Carney The Cable Guy

Let's try a classroom activity - we are looking at GBP:

Who's still short at this point? Raise your hands. Mhmmm.

Who's long? Not many. Huh. That's what I thought.

The myriad of reasons that has pulverized GBPUSD has been well telegraphed (divergence in central bank policy, Brexit, etc). I get it. But this reminds me a little of EUR in 2012/2013 when the world was convinced EUR was headed lower, and everybody who jumped in short at what eventually turned out to be the bottom had their faces ripped off.

I'm not necessarily recommending a direct GBPUSD long, but you damn sure don't want to be short here.

A couple quick things to mull over:
  • At these levels, Cable is showing historically low levels when it comes to value using CPI and PPI based real effective exchange rates. This means that GBP has become much more competitive and valuation is stretched to the downside
  • Good Brexit vs Bad Brexit. Obviously, we've heard of all the terrible ramifications of Brexit - but has anybody ever considered the positives?  I'm no expert at deciphering British politics but let's think about this: capital goes where it is treated best. There is no shortage of EU regulation forced on the UK in the past (costed UK billions). UK was a big contributor of EU taxes - that money comes back.
So...deregulation? Check.
Taxes? Check.
Donald Trum...Err, I mean Nigel Farage? Check.

 Wait, so how is this not boom town and we are not off to the races?

Ah! But we have been...


  • UK breakeven inflation has ripped. CPI has ripped. CPI including housing (the one that Hammond wants to switch to) is already at 2% - the inflation target for the BOE

  • Citi Economic surprise index is persisting at very strong levels for the UK. Growth rates are being revised up and unemployment is at levels last seen in 2005. Industrial production YoY broke out of its slumber at end of 2016.

  • On top of all of that, the Fed is ripping rates higher and the BOE is....

??

Really? Seems either mispriced or Carney is falling behind the curve as the cable guy. Brexit uncertainty shmertainty. Doesn't scare me. I know what my eyes see. 
  • So what now? Well, like I said, you might want to head for the exits if you're short Cable (but hopefully 2016 was great for you!). There is a lot of dollar risk if the Fed fail to disappoint in the upcoming 9 months, so if I was to go long, check out GBPJPY or GBPCAD. 
Speaking of CAD, Poloz was as dovish as one can get without cutting rates - but maybe that's another story for another day.
  • You can look for opportunity in rates as well. Short Sterling greens look a bit rich and could probably be a fade on rallies. If the BOE falls behind on inflation, 19s to 20s short sterling must steepen enormously. So 19s, or 19s to 20s, or 20s short sterling curve steepeners might work here as well.  
Have a good weekend guys. See you next week.

Macro Clown (MC)
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Harry H
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March 3, 2017 at 6:57 PM ×

Let's talk about central bank chairs, because I enjoy discussing clueless f*cks.

One of them spoke just now. Everyone expected USD to be bid, but it went the other way. Why is anyone surprised? Phrases like "data dependent" were once again cast into a speech which I can only summarize as pure boredom. Equity markets appear even more bored than I, barely moving.

So what to make of it all? Simple. Ignore senile, flatulent fishwives when they take the podium. Instead, expected nothing substantive from the Fed (or any other CB). These f*cks know one thing and one thing only: how to print money.

Oh and stocks will go up, because they always do.

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Nico G
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March 3, 2017 at 7:54 PM ×

when Harry gets Harrier

remember the Harrier jet? a virtuoso at vertical take off but when it crashed oh boy it crashed. Not sustainable on the long run.

I expect Yellen to be professional. They will hike 4 to 5 times this year unless equities tank before. The peeps who shouted 'one and done again' after December hike are about to be proved wrong. I did not expect equities to not give a shit though, shoulda woulda traded UST instead of the damned spoos.

I worry is about Draghi, who finally has his 2% inflation and rising, but who is also a fucking Italian, doing what Italians do: thinking of famiglia first - mainly BTPs that can't find a bid. Draghi must hike rates but might bullshit about it to save his country from collapsing.

My 2017 theme was Trump Foreman vs. Yellen Ali. So far it's exactly like Kinshasa, Foreman is pounding, pure animal spirits, but Ali isn't impressed. Remember the 8th round one solid punch (50bps hike) was all it took to bring the bully down.

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Gus
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March 3, 2017 at 10:05 PM ×

https://www.bloomberg.com/news/videos/2017-03-03/how-bond-investors-are-reacting-to-yellen-s-speech

"... you need more than the market pricing a March hike to get bonds and the dollar out of their range."

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Leftback
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March 3, 2017 at 10:41 PM ×

Yes, yields remain range-bound. This was the point of our earlier post "Mr Bond Decides to Die Another Day". No matter what happens, BOND keeps getting up off the canvas. As for today's price action, the apocalyptic result for bonds of the Yellen speech today was…. they closed up on the day !!

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Harry H
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March 4, 2017 at 11:32 AM ×

THE SP500 WILL LIKELY DOUBLE IN THE NEXT 5 YEARS

https://mrtopstep.com/the-sp-will-double-within-the-next-5-years/

Read and weep fellas.

