Macro Man is traveling today so is forced to keep his observations brief:
* The Nikkei short suggested on Friday has worked a treat, and a testament to finding outliers when beta is trumping everything
* Alrhough Chinese equities are now down on the year, Macro Man remains unconvinced that CNY/CNH depreciation will become disorderly....at least not til we see a substantial chunk of China's FX reserves ebb away. And if that were to happen, it's reasonable to ask what would happen to the Treasuries etc where those reserves are currently parked.
* Alrhough it feels like Armageddon, it's important to recall that these types of episodes are more normal than not. The current one does not necessitate recession, though it has probably stayed the Fed's hand for September
* VIX will open above 30 today...that has historically been the point of exhaustion for non-crisis corrections. Today's price action will therefore be quite telling, and owners of Kevlar gloves may wish to deploy them, if only gingerly, this morning
50 comments
Click here for commentsit's a great time to bid some of them 25 tequila shot currencies
Replytoday i did first clips in MXN, BRL and MYR i thought i'd write it since the Fade Nico crowd is looking for new trade ideas
salud !
I'm beginning to think FM was from the Fed or something. All the while he was here the markets rallied, the day after he leaves it's carnage. Seriously what are the odds???
ReplySeven years after the 87 crash, in 1994, many feared that growth would be annihilated for little good reason other than a back-up in rates from the bond market hiccup. There were few other tells, and the real economy which continued to plug along despite pervasive fears of implosion. I'm not your classic dip buyer, but do reckon there is plenty of inertia in the real economy irrespective of increased fincl mkt volatility and their feedback effects. Even following Nikkei's rout of '90 (before many of today's traders were even born!!), real economy impacts were so meaningfully-lagged as to be irrelevant for even mid-frame macro forecasts. Lots has already been baked into commod prices, and volumes show few signs of weakening. If there is to be a real shit-show, I can't help but think it's not NOW.
Reply-Cass
Interesting Nico, I would look at the COP too (though it looks to be closed today). MXN is overdone IMO, and the infamously expensive BRL is starting to become cheap on PPP. Lots of hedgies receiving there. Not something I can do with my PA but if you can to me its one of the better LT macro trades.
ReplyJPY has officially joined the party, cheers MM.
No bid in EZ equities...
HY closed end funds trading at 15-20% discount to NAV... nibble nibble???
abee BRL offers a spectacular entry here - they can always fall some more but you gotta whole lotta love currencies twice cheaper from their top (/USD)
ReplyCOP is in the mix am no forex expert so need to diversify with at least 20 countries
FM is probably a very young trader who got too many here distracted, shame. The BTFD posts can still be found on ZH
Nico - agree on BRL - I actually think EWZ down 80% from the highs is also not a bad punt unless one thinks the country will soon sink into the Atlantic - frankly EM is getting very interesting - just like the US crash of 2008-09 was a mid cycle slowdown for EM, now we are getting an EM crash and a mid cycle slowdown for the US - as I said in an earlier post, the end game for equities is much more likely with bonds being sold, and we seeing the opposite.
ReplyLooks like forced liquidation day out there... remember those AAPL gaps we talked about? The one at 100 finally filled this morning, amazing.... there might be some interesting bargains out there today for the long-term dumpster divers among us.
ReplyHa, Abee, I have been watching for those kind of discounts in HY and EM debt CEFs too, but not rushing in just yet. Well done on China and everything, Nico, if only LB was that smart, which I am not. However, on a relative performance basis, the hammock crowd (LB and CV, for example) have still had a very good summer indeed, and now lead the mindless equity crowd by a substantial margin, ready to make a few trades from the long side into the end of year, as pre-announced here many times from the safety of the hammock. Kevlar gloves at the ready.
Keeping half an eye on JPY buying, for now, it's never a good sign when that starts to get over-enthusiastic. The USDJPY 120 support area is good for now. EURJPY pretty solid. The obvious macro punter trade here would seem to be long European equities and short EURUSD, but let's hold off until the babies and bathwater crowd has finished dumping and the media have had their fun with this panic. They do love a good panic.
Armageddon? With many CBs still in the middle of QE, China likely to engage in easing, and the Fed now reduced to one hike this year, maximum? It doesn't seem as though this is the "BIg One". Steely Dan singing it for the longs today:
"Any major dude with half a heart surely will tell you my friend
Any minor world that breaks apart falls together again
When the demon is at your door
In the morning it won't be there, no more
Any major dude will tell you...."
