The Anatomy of a LIBOR Panic: New Wides For LIBOR/OIS

Welcome back MM readers--apologies for the unscheduled hiatus last week. I spent a few days enjoying the technological miracles of the US healthcare system. Keen readers may notice I almost never make a call on stocks, stock sectors, or egads….single name stocks--but it is tough for a trader to walk away from a couple of days in and around a hospital without thinking that there is a lot of capital and profit sloshing around in that place.


Since I was disconnected from markets much of last week I’m going to circle back to the widening in LIBOR/OIS spreads that has continued unabated since I wrote about it a few weeks ago. I'm sure this has been to the erm...consternation of more than a few traders like our good friend here:

Actual footage of a macro trader reacting to the latest LIBOR fixings

JPM published this chart showing that the current 3mo libor/ois spread is at its widest post-crisis level.




That’s amazing, given nobody has really noticed outside of this small sector of the fixed income market. Even the 2016 money market reform move made some headlines in the financial media, even if it didn’t penetrate the white hot din of the US election media coverage.


Sure, there have been a few articles in bloomberg and the WSJ that have highlighted the move higher in LIBOR, what might be driving it and what it might mean for the regular Joe. Quite honestly, with a little time away from it, I think the coverage has overcomplicated the issue. What I think the market is missing is that this really is a plain vanilla credit story.

What makes it different is the magnitude of the move, one driven by the confluence of competing supply and demand factors. Yes, there are many factors that are driving this move, but I think they can be simplified into only two or three. The first, and arguably most important, is the US tax reform. This incentivized US corporate treasurers to start repatriating foreign-domiciled assets, much of which was invested in short-term corporate debt.


And yeah, that matters! What I think has been slightly deceptive in the media coverage of this move is that it has been sold as “having nothing to do with credit,” or that credit hasn't been a driver because various other basis trades (3s6s, xccy basis, etc.) aren't moving much. That’s only partially true, especially when you look at this chart:


Put another way, since the beginning of February you’ve lost all of the spread tightening move since June of last year. This chart also highlights that the weakening of markets in general might also be at play here--an overall weakening of credit markets has caused a re-pricing of the entire credit complex...including commercial paper, bank funding and thus LIBOR.


The second factor is commercial paper. Treasurers are pretty smart people--and most of them have a guy that is sitting in front of a bloomberg terminal all day thinking about how he can fund the company’s working capital 5bps cheaper for a few months. When these guys figured out the tax reform was for real and, later--that there would be an acceleration in t-bill supply because of the bipartisan spending agreement struck in early January, those treasurers wasted no time in tapping the market. Commercial paper outstanding accelerated throughout Q4 and picked up at an even faster pace in January. This acted as a sponge for money market cash...




...Which left the market dry as a bone when the US government dramatically accelerated t-bill issuance in February, increasing the amount of bills outstanding from roughly $2trn to $2.2trn.

You can see how these trends impacted the market by looking at this chart:


LIBOR and commercial paper rates underperformed OIS starting in December, but flattened out in January. Similarly, 3m t-bill rates and OIS followed each other very closely until the t-bill issuance accelerated sharply in February.

At that point all bets were off--with CP rates and t-bill rates widening amid weakening credit markets and an decrease in dollar funding supply, LIBOR started to underperform everything, since panel banks saw that issuance concessions were back and weaker panelists probably had to pay up to get deals done.


The rest, as they say, is history.


Where does the market stand now? Pretty nervous, to say the least. 3mo/3mo forward (June fra/ois) blew out to new wides last week, and the 6m3m (Sept fra/ois) is again skulking around the 40 level.  




This seems like the capitulation move here--L/OIS over 50….money market investors are going to look at that and say this is where we can step in, and there is already some evidence this is happening. I continue to believe that the market will stabilize in the low-mid 30s and we’ll see a return of a more normal looking upward sloping term structure. But when? That’s the big question I guess--however you look to structure this trade, it will be worth considering how much carry and resilience it built into the trade.

Shawn
TeamMacroMan2@gmail.com
@EMInflationista
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Leftback
admin
March 19, 2018 at 3:59 PM ×

Welcome back Shawn. Get well soon.

Educational video on the market's immediate prognosis for the 12 y-o trader "Buy Stocks".
A bit before your time, this, now enjoy your day, sonny.

https://www.youtube.com/watch?v=IKe2OfXLxuc

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Shawn
admin
March 19, 2018 at 4:09 PM ×

sporting just a vest is an underrated look. It's coming back.

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March 19, 2018 at 4:50 PM ×

Any thoughts on whether this will test the 200 day MA again? This one seems to have a combination of some fundamental legs combined with technical selling as well. I suppose I'll wait to see what other skeletons get dragged out of the closet this week before ending any shorts.

Good market for technical trading right now however. Not the best stock-picker's market in my opinion.

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IPA
admin
March 19, 2018 at 5:11 PM ×

Need to scale out of equity shorts here at 2700 on SPX, imho. I'm taking big chunk off right now. Right shoulder of inverted head and shoulders comes in right here. Bounce may be just around the corner. Leaving a small runner with a trailing stop on just in case.

