Quantamental

While looking at price charts can be controversial for some more fundamental biased managers, plotting (not charting) fundamental trends like Earnings, GDP growth & Inflation is viewed much less cynically, even though the ability to abuse fundamental charts remains. 

In this follow up I touch on a few of the markets mentioned in the previous post, while savings 1 or 2 for a more in-depth post in the near future. 

Since Equities seem to be on my mind a lot lately, and the price action post-inauguration closely watched by many, lets take a 20,000 foot step back and look at a few fundi-charts or "Quantamental" type analysis.

S&P 500: Earnings are the fundamental driver

Below is a chart of the S&P 500 Bloomberg Estimated EPS (BEst). Note that these numbers are not GAAP and are for 1 year ahead. We can argue whether we should use this dataset for valuation purposes but for right now we are just going to focus on the trend


In the chart we also plotted the MSCI World Index in Green and the EuroStoxx 50 Index in Purple. This is a good chart to remind yourself why QE does not have a 1:1 influence on stock prices all the time. Sure it worked like a charm in the US experience, but that's also bc US companies are rock stars. In Europe QE has been large as well, but look at the corporate response. EPS have sucked. No wonder why EuroStoxx 50 price index is still below its 2007 high, and even with dividends your annualized rate of return on SX5E is a whopping 1.9% for the past 10 years.  That said recent EPS expectations for EU are growing quickly after bottoming around Brexit.

In the chart below we can see S&P 500 annual rates of change (52 weekly ROC). We can see that at almost 7% YoY, the market is forecasting some really strong earnings growth, close to the highest level we've expected in the past 5 years. Note that 2014 EPS levels correspond to what the market foretasted for 2015. What we got was much lower


Just how good are expectations in Equity land, well lets take a look at some confidence survey's 

Economic Surprises near the highest in recent history. 


CEO confidence high.

But small business owners are even more optimistic

How about consumers? University of Michigan Consumer Confidence seems strong.


But if you dig into the index, current conditions look about as good as they can get. Note you dont want to be holding equities when this thing rolls over. 


Keeping with the equity theme, on JPM, whose chart was shown in the last post and this author thinks is a good proxy for the banking sector, since Jamie Diamond according to Wall Street folklore is like William Wallace in Braveheart. While the stock has sold off post earnings (which were luke-warm according my quick take) the market has marked down Q1-17 but marked up Q2-17. Classic. 



But taking a step back and look at where we came from is helpful. Below is plot of 2017 and 2018 full year expected EPS. Seems like Wall Street is still very bullish. And assuming JPM hits $7.50 2018 earnings, the current price is still cheap at only 11x. More importantly, revisions are only going higher. 

Just a little add on, regarding Equity Vol. When you calculate equity volatility for a portfolio or an index, the correlation of its member's is an important consideration. In the chart below we can see the 3M Implied correlation of the S&P 500. This is the opposite of Risk/Risk Off times in 2011/2012. 


Moving on to CAD, which James wrote a nice piece on earlier. Just a quick chart on the 2 year yield spread, seen in yellow below. Until we see a big change in BoC posture, rate differentials will probably pull CAD lower. But the other big question is Oil

While I probably should do a more in depth post on oil, here are just a few things that caught my eye

1- US oil production is doing pretty well, especially considering the drop in oil rigs. 



And if we look at Cushing stocks, we might come up with a bearish thesis. Production bottomed, inventories high and rigs just comming off a bottom

But oil declines, and shale declines especially quick. There has also been a nice kicker in US production from DUC's, commonly called "ducks" or Drilled Uncompleted Wells, which have been adding production. So I would be cautious to assume that US production can keep current production without an increase in rigs. But the real reason I think this US view is misguided is because of this chart, from OPEC, which puts out a nice monthly summary on oil, especially useful for those of us not in the industry and used to all the jargon.

OECD stocks have declined for the 4th straight month in row. And outside of the US, $50 oil still doesnt make sense for most CapEx. Lets see 



If you are still with me, a final few price charts on Rates. 

Dec 17 Eurodollar very close to the recent lows. Perhaps 3 or even 4 rate hikes in 2017? Goldman was out earlier pushing the idea. Remember the Fed follows the market, not the other way around.


And the 5 year yield, which was stuck in a range since Bernanke's taper tantrum is holding above the line drawn at 1. 8. Perhaps the trade is a flattener not to be outright bearish. 


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Rossco
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January 22, 2017 at 4:51 AM ×

Correlation is probably the best hedge ever for long short equity investors, particularly market neutral. In saying that, virtually none of the ones that I've come across even know what it is.

if you think correlations are going to rise, which often comes with a pick up in market wide vega, than those people are likely about to start losing money.

i think what your charts are really saying though, is that theres perhaps easier ways to make money than in equities at the moment.

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Anonymous
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January 22, 2017 at 5:17 AM ×

abee, what a nice post! This blog is here to stay! Like anyone had any doubts...

