Macro Man's a little tender for writing, having flown off his bike via a garden hedge yesterday, so today's post is confined to observing five interesting market charts:

* HYG is back to its highs of the year.    Over the last twelve months, the ETF has returned a tidy 10.7%, with the underlying index up 12%.  Over the last two months it has handily outperformed the SPX.  This has been a better performance than many, including your author, would have expected, and amply illustrates that given current financing conditions the reach for yield is never very far away.


* Risk parity has continued to deliver.   While the notion of a US curve steepening remains an attractive one, the notion that risk parity funds are sitting there, facing possible redemptions, with their fingers on the bond-selling button continues to look wide of the mark.  The listed AQR version of the strategy is nearly back to its highs.


* European banks also seem to like recent cure steepening.  And so should they; it's much easier for a bank to earn its way out of its troubles then.   Not only is DB now above its "DOJ Day" price, but the SX7E is back above 100 and seems to have broken its downtrend of the last several months.


The SGD looks decent as a proxy for a low risk dollar long/China short.   A reader asked about the SGD in the comments recently, and as Macro Man responded, he's often used SGD over the years as a proxy for USD/Asia.   Not only is it pegged to an actual basket that has a healthy dollop of USD/Asia, but it's generally much cheaper to short.  In any case, it looks like it's broken up on the weeklies, though if it fails that might look an awful lot like a head and shoulders...


* The options market doesn't seem ruffled by the prospects of turmoil after the US election.  Although it's easy and kind of morbidly fun to choose worst case scenarios from your favourite dystopian fantasy, the base case is surely a smooth transfer of power as is the norm, most likely with some sort of split government- probably the best that you can hope for given the quality on offer.   That being the said, the VIX futures butterfly (buy a November, buy a January, sell two Decembers) as at its lowest level of the last 3 months, albeit in a rangebound fashion.  Perhaps the market is also fixated on the December FOMC announcement, though that didn't exactly cause much turmoil in the immediate aftermath.  Either way, it could be a cheap way of playing something going badly awry right after the election.

  OK, time to pop a couple more Advil and relax...
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Eddie
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October 24, 2016 at 7:48 AM ×

MacroMan, there is probably something wrong with the RSS feed. Blame it on Advil.

Get well soon.

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amplitudeinthehouse
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October 24, 2016 at 9:04 AM ×

Hey , Macro Man squire.....it's Oliver twist here, you got to hand to those risk parity guys. I mean staying clear from the housing market in a low rates environment their financial behaviouralism will be studied by the scholars in years come. Someone should point out them to the financial theory that low rates doesn't entail investment loyalty, only service to the point that the maximum loanable funds on offer will produce utility before being crowded out by the next hedgie waving a fist full dollars at an even lower rate. Rates , rates and rates.....what has this market come too! What happen to investment.

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amplitudeinthehouse
admin
October 24, 2016 at 9:14 AM ×

.....Anon, don't you give me the new nick of "rates , rates and rates"

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amplitudeinthehouse
admin
October 24, 2016 at 9:34 AM ×

That's it from me.....I'll just leave it at "rates"

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Anonymous
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October 24, 2016 at 9:46 AM ×

Volume is terrible at the moment. Even on big data days like, NFP, ECB & FOMC, they are poor. We get one/two days a month (since before Brexit) of decent volume then, nothing for weeks.

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Anonymous
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October 24, 2016 at 10:24 AM ×

@anon 9:46 Central Banks have killed volatility & trading volume. More and more market participants are leaving. No need to worry however, soon all assets will be controlled by our central planners. Enjoy our socialist paradise.

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Anonymous
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October 24, 2016 at 12:15 PM ×

Macro man,
sorry to hear - hope you feel better soon and you are not suffering from too much road rash.

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Anonymous
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October 24, 2016 at 3:21 PM ×

We are all Brixit now...we always knew the EU spoke out of both sides of it's mouth when they criticized those pro-Brixit

BBG: German Momentum Grows for Curbs on Chinese Overseas Investment. Germany is seeking tighter control over foreign investment in European companies, in a sign of a growing protectionist reaction to China’s appetite for overseas acquisitions. Spurred by the purchase of German robot maker Kuka AG by China’s Midea Group Co., Chancellor Angela Merkel’s deputy, Sigmar Gabriel, is calling for European Union measures to give national governments expanded powers to block or impose conditions on shareholdings of non-EU companies. He’s found an ally in EU Digital Economy Commissioner Guenther Oettinger, a German who’s a member of Merkel’s party. “It’s absolutely right to initiate this debate at the European level,” Oettinger said in an interview last week. “Everybody has to play by the same rules. Clearly, there are many countries, including big ones such as China, that make market access or corporate takeovers difficult or effectively impossible.”

