Schlemiel, schimazel

American readers of a certain vintage will no doubt recall a television sitcom called Laverne and Shirley, a spin-off from Happy Days in the 70's and early 80's about a couple of
hair-brained young women living in Milwaukee (and. later, Southern California.)   In the opening credits we learn that our two heroines are employed in the brewing of Schotz Beer, though they exhibit somewhat less than total commitment to their craft.  Real ale or a Brooklyn brewpub it wasn't.

Still, one can imagine the sort of consumer to whom Shotz may have appealed.  Someone who wasn't looking to take many risks in his beer consumption, and in return was content to be satisfied with the meager pleasure that Shotz would afford him.   Heaven forbid that he take a risk and end up with something truly appalling like Olympia or Schaefer.  (UK readers, imagine that this tastes like one part Tesco own-brand beer mixed with two parts of week-old dishwater, and you get the idea.)

Alas, consumers of latter-day Schatz have no such certainty.   To be sure, purchasers of the German short end have in many cases been motivated by the same ideals as Laverne and Shirley's customers: safety and the willingness to pay for it by accepting substandard returns in exchange.  However, when you step through the looking-glass of negative bond yields, can you ever be truly safe?    In any event, the front end of Europe is starting to look almost as ropy as one of those original Shotz beers would taste today.

Yesterday's weakness was particularly interesting given another "sources" story suggesting that an ECB QE extension beyond March is more or less nailed on, along with changes to the capital key, issue limits, and yield floor eligibility.  Of course, Draghi told us just the other week that purveyors of rumours and leaks know nothing, though it is funny how often these "know-nothings" have predicted ECB policy developments over the years.   Why, it's almost as if they have a seat inside the governing council or something!

In the UK, meanwhile, the Old Lady has come in for rather a lot of stick recently.   If it's not the Government criticizing QE and ultra low rates, it's the Serious Fraud Office hauling in Paul Tucker to determine just how far he may have thrown a few LIBOR traders under a Routemaster.  If only we had a recording of the infamous phone call to Bob Diamond....Either way, short sterling is now pricing in some tightening by the end of next year, and doesn't look particularly incline to stop here.

Regular readers will know that your author doesn't particularly rate Mark Carney and is generally happy to see him squirm.   That being said, some of the barbs thrown about by politicians are reminiscent of Macro Man criticizing doggerel poetry in Mandarin.   It might not be very good, but he really isn't competent to be having a moan!

Finally, Macro Man found this data on the BIS website and thought it was interesting given the current central banking revulsion against negative inflation rates.   It's worth remembering that negative inflation is hardly a new phenomenon, and indeed was the norm for large swathes of economic history.   The UK CPI index, for example, was at the same level in 1915 that it was in 1830, and Britain didn't exactly suffer economically for much of that period.   (They did, however, trade extensively with China, albeit in a morally repulsive fashion.)



Truly, there is nothing new under the sun, as much as our central banking overlords might wish it to be so...
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checkmate
admin
October 27, 2016 at 7:34 AM ×

" It might not be very good, but he really isn't competent to be having a moan!"
I'm not concerned about your 'competence' as you're not charged to do the job. What if their 'competence' is at the heart of the problem?. In the interests of a fair hearing I think it is no coincidence that an overdependence upon monetary policy to save the world from it's ailments may have served to give government an 'easy out' to steadfastly avoid implementing fiscal policy to try to that job. So if in effect we are trying to row across the atlantic and the central bankers are rowing one way whilst goverments are throwing in the fiscal oar going in the other direction then should we be surprised that the boat is not only not making any headway it is in fact struggling to stay afloat?. Monetary expansion with fiscal contraction? Well of course we're just zooming along in our search for inflation !
In summary I think the criticism of central bankers is justified. Where it is unfair is it doesn't really get inclusive enough with goverments participation in this state of affairs.

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Anonymous
admin
October 27, 2016 at 8:23 AM ×

You've tried Tesco's own brand beer???

--Cass

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Jimbob
admin
October 27, 2016 at 8:38 AM ×

Ropey day for EGBs all round yesterday. That 70 year Austrian deal that everyone scrambled for is a peach. 1.5% annual return for 70 years? Yay! Oh hang on, I've just dropped 1.5% of my capital a day after I pleaded to get some from the lead manager. Oops. Still the FT tells me its my deflation hedge.

