BOJ thoughts

Will they or won't they?  After years of well-telegraphed Federal Reserve policy decisions, in some ways it is refreshing to see genuine market indecision in the run up to an important G3 policy announcement.  In the case of the BOJ, attention is particularly acute given the rushed stimulus package announcement, the BOJ's own recent history of not fulfilling market expectations, and the potential market reaction in then event of a no-go.

Let's look at them in turn.

The Abe stimulus package announcement looked as rushed as some of the Macro Boys' homework efforts during the last school year.  It smelled very much like wanted to get something, anything, on the tape before the BOJ meeting, so that the fiscal authorities could look at the central bank and say "your turn."   Whether the BOJ takes the bait is uncertain, however.  While the Y28 trillion headline amount is all well and good, at this juncture there is no detail as to the so-called "real water" component- the actual amount of new stimulus embedded in the package.   Certainly there's not enough there to support the adoption of any radical helicopter-type policies; we don't even know what if any fresh bond issuance there will be.  Thus, while the BOJ may feel some political pressure to do something, they may well decide that the appropriate response is a token gesture as devoid of substance as the stimulus announcement.

When it comes to guiding the market, Mr. Kuroda seems to have purloined Yellen's copy of "How to Lose Friends and Alienate People" at Davos and has been consulting it regularly.   First he introduces negative rates a few days after pooh-poohing the idea.  Then, despite high expectations of a policy shift a few months ago, he delivered a zero.  Clearly, one important area where the BOJ differs from the Fed is that they clearly don't give a monkey's what market expectations are.  Given the recent run-up in USD/JPY and the Nikkei over the last few weeks, there is clearly an embedded belief that the BOJ will deliver.  Mr. Kuroda, however, appears to have few if any a priori qualms about disappointing expectations in principle.

Perhaps the most compelling reason to do something is the potential fallout if they hold fire.  It seems likely that USD/JPY would drop a couple of percent at least, with the Nikkei tacking on a bit more.  Wityh USD/JPY at 112 or 120 that's not such a big problem; at 105 it does loom a little bit larger.   This could be viewed as rationalizing a token move, just to be seen to be doing something.

To be honest, Macro Man is torn as to whether the BOJ does anything or not.  It seems very unlikely indeed that any of the feasible policy options (buy a few more ETFs/JREITs, buy more JGBs) would confer many if any tangible benefits to the real economy.   In the case of buying more bonds or imposing a steeper negative rate, the negative externalities could easily outweigh the benefits.  As such, Macro Man looks for either no move or a modest increase to the ETF purchase amounts.

The market would probably take that as a disappointment, but hey; it's a tough world out there.  get used to it.

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Nico G
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July 29, 2016 at 6:30 AM ×

well spotted on that ETF thingy

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amplitudeinthehouse
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July 29, 2016 at 6:34 AM ×

Hey Macro Man. Can you do me favour. Can tell me ..Am I mug!?!
What, do I write like one.
I know these market aren't my specialisation, but I'm being honest about my calls.
Don't worry about it, it's all sweet.

Ps..Sweety, I could be gone tomorrow and go out smiling knowing my genes are in safe hands. Chow!

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Leftback
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July 29, 2016 at 7:02 AM ×

Yes, you called that one almost perfectly, MM. An increase in ETF buying, but as you also suggested, the market had more than priced in the new program. Yen surged overnight after the announcement, briefly breaking below 103. LB has been long JPY for a week or so, you will recall.

http://www.cnbc.com/2016/07/28/bank-of-japan-ups-etf-purchases-keeps-interest-rates-steady-reuters.html

Now we await the European bank stress tests and then sit back to see if Bucky can mount another assault on the € as we enter a new period of Draghi bazooka talk that will eventually drive EURUSD toward parity.

Meanwhile more than a few people seem to be irritated with a spineless Fed that has missed several chances to hike:

http://www.cnbc.com/2016/07/27/the-fed-has-missed-its-moment-doesnt-know-what-to-do-experts-say.html

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amplitudeinthehouse
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July 29, 2016 at 7:41 AM ×

"Now we await the European bank stress tests and then sit back to see if Bucky can mount another assault on the € as we enter a new period of Draghi bazooka talk that will eventually drive EURUSD toward parity."

