Ten Things I Think I Think

With apologies to Sports Illustrated's  Peter King, here are ten things I think I think:

1) Given the state of the world and the much-discussed potential minefields out there, Macro Man is not naturally predisposed to be particularly bullish of emerging markets.   However, he notes that after a long period of redemptions, the asset class saw solid inflows last week- EM bonds saw their second highest weekly inflows on record, according to BAML.  Moreover, the EEM chart is looking decidedly perky; is that an inverted H&S that's just broken?  The only technical cause for concern is that the RSI has made an interim lower high; still, it's looking pretty decent,. if only for a short term punt.

2) The EEM performance is all the more impressive given the goings-on in Turkey.   That the regime has suspended or sacked tens of thousands of educators is redolent of the proscriptions against the bourgeoisie following the Bolshevik revolution.  One can only hope that the analog falls apart from here.

3) While it's rarely a great idea to get bearish of something after its moved from multiyear highs to nearly multiyear lows in a few months, TRY/ZAR might be the exception.   For years it has priced a greater degree of political and regime risk in South Africa than in Turkey, but that appears to have changed rather quickly,  Is there any reason it shouldn't test the 2011 lows below 4.00?


4)  That didn't take long for the new government to backslide and put off Article 50 til next year, did it?  Could it be that they've discovered that when some 47% of your exports go to the EU, and only 16% of theirs go to you, that you may not actually have the upper hand?

5) Oh irony of ironies.  Even as rates everywhere have collapsed over the past few weeks, effective Fed funds have actually been drifting higher.  The sad thing is that the pace of this gentle drift (3 bps over the last 6 weeks) is actually higher than what's priced into the market over the next year.


6) Is someone asleep at the wheel, a mere pause, or was enough enough?  After falling 3% in a straight line since late may, the RMB has recovered half a percent over the last week or so.   Tellingly, USD/CNY has been keeping steady as the dollar has recovered elsewhere, which is a clear change in behaviour.   6.70 was a sensitive level in USD/CNH earlier in the year, so perhaps it is for the fixing as well.   This one's worth keeping an eye on....

7) Doesn't crude in the mid-high 40's kind of suit everyone?  It's high enough that most current producers can kind of turn a profit (if not fiscal balance), but it's low enough that it shouldn't kill the global economy through a tax-type effect.

8) Monday of last week saw the largest daily flow into high yield funds on record.   If that's not a sign of capitulation, Macro Man isn't sure what is.

9) Reader "Maelstrom" made an astute observation in the comments section yesterday.   While the level of the spot VIX is uncomfortably low, the curve is still very steep...which usually makes it profitable to short and roll down...or at the very least, avoid going long because of the brutal twin darts of theta and rolldown (on actual option positions, not VIX futures positions.)  A curve that's low and flat is the one you want to go long...

10) Volkswagen has managed to alienate a lifelong fan enough over the last two weeks that Macro Man cannot envisage ever buying another one again.  The final straw was sticking your author with a bill for storing the car over the weekend because the buyer didn't collect it until Monday, despite the fact that a) the reason the buyer couldn't collect it on Friday is that the dealership  didn't respond to phone calls asking for confirmation that the car could be released. b) that the car was only accessible for 4 hours over the entire weekend, and c) someone at the dealer told your author that keeping it there until Monday would not incur any charges.

Although the government would never let them go bust, Macro Man wouldn't shed a tear if they did.   In the meantime, roll on more ludicrous fines!

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Sigma
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July 20, 2016 at 9:31 AM ×

Jan17 VIX futures is at 20 vs the front month at 12. That's a whopping 8% of roll-down.

Put that to a risk-parity with ZF (5y UST) to make it a dream carry trade.

Now back to browsing catalogs for my retirement mansion

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Anonymous
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July 20, 2016 at 9:37 AM ×

@Sigma - all this knowledge and yet you fail to mention today is VIX expiration.....

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Anonymous
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July 20, 2016 at 10:10 AM ×

risk parity gets all puffed up after a nice run. Hubris.

You don't know what you own and if it was 50pct down you wouldn't know if it was rich or cheap.

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Error404
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July 20, 2016 at 11:38 AM ×

"4) That didn't take long for the new government to backslide and put off Article 50 til next year, did it? Could it be that they've discovered that when some 47% of your exports go to the EU, and only 16% of theirs go to you, that you may not actually have the upper hand?"