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Shawn
admin
March 19, 2018 at 5:13 PM ×

despite some potentially positive regulatory developments, banks continue to suck wind. I think this selloff and that underperformance connects the dots with the thesis in my piece here--there is a broader repricing of credit risk that is going to hit sectors that depend on cheap funding--which to a large extent is the market at large. Is it a fundamental selloff? Sort of...more a function of credit markets--and thus risk-- getting ahead of themselves last year than a deterioration in quality.

As for tech, just a levered trade of the same theme, IMO.

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Leftback
admin
March 19, 2018 at 5:19 PM ×

Took about 1/3 off already. Agree SPX 2700 is the current technical battleground.
Here's a summary of the day from the perspective of Mr Shorty:

https://www.youtube.com/watch?v=ULeDlxa3gyc

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Leftback
admin
March 19, 2018 at 5:24 PM ×

Waiting to see whether the intra-day low of 2697.54 holds (if not, we can see another 10-20 spoos lower), or whether there is a break above 2705 and 2710 (in which case everyone will cover).

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Leftback
admin
March 19, 2018 at 5:42 PM ×

Bounce is overdue. Completely out.

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Skr
admin
March 19, 2018 at 5:54 PM ×

Even though it is nice to take profits on an intra-day basis,is there a particular reason why?

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Nico G
admin
March 19, 2018 at 6:42 PM ×

lol that song FB

my toddlers love it

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Shawn
admin
March 19, 2018 at 7:03 PM ×

i'm pretty sure one of those guys lived on my floor during my time in London. He somehow convinced me to spend a weekend pub crawling through Liverpool with him and his mates. One of the more eye opening experiences of my life.

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Skr
admin
March 19, 2018 at 7:11 PM ×

Handy 100 tickets inverse H&S on the 1 minute chart for those who do what they do.

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IPA
admin
March 19, 2018 at 9:00 PM ×

It's important to point out that while media pundits are all over the island reversal on Nasdaq, it is one if the most common fakeout patterns. Not unusual to see a gap and go in a opposite direction. Just wanted to get my 2 cents in on that one ;)

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Anonymous
admin
March 19, 2018 at 9:34 PM ×

It's good to see that most of this board has now started trading ES/NQ off the 1 minute chart. Genuinely hoping some of you make some minor gains on your equity shorts, before a face-ripping rally takes it all off you with interest :)))

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Skr
admin
March 19, 2018 at 9:59 PM ×

What % probability are we talking about?

@Buy Stocks- thanks for your input? Come on be a Macro....

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Leftback
admin
March 19, 2018 at 10:11 PM ×

@Skr.

Rationale for intra-day trade… Fear of face-ripping rally!

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johno
admin
March 19, 2018 at 11:03 PM ×

Some nice market calls here. Well done, gents.

Persuasive piece, Shawn. Thank you. Does seem a good chance that FRA-OIS can at least level out here, if not reverse, now that CP issuance has leveled off, T-bill net issuance is going to start coming down, and we've hit 50bps (I'll add that Fed swap lines are made available at OIS+50bps, though there's the stigma of drawing those that maybe doesn't it make a firm line in the sand).

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Shawn
admin
March 20, 2018 at 12:04 AM ×

Little chance of tapping fed swap lines— not sure what levels foreign banks are funding at but when jpy xccy basis went to -80 or -90, whatever it was— there was little if any action there. No different here.

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Jim
admin
March 20, 2018 at 1:50 PM ×

Forex settlement claim deadline in two days

https://twitter.com/HaimBodek/status/976084905301078017

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March 20, 2018 at 6:42 PM ×

So just a random anecdote on a debt debate I've seen popping up a lot of places.

We have a lot of debt, more than we did in 2008 despite only menially higher household wages. But there have been various arguments that it's much more serviceable. The chart that I universally see as a rebuttle to the "debt is a problem" argument is this one: https://fred.stlouisfed.org/graph/?g=j96p#0

The issue is that this is a very flawed chart and flawed argument. While the chart does show the right data, it can only measure actual real debt per household. But real debt is not the only thing that squeezes consumers. And other price pressures like inflation play a role in how consumers are able to service their other debts (student loan, mortgage, cc, etc).

The fatal and crippling flaw here lies in a major demographic shift that occurred from 2007 to 2018, that being the switch from home ownership to home rental. From 2007 to 2018, home ownership rates have dropped roughly 16%. A lot of that is due to high home prices in a low rate environment, while other causes are due to other costs and debt servicing preventing saving for a down payment.

The problem is that despite the 16% drop in home ownership, that doesn't mean that consumers are paying 16% less for housing than they were previously. In fact, the opposite is likely true... consumers have simply transferred that debt servicing cost from mortgage payments to rent payments. Rent prices have grown quite fast since 2007, and this is essentially filling the hole that was previously hurting consumers from the perspective of mortgage servicing. When you account for this, it's no surprise that we are seeing increased defaults and delinquencies in areas like credit card debt, auto debt, and student loan debt, all combined with lower savings rates. Despite this, the problem with looking at the fed charts for debt servicing is that rent payment is not a factor in this equation despite the fact that it squeezes consumers just about as much as mortgage payments do.

So taking that original debt servicing per household, in order to get a more accurate picture of debt servicing issues compared to other times of financial stress, you would have to account for the 16% drop in home ownership rate. You also would need to somehow account for average rental price increases.


fred.stlouisfed.org/graph/?g=j96p

Looking at debt service payments vs. home ownership rate tells a more complete picture of how this stat is skewed. The only other thing to account for in here are interest rates, which the debt service % clearly correlates well to when added to home ownership rate.

