A programming note

By the time you read this, Macro Man's computer will be packed away as he is moving house today and tomorrow.  He'll be offline for a few days, as he's not scheduled to get internet access in his new gaff until Tuesday.

After yesterday's data, his nonfarm payroll model looks for private employment to rise by 95k....which, when adding in the Verizon workers, renders an adjusted forecast of 130k, well below the consensus 170k.   This is a pattern that has continued for several months now, so it's hard to call the forecast a fluke.


Whether this reflects the weakness of the labor market or its tightness is up for debate; it's interesting to note, however, that in the last cycle both the model and the actual growth in payrolls were weak for some 18 months before the bottom fell out in 2008.  Either way, it's hard to escape the idea that this is a late-cycle phenomenon.  

As noted yesterday, Macro Man is a little sceptical that today's figure will have an enduring impact, given how little is currently priced for the Fed and how high the bar apparently is for them to tighten policy further (spurious claims of "data dependency" notwithstanding.)  In the meantime, it remains a good bet that the SPX will tread the same old territory of the Zombie Zone between 2070 and 2110.  For reasons articulated earlier this week, Macro Man expects that risks are skewed towards the eventual resolution being to the downside.

Good luck, and MM will be back in a few days.
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Anonymous
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July 8, 2016 at 8:33 AM ×

The MM holiday volatility trade didn't work last time. Surely, it won't be two in a row? Especially when LB has a funny feeling about things.

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July 8, 2016 at 9:08 AM ×

MM, are you moving due to this? :)

http://dealbreaker.com/2016/07/brett-barna-hamptons-party/

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Anonymous
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July 8, 2016 at 10:39 AM ×

LB's intuition is wrong. Equity indexes are rallying pre-NFP. We'll see SPX breaking into new all time highs next week, and European indexes following once the ECB announces it's bailing out more banks.

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Anonymous
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July 8, 2016 at 10:53 AM ×

Anon 10:39 here... and as if by magic:
"State intervention can’t be ruled out on Italy banks, Visco says..."

Look, you couldn't make this stuff up. You seasoned veterans of Finance need to listen to 12-yr old hedge fund managers like me and start learning how it's done.

Inflation is coming.

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Anonymous
admin
July 8, 2016 at 11:07 AM ×

Good luck with the house move - never easy.
Frozen pizza and cold beer are much needed allies.

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Bruce in Tennessee
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July 8, 2016 at 1:25 PM ×

Inflation is coming?

With China actively dropping the Yuan?

And what are the long term consequences of buying fixed instruments at lower and lower rates? Inflation? Because your return is less now than it was 5 years ago? How's that work?

...I think I'll take the other side of that bet

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Leftback
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July 8, 2016 at 1:41 PM ×

How about those apples? LB told you lot not to be short dollars, innit?

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Anonymous
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July 8, 2016 at 1:43 PM ×

12-yr old HFM here...

BoT... sure some further deflation first, then MASSIVE inflation after that when CBs triple-down and inflate away all the debt.

NB Equity indexes up HUGE after this morning's buying and positive NFP (as I outlined above). Us 12-yr old's are outperforming !! (Altho frankly trading this market is like shooting fish in a barrel).

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Leftback
admin
July 8, 2016 at 1:52 PM ×

12 y-o HFMs should probably think about fading this move. Even if the increasingly timid Dame Janet is no longer in play, the stronger USD is going to be headwind for US corporate profits going forward.

The action in rates is going to be telling today. Normally 10s would be moving 10-20 bps on a number like this. If they don't run away and hide it's b/c the smarter segment of capital markets knows more than the rest of us.

I do think we will see a massive rotation next week, out of defensives and into financials. Cement mixer market...

Dollar shorts, please don't scream too much this morning. Cold Steel is coming.

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July 8, 2016 at 1:54 PM ×

mkt has been driven up by utilities, reits...let's see if some l/s equity will be smoked here.. but bond reaction is peanuts for now...and also usd/jpy. maybe a long nky/short spoos could work a few days

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July 8, 2016 at 2:10 PM ×

usd/jpy 100.5? buxl 196.3?? mhhh something here is broken..

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Tim Schulace
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July 8, 2016 at 2:24 PM ×

BondStrat,

$/yen has been broken for a while. Would love to know when reality catches up or when it starts to retreat, but 99 does not compute with spoos at 2100 in any period over the last 4 years.

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July 8, 2016 at 2:31 PM ×

yes. it's true particularly recently.. but at least a sign of revival on this data.. however let's see how evolves..

for now buy spoos and govies/credit/ sell vol is the only game in town

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12yo HFM
admin
July 8, 2016 at 2:45 PM ×

"The IMF urges the EU to conduct more QE"

This is a fantastic idea. We also need to BoE and Fed to join back in... I am setting a rough target of 3100 on SPX.

It appears that TheBondStrategist (above) has also seen the light. Here's hoping the rest of you come out of the dark and join us in the land of positive P&L.

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JohnL
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July 8, 2016 at 3:51 PM ×

LOL now we've got JBTFD (who I believe is waiting for the next dip) and 12yo HFM, who I do hope is right and if alittle of that flow could make it's way up north that would be great, the employment number up here was terrible at -700, though the rate was down to 6.8% from 7%.
I did read an interesting piece on the ECB QE channel yesterday. See it here,


http://www.alhambrapartners.com/2016/07/07/end-all-the-myths-italian-version/

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abee crombie
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July 8, 2016 at 4:13 PM ×

Bears had a chance to tip this market early in the week. But 10year couldnt push lower and Turnaround tuesday worked like a charm, at least holding the Feb lows in Stoxx / Nikkei

now tech is back ripping up and shorts need to cover. even though oil is droping, Yen getting stronger and 10yr hasnt really sold off. But staying short equities is just too hard. Feels like we need to make new highs just to drag everyone in. Like I said earlier, Q2 earnings probably will be good and CEO's who are often just as blind as the market will see signs of confidence. I'll look to fade if we make a new high and then come back into the range, ala turtle soup.

