Special Guest Post: PG&E's Risk Management Fail



There’s a saying that goes “mistakes are the tuition of learning”. The PG&E case in California is rife with risk management lessons where we can learn from the mistakes of others while they pick up the tab.

A big story in the financial news lately is the significant liabilities incurred by Pacific Gas and Electric or PG&E, the biggest electric company in California. The company’s core business is to generate and distribute electricity, and as a part of that business, they maintain the power lines that connect the power grid.

Government authorities have concluded that many of the fires that ravaged California over the past two years have been the result of power lines falling into trees, and California law finds PG&E liable for any costs related to fires where power lines were at fault. Matt Levine, a man so cynical and sarcastic he makes me look downright kind and forgiving,  crushes the capital structure story.  Levine brilliantly points out that there weren't any secrets here....only a massive unfunded liability that had PG&E whistling past the graveyard for years...and certainly throughout 2018. 

PG&E is, for all intents and purposes, bankrupt. How did a regulated utility get to that point so quickly? What were the warning flags? Was there a trade here? 

Let’s take a look at how a macro trader might have thought about the risk in PG&E stock.

Here is the stock chart back to 2004. In early 2017, you were probably feeling pretty good. Nice run higher. No big surprises. The dividend has been increased consistently over the past two years and credit ratings has been raised.

PG&E Stock Price, 2004-2018

Source: Bloomberg
  
Then in early 2017 a fire in northern California burned 36,000 acres and destroyed 5600 structures, including 2800 homes and killed 22 people.  The stock fell precipitously. The 1 week fall in the stock price was somewhat similar to what happened in the financial crisis.  

As a macro trader, how did you price fire risk before and after the 2017 fires? 

Did you have this quote in your back pocket as the risk manager? ““California law makes utilities responsible for any fire started by their equipment, even if they weren’t negligent.”   If you did, you might have forecasted a big loss, bigger than any drawdown in recent history--and certainly bigger than the PG&E liquid balance sheet-- based on the damage estimates of fires in recent history.

But as Donald Rumsfeld taught us, there are "known knowns" and unknown knowns, In 2017 the game changed….PG&E fire risk was a "known known".  Ben Hunt at Epsilon Theory might say fire risk at PG&E in 2018 was public knowledge, but not *common knowledge*. The balance sheet tightened and politicians started to circle the company. While there was an effort to protect the company from further extreme liabilities by allowing them to pass costs from these liabilities onto ratepayers, the latest round of fires in 2018 that were even more severe in terms of acreage, homes and lives lost, put the company in even greater peril. Now bankruptcy is on the table.

When the November 2018 Camp Fire destroyed about 10,000 structures, about 100 people and wiped an entire town of 20,000 people off the map, PG&E was finished. But even then, it took a while before common knowledge caught up. 

Yet those looking for how this risk was priced could have also used credit markets to illustrate this increasing risk…below I have a chart of PG&E’s credit risk in 5 year credit default swaps (CDS).  Note how throughout 2018 credit risk was increasing (a higher or wider CDS spread reflects an increasing risk of default), even before the Camp Fire  Bottom line, bond markets sniffed this out while equity markets pushed the stock 9% higher in 2018 before the fire on November 8.
  

PG&E 5y CDS

Source: Bloomberg

Do you think it was a coincidence that PG&E management did little to recapitalize the balance sheet for fire liabilities or commit to an extreme and fast maintenance fix when they couldn't pass the costs on to tax payers? Which means....it would have been at the cost of the stock price, their bonuses, stock options and probably jobs? 

PG&E management and stockholders clearly dramatically underestimated the costs and liabilities attached to fire risk. Some was willful, some was stupidly optimistic, and some was no doubt simply a combination of unlucky and ignorant. The fires had incredible human costs. It will also go down as a case study in capital structure, management incentives, and the value of macro analysis that identifies incentives and opportunities across asset classes. 


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Moniker
admin
January 16, 2019 at 1:35 AM ×

Hallelujah! A new thread!

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Eddie
admin
January 16, 2019 at 8:02 AM ×

Stupid question: when I read about cables on wooden poles I think this is an accident waiting to happen. Why can't those guys dig some nice trenches and bury their cables like most other countries do?

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Nico G
admin
January 16, 2019 at 8:23 AM ×

American capitalism at its finest

friends, i have just finished a (French) documentary on who Xi Jinping REALLY is

https://www.youtube.com/watch?v=ow_tQQzukfQ&t=184s

anyone investing or speculating on world capital markets today should grab a book or a similar thorough analysis of the Chinese leader for life. There you get the confirmation of personal gut feeling all along: the trade war will NEVER be solved and we are going for a very nasty cold war

they say it takes seven Jews to make one Greek well - it would take the whole Greek population to make one Xi Jinping then

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checkmate
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January 16, 2019 at 8:44 AM ×

PG&E or Carillion ,same old story of management ethics, or lack thereof.

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Skr
admin
January 16, 2019 at 11:05 AM ×

Now look at what you have gone and started Shawn - Gundlach gone "common knowledge" on Inflation!
Please leave a spare key under the flower-pot if your not hanging with us anymore?

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Shawn
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January 16, 2019 at 3:56 PM ×

@Eddie...it costs 10x as much to bury electric lines vs. putting them on poles. PG&E management chose to run that risk rather than paying that cost in high fire-risk areas.

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Shawn
admin
January 16, 2019 at 3:59 PM ×

@skr...I must say I am impressed with the TMM community. you don't let a little thing like a lack of content keep you down.

Re: Gundlach...did you catch Kashkari trolling him on his deflationary management fees? Genius.

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Anonymous
admin
January 16, 2019 at 4:41 PM ×

Interesting article. I assumed that other utility companies in CA would likely face the same legal risk. For example, PacifiCorp owned by Buffet. Now, Berkshire Hathaway has a very deep pocket and seemed that its stock price did not react to the legal trouble faced by PG&E.

My question is, given PG&E going chapter 11, would those people go after Berkshire Hathaway in court because PacifiCorp's electric lines could be the reason of fires as well and it has boatload of cash? I would assume that cash cow like Berkshire Hathaway would be the dream target for trial lawyers.

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Nico G
admin
January 16, 2019 at 10:09 PM ×

https://www.cnn.com/2019/01/14/investing/china-foreign-direct-investment/index.html

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Cbus20122
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January 16, 2019 at 10:29 PM ×

Good post. While PG&E is clearly a unique case, I kind of wonder if we're overlooking its significance on markets. PG&E was not a small company, and that is a very significant amount of market cap wiped out, larger than Bear Stearns. Given, we likely won't have the layoffs associated here since someone will still need to keep the power on, but I'm a bit surprised this isn't getting more attention.

On a side note, we're looking at a reversal here. Vix starting to rebound after showing signs of trend exhaustion here. The sectors that led us lower in October are also starting to peter out and reverse (semi's, homebuilders, autos, etc). Many of the other big trending stocks in this rally also have ran out of "oomph" very much. Do we hit new lows? I have no clue, I think we'll retest, but that's going to be dependent on earnings and the reaction to earnings. I'm flipped fully bearish right now, will be looking to flip towards being market neutral after a decent drawdown here. I'm sure if we're like other times, I will be too early as I normally am but I haven't been wrong much in the bigger picture calls I've made here.

I mentioned it before, but if you were to track market analogs since the start of the October selloff, we are tracking the GFC analog extremely closely. If we were to keep following that analog, that means we would reach marginally lower lows then rally over the spring and early summer into a penultimate crash in the autumn. Analogs of course never work like they should, but it's interesting how close it's been tracking the GFC playbook so far.

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Cbus20122
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January 16, 2019 at 10:39 PM ×

On a side note, something that is a bit frightening to me is taking a look at Europe's unemployment numbers, and crossing that against the economic slowdown data. For a region that is economically on the brink of recessionary numbers as of right now, you would think that we would be seeing worse unemployment trends and such.

Low unemployment is always tossed out as a positive for any economy, but I actually view it the opposite, especially when it starts to trend upwards. Low unemployment means there is a lot of room to the downside in general and not as much room to the upside. While it's too early for confirmation, I'm starting to see euro unemployment data start to trend upward, and once that gets going, there are very few more powerful feedback loops in macroeconomics than this.

So what is scary about this? We've already dropped over 25% in most European indexes, we're already on the brink of recessionary data there, and we haven't even started to see the real scary part of an economic slowdown take hold. The fact that the data there is this bad despite us being in the early innings of this potential slowdown means this could be a rather dire situation in Europe to me. If we start getting trending unemployment (which I think is only a matter of time) this can get really ugly as there is still a ton of room for extra downside. I'm sorry @LB, I get your thesis on some of the euro companies on a value basis, but I think you need to look long and hard at the fact that the "e" in any p/e over there still has a lot of room to drop off a cliff.

Just my 2 cents. There will be values and rallies in the short and intermediate term in Europe, but long term, unless we get a big reversal in the economic stuff there very soon, I'm worried about the negative feedback loops that lead into recession taking over and preventing any reversal.

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Leftback
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January 17, 2019 at 2:08 PM ×

Thanks for the post Shawn. Yes, another triumph for American capitalism as the entire C-suite of PE&G gets to walk with massive severance and a lot of shareholders get wiped out. Seriously though, as Shawn points out, if you had a brain you would never have touched it with a utility pole. A sad story - for everyone except the execs, who will no doubt resurface in some other cesspit of corporate malgovernance. We will see ripple effects from this somewhere in someone's results.

@Cbus: Thanks for the warnings about Europe, where we are long a small bite. Watching and waiting. The retest idea remains consensus [he typed, grinning widely].

A few random thoughts, including what we are looking at today:

1) We told you not to short after Boxing Day!!! (You didn't, did you?) ;-)
2) Today looks like Trading 101 - a pullback to support at SPX 2600, Brent 60.
3) MS FICC revenue was especially bad - they have a history of bad rates calls, well done again guys.
4) Global central banks have not been tightening in January
5) PBoC look like they are all-in here.
6) Brexit deal vote didn't move markets.
7) No confidence T-May vote didn't move markets.

Look, there is no doubt that bad things may happen later on this year. At the moment it looks as though vol selling is back, former resistance (SPX 2600, Brent $60) is now support, and central banks are either neutral or actively supporting liquidity conditions for the time being. [Yes, I know that's not what they are supposed to be doing, but the data say that they are.] This isn't a complex trade: you stay long - unless 2600 breaks decisively and central banks turn hawkish - and then you sell.

Quote of the day from a guy interviewed on BBG: "Davos is the family reunion of the people who broke the world…"

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Cbus20122
admin
January 17, 2019 at 3:04 PM ×

@LB, decent chance we may test the 2650 level it looks like, but we'll see. Either way, I'm happy to be on the other side of people going long right now. Not sure if we fully dip to retest the christmas lows, but I 100% think we will dip.

As I've said as far back as late November however, it's all about earnings (obviously). Any bets on direction and levels is just a bet on how bad or good earnings may or may not be. If earnings collectively suck, then we will probably get new lows in they're "okay" we'll probably get a dip into a higher low. Surprise to the upside and we get your scenario in my opinion.

On another note, an interesting thing we're seeing in trade data, specifically from China right now is after-effects of what happens when companies front-run tariffs. The front-running actually provided a positive wave of output. But since that output was just being pulled from the future, we're now getting the trough of that wave, which is why we're getting really bad trade data from China. I know a few people who work in metals purchasing, and they were telling me about this back in early autumn. I somewhat imagine we'll level out here in the future from the trough we are entering into, but we will see.

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IPA
admin
January 17, 2019 at 8:28 PM ×

@Shawn, thanks for throwing us a lifeline via the new post, as we were drifting in the middle of the ocean on a cutting board after a collision with a 495-comment high iceberg. It was starting to get a bit dicey here indeed.

As expected, WTI is building a handle for the cup. Just pull up the charts to see that I have not lost my mind and this is not a cooking blog. I still think that a deeper handle down to $46-48 zone is necessary in order for a full cup distance to be projected on the way up. In layman's terms: potentially a $15-17 rally from the low of the handle would occur. Unthinkable...right?

Speaking of unthinkable... In hindsight, everyone is a genius. PCG short interest and short volume prior to the plunge were minuscule. As @Shawn correctly pointed out in his original post, except for a few bright minds in the bond market, the equity investors were mostly blind as a bat. Now, after the debacle, myriad of long articles are being written on the culprit and how blatant it was to so many that the stock was uninvestable. But really...the largest power generation, transmission and distribution company in the fifth-largest economy in the world is not supposed to crash and burn (no pun intended) so easily in a matter of a few months. So it's not that hard to see why notoriously a stock market safety play, a mundane large utility company, a dividend-generating machine, a go-to easy pitch in the passive money preservation and income scheme of mutual and pension funds world of peddling boring crap to widows and orphans, PCG stunningly became another SVXY - a toxic waste lying dormant in small investors' retirement accounts. BOOM!
Consequences? Little to none - a few pension fund managers slapped on a wrist, protracted widely-publicized legal battle by insurance co's and institutional investors to claw back c-suite's golden handshakes (perhaps even resulting in congressional investigation, criminal lawsuits and minor incarcerations), but mostly a loss of faith in the American corporate system and stock market by those in whose retirement accounts this piece of garbage was stuffed, but then quickly forgotten by the same people who will wake up one day to see their accounts fully recover as a result of yet another new high on SPX. The mind-numbing and sadly ironic fact is that PG&E was already bankrupt (albeit for different reasons) earlier in this young century and emerged out of it short 15 yrs ago. Memory loss is what this stock market rests on, stock prices don't move between bid and ask, they move between fear and greed.

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Nico G
admin
January 17, 2019 at 9:17 PM ×

we have two options of market dynamics/timing this year:

à la 2008

after January hard down impulse to 1250 (Kerviel, etc) market retraced back up to 1430 in ... May

this is how long media pundits can push the idea that the bull is still alive. They dissed January as a mere blip the same way they currently want you to forget last December

à la 2016

after January hard down market both retraced 50% and retested the 1830 low fairly quickly

Have you noticed how both SocGen and BNP Paribas - the biggest casinos in France - want to close their trading desk after... a quick 20% down in the markets?

this is how fragile our situation is folks... an economy that cannot support 2.5% rates... trading desks and hedgies that cannot support a quick 20% down

a house of cards made of rolling paper


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Leftback
admin
January 17, 2019 at 9:40 PM ×

@IPA:" stock prices don't move between bid and ask, they move between fear and greed." Splendid, and we like the cup and handle for WTI as well.