Thats the thing, Lefty...Draghi keeps mounting attacks to drive the Eurodollar into the ground with help from friends but he doesn't know where to hit to bring it crashing down. Hat tip..THE MARKETS ARE IRRELEVANT MATE. There just a hobby for those interested in a small flutter on currency. As long as those New York investors keep looking to grab alpha then the further it gets away. You cannot grab what you cannot see, but only by gaming and luck. I only know of one fella that knew that and I'm guessing the next move when it eventually comes will be instigated from someone out there as good as he was because I'll never be. And believe me that is frightening! Goodluck.


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Anonymous
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July 29, 2016 at 8:24 AM ×

LB, I admire your calls on yen and cad,
but that parity call on euro has been out for so long and shared by so many people that it could only happen when nobody believes it anymore I guess.
My call is that Euro is heading towards 1.1250 for the next days/weeks and then things could get interesting on the short side.

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Leftback
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July 29, 2016 at 9:47 AM ×

Can't argue with that, actually. EURUSD parity is more of a longer term idea for me but it's all part of a stronger dollar thesis based on the fact that the US economy is remarkably enough still growing at about 2%, or 1.5% faster than Europe.

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July 29, 2016 at 10:27 AM ×

JGBs up 8-10 bps post BOJ. I got a hunch we could get a crapper in G10 rates in coming days, should the moves post FED get erased. Equities and USD is up for the drill imo. A short term twist would do good to shake up this complacent nonsense we have...

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Nico G
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July 29, 2016 at 10:34 AM ×

it's hilarious to see Spoos at all time high with current China devaluation and oil resuming south - both issues that had everybody worry and that tanked market early this year to the point that world equities were following CNY almost to the tick

probably the most distorted market i have seen in 20 years (to answer one anon asking about 'peak mindfuckery')

August beware

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TraderJim
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July 29, 2016 at 11:14 AM ×

More noise on the oil supply


"The UK has become the temporary centre of the global oil glut as a lull in demand from refineries has led traders to store crude on ships off the nation’s coast.
As much as 14m barrels of North Sea crude — the equivalent of more than two weeks of UK production — have been parked in giant supertankers off Southwold, the Firth of Forth and Cornwall in recent weeks."

http://www.ft.com/cms/s/0/b064ca44-5404-11e6-befd-2fc0c26b3c60.html#axzz4Fn5iL91y

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amplitudeinthehouse
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July 29, 2016 at 11:21 AM ×

Yeah, hilarious, Nico..from here we'll have to put on a Kevlar suit because the Players will be back hitting the offer as if there entitled to it. Newsflash...your not!
There's a good reason why none of you knew a thing about today's outcome of the Bank of Japan meeting..and it's all to real for me to see.

Ps...I'll take it all down with me so none of you get jack.

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washedup
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July 29, 2016 at 1:22 PM ×

Anyone else feel JGBs may be about to begin an out of nowhere, frying pan to the face selloff? You know, the one people used to expect for about 20 years but got burned on so many times they now live under bridges?

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amplitudeinthehouse
admin
July 29, 2016 at 1:29 PM ×

Washedup..or whatever your name is ..you obviously don't deserve to have billions. I don't begrudge anyone having money , but when use it to f##k over people you should be relieved of it , quick smart. From me to you , I don't care how much money you shove in front of peoples faces...your A Ginormous F33kwit!...

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Anonymous
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July 29, 2016 at 2:23 PM ×

stagflation anybody? these labor costs trends are going to impact margin going forward.also, fark beat rate, but revenues are taking a kicking - msft, apple,xom etc
yes amzn fb better but these are nose bleed levels of valuation. spoos at 2160 ...hmmm

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Nico G
admin
July 29, 2016 at 2:36 PM ×

discount flow with 0.000000001% rate and your spoos fair value is 1000000

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Nico G
admin
July 29, 2016 at 3:04 PM ×

...add 4 new Zika cases in Florida and you may go back to 1950

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Anonymous
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July 29, 2016 at 3:07 PM ×

Zika ? if that happens JBTFD given the hysteria we had about ebola

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washedup
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July 29, 2016 at 3:12 PM ×

@Nico - and yet no one can explain why Nikkei and Dax, both ground zero for negative rates, aren't (yet!) at multiples of their current value.