Meanwhile EEM feeling strong. Top 3 stocks TSMC, Samsung and Tencent. So we are trading tech in EM now as well, as it now has more exposure (22% ) to tech vs SPX (19.7). All 3 have nice earnings trajectories and samsung pre released a nice report.

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johno
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July 8, 2016 at 5:42 PM ×

The usual NFP positioning antics today ...

The US 5y5y gave 287k jobs a big yawn. Japan and Europe are driving this rate. The Fed may hike this year, but it doesn't matter.

Equities. Predictably up.

The dollar is OK, moving with the unremarkable front-end. Big yawn there.

Yawn, yawn, yawn. Which means to this observer .. buy EMFX. Added to ZAR today. Traded out of TY short.






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Anonymous
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July 8, 2016 at 6:48 PM ×

Funny how it was a weak number before the big FOMC allowing rates to be moved offline for, well, whenever. And now the blowout one is no dice due to Brexit and whatever... Good timing that.

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Anonymous
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July 8, 2016 at 6:48 PM ×

ive always wondered why the bullish TINA crowd scoops up us equities as opposed to european equities... if its all about TINA... then shouldnt the cheaper region with higher divs and lower rates be the place that people invest? you can clearly see the effects of TINA in the US with the chase in utes/defensives/divs. but why isnt this more visible globally? also at what point do people realize that div payers arent bonds, theyre stocks and should be treated as such? or maybe im wrong and the flood of money will treat them as bonds becuase they cant park it in negative yielding assets. confusing times.

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Anonymous
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July 8, 2016 at 6:49 PM ×

anon 6:48... wouldn't read too much into the conspiracy theories. from what i read it had to do w a verizon strike.

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12yo HFM
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July 8, 2016 at 7:36 PM ×

What a day! Everything obviously went as predicted (equities up). Couple more days like this and I'll make my yearly target.

Just wish we had Brexit every week.

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12yo HFM
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July 8, 2016 at 7:46 PM ×

$SPY at a new high for 2016

#ForTheWin

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Leftback
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July 8, 2016 at 7:58 PM ×

LOL. Welcome to another excellent comment handle at MM. Everyone made money this week, it didn't matter what your punt was [we were short oil and long dollars]. Even bonds and gold miners rallied today (on strong US employment data?). Yes, folks, SPX, DXY, GDX and TLT were all up today. How can that happen? [Answers: foreign investors, and margin debt].

It's quite possible we will have another week of silly summer fun, but Europe's problems are growing, with prices at crisis levels for the Italian banks and Deutsche Bank, plus a UK recession is now all but certain. The 12yo HFM Hamptons house party is ON, baby, but reality is still knocking on the door.

The FOMC is going to look at today, scratch their heads and wonder if maybe, just maybe, there might be just be a little too much liquidity in the financial system? The fact is that this Fed has dicked around endlessly, while inflation in things we need (health care, education, food) has climbed faster than Eccles building inflation measures in terms of 5y5y break-evens. There is a real world out there, with savers and renters, and it's time to recognize that now and level the playing field ever so slightly. Can Dame Janet regain what little remains of the Fed's tattered credibility?

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johno
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July 8, 2016 at 8:20 PM ×

Yes, LB. Everyone's a winner! Blue ribbons for everyone at Principal Yellen's Sports Day!

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July 8, 2016 at 9:21 PM × This comment has been removed by the author.
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Leftback
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July 8, 2016 at 9:21 PM ×

@johno: LOL. Yes, and it's 12y-o HFM in the lead - in the Sack Race, the Egg and Spoon race and the Three Legged Race (with JBTFD). Well played, young man !! Mumsy will be jolly proud. Extra chicken nuggets for you, sunshine.

Older punters will recall the High of May 2007, not long after the gating and liquidation of some Bear Stearns funds. Whatever the future brings, Top Buyers will always have the warm feeling of buying the Top, and the Dip, and perhaps a few more Dips. We wish them all well.

Less Spoos-obsessed observers note that the RUT is still the Ugly Duckling. We remain convinced it has rolled over. XLE looks vulnerable now that oil has embarked on another seasonal leg down (as we predicted here, to much derision).

Nothing changed this week in Europe, other than the approach to Hades in the proverbial hand basket. A certain Mr Gundlach opined this week that the panic would begin when Deutsche Bank trades down into single figures. It's €11.76. Personally LB misses Nico's regular (and prescient) reminders that EU banks are a cesspool.

Happy weekend, all. OpEx week looms, so we think FX might be the most interesting spectacle next week. There really is no earthly reason for any human to buy EUR, CAD or GBP at the moment, but JPY is another story. It can run and run until the last Carry Trade is unwound or until Kuroda and co. decide to start the helicopter. Bernanke is over there now, tinkering with the engine to make sure it is airworthy.

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July 8, 2016 at 9:43 PM ×

Agree with Lb, maybe just a bit of liquidity in excess.. It's panic buying of financial assets worldwide.

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Cityhunter
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July 8, 2016 at 9:48 PM ×

everything in risky assets is UP, what a day for QE trade

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Anonymous
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July 8, 2016 at 11:03 PM ×

Black Swan? The level of civil unrest in the US piping up again. Some unhinged people deciding to take up arms against police? Does anyone have a read on how things really are? Not something I would fully comprehend, living on a small island.