Yes!! The thing is, CNN Fear and Greed is now at 44, which still represents mild "FEAR". LB was lucky enough to go Full Retard, i.e. Max Long (well, 60% equities which is Max Long for us) around the trough in December (F&G index was 2), and we are just staying put for the time being. This is easy-peasy trading now, just imagine SPX 2600 is your stop and play off that for now, with SPX 2740 as the likely target. If you ask me, which some of you sometimes do, we would not be pushing our luck very much above 2700 - but see the check list below.

This rally off the V-bottom isn't going to end (and it will) until:

1) People stop calling for a re-test and call it a V-bottom
2) Fear/Greed index swings well back into the Greed or Extreme Greed zone.
3) RSIs >70, perhaps as high as 80
4) A couple more "obvious" consensus resistance levels are cleared out
5) Bear market declared dead, correction over.
6) US10y back to 3.00% or above
7) Positive trade talk resolution
8) Vol selling retail punter infestation returns
9) Powell reprises his hawkish tendencies

After all of the above are satisfied (and this could take us as high as SPX 2800-2900, because markets do this kind of thing), then we will probably see a reversal, a failure of SPX 2600 support, and then over the summer, the whole bear wet dream, the whole enchilada - re-test, plunging yields and all the rest of it..... but this may not even begin until late Spring.

OK, Scenario A - EVERYONE expects February to be rough b/c of balance sheet reduction (leading to the INEVITABLE retest), but it may be counteracted by Chinese stimulus measures, solid retail data, improving trade war conditions and by signs of recovery in earnings projections. My extended bear markets rally scenario is definitely Scenario B, but as always - Price is News - we'll get clear indications for the consensus scenario, and if those don't materialize then Scenario B wins by default.

There was a famous trader who said he made more money by SITTING than by QUITTING. That's our mantra right now.

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Skr
admin
January 17, 2019 at 10:20 PM ×

@Shawn, LoL there is no inflation I tells ya! and as expected (rolls eyes) we get a nice headline to cheer us up, reference "China deal" and forget this silly inflation meme. Genius.
@iPA, thanks! it is kinda tying in with what we are all trying to say in round about way's.... Correlations permitting

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Anonymous
admin
January 17, 2019 at 11:15 PM ×

@Nico
"This is how fragile our situation is folks... an economy that cannot support 2.5% rates... trading desks and hedgies that cannot support a quick 20% down


Big 5 banks had a tough time trading in volatile markets
By Tomi Kilgor - Market Watch
Fixed-income trading desks suffered trying to navigate ‘challenging’ market conditions

https://www.marketwatch.com/story/big-5-banks-had-a-tough-time-trading-in-volatile-markets-2019-01-17

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Jim
admin
January 18, 2019 at 12:58 AM ×

China’s central bank has injected about 1,1 trillion dollars into the market over the last 2 days

https://twitter.com/jmanfreddi/status/1086062826584711168


Seems the size of a central bank's balance sheet means nothing and has no consequences.


How will this end and what will be the warning signs?

https://twitter.com/jmanfreddi/status/1086064684313296897

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Anonymous
admin
January 18, 2019 at 1:47 AM ×

@jim

1.1 trillion rmb, not 1.1 trillion dollar, big difference.

And last week they removed 410 billion of liquidity, so the net increase for 2 weeks is about 700 billion.

They probably waited long enough for Fed becoming dovish and usd depreciating, so that their easing can hide behind a soft usd, taking off some pressure on exchange rate.

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Nico G
admin
January 18, 2019 at 3:02 AM ×

LB

markets always peak on pre-expiry Thursday - punting long beyond everybody's target 2640 is suicidal but since you are sitting trailing it, all you need is good luck

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Nico G
admin
January 18, 2019 at 3:55 AM ×

Edit: Manipulated markets always peak on pre-expiry Thursday

you know, a 'might lift tariffs' news a day before expiry for maximum short gamma explosion onto CTAs pivot level

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Eddie
admin
January 18, 2019 at 7:15 AM ×

To echo Shawn's reference to Epsilon Theory: His Orangeness and Xi are playing a Game of Chicken. The orange guy just blinked.

"In past China discussions, Mr. Trump has sided with Mr. Lighthizer on tariffs, rather than Mr. Mnuchin. But this time, the president has made clear he wants a deal—and is pressing Mr. Lighthizer to deliver one, according to people familiar with the discussions."

https://www.wsj.com/articles/u-s-weighs-lifting-china-tariffs-to-hasten-trade-deal-calm-markets-11547754006

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checkmate
admin
January 18, 2019 at 12:18 PM ×

LB,
Yes, I was surprised at the lack of 'noise' in Uk equity this week, but of course that actually does have information value in itself and as such I had to think there was a least some immediate opportunity be long domestic risk. Looking at how the week is now ending that looks like the right call. The USA meanwhile seems to be in 'grind' mode which always punishes those who leave early. I had a view ,but fortunately no position on that issue.
You're on a bit of a run here .

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Leftback
admin
January 18, 2019 at 1:23 PM ×

Was reading Varoufakis this morning on Brexit, it was a good read. Again, he says it's a game of chicken and we can expect the EU to blink if Parliament has the balls.

If you owe the EU $50, it's your problem, apparently, but if you owe them $50B, then it's theirs.

Re: markets, we are close to another of those levels where a push higher would force another group of CTAs and other model-driven investors have to flip long.

Markets peak on Good News. All we have at the moment is rumors of deals and TWINE (The world is not ending), and so indeed the Grind continues. Once there is a trade deal and the US government reopens then we may get a blowoff.

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Moniker
admin
January 18, 2019 at 3:10 PM ×

The longer this stimulus goes on the more “Trumps” we’re going to see. Do these blithering central bank imbeciles not understanding they are creating the very demagogues that are undoing the precious “liberal order”?

12-month timeframe...long the short end of the Treasury curve, soft commodities, product tanker rates. Short Spoos, Euro, Cable and select EU banks (can’t get enough). Keeping eye on Aussie/Canadian RE.

Side note: look at the GSIBs. I believe none are larger than they were in 2008. Banks don’t grow, economy don’t grow. Good luck CBs.

Impeachment drama/March 29/Eurodollar crisis (again) about to come front and center. Till then free nickels with a steamroller chaser...

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Jim
admin
January 18, 2019 at 4:34 PM ×

Anon:(January 18, 2019 at 1:47 AM)

Thanks! Missed that.

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cbus20122
admin
January 18, 2019 at 6:16 PM ×

@LB, not all markets need to be overbought or euphoric to sell off. We already got that point in September for the USA, and January for the global markets. Now we're just on the downside of that. But yes, the rallies can persist longer than people expect, but it's mostly just CTA positioning and rebalancing.

You see a lot of people positioning to the downside, but I don't see that at all. I would be cautious about how you view broader sentiment, as your own viewpoints can cause a lot of bias there. I too need to account for this as I flipped short a little bit sooner than I should have, but I still don't really regret it.

From my viewpoint, all I see are people afraid of what happens to the upside if we get a trade war rally. I see extremely low implied volatility relative to realized volatility over the past 1-2 months. I see a lot of people talking about the resilience of the US economy despite some notable deterioration domestically and recessionary numbers abroad. In short, while people aren't broadly confident, I see a ton of complacency and belief that the q4 2018 liquidations were simply a technical correction, and not something more fundamental in nature.

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Nico G
admin
January 18, 2019 at 8:50 PM ×

cbus you have company i wanted to state for the record (i'll read this blog as a trade journal when im old) that i doubled Spoos short today to a total of 500 lots. I actually doubled my max size ever traded. I've been waiting 10 years to engage a big short on such a fierce bounce wave.

the Allais paradox is well and alive: one is almost imune to risk and losses under adverse conditions (and Hawaiian jetlag). More seriously: i see this as the best short set up of the year - an epic January squeeze all the way into expiry.

we had seen epic engineering of market squeeze/manipulation at critical stages since 2009.. but THIS one man.. THIS one with only rumors AND three Fed heads on a Friday AND a shutdown to keep bad economic data from being published ! THIS one is the world record of market rigging

hence the ginormous positioning bringing average entry to 2575

if you believe we see 2300 or 2100 or 1900 this year ignore the noise, size your position to allow another 5% of pain, short January expiry, switch off your screen and go play with your kids your dog your wife or your mistress

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BTFD
admin
January 19, 2019 at 10:52 AM ×

Nothing like a pullback in spooz to bring in all the perma-bears (welcome back Nico). Global CB liquidity has INCREASED since 4 Jan 2019, the exact point that all global equity indexes began this huge rally.

Let me explain to you how this works: The modern monetary system is a ponzi scheme. It can ONLY be kept alive via CB manipulation & debt/inflation. Since the GFC CBs are now trapped - the Fed tried to start normalizing and mkts were down -20% in short order. The US Treasury ordered the Fed to stop as a collapse was imminent (they are particularly worried about a pensions crisis right now).

The main provided of CB liquidity these past 2 weeks has been the PBoC (who have injected the biggest amount on record). Here's what happens next: the Fed will turn dovish, the ECB will stay dovish, the BOJ/PBoC will print like crazy. US equities will all go back to ATHs, and then breakout to even higher levels. Nico (and the permabears) will lose all their money and much more besides. BTFD people will all retire rich (this trade will literally never end).

Over the longer term, the Fed will lose control of the long end of the curve (30Y auctions are already failing). There will be massive inflation, SPX will increase in nominal terms about 500%, then most likely the govts will engineer a war or something to distract everyone. Enjoy.

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Anonymous
admin
January 19, 2019 at 10:54 AM ×

"Blogger Nico G said...
Edit: Manipulated markets always peak on pre-expiry Thursday"

Nico was wrong (again): markets up several hundred more points on Friday.

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Moniker
admin
January 19, 2019 at 2:59 PM ×

@BTFD,

You put your keen and penetrating intellect to work and came to precisely the wrong conclusion. Equities are not really that important and in the end would be sacrificed to protect sovereign auctions. You really don’t understand economic history or the Eurodollar system. Better to be a price maker than a pice taker, my friend. Let me sum up: the most fragile major currency would fail. My vote is Renminbi or Euro. There is no substitute for the USD in the global liquidity system unless we lose a war and lose big. As the weakest currency is failing a deluge of epic proportions will flow into safe haven assets (RE, CHF, GBP, USD). The ensuing deflation will be incredible to behold. You are right that war is more likely than not in the medium-term but central bankers aren’t omniscient and generally it’s stupidity not malice that wins the day. Capital flows to where it’s treated best and fear is more motivating than greed. Since we are talking return of capital not return on capital...SPX loses, UST wins.

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IPA
admin
January 19, 2019 at 7:24 PM ×

It sure didn't take the imbeciles long to make their way back here. Welcome back our imaginary foes with little brains and zero real substance in your childish speak. That being said, absence of expletives (besides the handle acronym itself) this time around is quite refreshing, but I'm sure it's not far away as lack of substance overtakes and you will need to fill in the void with common traits of yours. I don't know for how many times I've said to you morons here: most of us are well-balanced in our portfolios and run both a long and short book. It just doesn't get any different with you as all you want to do is pick on Nico. Off you go with your endless bravado, but please do take one thought with you: underestimate your opponent at your own peril! This market has more moves than you will ever have brains in your hollow head. It will teach you to stay forever humble and make you learn how to walk again when it cuts your legs off just as you try to dance at your enemy's funeral. And the very last thing, you uneducated fool(s), before you become rich you will have to learn the basics of economics and market dynamics and understand that SPX can't go up 500% during massive inflation. Now, please take your foot out of your mouth and use it to go away.

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cbus20122
admin
January 20, 2019 at 7:46 PM ×

Well said IPA. There really is no need to be inflammatory on here. I think the results of anybody's thoughts or calls will become apparent as time goes on, and there is no need for bravado or throwing around insults as any losses will already be more than enough.

In a way, I think BTFD's mindset is why I'm a bit worried about overall complacency in the markets. Far too many people are starting to invest in nothing more than the fed having their backs, which is a completely unreliable way to go about things. I will 100% reverse course if I see the effects of central bank stimulus actually impacting markets (there are ways you can measure this in a more defined manner). Right now, that hasn't happened yet, and investing based on this idea is more speculation than anything else. Too many hedge fund managers have gotten burned by the breaking of the economic cycle in the post GFC era, where their normal models of market cycles have been broken by central bank action.

@Moniker I think points out the most important thing here. There are monetary and money-market limitations on stimulus, and that's the best part of the market to really get a better understanding of what is or isn't possible. Beyond that, there are also some broader geopolitical issues that are preventing this from occurring. The yellow vest movement and the growth in broad-based populism are going to place constraints on central bank's ability to just purchase assets indefinitely.

If we start to slow down further, we will clearly see more easing and more central bank purchasing, but the question becomes at what point do these things no longer stop the deflationary tide from taking hold? Japan has already bought up their entire bond market, and have added a lot of equities to the mix as well. Europe has made their bond market somewhat nonexistent, and what do they have to show for it from an economic perspective? China is easing somewhat, but they aren't easing in a manner that is even close to what we saw in 2015-2017. Instead of taking a simplistic view here, more people need to ask themselves why they aren't easing more given the very rapid downturn that we've seen in the last few months there. In the past, they would have already started record easing beforehand. But now? Not much, and even with the amount of easing that they may be starting right now, you won't see the effects of that for another few quarters.

I'm a bear right now, but anybody here who is married to their positions due to pride is going to lose money in the long run. Being flexible yet disciplined is one of the more important traits in my opinion towards making money in markets, regardless of investing style.

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Skr
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January 21, 2019 at 12:01 PM ×

(Cause and effect + time) ÷ (btfd - moniker) = 0

0 = batshit crazy

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Eddie
admin
January 21, 2019 at 1:01 PM ×

I.e. Cause and effect = -time :).

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Cbus20122
admin
January 21, 2019 at 2:25 PM ×

FWIW, in mentioning watching currency pairs for what is going on, I suggest people keep an eye on both AUDUSD, which tracks asian markets extremely well. It's not buying the current rally right now, and is on the cusp of breaking a 10 year head and shoulders pattern for those who want to look at things technically. It may rebound of course, so no confirmation, but just something to keep in mind.


On top of that, I've mentioned many times that USDHKD gives some insight into currency moves in China. Note that the October liquidations occurred not too long after a huge move to push USDHKD away from the peg's upper boundary. This likely was a move by China to help defend the Yuan, which it was evident they couldn't defend via Hong Kong (through whatever mechanisms) once it hit the top bound on the peg. Since October, the USDHKD pair is now getting closer and closer to the top boundary again and is about it hit it. Not sure what will happen, but I find this very interesting. I'd be interested if the touching of the top boundary of the peg signals a new period of weakness in emerging markets. Hitting the top of the peg here occurred right as we started to see big monetary and dollar problems in emerging markets, which was not a coincidence.