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March 20, 2018 at 6:45 PM ×

On another note, is anybody else paying attention to DXY potentially shooting up? I've seen that OIS / Libor leads DXY rate, which would suggest that we are about to see a huge increase in dollar value. To me, this seems almost too perfect to be true as it is the perfect antithesis of a lot of crowded trades right now...

It would directly work against...

- Cause the crowded oil trade to drop
- Cause the short dollar trade to drop
- Cause the short treasury trade to drop

Obviously it could have many effects elsewhere, but this was just a random thought of mine. What are people's opinions on DXY taking a big jump somewhat soon? Is the OIS Libor correlation there not relevant this time around?

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IPA
admin
March 20, 2018 at 6:54 PM ×

Short of writing a novel on FAANG's upcoming demise, let's just point out that FB had a head and shoulders formed and was looking heavy prior to Monday. People knew... Targets are 155 and 149. This being said, most tech darlings are not showing significant weakness here. MSFT, INTC, ADBE, CSCO, CRM, MU - are all hanging in there even as ORCL gets taken apart. Island reversal was indeed a false break and after Fed is out of the way there may be yet more strength in these. Not sure one needs to be stubborn in either direction in the next few weeks. Perhaps trade the ranges and be happy with chunks in the middle vs going for biggies. Some here may question the short-term commentary on macro blog. Market giveth and taketh, one keepeth only if he is agile.

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Leftback
admin
March 20, 2018 at 10:33 PM ×

@Scarlet - yes, agree, but when? We have been watching and waiting for a DX rally for some time. EURUSD and GBPUSD in particular seem ripe for a reversal, but when and what would be the trigger? Can the FOMC really spring a hawkish surprise here? Seems doubtful. Most likely they continue with their rhetoric about a measured pace of removal of monetary accommodation, etc... This means the trigger would have to be an external one, i.e. a dovish shift by ECB, or a striking indication of a global slowdown.

@IPA - well played. the easy trade for the week (although it didn't seem so easy at the time of entry) was to be short into Friday's expiration. Having succeeded with concept and execution, one now feels unwilling to bend over in front of a group of central bankers. Easier to sit tomorrow out, although a screamer in either direction in the morning of FOMC day almost always begs a fade.... still, sitting in the middle of a range doesn't inspire me - it's often the trades you don't make that assure preservation of capital. On a practical note, the widely forecast snowstorm tomorrow may take a bit of volume (and volatility) out of the market.

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March 21, 2018 at 4:29 AM ×

Thanks for the response. I don't doubt there are some good global catalysts that could send the dollar higher ( or bonds higher / fuel lower), but I'm not really sure off the top of my head what I would say it would be. I do know that the credit market signs scream to me that this is the trade to take, and the economic signs scream that a slowdown is happening, possibly much quicker than people will even realize.

I'm thinking my best bet may be to buy some june calls on $TMF while they're still cheap since I'm not confident on pinning down the timing on this in the near term.

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Leftback
admin
March 21, 2018 at 12:16 PM ×

Timing is always a problem, but I think we can say that "it" is closer now than it was in 2017… ;-)

Veterans of 2007-8 will remember that that whole collapse was preceded by an agonizingly long slow period where rates rose (head fake), oil screamed higher (head fake) and equities made a series of slow grinding tops (head fake) before the roof finally fell in. 2007 was the most difficult year in the sense that you knew it was going to happen but every single one of the most mindless people you know were making money in the most mindless ways possible… :-)

My approach here, FWIW, based on the lessons from the last recession, is to sit tight in the long bond, ignore the noise around the rates market in general, and at the same time take advantage of the noise and volatility in the equity market for some profitable ultra short-term trades. I do think a collapse in oil prices will happen once again, and that it will be accompanied by a USD rally and a mini credit crunch which will hasten the end-game for this bull market.

Are we going to see a leap in yields, a 5% US10y? In this low rate world? I think we all know that if anything like that happened, a yuuuge recession would follow about 5 minutes later and rates would boomerang back lower.

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Jim
admin
March 21, 2018 at 1:41 PM ×

Anyone notice what is going on with interbank loans?


https://twitter.com/jmanfreddi/status/976452871205146625

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Leftback
admin
March 21, 2018 at 2:17 PM ×

Also, never mind Facebook - has anyone looked at Deutsche Bank today?

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Leftback
admin
March 21, 2018 at 3:24 PM ×

Chart Watcher's delight: IWM has pretty much filled the opening Gap from Monday's Gap n Crap. So one could argue that we are kissing the top of the week's range here. Let's see where punters try to take this before we see the Dot Plot.

Mr Market is confused this morning. The bond traders are leaning towards a more hawkish Fed, while small cap equity traders are feeling the Dove Love. Someone is going to be wrong.

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Shawn
admin
March 21, 2018 at 3:33 PM ×

thanks for the head's up on DB.... 150mm impact from higher funding costs! wider spreads claim their first victim.

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Skr
admin
March 21, 2018 at 4:14 PM ×

@LB, And, and, and did James ever die in a movie....

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Skr
admin
March 21, 2018 at 4:46 PM ×

"." Sorry fogot the fourth....

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Unknown
admin
March 21, 2018 at 5:16 PM ×

LB, the problem with your collapse in oil thesis is that the odds favour a supply deficit. OPEC spare capacity is not all that, and the hint of a slowdown in shale will send oil sky high.