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Nico G
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July 29, 2016 at 4:20 PM ×

you could argue that Nikkei all time high in the late 1980s was SO nuts (didn't they say back then that the value of the Imperial palace in Tokyo equalled the total real estate value of California?) that Nikkei will never make a new high in our lifetime

and Dax well, i would like to see the corporate buyback figure in Germany, if any. Those boring losers by still spend on stuff like capex over there. What would be your guesstimate of Spoos level without any buyback and any douchebag and their sister frontrunning it?

also note that neither Nikkei or Dax index have valuation miracles like Apple Amazon and Facebook as exclusive members. Again what would be Spoos fair value today deprived of the performance in those names

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abee crombie
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July 29, 2016 at 4:53 PM ×

what is that saying, never short a dull market.. feels like that in S&P today..

CAD big move, Bloomy is saying its bc today is the last day Chines can buy homes on Van City without a 15% tax. maybe.

nico, S&P is just full of risk parity boys buying bonds & equities. Dont try to look at fundi's. The GOOG/AMZN/FB are juggernauts and amazing companies. But their stock prices are only as good as beating estimates. Thats the game US markets love. Apparently EU & JP havent figured this out.

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July 29, 2016 at 4:59 PM ×

Agree with Nico about names and index performance... US are three steps in advance.
today markets let me speechless...exhausting..

MontePaschi plan is like Quintana's attack... always next day. I'm really doubtful about an agreement for a consurtium for a capital hike without govt insurance.

JBTFD is in a big crisis if a dip will never happen :)

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Anonymous
admin
July 29, 2016 at 5:04 PM ×

The IMF and the Crises in Greece, Ireland, and Portugal

http://www.ieo-imf.org/ieo/pages/CompletedEvaluation267.aspx

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff"

But we all knew this, didn't we?

Yanis Varoufakis's head is exploding:

https://twitter.com/yanisvaroufakis


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JohnL
admin
July 29, 2016 at 5:52 PM ×

Abee, if foreign bid for BC RE is serious they can just look to Victoria or perhaps Whistler etc. The 15% tax only applies to metro Van. Can't see that as the cause for the CAD move. But copper up, nat gas up, crude up, $USD down, that maybe helping.

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Anonymous
admin
July 29, 2016 at 7:10 PM ×

SPX traded above 7/22/16 closing high of 2175, now a tick
below; the $SPX has closed at a new high on July 29 1997, 1992, 1987, and 1959. hmmmm, 1987? Something happen that year to the market?

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Anonymous
admin
July 29, 2016 at 7:17 PM ×

Japan pension fund loses $50bn
"The world’s largest pension fund lost more than $50bn last year"

http://www.ft.com/cms/s/0/9138aba6-555b-11e6-befd-2fc0c26b3c60.html#axzz4Fp4CGctP

*BOJ: KURODA ORDERS STAFF TO EXAMINE NEGATIVE RATE IMPACT

You gotta love headlines printed at the right time

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Sigma
admin
July 29, 2016 at 10:48 PM ×

Back from my Mediterranean yacht voyage...

The dip buying in TLT, LQD, EMB and 5y UST and selling vol on HYG, XLU, and XLP for the past two weeks produced stellar performance. You can easily program a robot to buy dips for you (if you know VBA at least), so you don't need to waste your time watching screens and pushing "buy" buttons. Yes, the risk-parity does pay handsomely...

The bearishness in UST is about to finish. Once people realize that no hike is coming from this FED in the next decade, all bonds aroud the globe will skyrocket. I am targeting 5y UST at 50bp, 10y at 80bp, and 30y at 100bp by mid of next year. Perhaps being too conservative though.

To bears in bonds and anything related to yield, please do continue to sell: Daddy needs to buy a NEW, BIG yacht for his Christmas cruise!

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Anonymous
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July 30, 2016 at 12:18 AM ×

Sigma ... so does this mean that you think equities will not be skyrocketing from here on out?

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checkmate
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July 30, 2016 at 6:56 AM ×

Please be patient he is finishing his paper round and will no doubt reply in due course.

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Bruce in Tennessee
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July 30, 2016 at 12:57 PM ×

http://www.reuters.com/article/us-funds-doubleline-gundlach-idUSKCN1092BO

“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview.

“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”

“We never short in our mainline strategies. We also never go to zero Treasuries. We went to lower weightings and change the duration,” Gundlach said. Currently, the yield on the 10-year Treasury note is 1.45%, which has translated into some profits so far for DoubleLine. “The yield on the 10-year yield may reverse and go lower again but I am not interested. You don’t make any money. The risk-reward is horrific,” Gundlach said. “There is no upside” in Treasury prices.

It appears Mr. Gundlach might be willing to sell to interested commenters here....