So as a result, I'm just going to speculate that when USDHKD starts to hit that boundary again, we will start to see emerging markets once again underperform developed markets, and US market outperformance relative to other markets period. If we see the peg start to get pushed down again massively like we saw in September, I have a feeling we will then get liquidations in US markets once again.

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Moniker
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January 21, 2019 at 4:14 PM ×

@Skr,

That made my day.

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fcp
admin
January 22, 2019 at 3:00 AM ×

Short AUDUSD has a lot to go for it right now, IMO.

for those who haven't been following, the nation's bank managers were hauled up on TV and asked to defend their lending decisions, allowing parents to use their house as collateral for their childrens business loans and so on. This has had a somewhat chilling effect on lending. Now politicians are exhorting them to lend, while agencies are simultaneously suing them for being too lax (this is BEFORE any statistically significant defaults).

This was all about political grandstanding - but has had a chilling effect on lending. Mortgage borrowers used to be able to declare their expenses and get on with things. Now they need to go through three months of statements and discuss their uber eats habits and gym memberships with bankers.

A labor government is likely to come in, and they've promised to end tax incentives for housing investment, which is pretty much all the incremental demand. Take out investors buying the dip and there's a long way down before housing becomes affordable for most of the population.

All these wealth effects suggest the next move in rates is almost certainly down. RBA has suggested they're open to QE.

Early indications the wealth effect is already hitting consumer spending etc.

Ofcourse, a massive commodity stimulus could change things very quickly, but it seems China is (wisely) leaning towards monetary stimulus and tax cuts, 125b of new railroads aside.

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fcp
admin
January 22, 2019 at 3:01 AM ×

Shorting equities to get risk off exposure has basically zero appeal right now.

Prefer to focus on risk off trades that actually benefit from policy responses

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Nico G
admin
January 22, 2019 at 7:47 PM ×

well this is certainly the most important week of the year for markets and i do see appeal in being short right now

it's cool the 12 year old dipsters are back, i thrive when insulted by morons it tells me im doing something right

there was a reason why i doubled up on Friday: bears capitulated, and must be looking at today's action with sorrow

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IPA
admin
January 23, 2019 at 12:01 AM ×

Nothing new this morning in existing home sales department. December was an absolute stinker. I think the most important housing report will be new home sales though (as there is no shortage of supply there like in existing). Mortgage rates went down along with l/t yields and mtg apps went up, so that should provide a boost to sales (one would assume). To change my mind on being a bear on XHB, I'd want to see a blowout in new home sales, showing a buyer renaissance, markedly increased foot traffic, much higher closed (not just pending) sales, but also stable prices (this one is a biggie, as builders' profit margins are being squeezed by rapidly rising costs and declining new home prices due to ongoing clearance of inventory through deep discounts and builder concessions like closing costs assistance, upgrade freebies, etc). I'm extremely skeptical. My target is $28 by Mar exp.

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Rossco
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January 23, 2019 at 5:37 AM ×

a long time between posts

A question for anyone who is a bit closer to the action than I am these days.

Does the French derivative "experts" withdrawing from risk taking remove a major seller of vol from the markets or is that too long a bow to draw ?

Thanks

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Nico G
admin
January 23, 2019 at 8:17 AM ×

i worked as a option marketmaker at one of those 'experts' when they launched electronic trading in Italy and yes, they were ginormous sellers of vol - no idea of their market share now suppressed but definitely a plus for financial stability overall

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checkmate
admin
January 23, 2019 at 9:09 AM ×

I would not want to underplay risk from China, but could I just posit this for a moment. Back around the last bust I think $GDP was about 4.6 trillion with a growth rate circa 14%. Last current data shows $GDP of 12.3 trillion growing at under the 7%pa mark. Why are people surprised that as the GDP pot gets even bigger then the growth rate drops ? Why would you think that is somehow negative? In the former figures the GDP growth equates to something like $0.6 trillion pa whilst the current figures equate to $0.8 trillion pa. In other words the growth in economic activity right now as never been larger despite the fact that the growth rate pa in % terms is decreasing. Personally I would be shocked if it were any other way because if the % growth rate had persisted based on these absolute levels of GDP the world would be in a shitstorm with regard to resources, Agri, you name it. I can't help wonder if people are missing something here. For my part I have no urge to fight the ability of the Chinese govt to manage their economic policy.

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BTFD
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January 23, 2019 at 10:09 AM ×

We have BTFD (yet again) and will prove this board wrong, as we have proved you wrong every year since the GFC. Just yesterday reports of Davos discussions about "QE Infinity" (led by BOJ, ECB etc) were floating in the media. We are in a 'Central Bank trap', they have to keep rates near the lower bound forever, and they need continual QE to prop up these markets, thus we will see continuous asset price inflation. The SP500 will be making new ATHs in the not-too-distant future, and will easily double/triple from here. I will stay long (buying dips) while you all saty wrong.

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checkmate
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January 23, 2019 at 10:55 AM ×

BTFD,
It seems to have escaped you attention, but actually a few of us are already long risk, but hey you see what you want to see as usual.

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checkmate
admin
January 23, 2019 at 11:05 AM ×

Now for some 'what if'.
What if going forward the biggest winners are something we have not seen for decades ...not asset owners ,but income earners !
What if the next inflation bulge occurs first from real increases in income (labour costs not other basic inputs) and the central banks continue to lag behind that issue in raising rates.

What price fixed income assets ? What price assets that can hedge against that scenario?

I don't see anybody thinking about what happens if central bank policy succeeds in keeping that labour curve tight and the response is increasing labour costs over years.
I've been thinking about this for awhile because regardless of so called Brexit chaos labour in the UK have been doing rather well for awhile now and I believe the same is true in the states. This doesn't really point to recessions or disasters of debt default I would have thought.

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Anonymous
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January 23, 2019 at 2:50 PM ×

@checkmate

Well there are more than a billion young people (labor) in India. Then there are millions more in Vietnam, Malaysia, Indonesia. You do the math and how can you make the argument of income earners being winners?

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checkmate
admin
January 23, 2019 at 4:13 PM ×

And in the countries you mention exactly what % of global GDP a r e you talking about?. In the potential scenario I am theorizing about the inflationary labour effects won't be on the margins.
In the first instance I find your rely to be the kind that confirms it isn't something being considered seriously. I wonder if that is the general view?

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Leftback
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January 23, 2019 at 6:29 PM ×

LB remains long EEM, XLE and VGK.

@Cbus: we are not complacent - but our base case is that more stimulus is coming from PBoC and that both ECB and Fed will step aside rather than obstruct the field. That being said - we are ready to reverse stance should it be necessary and we are not unaware of the small inverse tsunami of liquidity that is scheduled to occur during mid-February as a consequence of Fed OMOs. This doesn't make us bullish or bearish, although we lean slightly bullish as long as sentiment remains as it is - still quite negative.

Agnosticism is our preferred stance on US equities, although playing what we see in front of us, we believe this is a pullback to support at the level of the prior breakout from earlier resistance. For now we are doing nothing, but we would add a little on a test of the SPX 2600 area, and we would sell long-dated Treasuries into strength for the time being (purely chart reading here).

We do believe that CBs will have to pivot dovishly this winter, on an avalanche of weak economic data.

Interesting that the BTFDers are back. We find them useful as a crescendo of abuse to bears usually marks an impending peak. We are not there at the moment. A trade deal would produce all of the necessary conditions, should it materialize.

After the stress of December it's a relief to have a period when you can sit and watch, as most dips bring out vol selling and BTFDers and over-anxious bears suffer from premature involvement. We'll see how long this continues.

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Leftback
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January 23, 2019 at 6:45 PM ×

It is worth noting that there is a Fed meeting Jan 29-30, and then the next one is Mar 19-20. There would seem to be little point in hawkish language at the Jan meeting (assuming Loretta Mester is taking her medication), but if markets perform well over the winter the Fed would have an opportunity to change its tone by the time the March meeting rolls around.

We may see a little pre-Fed anxiety before next week's meeting, and perhaps a relief rally will follow the actual event, to begin the month of February on a positive note.

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Nico G
admin
January 23, 2019 at 7:33 PM ×

Incredible that some of you still expect a China trade deal - especially within this short Q1 equity bounce window. Current 90-day truce is only buying time, not getting you any deal. The US and China are miles away. Do you think they can address 30 years of industrial/intellectual property theft, spying and predatory investment by America's #1 enemy, that the two competing world hegemonies can shake hands after only minor inconveniences to their lifestyles (a few Chinese developers' crash, US soy farmers, Apple warning, equity markets down, so what??)

China has a 2049 plan. Xi Jinping worships Mao. As he told Stalin back in the days, Mao was ready to sacrifice half of its (700 million strong) population to reach its industrialisation goal. Those guys are tough as nails. Do not expect Xi to feel pressure from Trump. Trump knows this and thus prefers to screw American workers amid longest US shutdown in history rather than showing weakness to China. 2019 IS NOT AN ELECTION YEAR. 2019 IS THE YEAR OF POLITICAL BRAVADO DISPLAY

Like Checkmate said, China still has ways to manage its economy policy despite and amid American trade duress.

China stimulus = China finding ways to resist trade heat

CHINA STIMULUS = NO DEAL

as long as China find ways to stimulate its economy, you get NO DEAL, and trade war escalation (from a pissed off Trumpoline). Only when both hegemonies realise they are really fucking each other can you expect a significant announcement. Timing? much much much later. How about on election year?

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Cbus20122
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January 23, 2019 at 7:55 PM ×

So question for MM board viewers. Everyone knows about at least some of the problems in China at this point financially. People know about some of the fudged numbers, people know about the real estate and credit bubble, etc. But as China bulls will point out, this has been the case for the last 10 years, and these problems have never come home to roost.

So for those out there who think China will just stimulate again and fix all their problems this way, I'm genuinely curious as to how you view any timing of these issues actually falling apart down the line? What would cause you to believe that we'll get a true hard landing in China and that they can't just stimulate away ad nauseam? What would cause you to believe that this time is different regarding their government's seemingly endless ability to keep their financial markets from falling apart. Is there anything out there that would cause you to shift your mindset on where things are heading or whether we get a central bank put for China (and by association, the world)?

China has been a true widowmaker similar to JGB's. But widowmaker trades are in my opinion often correct in the very long term, but very dangerous because the things keeping them afloat keep them afloat for far longer than people expect. I feel like the entire world is betting that China will stimulate like they have in the past simply because that's what has happened in the recent past.

But far too few people are asking whether they can stimulate effectively, how much it will require to stem the tides working against them, and furthermore, why they haven't yet stimulated like they did in 2015 despite bigger imbalances (partially caused by that stimulus) and an even worse economic outlook.

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Nico G
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January 23, 2019 at 8:19 PM ×

cbus

you might like this angle:

https://www.alhambrapartners.com/2019/01/22/chinas-eurodollar-story-reaches-its-final-chapters

in my brilliant résumé :) i forgot the most obvious point: if Xi thinks he can weather 2 years of trade duress, he simply does nothing, US economy tanks, Trump loses elections, the 2020 elected Democrat has learned the lesson, tariffs are dropped by the new administration and we are back to business as usual with China

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Anonymous
admin
January 23, 2019 at 8:25 PM ×

I do not know if China can stimulate its way out of this recession. But I can guess why it had not begun the full-scale stimulus.

Timing:
Monetary cycle: they do not fully stimulate when other CBs are not doing it. If only you stimulate, you are lifting everybody else. If all CBs are stimulating, it is much easier for you.
Trade war: they are not going to fully stimulate when there is still hope for a trade deal. They are feeling the outside pressure and trying to minimize it. Once you have some certainties about trade deal, you have confidences and stimulus works better when people have confidences.

And there is technology. They need to find some areas with high ROI to invest. Real estate investment no longer works. So they need to invest in upgrading economy, like 5G, healthcare, education...they are still in preparation phase and simply not ready yet.

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Anonymous
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January 23, 2019 at 8:46 PM ×

cbus, the hard landing signal for me is that housing prices in top 20-30 Chinese cities collapse, 1990 Tokyo style. Then you know that they totally lost controls.

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Moniker
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January 23, 2019 at 9:11 PM ×

Assuming the Impossible Trinity still exists, peg remains and PBOC is “independent”...then capital controls would fail. Stimulate away; you can bet the rich already have plans to get themselves and their money out of the country.

For a binary best guess, currency crisis vs Hermit Kingdom 2.0

CCP appears increasingly erratic. You can bet a power struggle coming if things worsen markedly.

Total anecdotal evidence: friend of mine sells toys into WMT/TGT. Travels to HK 6-8 times a year. His local is quite scared and preparing to do precisely the above. They are looking at Vietnam, Philippines and India to relocate manufacturing.

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Anonymous
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January 23, 2019 at 9:44 PM ×

Doesn't Impossible Trinity suggest peg remains and independent PBOC lead to capital control? You cannot have capital mobility with the first two. Of course capital control is not that effective.

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Moniker
admin
January 23, 2019 at 10:44 PM ×

@Anon,

Precisely. Capital controls are what they currently have. In extremis controls would likely falter. Peg becomes pointless. Sorry if I was confusing.

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Anonymous
admin
January 24, 2019 at 12:12 AM ×

Interesting discussion re:China. Shorting it caused me plenty of wounds over the years.

Cbus - difference to 15/16 is that in the run up to the big stimulus back then there was much more of a war on excess capacity in their commodity consuming/processing sectors. You haven’t seen that this time around, it’s been much more tepid/slow - iron ore barely sold off. Recent stimulus seems more about consumer demand as they try to pivot at slow speed.

In a true crisis the currency goes. Are we there? Don’t know. 15/16 was more obvious at the time, of at least the crash was obvious. At the time in 16 it was hard as a bear to accept they put the genie back in the lamp, but they had. 3 years later this selloff was different. I suspect they’ve been targeting fin leverage/shadow fin more, but I don’t really follow it anymore. Accordingly, stimulus will be in a different way, more liquidity, not necessarily a mega new building boom. Long term goal to get local discount rates from ev1 wanting 10pxt to US/EU type levels. At that point you are on a level playing field

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JohnL
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January 24, 2019 at 1:37 AM ×

China's next peoples congress is in 2023,hitting the stimulus hard right now may not get them there before things turn down in a way they can't power out of by 2023.
They could be just feathering the throttle for now to try to control the glide path, going all in a year or 2 before, putting on the window dressing for the NPC.