Any Major Dude
words Shantaram! i lived in Brazil three years - current kingdom of fear reminds of when Lula came in 2003 and spooked everyone. Brazil is immensely rich and if you decide that Roussef and co's destruction has been thoroughly repriced... that a new government ain't too far ahead... provided that you don't get a military coup you could make serious money on your ewz thingy
Replysize accordingly though because my personal experience of Brazilians was that of an acute talent for drama and emotional instability. the 10 years in Brazil yields 4 more points than Russia. From that relative angle too, it feels overstretched and that trust has been completely lost. I would trust Brazilians over Russians any day
LB thanks the hammock measure of well being dwarves any level of money
Replydid you know that Steely Dan was the name of a famous mechanical dildo?
pretty much like the one used in the Bruno movie. PM me if interested
haha
Indeed, indeed ... having cash at hand proves handy once again. I am still only nibbling here, but clearly the EM carnage is now pretty silly. If sentiment merely stops falling, we can have mouth-wateringly nice rallies in some of these names.
ReplyMeanwhile, agree with LB and Washedup. This is not the big one ... it won't end in a deflation panic. It will end when inflation runs out of control, and we realise that we are truly out of road. Two things will work cash and vol. Now, you can just buy bonds, and the EUR to ride the unwind of carry trades. That is soo old-school, too easy!
USDJPY now 119, this is going to be UG-LEE.... Gloves in the drawer for now.
Reply.....and 118, 117. JESUS H CHRIST, BUCKY IS IN FREE FALL.
Replyin honour of the late FM i will buy the cash close in eurostoxx
Reply$tnx sh*tting, I surprised NLY got dumped!
ReplyMargin calls?
There really is nothing like a good carry trade unwind.... even if they never use those words on TeeVee.... Anon: NLY common stock is widely traded and hence liquid, and everything liquid is being dumped today. The preferreds are not, btw.
ReplyI agree with the very balanced view of Leftback and MM (thank you guys, always interesting comment to read for a post 2008 trader). I actually agree with Nico on his view of monetary policy mistakes. at the same time I tend not to see great upside in buying rates at the moment. I still think Yellen should hike. Spread of growth against rates is at the highest and they cannot put themselves in the position of being prisoners of a crying child. They would only feed a further bubble. I think at this point they should hike anyway. That`s why I am thinking this is almost time for a big short on rates (mix of ty, gilts and bund maybe). Equity could puke too but the volumes of this last few days move don`t seem too big (correct me if I am wrong) on an historical basis.
ReplyAlso, JPY seems has calmed down at the moment. Rates are not in panic mood either. Comments welcome!
ReplyWas that a flash... crash I just saw?
Replyyes
Replycaught the stops under 3000 (stoxx)
Why didn't I catch PEP @85 LOL
ReplyThe $VIX of $AAPL - $VXAPL - reached 90!!!
Reply90 is where you should sell ANY measure of volatility.... (cf. VIX 2009)
ReplyNico, do u really believe we can reach 90? that does look a bit stretched to me.
Replyonly on capitulation with monster volume AND bonds joining the party which is not the case/too early today you'd have to tank 50% from top
ReplyBefore anyone even asks: No, you do not get short $VIX products here. I don't even have a reading for spot.
ReplyI now see spot $VIX at 51.27 - more than twice M1. But who knows if that's even a real print.
ReplyVIX high 53.29
ReplyFarily likely we have seen the high in (spot) $VIX for a VERY long time...but it's still so high above futures that getting short is tough
Replyno liquidity in the option market at the start. Was hoping some rush for puts. $4 spread on ATM 191 SPY puts between $14 and $18!. This was at the money, albeit for first 10mins.
ReplyTook 5minutes to execute at mid point. Insurance paid off, now just don't look at my FX portfolio.
btw sold VXX.
ReplySo the MM vacation indicator is alive and thrive.
ReplySit tight right now. cause I am not sure what PBOC will do to pop up the stock market. IMO, it might just provide some liquidity to reduce the SHIBOR right now.
buying some Bovespa futures here. hard to resist
Replysome crazy prints in single names at the open... BIDU went to $100, now at 140..I covered most of my shorts. Still not sure that was the end. EM FX has yet to really reverse..
ReplyRates reversing, or at least to levels of last night. Spoos want to fill the gap.
Be careful with EWZ... smart money says we are going to 4 on BRL and banks still have very low NPLs but they are rising.
Flash crash..xlf.
Replyhttp://stockcharts.com/h-sc/ui?s=xlf&p=D&b=5&g=0&id=p41298869661
OK, I'm back home now....what's I miss?
Replyhttp://dailyreckoning.com/crash-alert/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+dailyreckoning+%28The+Daily+Reckoning%29
ReplyZZZZ. If you didn't say sell on Friday (and you did, Nico), you don't get to claim credit on Monday. I wonder what FM is up to today....
ReplyWow didn't expect to see all the NZDJPY action in 2hrs. Mrs. Watanabe got bitch slapped
Replylast hour on spoos is like watching Breaking Bad finale..