A more general market crap out could sink oil through demand destruction, but that's the same as just calling a market crap out.

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Skr
admin
March 21, 2018 at 5:30 PM ×

Four to be sure....

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Gus
admin
March 21, 2018 at 6:21 PM ×

Some quotes from those reporting on today's Fed:

It was a unanimous 8-0 vote today for Jerome Powell's first meeting as chairman, with no voting members of the FOMC dissenting from the decision to raise rates.

The Fed kept its outlook for three rate increases in 2018 intact but it now expects three increases next year, up from two.

A new addition to the Fed's policy statement: "The economic outlook has strengthened in recent months."

The Fed also sees the unemployment rate dipping down to 3.8% this year from the 3.9% projected in December.

The changes are an indication the Fed's economic outlook has strengthened in recent months, in part due to the effects of tax cuts and the recent budget deal reached in Congress.

Having battled weak inflation for years, Fed officials are gearing up for stronger price pressures, according to their March statement. Annual inflation "is expected to move up in coming months," the statement says, a change from the January statement which said inflation was expected to move up "this year." Inflation will likely stabilize around 2% "in the medium term," the statement reiterated.

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Nico G
admin
March 21, 2018 at 7:15 PM ×

LB

Deutsche going Babylon Berlin indeud. Been saying ad nauseam DB's the proxy for worldwide mismanagement of risk + fraud + greed + 'rig your book take the bonus now it will only blow up later' mentality of banks

and DB felt they 'had' to pay billions of bonus this year for the 2017 loss? The world goes upside down while the populace looks the other way. Unless and until we hang those banksters we deserve the banks / and the politicians they sponsor / we have.

I added 500 eurostoxx futures last months - i've never had a bigger short in my life - not even when trading delta at our hedge fund, not even when i ran a $10bn book on Italian equities (delta one)

this is the moment, my daughters will either starve or they'll go full Borromeo sisters. I know i sound like Amp but those are effin exciting times it's taken ages to see volatility back.

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IPA
admin
March 21, 2018 at 7:46 PM ×

Nico G, starving your kids for trading? Hide your kitchen knives :)

DB has a double top with a projected target of $12.

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Leftback
admin
March 21, 2018 at 9:23 PM ×

@Unknown: yeah, i have clearly been wrong/early/wrong on oil collapse, yet the evidence remains strong that there is a world wide supply glut and that demand isn't growing all that fast, especially from China. Sometimes the smaller commodity markets can look healthy and "balanced", when in actual fact it is revealed later that the last $5-10 or so (or in 2008, the last $50/bbl) merely represents the fact that speculators are massively net long with leverage, so that the appearance of demand outweighs the reality. A call to Mr Lloyd Blankfein, formerly of J Aron & co., would no doubt clear up any questions about the technical details. Crude oil isn't one of the largest bubbles we see around us today, but it will pop eventually along with the rest of them.

Today was largely a waste of time except for a few of the 5 minute macro types. It is worth noting that two members of the Fed are forecasting no further hikes this year. One is Kashkari, who is the other? Which one is the Brainard dot?

Dollar weakness resumed in earnest, one wonders what the market is telling us. Is EZ and UK growth, and tighter monetary policy really ahead of us? We have our doubts. Or is the FX market detecting future US weakness that has yet to become obvious? In any case, the enthusiasm for sterling in particular seems overdone to the point of irrational exuberance. Perhaps the big bump in oil prices was a factor there?

We expect another push from the bond bears this week, especially if there is anything like strong US data. OK, back to studying the IWM chart….

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Skr
admin
March 21, 2018 at 11:05 PM ×

@LB, check out ag's, much easier this weather

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IPA
admin
March 22, 2018 at 12:11 AM ×

On US dollar, if I may, I think players didn't hear anything too hawkish from Powell. It also didn't help the dollar bulls that he is surprised by the lack of wage inflation. You know what he is looking for to become hawkish (if he even can, because I think he is Yellen in pants), which is nothing new. If DXY goes below 89 it will fall through the recent low and will then be targeting 84, imho.

On IWM. It looks healthier than SPX and DJI here. I am not sure it's the best short here unless you are thinking that small caps are the last to rally, sort of the last bubble to pop before it all goes into the shitter. One may need to be careful shorting equities here at all, earnings are coming fast and with Fed out of the way, unless we get really crappy data. or the Apprentice boardroom coup results in the last original cabinet member friendly to Wall Street in that room, Munchkin, resigning (highly unlikely and so impossible to predict, and cannot be a trading strategy, besides, Kudlow, the free-market guy, is there now to dilute Navarro), the bulls may be back in charge to try and push to new highs. Not sure SPX and DJI can, but Naz and RUT should probably be there soon. Don't wanna short new highs.

Last trade war rumblings to be heard tomorrow for a while? China retaliation more symbolic and futile in nature? Use it to get long SPX at s/t double bottom? I will try and trade the range between 2700 and 2800. Buy the dips and sell the rips. #kiss

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Unknown
admin
March 22, 2018 at 9:30 AM ×

Isn’t this all just a function of the weak dollar? As money leaves the US for the next game in town (EU) US assets will get more and more offered. We’ve seen this on roids in em a few years ago, it looks like it’s gathering pace and the final 1/4 is by far the most brutal. Tech/momentum, will be particularly susceptible (ie down 60-80, vs market down 25-50).