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Booger
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July 30, 2016 at 1:01 PM ×

So Q.1 2016 GDP was revised to down 0.3% to 0.8%, Q.2 2016 US GDP was 1.2%, so H1 was 1%. Hard to imagine why stocks rallied on that, unless it anticipates further immanent easing due to this. Perhaps it's more of bad news is good news until it's not.

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abee crombie
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July 30, 2016 at 1:07 PM ×

Cheers Bint, though to be fair Gundlach has never been a roaring jbtfd, equity bull this cycle. Zervos has been drunken sailor lover of Qe and spoos but recently turned bearish. Dr ed yardeni, still bullish. And my personal favorite francois Trahan still bullish here. Grants is increasingly bearish but not known as a market timer. Soros and druckenMiller bearish. John burbank bearish. Got no idea on the tiger Cubs, which would be interesting along with lone pine, Egerton, the more growthy guys. I know a few industrial focused guys are pretty bullish, even though s5indu looking vulnerable.

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abee crombie
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July 30, 2016 at 1:08 PM ×

Cheers Bint, though to be fair Gundlach has never been a roaring jbtfd, equity bull this cycle. Zervos has been drunken sailor lover of Qe and spoos but recently turned bearish. Dr ed yardeni, still bullish. And my personal favorite francois Trahan still bullish here. Grants is increasingly bearish but not known as a market timer. Soros and druckenMiller bearish. John burbank bearish. Got no idea on the tiger Cubs, which would be interesting along with lone pine, Egerton, the more growthy guys. I know a few industrial focused guys are pretty bullish, even though s5indu looking vulnerable.

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washedup
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July 30, 2016 at 1:54 PM ×

@abee - DZ is bearish now? I don't get his missives regularly so curious what changed his opinion.

Big Tech earnings were incredible - I found the fact that nasdaq was up last week with 75-80% stocks in the Q's down, even more incredible. Kind of reflects the new silicon valley winner takes all economy I suppose.

Am I the only one who can't understand how JPY is 102, bonds can't sell off, and gold keeps catching a bid despite the clear lack of an imminent herikoputa, even as SPX is at ATH? Maybe its a stock selectors market after all and macro doesn't matter anymore to equities. Or maybe its lack of volume. Or maybe I managed to wear away my brain despite never having played football (sorry I watched concussion last nt its on my mind). I think some of these markets are epically wrong - I am beginning to think it might be gold.

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SRX
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July 30, 2016 at 2:11 PM ×

Perhaps famous last words but frankly I now consider G3 central bank intervention a short squeeze opportunity on which to start selling equities. US does well? rate hike. US does bad? Global growth goes to crap. Eurozone + UK? Brexit is only the beginning. Japan? Call me in 40 years to see if it's not an uninhabited island.

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Anonymous
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July 30, 2016 at 4:25 PM ×

One man's view:

"The frenetic rally in stocks we have seen since the post-Brexit low six weeks ago, has been of the lowest quality I have ever seen. It has occurred with steadily falling volume. There has been almost no individual or institutional participation. It has been all about companies buying back their own stock, and hedge funds covering losing shorts on stop-loss orders."

"With the Dow Average up NINE CONSECUTIVE DAYS mid-month, we approached a three standard deviation move in prices. Usually, you only see moves of this magnitude in sudden gaps DOWN. You saw this in the two day, 1000 point drop that followed Brexit, the 10% melt down in January triggered by weak Chinese economic data, and the August 2015 1,100 point flash crash. To see three standard deviations on a move UP is a once in a lifetime event. The last time I saw one was in 1989 at the end of the great Japanese bull market. The S&P 500 is now 7.67% above its 50-day moving average, an occurrence as scarce as hens' teeth. You almost have to be as old as me to remember how often this happens. The narrowness of this rally is almost unprecedented. My technical friends have been jumping up and down screaming that only 28 of the S&P 500 are at all-time highs, and a mere 78 are in clear uptrends. To see so much buying focused on so few shares is unnerving, to say the least. All of the above is why I have sold short the S&P 500."

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amplitudeinthehouse
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July 31, 2016 at 9:04 AM ×

Abee, thats F##kin bullshit.USA markets are a non-event. period

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amplitudeinthehouse
admin
July 31, 2016 at 9:06 AM ×

Abee, buy yourself another mug! I'm not getting out bed. Period.