I'd like to disagree and point out something on crude oil. By no means am I picking on your trades, but difference of opinions is what makes this blog great. I have been using XLE as a leading vehicle for turns in WTI Crude Oil. XLE bottomed three trading weeks prior to WTI in Jan of 2016 and topped three trading weeks prior to WTI in Dec of 2016 (probably a coincidence ;) Look at that XLE doji on monthly. Now look at Apr-May of 2010. XLE monthly chart of today eerily resembles Apr 2010 kiss of the upper bollinger band. It may be on the way to the mid bollinger band here. Crude oil futures would follow. The tail has been wagging the dog. Also, the producers are threatening to break out to their highest net short position again. Look at COT, specs are buying like nuts and are totally on the opposite side. The trade is very crowded here. Time for a meaningful pullback. $66-68ish on XLE, $45-47ish on Crude.

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IPA
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January 22, 2017 at 5:30 AM ×

Lol, the above post on Crude was written by IPA. A little snafu on my mobile device.

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Nico G
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January 22, 2017 at 9:38 AM ×

"Sure it (QE) worked like a charm in the US experience, but that's also bc US companies are rock stars"

so true, but do not forget the impact of corporate buybacks which barely manifest in Eurostoxx universe

now Washington - the very first day in office has been spent discussing the size of Trump's inauguration crowd, leading to more blasting of the media by both potus and his press secretary and Trump using his speech upon visiting the CIA to do it all again, blast the media and claim that the crowd size was bigger instead of perhaps honoring the guys figured in stars on the wall behind him

the level of randomness, distraction, misfocus and unpredictability from the brand new most powerful man on the planet is in total divergence with current VIX measure.

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Anonymous
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January 22, 2017 at 10:29 AM ×

http://www.zerohedge.com/news/2017-01-21/raoul-pal-warns-day-reckoning-looms-vix-shorts-reminds-me-portfolio-insurance-1987

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Polemic
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January 22, 2017 at 11:52 AM ×

Superb post Abee. Particularly like the observation that charts that show trends in fundamentals are mprevalid than charts used on multi diferential derivative functions away from the fundamental. A good e.g is
Vix or vxx.

Also appreciate your great observation that overanalysing US oil production and stock pile dats fine details misses the rest of the world.

Seeing those huge spikes in business confidence has to have you asking where they come from. As you point out,econ data hasnt changed much, mon policy hasnt loosened etc so I propose that it is all related to Trump narrative and reafirmation biases. It comes from the core joe public belief that Trump will make America Great or he will borrow gazillions trying. Well, that means everything is based on hope. And that as the hope bet is loaded I'm betting the other way.
As we have seen with Turkey, you can chart it all you want and you can believe what ever you want economically but pure politics and uncertainty married with a leadership which will oppress the truth and prosecute a press will swamp any nice bollinger bands you nay be watching.

Now I know this is a bit extreme.. already.. but there are similarities between Trump methods so far and Erdogan's. God forbid anyone suggests they both had the same teacher.

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washedup
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January 22, 2017 at 12:38 PM ×

@abee great post - the GAAP vs non GAAP stuff is a bit of an elephant in the room isn't it? The usual rejoinder you get from folks of 'well thats what everyone focuses on so just agree with it and move on' makes me a touch comfortable. That said, in a way its quite fitting - we already have post truth politics and post inflation rates, so why not post earnings equity prices?

@Pol its interesting that the business community is maintaining its optimism of trump policies even though his approval ratings overall have dropped like a rock (even if the level of those polls may be meaningless, I am sure the direction isn't) - my best take is that the investing community is assuming that trump's words/tweets/speeches are irrelevant and his cabinet picks and congress will get together and organize a corporate heist - could be, but i maintain its more likely to happen in tough times when there is less vociferous opposition, otherwise anything he does on the tax front will quickly start being seen as a short term fix to be reversed by future democratic administrations.
As a case in point, a very simple question. Did the events of the last two days help or hurt his cause of lower taxes, infrastructure builds, and deregulation? I don't remember this fiasco with Abe and Modi.
But then he did promise 'he will never let us down' - all right then...

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Polemic
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January 22, 2017 at 12:45 PM ×

Washed.. over the last 2 days i had a hope quashed. I really thought he'd drop the campaining extremist not commital rhetoric and becone statesman like. Nope. His soeech was more of the same and even more waffley. He has made the turnout of the crowd the biggest issue (you see he shut down the national parks sevices twitter feed after tgey RTedthe mall pics?). Very Erdogan.

Yes you are right that folk hope ge will just be a mad nodding dog head on a thoughtful process but if anything has changed over the past two days it s a rebalancing of the risks.

Sell USDs

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Polemic
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January 22, 2017 at 12:47 PM ×

Oh and washed... 'interesting that business maintaining their confidence' well they did, like me, into the speech. But will they now?

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IPA
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January 22, 2017 at 1:20 PM ×

Small business confidence spike is ALL about the repeal of Obamacare, imho. Speaking of which... This executive order signed so quickly (literally while O was still in helicopter) is such a showmanship (surprise, surprise). What a confusion and havoc it will wreak on the healthcare sector in the coming days, weeks and months. Pretty large SPX weighting, third I should say. Sorry, it's all about trading and less about the effect of social engineering. Sure, America will be great again, but it's confused right now and that is far less from the state of greatness. Confusion breeds contempt. Short XLV may be a good punt here. That long tail from Aug of 2015 has got to be fully filled at some point.

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Anonymous
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January 22, 2017 at 1:27 PM ×

@Pol as i said in last comment on previous blog post, sold on his speech Friday. More convinced of that following CIA and WH secretary speech. Have the feeling he will add to this today and during the week.