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Anonymous
admin
January 24, 2019 at 2:46 AM ×

China is a DICTATORSHIP, top down system. Can the market collapse like the West?

However, what happens when, SOME DAY, people start to demand FREEDOM like the West?

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checkmate
admin
January 24, 2019 at 9:34 AM ×

"people start to demand FREEDOM like the West? "

Going to pin that on my wall so I can start my days with a good laugh. Exactly what sort of 'freedom' are we talking about here? Is it the 'man of the people Trump freedom' ,or that other well known 'Brexit freedom'? May be it's one of those 'Rhodesian type freedoms'.
There's only one kind of freedom and that's learn how to control what you can control and leave it to others to waste their time and energy on the 'freedom stuff' they can't ever control. Of course I could just be a record holding kind of cynic ;)

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TraderJim
admin
January 24, 2019 at 9:48 AM ×

Bad news today on german PMI and French purchasing managers' but STOXX goes up. Guess that primes ECM then.

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Anonymous
admin
January 24, 2019 at 10:37 AM ×

@checkmate:

Innovation requires FREEDOM of Expression!!!

No wonder China is Only good at Copying and Stealing at the moment.

How Chinese hacking felled telecommunication giant Nortel

Long before the US charged five Chinese military officials with committing hacking offences and economic espionage against major US corporations, executives and entrepreneurs say they knew something was amiss.

https://www.afr.com/technology/web/security/how-chinese-hacking-felled-telecommunication-giant-nortel-20140526-iux6a



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checkmate
admin
January 24, 2019 at 12:09 PM ×

Heaven forbid we have a world where other people try to appropriate that which 'belongs' to someone else . I'll now have to add those Chinese guys to my Naughty Santas list, no more xmas prezzies for them ! That'll do it, if you're not American them damn you will not steal so sayeth the 11th commandment according to Moses Trump !
I'm just going to look for my dictionary because hypocrisy is always one of those words I have trouble spelling.

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Eddie
admin
January 24, 2019 at 12:27 PM ×

There's only one kind of freedom and that's learn how to control what you can control and leave it to others to waste their time and energy on the 'freedom stuff' they can't ever control.

+1

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January 24, 2019 at 3:14 PM ×



Oxford Dictionary meaning of Hypocrisy:

The word hypocrisy dates back to the murdoch media family in the late 19th century. It was further established that the word found a renaissance in the 21st century with the advent of smartphones when god decided that bread and water would be grouped along with media ratings to be accepted through passage of the gates to heaven. Thus, when god accepted media ratings into his heavenly house the pagans protested due to their past persecution at the hands of the media conglomerates past stoning of perpetrators of knowledgeable of witchcraft that was used to communicate into other worlds. Since the late 2016 there has been a annual gathering of media conglomerates in the cities of New York and LA to allow a think tank of rising media heirs to seek gods approval if he will allow their forefathers to send back text messages in regard to what front page stories they should run with to gain maximum paper sales. Late 2018 saw god renew the acceptance of media ratings into his heavenly house , but changes were made to the derivation of said media ratings. Under Act 11. , god stated , that any media rating that was derived from the use of subterfuge on behalf on the media company would be banned from entering the gates of heaven due to an unfair advantage of a) haven't they got better things to do...they're fuckin billionaires aren't they! b) no one cares anymore about the skill it takes to publish good shit, and lastly c) their media coverage is like watching a greyhound turnaround halfway round the track and run head on into the oncoming field.

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Skr
admin
January 24, 2019 at 7:00 PM ×

Hey Jazinno did you see how good I looked today? I could hardly contain the smile as I "batted it out of the park" as you guys say.
Hey Xo, welcome to the club, and in the time honoured tradition - I pass on the humble potato (it's not so hot as when I got it - but hey these beautiful cool hands what can I say) which goes well with roast pink flamingo I hear.

Chio,
M.D

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Anonymous
admin
January 24, 2019 at 7:16 PM ×

Some take FREEDOM of Expression for granted. Not those of us born in the East!!!!

Relatively speaking.

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Nico G
admin
January 24, 2019 at 8:45 PM ×

If you still doubted trade war with China was only one aspect of a much larger scope, watch VENEZUELA carefully... China has money on Maduro. That would be the first US-China cold war face off after pretty much every developing/EM country on the planet was at some point a playground for US-USSR US-Russia /Sunni-Shia power play the last 100 years.

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Cbus20122
admin
January 24, 2019 at 9:33 PM ×

All I'll say for now regarding whether I'm buying any Chinese stimulus, is that copper and base metals do a very good job of telling you where things are going in China-based equities. China's real estate bubble is dependent on continuous construction of housing and buildings. If copper is going down, that's fairly indicative of lack of demand for construction materials from China. Hence, why copper prices are so closely tied to chinese equities and chinese stimulus. Beyond this, China utilizes a lot of copper as collateral.

So in short, when China is stimulating and infrastructure purchasing is actually being transmitted effectively, you will see upward moves in copper and base metals. Until I see that, I'm not buying into any Chinese stimulus story.

And for anybody who may mention that China may stimulate differently this time, I'll just say that in order to keep their real estate bubble from collapsing, they NEED their enormous property developers to be able to service their debt. And that would almost certainly cause a rise in the price of copper. There are other indicators as well that are useful such as money supply yoy comparisons to watch.

In short, for people thinking we'll see a stimulus, I'm just going to say that it would be smart to actually wait to see effective transmission of any stimulus. Until then, it's probably just talk. You won't be late to a trade if you wait for said stimulus either.

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Anonymous
admin
January 25, 2019 at 12:47 AM ×

Wonderful to see Sen Warren proposing a Wealth Tax on all the thieving 1%. Bankers who stole from us and had their losses paid by the taxpayer, worthless CEOs (pretty much all of them) who run companies into ruin and get hundreds of millions in golden handshakes, and so-called entrepreneurs who evade corporation tax whilst paying their employees slave wages.

No senior employee is worth more than 10x minimum wage, incomes should be taxed accordingly. All assets need to be taxed above a threshold, let's face it no-one needs more than $10m. So a graduated scale of tax from $100k to $10m with 99% of wealth after that taxed. If anyone tries to leave the country they are free to leave with all assets removed from them.

Capitalism is long dead, it's time the corporate cronyist 1% Davos elite pricks had all their wealth removed. It can not come soon enough.

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JohnL
admin
January 25, 2019 at 2:25 AM ×

The guys on Marcovoices had Russell Napier on their podcast, yesterday.
His take on China is they're going to have to deval. RMB exporting deflation, had some linkages to treasures. I thought it was a interesting perspective.
The podcasts an hour.

https://www.macrovoices.com/podcasts/MacroVoices-2019-01-24-Russell-Napier.mp3

anon 12:47 turn off the CNN and FOX,oh ya that info wars is complete garbage too, and tune into an international news feed. They generally don't give no damns about your politics and just report what's out there, not perfect but better than the junk you're seeing.
Ps don't watch them for their domestic politics or you're back to garbage,that's my 5cents worth (we don't have pennies up here anymore)

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Anonymous
admin
January 25, 2019 at 3:51 AM ×

This is not 12:47. A lot of garbage talks out there right now. But you have to consider the implication in 2020. With major leftists all announce populist policy statements like this, it definitely will scare the hell out of the market when the time comes.

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January 25, 2019 at 11:40 AM ×


JohnL,

The current market situation is what happens when you mix an "American Gangster" with property and media heirs that live in a bubble. Period. We could go on and on and on. I could write a thesis as thick as your elbow on the underlying mindset of each individual character but we have better things to do. Back here in Australia they will keep biting at the ankles for a snip...but all I have to do is sit on my hands and wait for my superannuation and then I'm retired. After 15 years in the market I'll be taking my super and travelling the world forever. I am going to visit many different countries and have a little taste of all them along the way as a single man retired under the age of 50. That's better than working in a factory till I'm 65 ..don't you think. Of course I'll be trading here during that time...full time trader at 50 with no office , no ball and chain, no social status to upkeep, no supermodel to upkeep and drag me around to their fairy bread parties, no popularity contests to compete in, no celebrity circuit to try and get into...nope, I'll be a free man following my passion of learning the markets and trading away as I travel world enjoying the fruits of each country's ying.

Many thanks up there big fella!

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Anonymous
admin
January 25, 2019 at 4:27 PM ×

Nico G said... cbus you have company i wanted to state for the record (i'll read this blog as a trade journal when im old) that i doubled Spoos short today to a total of 500 lots. I actually doubled my max size ever traded. I've been waiting 10 years to engage a big short on such a fierce bounce wave.

SP500 breaking to new highs for 2019, global equity indexes rallying. Nico will likely be p*ssing his pants as his massive short positions hemorrhage his money. Still he is only losing $25K/pt, so a mere $8-10mio loss for him when SP500 trades back above ATHs.

Old readers will remember the last time he put on his "Big Short" a couple of years back. He lost tens of millions then also. Anyway, good job this is all make-believe, I mean ten million here and ten million there, and soon we're talking real money :)

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Gus
admin
January 25, 2019 at 7:10 PM ×

LB ... couldn't help but notice today we are noodling around 2666.66 on the S&P. Exactly 2000 pts from your 2009 bottom-call with the Devil's numbers.

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Gus
admin
January 25, 2019 at 7:16 PM ×

Nico ... your recent commentary on Xi must have been read by Soros yesterday.

https://www.scmp.com/news/world/europe/article/2183562/george-soros-calls-chinas-xi-jinping-most-dangerous-foe-free

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Bob
admin
January 26, 2019 at 12:30 PM ×

Amazes me that so-called professionals (or ex-professionals) are fighting the Fed etc. Central Banks clearly want equities higher to help deal with a looming retirement crisis. As most politicians and central bankers are Boomer age, they're happy to destroy the world economy in order to cushion their own nest. Ergo every central bank will remain dovish, and we will have ZIRP/QE forever. If the Fed reduces liquidity, the ECB/BOJ/PBoC step in to replace it. Asset price inflation will literally go parabolic over coming years. Then of course it will crash and we will see the entire Western world revert to extreme left-wing socialism. All due to the greed of the boomer generation. And yes, anyone betting against this (Nico) is in a widow-maker trade.

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Anonymous
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January 26, 2019 at 12:56 PM ×

I’ve been sanguine but it’s worrying that the pond life (btfd) has returned to the comments section and is advocating similar.

My base case which has started to play out is a low vol recovery, with weaker usd and firmer equities (although US too overvalued already). I expect ecb and us to tighten later this year and a bond bear market to lead to a much lower s&p in 12-18 months as discount rates go up and profit margins are squeezed as inflation finally shows up. Once discount rates are rebased psychologically then we have the right set up for s&p to go to 1550 sometime in the next 2 years, I can’t see a swoon down below 2000 without further monetary tightening in the Eu and possibly japan, and if that swoon happens too soon we won’t get the max downside pain. So if markets are to maximise pain then we need recovery and stability first

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January 26, 2019 at 1:52 PM ×


Do mind leaving Australia too...


https://www.zerohedge.com/news/2019-01-25/rothschilds-liquidate-last-piece-land-austria-after-200-years-ownership

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January 26, 2019 at 2:05 PM ×



Not to worry , your lordship...you can send nat to Sydney anytime. He'll fit right in with rusty's mob. He'll be photographed in his rabbitohs outfit and displayed on the front page of the tele with the headlines..."look at me... I know them all"...aren't I mr. wonderful.

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January 26, 2019 at 2:08 PM ×



rusty...chew the grass growing out of my crack.

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Anonymous
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January 27, 2019 at 2:37 AM ×

Right now, even BTFD'ers have to admit that the most crowded trade has literally been to buy the dip. It's been the most crowded trade for the past 10 years, and while correct, there will be a point where this will really haunt a lot of people.

The question I keep noticing that never gets asked from the BTFD crowd regarding central banks' ability to keep markets afloat is whether the stimulus is wearing out its' efficacy. BTFD'ers always just assume each piece of stimulus will be equally as helpful as the first stimulus from an economic benefit perspective.

This has already been greatly proven to be true, and while we'll surely get more central bank support, there is little regard for the fact that there are drastically diminishing returns in terms of economic benefit from these programs the more they're enacted, and also a lot of growing collateral problems (populism among the issues).

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TraderJim
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January 27, 2019 at 3:08 AM ×

@Anon 2:08

Dalio talks about a credit super cycle, where the smaller 7-10 year credit cycles continue to release ever-greater credit until it's no longer effective, then a super cycle deleveraging occurs. He says we are nearing the end of the super cycle. Suspect there is room for one more roll of the dice, thereafter further stimulus results in nothing more than fiat money supply growth and resultant inflation and debt deleveraging rather than any economic stimulus.

But the issue you describe is already being discussed about China. Will another round of centrally dictated property and transport infrastructure building boost growth? Obviously the Chinese would prefer to push credit growth through SMEs as that drives ongoing employment, investment and growth, but that's slow, it's much faster to blast out some infrastructure projects through the local authorities with big central govt loans.

It's an economic experiment which can only be resolved through trial and error.

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Eddie
admin
January 28, 2019 at 7:55 AM ×

@Anon 2:37

Have a look at China to see diminishing returns in action. "The International Monetary Fund points out that in 2016 it took four units of credit to raise GDP by one unit. A decade ago the ratio was 1.3 to one."

https://ftalphaville.ft.com/2018/02/05/1517825168000000/Over-in-China--a-debt-boom-mapped/

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Nico G
admin
January 28, 2019 at 9:28 AM ×

@Bob
there are other markets than the US where betting against CBs worked handsomely / i shorted China in April 2015, the timing was astonishing (and lucky) and the trade quick but no 12 year old trader paid attention to this one. I went short Italian banks in 2007 and Draghi whatever it takes never saved his own banks. Only last year did i decide the easy money had been made on Italy (but it will collapse). I bought 10 year puts on Deutsche Bank in... 2006.. Das Bank was my obsession because we used to trade against them and their risk appetite was infinite. It was scary shit.

Anyway are not here to brag and much less to mock other traders. i do not know your timeframe but for great ideas mine is as long as needed and China is still developing and requites time to unfold

@Gus
lol ! Angst vs. China will continue to build up until Western leaders can no longer sacrifice our values and societies for short term commerce and even shorter election cycles. Same goes for migrations but that's another topic [wishful mode OFF]

@TraderJim & Eddie
Harvard professor Ken Rogoff "the key policy instruments of the Communist Party are losing traction and the country has exhausted its credit-driven growth model. This is rapidly becoming the greatest single threat to the global financial system"

People have this stupefying belief that China is different from everywhere else and can grow to the moon," said Professor Rogoff, a former chief economist at the International Monetary Fund.