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Anonymous
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July 9, 2016 at 3:35 AM ×

Jon Hilsenrath's analysis in today's WSJ:

"In sum, the employment report increases the chances of a Fed rate increase in September, but officials are likely to remain in a wait-and-see mode until then, and will likely pass on moving in July. They want to see follow-through and to be sure the economy is really on its feet after a volatile first half, and they also want to be sure markets are stable in the wake of Britain’s vote to leave the European Union."

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12yo HFM
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July 9, 2016 at 10:40 AM ×

Ok guys, I am going to wow you all with my macro analysis skillz. Get comfortable and check out the following:
https://twitter.com/Annrhefn/status/751520747588317184
https://twitter.com/zervoscorfu/status/751522686031917056

We see US equities at record highs, and US Tsy yields at record lows. One of these is wrong.

The typical assumption is that the bond mkt is correct, and yet this is the mkt most directly influenced (manipulated) by CB asset purchases. Folks, I'm here to tell you that the bond mkt is wrong. Traditional macro/economics doesn't work in an era of ZIRP/NIRP. Stocks are going to continue upwards (to quote Mr Lightyear, "to infinity and beyond!").

Get long, or be horribly wrong. You're welcome.

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Booger
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July 9, 2016 at 3:19 PM ×

US long bonds are very overbought and ripe for a correction. At first it was overseas buying, then Brexit and now the whole thing is completely overdone with momentum players.

Hard to see SPX moving up much further, given how overbought it is and the fuel used to get here (Brexit relief rally, PMI surprise last week, bond rally, NFP surprise friday). 2030 is massive a wall and for some reason sentiment becomes most bullish when we get there. Maybe it will charge through but it looks like a good range trade to STFR.

With the Fed out of the picture until the end of the year and the world not ending, and a bounce in coincident indicators (some would say it is a predicable bounce due to the restocking cycle but still in the confines of a downtrend in activity/slowdown), and with no significant recession risk in sight, I suspect we are in for a short term reinvigoration in reflation trades. The rally in commodity currencies on Friday is a clue and I wonder whether oil will pick itself off the floor and rally from here. The long dollar sentiment is not as overcrowded as the long bond sentiment, but also liable to a correction given that the world is not falling apart here and there is no interest rate support for a higher dollar in the form of foreseeable Fed hikes. Very possible DX corrects to 92 again soon. In the long run though, the strong dollar trade has legs and probably so does being long bonds but in the next month, they are both due for roughing up.

I picked up a SPX position near the close @2125 for a range trade, stoploss 2050.

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Anonymous
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July 10, 2016 at 9:03 AM ×

It all makes sense if you think the markets are pricing in bigger fools.

But, even the biggest fool of them all will sober up eventually to a surprisingly sunny reality.

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checkmate
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July 10, 2016 at 11:22 AM ×

Do the Bond specialists know better than the Equity guys seems to be the question ,but I think it's not necessarily the right question. At the broadest level I expect that the holding period for bond guys is somewhat longer than equity guys. If that is anything like correct I'd expect that bond markets are more reflective of economic prospects. That however does not mean equity guys have got it wrong. Perhaps it indicates that they are more susceptible to act and react to shorter term market events/noise than their bond market equivalents otherwise how would we explain any difference in holding periods?. I could be way out with this of course just by having started with the hypothesis re holding periods.

What continues to concern me is that I correlate liquidity conditions with asset misallocation. The looser the former the more the latter might be expected eventually. If all I was doing re equities was playing minor waves this would not be an issue, but given I always have longer term goals it remains firmly my central concern with central bank policy. Is any 'bump' in growth from low rate/negative rate policy really worth the eventual trade-off from misallocation fallout? Not a question I can answer ,but central banks did say they were not sure how these policies would eventually workout and I'd keep in mind that for once they were actually telling the truth. Personally, I equate their polices with that old adage about 'stop digging when you know you are in a hole'. In this case the looser the policy the bigger the size of the problem they are going to have in reversing.
Markets where most assets appear to be winning , we have seen this before, and we do know it didn't end that way don't we? Seems almost to have become a function of this part of the trading/investing year.

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anonymous
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July 10, 2016 at 1:29 PM ×

https://www.change.org/p/uk-government-rename-brussels-sprouts-to-sunderland-sprouts

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Bruce in Tennessee
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July 10, 2016 at 1:29 PM ×

Well, as I read this a.m., I still get the feeling that we are farther and farther away from resolving the great recession, certainly the globe is worse off than in 2008. I don't have much conviction about the lasting properties of my trades, and the moves I see by governments and central banks let me know they don't have much conviction about their "trades" either. Leading by indecision, I suppose I'd call it...

With a continued earnings decline forecast for next quarter, I see more momentum for "herd" trades this summer...

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Anonymous
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July 10, 2016 at 8:28 PM ×

I do not think anything short of solid recession signs like unemployment spiking up will hurt the spooz.

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Anonymous
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July 10, 2016 at 9:19 PM ×

Gundlach yesterday:

"When the going gets tough, it is OK to go slow and watch your footing. You don’t want to fall and roll down the mountain. You keep hearing about how this is the bull market people love to hate. When I hear that, I just have to shake my head. The S&P is the same as it was 19 months ago. I don’t like the value. People say earnings will grow because they’re coming off a relatively low base. The guess for 2017 is 15% earnings growth. But how in the world can earnings go up if nominal GDP is rising by less than wages? Profit margins must be squeezed. I’m not so sure that we’ll get some big bounce in earnings, particularly after Brexit.

The S&P 500 has been going sideways for 18 months. But even so, it really stands out that the U.S. is the last man standing. Italy and Spain are down about 35% from their recent highs; Germany is down 25%; Japan is down 25%; China is down 40%. These are big numbers. Look, I wouldn’t be surprised if the S&P hit a new high. But every time the S&P 500 gets to 2100, you hear, “This is it, this is the one, it is time to buy,” which is the strangest way to think about the market. It has gone from 1100 to 2100, so now is the time to buy? If the stock market really is such a great buy at 2100, it will still be a very good buy at 2200. I want the market to prove itself. I would rather miss that 100 points than be the fool who bought at 2100 only to watch it go to 1900."