Replylooking for a higher low on stoxx
http://a.disquscdn.com/uploads/mediaembed/images/2427/9379/original.jpg
ReplyI have nothing to add to the this not being the "final" big one. The only trouble spot seems to be the lack of sales growth but profit margins have been consistently doing fine despite the mildly inflationary environment and despite the consumer who probably isn't doing that great. And bond yields going down vs. earning yields up in big chunks recently.
ReplyCBs haven't done yet everything they can - at some point it's reasonable to assume they will start blowing new bubbles buying troubled corporate bonds and pooled consumer credit outside mortgage debts, maybe even quick loan stuff. The sentiment seems much too armageddon right now and the original reasons are if not obsolete, then getting old and tired - everyone knows China, commodities and EMs which have already been beaten to oblivion. And washed's theory of the mid cycle US slowdown vs. EM crash now, vice versa in 2008 seems reasonable. In temporal terms one might think this cycle is finished, but it hasn't really even got off the ground yet in metric terms. Maybe the bull needs the real threat of rogue inflation followed by interest rates going up rather than sluggish growth in the real economy to get roasted for good, but right now this seems to be eons away.
No profit margin pressure so its mostly hanging on revenues. Maybe EM currencies actually pose a risk to these adding along pressure for the next couple of quarters but they won't be rolling over for ever.
Could this, what for now seems to be a correction, possibly be pinned on some kind of wash out from margin debt, forced selling being a trigger for a bit of panicky expansion in the retail crowd?
http://www.thisismoney.co.uk/money/markets/article-3209379/Ex-Treasury-Secretary-warns-Federal-Reserve-not-make-error-raising-rates.html
ReplyLarry Summers, who ran the US Treasury under Bill Clinton, compared the rout on financial markets to the build up to the financial crisis of 2008-09. He urged the Federal Reserve, led by Janet Yellen, not to raise interest rates at its meeting next month.
Summers said: ‘We could be in the early stage of a very serious situation. A reasonable assessment of current conditions suggest that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives – price stability, full employment and financial stability. At this moment of fragility, raising rates risks tipping some part of the financial system into crisis, with unpredictable and dangerous results.’
I think he left out a "not" in the last sentence between "fragility" and "raising." The counterfactuals of the "toys out of the pram" crowd are unanswerable, except to ask how much more difficult the adjustment process will be if the Fed waits a year before tightening.
Replyhow is not raising rates going to help anyway? The only way the fed can solve the current problem is by buying around $1 TN worth of crude oil and burying it in a secret location! This made in EM problem stops when the crude selloff stops.
ReplyCrude at another major inflection point...
ReplyThe line that extends from 2003 high to 2009 low has been reached..what now?
https://www.tradingview.com/chart/?symbol=NYMEX:CL1!
Washedup I think the idea is that lower rates would allow the marginal shale players more elbow room to refinance this fall, so fewer would go bankrupt and eventually the Saudis would cry "uncle", but I like you're idea too. GS has made tons of money that way. :-)
ReplyW was busy taking care of matters outside of the office and markets today. Good or bad timing I dont know. what I do realize how fast one forget just how bloody it can get. I bet even 50% of the bears lost money today! Only the NicoG kind, stubbornly sticking to A view wins! Preferbly the right one.
ReplyAnyway, knowing the focus was going to be domestic I had decided stay out of the mess. . Do nothing. that lasted until after lunch w a smsrtphone by hand. Another deep downturn and Ws fingers got him long Dax. Problem was that I was timing the nice ultra dip on sp1 future which the stupid phone couldn't display at the same time. At least not when W is working it! So I had to help my fingers out to average down.
So today is an exciting day and actually why I still after all these years stil love the markets
Winginit started out in the equities market just after the asian mess in 98. We basically didn' know how to sell until the spring of 2000!
Iceman said...
ReplyI totally agree with MM here. They should just f****** hike in sep and get the damn thing over and done with so everyone can move on. This uncertainty is what killing the market here and all these volatility is not a huge surprise to the FED given their communique.
Salud, Nico G!
ReplyJust need to ask this though... Why the MYR? Do you reckon its oversold (overbought if its USDMYR)? The political situation is still pretty messy (granted, not as outright hairy as it can get in THB) and there's a massive protest rally scheduled to take place this coming weekend.
Unless of course you were referring to a quick trade to bet on a correction for this to fade the big move that's been going on since late 2014. Even then, the risk-reward doesn't seem fantastic given the horrendous liquidity.
That being said, Templeton did put out a positive piece in the Malays space yesterday and the yield curve is pretty steep (10y govvies at c4.40% for A3/A-), but right now it just feels like there'll be too much noise to really establish a directional trade in this space - at the very least one would have to be prepared for a potentially massive amount of pain.
Just wanted to know the ramifications behind this trade; it is a glimmer of hope given that the country really hasn't seen much in the way of positive sentiment of late.
In any event, good luck!
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