Say the markets were to drop a tiny 3% or 4% from here, can you imagine the reaction of the media and how they will blame Trump on this. Might just spook retail etc and gather pace.

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Patriot
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January 22, 2017 at 6:08 PM ×

Can't believe all the left-wing waffle/hyperbole above. Trump will be America's greatest President. The stock market is forward looking and that's why it climbed so much on his election.

I for one look forward to him banning the communist 'fake news' propaganda outlets in the USA. It will also be good to see him remove the liberal elite who have corrupted the USA, and caused such poverty, misery, crime and despair in so much of our country.

The comparisons with dictators (most of whom are left wing) or Nazis who were the ultimate left wing party are plain silly. Trump is right wing - a Capitalist. By this I mean a real Capitalist, not the crony capitalism that has destroyed markets and society in the last 20 years.

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Polemic
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January 22, 2017 at 6:19 PM ×

Patriot, I really get your confidence. But in banning news unless he judges it not to be fake (considering his track record, there may be a bit of mistrust as to whom the censor should be) sort of puts him straight into Erdogan territory? he's the guy who has decided that as he is doing so well stamping out what he thinks is fake news by arresting all the journalists, has just handed himself even more executive power. More executive power = more power for one individual, rather than the people, and this is a tendency toward, not away from dictatorship.

I am really fascinated to find out how Trump is going to link up handing power to the people whilst controlling the press and running a non-crony capitalist agenda whilst imposing greater controls on the free market.

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washedup
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January 22, 2017 at 6:24 PM ×

@patriot - dude get a grip - on the one hand the stock market is a perfect barometer of ur capitalism utopia and on the other hand it was making highs during the oppressive rule of the liberal elite which caused poverty, misery, crime, and despair? Its not like the s&p500 has gone from 650 to 2270 all in the last 2 months.
That said, kudos on choosing a moniker, though - normally comments like that come anonymous!

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Anonymous
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January 22, 2017 at 6:28 PM ×

Abee - Outstanding post, thank you. Many, many excellent ideas here...

Trading is so very much perception, and perception, sentiment.
Sentiment, stacked at extremes can produces asymmetrical outcomes. It can, also, like an overbought RSI, stay that way for a while.

We (humans) are very bad sometimes at seeing what is coming on the basis of many neurologically hard-wired cognitive biases. It is a matter of how we feel about things, and we know that feelings often don't change in relation to events as quickly as they ought perhaps. But when they do, the tide can then change quickly and massively.

There is nothing so damaging to people as thwarted expectations. The charts you picked amply indicate a high level of expectations out there on numerous fronts. The question is, which catalyst(s) will the market care about?

Just a super post, Abee, We so much appreciate this blog - long may it thrive...!

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IPA
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January 22, 2017 at 6:58 PM ×

Patriot,

Trump is a salesman and a businessman. Let's not argue about that. He is a great operations guy when the market he operates in goes up. I am not going to speak on behalf of others here, but you can call me a "left-wing" all you want for shorting the fantasy on which he won the election. I wish him good luck on eradicating the DC establishment which he now has to work with to make that fantasy come true. America is already great and I am proud to be its citizen! I am allowed to profit from market movements as I am a capitalist just like Trump. I remember the unpopularity and the bad rap the traders got in 2008 when we profited from the collapse of the housing and shorted our next door neighbors' 401K into obliteration. Nobody complained about their own finances being bailed out back then, only about the ones of the "fat cats". In politics, the pendulum swings far on each side depending on what the populist message of that particular time is. I believe we are witnessing just that at the moment.

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Polemic
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January 22, 2017 at 8:01 PM ×

Abee - I have nicked some of your charts for my own post.
Hope you don't mind . credited of course .

http://polemics-pains.blogspot.co.uk/2017/01/a-wall-of-no-worry.html

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MacroWatcher
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January 22, 2017 at 9:35 PM ×

I see a short-term reversal of the economic cycle coming pretty soon. If you look at the CESI it is highly cyclical and usually up cycles last 24 weeks, which means we should be at the top. The only thing that worries me is small business confidence, it is usually a great predictor of hourly wages and is predicting high 3% hourly wage growth. I am tilting towards the slowdown thesis because , as Polemic, I see the survey data as Trump-related excitement. The issue with that excitement is that even if it does turn into something real, the effects will be slow to show. Consequently, long bonds is looking good here and that eurodollar chart is looking good to me. Another trade that I like is short retailers, apart from a broken business model the fact that they keep on rising as inventories build up is pretty scary. Their performance has been weak but it has been on the back of a relatively strong economy, once that growth vanishes the inventory build up will crush retailers.

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Anonymous
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January 22, 2017 at 9:58 PM ×

The smart money and economic data point to a continued economic recovery in the US. Trump will take the credit for this, and his popularity will increase as more jobs are created and the rampant corrupt cronyism that the left-wing-liberal-elite have promoted in recent years gets destroyed.

The silly protest marches and self-loathing of college students trying to have all white people removed from history classes shows the extreme snowflake attitudes that permeate society. Western society is utterly corrupt, shameful, and pathetic beyond any words I can use. All the fault of the left-wing liberal movement. Frankly we would be lucky if Trump turns into a fascist dictator and forcibly removes these scumbags. However he won't. All the violence at political events is from left-wing liberals.

