takeoff? Check accelerations up on 11th of previous 4 months.

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Leftback
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May 10, 2016 at 8:07 PM ×

AMZN tags $700, is called "worth $1000". Is this the moment of Peak FANG? A wave of Dame Janet's wand and all this would go up in a puff of smoke.... just musing.

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Anonymous
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May 10, 2016 at 8:16 PM ×

I do not know if a non-US non-UK view helps anything, but: I would like to see Britain exits, just to give bureaucracy in Brussels a middle finger. I think from an emotional angle: why does an UK citizen want to be forced to accept some additional regulations from someone sitting in a cubicle in Brussels? I am sure plenty of people already dislike their own government's bureaucrats. And I have long GBP position right now, prepare to short GBP when it is close to the vote, and long GBP again afterward.

On other markets, I plan to sell some of long positions and enter some short positions when spoo rises to 2100 level. My first choice to short is EM assets. Chinese leadership is NOT unified on its economic strategy, proved by the most recent article on the official newspaper. That would only cause indecision and confusion. The liquidity is likely to be tight again in China and it could not be a good sign for the broader EM markets.

I would like to know more about EU banks and how it is going to unfold. What can trigger a credit event in a major EU bank to start a chain reaction?

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johno
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May 10, 2016 at 8:48 PM ×

I tend to agree with Bullard's comments the other day re Brexit, namely not a category one macro development like China's surprise devaluation was last August. Current arrangements stay in place for two years anyway, if I recall correctly. Whether my compatriots share in that view, I couldn't say. As for this being a case of a "breakaway from an overseas Union that dictates detrimental rules, taxes and regulations," I'm not so sure (though I share the popular distaste for Brussels). From what I've read, any bilateral trade deal the EU agrees will bind the UK to complying with many of Brussels' dictates anyway, except the UK won't have the same influence over those dictates as it would as member state. There's also the argument that the EU sells the UK goods, which are covered under WTO, while the UK sells the EU services, which are not. However, I have seen some counter-argue that UK services are competitive even without EU membership as evidenced by the fact that the Uk sells more services to the rest of the world than to the EU (a fact I have not independently checked). Happy to be set straight if the above is incorrect/incomplete.

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Leftback
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May 10, 2016 at 9:14 PM ×

Today was a very Happy Clappy day, index targets all hit, VIX obliterated, and Fed risk apparently eliminated from consideration. We are always keen to take the other side of the equation from late arriving traders, for a punt. Treasury longs, in particular, seem to be auditioning for the part as MM's Lazy Sunbathers [who fall asleep and awake to find themselves badly burned].

NIgerian Incidents have been in vogue lately. Frequently there a string of such newsworthy "supply outages" that drive up the price of crude and lure in unwary longs, before the grim reality of the ongoing oil glut is revealed by the inventory data.

We added to our CAD short today. The CAD may have been en fuego, but it's going to rain on their parade up there soon.

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Polemic
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May 10, 2016 at 9:17 PM ×

Very brave of you LB. Can I borrow your hammock as it's obviously free.

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Polemic
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May 10, 2016 at 9:35 PM ×

Hey LB .. Nice one:-) 2080 rools.

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hipper
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May 10, 2016 at 9:51 PM ×

I'm convinced the whole vote is much more irrelevant than shock headlines lead on. UK joins EFTA and becomes like Norway and Sweden maintaining trade zone access. Although the shocking loss which everyone is hysterical about are probably all the great ideas coming from the bright minded, democratically elected, experienced and sincere Statesmen in Brussels.

Well following are just opinions. France doesn't want UK to leave because they will need as many funders as possible when their time comes and Germany because they need to spread the load yet it still views EU benefits outweighing costs. There are really not that many net contributors to the EU budget and associated operations hence every one of them are as valuable as their weight in gold.

Re. Greece the fundamental principal is clear. Anything that's not perceived to be rocking the boat will be done aka. can kicking. Why? Well AFAIK the "fund" handling the whole matter is a corporation where no one from the outside needs (or gets) to vote anymore on where the funds are allocated, but EU member taxpayers still get the pleasure of stuffing it up as needed. The number one task of all EU institutions is to stabilize the boat regardless of the costs. The negotiations are acting for the audience imo. This de facto redistribution mechanism along with the Cyprus bail-in templates will no doubt be put to good use in the not so far future.