On oil, LB, don’t flagellate too hard, you’ve been right in the past, but your point about demand today is not currently borne out by the evidence. Inventories have plummeted, opec are holding back just c1mm (thanks Venz!), demand is outstripping forecasts. Next year is somewhat finely balanced but the better arguments do seem to be oil deficit not surplus, and key is shale - if it slows oil wil crack up.

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Annie Joe
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March 22, 2018 at 1:12 PM ×

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March 22, 2018 at 1:14 PM ×

Lower lows are a bird. Money in my pocket , hidden betting accounts , and me on the run through SEA is bird too! I'll see you guys on tor trading account from some island that doesn't register on your VPN.

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checkmate
admin
March 22, 2018 at 1:21 PM ×

Backing out to a medium term 5 year timeframe looking at weekly bars it's clear price as made new lows ,but the old technicals are making higher lows. The pump and dump followed from new highs at the end of '17 and have now been dumping for 1 year and 1 quarter which is actually a nice length of time for a flush. Thinking mean reversion I'd rather be long DXY at this level with these technical rather than short. So what would be the hindsight catalyst that would turn that into a winning position?

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Leftback
admin
March 22, 2018 at 2:39 PM ×

IPA is on fire at the moment with the short-term reads, yeah, this feels like a range trade for now. I saw the entry point yesterday afternoon but didn't pull the trigger, same again this morning, just wasn't quite in synch. Right now looking at the SPX 2670-2678 area as a support zone (2672 is the lower Bolly band). Below that it is another drop to the Mar 2 level of 2650ish.

Proponents of an imminent Deep Plunge will no doubt point to another ugly trading day for DB, arguably Europe's most (systemically) important stock.

Are there any other sterling skeptics out there? I cannot see T-May as the UK's economic savior, nor do I have faith in the concept that Carney is able to turn hawkish - or indeed anything, other than a more dovish version of Yellen. Usually when I feel a FX pair is already extremely overvalued it zooms another 2-3% on short squeezes and mono trading, before it finally craps out.

Eventually sterling is going to get a good *pounding :-)

[*Bad puns are a Macro Man blog staple since its inception.]

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Leftback
admin
March 22, 2018 at 2:55 PM ×

Trade wars and tariff sound bites may get the spotlight today, but rising LIBOR is having an impact on bank credit, here and in Europe. The renewed plunge in DB stock continues, now making a 1-year low in dollar and Euro terms, heading down towards the 2016 lows. RBS, Barclays, CS - they are all having a bad hair day.

Long bond shorts are receiving a mild roasting this morning. If 10s dips below 2.80% there will be additional pain for travelers on that crowded train.

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Leftback
admin
March 22, 2018 at 2:59 PM ×

This market is starting to do "sell the rumor, buy the news",

- which, just like "sell the rips" is a bear market dynamic.

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March 22, 2018 at 3:33 PM ×

SPX breaking through a lot of resistance today. Broke through 100 day MA, broke through trendlines, and now trying to break through long-term bottom trendline to see if it can hit the 200 day MA again.

I'm most interested in watching 10 year yields right now as they approach 2.8, which is a resistance line there. Could potentially be quite an unwind if it goes past that as shorts cover.


Glad I bought calls on $TMF the other day, already made a ton of money on those.

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Skr
admin
March 22, 2018 at 3:39 PM ×

@LB, your welcome ;)

The Gauntlett was /has been thrown down a few times now, (always well flagged in advance) it is a bit disappointing from our resident micro day trader. (foot on chest of the deceased).

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Leftback
admin
March 22, 2018 at 4:17 PM ×

VIX may well have topped out for the day at 22.70, we might start to see serious dip buying and vol selling, probably only after the Trumpet has sounded.

Fear of the Unknown.... we may see this more often, due to the unpredictable nature of POTUS and his unnerving habit of making statements during trading hours. Inclined to Fade the Fear here, just in the short term.

After a face-ripping late day rally, we can surely expect to hear (ex post facto) from our 12 y-o colleagues, who are it seems otherwise engaged at present. However, we are sure that they are "winning" :-)

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Skr
admin
March 22, 2018 at 6:02 PM ×

Checkmate,not much of a chartist myself, but I always ask the question which way is the market trending? Some could view this as a consolidation bottom,but catching knives is a foolhardy. Best wait for the retest after the breakout, to be sure. Definitely worth watching.

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Nico G
admin
March 22, 2018 at 7:42 PM ×

Folks are really slow to realise Powell has fired the entire PPT this could be a very ugly close

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March 22, 2018 at 7:48 PM ×

Traders, there has never been a more willing time in this market since I've been blogging about it that the market experts and political elite want amps the trader to become part of history. Believe me. If not believe the birds. Nothing vs history is the sub-optimal game here folks.

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Skr
admin
March 22, 2018 at 8:04 PM ×

Whom is sub-optimal? The Man or the person that voted for the the Man

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March 22, 2018 at 8:12 PM ×

Did you hear that sp500 just flush out. That was the sound of all your future winners pouring down the fucking drain.

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Leftback
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March 22, 2018 at 8:18 PM ×

Nico and Amps are right. That was indeed a fairly ugly close. This is looking more bearish by the day, complete with the post-3pm margin call slide. Even the small cap ETF puked after 3 o'clock.