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Anonymous
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July 10, 2016 at 9:26 PM ×

A couple more thoughts from Gundlach yesterday:

"We just passed the all-time low on the 10-year yield of 1.39%, which we saw in July 2012. It is no surprise the 10-year has been strong after Brexit. I’m not at all convinced that we are going to see much lower yields in the U.S. But even if we do, you’re talking about a de minimis profit. Even if the 10-year yield drops another percentage point, how much will you make? Less than 10%. There are better ways to speculate. For instanct, gold miners have a very high probability — if you bought them today and were disciplined — of making 10%. One of the things driving markets lower is a declining belief in —and enthusiasm for— central-planning authorities and the political establishment. In this environment, gold is a safe asset. There’s an 80% chance of making 10% in gold; the probability of a 10% gain on Treasuries is 20% at best. I’ve never seen a worse risk-reward setup. Our portfolios are high-quality bonds, gold, and some cash. People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500!"

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JohnL
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July 11, 2016 at 2:34 AM ×

Rosenbergs take on the Friday job numbers.

http://acrossthecurve.com/?p=26702

This is an excerpt from the Barron’s current yield column:

Yet on Friday, the same day Treasury yields hit lows, the major stock market averages ended within a chip shot of their peaks after a rally of 1.5% in the Standard & Poor’s 500 index. That followed news that morning of a much-larger-than-forecast jump of 287,000 in nonfarm payrolls in June, which mainly served to offset the tiny revised rise of 11,000 in May. So, the good news is that the labor market isn’t falling apart. But averaging the past two months’ numbers leaves the Federal Reserve on hold well into 2017, if not beyond.

Those two months’ data represent “massive statistical anomalies,” contends David Rosenberg, chief economist and strategist at Gluskin Sheff in Toronto, and the big picture is much darker. Specifically, the household survey (from which the unemployment rate, which moved back up to 4.9% last month from 4.7% in May, is derived) shows employment, when measured the same way as the payroll series, actually fell 119,000 in June and by 517,000 over the past six months.

The household survey is more telling at turning points in the economy, Rosenberg asserts. And this measure’s six-month growth rate dipped below zero, which has happened only two other times during the current expansion. With corporate capital-goods orders shrinking at a near 10% annual rate over the past six months, it’s unlikely employment will reaccelerate, notwithstanding last month’s pop. “I can assure you that this will not be covered in the business media,” he says. On that score, Rosie, you’re proved wrong here.

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checkmate
admin
July 11, 2016 at 11:40 AM ×

Latest NYSE margin debt. Make of it what you want, I already have.

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX

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amplitudeinthehouse
admin
July 11, 2016 at 12:56 PM ×

Checkmate, I've figured out this game of trying to short the S&P. Listen up you HF traders on fifth avenue...stop what your doing, ( Yeah, I know I know ...their great value, but you can get them anytime)
Listen up trading desks on Wall street you need not employ quants , you need to employ a biologist if they want to nail the top; preferably and one that specialises in homology!

The evolution of every bull market can be assume that the serial homologies within each one is a composition of multlayered structure of stories that upon which outweigh negativity until it doesn't. Yes, plebs, patterns.
The context of market movement is characteristic of all those internal stories that have played out in the past of traders lives , basically a transference of their internal life stories. Gruesome indeed.
We have CNBC and others communicating and classifying the context of each bull markets context and this is a form on contextual shaping that produces an abstract proposition that there is patterns of patterns of connections. No shit.
What we may apply is an inverted homology assessment of the current bull market. That is , what is its phylogenetically? You can insert fundamentals and technicals but all fit within a context of internal stories that have been placed upon past bull markets.
I don't know..I think it's culture.

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Bruce in Tennessee
admin
July 11, 2016 at 1:04 PM ×

Well, as I sit and about finished with my reading this morning, I see 10 year yield down, futures up, gold up, oil down, and several wise-heads (including the above post) as calling gold a reasonable investment for now.

Hurry up MM, and fire up that computer....markets are getting stranger and stranger.

..(bought a little more au pre-market...)

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Hotairmail
admin
July 11, 2016 at 1:57 PM ×

Thank goodness MM isn't here to see some of these comments. He'd blow a blood vessel.

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Booger
admin
July 11, 2016 at 2:02 PM ×

BinT, have you thought about trading in the gold for SDS or whatever your short proxy is for equities? The bullish euphoria is overwhelming here. The bears have been absolutely massacred by Brexit Schmexit disguise bear trap and if Elvis was still alive he would be buying equities, bonds and maybe a little gold here. I am not entirely convinced SPX has actually broken out of anything, but then I'm a pessimist. Gold looks to me like there might be some juice to go to 1400 but the tank may well be running low and margin for error is small buying here I reckons,

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johno
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July 11, 2016 at 2:10 PM ×

Question this morning is how far USDJPY can rally. Got long last night, seeing the decisive win for Abe and talk of 20 trillion stimulus in coming days. I think the market was looking for a much lower supplementary budget and the announcement to come as late as autumn. Meanwhile positioning, of CTAs at least, would seem to be very short.

Also got short TY again when futures opened. A scary one given momentum in European and Japanese rates, but positioning-based technicals look interesting here.

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12yo HFM
admin
July 11, 2016 at 2:22 PM ×

Once again this morning it's risk on (as we said last week). Today we have the Japanese helping us with the yen down 2%, the Nikkei up over 600 points on the day, and equities rallying everywhere. It's another great day for teenage HFM's everywhere, a gift from the market that just keeps giving. I look forward to being retired before I can legally drive.