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checkmate
admin
March 4, 2017 at 12:25 PM ×

Harry,
Speaking for myself I don't enjoy seeing you on here trying to compensate for whatever deficiency trick you think life as played upon you. Whatever the markets do or don't do it won't fill the 'hole' in your personality. You'll have to find a solution for that elsewhere.

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checkmate
admin
March 4, 2017 at 12:27 PM ×

I understand how that will probably be read ,but actually it isn't meant with 'evil' intent. Good wishes to you.

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koolbong
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March 4, 2017 at 12:43 PM ×

no point feeding the troll... though I wish there was a way to block him/her more effectively... both the frequency of the comments and their profanity seems to have gone up of late...

and it's a bit of pity, because the comments section on this site could actually use a bullish foil...
...where have you gone 12yo, the blog turns it's lonely eyes to you :)

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IPA
admin
March 4, 2017 at 4:45 PM ×

checkmate and koolbong,

The onus is on us to swamp Harry's derogatory comments by our intelligent views on markets in an effort to calm him down. The boy is excited. I personally think he finally reached a legal employment age, received his first minimum wage paycheck, and bet it all on spoos. It's obvious from the increased frequency of his posts and the amount of asterisks used. Enough said...

hipper,

very timely thought about robots. Barron's cover story is just that - robots taking over human mfg jobs very soon. The automation of factories is progressing very quickly, especially in China. Those who think that humans will make robots should realize that robots will make robots. U.S. manufacturer's will unleash a robot army in answer to Trump's call to produce on shore. This paragraph really caught my eye (among many):

ONE THING THAT COULD accelerate U.S. robot deployments is a corporate tax cut, which would reduce the overall cost of manufacturing in the U.S., but not the labor cost. Another is a border adjustment tax, which would reward exporters while penalizing importers. Accelerated depreciation on capital investments would give companies an immediate tax break on money spent to automate factories.

Here is the link to the article:

http://www.barrons.com/articles/rise-of-the-robots-1488609537

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JohnL
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March 4, 2017 at 5:57 PM ×

The bots have been on the rise for almost 2 decades.
Here's manufacturing output and employment. Manufacturing has been doing great, not so much for the workers.

https://fred.stlouisfed.org/graph/?graph_id=358353&rn=5440

The Donald maybe able to "encourage" increased manufacturing output, but will it benefit the working class? Maybe not.

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JohnL
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March 4, 2017 at 6:00 PM ×

Try this link if the one above doesn't work.

https://fred.stlouisfed.org/graph/?g=cUGd

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johno
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March 4, 2017 at 6:48 PM ×

Busy Friday. Some thoughts ..

First, thank you for the post, MC. I hear you, but inclined to disagree. I think the biggest argument against short sterling is that most everyone is expecting what I'm expecting. Namely, there's a good fit between real income and consumer spending in the UK, and so the latter can be expected to fall through this year. The services PMI commentary alluded to this Friday, hence the move lower on the news. Actually, it's worth noting that sterling was responsive to the downside on data suggestive of the expected narrative playing out -- that price action tells me it's not "all in the price." The other arguments against sterling are the politically-driven uneconomic decisions the UK and EU are expected to make. On valuation, I agree sterling looks cheap on PPP or historical real effective rates, but on a regression of 2Y rate differentials cable is arguably expensive. MC points to the UK's rate path priced in markets, in particular its flatness despite current economic strength. I suppose you can argue that for the UK things have to change (economic conditions worsen) while for the US things have to improve (inflation has to keep converging to 2%) for the rate paths priced to obtain. So, if nothing changes, then rate paths should converge some and lift cable.

Re Friday's markets, it was interesting to see the USD selloff on Yellen's remarks confirming March. Seems (based one day's markets mind you) that rates and the USD are going to need more to break higher. Maybe it's all known, but I think it's worth repeating that Yellen thinks rates can go up 100bps so long as inflation is converging to/at 2%, but beyond that we need inflation overshooting or productivity growth improving to justify higher rates. Of course, by the time we get there, we'll likely have a new Fed chair, but if Cohn/Mnuchin are making the appointment, I wouldn't expect someone who diverges radically from Yellen (especially after Mnuchin's 'low rates for long time' remarks).

I was really flat footed following Dudley's CNN interview and should have cut lose the rest of my short USDTRY anticipating dollar long re-building. Took it off Thursday but bought puts on USDTRY cheapened with a KO. Got a decent price I thought. Seeing the dollar price action in the majors right after Yellen's speech, I put back on the USDTRY too at the same price as I took it off roughly. Besides the dollar "sell the news" action, I liked seeing the CBT raising the effective range from the ~10.35% level of the past couple weeks. Suggests they get in motion to stop depreciation around these levels (or alternatively they get in motion when the currency depreciates at the pace of Tuesday-Thursday).