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jbtfd
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May 10, 2016 at 10:38 PM ×

@Pol - Thx for your blog post - good points.

re: spooz... I have taken profits at 2077(ES M6) on 25% of the posn, if we push up to prev highs, I will take similar profits (as outlined previously). If we break up further (to new all time highs) I shall become extremely conceited regarding my trading ability. Conversely, if Pol's H&S formation appears I'll be stopped above break-even on the remainder of the posn, and sulk in the corner blaming rampant market manipulation.

re: Brexit... I concur with hipper (above). Brexit is a terrible idea for certain multinationals operating in the EU who want to access multiple markets without paying due tax. It's also terrible for UK politicians 'paid' by the same multinationals, especially when many of those politicians go onto become MEPs paid by Brussels. Finally it will be hated by the EU as the UK pays a disproportionate amount to the EU who offer nothing in return except terrorism and a destruction of UK law & liberties. Any bets as to which way I'll vote? Maybe I'll stick to some basic spooz commentary from now on...

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Macro Man
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May 11, 2016 at 2:25 AM ×

I ask again...where are the concrete articulations of definable benefits that go deeper than Trumpian rants against damned foreigners. (As an aside, if the US is any example, the idea that not being in the EU is some sort of failsafe against bureaucracy and over-regulation is laughable.)


@hipper, I will repeat a point i have raised before: if the EU is so sclerotic and inefficient, what makes you think that the UK will get admitted to free trade agreements so swiftly? Most informed estimates put the timetable at closer to a decade than two years. Do yopu really think the EU is going to fast track trade agreements with a country who just told them to piss off? It might be a fun wager- which gets done first: comprehensive UK trade agreemint with the EU, or Mexico builds Trump's wall?

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Anonymous
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May 11, 2016 at 3:42 AM ×

@MM,

It is about mass-psychology, not really about rational thinking. The theory goes like this: if the benefit is distributed extremely uneven, the regular folks who receive next to nothing would be more likely to reject the whole deal, just to see/enjoy the very small top class suffering from the losses.

Irrational? Yes, but totally understandable.

And another not-so-pleasant prediction: if she is elected, the angry population will only grow in 4 years or 8 years. You think some candidate is crazy this year? Wait for another 4 years. Viva la Vida!

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hipper
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May 11, 2016 at 12:52 PM ×

MM, agree there's a high risk of no comprehensive trade deal. But that can be regarded more as a retaliatory action as the Euro Commission will not lose the opportunity to make an example out of those daring to oppose it (or not give it money), prove there's no life without it and channel every outside action through itself. I wouldn't be surprised if they try to bribe as much of the world they can to not trade with UK. But this is precisely part of the problem with EZ structure. Why is there a third party dictating who can trade with who as they seem to view everyone as their protectorates in the first place. The free trade and currency are great but hardly require that much power channeling. I think this is what the vote is about, or what it really should be about, but unfortunately effectively it can't escape the wrath of trade dictatorship.

I still think alternatively UK can recoup most of the lost trade partners through bilateral deals with relative ease, national bureaucrats would just need to start pulling their weight and deliver them. Although that again depends on EC influence in those countries which at times can be frustratingly high. It's some work but that's what they're there for.

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Macro Man
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May 11, 2016 at 12:56 PM ×

So you totally disregard Obama's "back of the queue" comment? It may well be political theatre but at least it's an observation with someone who is more plugged in than your average arm-waving Brexiteer over how the process will work.

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Anonymous
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May 12, 2016 at 12:09 AM ×

@Washedup(May10, 3:46pm)

Thanks for you macro view.

What's your take on India? Where do you see it,say 10-20 years from now.
I see big water crisis holding it back unless they use solar or nat gas to desalinate sea water.

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washedup
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May 12, 2016 at 12:46 AM ×

@anon 12:09 I am pretty bullish on india as a secular story. I would even say that as a country play, its the only decent sized fundamental growth story remaining anywhere, period, but a) i think you get to buy literally anything there (FI, equities, fx, real estate) a lot cheaper than right now sometime in the next few years, and b) small cap consumer cyclicals are the best way to play the multi decade story. The challenge with India is to find domestically exposed plays, thereby avoiding the ebbs and flows of capital that go into EM funds en masse without much discrimination between, say, Venezuela, Brazil, and India!

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Macro Man
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May 12, 2016 at 12:53 AM ×

If you look at the charts here, I think it is impossible to be anything but bullish on India, at least on a relative basis.

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Anonymous
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May 12, 2016 at 2:52 PM ×

@Washedup, @Macro Man

Thank you so much. Appreciate your thoughts.

I am an expat living in Canada.I see many families wanting to sell their ancestral properties in India as their 2 generation doesn't want to go back. Also law and order situation is not very good in some states(land mafia - politicians/police/admin nexus). Most of the people I talk to worry their children will not be able to carry forward the legacy. But I maintain if we can hold on say 10-20 years, perhaps the situation will improve.
Again, thanks for all the FREE information you provide here. I have been reading this blog since 2009.

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