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July 11, 2016 at 2:28 PM ×

Closing now my long Nikkei, short Spx. I'm tempted by a short JGB.. Maybe.....

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Leftback
admin
July 11, 2016 at 2:44 PM ×

12yo HFM is really growing into his/her character here. Excellent.

Looks like another good day to do nothing and watch, although we are increasingly tempted by a punt on the overbought long bond, from the short side for a while. We still like short crude, but we need to allow the reflationistas and Fibonacci to have their day before returning there. So for today at least, Hammock Time... it's July after all.

To the dollar skeptics, btw, we pose this quesion: looking at Japanese stimulus, European QE/banking crisis, and now possible rate cuts ahead in the UK and Canada... where exactly is your dollar weakness going to come from?

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abee crombie
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July 11, 2016 at 3:24 PM ×

Spoo's new highs (though equal weight still ~2% away, along with Dow) and some important other ones like Nasdaq & Russell more than a few points away but I guess there is a kind of smugness around. My Dr told me, we americans dont care about Brexit (funny bc he is from South America, buy I digress)

The chase for yield is back on. LQD going bananas, and HYG doing a nice breakout as well as VIX is slammed. I still like EM FX carry here, as a trade.

From JPM

So far Brexit seems not to have left any significant fingerprints on US and EM equities
performance at the market level. However, beneath the surface stock and style
leadership has become even more dislocated from already extreme levels. Low
Volatility stocks, in particular, led the market post Brexit, further extending their
gains. This style is now up 74% relative to the market since the beginning of this cycle
in ’09, pushing its valuation to reach a new record high (see page 4). Additionally,
Low Volatility has become even more correlated to Momentum, a vulnerable trade
that has become increasingly crowded (see Figure 23). This suggests Low Volatility
may be in a bubble and subject to negative tail risk.

As I said before, look for double top in spoos, or after new weekly highs are made, a test back into the ragne, before going short equities (in the US at least, EU seems like you can short at almost anytime and make $$)

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johno
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July 11, 2016 at 4:07 PM ×

A word on gold. The pros are well-known at this point: negative interest rates and a Fed re-think resulting in a shallower hiking path and lower neutral rate. And so speculative positioning is at record highs, judging by the CoT report. But put yourself in the shoes of a slow-moving asset allocator. Does something that's up 28% YTD and full of hot money really sound like a "stable currency" to you? I'd imagine you'd only up your allocation materially if you thought all other asset classes were going to crash in real terms, but that isn't going to happen, yet, for the same reason that people hate this economy ... it's grown so slowly that the usual excesses that bring on a recession haven't formed. All to say that I just can't get excited about gold here.

What does the BoE Thursday? Almost certainly cuts 25bps, but what will they say about the effective lower bound and QE? Does it make sense for the BoE to aggressively ease (or guide in that direction) if it causes further currency instability? Wouldn't that be worse for the business climate and inbound investment than any benefit from rates? I think one of the take-aways from the pound's crash during the GFC was that the manufacturing sector isn't particularly sensitive to the level of the currency.

Funny how you see posts to JBTFD in equities, but never the 30y. Now, the 'JBTFD in 30y' guys have been the real geniuses of the past three plus decades. Guess if you're smart like that, you don't bother trolling websites ... too busy hosting supermodel bikini parties on your giant yacht off St. Tropez I suppose.

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amplitudeinthehouse
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July 11, 2016 at 4:32 PM ×

Hate to break to ya , Johno..but I've been partial to monetary risks in the eurodollar for the last three decades in various stripes of colours, and I know myself to know it wouldn't matter how smart I was versus the market two things would never happen..a) being employed in USA bank and b) supermodels steering me around park when the footy on (all year around). And I'm sure I could find someone out there that agrees.

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Leftback
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July 11, 2016 at 4:50 PM ×

JBTFD has become a form of performance art ever since it was immortalized in the classic YouTube cartoon video.

Good stuff on 30y, Johno. I have visions of A. Gary Shilling and Lacy Hunt surrounded by bikini-clad babes...

Carney sounded very dovish the other day, this is a great excuse for central bankers to be as whorish as possible, any f*cking excuse to devalue and give away billions to crony capitalists, so we can expect ultra-dovish guidance and lots of chat about unconventional tools, Bernanke-style. Sell strength in cable, for the time being. A lot of things came to a full stop after the vote, there will be a laod of bad UK data ahead of us.

Brexit is a total coup for the right wingers in Britain, they get a hard liner at 10 Downing Street and Carney has the perfect excuse to give the CBI a blow job on live television. It is going to be all easy monetary policy and fiscal austerity, US style. The working class Britons who voted for Brexit are about to get a nice dose of stagflation via a 20% currency devaluation, even as the interest on their savings accounts go to zero. Talk about an own goal... they'd be begging Hollande and Mangler to take them back before long, if they were only capable of understanding what it is they just did. Am I too harsh?

In other news, Dijsselbloem says NO BANK BAILOUTS funded by EU taxpayers, but really, who are they kidding??

RUT/IWM has generated three lovely new gaps between 110 and 118 since Brexit. We can safely expect them to be filled by the end of August. No shorting equities here though, not until VIX is sub-12, the Bolly bands are stretched as tightly as a supermodel's bikini on a giant yacht in St. Tropez, and Silly Season is in full swing.

It is going to be an interesting FX week, the Japanese move already made that clear. We're waiting for the last of the weak Yen longs to get cleared out of USDJPY before we revisit the arena. CADUSD and AUDUSD seem ready to break down..... anyway, there's not much point in doing anything risk off this week into OpEx, so it's Chart Watchers Anonymous for us. Study (in the Hammock) generates profits.