"China can't just keep creating credit. They are in a serious growth recession and the trade war is kicking them on the way down," he told UK's The Daily Telegraph, speaking before the World Economic Forum in Davos.

"There will have to be a de facto nationalisation of large parts of the economy. I fear this really could be 'it' at last and they are going to have their own kind of Minsky moment," he said.

https://amp.smh.com.au/business/the-economy/it-could-be-on-the-scale-of-2008-expert-sends-warning-on-china-downturn-20190124-p50t9q.html

until then i keep my $25K/pt pension plan. Anon mention of 'recovery and stability first' max pain is highly unlikely even if stupid money briefly returns to US equities and bears cave another time. i sincerely doubt they can rig the game much longer when China is becoming a world's obsession and the Pygmalion loop is upon us

2020 elections are crucial. My Zoolander bet on the market: Democrats will prefer to wreck this fake economy to annihilate Trump legacy any day. You really need to understand that 1) Trump bet his reelection on the stock market performance itself and 2) smart money saw that coming and got out of US equities after Democrats midterm performance. That is all there is to say.

greetings from Hawaii,
where Chinese buyers of last resort have evaporated,
and the new $35m penthouses are still virgins.

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Nico G
admin
January 28, 2019 at 9:55 AM ×

http://www.chinadaily.com.cn/china/2011-07/22/content_12959437.htm

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Eddie
admin
January 28, 2019 at 10:28 AM ×

Am I the only one who is old enough to remember the 1980s and Japan? When everybody thought that the Japanese would take over the world, buy the empire state building and export everyone else to death? Reminds me somewhat of what I see in China today.

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Anonymous
admin
January 28, 2019 at 3:26 PM ×

I really do not think that inside China they think that they are going to take over the world. Especially today many people are super pessimistic. Huge financial risks from China this year.

You read those taking over stories from MSMs in the west, like NYtimes series last year.

If you stop thinking like a trader, then the only advantage on China's side is oddly that its productivity is still so low, which means that it can be increased relatively quickly compared to 1980's Japan if they do not make policy mistakes.

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Cbus20122
admin
January 28, 2019 at 5:12 PM ×

Low productivity is a characteristic of communist or command-based economies. This has been actually getting worse the longer China goes, and this is not something we would expect to rebound given the way things are set up there. In other words, China's lack of production isn't really a catalyst for potential further growth, and is instead evidence of why things are getting bad over there.

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Leftback
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January 28, 2019 at 9:07 PM ×

Agree with whoever above stated that China crash will come only when there is a hard landing in real estate, as that is where most of the population likes to park "wealth". When it finally goes it will be pretty ugly, with plenty of contagion, Australia... we will get ample warning of the final countdown, probably via the FX channel.

China can't simply produce goods for which there is no domestic or export market. Given the demographics within China, Europe, Japan and the US it is unlikely that its role as factory of the world can continue. China will adapt to become a less productive and more consumerist society, its factory role passed along to the burgeoning countries with younger demographic. Vietnam, Indonesia, India are the new China. Don't say that this can't happen. It happened to Japan, and it is already beginning in China.

For now, China seems to have room to stimulate, maintaining its shift of focus to internal infrastructure projects, and yet still maintain a soft peg to the dollar. Who know how much longer they can keep going - maybe 5 years, even a decade?

Today's pull back was unsurprising, expect some more of this as the process of month-end portfolio rebalancing reverses the flow relative to what we saw right at the end of December. Nothing fundamental has changed.

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Nico G
admin
January 28, 2019 at 11:38 PM ×

Eddie

i do remember 1980s Japan i am not a trading fossil like you but obsessed with paintings so as a teenager the first auction world records on French impressionists and Van Gogh were awe inspiring. Japan kickstarted the excess money pump of all collectibles - art then cars, wine - that we use as a great measure of excess exuberant money topping every credit cycle ever since. Sothebys (BID) share price has been a personal favourite indicator the last 20 years.

Same mad money, same fear of Japan taking over the world goes for China today in light of 'the humiliated Empire wants its revenge and prestige back'. Opium wars are as powerful a mental engine as Hiroshima and Nagasaki. But Japan never did the same predatory investments - seeking partner (or captive, rather) countries abroad: Sri Lanka, Greece, most of Africa, pieces of south America... China expansion is much, much more astute and focused on the long term. China has a dictator for life and no lenient politics like 1980s Japan.

China is a storm in a $36.3 million tea cup (cf. Liu Yiqian)

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cbus20122
admin
January 29, 2019 at 12:36 AM ×

@LB, I fully agree with you regarding real estate in China. As the real estate sector goes, so go the banks as we have historically seen around the world. Their real estate is starting to slow down, with some declines finally happening for the first time in a while. But as we saw with the GFC, this may take a bit of time to dig in and really take hold.

But before real estate causes a problem, I think the real sign will simply be the soft peg of .7 breaking. If that breaks, I'm fairly certain the RE market will also break, and with all of that, the banks would also get killed. Once this really starts to pick up steam, it's going to go up in smoke fast with the amount of imbalances and structurally insane financial engineering going on.

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yassa
admin
January 29, 2019 at 2:15 AM ×

certainly not an expert chartist, but I find spooz reversing right at its 50w moving average, at a weekly death cross, and at almost exactly the level that it "should" per support for much of last year potentially noteworthy. This in conjunction with seemingly increasing negatives from earnings doesn't seem to bode well for this current rally.

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Leftback
admin
January 29, 2019 at 3:20 PM ×

Always interested in insightful chart reads but will hold your ursine thoughts at the back of the mind for now and consider the bovine reaction to a dovish statement. Look, there are some clever commentators waving flags ahead of the Fed meeting here and saying whoa, they are going to put the brakes on. Really? Really? Let's think this one through:

1) The Fed doesn't actually understand how the "QT" brakes work, and won't admit that they are brakes.
2) Powell is still learning how to drive the car, and he's not the most competent driver.
3) Last time he tried to use the alleged "brakes" he stalled the car on the Beltway during rush hour.
4) As a consequence of 3) the credit markets were closed to new offerings.
5) The credit markets have only just reopened.
6) This is a JANUARY meeting. Seasonal slowdown, Beltway gridlock, earnings season.
7) Nothing EVER happens at a Jan FOMC meeting.
8) Brexit and China trade issues on the radar and risks are still extant.
9) Exuberance remains far from irrational for the time being (or is it the other way around?).

OK, you get the point. Nothing even slightly hawkish is going to happen because they only just avoided a complete credit freeze and equity market meltdown. Only a total idiot would repeat the performance at the moment, which is not to say that Powell is not going to do it again later in the year. It doesn't seem like a very good week to be short anything at all, except vol.

Having said that, we see an ocean of supply ahead for Treasuries and we would sell once more into any strength.

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Nico G
admin
January 29, 2019 at 7:43 PM ×

LB

have you done botox? your last post smells like teen spirit, like a 12 year old dispter

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Nico G
admin
January 29, 2019 at 9:07 PM ×

Tesla convertible bond expiry suspense

https://www.bloomberg.com/news/articles/2019-01-29/tesla-needs-21-rally-in-weeks-to-dodge-920-million-bond-payout

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BTFD
admin
January 29, 2019 at 10:25 PM ×

Astute post by LB. As he (correctly) points out, the Fed will not let this bull market die. Powell & the Fed have shown they are complete hostages to the SP500, and only a total imbecile would bet against this. Folks, this pullback in spooz was a wonderful buying opportunity (as every pullback is); if you'd BTFD you'd be up over +10% for Jan (more than most hedge funds can produce in a year). You can expect a dovish Fed tomorrow. Their job is to push the SP500 back above ATH's - no more, no less.

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Moniker
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January 29, 2019 at 10:47 PM ×

Wow, LB and BTFD on the same page.

I’ll bite: Powell doesn’t budge on balance sheet runoff. SPX f*cked itself running same number of points in January as it did from April-October last year.

Traders’ paradise until the first rate cut. Forward EPS (chuckle) says Spoos should be 20% lower for fair value.

Broken record: buy Treasuries on any weakness.

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Anonymous
admin
January 29, 2019 at 11:48 PM ×

I get the feeling that all these nebobs of negativity are long a shitload of treasuries expecting the trade to work like in 16, 15, 11 etc. Yeah being long fixed income has worked past particularly thanks to draghi, and it’s what the drunkmiller types know.

It’s not going to work here. Vol is dying. Companies with shitty results aren’t dumping, cos the spec long has cleared. So, if the world doesn’t end, and with borrowings rates fucking low everywhere it ain’t going to end, let’s be clear you are going to get absolutely fucked.

You better pray that there’s no China trade deal, that European data doesn’t bounce, or an accidental nonbrexit gets stumbled into. You are literally playing the 5 deltas as your base. Meanwhile the 5 deltas the other way is the base.

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Bob
admin
January 30, 2019 at 12:56 AM ×

Anon 11:48 is right. Fck your UST trade - Central Bank balance sheets have distorted the bond market, which is a shadow of it's former self. FX is a third rate asset class and Commodities are for degenerates. No, the place to be is equities. Has been for the past ten years, still is. Buy SP500, DJIA etc (not so much Nasdaq as it's had it's day), then when you're done, buy some more. (And you can load up on Japanese, European equities also, they're all gonna go to the moon courtesy of QE infinity).

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Gus
admin
January 30, 2019 at 2:40 AM ×

It seems the question for 2019 has become: will "S&P 3000" occur before "S&P 2000"?

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Anonymous
admin
January 30, 2019 at 2:49 AM ×

The anon does not recommend us equity vapour as qe infinity is dead. This market moves fast and brutally in both directions with themes changing rapidly. US equities are rich, and will face a massive bear soon on inflation fears, along with bonds.

But first we are stable for several months as confidence data bounces curve resteepens and then when inflation shows up we enter new dynamic that no one is prepared for.

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Cbus20122
admin
January 30, 2019 at 5:01 AM ×

Nothing like a long 12% rally to bring out the permabulls eh? Funny how only in the last 1-2 weeks we get the SPX "fed will fix everything" punters back in here. Where were you guys in December? It's the equivalent of people getting bearish only after spoos moved past the 20% down level.

Either way, I welcome back the bulls, just wish the bull case was built on something more solid than "the fed has our back".

On a separate note, keep an eye out for Chinese new year coming up next week. The markets started to sell off during the start of golden week last year in October 1. Not saying this alone was causal, but it marks a decent time spot for a sell off to restart, and there are some fundamental reasons to believe that the big Chinese holidays are planned around (IE, pumped into).

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Bob
admin
January 30, 2019 at 12:33 PM ×

Dow smashing up to new 2019 highs (like I said). Easy to make money when you know how.

For those of you here that like to donate your money to the rest of us, keep shorting equities!

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Leftback
admin
January 30, 2019 at 4:16 PM ×

@Cbus: LOL. The comments area had become polite, almost statesman-like, during the last bear episode, at the end of which we were isolated in our pivot to a [medium-term] bullish outlook [we are mainly long EEM and XLE].

Sentiment has certainly swung back toward those of a bovine persuasion, and the abuse of equity bears and fixed income proponents is back, but this is far from extreme. It will get a lot sillier here before it ends.

I want to emphasize that our view is that we are agnostic on US equities - we are probably in a bear market interlude - but that this may be more powerful and of longer duration than many believe. This is very often the case in the early stages of bear markets, as many choose to play the sentiment swings, while others simply refuse to admit that the bull is dead. The first Fib retracement in a bear market is often steep and can be well in excess of 61.8%. The obvious wall is the 200 day average, but it's not a given that the rally will fail there. The likelihood is that this swing back toward bullish sentiment has some way to go before exhausting a new supply of buyers. We are keeping an eye open for indications of overbought conditions (or obvious reversal candles) in things like XHB and large cap tech, but we are not seeing anything like that yet. There was a long period of calm in 2008, even when the real estate bust was already in full swing and credit markets were grumbling loudly.

Absent a massive bull move in the USD it's hard to see a catalyst for a LARGE risk off move at the moment. This isn't to say that Powell might not utter something stupid and Spoos sell off 50 points to give Nico a temporary stimulus, but any such move is not likely to be of great significance given that he has already flip-flopped once.

A large risk off move would require Powell to throw in an unscripted rate hike today and announce that QT is being accelerated to $100B/month. This is not going to happen, even in the wettest and wildest of bear dreams. We are a bit more concerned about liquidity conditions during mid- to late February, which might recapitulate some of what we saw in December. One thing that has received little attention is that this rally has been a bit thin, which is often the case following oversold conditions.

A long time ago we were advised not to trade FED days as everything is about positioning. That's sound advice. Sit back and watch the game show hosts and carnies on TV this afternoon (its more fun with the sound off) and then we'll see where we are at the close and what the futures look like tomorrow morning.

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Anonymous
admin
January 30, 2019 at 4:31 PM ×

@LB, thank you for your candid comments. What do you expect to tighten the liquidity during mid- to late February? Treasury issuance or trade talk deadline? Thanks.

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BTFD
admin
January 30, 2019 at 5:08 PM ×

LB is correct. Powell is the market's bitch, and he'll do as he's told and leave rates unchanged whilst probably mentioning that the Fed will ease their QT program.

As I type, equity indexes are going parabolic to the upside, and Nico is bleeding his account dry. Look & learn people, I am long and Nico is wrong. It was ever thus.

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Nico G
admin
January 30, 2019 at 7:06 PM ×

New Chinese arrest at Apple / the Huawei saga and the spy news feed is the only think worth watching. As long as the cold war with China is confirmed you can say buy buy sorry, bye bye to the economics and valuations and world as you knew it. Did you guys watch Chinese investments in the US last year? huuuge collapse

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BTFD
admin
January 30, 2019 at 7:09 PM ×

FOMC just confirmed my thesis above. So easy to make money in this market.

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Anonymous
admin
January 30, 2019 at 7:29 PM ×

Breaking news: "We regret to inform readers that Nico was just margin called by the CME, and now has substantial debit to his clearing firm. If any of you have any funds left after pretending this was a 'bear market', you might like to loan him a few dollars so he can buy a better spot at the homeless shelter."