1. Backsliding from what? May and Davies have been consistent in talking about late 16 / early 17.

2. Percentages don't pay the bills, money does. And MM knows better than most that in monetary terms the EU exports far more to the UK than vv. (GBP7.3B more in May, for example).

Merkel should be busy courting May this afternoon to retain access to the UK market.

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mi pa
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July 20, 2016 at 12:11 PM × This comment has been removed by the author.
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mi pa
admin
July 20, 2016 at 12:16 PM ×

@Error404 :

2. Percentages don't pay the bills, money does. And MM knows better than most that in monetary terms the EU exports far more to the UK than vv. (GBP7.3B more in May, for example).

LOL, now i am not suprised that Brexiters won, if people in GB have such enormous intellectual capacity...geeeeez

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checkmate
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July 20, 2016 at 12:33 PM ×

As risk on goes this looks like one of those market enviroments where you get the 'creeping' price action. Problem is those markets tend to take several weeks to inch out any decent gains and about 1 1/2 trading sessions to give it all back. In other words they lack conviction reflected in stops being pulled up tight and being run en masse when the tentative 'creeping' comes to a stop.

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AL
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July 20, 2016 at 2:04 PM ×

@Error404:
I think we shouldn't underestimate the WTO, which has a precise set of rules for its members.
And then what about product definitions, conformity, etc? You know? That small "CE" mark on every item around us.

Definitely interesting times ahead of us and I wouldn't rule out an epic "reverse" down the road.

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Anonymous
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July 20, 2016 at 2:35 PM ×

BOJ Is Running Out of Room to Buy Bonds Amid Stimulus: Chart.

http://www.bloomberg.com/news/articles/2016-07-19/boj-is-running-out-of-room-to-buy-bonds-amid-stimulus-chart

BOJ will never stop buying bonds because they cannot. It's a no limit game right now.

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washedup
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July 20, 2016 at 2:57 PM ×

@anon 2:35 I kind of agree with you - given Japan's structural aggregate demand problem, other than turning Yen into confetti they don't have a way out - but, their preferred approach only works in an environment where the RoW is growing and can absorb the resulting xport growth - far from clear to me thats the environment they'll find.
Think about it thus - if the japanese economy couldn't achieve nominal growth in a period where global GDP, led by China and EM, was growing at 5% + CAGR for a decade and a half, HTF are they going to do so now? I would additionally argue that their manufacturing has spend two decades adjusting to a 'permanently' strong yen and globalizing their supply change, so its not even clear to me there will be anything but a small elasticity.
So yeah - no limit game and someone ordered just ordered a fresh batch of the white stuff for the table into the wee hours of the morning just as punters were flailing. Next step - OD and paramedics.

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Leftback
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July 20, 2016 at 3:22 PM ×

I think I am with you on #10: say goodbye to the VW, MM, and move up to Audi or BMW (just get an old one).

Crude now looks set for a break lower into the very low $40s. Seasonals, storage, US rig counts rising, the stronger dollar, it's all bearish oil just at the minute.

We have been calling for a pull back in metals and the end of the commodities rally for a while, as Bucky pushes on, having surmounted the hump at DX 97. Today it looks like the message has been received, with SLV and GDX both down hard.

LB is stealthily buying some JPY. Yen carry has driven a lot of the buying in equities and commodities and that trade is just beginning to come unglued.

One or two people (not us) have put a July Fed hike back on the table. We think there will be noise about September. This Fed doesn't like to lead, but if the FX market and the front end of the yield curve move up sharply, they will surely follow.

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Anonymous
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July 20, 2016 at 3:39 PM ×

Lefback

VW owns Audi

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Anonymous
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July 20, 2016 at 3:49 PM ×

Another Bund auction has failed. Germany's €5bn 5y offer got only €3.486bn bids as yield at record low of -0.51%.

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Anonymous
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July 20, 2016 at 3:50 PM ×

ECB faces QE dilemma after Brexit vote as 53% of German bunds not eligible b/c of low yields

http://on.ft.com/29NcDc1

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Anonymous
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July 20, 2016 at 4:15 PM ×

How high can it go?