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checkmate
admin
October 27, 2016 at 8:40 AM ×

Tesco Beer with a marmite top is to die for.

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October 27, 2016 at 9:29 AM ×

I think you missed out the chart at the end - I do love the BIS data though - great stuff!

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October 27, 2016 at 10:03 AM ×

Are Sweden CBs totally stupid? do they really know what they're doing? they're playing with fire...

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Anonymous
admin
October 27, 2016 at 2:00 PM ×

All CBs are stupid - it's a prerequisite for the job. Many of them are very corrupt too (look into the Fed, BoE, BOJ, ECB leaks for info on this).

Thankfully they're not in charge of anything important, just the world's financial system.

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Anonymous
admin
October 27, 2016 at 5:08 PM ×

re CB's

Give Secrets of the Temple a re-read. It's all in there. Remarkably primitive/political/conflicted.




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Leftback
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October 27, 2016 at 5:45 PM ×

Afternoon all, it's another snoozer as we lurch lethargically into the US general erection in a couple of weeks.

We have just been reviewing the investment landscape from the Hammock and in particular noted that a few of the things we didn't like a few months ago (in anticipation of a firmer USD) have been quietly taking a beating. These vehicles include TLT, IYR, SLV and GDX. Yet to take another beating, but the object of our focus, is USO/CLZ6.

First of all, the long bond, which MM has kindly kept track of in this space, has hit the first of several target levels we had drawn up, in this case the one at TLT 130; lower support levels await and we are still inclined to stay away. One of the dynamics that we see as more important than many people realize is the tendency for global bonds to trade as a group, so that selling in gilts and bunds seems to translate to weakness in US10y and 30y. The unwind of European bonds clearly is not done.

Second, IYR. A predictable victim of higher rates at both the short and long ends. We have been short this on and off and now wish we had stayed with the trade. Eventually there will be bargains in the US real estate space but this is a sell for now.

Third, SLV and GDX seem to have stabilized despite the strong dollar. Since they tend to lead FX movements a bit, does this indicate the USD is topping out here or is there another wave of precious metal weakness ahead? We think the latter.

Finally, CLZ6/USO, is weakening as the latest OPEC production cut nonsense and resulting short squeeze fades. The world remains awash in oil and this commodity and equity sector will be visited by profit-takers and shorts in the months ahead.

UUP remains one of October's stronger performers, but both EURUSD and JPYUSD may be due for a little bounce. Other than being short crude oil, we are choosing to remain Hammock Bound and await better prices for a variety of income-producing vehicles.

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checkmate
admin
October 27, 2016 at 8:00 PM ×

LB,
that's a 1.34 on the $/Can. That's a breakout til it isn't.

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checkmate
admin
October 27, 2016 at 8:45 PM ×

Bruce In T
I'll do it for you 'that's another weak closing session on US equity'. The odd one just random ,but this seems to be the flavour at the moment and that's not a bullish sign in my experience.

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Whammer
admin
October 27, 2016 at 9:25 PM ×

Important update:

https://veryfunnypic.files.wordpress.com/2014/08/crapp-beer-wedding.jpg?w=634

- Whammer

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hipper
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October 27, 2016 at 11:33 PM × This comment has been removed by the author.
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hipper
admin
October 27, 2016 at 11:44 PM ×

Hey LB do you have some targets for 10 and 30y yields. Would you start buying REITs again at some point as the steepening curve should (eventually) be good for them?

It's also very exciting to see when/how equities start reacting as the corporate debt/buyback orgy slowly grinds to a halt along with rising WACC and historically measured extremely large base (of course this can take years to materialize meaningfully), with stalling revenues and eventually the road of cost cutting must run out as well. I just figure that you don't even necessarily need to see deleveraging or rising costs, even just slowing net debt growth could seriously hurt the market and the buy back binge.

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Bruce in Tennessee
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October 28, 2016 at 4:50 AM ×

Yes, checkmate, it is not my experience either...

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checkmate
admin
October 28, 2016 at 6:49 AM ×

Tech earnings season as been underwhelming. Counts with more weight with me now because that is already a thin US blue chip market holding around the highs. If the techs can't keep leadership and relative strength what sector is going to take their place very quickly.

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