No sign of the chirpy 12 y-o Dip Buyers. This here is No Country for Young Men, punk. This is gnarly old seasoned trader land - you're in Sell The Rips territory now. Yep, this is what the beginning of a bear market looks like, son. You ain't seen nothing yet.

The media is spinning this as a reaction to tariffs, but in the background there is a growing problem with corporate credit as IG spreads are blowing out. Banks traded horribly in Europe today.

Mr Bond was in demand for most of the day. At some point we will see the Treasury shorts get the Edward II treatment and when punters run for the exits even the much-maligned dollar will rally strongly. Not just yet.

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Skr
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March 22, 2018 at 8:52 PM ×

I'd rather wear away than rust away.

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johno
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March 22, 2018 at 8:57 PM ×

Powell is a pragmatist. The upgrade to dots yesterday was totally to-be-expected. Not unexpectedly, you got a washout of everyone who wanted to read something unexpected into Powell's remarks and sold USD yesterday afternoon. My guess is today's stock selloff had to do with the sharp decline in European and Japanese PMIs. The levels themselves aren't problematic, but the pace probably means markets will need to see them start stabilizing in the next releases.

I don't know how companies implement their buybacks, but if I were a CEO, I'd tell whoever buys for me to not buy a single share the day Trump announces tariffs. Collectively, corporates could help send a message that way. Not sure that explains anything today. Just a hair-brained thought. The tariff news itself wasn't worse than anyone paying attention to headlines the last few days was expecting.

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March 22, 2018 at 10:45 PM ×


Lefty that was an ugly end. Overhead at the trading table.

Arky; " I will faarkin splaash the pot aaaanytime I feeel liiike "



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johno
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March 23, 2018 at 3:10 PM ×

LB, re GBP, I think if it's going to move higher, it's going to move higher now. I'm short EURGBP. You've got a transition deal done and a hike coming up. Near-term I'm probably most worried about a downdraft in risk markets hitting it .. GBP is a global reflation trade proxy given its dependence on the income account.

EURSEK got back to fade-able levels, IMO.

Pretty impressive that EURCHF hangs in here at 1.17. Consider 30Y yield spread to Europe going wrong way, League is talking to 5-Star, European PMI's coming off hard, risk-off, JPY is rallying ... and yet, here we are. Still long some EURCHF in options ...




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Skr
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March 23, 2018 at 4:53 PM ×

How we doing Shawn? Don't know what we are going to talk about next week, but 'a posteriori' seem apt.

Tips hat.

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Leftback
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March 23, 2018 at 7:06 PM ×

@12 y-o HFM, and @BuyStocks:

Dude. There's a call for you? It's Mr Margin, he says it's urgent.

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Leftback
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March 23, 2018 at 7:43 PM ×

Hmm… and the winner is scenario (b): the late day puke, it is a hallmark of bear markets. Some punters will never have experienced a bear market in their investing lives. A little bear market experience can save a lot of capital.

Look and learn, young ‘uns, look and learn. SPX 2585 is coming into view. Mr Market loves to stop at the 200 DMA, but if he knifes through that support things will turn very ugly indeed.

Another hallmark of bear markets, btw, is the 3% up day, the eye-watering face-ripping squeeze. Yes, the rip-snorter, aka the escape rally. When it arrives, it is almost a confirmation that the Bear is here. Stay tuned.

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Anonymous
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March 23, 2018 at 7:47 PM ×

So, how is everybody doing?

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Skr
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March 23, 2018 at 7:49 PM ×

Open Market lads for the new best comic handle

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IPA
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March 23, 2018 at 7:59 PM ×

@Scarlet Brand, nice call on SPX 200 dsma target.

@LB, I would not mind trading the up 3% day.

@Skr, as always, hilarious!

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Cbus20122
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March 23, 2018 at 8:08 PM × This comment has been removed by the author.
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johno
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March 23, 2018 at 8:08 PM ×

I'm sure when we do get a bear market, "Sell Stocks" will be chiding us all for not being limit short.

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Cbus20122
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March 23, 2018 at 8:09 PM ×

This is scarlet brand from earlier (didn't have a blogger account, so was just using that old handle from way back).

Welp, Monday is going to be super interesting, and similarly hard to predict.

Just as I figured, SPX hit the 200 day MA. The difference here is that it ended the day on the MA instead of bouncing mid-day like it did before. That leads to some really interesting scenarios come Monday for gap downs or gap-ups.

A break below the 200 day MA would entail another significant move downward, while a bounce off it would likely mean the end of the current phase of weakness. I tend to be more bearish right now even as we have already dropped a good bit. With that said, I don't think it'll be easy to predict one way or another.

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Skr
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March 23, 2018 at 8:12 PM ×

@IPA not me. Lost the coupon, actually none of us had it.

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Leftback
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March 23, 2018 at 8:20 PM ×

@IPA: Agreed, I think the Squeeze cometh. I'll take "Ripsnorters" for 500 on Monday, please Alex!! :-)

@Scarlet [and @Macro Man himself]: nice one! Didn't see spoos plunging all the way to 200DMA this week.

@Skr: Droll.