Total Assets of Major Central Banks now over 17 trillion

Double? Triple? Infinity?

http://www.yardeni.com/pub/peacockfedecbassets.pdf

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JMT
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July 20, 2016 at 4:16 PM ×

Following MM's travails dealing with VW...as a once MK 4 GTI owner I also had a bulsh*t experience with a VW dealer. The car was just 1 year old, in for a routine service. Picked the car up, all looked fine. After about a mile of driving noticed the handling felt a little 'wobbly'. They had failed to tighten the lug nuts on one of the wheels, and the wheel was being held on by the 'locking' nut. I tightened the wheel and returned to the dealer and despite my complaints they didn't believe me and denied all culpability! (I was just thankful there hadn't been an accident, or that my wife had been driving the car.)
VW (and Audi) dealers are the absolute worst, and since that car I have not owned another VW....although did own a 911 before they amalgamated.

On the markets and Fed...conspicuous that Jon Hilsenrath has had a few interesting articles the past week or so, suggesting that Sep is definitely on the table and that we might get a heads-up in the July 27 statement. This of course following the surprisingly quick recovery post-Brexit. If proven prescient, imho would appear Hilsenrath has been 'reinstated'!

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Polemic
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July 20, 2016 at 5:07 PM ×

OK .. as we are VW slagging.
I have owned a string of passat estates and golfs, the Daughter wrote off the last golf before xmas( a 2004 ) which was very sad ( She was fine) because it was a trusty old steed and I'd just spent £800 having the gear box fixed, having earlier had a new clutch. Previous to that it had had a new bonnet, fenders, radiator, aircon radiator. None of which was VW s fault. Mine for pranging it at a roundabout. The current Passat (2005 150k miles) is great for family runaround but is on last legs and has also had many things fixed on it. The golf has been replaced with a newish AUdi A3 and the main family battle bus is an audi A6 estate. the Audis are brilliant but because the A3 was relatively new and I wanted cruise control retro fitted I had to take it to a main dealer. This was the first time EVER I have been to one as I have a man around the corner working out of a shed who has done all of our VWs and does the Audis now. HE charges £40 an hour and gets parts cheap. My visits to the Audi main dealer cost me £168 an hour. Basically. VWs and Audi s are brilliant cars, the dealers are absolute c++nts


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Unknown
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July 20, 2016 at 6:00 PM ×

Can someone explain why a Bund auction "fails" instead of getting filled for the size needed at a lower price (higher yield or rather less negative yield in this case)? I'm sure there's an order book with unfilled orders at lower prices.

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Leftback
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July 20, 2016 at 6:13 PM ×

So.... we have been short some Euros this week. We are going to remain long USD and short CAD for the foreseeable future.

We closed the Euro short, ready to turn around and get long a few EUR and JPY, and also short some Stoxx, on the premise that Draghi doesn't immediately have any more rabbits to pull out of the hat that are legal and possible at the present time.

Does anyone think that he can do more than promise to buy more bonds? They are unlikely to make any signal that they will go further down the NIRP rabbit hole at the moment, b/c it is NIRP that is killing the EU banks.

This set-up going into the ECB meeting looks like Sell the Relief Rally in the banks, and Buy the (Lack of) News in the Euro, for a day or two at least. Nico, anyone, your thoughts?

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Leftback
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July 20, 2016 at 6:14 PM ×

Pol, if blogging gets boring mate I am sure you can get a job on the next series of Top Gear... :-)

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Anonymous
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July 20, 2016 at 8:14 PM ×

There was that trial balloon tge other week of removing the capital key. Blew out bund btp. He will have to address that.

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Anonymous
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July 20, 2016 at 8:33 PM ×

re leftback- i am basically still tryingto stay with long usd - mainly against jpy i have to say. and long gbp v short euros. playing shorts stocks so long yen might sound odd but can see spoos coming off and yen weakening as well- heck spoos didn't do much and yen went off 20 big figures!
volumes are insanely low- christmas/thanksgiving , usually ecb presser leads to pullbacks so thats there . earnings are "beating" but revenues are pretty crap so far but no one gives a toss....
wonder if the fed might actually try to get ahead of the market for once or just bend over as usual
and while i expected some bounce post brexit no way did i see 11 vix and 2170 spoos!! the vol collapse has been epic

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Polemic
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July 20, 2016 at 9:41 PM ×

Thanks LB.. Just thought I might as well change the topic everyone stopped listening to me talk about Turkey.
Just wondering what level USD?TRY has to get to before our US brethren start going Awww maaa gawd. But then they gave up on Venezuela and Zimbabwe years ago. We are just lucky enough to be able to short Turkey still.