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abee crombie
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July 11, 2016 at 7:57 PM ×

jonho, how about all the risk parity funds and CTA's that have profited handsomely on the 30yr trend in rates ... when rates do start going up these 2 groups will be f*cked.

Add to the list, US Corporations (buybacks, M&A), PE firms, HK Condo etc. Lots of models and bottles going around

Thats why when the tide finally turns on inflation & rates its the biggest risk to asset prices. Sure we will have another cyclical slowdown at somepoint but CB's will just fire the same bazooka, money printing and ppl with money will eventually crowd into the same assets. But when rates rise, the global economy is going to be in for a big surprise. I imagine it will be a very long cycle though before we get there

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Bruce in Tennessee
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July 11, 2016 at 7:58 PM ×

http://money.cnn.com/data/fear-and-greed/

Fear & Greed Index beta
What emotion is driving the market now?

Extreme Greed

....Ya think??

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12yo HFM
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July 11, 2016 at 9:39 PM ×

Posters above are correct in saying that if rates rise, the party for JBTFD's and teenage HFM's is over. Fortunately my friends, that day will never come. I am quite serious here - it 'should' come, but it won't. Here's why: debt levels on a personal, corporate and sovereign level are now so high that any substantial raise in rates will utterly destroy the economy - not just that of the US, but EU, Asia, everywhere. Remember, Bernanke himself told us that rates would not meaningfully rise again in our lifetimes.

So party on dudes! Who wants to bet Nikkei reaches ATHs by year end?

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Polemic
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July 11, 2016 at 10:45 PM ×

LB, you do have to wonder if, with such total BoE expectation, GBP doesn't do a Lazarus. Short GBP really must be near the top of the all-time consensus trade league.

Brexit fatigue is probably going to set in and the short term shorts played on long term views are going to have their nadgers handed to them on a silver platter before any true move occurs.

I am still short BTPs for the record and wearing them like Jaime Lannister's hand around my neck. But I can't say I can complain about everything else. As for Italian banks. They may blow up but it won't matter. The shareholders will be toasted but if North European money is in the debt then it will be guaranteed, bailed out, ECBed, or somesuch. The EU cannot afford to have any contagion effects from Italian banks right after Brexit as a show of unity is paramount. Go long butter and sugar mixtures as fudge will be the answer.

May as PM? Interesting the market has decided that she is going to be more a soft landing brexiter than the Barclays' Swaps saleslady that dropped out of the running today. Felt as much that the market was ready for a bounce and that just helped. But back fit the story to suit ..

Right, I m off to host a fishwives party on a trawler in Grimsby (h/t johno)
Pol

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Anonymous
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July 11, 2016 at 10:57 PM ×

Today's New Normal: TLT and SPY making all-time highs on the same day, with Gold rising while Oil drops (though XLE is up!), and meanwhile VXX is at 1 year lows. What could possibly go wrong on Turnaround Tuesday?

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Anonymous
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July 11, 2016 at 11:31 PM ×

Financial Times:

"The Dutch today joined the negative 10-year yields club for the first time – a reflection of expectations that the Brexit shock is likely to keep firing up an already accommodative ECB. The sharp decline in yields across the board is raising concerns that the ECB will run out of eligible bonds to buy since it cannot buy any bond with a yield lower than its -0.4 per cent deposit rate."

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Polemic
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July 11, 2016 at 11:33 PM ×

the ECB is squeezing a balloon between its hands with this EGB buying.

Hope the UK is going to relinquish its capital key holding in ECB pdq.

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Anonymous
admin
July 12, 2016 at 2:18 AM ×

I hear LB might be throwing a party tomorrow when the laggard NASDAQ closes above 5000 ... 'twould be a tipping point YTD of zero. Some would say that's bullish. But, it will be too bad indeed that the 12yo HFM won't be able to join us gentlemen for a clinking of our celebratory glasses.

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Anonymous
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July 12, 2016 at 8:12 AM ×

Watch cohort fertility rates in Human fertility database.

The developed economies in general are NOT going Japanese. Japan is a special case - extremely low fertility for decades combined with negligible immigration.

Now put this in context of 30 year gilt paying 1.6%, in an economy with comparatively high fertility and massive immigration!

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CV
admin
July 12, 2016 at 8:42 AM ×

"LB, you do have to wonder if, with such total BoE expectation, GBP doesn't do a Lazarus. Short GBP really must be near the top of the all-time consensus trade league. "

+1 Pol. I am 100% with LB on Bashing Betty and all, but Cable just looks like it is going to screw a lot of punters here, at least in the short run. How much is the market pricing for this week. A cut + QE? I sold my long USD (via the 2y bond) as a result. Now I have a lot of cash ... that's the good news. The bad news is that it's all GBP, and everything outside the turds of the FTSE100 and FTSE250 is looking very, very expensive!

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Scorekeeper
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July 12, 2016 at 9:24 AM ×

Keeping tally so far on the FX predictions for the week: Leftback - Polemic 0-1

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12yo HFM
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July 12, 2016 at 10:28 AM ×

Equity indexes surging again today (Nikkei & Eurostoxx up +1.5%). I think it's clear now that US equity indexes are heading much, much higher (this move from the 2009 lows will be the biggest bull market any of you have ever witnessed). EU and Asian equity indexes also turning higher. Happy days.

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amplitudeinthehouse
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July 12, 2016 at 2:56 PM ×

No Macro Man note today. Ah well..no trading today. Still better than having to go into the office an having to face the homology big turd!

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abee crombie
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July 12, 2016 at 2:57 PM ×

For all the bears or sidelines people (sorta including myself) at what point would you capitulate and say the S&P has broken out and is in a new trend leg up?