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Up_Side_Down
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January 22, 2017 at 10:02 PM ×

@ Polemic.

if it swims like a duck, and quacks like a duck...

Your dashed expectations of the Inauguration Speech suggest the "Duck" test returned a positive in this case.

So, agree should feed into a sentiment reversal.

What I can't imagine is the entire Political establishment, elected and administrative, letting this new Executive run them right over without a serious fight. This aspect hasn't had much discussion that I've seen so far.

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JMT
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January 22, 2017 at 10:29 PM ×

Great posts (and comments) here.

It is not coincidental that this post's charts contain both the S&P and Michigan Confidence, both of which are highly correlated. The past few days we have heard incoherent blather from Trump and his team, and seen the protest marches taking place globally. After this, and the talk of 'alternative facts', it would be surprising to expect business (and consumer) confidence to uptick further until some actual legislation is enacted. This in turn is not supportive for stocks.

The S&P has an impressive move post election and recent price action sets up nicely for it to roll over. It seems like a fairly low risk trade in the S&P for there to be a minimal correction to test at least under the 2,000 level, and with vol reasonably cheap I will be looking to position accordingly.

What will also be interesting will be how the Fed reacts should there be an equity correction, however minimal. Listening to Janet this week it seems the Fed has an agenda, confirming the dots, and with them having been criticized for being slow to lift rates, I have my doubts about the view that "the Fed follows the market" will be the policy this year.

(Fwiw, I do not think the Fed 'follows the market' but that as the market trades in real time to the news and 'data', there is a perception that the Fed is slow to react, whereas in reality they do not have to 'react' if the market has done there work for them. The Fed do, however, give guidance when they believe the market is off-sides.)

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Anonymous
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January 22, 2017 at 10:31 PM ×

It's clear that a form of fascism has entered American politics. However it does not reside with Trump, rather it hides in the socialist parties, promoting big government, "political correctness" and the like.

Through Trump's election we have seen left-wing groups promote: fake news (propaganda), "political correctness" (fascist dictat), ballot rigging, and even death threats. It's excused by the aim of "saving America", but it's all reminiscent of the infamous National Socialism known as the Nazi party.

Even Hollywood stars have made public death threats against the President. Yet these people suggest that it is Trump's supporters (i.e. the majority of the USA) who are intolerant. I fear for the future of this country.

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Macro Man
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January 22, 2017 at 10:37 PM ×

All, if you have a point to make on how political considerations might impact markets, then go right ahead. If you want to complain about "snowflakes" and/or other types of political opponents, please take it to the echo chamber of your choice. This isn't the place for it.

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Anonymous
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January 22, 2017 at 11:17 PM ×

Re. Fed and whether they follow eq market, it's quite obvious for most of 2016 they were trying to cover Democrats butt, waiting Hillary to win as concensus suggested and glide her into WH along with excellent manipulated data.

Now there's no more need, the previous uber doves know they'll be without a job in a year or two and there's been heavy criticizing of Fed been behind the curve, so they'll start "doing their job". And there still is the political agenda, just as they supported Dems, they will try to throw a wrench in Rep. works. So yes, I think the policy of leading markets from behind of many previous years is finally over, you wanted them to do their jobs, fine, they will as there is no more obstacles for it. But no one should cry about it afterwards.

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IPA
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January 23, 2017 at 12:43 AM ×

MacroWatcher,

Wholeheartedly agree on the slow death of brick-and-mortar retail, especially the malls. I am short XRT. Also looking into shorting some retail REITs (lower end mall operators in particular). They have already taken a beating due to rising interest rates and if mall traffic numbers are any indication, the bottom is about to drop out. Retail bankruptcies and store closures are further suppressing the occupancy rates.
Need to be patient though, they have been declining since July and momentum on some of them is scraping the floor, probably not the best time to go short. Let it retrace to some key moving averages and pull the trigger then. Also, "A" mall operators are going to withstand the decline much better than the lower end. Can't trade them as a basket. If we finally came to the end of the bull in treasuries, the only thing that was propping them up (imho), then this is just the beginning of the multi-year declines for those stocks.

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Nico G
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January 23, 2017 at 1:39 AM ×

“If we even get half of this done in the first few years, that will be major reform”

Trump insider this week end in Washington

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Anonymous
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January 23, 2017 at 3:06 AM ×

I think the president has to be against the main stream media 110% because he knows they will undermine him at all time -- his Tweets are his way to let his voters and supporters know what he is thinking and where his actions will take him.

he has already done more for job creation/retention than previous president did in 8 years. companies will go along with his "make america great" mantra as long as they get tax and litigation reform. If battles with the established incumbents keep tax reform and litigation reform from happening, all falls apart. The risk for those who oppose is do they risk losing election in 2 years (more democrat positions up for grabs than republican)by votin against trump to maintain a solid defense. Don't think trump will go quietly. He is used to getting his way or to make the best deal he can with a weak hand.

He already has put the military mind at ease and no would be opponent is going to think "Mad Dog" is going to roll over and ask for his belly to be petted. If I was ISIS or cartels in Mexico, I would be VERY SCARED because he is gunning for them -- now!

Just my thoughts ...

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Anonymous
admin
January 23, 2017 at 10:01 AM ×

Great post abee, many thanks.

can I ask what ticker did you use for the S&P 3M IC chart?
thanks

Matador

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Rob
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January 23, 2017 at 3:00 PM ×

I have the same question -- how do you graph SPX 3M IC on Bloomberg?