I should check how Cyprus is trading. Watch out for tourists carrying blackboards heading south across the Green line

And as for what the Fed will do. It really doesn't matter.
Rule 1 of trading is just to fade what everyone else expects on the day. Has worked a treat for ages.

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Sigma
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July 20, 2016 at 9:50 PM ×

Another morning and again my mailbox is full of IB research to reduce duration (today SocGen quants estimated that the probability of US 10y going below 1.1% is only 1%). As usual, it all gets deleted straight away. Then the initial drop in TLT and LQD is bought and their vols are sold. With such a level of bearishness on rates, it is about the time that the widow-maker claims her next victims.

As for the FED, since last time they hiked, 30y rate is down 100bp. What is the point of making the curve further flat or let it invert? I bet that they will follow the long rates not the short rates. Further, every economic cycle lasts about 6-10 years so not much time until we get to the next recession. Any spike in rates is now a buying opportunity not a selling.

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Leftback
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July 20, 2016 at 10:25 PM ×

@Sigma. LB really agrees with that last comment on rates and yes the widow-maker is ready to slaughter bond bears again very soon. As for the FED, there may be some point in stockpiling another 25 bps of ammunition for the day the recession dawns.

It's all a bit 2007 to us in terms of equities and vol. Of course that's not really a good analogy b/c we had much higher interest rates at the time. While we are at it, those 1998 analogies are seriously appealing only to the very weakest intellects. I mean, rates, China, global growth and M2V are all vastly different now than they were eighteen years ago. For analogs of today's market, one can really only turn to one of the many Japanese "recoveries" and then follow the subsequent progress of the Nikkei. Of course what happens with Spoos will be worse b/c of all the excess intervention, leverage and margin debt used by 12 y-o.

ECB is in a bind tomorrow. Things aren't bad enough for a full-blown panic that would yield the environment to enable all the rule changes that are required to pull out the next bazooka and continue the QQE madness, so they will have to punt. Look for the fast money to throw all the toys out of the pram tomorrow and give us another big puke in the EU financials. DX may pull back tomorrow, EURUSD has been oversold of late, and is poised for a bit of a bounce.

BoJ meeting also seems likely to disappoint the madding crowd, as expectations for more monetary/fiscal action seem to have become way overblown. There is already substantial pushback in the Japanese finance industry, now that BoJ are close to reaching physical limits on JGB purchases. With global financial conditions notionally calm (spoos at highs, vol at lows) is this really the time for the BoJ to go Full Retard? It's simply not their style.

http://www.bloomberg.com/news/articles/2016-07-19/boj-should-end-big-lies-at-july-meeting-former-official-says-iqtl82cu

USDJPY has gone in One Direction for two weeks. "Everyone" now knows it is going to 110, innit. Mrs Watanabe and the taxi driver are short JPY, and so is 12y-o HFM and FX trader. Au contraire, we think it may be time for a breather, and if risk off conditions were to resume in Europe, then USDJPY will retrace sharply. We humbly suggest that the legions of JPY shorts might be in danger of experiencing a vicious face-ripper....

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MrBeach
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July 20, 2016 at 11:30 PM ×

@LB: Largely agree with your thoughts. Thanks for regularly contributing to MM's excellent blog.

I'm currently long bonds, long REITs and short eem, iwm, spy, qqq.

I think we just seen a massive short covering rally post brexit. In my opinion, a few more days and a few more S&P points is the most that is out there. After that, a very quick fall back to the 50 day average around 2093 and then everyone goes on the August break.

The Fed will not likely raise now, but strongly hit for September. Should the Fed successfully move September expectations, I fully expect the Chinese to move their currency again.

Do we get an August surprise like last year?

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Anonymous
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July 21, 2016 at 5:16 AM ×

Recently parted with my 2005 Passat TDI wagon. Wonderful car, particularly on the highway, but agree that the dealers are c___ts.

Have sold most of my long bonds and am selling US stocks almost daily. Itching to go long volatility.