A weekly close above new highs/ monthly? Russell making new highs?

We were in a 250 point range before.. if we assume the breakout is real (a big if but purley by price action its looking strong) that could give a target of another 250 points higher... 2400. I'd hate to miss all of that move if it occurred. LB and others I would love to hear

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Polemic
admin
July 12, 2016 at 2:58 PM ×

No MM indeed
. I ve stuck my thoughts here if you need a filler.
http://polemics-pains.blogspot.co.uk/2016/07/brexit-bounce-nuclear-cbs-and-new-highs.html

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henner
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July 12, 2016 at 3:03 PM ×

on this level there should be quite a bit of money coming in from CTAs as we have a nice breakout to the top. I was and am bullish. key will be Q2 results and their outlooks in the conf calls from my point of view.. +BoE and China data of course

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July 12, 2016 at 3:30 PM ×

Luckily my long Eurostoxx is covering loss on SPoos..

all is well, helicopter money is coming, European fins are fixed...

hoping about a VaR shock on rates and i'm asking how MontePaschi sub at 65 will be digested

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12yo HFM
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July 12, 2016 at 3:39 PM ×

I am here to tell you that Abe has unleashed the pain trade on all of you. The yen will be sold relentlessly, GBP will be bought further, and stocks will rise in meteoric fashion.

The last 18 mths of 'sideways' movement in SPX has been accumulation for a MASSIVE move higher. I fail to see how SPX doesn't hit at least 2600, probably higher. Other equity indexes will also rise (FOMO trade), with bears everywhere being slaughtered wholesale.

Teenage, long-only HFM's will become the 'asset managers de jour' (goals!), whilst I expect to be paid a sick 8 figures for pressing "buy" on my BBG, and sitting back in my massage chair as my leveraged equity positions bolster our % returns into 3-digits. #YOLO

PS Any would be investors, CNBC invites etc, snapchat me 'k?

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July 12, 2016 at 3:56 PM ×

For me now madame Jellen is in a trap: is there any reason to justify more time to hike???
a short 5yr note covered by a put on Spx?

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Anonymous
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July 12, 2016 at 4:04 PM ×

pretty simple. If the FED wants the dollar lower they will hype a hike (and/or actually hike). If they don't they wont. KISS.

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johno
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July 12, 2016 at 4:10 PM ×

Good call on GBP, Polemic. I got stopped early in the Asian session ... for once, there was some signal in the early Asia session and not just the usual noise.

Question remains how far this move in USDJPY goes. I've cut my long here and will wait to see whether it can manage a third strong day higher. I'm skeptical the BoJ/Abe government will do what's needed to convincingly change expectations. I'd think this would have to involve more explicit coordination, e.g. the government committing to extraordinary fiscal stimulus until 2% inflation reached, and the BoJ backing that policy with continued QE. With spot at 104.5-ish, I'd think the latter scenario is better expressed through options than in cash.


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Bruce in Tennessee
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July 12, 2016 at 4:12 PM ×

Yellen is in a trap, if she wants keep her job.


In the past we used to have a longer time frame with politics...we used to elect a politician, then they'd become corrupt once in office...

This time, we may just elect an already corrupt politician, and put the unused time to better use...like NIRP?

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Leftback
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July 12, 2016 at 5:06 PM ×

It's July, it's OpEx week, it's Silly Season. Spoos, Qs, USDJPY and Crude are being gunned higher. Only b/c there is Panic Buying and FOMO and there is absolutely no-one willing to sell them just at the moment. Steamrollers etc...

The Russell 2000 isn't remotely close to making new highs. The Spoos obsession continues (and good luck to its perennial punters) but that's not necessarily "the market" the way LB views it.

Interesting turn-around in the long bond, good spot by several sharp observers here. One might expect the fixed income market to be the first to sense a change of heart in the Eccles building.

Crude is making a run back toward its 50 day at around $48.00, that should cap its advance, USDCAD moving with oil. AUDUSD seems incredibly stretched here. USDJPY will probably be capped around 105 for the time being.

There are a lot of inflation flags fluttering in the breeze in the Real Economy. Dame Janet risks being behind the 8-ball on domestic inflation curve on the one hand and on the other hand is also unwilling to do a "JC Trichet" and hike into another global recession [the one that may or may not be ahead of us, and which would be triggered by a major bank failure and/or a recapitalization crisis in European banks].

We're still watching and betting on the dollar cruising higher from here, for a variety of reasons. Dead cat bounce in sterling, Euro, C$, but enjoy the ride while it lasts.

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Leftback
admin
July 12, 2016 at 5:20 PM ×

Also FYI, the XLF is still making lower highs and continues to exhibit downward long-term momentum. IWM, XLE and XLF should be leaders and not laggards in a recovery, and the continued under-performance of these cyclical ETFs suggests that this aging bull is on its last legs.

LB would be fascinated in punter's thoughts on GDX here. We don't have a position, but it is starting to look toppy.

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Cityhunter
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July 12, 2016 at 6:31 PM ×

LB, I see weakness showing up in XLF and XLE as well.

We build some short in AUD today. The recession fear on Brexit night and the exuberance screaming of "bull market ever" is the mirror image to us.

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Anonymous
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July 12, 2016 at 7:16 PM ×

Central Banks have recently increased asset purchases to the highest on record since 2103 - just as risk markets have 'magically' rallied higher.

http://www.zerohedge.com/news/2016-07-12/mystery-who-pushing-stocks-all-time-highs-has-been-solved

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MrBeach
admin
July 12, 2016 at 7:22 PM ×

@12yo HFM: Hilarious - though you missed the most obvious pop culture reference of the week: there is a Pokestop at 2200.

To the rest of the commentariat: I bought SAN a couple of weeks ago thinking that we'll get a much bigger pop. I'm out after a small profit in the trade.