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Anonymous
admin
January 30, 2019 at 7:31 PM ×

@nico, I actually agree with you on long term outlook (6m to 1.5yr). But those geopolitical events and trends you mentioned, while correct, rarely become the market shaking catalysts. It is going to take another liquidity squeeze to repeat the episode of end of 2018.

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Anonymous
admin
January 30, 2019 at 8:00 PM ×

Fed laughing at the SPX bears and "macro experts" who've gone on to join the short vol sellers in the unemployment center.

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Moniker
admin
January 30, 2019 at 8:13 PM ×

MAGA! China and Europe in recession but he doesn’t remotely see one on the horizon. Curve disagrees. BS runoff continues. “We don’t do fiscal policy.”I think Arthur Burns May finally have a competitor for most insipid wet rag to ever hold the Chair. Please, please, please keep buying bulls (both hands, eyes closed). Thanks so very much. Long short-term Treasuries.

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Nico G
admin
January 30, 2019 at 9:18 PM ×

Powell is the greatest disappointment of 2019, ten times greater than the dipsters continuous lack of writing wit style and skills

"Bad writing is destroying the quality of our suffering"

Tom Waits

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Anonymous
admin
January 30, 2019 at 9:33 PM ×

ES_F +42 pts. Posn: short 500cts x $50/pt. Today's P&L: -$1,025,000.00

Tough day Nico.

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Nico G
admin
January 30, 2019 at 10:03 PM ×

Thank you for caring. i will never know what one million means to you and i do not know your timeframe, nor do i care. For swing traders, this post Fed 100DMA touch and close under is the best short textbook setup of the year. If you are long for the next 20 years, you won't act on it. I add size for multi weeks trading but the core position may run for years while i raise my kids in the sun. Powell is patient, i am patient and a half.



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Skr
admin
January 30, 2019 at 11:29 PM ×

@ChCheckmate-whats your take on this "bank of mum and dad"? If it works does this mean it will go (viral) global? Possibly 5 years of growth in it if it does (before it goes tits up).

https://www.theguardian.com/money/2019/jan/28/lloyds-unveils-100-mortgage-for-first-time-buyers

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POTUS
admin
January 30, 2019 at 11:45 PM ×

https://twitter.com/realDonaldTrump/status/1090729920760893441

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JohnL
admin
January 31, 2019 at 1:39 AM ×

POTUS, that puts us right back to where we were at the beginning of 2018. Is this winning?

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Eddie
admin
January 31, 2019 at 9:20 AM ×

@Skr: it's been a while since other banks have been crucified for similar products (in Germany and Australia iirc). Basically they asked for a guarantee from the borrower's parents besides the first lien on the mortgage. The Lloyds' guys should keep their fingers crossed that they won't sell too much of that... looks like a scandal in the making and typical top of the cycle behaviour (second only to Japan's generational mortgages back in the 1980s).

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January 31, 2019 at 10:26 AM ×

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January 31, 2019 at 10:27 AM ×

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January 31, 2019 at 10:28 AM ×

Goyal Cargo Movers and Packers Our business is built on providing outstanding customer service. Moving You and your goods safely and efficiently is our No.1 priority.

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Anonymous
admin
January 31, 2019 at 12:56 PM ×

Fuck off you spamming indian c*nts.

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Cbus20122
admin
January 31, 2019 at 2:32 PM ×

So I'll admit, I definitely jumped the gun on getting too early to get back onto the short side. Kind of sucks because I timed the bottom almost perfectly, but my impatience got the best of me. LB showing his experience in trading these kinds of markets in stating that these things always tend to last longer than people think. I was doing some loose research on past bear market rallies, and most bear rallies last from 50-60 days. We're only on roughly 37 right now, and price action is showing us that the market is still looking to put money back into the long side for now.

Being good at this stuff in my opinion is always about getting past your ego and not being married to your positions. Some of the best traders have been very wrong at times, but were able to objectively evaluate their views and switch if they realized something wasn't what they thought it was.

I still 100% think we're in a bear market, and I think the bulls coming in here gloating are going to crawl back under a rock like they were all throughout q4 2018. But for now, they get to party some.

Also, playing the short dated treasuries is once again, the easiest and lowest vol long play here, especially in the face of a progressively more dovish fed.

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Anonymous
admin
January 31, 2019 at 2:51 PM ×

https://www.oaktreecapital.com/insights/howard-marks-memos

Remember we talked about politics and market a few days ago at this board. Well, it certainly looks like that many wise people are very concerned.

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Cbus20122
admin
January 31, 2019 at 3:00 PM ×

On a separate note, the economy is still decelerating quite a bit, and the actual economic data that is getting released is still deteriorating at an accelerating rate. Today, we got a very alarming # in the initial claims index, where it popped to 253k initial unemployment claims.

I track this index because it's the earliest and most reliable unemployment index, despite that it's a bit noisy and higher frequency. If you smooth it, it gives a great read on the true employment situation. The biggest reason this 253k number is alarming is because it's confirming that the trend in unemployment claims dropping is starting to reverse. Based on 50+ years of analysis, mapping the momentum of unemployment is the strongest indicator of a potential recession incoming, and it's starting to break to the upside. There is no stronger cyclical feedback loop in the economy than employment.

Once it starts trending in any given direction, it's hard to stop. And once it gets going, it tends to amplify directional effects on the economy. As I mentioned a little while ago, we are seeing a lot of very negative economic reads around the world in the face of high employment numbers. What happens when the employment trends start to reverse as companies have to cut back labor in the face of waning profits?

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Anonymous
admin
January 31, 2019 at 3:12 PM ×

I guess the jump in # of initial claims is shutdown related one off event. Employment is a lagging indicator, given how difficult to find workers last year, I assume that most businesses would rather cut hours first and keep their workers for a while. ISM is a better leading indicator.

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Cbus20122
admin
January 31, 2019 at 3:21 PM ×

Yeah still a "wait and see" type of thing. The question is how much was related to the shutdown, which is more difficult to figure out.

As for leading vs. lagging indicator, I think that depends how you track it. To me, it's more of a coincident confirmation indicator. It actually comes very close to calling market tops, and often front-runs market tops. The key is to analyze this by tracking the momentum and rate of change, not the absolute level (which far too many economists do, which is stupid). See link below for a visualization of where this was before past two market tops.

https://www.tradingview.com/chart/ICSA/0giha56H-Inverted-Initial-unemployment-claims/

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Anonymous
admin
January 31, 2019 at 3:32 PM ×

ES_F +15 pts. Posn: short 500cts x $50/pt. Today's P&L: -$375,000.00

Another tough day Nico. I sense a pattern here :)

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Anonymous
admin
January 31, 2019 at 4:50 PM ×

Well equities are rallying heavily as the btfd anons predicted. So much for 'macro analysis' - just looks like so much hot air.

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BTFD
admin
January 31, 2019 at 5:32 PM ×

S&P Tops 2700, Dow Above 25k.

Nico loses over half a million dollars today. BTFD makes more in a month than macro hedge funds have made in the last 2 years. #Winning

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Nico G
admin
January 31, 2019 at 9:13 PM ×

Cbus

1) Bear markets are the hardest markets to trade (even for bears). Yes it is easy to perfectly time intermediate liquidation bottoms like December 24th. It was the first time in 2 years i went LONG. But i only held 100 points (in less than 24 hours !!!!) (all those trades are logged at IB, before our young crowd of dispters wonders). The hardest part is, where do you reenter short because bear market rallies will do everything to suck dumb money back in (cf. now) and force bears to give up.

My point is this: you are either too short (you and i now) or not short enough. Or not short at all. If you have the guts to wait for target and see, and only short on a gap down or intraday reversal, you can regret your current predicament. If i were you i would not regret anything IF you have sized correctly allowing a cushion of at least 5% of adverse markets.


2) To put it another way: if early January you know 2730 is the great big test for Q1 trading if you think the PPT is bold enough to goose the market all the way to 2700s without a retest of the low first, can you really wait on the sideline?

Can you imagine waiting for 2700s benchside and markets reverse at 2670? You watched 2320-2670 (more than 50% Fibbo retrace) and are missing the retest you betted on. No way.

I tell you why: there is no worse feeling in the world than missing a short if you were 100% convinced of a bear market. It means the market fooled you into staying on the bench. I much much prefer to suffer adverse markets, to be a laughingstock, than to miss a trade. It takes a different kind of risk control but your money is solidly where your mouth is.


3) The Fed is Trump's puppet. No doubt. But Xi Jinping isn't. There will be no trade deal, Trump knows it and he is buying as much time as markets are dumb enough to give him. The problem is, it builds so much expectation on reliance on a positive outcome, reality is going hit the markets with a railgun.

Trump tweeted about Dow Jones breaking 25000 yesterday 'Tremendous news!'. This is so embarrassing. And fun to look at Dow Jones close just now. After trading all day under Trump got his 25002 close.


4) If you allow yourself to be influenced by our gloating bulls, you do not deserve to trade at all. Those guys have no identity, no track record, no tangible entry levels, nothing. If i were Trump/the PPT i would absolutely hire an army of those internet trolls at $2000 a month to wreak havoc on bears' morale in all finance forum during squeezes, especially when the 'V' of current recovery actually looks like a brutal 'I'

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Anonymous
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January 31, 2019 at 9:14 PM ×

Still think bonds are a decent short here despite the pain of this view. More so in Europe than the US.

With a weaker usd, growth momentum in EM, a China deal and rebounding confidence we could well see a second leg up in the economy. There were quite a few one offs in q4 (oil crash, German auto change, Italy fears) that contributed to downswing, and worked together to create a mess.

I’m no great macroforcaster but I can see when one side of the boat is overloaded, and right now that’s fixed income longs in Europe, and maybe US. Pessimism in European banks. Too much optimism in us tech (as always!). And generally too much recession hysteria.

A lot of guys keep spouting such “wisdom” as “once the Fed pauses a recession always follows”. This does not seem certain to me. Unlike the handful of data points over last 30 years on which this is based, rates and credit are super cheap and available today which is a tailwind. The hy issuance market closed in December, but it’s properly open today. EM is still getting over nasty 15/16 and a strong dollar and it feels like growth has room to run. And Europe, well yeah it’s been a nasty little downswing BUT, and this is going to be an unpopular view, bigger picture Europe is so much better than it was going into the eurozone crisis in 11/12. The initial response to that of disastrous fiscal contractions back then are all long in the rear view mirror and instead we are seeing greater fiscal spending from a position of lowish unemployment with decent room to run. Draghi said the “banks are strong”, and markets may chose to ignore for now, but he makes a good point about capital position and problem assets today versus 10 years ago - things are better.

Now I do see recession talk from Bridgewater but these are the same guys who said cash was trash and went short without telling you. If they change their view you will be the last to hear.

The only bubble that can crash hard enough to cause a global recession and melt down is China. We got a tremor in q4, it was a bigger tremor in 2015. You have to really believe they implode to like US rates here. If they don’t, vol stays low we will start to see holes going back into the curve in a few months. Ultimately I see the big bear from the death of TINA and staglflation, like 70s.

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Nico G
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January 31, 2019 at 9:22 PM ×

PS: if Europe ever finds a bid and starts overperforming the US, current bearish outlook for world markets will be voided. We are light years away. European banking system is still broken and Europe will never be the growth relay desperately needed when China is slowing down.

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Anonymous
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January 31, 2019 at 9:53 PM ×

@Nico G, dude you're just talking your book. Seriously, you're full of shit. You have a huge ego and believe you're right and the market is wrong. Unfortunately The Fed/US govt/global central banks and markets all disagree with you.

Anyone else here who is short equities, do yourself a favor, close all your positions and stop trading. Permanently. You are publicly embarrassing yourselves.

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Anonymous
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January 31, 2019 at 9:56 PM ×

What do phrases like “European banking system” is broken actually mean?

Credit is flowing in Europe, far more than during 11-13 when PIGS banks faced prohibitive cost of financing. Rates are low. Bank paper has rallied massively over last three weeks. Not a lending problem.

Capital issues? Well there’s a few small problem banks and one big one but away from those most are fine. Italy/Spain a little heavy in DTA and intangibles

Earnings power? Could do better thanks to meg rates but earnings overall are not THAT bad. It’s funny that banks like Barclays and rbs have lost money year after year and yet trade at a premium to french banks who, despite all the fines, have still grown tangible book since 2011.

The real problem with the European banking system is funds were overweight in early 2018 and got their ass handed to them. Now they’re underweight. Let’s see what happens next

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Anonymous
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January 31, 2019 at 9:58 PM ×

Anon at 9.53. You are an embarrassment to other Anons, there is no reason for insults. Stop lowering the debate for everyone

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SJ
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January 31, 2019 at 10:03 PM ×


Here's a chart of the best macro trade of the year: https://imgur.com/KNtddLh

+31% in less than 2 months!!! Beat that.

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Skr
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January 31, 2019 at 11:09 PM ×

@Eddie yep the road to evil is paved with good intentions. I was looking at from a slightly different angle of have we seen the birth of the 3 year retail bond (that is what it essentially)? They may have inadvertently foubd the dream middle aged ticket.
@Anon thanks for the link to research papers.

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Nico G
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February 1, 2019 at 2:02 AM ×

US REITs have done incredibly well this month. LB did you long this, congrats if you did. Last time real estate did well while markets sank was 2000-2002 bear market which corroborates the growing evidence that next bear market will be of the 2000-2002 variety (long, with a mild recession) instead of a brutal 2008 redux. Reduce your exposure at each risk rally.

Anon at 9.56 i meant European banks suffer from a depressed European economy. Cousin Draghi could not play any magic solving Italian banks' NPLs and Italy is now in recession. French banks are not exactly fine and dandy a 20% correction in stocks sent their investment banking units in tremor. Overall European credit is telling you an ongoing ugly story

DIsclaimer: under current extraordinary circumstances i am talking my book. Normally i talk others' books especially Russian and south AMerican litterature.

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February 1, 2019 at 2:22 AM ×



My intuition and charts are telling me if you have entered long into the SPY the last two days...you have officially "entered reception". The 3 - 9 month chop call versus trumpy rally obliteration looks a good bet. Let's add that to the macro man blog euphemisms for when you have entered a trade with a pronounced degree of cognitive dissonance.

" Entered Reception "

The macro man blog can be the "interface" of market punters worldwide.

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Cbus20122
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February 1, 2019 at 3:40 AM ×

@Nico, good reminders on the difficulty of trading in general. I'm definitely not letting people in here influence my thought, at least not unless they provide good valid counterpoints beyond "buy the dip because.... fed". If anything, the return of these people seems a good contrarian signal.