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Anonymous
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July 21, 2016 at 8:46 AM ×

http://en.farsnews.com/newstext.aspx?nn=13950430001452

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Nico G
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July 21, 2016 at 10:51 AM ×

Merril Lynch

Japanese for “whatever it takes”

Recent news makes us increasingly confident Japan will join the fiscal expansion and both Europe and the US will increase their stimulus efforts. Policy decision making in Japan often seems like a ritual kabuki play. In the first act, facing whether to delay the consumption tax hike, Prime Minister Abe met with three advocates of easy policy—Paul Krugman, Joseph Stiglitz and Christina Romer. Then at the G-7 meeting in Japan in late May, he warned of risks of a Lehman-like economic crisis. Recall that earlier he had said that only a major event similar to the 2011 earthquake or a Lehman-like crisis could delay the tax hike. Weeks later, in the second act, there was no sign of Lehman II in sight, but sure enough the consumption tax hike was delayed.
In the third act, policy was put on hold awaiting the results of the upper-house election, which returned a solid victory for Abe. He then announced work on a “bold” stimulus package, which major Japanese media outlets suggest to be at least ¥10tn. Former Fed Chairman Bernanke was invited to offer policy advice in the fourth act this week. It is not hard to imagine what Bernanke told them.
The fifth and final act, in our view, will be a major stimulus package, of ¥15-20tn in total, financed by at least a ¥10tn supplementary budget, likely coupled with additional easing by the Bank of Japan at end-July. We look for the BoJ to double its ETF purchases to around ¥6tn annually and potentially lift its JGB purchase pace in line with the increased issuance from the fiscal stimulus plan. Inclusion of municipal and agency bonds is also possible, but given their small market and limited liquidity, we see this as a more symbolic gesture. We do not expect a further cut in interest rates at this time, but we would not completely rule it out either. The BoJ would need to find a way to minimize the adverse impact upon banks from a more negative policy rate.
Risk markets have responded well to this potential program: Japanese equity markets just about reversed their post-Brexit funk, having risen 9.5% since 24 June. The global spillover is palpable; US stocks are up 8% over the same period, while most European markets have rebounded as well. The USDJPY also weakened to above 105, having touched 100 after Brexit. This is a fairly small retrenchment: the yen has appreciated over 12% against the USD on net this year alone. A top advisor to Abe suggested this week that Japan cannot defeat deflation with the USDJPY around 100."

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checkmate
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July 21, 2016 at 10:52 AM ×

I think there's more value in MM's subscription than there is in Bunds ...oh, new safe haven asset group spotted.

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Nico G
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July 21, 2016 at 11:15 AM ×

“At this point, we have little doubt that our original forecast of a 4% ex-commodity HY default rate will be met by late 2016/early 2017. Moreover, we think there are now enough reasons to believe that defaults could rise to 5%, ex-commodities, sometime over the next year or so. Coupled with our 20% commodity HY default rate forecast, we are looking at 7.25% aggregate default rate sometime around mid-2017.”

Deutsche’s Melentyev

in other words we are exactly in mid-2007. Europe, EM underperforming and full TINA on US equities.

conclusion: get out of all risky assets in the coming weeks (LB this should answer your question reg. stoxx)

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Leftback
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July 21, 2016 at 11:41 AM ×

Neck-snapping turn-around in USDJPY.....

http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/bank-of-japans-kuroda-rules-out-helicopter-money-report/article31044668/

Now eyes down for the ECB. Assuming USDJPY stays weak, will Spoos follow their recent correlation and turn lower?

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Anonymous
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July 21, 2016 at 12:21 PM ×

Nico - 2007 ? aint that a little extreme ? We are late in the cycle to be sure but if we are going to have GFC 2 redux whats the transmission mechanism to the underlying economy ? Just reflexivity ?

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mi pa
admin
July 21, 2016 at 1:08 PM ×

Nico is permabear for months now, AFAIK

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hipper
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July 21, 2016 at 1:54 PM ×

Just imo but don't think there's going to be a gargantuan sudden death bust a la GFC since CB will just unleash an ocean of liquidity on any fire. But think the next recession plays out not in the banks, but in the "real economy" over a very long time as this liquidity crowds out the relevant groups making up the "real economy" from investment returns in the upper echelons of the risk curve, falling household incomes, the deterioration of job quality, crowding out the middle class into the more extreme upper and lower classes with the emphasis on the latter. Europe is very special because of the mass migration and there are some huge cost guesstimates being toss around. I'd suspect this will constitute a major portion of whatever fiscal stimulus is coming. But unless that fiscal stimulus becomes permanent it will be a relatively short lived boost which is made out of air.