Thanks very much

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abee crombie
admin
January 23, 2017 at 4:16 PM ×

SPX 3M IC BVOL INDEX on Bloomberg.

This post also highlights the correlation breakdown. Pretty interesting if we ever see vol/correlations snap back

http://www.businessinsider.com/cross-asset-allocations-crashed-post-election-morgan-stanley-says-2017-1

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Anonymous
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January 23, 2017 at 5:26 PM ×

I see so many people calling for a major market correction/crash due to Trump etc, makes me want to go 200% net long equities. You just know these sheep are gonna get slaughtered again.

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washedup
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January 23, 2017 at 5:46 PM ×

@anon 5:26 by all means - I am curious whats stopping you - margin debt is plentiful by all accounts.

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Leftback
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January 23, 2017 at 6:08 PM ×

Nice post, Abee, but a small commentary is appropriate, for the cynically minded.

It is not 110% clear whether US companies are "rock stars" or whether their accounting methods are, shall we say, less transparent than those of their EU counterparts? There has been a pattern of "restatements", "revisions" and "retroactive" write-downs by US corporations in past recessions and downturns, although this behavior doesn't usually begin until there is a steep equity market sell-off. After the ensuing quarter or two of EPS disappointment, we have a few scandals, bankruptcies, and then on comes Uncle Warren who reminds us all about people swimming without their trunks. Finally comes the "kitchen sink" quarter earnings report of maximal write downs, the Fed eases or there is some kind of corporate bailout, and then the whole cycle is renewed.

LB will be back soon, with an update on Mr Bond and his recent progress. You will remember that LB is mainly focused on the long end of the curve, but we also appreciated the perspective on the 5y in your post above.

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abee crombie
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January 23, 2017 at 7:28 PM ×

IPA, thanks for some insightful ideas. I did forget to include the XLE, as it was a good leading indicator in previous oil swings. I tend to focus in on some more of the shale oriented names (PXD in particular) vs the bigger integrated names that have a higher weight in XLE (XOP is my favored ETF for that). Eitheway you may be right, I dont know where the next swing in oil will go. Could be lower. But I think as long as you dont get a recession in a year from now oil will be higher. Hence my preference for MLP's here

Re: Death of retail, I wonder how much longer the Eddie Lampart hold's on to Sears. Take the OpCo out of commission and lets see the value of the real estate already. Buffet is a holder of SRG. Macy's has some good real estate as well. But agreed Amazon is killing them. I just find it hard to believe that retailers like ROSS and TJX are going to survive in the same manner if presumably they are getting all their inventory from Full Price. I cant argue with their sales growth, but I can argue that traditional retailers will find a way to take back part of the off price market. Similar short thesis on ULTA, whose PE is really quite amazing considering the market cap and retail in general.

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Anonymous
admin
January 23, 2017 at 7:43 PM ×

One thing works for traditional retailers: women's love for off-line shopping experiences.

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IPA
admin
January 23, 2017 at 9:28 PM ×

abee,

Agree, I think Buffet may end up scooping SRG for close to nothing. The scenario is very dire. Sears and Kmart outdated stores are left to die, recently announced more nationwide store closures. Can't imagine the resulting gigantic holes being filled. Lampert just dumped another $1B into the thing to keep it alive. The stock is so new I can't even put a comment in about the chart. Not that it trades on the basis of one anyway. And SHLD may be heading to $0.

ROST and TJX will stay high as long as my wife shops there :) It now looks like the teens are coming in with their moms as well. If that is not an indication of malls disappearing soon than I don't know what else is. The stores are looking superb with more "hip" inventory. Every time I think their charts are about to roll over they spring off of the middle bollinger band on monthly and shoot back up through the roof to an ath. Not shorting them until my wife tells me she found another store to shop at.

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Nico G
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January 24, 2017 at 2:18 AM ×

"Trump and the Republicans will gut the U.S. budget, and thus the economy, via reconciliation, a Senate procedural move that allows lawmakers to pass bills with simple majorities if they're solely concerned with budgetary questions. They'll use this tool to suck hundreds of billions of dollars out of ordinary economic activity every year, depriving Americans of spending money, shrinking business revenue, lowering investment, and cutting tens of thousands of government jobs. This will lead to even less macro-economic spending, thus sending the economy into a tailspin."

http://theweek.com/articles/674681/president-trump-about-tank-economy

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IPA
admin
January 24, 2017 at 5:09 AM ×

Nico G,

Thanks for the link. At 37% of GDP, any cuts to govt spending would hurt the growth without private sector quickly picking up the slack, and let's not forget DJT wants to double the GDP growth. Of course, one could talk about the negative affects of the budget deficit, blah, blah, blah. It's back at below 3% now - historical norm. Again, nobody complained when govt stepped in and became the spender of last resort in 2009 to bail out the economy.