The VIX hit 26, that's probably a massive invitation for certain institutions to come in on Monday morning and sell vol, which always gets the futures rocketing well before the market open. If and when that does start to move it will gather enough momentum to go all the way to the Easter egg roll. Targets for a retrace from here: SPY 268 and 272, but after that it's Sell The Rips again. Watch for the 3% Faceripper if it happens, as it is absolutely diagnostic for bear markets.

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Nico G
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March 23, 2018 at 11:20 PM ×

my pronostic:

Globex limit down Sunday night.

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Gus
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March 23, 2018 at 11:47 PM ×

Nico ... and here I was going to offer the prognostic that on Monday we were going to go down and kiss the 200MA, create the classic double-bottom with the early-February event, and proceed directly into a furious Bolton Rally well into April. LOL

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IPA
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March 24, 2018 at 1:55 AM ×

I think we just have a beautiful 300-350 point SPX range to trade for quite a while. In other words - trader heaven. Pick the correct side and you may make your annual income in the next two months. Just don't be stubborn and be ready to go both ways often. Not advocating day trading but swing trades are going to be sweet here, I think. It is way too early to call this a bear market. US econodata came in pretty good this week, even housing has rebounded nicely. Let's not get carried away, while some s/t charts look ugly the l/t picture is very good still.

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March 24, 2018 at 3:58 AM ×

Personally, I think there is a chance we have topped, but won't see any major down-moves until much later in the year. At the very least, I don't expect a ton of super negative things from the USA until credit markets deteriorate further, which I think is only a matter of time.

Now, abroad, that may be a different story altogether. But overall, I personally think we're in roughly July 2007, or January 2000 in terms of timing. IE, we may trade sideways for a few months, then start to head south a bit more before a much more dramatic drop occurs once the realization of what is really going on occurs.

IF you were to weigh the headwinds vs. the tailwinds, the headwinds are about 10x stronger than tailwinds progressing into this year. I just do not see where the incremental growth will come from. The only thing I see that would send markets noticeably higher would be a completely irrational blowoff top rally (not out of the realm of possibility, but unlikely given our political climate), or another huge boost of worldwide QE (which I think will only happen if shit really hits the fan, and at that point, it will probably be too late).

In short, where is the bull case going to come from? Where is incremental growth going to come from, especially when facing down comps from 2017's incredible year of growth?


With that said, we're in a transition stage, and bull markets don't die slowly (contrary to popular belief). I don't think we'll see any major market drops into bear territory until the unemployment trend noticable shifts, or profitability tanks.

With that said, I tend to think political uncertainty may accelerate things quite a bit faster as it already has done so.

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checkmate
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March 24, 2018 at 8:57 AM ×

Housing is a lagging indicator just like employment. Save yourselves a lot of wasted time and just watch the credit markets.

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IPA
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March 24, 2018 at 12:13 PM ×

@Checkmate, I didn't say anything about employment. But building permits are just about as leading as the credit markets. Let's check the facts (no pun intended).

https://www.conference-board.org/data/bci/index.cfm?id=2160#BCI29

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checkmate
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March 24, 2018 at 1:58 PM ×

Ok, we disagree. I have never found builders to be particularly prescient and that sinks my view on permits. That is at odds of course with your link. However, don't mind me if I just rely on my own experience of such matters dating right back into the early '70's which is when I first got commercially interested in property. In that defence, I would just point back to say 2005/7 when the market had a terrific overhang of supply that was still in effect long after it would have been any use to anyone in trying to sidestep the trainwreck that was coming. Not particularly forward looking was it ? That wasn't an isolated event either. It's pretty typical of what happens cyclically in that sector.

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March 24, 2018 at 2:29 PM ×

Checkmate...did you mention 2005?

Oh..mate. Can you me help out. I know your going through a rough period. We all have'em let me tell you. But mate....since 2005 I have been in the nick, on the street and still with one leg on the street. And in all that time (mostly in the nick) since 2005 I have been wearing your f##### name (target) on my back. You reckon you could throw us bone?

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IPA
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March 24, 2018 at 4:22 PM ×

@Checkmate, with all due respect, let's stick to the facts. Chart below depicts quite the contrary to your statement. Here is SPX overlayed with building permits and housing starts for the time you so keenly concentrated on. Perscient enough...

https://www.tradingview.com/x/siR7qlMS/

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Gus
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March 24, 2018 at 8:09 PM ×

Somebody who used to frequent this joint asked yesterday: "OK, who wants to be the first one to talk up the chances of a "Black Monday" where we gap below support and keep going?" I think Nico gets the honor?

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March 25, 2018 at 12:01 AM ×

It seems to me that a sudden rally on Monday followed by a slow weeklong sell-off would inflict the most pain on recent market entrants that bought right after the 10% dip. After selling on Friday, they’d jump on the rally throughout the day, then get left holding the bag as the market sold off for the rest of the week.

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IPA
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March 25, 2018 at 6:13 AM ×

So since nobody threw this scenario in, I'll go ahead and introduce it: by the time cash market opens at 9:30am ET it'll be squeezing shorties hard and it'll contunue to rally into the end of the day and the week for that matter. Pullback levels to buy? I dunno yet, depends on how things unfold, but I say it'll be hard to buy on Monday if you are looking for a pullback. Maybe Tue or Wed but probably not as much as one would hope. So my plan is to buy some weakness at globex open into Asian open, i.e before midnight and add as (and only if) it goes my way.