Otherwise I'm just as confused as this guy.

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Nico G
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July 21, 2016 at 1:54 PM ×

i am up eur 2.3m so far this year

you?

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mi pa
admin
July 21, 2016 at 2:07 PM ×

You reminds me of one Attila Demirey back in 2007/08, he also make the killing then, but stayed in one course for to long..

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CV
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July 21, 2016 at 2:19 PM ×

I usually take the offer on Nico's posts, just you know, because ... ;), but ...

"get out of all risky assets in the coming weeks"

I actually agree with this. Whether it will be the big deluge, I have no clue, but the air is thin here and the oxygen bottles are running dry.

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checkmate
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July 21, 2016 at 2:46 PM ×

Up 33 for the year.

Not millions because I can't piss that high due to a testicular deficiency.

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CV
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July 21, 2016 at 3:07 PM ×

Meanwhile on the ECB. Zzzz. The comments on bank equities were interesting, but I doubt that they will buy DBK shares anytime soon. Otherwise, same old. The scene is set for a QE extension in September I think personally, but otherwise I doubt that they will do something dramatic. Of course, a little swoon in the next couple of months would push them.

Meanwhile in the world of politics. Trump says he won't go to war over the Baltics, fair enough I suppose, or maybe not. Next step is for May to go ... "Well, if you want us to protect the EU, you better play ball on single market access." ... I won't be pretty, but ultimately a time for the EU to go for the "nuclear" option of total integration. If the U.K. just sticks up a sign that says "We have Trident, so you can f'ck off" ... the EU will be forced to turn its back on the island. It will be painful for a while, but the world will keep spinning in the end. It always does.

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Anonymous
admin
July 21, 2016 at 3:17 PM ×

FT is reporting that JP Morgan’s Jamie Dimon is leading a group of powerful financial services company executives to seek the end of corporate earnings guidance.

http://www.ft.com/cms/s/0/4c60d8a0-4e8f-11e6-8172-e39ecd3b86fc.html#axzz4F2VYh5fi

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Leftback
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July 21, 2016 at 4:01 PM ×

Correlation fuzziness day. EURUSD doing squat. LB will resist the temptation to celebrate after his call on the ¥. LOL.

USDJPY looking like it will put in a reversal candle, and Spoos is in limbo thinking about following its latest dance partner lower. This is the sort of day that often marks major market turns.

Initial claims in the US still at lows, everything set fair for the Fed to upgrade their outlook for the US economy. ECB was a super-snoozer (see @CV above), b/c Draghi can't figure out what to do other than more of the same when things get worse.

We might see a small step back for the DX here, before it roars back. As always, if/when we start to see both ¥ and DX gaining strength together, watch out, 12 y-o HFMs, dip buyers and vol sellers. Risk assets will be offered.

Silly Season in the US, so often it's the perfect time to break open a whole can of European banking crisis Whoop Ass.

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Mr. T
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July 21, 2016 at 5:22 PM ×

Coupled with our 20% commodity HY default rate forecast...

This guy is crazy. To my eye we are at that inflection point in the commodity cycle where 1/2 the street is digging in their heels with short positions saying "but but look at the balance sheets" while the other 1/2 is looking at the spot prices, looking at the secondaries, looking at the M&A and wondering how things ever got this cheap. How about CHK as a proxy for this - end of Januaray the stock was at a buck-fifty, natty was on its way to multi-decade lows, 5 year debt was trading at 30 cents on the dollar, short interest was closing in on 40% of float. 5 months later the balance sheet has some fresh air, the stock is up 200%, the bonds are trading at .90 on the dollar, natty is up ~80%. And this is the "worst of the worst" - the LEH of commodity space. The one so bad (ex)management was choosing to not even live to see the outcome.

Analyst dispersion is very high. Check out ECA today - they beat by 18 cents, and this is another 'left for dead lower quality' operator. There will no doubt be some more HY commodity defaults, but at least looking at the situation now this guy is needlessly bearish.

And in reference to a question previously, no I would leave coal out of this. Coal is in a quick death cycle, but net energy consumption is not.