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amplitudeinthehouse
admin
July 31, 2016 at 9:12 AM ×

Abee, do really really want to take me on , do you really really think I'm going sit at the same conference table each morning and spew guts up in front of you and your USA friends each day about the USA markets. Go buy yourself gift voucher for pony or something..leave a poor alone.

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amplitudeinthehouse
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July 31, 2016 at 9:19 AM ×

Sorry, Macro Man..but sometimes you gotta call out bullshit when you see it. And believe me , USA is the biggest bullshit story in the world at the moment. You'd be better off moving to Thailand and meditating on the beaches and just laugh how the USA market just bullshit and bullshit their product to the world, be it Wall Street, Hollywood or "usa exceptionalism" ..it's all bullshit. The whole lot.

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amplitudeinthehouse
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July 31, 2016 at 9:24 AM ×

Macro Man, you say your looking for a new job..hat tip, move overseas. There's a Bernie Madoff on every corner in New York and just like him they come in different strips everyday :)..

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amplitudeinthehouse
admin
July 31, 2016 at 9:52 AM ×

I have vision..

I have epiphany..

I have seen the light..

It is a thousand miles from New York..

It is a Sportshedgefund..

Where the only people we f##k over are the bookies!

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amplitudeinthehouse
admin
July 31, 2016 at 10:29 AM ×

Hey Macro Man..I cannot remember the last time someone said I look like a pony..I mean what else must Wall Street think I am.
Oh..that's it..Oliver...please...(bends over) may I have some more?

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Anonymous
admin
July 31, 2016 at 10:40 AM ×

i want some of what he is having

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amplitudeinthehouse
admin
July 31, 2016 at 10:48 AM ×

No way Anon..I've spent years and years doing the rounds putting the team together, and there's no way someone from the backwoods of the planet Episolon is going to pinch my chi!

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amplitudeinthehouse
admin
July 31, 2016 at 10:49 AM ×

....YOURS!

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checkmate
admin
July 31, 2016 at 12:12 PM ×

Meanwhile back on planet earth the relationship between share buybacks / high dividend payouts and the converse poor performance of Capex correlates very well with the remarks above from Gundlach. In effect central banks have basically failed to restore the imbalance in global supply and demand ,but have managed to create an environment where there is now a paucity of value investments to be made. Hence, The comments from Gundlach to "sell it all" and the action of corps to make buybacks rather make Capex. In effect the corps don't have to be concerned by value in the sense that Gundlach means they just have to take the least bad option which means stock piling cash and reducing the share float rather than making Capex investments that fly in the face of the elephant in the room issue which is Global demand.

This is mostly a 'West' problem. The East and emerging get well when the West does. The West does not do that until it understands that transmission from monetary policy doesn't work very well until they find a way of funnelling it into the system at the bottom of the income tree. Bearing that in mind of course then austerity policy is counter productive because it hit's there to a greater extent than further up the income ladder. German EU policy and to a large extent the UK have failed badly by not lighting a financial nuke under infrastructure.
The days when they could have done this using national debt and then just devaluing relative to the rest of the world don't work of course if like the UK you convince the market you are dealing with debt ,or if you are the EU with the core holding up the currency of the Med and stopping those competitive adjustments getting made.
Without a major rethink I very much doubt I will live long enough to see the West climb out of this economic rut so maybe 50 year bonds are saying the same thing?.

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amplitudeinthehouse
admin
July 31, 2016 at 2:04 PM ×

"or if you are the EU with the core holding up the currency of the Med and stopping those competitive adjustments getting made."

checkmate...forget going to the FED or the Global International Monetary Fund. I'm running the other way from this market and if you don't forget about it yourself this market will only bring you grief, of the most expensive type you will have ever have known. And you know!

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amplitudeinthehouse
admin
July 31, 2016 at 4:16 PM ×

Checkmate, it's a given that if you and your friends next conference getaway decide to attack what little alpha there is left in the tank of this market, be sure to play my favourite little rockabye lollabye...

https://www.youtube.com/watch?v=v2J1Pa1PiuY

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checkmate
admin
July 31, 2016 at 4:36 PM ×

I am a value investor. When I don't see value I do not invest. It's that simple. I have no problem sitting on a stagnant return for has long has it takes to find value.

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celeriac1972
admin
July 31, 2016 at 8:11 PM ×

@amplitudeinthehouse, you represent about 1/3rd of the volume of the posts below this blog entry, and no more than 1/33rd of the value. #sold as 12yo HFM would say.

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