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IPA
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March 25, 2018 at 6:30 AM ×

Actually, need to clarify, @LB and @Great Unknown said Monday rally and @Gus said rally into April, but I don't think anyone said rally on Monday open then continues into the end of the week. I think with month and quarter end (coupled with holiday shortened week) it's window dressing and fomo time.

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checkmate
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March 25, 2018 at 1:08 PM ×

IPA,
Your chart is unequivocally convincing for the US market. In my defence ,and sticking to the 'facts', I know we will not find the same reflected in the UK market which is where my experience has been gained.
The link;
https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building

Not until 2008 did the building Industry start building less units which of course was way too late to be of any use to us as investors.
I know the building sector in the US was leading the UK by at least 18 months going into the cyclic peak so yes perhaps you have something ,or perhaps you have a coincidence in the sense the last cycle was distinctly different in terms of the financial underpinnings. I'm actually not sure which of those conclusions apply. If you have the desire to ,then I for one would be very interested to see how the chart looked going back much further in time so that it embraced prior cycles if that is the information is available.

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JohnL
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March 25, 2018 at 3:54 PM ×

After watching the protesters on the news last night, I realized that we may have reached a hinge in history, a turning of the generational page, if you like.
We could be witnessing the awakening of the Millennial generation, in a similar fashion to the awakening of the Baby Boomer generation in the 60's.
If this is true we should have some interesting times ahead of us. We have a generation here that could be classified as the anti-consumer, almost. They don't like debt, don't drive or buy houses, have a heightened environmental consciousness and are a larger cohort then the boomers.
As they realize their full political potential they will be an amazing force to be recked with as the boomers were.
This should lead to a change in long term investment themes. Everyone (that's a generalization) seems to be hyperventilating about tech being the thing, that's an 18yr old story. The Millennials are the thing and they may have tech as a component but there's so much more.
Exciting times!

I'll take the under on the Monday open and look for a rebound. STR may be the theme for a bit.

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March 25, 2018 at 4:55 PM ×

Millenials aren't buying homes for a few reasons, but it needs to be mentioned that one of those main reasons is simply that many millenials can't afford to buy a home, therefore they rent.

This is a primary component of my bear thesis in the USA. As a millenial, it's pretty much a way of life to accept being completely straddled by student loans and rent to the point where it's impossible to make much headway towards saving the proper down payment to purchase a home. This is especially futile difficult on the coasts and big cities where rent and real estate prices are incredibly high.

As I've mentioned earlier, the fact that so many millenials are renting now is skewing a lot of the consumer debt statistics since this is transferring the household debt ownership from the consumer to the landlord.

With that said, I do feel there is a lot to be proud of in my generation. And for any boomers on here who want to comment on us, all I will say is that we are the product of being raised by boomers for better or worse.

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JohnL
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March 25, 2018 at 6:50 PM ×

Scarlett Brand, I'm a boomer. Last year of or out by a year, depending how you measure it. My kids are millennial's.
I wasn't being sarcastic when I said these are excited times. Look back at the 60's when the boomers were doing the same thing and the changes that where rendered from it.
I'm not saying that there aren't going to be difficult's along the way. I am saying that when we brush the political issues away and watch the underlying changes that are happening it's amazing and full of opportunities for those that are paying attention.

Cheers

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March 25, 2018 at 7:38 PM ×

IPA, I hadn’t considered the “end of quarter” effect. I do definitely suspect that a strong gap up/rally followed by a brief pullback is in our future. Hard to say whether it will all happen over the course of one week or take a bit longer.

In any event, I do expect to see a return of Buy Stocks (assuming he wasn’t wiped out).

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Gus
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March 25, 2018 at 8:13 PM ×

Let's not forget that millenials and Gen-Xers will be inheriting 20-40 TRILLION dollars over the next couple of decades or so ... some refer to it as the greatest wealth transfer in human history. A nice hyperbole.

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IPA
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March 25, 2018 at 9:18 PM ×

@Checkmate, makes sense now, we were discussing different markets. I agree with you, it is not always that easy to predict the downturn and previous cycle may not (and usually does not) look like the next. Also agree on myriad of underpinnings and culprits of troughs and peaks. So we agree on a lot of things. This being said, I did put together a quick chart going back to mid-60s, and building permits and housing starts always predicted an economic downturn, and quite in advance too (with exception of dot-com bust when Papa Greenspan worked his black magic). I have them in my toolbox as one of the most sensetive US economic indicatiors, with trend reversal being the most useful.

https://fred.stlouisfed.org/graph/fredgraph.png?g=jcOK

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checkmate
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March 26, 2018 at 12:49 AM ×

Very interesting data on the US housing market.Surprises me really because for sure my experience of the UK market is that our builders are always at the party for too long and I had really thought that would hold true virtually everywhere including the US. Apparently not though looking at your data. The other very noticeable issue for the latest cycle is just how low it is in volume terms compared to the past.

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IPA
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March 26, 2018 at 4:33 AM ×

@Shawn, WSJ had this piece on LIBOR on Fri. Catching up on my reading ;) You probably already read it. This link breaks the gate for those who have no WSJ subscription:

https://twitter.com/valuewalk/status/977224101759799298

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Shawn
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March 26, 2018 at 5:32 AM ×

ha, yeah I read it...alluded to it in the piece I just posted. It's compelling theory but I'm not understanding it fully just reading the wsj article.

for the love of pete will someone please send me the CS piece??!

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