As for Europe, here is what I see. Despite the fact that Italy is now in recession, Germany is about to be in recession, the ECB is actually tightening, France is having problems with protests, and almost all of the EU has abhorrent demographics without much prospects for growth and innovation over the next 10 or so years. Despite this, equities have only fallen 20-30%. Despite every measurable datapoint being worse than 2015, we still haven't fallen to that point yet, and not a single of the major risks to the EU's economy have been cleared. If anything, risks are growing at a faster pace. I do not think European equities have priced this in at all.

As I've argued against LB's Europe position, it's not about value right here. IF your valuation metrics are just simple p/e ratios, I think people need to get ready for the "e" part of European equities to drop out here, especially once the unemployment feedback loop kicks in. To me, the most important thing in macro is to understand rate of change in data, and European economic data is accelerating downward, yet some people think for whatever reason that we are hitting a bottom here. That's a thesis built on literally nothing more than hope, at least at the current time.

Beyond that, the batshiit insane thing about the global markets right now, is that it's becoming more and more obvious that the entire global economy is going to either live or die by Chinese stimulus. If China doesn't stimulate enough (or can't due to monetary constraints), everything goes up in flames. So basically the entire globe is hoping praying for the world's largest ponzi scheme to not fall apart, because that means disaster. Like Powell, in terms of anything Chinese, I remain signal dependent, so I'm not discounting another massive wave of stimulus, but it's not really happening yet, at least not to the extent of 2015-2016.

As for US markets, I still think we're the best place in the world, but things are starting to noticeably slow down as the rest of the world deals with their issues. It probably sounds a bit crazy to some in here, but watch the USDHKD pair once again. When / if it hits 7.85, which may be soon, the dollar will resume it's bull phase, emerging markets will go back to their bear phase, and we'll get a continuation of all the "bad" stuff that has been going on.

Interestingly, you can look at the ratio of spx/eem, and not surprisingly, SPX drastically outperformed EEM starting right when the top of the band was hit. And guess what? Before the q4 liquidations started, there was a huge drawdown away from the USDHKD peg in late September, which "coincidentally" kicked off the more recent phase of EEM outperforming SPX. There is more nuance here, but it's a wonderful signal of what is going on from a money perspective in China, which influences everything.

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TraderJim
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February 1, 2019 at 5:19 AM ×

Bene long EEM this month, done ok. But now Powell has officially backed down, last piece of good news left is a Trump trade deal. Then all the good news is out and time to take profits, let the bears take the wheel for a while.

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Nico G
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February 1, 2019 at 5:39 AM ×

Cbus

Europe has only fallen 20-30% but from much lower, the 2015 peak. It has been in a bear market since 2015 while Spoos printed new ATHs all the way to October 2018

Zooming out, Europe has been in a bear market since 2000 peak. Take a long term chart on Eurostoxx.

It peaked under 5000 in... year 2000 that's right
Printed a lower high under 4600 in 2007
And then a lower high of 3700 in 2015

this is why Europe has been a short trading paradise.

Shorting Spoos has almost always cost me because i am fighting the Fed. But shorting Spoos has only cost me 20% of what i made shorting Europe for as long as i can remember. Up yours, dispters. Having said that, i covered all Eurostoxx last December. Spoos overperformance vs. Europe should melt away like it did in 2008 so i much rather stay short that obese, insanely overvalued market which i think they can not goose much much longer.

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Nico G
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February 1, 2019 at 7:33 AM ×

https://www.bloomberg.com/news/audio/2019-01-31/china-s-growth-rate-is-closer-to-2-right-now-miller-radio

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Anonymous
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February 1, 2019 at 1:37 PM ×

NFP huge beat. US indexes up again. Once more, the macro men are wrong!

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Anonymous
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February 1, 2019 at 3:41 PM ×

ISM huge beat. US indexes up to new 2019 highs. Macro-men, you wanna try reading the US macro data, it's so bullish it hurts.

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Cbus20122
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February 1, 2019 at 3:52 PM ×

Who was predicting a huge jobs drawdown in NFP data right now? NFP data = 3rd quarter 2018 data that was just released. Congrats on getting right what we already all knew about 3q 2018. Lets not forget that employment pressure and wage growth is part of the strongest late cycle factors that cause the tide to shift (labor pressure = margin pressure).

As for the ISM, "2019 highs"... based on the one month of 2019 data? ISM saw a nice rebound, but still lower on a trending basis vs. peaks in 2018. When this makes new highs over a series of months, I will come around.

I'll reiterate once again here, macro data is not about the absolute level. Markets price that in. What they don't price in is the change in the levels there. Look at the broad trends and changes in the levels. ISM is still heading downward on a trend basis, unemployment rate & initial claims are *potentially* bottoming here and shifting direction, and almost every other economic datapoint outside the US (where most of us bears are short) is accelerating downward. But by all means, please lever up long right now and hodl. If you're right, there is no need to gloat, ego will always be the downfall of people doing this type of stuff.

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Cbus20122
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February 1, 2019 at 4:06 PM ×

Sorry, misread nonfarm payrolls, it's not q3 data, but it does lag the cycle overall, and is a somewhat noisy signal anyway.

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Nico G
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February 1, 2019 at 4:34 PM ×

huge 100MA test day

According to EPFR, this week saw wildly risk-off flows with $9.4 billion allocated to bonds while $15.0 billion was pulled out of equities

This rally is being sold

Bank of America's Michael Hartnett points out in his latest Flow Show, not only were billions pulled out of US equity funds, with outflows on 10 of the past 11 weeks, culminating with $12.1BN in ETF outflows and $2.9BN in mutual funds outflows this week, but US equities have suffered record outflows in the past 3-months, amounting to $82.0BN, equivalent to a whopping 2% of all AUM

PPTrump so far has managed to decimate bears (short squeeze) but failed to suck dumb money in (since our cherished dipsters here only trade in their head)

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Nico G
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February 1, 2019 at 4:42 PM ×

from Northman:

In 2001 $SPX rallied hard from a yearly low in December (similar to now) and the high was made on January 31, the last trading day of the month.

Note the common and concurrent elements of the previous two big market tops (2000 & 2007) versus now:

New market highs tagging the upper monthly Bollinger band on a monthly negative RSI (relative strength) divergence – check

A steep correction off the highs that breaks a multi-year trend line – check

A turning of the monthly MACD toward south and the histogram to negative – check

A correction that transverses all the way from the upper monthly Bollinger band to the lower monthly Bollinger band before bouncing – check

A counter rally that moves all the way from the lower Bollinger Band to the middle Bollinger band, the 20MA – check

A counter rally that produces a bump in the RSI around the middle zone alleviating oversold conditions – check

All these events occurring following an extended trend of lower unemployment, signaling the coming end of a business cycle – check

All these events coinciding with a reversal in yields – check

All these events coinciding with a Federal Reserve suddenly halting its rate hike cycle – check

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Jim
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February 1, 2019 at 4:57 PM ×

Short bonds? My view...

Critical views welcome!

1) Bond auctions are getting increasingly difficult to pull off. It’s just a matter of time before we get a failed auction that completely crashes the bond market. The government has to issue a staggering $1.6 trillion in bonds next year to cover massive deficit spending.

2) The Fed has already started dropping on the bond market in $50 billion a month, or $1.6 billion a day, worth of paper in its QE unwind.

3) Tax cuts are providing further stimulus for the US economy, so is the NAFTA renewal. The economic data is running red hot. A trade deal with China will crush this market.

4) We also now have evidence that China has started to dump it’s massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.

5) Capping US interest rates for the time being will knock the wind out of the US dollar, scaring away the foreign buyers who take down about half of all US Treasury auctions.

All are HUGELY bond negative

That should take bond prices down to new 2019 lows and yields to new highs.

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SJ
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February 1, 2019 at 4:58 PM ×

It's a sad day when anyone here quotes Northman. Next you'll be quoting ZH...

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Anonymous
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February 1, 2019 at 5:02 PM ×

Jim, if bonds fall then equities will rally. Financials will love higher yields so the Dow will go to 27K in short order. However you look at it, one has to get long stocks.

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Leftback
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February 1, 2019 at 6:15 PM ×

Well.... this isn't going to be terribly popular. It's been a fun ride, and we have decided to step off to the sidelines. Since we are often early we will no doubt see spots take another rip upwards of 2-3% next week!! But give us some credit, peanut gallery?

After all, we made the correct call earlier this week, when we said "don't short anything - except vol". Even so, the dovishness of the FOMC was quite surprising to us, almost as though Dame Janet [aka "La Paloma Blanca"] had returned to the skies.

We had suggested to sell treasury bonds on strength, neglecting to mention that we implied the long end of the curve. Today we are once again selling the long bond, mainly for reasons that have to do with the short term dynamics of supply in that market. There is a shit-ton of supply coming, from Treasury auctions as well as some large February OMOs. We'd expect to see a bit of weakness in bonds first, and then see some of that bleed into equities, showing up first in the usual rate-sensitive sectors. If we had to guess we'd suggest a bit of a steepener ahead, with financials out-performing homebuilders, telecoms etc..

The headline jobs numbers are always a bit of a head scratcher, as though someone with a random number generator keeps pulling them out until the people in the room laugh the most, and then they print it. Hourly earnings, hours worked were more typical for a Q1 report. Nevertheless there is more than a hint of dollar firmness in response to the US data today, and a stronger dollar is often anathema for our favorite longs - EEM and XLE. We are also not too happy with the way credit is trading a lot softer than equities, with the price action in DB, and other aspects of the situation in Europe.

Is this bull run over? We doubt it, but we will state here that "the easy money has been made" during the month of January, and that the market is running out of positive catalysts, with only the trade talks issue out there as a carrot ahead of us. Eventually we still think that Spoos make a run at the 200day average at 2740-ish, but a pull-back to the 50 day at 2600-ish wouldn't be a big surprise. Not shorting at all, but we are tempted to go flat - we are selling QQQ and VGK, which look short-term overbought.

Given that many shorts have been squeezed this week and many algos have been flipped, we would like to urge just a little bit of caution here. The mood is becoming exuberantly bullish, and lately Mr Market has often stated "I don't like Mondays". Taking all of the above into account we are lightening our longs considerably today, and are happy to sit and await further developments.

We are not proponents of the consensus "inevitable re-test" thesis, but we do think that there is potential for at least half of January's advance to be erased in February. So if you'd like to cheerlead - please buy today and maybe make 1-2% - or perhaps take a 5-6% drawdown. Go ahead, punk - make my day.

*Note that we reserve the right to exercise our short-term punting skills or to just revert to BTFD behavior at any point.... almost sure that we are leaving some on the table here - but your performance is what you keep, and you can't argue with +10.0% YTD performance after one month.

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Cbus20122
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February 1, 2019 at 6:18 PM ×

@Jim, well reasoned points, but this was 2018's narrative. There is some truth in what you mention of course, but there is more going on here.

Responding in order here.

1) Bond auctions get more difficult the lower yields drop. If yields start to come back up, the demand will start to kick back in once again.

2) The fed has been unwinding QE for over a year at this point, and yet yields are down. QE is net negative for bonds, but it clearly hasn't been enough to overwhelm the demand for safe return in an environment of increased market risk.

3) Tax cuts cuts are already priced in, and have been for over a year. Starting q1 2019, corporates are now comping against tax cut-based earnings. This is no longer stimulative as a result.

4) China started dumping treasuries in 2015-2016 as a means to stabilize their currency from depreciating vs the dollar, yet treasury yields still dropped precipitously during this time. Once again, like QE, it's not net positive for bond yields, but if China has to sell treasuries, it means there is outsized risk. That outsized risk (usually linked to deflation) causes a rush into US treasuries, which is far larger than the other headwinds here.

5) The US dollar trades on more than just rates, and even in that regard, it's all a relative game. With global developed market interest rates all far lower than US treasuries, there still will be huge demand for UST on a relative basis, which requires buying dollars.

Now, I agree if we were in a full risk-on environment, US treasury yields would get hammered. But UST are still the #1 safe haven asset in the world, and when you look at what is going on economically around the world, it's all extremely UST and USD positive until that turns. There are still enormous allocations to things like risk parity that demand deleveraging in equities and levering up in US treasuries in the face of slowing inflation and increased market volatility. Until these things magically go away (which isn't any time soon), you will continue to see big swings into treasuries any time we see big risk off events. Interestingly enough, the bond bear case can trigger these big downswings in risk parity portfolios (which is part of what caused February and October), but this market price action reflexively causes those risk parity and CTA portfolios to then swing back into being more long bonds. Weird how that works, but it's just the way things are.

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SJ
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February 1, 2019 at 7:39 PM ×

@LB Good calls. You & BTFD have been consistently correct, and in fairness you have (correctly) covered other asset classes than just equities. Good job!

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Jim
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February 1, 2019 at 7:43 PM ×

Cbus20122 All excellent points. Started a very cautionary vertical put spread on TLT. Hoping for the best :)

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Cbus20122
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February 1, 2019 at 7:49 PM ×

@jim, forgot to mention the most important point. If the Fed cuts rates, you get a huge rally in bonds, and that's a big part of whats being priced in right now to bond yields. Same goes for a pause in QE, which will be net positive for bonds. Both of these things Powell as already started to potentially signal this month.

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Nico G
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February 1, 2019 at 8:18 PM ×

Cbus
"already started to potentially signal" lol you actually talk like the Fed. Everyone should wish the Fed kept on hiking - it would be consistent the 'best economy in the world' Trump tweets today. Fed dovish just acknowldges a very different picture

LB
Good boy. Since you missed the start of the bear market last year (man you were so stubborn on Apple) you did the right thing: to get out at the top of the first bear market rally leg. You will probably regret not shorting the 2670-2710s because this was the cleanest short set up for the year

I believe the rest of the year will be much more difficult to trade. When the retest of the low happens, expect so much fear that everyone and their drone will see 2100 and 1800 next. Trust me from experience, it will be incredibly scary to buy 2340 when you see it again.

We will treat BTFDers respectfully in the down phase. Noone caught long in October wants to hear a bear with a big ego made $8m in Q4.

Have a great week end from breathy Oahu

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Nico G
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February 1, 2019 at 9:37 PM ×

http://www1.semi.org/en/total-fab-equipment-spending-reverses-course-growth-outlook-revised-downward

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Gus
admin
February 1, 2019 at 10:18 PM ×

To celebrate the 10-year anniversary of LB's low back in 2009, perhaps we'll get a chance to celebrate Nico's low on 6 March 2019 ...