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IPA
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March 4, 2017 at 8:04 PM ×

johno,

I think late on Friday, traders were spooked by what's going on in DC. You have Trump, Schumer, and Pelosi involved in what is brewing to be a four-year shameful display of dirty US politics, but really taken down to a new low level of mistrust, disrespect, and no regard for statesmanship and responsibility of carrying and showing dignity which high political office requires in order to uphold the supreme law of the land. These folks are scaring the daylights out of foreign investors who pretty soon may be selling everything US-related that's not nailed down.
Now that I got my rant out if the way... DXY is simply retracing the ramp up from 99 to 102. There has not been a single close below weekly mid BB since the middle of August and no consecutive closes below it since the middle of June. But no matter how childish our politicians act here, it looks like Europe is about to have much more dire developments. US dollar is going much, much higher, imo.

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Macro Clown
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March 4, 2017 at 8:18 PM ×

It's best to be dumb in bull markets and smart at market turns and bear markets.

Being too smart all the time doesn't always work.

Best of luck.

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Macro Clown
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March 4, 2017 at 8:35 PM ×

I'm big on sentiment. Yes, I think the has unintentionally trained the market into thinking that they will always disappoint. But imagine if they didn't. Imagine if the dot plot actually meant something. Boy, a lot of guys will get caught offsides.

Appreciate the comment.

I think 3-4 hikes are not out of the question. 5 hikes are a but aggressive, so yours. 1 or 2 hikes? Mine, all day.

But to go short spooz as a proxy to rate hikes doesn't make a lot of sense to me. You're trading a potential derivative action of rate hikes, why not trade the short rates (fed funds/short dated OIS, etc.) specifically - there you're betting exactly on what you believe the fed will do.

Full disclosure, I've personally been short long end duration since September last year but that's not only a bet on real rate moving higher but also term premium expansion.

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Macro Clown
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March 4, 2017 at 8:44 PM ×

Thanks Gus.

Yes that I agree with. March hike is all but priced in and risk reward wise it would be unwise to pay April Fed Fund futures at this point.

With that said, the implication of the march hike means the Fed are giving themselves ample room to raise 3, maybe even 4 times this year. Or 3 times and in December announce balance reduction. That's how bonds and dollar breaks out of their range.

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Macro Clown
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March 4, 2017 at 9:36 PM ×

Thanks for the reply Leftback.

True, but at the same time rallies are being sold too.

Technically speaking, initially it did look like it's a bottom with price stabilizing and RSI trending higher. However, 1) fundamentals will ultimately trump technicals.
2) It's taken too long for a bounce to initialize in my opinion. At this point fundamental drivers will come in play again.

But disagreement is what makes the market. We shall see!

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IPA
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March 4, 2017 at 10:06 PM ×

For all the noise PMIs made in February, global non-mfg and composite were down. Good point johno, UK is definitely one of the weak links.

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

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abee crombie
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March 5, 2017 at 2:37 AM ×

Thanks for the link ipa, also nice post mr clown. Thanks for your contribution. Though I still am looking forward to more of the commenters posting.

No clue on gbp, I will trade it technically since I think fundamentals are a wash here. That is until carney changes face which he will do at some point and then catch he market off guard. That is his mo, imo :)

I'm more interested in commodities here. That is what is leading growth in this cyclical recovery. As long as commodity prices stay strong I think we have several more months before Fed tightening really becomes apparent And the outcome of those tightenings is uncertain as well. It's not all nessisarily gloom.

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Macro Clown
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March 5, 2017 at 3:08 AM ×

Also, Leftback.

As far as Yellen goes - I think the bulk of the move was already driven by Dudley, and then bonds drifted lower the day after as well. When Yellen came on and confirmed the potential of a March hike, it was hard to pay Fed Funds (and thus the whole curve) at that point.

As far as what Yellen said - I thought it was very much what was expected. She basically said that a March hike was appropriate if economy continues on the expected trajectory. This may seem like the usual wishy washy data dependent Fed, but I view it differently - she's being very firm that a hike is appropriate, but as the Fed char, she needs an out in the small chance of a potential recessionary jobs number (multiple standard deviation miss).

Otherwise the old (or technically the slightly younger) Yellen would have said the Fed will continue to monitor economic conditions and evaluate for the next meeting.

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Macro Clown
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March 5, 2017 at 5:22 AM ×

Johno, and everyone else, thanks for the comments! Keeping them coming!

Johno, glad to hear some disagreement. if we all agreed then we should probably re-evaluate the idea :).

I think the real income argument is fair - we will see what happens in the second half of the year. We can all agree that macro trading is so fascinating due its countless layers of complexity. So what do will make Sterling move in the next ~3 months-ish? Expectation of falling real income and consumption in the UK or the people (spec and institutions) bidding up sterling based on value/front running BOE?

No clear/right or wrong answer, but obviously I'm betting on the latter.

Also, on the rates front, I can see corporates flow paying rates, trying to lock in relatively low rates amidst rising inflation expectations.

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Macro Clown
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March 5, 2017 at 5:31 AM ×

Thanks for the comment Abee crombie. Good to see you involved.

To me, part of the consequence of the QE opiate is that it has scared traders with vast experiences and market knowledge into thinking that the market is built on understandably shaky foundation (which definitely can prove true one day).