Now... Check this out. Probably all over the wires by now, but I just wanted to share since we got talking about JPM and pretty much all financials sitting right at 50 dsma right now. Banking execs unloaded into the post-election rally at record levels since 2006. Can you blame them?

http://news.morningstar.com/all/dow-jones/financials/2017012311473/bankers-cash-in-on-postelection-stock-rally.aspx

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Nico G
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January 24, 2017 at 5:16 AM ×

we can't blame them but certainly can blame the system - i feel for the retail peeps buying the shares sold by the smartest insiders on the block once again smart money is stuffing the street

Dimon bought JPM bottom last year... a $24 or 27m punt i dont remember... hats off

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Nico G
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January 24, 2017 at 6:14 AM ×

essential recap on where we are:

http://seekingalpha.com/article/4038769-big-fat-ugly-bubble

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Anonymous
admin
January 24, 2017 at 7:04 AM ×

Invesco recently released a report on central-bank investment polling 18 reserve managers around the globe. It found that 80% planned to buy more stocks in the future.

Get long equities, we will break this range soon and watch US equity indexes increase another 10% to 20%.

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Polemic
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January 24, 2017 at 8:19 AM ×

If trumpflation does hit bonds then corps just switch back to reissuing all the stock they bought back.sweet trick.

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Anonymous
admin
January 24, 2017 at 8:21 AM ×

so 80% of fund managers are bullish ?

just a little more...

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Rossco
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January 24, 2017 at 8:54 AM ×

Re the above. Qe works in the US because the depth of the corporate bond market allows a direct transmission mechanism to equities and "leverageable" asset prices.

The BoE and the ESSRB have recognised this and have had a go at it themselves.

Just like in 2007 and 2011 credit spreads underpin the entire charade

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MOOSB
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January 24, 2017 at 10:36 AM ×

So 80% managers are long equities and we must go long too? That's mental..

Looking at Trump's first drafts in the White House: nothing about fiscal policy beyond "we are the best, we will be better and I will make enormous things..." and "I will cut taxes a lot, like 15 to 20%, because that's what we want...". Classic Trump crap!

However, he has already withdraw from the TPP and looking to renegotiate NAFTA. I saw yesterday a post in BI showing what the price of US products produced in the US would cost: an iphone $2k, a levies $320, sneakers from $165..Televisions would skyrocket.

Anyone really expecting this to hold on? btw, I don't see as many "Trump crash" forecasters than "buy all equities you can" ones.

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Anonymous
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January 24, 2017 at 10:57 AM ×

Indeed, the way this is going down is inflation inside the US will increase significantly due to trade restrictions and "let's make all this crap in America", in addition to the existing commodity rebound, rates go up significantly, suddenly every portion of the economy which is leveraged up to it's eye balls from 8 years of ZIRP will suffer catastrophic failures (mortgage/auto loan/buyback markets for a few), liquidity will hurt EMs and consequently EU. Of course in the long run this will hurt the dollar as the use of alternative currencies will be accelerated but not before a megalomanic dollar strength, me thinks.

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Anonymous
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January 24, 2017 at 12:46 PM ×

You can't have high inflation and high USD/rates.

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Anonymous
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January 24, 2017 at 1:39 PM ×

BOJ currently owns 65% of JP ETF market (up from <5% 5 years ago). SNB, PBoC also buy equities. ECB, BOE and Fed have also said they will not rule out buying equities. Equities are thus permanently supported. I have no doubt they will increase 50%+ from here.

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Macro Man
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January 24, 2017 at 1:44 PM ×

Other than mentioning that the Fed isn't allowed to buy equities, Yellen has been all over it!

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Rain
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January 24, 2017 at 2:10 PM ×

I personally don't buy the 'equities are supported by CB's so the only way is up' argument (in fact the low vol environment is 'interesting').

However, the fact the BoJ has such a presence in the domestic market is mental! Sadly though, I can't imagine them being forced to unwind it if they ended up sitting on losses.

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Eddie
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January 24, 2017 at 2:15 PM ×

Anon 1:39: Equities are thus permanently supported.

Irving Fisher: Stock prices have reached what looks like a permanently high plateau.

Sounds similar?

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Rossco
admin
January 24, 2017 at 3:15 PM ×

So the Nikkei was 10% higher in q1 2015 but the BoJ has been supporting it.

How's that work?

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Anonymous
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January 24, 2017 at 4:56 PM ×

US Dollar and US10y yields correlated now? But why?



http://imgur.com/a/Jgb6o

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Anonymous
admin
January 24, 2017 at 4:57 PM ×

US equities rising all day, before a strong earnings season propels them to new highs.

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Anonymous
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January 24, 2017 at 5:05 PM ×

Actually MacroMan, you're wrong. In Q4 2016 both Yellen and Summers mentioned the Fed would buy equities in the future if Congress allowed it.

Yellen: "the idea of expanding into areas like equities might be “good thing to think about”

Summers mentioned the purchase of a “wider range of assets on a sustained and continuing basis" (he later explicitly mentioned stocks)

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Anonymous
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January 24, 2017 at 5:07 PM ×

The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday.

(Source Bloomberg Sept 2016)

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Anonymous
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January 24, 2017 at 5:29 PM ×

Stocks up, commodities up... Nasdaq is pushing up to ATHs and all the other US indexes will follow. As indexes break out of this range, another huge rally will occur driven by Trump's plan to fix America. All the bears here are already proven to be fuckwits as they once again lose money hand over fist :)

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Macro Man
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January 24, 2017 at 5:31 PM ×

@ Anon, that's like saying if my aunt had balls, she'd be my uncle. Those remarks were prefaced by the admission that the Fed is not currently permitted to buy equities. I find it difficult to credit that Congress would give it to them.