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Unknown
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July 21, 2016 at 5:53 PM ×

Re: coal: a certain candidate for the U.S. Presidency seems to think the opposite.

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Anonymous
admin
July 21, 2016 at 6:36 PM ×

Mr t. Practically the only commodity companies in the US making free cash flow at current prices are coal companies

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Anonymous
admin
July 21, 2016 at 6:40 PM ×

Nico, any chance you could lend me 200,000 euro, please?

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Leftback
admin
July 21, 2016 at 7:36 PM ×

The worm (in this case USDJPY) has turned. Give it up for LB, yo. We called that one.

There are clear signs that none of the major central banks is going to intervene to increase liquidity for the next six days, and markets are already starting to show signs of panic ;-)

How far the worm can wriggle and take the spoos lower remains to be seen. Is this the time for all those leveraged punters suddenly buying back yen and then having to sell spoos/Nikkei, or are they selling spoos/Nikkei and then having to buy back yen? Chicken or egg, it doesn't matter. Once those leveraged carry trades cease to make profits and start to lose money, it can all come unglued fairly rapidly. A 5-10% pull back in this market into August, lower oil prices and a firming dollar will be enough to persuade the Fed to push off hikes beyond September and perhaps into 2017.

Regarding the discussion of high yield and credit defaults above, it's all about oil prices. Another trip to the sub-$40 basement for WTI and all those lovely "high yield" instruments in the energy space will be renamed "junk" in short order. It's a house of cards with demand for oil and gasoline waning and global growth slowing.

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Sigma
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July 21, 2016 at 9:23 PM ×

Just back from a golf course... Today I let my secretary to handle the trailing buy orders for LQD and TLT and for selling vol on HYG and XLU in the morning. Everyday being the same story, I rather do something fun...

About the HY: Using the recovery rate of 40% for ex-energy and 25% for energy HY with respective default rate of 5% and 20% for HYG (with 12% energy) in the worst case, I get the loss rate of 444bp (with the help of my 5y old boy). The cap weighted OAS on HYG is 455bp => buy dips and sell vols.

I give you a piece of advice, for free, that saves you tons of money - all that DB (and any other IB) want is to get you into a sucker trade, rip you off with commissions and carry costs and, in the end, to liquidate your account into a buying frenzy induced by DB quant trading algos.

If you need to catch up with P&L this year, create a risk-parity trade with HYG and 5y UST. You can use 35%-65% weights if you don't have quants to do math for you.

There were a few lucky people today who got bunds at positive yields. However, every time the yield crossed the zero from below, there was a greedy, insatiable demand. I think the opportunity to get something for nothing is over for now.

The belly outperformed... May-be people are starting to understand that is an ATM that gives you money for free of charge.

P.S. I am off to French Riviera tomorrow to view a couple of mansions. I will let the secretary do my trades again tomorrow morning.

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Skr
admin
July 22, 2016 at 3:00 AM ×

Copper at neckline/resistance on weekly chart.

Any retracement in dollar, and I will look to buy around the 96.3/5 area for third and final entry to dollar long.

Took short Yen at 106.5 a weekly close below this level...

Still long US - Short Europe equities, but getting itchy fingers, will give it another week or two to evaluate.

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Skr
admin
July 22, 2016 at 4:39 AM ×

Yen: Short USD/JPY @ 106.5

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abee crombie
admin
July 22, 2016 at 5:16 AM ×

Nico I thought u went on vacation brah. Stay away from shorting US marketo until surprises start to roll over. I'm guessing and 6 weeks at least.

I still like eem for a catch up trade.

Lb, let's see where oil goes now. It's key. But thanks for your comments

I'm still playing my double top thesis in spoos.

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abee crombie
admin
July 22, 2016 at 5:17 AM ×

Nico I thought u went on vacation brah. Stay away from shorting US marketo until surprises start to roll over. I'm guessing and 6 weeks at least.

I still like eem for a catch up trade.

Lb, let's see where oil goes now. It's key. But thanks for your comments

I'm still playing my double top thesis in spoos.

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Nico G
admin
July 22, 2016 at 8:09 AM ×

can't stay sidelined with such VIX decimation

short term / weak bulls were decimated on June 24th

since then short term / weak bears have been eviscerated - so time for a swing to 2110

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