Personally, as some one blessed with lack of experience and a vivid imagination, I think the above think is the consensus. I definitely think that one needs to seriously consider the possibility of tightening without immediate doom and gloom.

Taxes and deregulation is a HUGE deal (if these populist guys can get them through their respective countries' governments). To me, the biggest deal.

It was taxes and deregulation that were key drivers of the growth portion of Reagan's imperial circle. (Along with some other stuff vis-a-vis George Soros - http://millennialeconomist.tumblr.com/post/112795423898/a-return-to-reagans-imperial-circle)

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MANU
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March 5, 2017 at 4:43 PM ×

A bit of a topic change,

XRT is beginning to draw the perfect storm from a technical perspective - let alone fundamentals. I am starting to add some more shorts and maybe some puts as well. If it breaks the weekly ascending channel, all the technical traders and algos will jump in short and it will be game over.
Yellen & Co. to boost the move down once they hike and call for more hikes to come.

Also, I don't know if it has been mentioned here already (I have been away for a few days and still have to catch up), but there was a massive, but subtle, change in Yellen's speech, where she changed the assesment of the monetary policy from "modestly accomodative" (19th Jan), to "moderately accomodative" (3rd March).

Any thoughts?

Best,
M

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Nico G
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March 5, 2017 at 5:29 PM ×

Das Bank hits ! timing of champion

https://www.bloomberg.com/news/articles/2017-03-05/deutsche-bank-launches-8-5-billion-share-sale-to-boost-capital

March pranky deals continue: you gotta yer snapchat, how about a cup of Bank RUPT

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IPA
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March 6, 2017 at 3:11 AM ×

Not to get too excited but it's shaping up to be an interesting Monday. We may have a perfect storm brewing. Fed hikes, DC turmoil, Korea just fired missiles again, China is sending some mixed messages on commodities and its currency, DB may be back in the dog house (thanks Nico G), CAT possible corporate fraud and tax evasion, and more than half of U.S. population possibly growing increasingly uninterested in shopping all of a sudden (Hillary voters feeling apathy and disgust). Consecutive hourly candles have finally closed below 89 ema on Dow futures as I type.

@MANU, I think what the Fed has done in the past week is try to offset the "irrational exuberance" of the equity market. You have Dudley saying things like "animal spirits" in his justification of a rate hike. Not only is it odd coming from a NY Fed president but even more so from someone like him, a notorious dove. I would like to find out what his "animal spirits" economic indicator consists of. I personally find this urgent March hike telegraphing very peculiar. I think Fed is beginning to get really worried about a no go on BAT revenue-neutral option and Congress possibly unleashing a deficit-gushing stimulus plan instead. The March hike has preemptive written all over it.

On XRT, (this board is probably annoyed with my pushing of XRT short idea at least once a week) I wholeheartedly agree with you. It looks like the Jan-Feb 2016 tails on monthly candles @ 38 would be filled soon. Yellen & Co. have a bigger fish to fry right now. When they start seeing the consumer sentiment cratering they might feel a bit sorry they did not pay a closer attention to retail sales, which the latest Beige Book said "increased at a subdued pace across most of the nation".

I quickly drew lines through several UoM consumer sentiment charts. Pardon my general inclination to compare the chart patterns and horizontal lines of resistance and support on economic indicators, but I couldn't help but notice such patterns and levels so accurately predict prior turns. This does not look like animal spirits totally unhinged to me at all.

http://imgur.com/a/5WUp6

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Macro Clown
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March 6, 2017 at 4:17 AM ×

Damn, the XRT chart does look great from the short side.

A quick look at consumer credit growth going back to 97 - it has long recovered since the financial crisis, yet XRT looks the way it does. Can't bode well for XRT.

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Nico G
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March 6, 2017 at 11:14 AM ×

Europe

http://www.salientpartners.com/epsilon-theory/im-not-predicting-im-observing/

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MANU
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March 6, 2017 at 11:57 AM ×

MXN closed on Friday below the 200-day MA and it appears that has a long way to go to pre-Trump levels.

Considering the extreme undervaluation and that the Orange Administration appears to be softening its NAFTA stance, now that they have realized Mexico can fu*k back the US, the peso likely to continue to move upwards. Also, Mexico is working towards strengthening the peso. They argue that the peso's depreciation is driving higher inflation and also weakening consumer spending, hence a stronger peso would favor a less inflationary outlook, at the same time consumers purchase power recover. Today Banxico's new FX hedging (read intervention) program begins its auctions.

Still +5% from pre-election levels, and +8% since pre-campaign levels. Good risk-reward IMHO

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johno
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March 6, 2017 at 7:42 PM ×

Anyone have a good explanation for the move in EURNOK the past few days? CPI out Friday, so doubt I'd do anything heroic, but the cross looks expensive on my model.


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Gus
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March 7, 2017 at 1:33 AM ×

Found this S&P MONTHLY chart with brief analysis today:

https://tradetrekker.files.wordpress.com/2017/03/spx-monthly.png

"If there is any bearish tendencies left, the month of March needs to close below the 2367.62 Risk Level. A close above will give the SPX tremendous potential to go much, much higher, especially with the TTM_Squeeze unleashing higher."