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Truth
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February 2, 2019 at 9:31 AM ×

We will treat BTFDers respectfully in the down phase. Noone caught long in October wants to hear a bear with a big ego made $8m in Q4.

LOL! Here's the reality: Nico blew his account here at least three times over the last 8 years disappearing from this board for months/years at a time. Each time he tried to short the biggest bull market in history, averaging down with hundreds of ES contracts until his losses were $10mm, $20mm+ at a time. Of course we know this is not real money, but even if it was he has lost $1mm for every $100k he as made. He can't trade his way out of a wet paper bag, has zero risk management, no system/method. Basically he is clueless: a gambler with a Walter Mitty complex. It's all rather sad to watch. The internet is a strange place indeed.

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Eddie
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February 2, 2019 at 2:24 PM ×

Fun fact (*) for those who say that steeper curves are good for the banks:

Steeper curves are indeed good for banks but... these short term deposits are run in so-called model books, where some short term deposits are treated like long term funding (5 years, say). Hedges for these model books are adjusted over time, e.g. monthly. So when yields rise the next monthly hedge brings a higher yield... but you still have 59 others with lower yields. Which means that it takes a while for higher (and conversely lower yields which was a boon over the last few years) to filter through.

But don't worry, the WSJ guys don't get this either...

(*) not guaranteed, actual fun may vary

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Anonymous
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February 2, 2019 at 7:04 PM ×

“Truth” the only thing measured here is the quality of the comment and you/BTFD are bottom of the pile.

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Truth
admin
February 3, 2019 at 2:49 PM ×

"Anon 7:04" no need for a tantrum just because someone pointed out your boyfriend is a loser. You two sound well matched.

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Nico G
admin
February 4, 2019 at 6:42 AM ×

'Truth'

I disappeared from this board whenever i thought i was wasting my time with cunts like you showing up. You have forgotten all the good calls and highly profitable trades (short China, Europe, European banks 2015, long Brazil equities, EM currencies and oil at February 2016 low etc) only to obsess over my (difficult) fight vs. Fed and the House of Cards.

Send me an email: ng7463@gmail.com. It is a real email. If you have some balls you will accept my invitation to our Hawaiian house. I'll fly you first class and pick you up at the airport.

I can't guarantee what happens next, i might break your face, or show you how i trade, and how i live, play with my kids and who knows you might get lucky with one of our nannies. We can go spearfishing together, or surf big waves. In any case you will need courage to come over. Now stop being an abject anonymous cunt here and write me for a private talk. Mahalo.

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Moniker
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February 4, 2019 at 1:15 PM ×

Okie Dokie. Back to our regularly scheduled programming...

@LB,

EU and ERG look recalcitrant on the backstop. Odds increasing of Hard 3/29? For now I’m hanging in with short GBP...

@Nico,

What are your favorite ways to short China?

@Et al,

Anyone here ever directly played a specific hard/soft commodity? If so, what was your experience?

Personally still short general equities via long fixed income (no stomach for months like January). Timeframe always 12 months+.

EWY still looks especially juicy to the downside as global growth slows. As does my TOTY: EURUSD parity. Thanks Italy.

On a final note: chaps this market wrangling is tough enough without ad hominem attacks. We are all falling off the horse on one side or the other all the time. Been hacking away at this ridiculousness since the mid 90s and I still have a lot to learn. While the money is great, the Tale of the Trade and matching wits daily (with all the rigor, luck, hilarity and bitterness implied) with the Market is for me the soul of this business.

Now with my Oscar speech complete let’s get back to substance.

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February 4, 2019 at 2:38 PM ×


See ya Bill!

You left your best call to last...

" we all have own rings "

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Cbus20122
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February 4, 2019 at 3:08 PM ×

Best way to play short China in my opinion is actually to short Australia. Gives you exposure to Chinese demand dropping off a cliff, but also can work for you even if that doesn't happen given Australia's very precarious real estate bubble that has already started to burst (property now down over 16% and accelerating).

For a true hard landing in Chinese real estate, I would also consider puts on Copper / copper miners. Remember that China uses gold and copper as collateral in a lot of their crazy lending schemes. So if you get an unwind in their credit bubble / real estate bubble, you would not only see a huge demand drop for copper, you would also get a wave of copper and precious metals being sold in repo, flooding the market. So you would get a 3fold "black swan" event where you see a precipitous drop in demand for copper, flooding of the market with the metal, and you would also likely get a much stronger dollar. It's not the most likely event to occur, but the odds of this happening in my opinion are far more likely than many people believe. Makes for a great tail risk play in my opinion.

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Anonymous
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February 4, 2019 at 7:43 PM ×

ES_F +13 pts. Posn: short 500cts x $50/pt. Today's P&L: -$335K

Nico still getting pole-axed.

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Anonymous
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February 4, 2019 at 9:36 PM ×

Nico now down nearly half a million bucks on the day... (again).

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IPA
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February 4, 2019 at 11:08 PM ×

@Anon 7:43 pm, time to acquire a better calculator, but more importantly, a few more brains. In any case, very lovely discussion, fellas. Not sure whom to give the upper hand in the colorful debate: the ones with an imaginary life or those with none at all. Perhaps, I should abstain…

One has to agree with what was said here by some of us at the end of December: January fries the US equity index bears. But it is not my intention for this to be a pat on the back, getting out of the way was essential to save the dry powder for a better entry on some of equity dead cat bounces. I am not shorting ES, so please fuck off, brainless children. I would like to concentrate the attention on homebuilders and chips. Both are enjoying some rare good news among the overall bad underlying themes. It’s all about the demand, baby, or lack thereof.

Let’s go with the former first. November was a head-scratcher and something I said would make me somewhat reluctant to re-enter the short. New home sales have gone parabolic. But if you zoom in on the details, dissect the kitty and look at what gave it one more life, it is not as healthy as it looked. They have discounted the crap out of the inventory and capitalized on some concessions to close the sales, and if you look at their quarterly reports, all homebuilders (without exception) have complained about a cliff dive in traffic after November and forecasted (those who actually could even do that, as many simply abandoned their 2019 outlook) much lower sales in Q1 of 2019. Let the hard-working federal employees catch up on the Dec-Jan econodata (after a month of paid vacation) and we will see just how much of a hot air November was. I get it, Powell & Co saved the day, and now it’s to the moon, Alice. Before you say that, look at what XHB essentially is doing here, backfilling the space right below the cliff dive, 36-38 area is a no-man’s land, but at 38 and certainly 39, this thing will be up against a very serious overhead resistance and a lot of memory. I am getting ready to sell, make my day and please bring this up to my entry, children.

Chips… It is amazing how broken and fragmented the space is at the moment. You got the majors like INTC, MU, NVDA, AMD, and Samsung pounding the table on the slowdown and trying to dial back the expectations. If phone sales were something they already saw slowing down, data center was like being hit on the head with a sledgehammer for most of these chip executives. The demand has simply dried up. They did not see this coming at all. Of course, now they try to educate us it’s an inventory sell-through this and a cycle refresh that. Please don’t give me this bs, the box has simply gotten smarter with software expanding its capability and eliminating a need for the chip upgrade or greatly diminishing it at least. So when the group gets a lift on smalls like XLNX and LRCX one has to think exactly who is setting the trend here. I say this was a way to fry the bears and get the group to the resistance that it is now right up against. SMH 98-100 is a great opp for a shorty here. Yep, I once again invite you, brainless children to bring it up there for me, please.

It is important to point out both groups' break out above the Dec 3rd swing high, and this is where I think it gets interesting on the basis of distribution and dumping onto these imbeciles who expect new highs from what is now a cyclical bear. So watch the levels carefully and one can’t get too fancy on the entry as nobody will ring the bell and some front-running will undoubtedly occur.

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Gus
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February 5, 2019 at 3:39 AM ×

"Federal Reserve Chairman Jerome Powell met for dinner with President Donald Trump on Monday evening, the first time the two men have spoken since Powell was sworn in as the central bank’s chief last February. Fed Vice Chairman Richard Clarida and Treasury Secretary Steven Mnuchin also attended the dinner, which was scheduled to discuss recent economic developments and the outlook for growth, employment and inflation.”

That could have been a fun dinner to be at ...

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Nico G
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February 5, 2019 at 5:10 AM ×

Mnuchin is known for his very raunchy toilet humor

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Nico G
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February 5, 2019 at 8:11 AM ×

https://www.bloomberg.com/graphics/2019-italian-banks/

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Anonymous
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February 5, 2019 at 3:39 PM ×

Nico now down quarter of a million bucks on the day...

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Eddie
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February 5, 2019 at 3:50 PM ×

Could one of the admins be so kind and delete posts that are obviously spam?

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Leftback
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February 5, 2019 at 4:15 PM ×

Morning all. A quiet day once again, and we are selling XLE and EEM once more into strength as they approach an overbought condition, in expectation of a stronger dollar phase. We are also keeping a very close eye on small caps as they usually lead the market lower (and higher). I want to offer a few thoughts, today, on bonds, homebuilders, and vol.

1) Bonds were seriously overbought after Powell's rendition of "una paloma blanca". The RSI on BOND and AGG was 80 last week, which was a sell signal for us. We sold those and we sold TLT. We wouldn't necessarily sell the short end though, you have to sit somewhere. To us, a slew of "stronger" US economic data, combined with recent vol selling, upcoming auctions and Treasury selling in the February OMOs are all bearish bonds, especially duration. Which means we will see another swing higher in rates at the long end, and a bit of curve steepening.

2) This would be quite bearish for XHB, which as our colleague @IPA points out, have had a good run and are heading into chart resistance here anyway. So we would think about joining him in that trade soon. Where we end up at March expiration is another story, presumably involving expectations for the FOMC meeting.

3) Vol régime has changed. Last August we came to the end of a type 3, very unusual 15< VIX < 10, associated with extreme complacency and vol selling. December was type 2, 35<VIX<25 associated with major corrections and bear markets; what we have here is the historical average or "type 1", 25<VIX<15, which range would seem appropriate for the frequent occurrence of modest pull-backs or 5% corrections.

Given the above we are happy to sit tight and await developments, especially now that we can sit and make 2%/yr.

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Nico G
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February 5, 2019 at 7:48 PM ×

if there had to be one measure...

https://uk.reuters.com/article/uk-usa-fed-credit/loan-demand-falls-among-u-s-businesses-households-fed-banking-survey-idUKKCN1PT218

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Cbus20122
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February 5, 2019 at 8:53 PM ×

Question - does anybody have a good way in here to track a basket / grouping of the global carry trade currencies?
Even just a cluster of currency pairs added together that can represent a decent proxy of carry trade positioning.

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Nico G
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February 5, 2019 at 9:52 PM ×

sorry i couldn't resist as per 200 dma cliff

https://gizmodo.com/hundreds-of-sheep-killed-after-bear-chases-flock-off-65-1797188930

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Gus
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February 5, 2019 at 10:40 PM ×

Nico: "Back in 2005, more than 400 sheep died in Turkey when a large flock plunged off a 50-foot cliff. Bizarrely, the bodies of those dead sheep cushioned the fall of the 1,100 others who followed."

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Anonymous
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February 5, 2019 at 11:08 PM ×

Nico are you going to close your massively losing SPX short trade when it breaks above ATHs and hits 3000 in a few weeks time?

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checkmate
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February 6, 2019 at 8:31 AM ×

Reading this recently maybe we should rename it Egoman Blog. Leave you to it.

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Nico G
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February 6, 2019 at 7:23 PM ×

Regarding previous discussion on French banks and why i said you should avoid them like Bill Cosby bedroom.

https://www.bloomberg.com//news/articles/2019-02-06/bnp-s-christmas-nightmare-helps-send-equities-revenue-down-70?srnd=markets-vp

https://www.thestreet.com/markets/markets-face-risk-from-bnp-french-banks-in-echo-of-2011-turmoil-14855207

If you buy French banks just know that you buy a 6x ETF long equities (Kerviel redux)

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Anonymous
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February 6, 2019 at 8:59 PM ×

That’s a crazy comparison. Q4 for BNP was duff on the IB side, but we are talking a few hundreds of mm for a bank that does 10+bn revs a quarter and 7+bn income per year. To compare a sub 100mm trading loss to 6x kerviel damages your credibility.

And as things go, buying something at 7x P/E and 5.5x PE on next years tgt earnings seems like no bad thing. I have seen many distressed banks with no chance of near term profitability trading at higher p/bk than bnp, which is currently paying you 7.4pct div yield and building capital.

I don’t like to talk too much about trades on this macro chat, but the European gloom and pessimism towards banks felt in the market over the last 9 months is to me out of touch with the actual state of things. Banks are in a lot better state than 08/09, 11/12. The pessimistic view got lucky in q4 when an IB clusterfuck brought a little crystallisation in q4 IB earnings, but there’s no guarantee for pessimists that shit performances will be maintained and for banks like BNP how ficc/equities perform is mostly irrelevant to the performance of the whole bank because they are too small a part of the numbers to really matter. The way I see it in a TINA environment froggy banks are dirt cheap and rerate to higher multiples after a few quarters of not shitting the bed, and in a non-Tina environment they skyrocket with higher rates/steeper curves.

IMO the calls are mind blowing cheap

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Anonymous
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February 6, 2019 at 9:00 PM ×

Rereading ur comment, u didn’t say 6x kerviel, but 6x etf nevertheless doesn’t stand up to scrutiny

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Cbus20122
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February 6, 2019 at 9:17 PM ×

Dollar looking strong right now. AUDUSD breaking down lower, USDBRL breaking higher, gold breaking down at resistance, etc. Lots of other "interesting" moves in the past day or two suggesting some potentially interesting happenings going on.

I'm still a dollar bull, even moreso now that it's not the consensus long. Now that consensus is much more bearish on the dollar, I'm curious to see how much steam this can potentially pick up on the upside. Also curious what happens to China after Chinese new year is over. China has historically flooded liquidity into these week-long holidays, which may be a big portion of the "stimulus" people are thinking is going on. Reiterating here once again, watch the USDHKD ratio, we're getting close to the peg once again, but not there yet. If that hits the top end of the range, do yourself a favor and look for interesting things to potentially happen in the macro world.

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IPA
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February 7, 2019 at 3:45 AM ×

SMH short is on and today was the epic short squeeze above 200 dma. If I was to bet (far from what I do) it is a precursor for NDX stop scoop above its respective 200 dma. It is not that hard to see that SMH price is suffocating above the daily upper BB. You wanna buy up there? You go right ahead. Scaleout targets: 95, 90, 85, 80. I entered a put spread. Children are taking notes, I bet.

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