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johno
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January 24, 2017 at 7:36 PM ×

CAD rallying on Keystone. Frankly a big nothing as there's no bottleneck priced in WCS. So added to CAD short.
Re stocks, I've gotten short here, but with very tight stop (probably money down the drain). I figure if we go clear through 20,000 on the Dow, you want to be out of shorts and watching the price action, getting back involved if we go back down through 20,000. But I can certainly see the market going through 20,000 and rallying for months as happened in many cases where pro-business leaders were inaugurated.
I'm skeptical of the story that says this rally is driven by dumb retail money which will puke at the first signs of trouble. So far, we're seeing no signs that selling can gather any momentum.
My question, to those short, is under what circumstances do you cover?
Interested to hear what LB is thinking of fixed income there days.


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Anonymous
admin
January 24, 2017 at 7:56 PM ×

MacroMan, don't be asinine. Here's a little history lesson: When the Fed was first established, it only bought private corporate paper. In WW1 congress changed that allowing the Fed to buy govt debt. During WW2 congress again changed the remit, ordering the Fed to support govt debt at 100% par... you get the point. With unprecedented govt debt levels, and other central banks taking this stance (e.g. BOJ under Abenomics) it's not completely unbelievable that congress may once again change its mind. Politicians do that you know.

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Anonymous
admin
January 24, 2017 at 8:01 PM ×

So the anon's preaching "long equities" are once again proved correct. US equities are all breaking out to the upside of this recent large range. Interesting.

How are the bears here doing? Interested to know where you'll all be stopped out, or margin-called.

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Anonymous
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January 24, 2017 at 8:10 PM ×

dude, the market is stuck in the same range for weeks what are you talking about?

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Skr
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January 24, 2017 at 8:12 PM ×

... There must be peace and understanding sometime
Strong winds of promise that will blow away
All the doubt and fear
If I can dream of a warmer sun
Where hope keeps shining on everyone
Tell me why, oh why, oh why won't that sun appear..

For some reason, I think Trump does be humming this tune in his head alot of the time.

So do Trump and Yellen start to sing of the same sheet? and if yes what can both do to complement each other's goals?

If I can dream...

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Anonymous
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January 24, 2017 at 8:15 PM ×

We're 7 handles above a near 30 day trading range. It's getting interesting given the context. Volume is shocking though.

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BuyStocks
admin
January 24, 2017 at 8:20 PM ×

anon 8:10 - Try looking at your screens. Equity indexes are up circa 1% on the session, breaking out of this recent range to the upside. It's extremely likely they'll go higher - not that most of this board will make any money as most people here can't trade for shit. This place is full of posters who sell a rising market because it's "too high" haha Fuckwits.

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Nico G
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January 24, 2017 at 8:22 PM ×

me think Donald junior just joined our board

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Mr. T
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January 24, 2017 at 8:27 PM ×

How are the bears here doing?

I'm interested to know if the only Anon trade is "long US stocks or short US stocks"? It's weird - in a space that at least talks about a wide array of assets, exposures, trades, geographies - why is it always "oh burn, the shorts are getting wedgies again"?

I'm a US equity bear. I have shorts on some sectors, they are all underwater. As the outlook changes I revisit, but given the rest of the book its just not an issue. The idea that its going to get "stopped out" or "margin called" is just not how it works. Thats not how any of this works.

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BuyStocks
admin
January 24, 2017 at 8:27 PM ×

Nico, how's your short spooz trade going pal?

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Anonymous
admin
January 24, 2017 at 8:27 PM ×

anon 8:10 here

the 'recent range' you scientifically mention is irrelevant buystocks, unless you punt on baby timeframe

until 20,000 is broken on DJ you are wasting energy and if you just trade on your baby timeframe and a baby range you will be stopped 0.0000001% under your entry level. So bugger off

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BuyStocks
admin
January 24, 2017 at 8:38 PM ×

anon 8:10 are you the intern? This recent range in US equities has broken records for low vol. A 1% rise in 3hrs, makes this a significant day in terms of price action, if you can't see that you need to stick to doing coffee/lunch runs for the rest of us.

We can add anon 8:10 to the list of chumps short spooz & bleeding.

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Nico G
admin
January 24, 2017 at 8:41 PM ×

BuyStocks,

boy you are annoying why do you come break our balls every time the market is up 60bps? markets are going nowhere for the moment. listen to Mr T i am not sure you are equipped to survive 2017

would you really buy the market today? try to elaborate an adult post instead of this 5th grade piss, bring us links to great investment minds who are buying the market today this is the minimum required if you want to convince bears to cover under 20000

Ray Dalio does not count, he is not human

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Anonymous
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January 24, 2017 at 8:47 PM ×

"The S&P 500 has traded in a mere 1.6 percent range in the month of January through Monday's open. If the month were to end now, that would make January the month with the narrowest range since 1965, according to Oppenheimer."

So basically the whole of Jan SPX is trading between 2260 and 2280. Similar range for second half of Dec. The shorts are really suffering and longs really making loads of money)

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BuyStocks
admin
January 24, 2017 at 8:49 PM ×

Nico, you guys have been saying this market is going nowhere for the past several years, meanwhile it's doubled. Would I buy the market today depends on time-frame, but if you're asking do I think it goes higher, then yes of course. As for the great investment minds, most macro funds are under-performing. Anyway feel free to keep bleeding, the buy programs are gonna keep buying.