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IPA
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March 7, 2017 at 2:55 AM ×

Gus,

I spent a few years trading along TTM guys, Hubert and John, in the same chat room. Fun times! Can't learn shit from them but they sure know how to sell a fridge to an eskimo. You can cook TTM Squeeze yourself by using thinkScript code.

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IPA
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March 7, 2017 at 4:36 PM ×

Cooper working on the neckline of H+S and 50 dsma. LME stocks up 20% from Friday.

Looks like U.S. Q1 GDP may stink after all. Atlanta Fed GDPNow revised lower to 1.3% today.

https://www.frbatlanta.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

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IPA
admin
March 7, 2017 at 4:37 PM ×

Copper (time for new glasses)

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checkmate
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March 7, 2017 at 6:23 PM ×

Until recently I was of a mind to see some correlation between recent eents . The rise of populism, the dissention vote and I was definitely of the mind that people were perhaps underestimating the political risk in European elections this year. I am now of the view that Trump is perhaps giving populism a bad name and helping the EU unity cause. Dissention or disatisfaction is one thing ,but I suspect a lot of marginal European voters are looking at Trump and thinking I'm not ready to sign that. Indavertently, I suspect Trump is giving Europe a big leg up.

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checkmate
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March 7, 2017 at 6:24 PM ×

I might be guilty here of projection ,but if so I suspect I have a lot of company.

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Gus
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March 7, 2017 at 6:43 PM ×

IPA2:55 ... many thanks for that! :)

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TraderJim
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March 7, 2017 at 8:23 PM ×

US commercial bank lending actually contracted in Jan and Feb (see row 9)

https://www.federalreserve.gov/releases/h8/Current/

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IPA
admin
March 7, 2017 at 10:03 PM ×

Buy the rumor sell the news? Now that Harrison is CSX new head man should we sell it and transports (those of us who are not short already)? Look at today's reversal - sweet. It is going to take NSC down with it. Now... Rail carloads were up in Feb, all due to coal. But before one does cartwheels over that it should be noted that while thermal rebounded nicely due to undoing of Obama carbon law, metallurgical was just meh. Also, it was second worst Feb in absolute terms for coal carloads, never mind that it was up 19% over the easy comparison with the crappiest Feb ever last year. It is also important to remember that infrastructure plan is possibly being pushed out to 2018. So there is going to be a malaise here in U.S. steel demand further depressing metallurgical coal demand. Intermodal traffic was just ok in Feb. Also I think we may be hitting a peak in auto sales here. Rails may need to cool off if CSX run is done.

Over to airlines... JETS closed below 50 dsma and is about to infringe on Feb 9 close, and many components are already below. If you remember that was the day Trump helped out his airline buddies with a pat on the back in the Oval Office. XAL (Amex airlines index) is looking to go below 100 dsma.

DJ transports are racing towards 50 dsma and the uptrend from 2/2 is now broken. And, XTN just closed below 50 dsma. Close below 9,262 probably sends everyone to the exits.

Sell transports, imo.

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abee crombie
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March 8, 2017 at 5:07 AM ×

IPA, interesting on XRT, but I see a lot of individual names near support here so I am not ready to jump in. Feels like sentiment is pretty low on retailers already. Is Victoria Secret really going to have to compete with Amazon. I think they will come out OK. And they have a history of sandbagging guidance so who knows. I'm not ready to jump in as its still not there yet for me. But if JCP, M and kolhs break now lows then yes heads will roll

Not sure on CSX. Market loves Hunter. The move on CP was epic. I dont know the specifics but I d rather short something else. Like commodities here.

But at the end of the day, if banks are still rallying this market is gonna be tough to stop. And the financials like higher rates. this is a recipe for a real melt up if commodities/eu dont stop things.... that said vol is way too low here & HY is expensive. But I have a feeling dip buyers come in pretty quick.

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IPA
admin
March 8, 2017 at 6:33 AM ×

abee, you and I will agree on something one day, but I am sorry, LB looks awful here. Except a few ladies still wanting to come in and indulge themselves in a new fragrance, it's not that hard to buy sexy lingerie and body wash online now. Some ladies here may disagree with me...
The SSS (same store sales) epidemic among so many retailers is here indeed. LB is not immune. Feb comp sales company-wide for LB were down 13%. Victoria's Secret down 16%, Bath & Body Works down 13%, their mall traffic down 11%. Ouch!!! Yes, discontinued swimwear, apparel, shoes and accessories took some % off of comps. But total revenue was down 10%. This is not sandbagging, these are atrocious YoY metrics. February was a month from hell and their "angels" could not help. Chart looks awful! Except a fib retracement and the fact that weekly and monthly momentum is scraping a floor there is nothing else stopping this disaster here. Next possible stop is Feb-Mar 2013 double bottom @ 42 followed by Nov-Dec double top @ 30.
Funny you should mention AMZN. Probably the way to go for them. I think they should unleash a mother of all store closures and cut a healthy chunk of their 3K stores down to a manageable amount and sell more of their stuff online (as they already successfully do). At least close all underperforming stores right now!