It is challenging to fully model the flood of ZIRP/NIRP/QE/Helicopter money into markets. The flood has clearly changed investor psychology, where 12yo HFM actually sounds lucid. So what stands in the way of 12yo's thinking? No central bank can individually renege on their stated regime without being blamed for inciting a market rout. Whether their balance sheets hold ETFs (BoJ), Bonds (Fed, ECB), Apple (SNB), etc doesn't really matter. The central banks have anted up and are simultaneously one of the biggest whales as well as the sucker at the table. They can't just get up off the table now.

So do we all just follow 12yo to Pokestops at 2200, 2300, 2400, etc.? It seems so entirely simple a model. Why even bother analyzing rate differentials, FX moves, bank balance sheets? If asset values begin to drop, the whale at the table will begin to move deposit ratios, drop rates, instigate QE, buy ETFs, fire up the helicopters and move the market back to steady growth.

Since the end of QE3 in 2014, the S&P has moved up about 6%. Not much for 2 years of teeth gnashing.

If CBs cannot help but intervene in markets? What causes markets to actually fall? Earnings still matter. The Chinese banking system and economy still matter. Are S&P earnings falling precipitously? No. 12yo HFM answer - buy. Are the Chinese dumb enough to deval all at once? No. Buy.

It seems to me that the only thing that will force an actual change in the CB driven rocket is an error or market failure. With fast global communication, I cannot see a modern central bank committing a policy error anymore.

The only market failure I can reasonably foresee is the loss of confidence in major global currency forcing a massive deval. This is a tough bet to make.

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12yo HFM
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July 12, 2016 at 7:36 PM ×

@MrBeach: Ur hired :)

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July 12, 2016 at 8:24 PM × This comment has been removed by the author.
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July 12, 2016 at 8:25 PM ×

MrBeach, the only markey failure that you're not considering is the "real" aim of CBs, to have inflation. If inflation will come your game will be under stress. Pay attention to that, until then enjoy funny money

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Anonymous
admin
July 12, 2016 at 8:43 PM ×

The CBs will hike when they have to, according to their mandate. When they start hiking, it'll be seen as positive at first, just like every time before. The carnage will begin when markets realize the hikes won't stop at 2-3%.

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Polemic
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July 12, 2016 at 9:11 PM ×

The MM commentary appears to have capitulated a short bias in favour of the CB cash wins all. The simplest way to look at this is as a capitulation of cash longs as all assets are up. If that is the case and the value of cash is falling and as it continues to do so the next logical step is inflation.

However, I think that there will first be a snap back from the expectation of uber lax monetary policy from the CBs which is currently seeing max expectations.

So it may play to short equities. Tight stops but risk reward has tipped that way for me. Am I calling a top? Nah, but I d be pretty lucky if it is.

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Anonymous
admin
July 12, 2016 at 9:32 PM ×

pol with you here- i think a few people want to sell this but waiting for septemeber /post summer....bears are talking bearish as shorts all covered
i think next stop in a move back in the range in spx..vix and spx up 2 days in a row now...time for a pull back

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Celeriac1972
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July 12, 2016 at 10:02 PM ×

@12yo HFM - your big brother's going to be furious when he gets home and finds you've been playing with his stuff. Maybe it's time to quit while you're ahead and quietly put everything back where you found it?

Hard to see what pushes SPX on materially from here. If anything a time to set some shorts imho.

My short buyback ETFs / long SPX has worked well. Am contemplating a similar trade short USMV and/or SPLV vs SPX; the "low vol anomaly" is starting to look stretched. Looking at this tomorrow, will share findings if interesting.

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johno
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July 12, 2016 at 10:18 PM ×

A new musing on equities ... how could we get to 12yo HFM's 2,600 on the SPX? He sug-jests an epic positioning squeeze. Maybe, but seems excessive. A zero hedge reader may offer hyperinflation as the likelier answer. But perhaps the likeliest answer is pro-cyclical fiscal stimulus. You have Abe in Japan, delaying the sales tax hike, soon announcing more spending, and perhaps eventually targeting inflation with fiscal spending. And consider the US electorate this year. You have Sanders and Trump ( "free sh1t" and "build stupid sh1t") between them drawing a lot of support for more spending, the latter from a Republican base. Imagine not just the boost to corporate earnings, but the massive rotation out of fixed income and into equities if the next President and Congress could agree a large fiscal stimulus. Most of us would probably agree that fiscal spending would be far more effective in getting money into the hands of those who would spend it than QE, no? And the US infrastructure is so under-invested that it may be possible to spend (i.e., invest) without worsening debt sustainability (granted, it's maybe likelier that the money is mis-spent, ultimately worsening sustainability). In any case, many would agree that fiscal stimulus makes sense, that politically the winds are shifting that way, and that 12yo HFM's SPX target might look conservative if it actually happened.

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12yo HFM
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July 12, 2016 at 11:35 PM ×

@Celeriac1972: Dude, forget those equity shorts, any retracement in SPX will be a pullback, perfect positioning to get long again and be killin' it on the next leg up of several hundred handles. Swag money.

@johno: ur hired.



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cowboy
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July 13, 2016 at 7:40 AM ×

So.... 2600 in SPX is 20% up fr here. Our 12yo hero is gonna leverage that into 3 digit returns. Sounds like a plan. All I need to do is borrow 80% of my house value n by next year I'll have enuff for another house! 12yo pls pm ur subs agrmt.

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cowboy
admin
July 13, 2016 at 7:47 AM ×

Asia/China and EM have just broken out of recent consolidation and valuations are appealing. If DB doesnt implode they should do better than SPX I think. Holding onto my IWM and XOP puts though (sry 12yo), till they expire.

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