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Celeriac1972
admin
January 24, 2017 at 8:51 PM ×

Vol sellers appear to have balls of steel, and wheelbarrows to carry them round....

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Nico G
admin
January 24, 2017 at 9:01 PM ×

BS

well i prefer that discussion to the cheap insults. Am not sure you want to waste days back reading the forum but i was bullish SPX, Bovespa and oil last February - we need to adapt constantly

i have a strong case of blow off top post Trump election seeing a huge divergence between price and Fed liquidity removal (first time on this 8 year rally, based on optimism only), i positioned agressively (read too soon) to be sure im in the game. We just wait

no way to say how long an euphoria wave will last you have titanium faith on the bullish case it is normal to talk one's book, i've been there before (99), and i learn my lesson

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Anonymous
admin
January 24, 2017 at 9:09 PM ×

The S&P 500 rises 0.7%, to an all-time high.

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Nico G
admin
January 24, 2017 at 9:21 PM ×

http://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=MW_story_quote

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IPA
admin
January 24, 2017 at 9:36 PM ×

I don't care if you are long or short, but some people here really need to watch their language. Speaking of which... Do you have a dictionary for us to translate the nonsense coming out of your mouth? We got the kabuki dance and the expletives. What, in the world of madness, did you say after that?? Since we are the interns, please speak calmly, digest your statements, and instill some intelligent substance. Also, be fun, say something like "I bought a call for a nickel yesterday and sold it for five dollars today". Tell us what the underlying was and why it went up. Seriously... You'll gain some respect (not sure you are looking for any). We are learning from you, be a good example now. If you think we don't know or understand why the equity markets went up today, then explain. But just remember one thing - markets move in inexplicable ways most of the time, unless you are watching CNBC. The hindsight is always 20/20. I yield the stage to you, geniuses.

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Anonymous
admin
January 24, 2017 at 9:39 PM ×

IPA - *golf clap*

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Leftback
admin
January 24, 2017 at 11:31 PM ×

It's interesting that the Anons and 12y-o only seem interested in Spooz. Never any commentary about FX, rates, commodities. Just spoos, dude…. b/c like, that other stuff only matters to talking heads on Bloomberg, not CNBC.

We refrain from Spoos commentary, plan to return in the next 24 hours with a review of recent fixed income trading.

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Anonymous
admin
January 24, 2017 at 11:52 PM ×

It's more interesting that although these anons may be annoying, they are also mostly correct regarding their market calls.

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johno
admin
January 25, 2017 at 12:07 AM ×

Agree, LB. This is a macro blog and there's a wide world out there of other markets.

CAD was subject of a post the other day. I added on the Keystone selloff, but have since sold that bounce. I was long and wrong earlier in the day when WSJ article hit (which I missed). Schwarzman calling US ties with Canada a "model for the way trade relations should be" certainly argues for small risk premium in CAD.

Anyone think Trump results in no tariffs on Taiwan, but the Taiwanese CB laying off currency intervention and allowing appreciation? Could make a similar argument for Korea.

Meanwhile Mexico has lowered to 8% the tax for repatriating undeclared offshore holdings. Last time they did that in '09, it brought in ~$20b and this time I see estimates for ~$10b. What do peso shorts think of that? Another FX policy ... Malaysia is requiring exporters convert 75% of net receipts into MYR. Any of you anons have a view on whether that materially changes things?

Of course, the big one is China. Suppose people have seen the stories that banks aren't allowed to net buy FX. How is that NOT going to sharply curtail net outflows?

Looking forward to LB's fixed income commentary. We're close to levels some say have to hold for the rally to remain in tact, technically. I'm not much of technical guy though ...





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Anonymous
admin
January 25, 2017 at 12:15 AM ×

Vol must be about to pick up with all the comments. Long it.

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Rain
admin
January 25, 2017 at 1:18 AM ×

From an objective point of view, everyone benefits, including oneself, when a reasoned argument is put across.

No-one benefits from 'i'm buying because you're all short' or 'i'm selling because it's too high' single lines from anonymous sources.

Keep it PG and with a broad remit chaps

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abee crombie
admin
January 25, 2017 at 2:18 AM ×

S&P has been the best market to buy post 2008. Treasuries also did well, but their continued trend is now in question. Though lets not forget treasuries have been in a 30 year bull market and interest rates in many parts around the world went negative last year. Now that is what you call a blow off top. Similar blow off tops in oil/em in 2008, nasdaq in 1999, japan in 1989 etc. What i think you have in place now is a set up for a blow off top in S&P 500. The big question is where are we 1997, 1998, or 1999 if we use the late 90's bullish set up as a guide. Its hard to tell, but I think we are closer to the end. Also the size of the blow off the final blow off is debatable.

On what to buy, insightful bullish commentary etc, I am afraid I might have to go with BuyStocks. Trying to be cute is a recipe to get killed in these equity markets. Look at hedge funds, they cant make money in these markets, most mutual fund underperforming as well. Sector rotation is fast and brutal these days. More to say in an upcomming post.

XLB up big today. Just watch Europe, Materials, Financials and to some extent Industrials. They will likely all turn together when the quant hearding goes to far. until then enjoy the party.

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