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Nico G
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March 8, 2017 at 7:35 AM ×

checkmate interesting forward thinking

im french. well not really i left 22 years ago but still. French are desperate. Civil war looming. If le Pen wins. And also if le Pen doesnt win. But there is a real possibility that she does. They LOVE what TRUmp is pretending to be doing. Trump gives populism a very good name. I read Facebook comments on Trump's page every day (whilemultitasking from the toilets). Basically humble folks without temptation who love the sincere conviction (or faith?) that Trump is working for them and for their interest only, every day. It is so powerful, i am jealous i wish i could just believe a leader. Anyway. Trump is bringing le Pen, and certainly not having people rethink populism. from where i stand.

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checkmate
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March 8, 2017 at 8:37 AM ×

Nico,
I believe I once posited this question? When you think you know what the average person is thinking first think how average are you? I know little of you ,but what I do know does not call to me that you are the atypical French voter.

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Nico G
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March 8, 2017 at 9:47 AM ×

bah it's quite trivial to understand what has been brewing in France those last 40 years. Here is a good recap from Gatestone, defo worth a read:

https://www.gatestoneinstitute.org/10007/france-death-spiral

there is no 'average' or (a)typical voter to consider in current elections - populism appeals to a wide range of people and it was blind to think only low class uneducated dudes (deplorable) voted for Brexit and Trump

i want le Pen to win because a gigantic electroshock is needed to get us out of that PC misery. People should always be able to speak their mind without that debilating fear of offending someone or being called a facho/racist whatever. As far as islamist conquest/radicalisation is concerned the first step to fight it is to recognise it, and confront it. No more niceties from the metally corrupted centre-gauche

sorry it may seem somewhat offtopic - until a le Pen win hits European markets in the face. The worst thing you can do to your portfolio now is to switch from overstretched, fully priced US equities to the permanent European underdogs, a theme that is doing the round those days. Emerging markets (debt) would be a much safer option for it has already been destroyed.

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Celeriac1972
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March 8, 2017 at 10:14 AM ×

Nico - who are the Gatestone Institute?

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Eddie
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March 8, 2017 at 11:10 AM ×

From Wikipedia:

"The Gatestone Institute, formerly Stonegate Institute and Hudson New York, is a nonpartisan, right-wing not-for-profit international policy council and think tank based in New York City with a specialization in strategy and defense issues."

https://en.wikipedia.org/wiki/Gatestone_Institute

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Celeriac1972
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March 8, 2017 at 12:01 PM ×

From the same Wikipedia article:

The Gatestone Institute has been accused of being islamophobic, and of promoting falsehoods and paranoia.[6][7][8][9] J. Dana Stuster, writing in The Hill, says Gatestone is fear-mongering when it warns of a “civilization jihad” consisting of a “Muslim invasion” of “illegal migrants” that will bring crime and exhaust the European welfare system.[9] Carol Matlack, professor of sociology at the University of Bath, and Tom Mills, lecturer in sociology at Aston University, single out Soeren Kern's articles on Muslim no-go zones in Europe as examples of misinformation and Islamophobia.[7][8]

In a 2012 article in the progressive weekly The Nation, Max Blumenthal criticized The Gatestone Institute’s founding president Nina Rosenwald for raising money for politician Geert Wilders, think tank Center for Security Policy, and writer Daniel Pipes. In this article he quoted Center for American Progress' report which claims that Rosenwald and her family have donated more than $2.8 million since 2000 to “organisations that fan the flames of Islamophobia”.[6]

Muslim members of Gatestone Institute defended Nina Rosenwald, from criticism by CAIR that she donated to “groups that exist to make people fear and hate Islam”. Dr. M. Zuhdi Jasser, founder and president of the American Islamic Forum for Democracy, said, "It goes without saying, but to those who may not know Nina, and having known her now for many years, it is clear to me that she has the highest respect for Muslims who love their faith, love God, and take seriously our Islamic responsibility to defeat the global jihad and its Islamist inspiration." In response to anti-Muslim allegations made by the Council on American–Islamic Relations toward Rosenwald, writer and film maker Raheel Raza said, "If Muslims guided by CAIR could take the time to read and reflect on efforts of people like Nina, they would broaden their horizons and gain a lot of insights into the betterment of Muslims."

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checkmate
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March 8, 2017 at 1:10 PM ×

So as usual the 'thinktank' as no agenda ,why should we not be surprised. Let's face it 'thinktank' is rapidly becoming one of the most abused terms in politics. New definition of it appears to be any gathering of several people or more who seek to tell each other what they wish to hear. As a source of objective analytical discourse they may rank right up there with the taproom of your local pub. Albeit not as much fun.