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Anonymous
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October 24, 2016 at 3:34 PM ×

Oh my...
BBG: Protectionist Clouds Resurface With Failing Canada-EU Trade Pact. The possible collapse of a free-trade agreement between the European Union and Canada is the latest sign of how rising protectionism is imperiling free trade. As policy makers and analysts try to make sense of Brixit, the rise of Donald Trump and a growing tide of populism, some say faltering talks between the EU and Canada raises questions about how other deals can possibly be clinched. The Europeans are holding similar, less-advanced talks with the U.S. about a free trade pact and are beginning negotiations with the UK over Brexit. The U.S. and Canada, meanwhile, are among the 12 nations working toward the Trans Pacific Partnership.

http://www.bloomberg.com/news/articles/2016-10-23/protectionist-clouds-resurface-with-failing-canada-eu-trade-pact

Bloomberg even manage to blame Trump. Bloomberg radio has been anti-Trump 24/7 lately. They must be really worried.

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Anonymous
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October 24, 2016 at 3:45 PM ×

2 headlines this morning...what's a person to conclude from this?

Bloomberg: Japanese Exports Drop for 12th Month in Dismal Year for Trade. Japan’s exports fell for a 12th consecutive month in September, rounding out a year’s worth of poor returns for an economy struggling with a resurgent yen and weak global demand. Bloomberg

New York Times: Asia Pacific|Global Stocks Up on Strong Japanese, European Data

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Hotairmail
admin
October 24, 2016 at 3:49 PM ×

There's easier ways to start a hedge fund. etc.

Get well soon.


By the way, having a brief look at a couple of US election research reports, there are some parallels to be drawn from Brexit. What I noticed with Brexit was that older people increasingly refused to divulge their voting intentions as the campaign hotted up and got quite nasty. They also made the mistake of taking at face value people's stated intentions as to whether they would turn out and vote or not. And as we know, the young are always full of best intentions. There are similar glitches if you want to take a look for yourself that might make it much closer than a slam dunk. For instance, I don't know what the actual turnout is for the different racial groups and social classes actually is, but that is another potential source of overstatement.

FT are tracking them on this site and you can click through to the individual reports to get to the demographic breakdowns....

https://ig.ft.com/us-elections/polls


Link to Yougov pdf for instance....

https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/3eyveosiyg/econTabReport.pdf

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October 24, 2016 at 4:21 PM ×

MM, see the bright side... you've a better excuse to upgrade your bike and buy a new helmet.. hoping no big damage instead, in particular to you...

however devaluation trade in Eurozone is going on... Eu rates need a wake-up call.
I see an excess of bullish positioning on Eu rates...everybody fixated on Qe extension and capital allocation changes.. German10yr will follow same path of 10yr gilts, also isn't unbalanced as UK.

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Mr. T
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October 24, 2016 at 5:20 PM ×

Is it really the legacy of brexit that we are supposed to assume that every poll is wrong and every underdog will win the vote? Should I prepare my book today for a Stein/Braka white house? I think a lot of this speculation is wasted energy.

Meanwhile, the corporate bond binge seems to be going plenty strong. I cant help but think that while T is doing what the fed wants the results are questionable. The synergies - AKA newly unemployed - is that positive? Are they happy to see higher prices for tv/internet? Or perhaps the headlines like:

*T-MOBILE CEO: WE WILL LET USERS STREAM TIME WARNER/AT&T VIDEO

make them pleased that the bond binge is paving the way for a vertically segregated internet? The "local-to-the-company sourced content will be exempt from your (lowered) data cap" is really just an end-run around net neutrality. Is that even legal? To me, this deal is everything thats wrong with cheap money. It's not adding anything for consumers, its not adding anything to the economy. It's only accretive because the rates are low. One could argue that pre-twx T was already in some trouble - changing landscape, some stranded assets, and a pretty heavy balance sheet. The solution? Doubling down, of course. And the street is of course complicit in all this. T already has the most debt of a non-fin. pro-forma, its closer to $175bil, its gonna be looking at ~7-8bil in interest expenses (at these rates!), so why of why do i see ebitda as the primary metric? I'm sorry, but the I is important here, and the T also has some downside risk.


That EM debt in USD is looking increasingly vulnerable to me. I'm not sure what the best way to actually capitalize on a "higher rates, higher USD" even is. I could imagine a scenario where raises and dollar strength takes the long end lower as the squeeze comes on EM and morphs into a USD-denominated safety bet. I can't tell if 12HFM is a troll or not, but the best USD safety bet here is probably the NDX names with their growth, balance sheets, and heavy fcf. So how do I start with higher rates and EM rolling over and turn that into a "buy NDX"? As my kid says FML.


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checkmate
admin
October 25, 2016 at 4:47 AM ×

"legacy". Just recency effect showing up, but I take your point.

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sharpe_mind
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October 25, 2016 at 6:54 AM ×

I would note that I was the one posting about SGD as a good, cheap proxy for DXY and CNH. I don't think it actually posted though.

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CV
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October 25, 2016 at 7:21 AM ×

Sorry to hear that MM. The upshot is that you get to have fun with EZ Q3 bank earnings in the next few days. These things always are hilarious. Otherwise, what a boring market eh. Bucky's strength is the only thing that is really interesting. I do agree with an earlier point you made on the U.S. front end ... looks vulnerable here, but how many times have we said that!?

I think Spoos has to break lower here, but then I look at the Nasdaq, and I get that fuzzy "12y HFM" feeling ... a break-out above the range?! Really?

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