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abee crombie
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March 8, 2017 at 1:43 PM ×

IPA, i head you on Feb LB's SSS trends, hence why I said its not for me yet. yes mall traffic is taking a beating, and probably will for the next few months, maybe 2 years, I dunno. But class A malls I think will come out OK, along with destination stores, like Victoria Secret which has had industry leading comps for many years. Anyway, it will just trade on SSS trend for next little while. I'm looking at thier long bonds to jump in, hopefully if we get to ~8.5% yield / mid 80's price ..

But I am thinking about AZO/ORLY short here... you have any good retail REIT's to short? I think that might be a good play as well with rates rising

I agree with your retail thesis, there is pain. my point is just that XRT, if you look at the constituents, about 1/3 are already in the dog house. Then there are about 1/3 that have done really well over the past 12M.

Nico you still short spoo's? adding? trimming?

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Leftback
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March 8, 2017 at 2:51 PM ×

Today's ADP number was an eye-rolling head-shaking 5-sigma surprise…. Perhaps not such a massive shock, given the mild winter and US businesses moving past the period of electoral uncertainty. It is interesting, btw, to note that we see small retail businesses failing all over NYC at the moment, but mostly in Manhattan, perhaps part of a more general "retail and restaurant recession" in the US. It is certainly a very strange economy out there, miles driven and gasoline use are down too.

There was one of these massive beats in Spring 2006 as well, and a monster number in Spring 2011. None of those "employment surges" lasted. At the risk of stating the obvious, the "real" data are out on Friday, and these days the numbers to watch are "hours worked" and "hourly wages", more so than the headline number, which is baked in the cake. As MM has suggested, it is the adjustments to the dot plot that are in play between now and the FOMC meeting.

Danny Blanchflower was on BBG this morning, opining that it would only take "one bad data point" to "bring this whole thing down". Perhaps FX traders agree, and this is why USDJPY is having such difficulty mounting an assault on the 115 level.

Let's see if the bond markets pivot around the 10y and 30y auctions, as they so often do…. we suggest you buy the dip!

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Leftback
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March 8, 2017 at 3:24 PM ×

Btw if you want something to short, the IYR seems to fit the bill, H&S in place, wait until it breaks support….

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IPA
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March 8, 2017 at 5:05 PM ×

abee, retail REITs: KIM, KRG

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Nico G
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March 8, 2017 at 5:58 PM ×

abee

still short, i added the day March hike became a reality. It is a horribly big position now (31m notional), the theta will be paid in shortened life expectancy

i have crash bids above 2030 Trump election reaction low just in case Pyongyang screws san Francisco

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Leftback
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March 8, 2017 at 6:52 PM ×

You want data on Manhattan? It is all here:

http://www.zerohedge.com/news/2017-03-07/retail-vacancies-soar-manhattan-proving-big-apple-not-immune-retail-rout

Btw, the 10y auction was red hot:

http://www.zerohedge.com/news/2017-03-08/short-squeeze-drives-blockbuster-10y-auction-directs-surge

BOND is still alive and kicking.

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Leftback
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March 8, 2017 at 7:02 PM ×

And Crude is crashing. Bye bye inflation drivers. … buy TLT, sell TIP ahead of Friday's (cough) reflationary shocker….?,

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Celeriac1972
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March 8, 2017 at 7:14 PM ×

Crude move is interesting. Hard to distinguish any particular trigger for a fall of thus magnitude.

Will equities continue to ignore it?

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IPA
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March 8, 2017 at 7:42 PM ×

GTC order to buy XLE @ 68, 67, 66.
GTC order to buy TLT @ 116, 115.5, 115.

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IPA
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March 8, 2017 at 8:51 PM ×

Top is a process. Essentially a gap fill here for SPX and almost there for DJI (going back to the Trump Congress address). I imagine dip buyers should be coming in somewhere here on equities. Would be interesting if we get a fib retracement and then break today's low on volume sometimes next week. That would probably be a top of some sort. Let's see how this unfolds.

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johno
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March 8, 2017 at 11:07 PM ×

Busy with micro bets the past days.

Narrative Fed is on hiking path, for real, gaining more traction. I'd like to see wage inflation before buying that, especially with 2.6 hikes already priced this year. What's the upside from here, another 1.4 hikes? Doesn't seem worth it. End-18 OIS basically prices Fed at "neutral" 0% real if inflation gets just under 2%. Maybe I haven't seen enough good times, as Tepper today suggested of us 40-ish traders, but I at least want to see some discernible trend higher in wage inflation (and/or productivity growth) before I bet on higher than 2% Fed funds. Interesting, as LB points out, that USDJPY still isn't confirming this move. Yet.

Speaking of Tepper, I thought he made a great argument on BAT today (which applies to "reciprocal tax" or some similar thing). Specifically, if you spread it over some years (and Ryan has expressed openness to that), USD will probably front-load appreciation somewhat, so it will actually result in cheaper prices for imports. NOT the retail apocalypse I was arguing previously.

Re-built my position in -EURNOK Monday and today.

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IPA
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March 9, 2017 at 6:26 AM ×

Out 1/2 of my copper short, stop goes to b/e. LME stocks now up 33% since Fri. WTF? Crude puking did not help copper either. I'll take it, sweet revenge. Last two scaleouts 2.54 and 2.50

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Jim
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March 9, 2017 at 12:29 PM ×

Corporate Credit Markets:

https://www.seeitmarket.com/corporate-credit-markets-party-like-its-2017-bonds-investing-16651/

Any questions? Twitter: @FZucchi

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Leftback
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March 9, 2017 at 1:52 PM ×

The recent move in high yield makes sense now that we see crude specs deleveraging rapidly. It's possible the oil market is now finally returning to fundamentals of supply and demand after a period of intense and unbalanced speculation (a hint to those who don't get how this works: at tops, the longs are more numerous and, critically, more highly leveraged than the shorts).

The high yield market has been an accident waiting to happen for months as crude oil prices have hovered in a gravity-defying vacuum; eventually the resulting repricing of risk in HY and a shift to lower inflation expectations (crude oil is a major input to PPI) should put a renewed bid into Treasury bonds.

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IPA
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March 9, 2017 at 2:11 PM ×

Leftback, I think crude gets support at mid BB on monthly (in mid $40s) and goes higher still. Just needed a reset. Totally agree, was a crowded trade here. XLE will lead and bounce before crude does. I'll play XLE, looks much cleaner. Just follow May-June 2010 scenario, imo.

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johno
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March 9, 2017 at 4:19 PM ×

Really taking a bite out of the turd sandwich this month. Getting run-over in a couple things. In macro space, NOK. Added again today post-ECB. Way mis-priced on my model. Out of my USDTRY forwards, taking a small hit. Still exposed through KO options there. At least EURGBP goes the right way. Again, the fact the pound could sell off on last week's negative data suggests to me it isn't "all in the price."

Separately on the UK, I thought the realvision interview with Melken was interesting. In it, he recommended midcurve payer spreads on GBP 15Y15Y. I've priced some up. Some interesting payoffs. Anyone have views on this? Some cons to the trade ... 1) Melken cites the 3.5% inflation pricing on that part of the curve, but I think that's driven by uneconomic regulation-driven pension linker demand, so in constructing some structural rate, I think 2% is maybe more appropriate. There's also a CPI-RPI differential to account for. 2) His catalyst is end to QE in the UK and the arguments he makes I think are good. However, there's still 20-30b of reinvestment per year plus Hammond's budget sees a step-down in issuance in the coming fiscal year by about 30b. So not quite the dramatic cliff in demand for the long-end. 3) Economic data is probably going to suck going forward as consumer real income gets squeezed, so is that a good environment for curve steepening?

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IPA
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March 9, 2017 at 4:30 PM ×

Out 1/2 CAT short. Stop to b/e. Last two scaleouts 87 & 84. How long before Trump tweets about CAT? LOL

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Celeriac1972
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March 9, 2017 at 6:19 PM ×

How long before Trump tweets about "driving down the cost of gasoline for make benefit glorious drivers of America"..?

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IPA
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March 9, 2017 at 7:01 PM ×

Celeriac1972, lol, take credit for everything good since election and blame the rest on predecessors. Never mind the cyclical trends, long-term business plans, and simple every day decisions which have absolutely nothing to do with who is occupying the Oval Office.

Beginning to think nat gas has bottomed and it's time to start looking to buy the pullback. Want to try and catch a "cradle trade" on daily (pullback to 8/21 ema/sma cross). Want to grab May contract (because I don't want to roll often) at around 2.92-94-ish and hold on for dear life. I think it will explode (pun) higher. Would address rolling May when confronted with it.

Furthermore, want to grab UNG far-dated call spreads around the same time @ around 6.90-7.00-ish. UNG is not perfect (nothing is in life), hence using far-dated call spreads should help some of the inevitable erosion of underlying due to rolls. Need to use UNG because of the long haul trade structure I would be putting on. Again, looking for nat gas to rip higher over the next 3-6 months.

Simultaneous nat gas and crude oil bottom should help XOP and OIH. Want to grab both through call spread leaps. Not there yet!!! Wait for XLE bottom to confirm first. Looking for OIH and XOP to steamroll the shorts and scream higher in the next 6-9 months.

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abee crombie
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March 9, 2017 at 7:30 PM ×

IPA you getting out of CAT before the Nov gap? common... but good reminder on XLE. Will be watching that. Also looking at a few individual names in the STACK play which are getting killed. Nothing wrong with the rocks there...

LB, some muni and preferred are getting hammered the past few days. Also my high conviction MLPs, though not so surprising given the oil move

As for HY, while its a nice move on the ETFs CDS spreads arent doing that much. Though if R2K breaks 1350 maybe equity vol moves higher too and we see a real move lower. I will probably be a buyer on first sign of exhaustion in that case.

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IPA
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March 9, 2017 at 7:54 PM ×

abee, I sold 1/2 of CAT position today. Holding the other half to scale out at 87 and 84 (gap fill) and moved the stop to breakeven.

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March 17, 2017 at 10:26 PM ×

I have a reply:

http://www.globalmacroblogspot.com/2017/03/17/keep-pounding-on-sterling/

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