Does JBTD actually work?

Macro Man was pleased to see that others found yesterday's study as interesting as he did, though amusingly not every interpretation was as thorough as his own.  In the interest of completeness, Macro Man thought he would provide a further metric- the daily drawdown from the high to the close, this time using S&P futures to capture price action outside NYSE hours.



If for some reason you were under any illusions about whether the recent uptick in intraday rallies off the lows was an artifact of volatility, the chart above should lay them to rest.   JSTFR has worked just as well as JBTFD over the last several months.   Interestingly, volatility off of the lows seems to lag that off of the highs, as there are a number of cases where the blue line above turns before the orange line.  This can possibly be explained by a tendency to close near daily lows at the beginning of a downtrend and to close near highs at the beginning of an uptrend.   (The fact that the orange line is generally above the blue line is a function of the fact that the SPX tends to close somewhat above the midpoint of the day's range, as discussed yesterday.)

While there are probably more technical insights to be gleaned from a study of intraday price action, Macro Man could not resist the urge to test the proposition, so often expressed in some quarters, that markets are manipulated higher and thus buying dips on a daily basis is "easy money".  Obviously it is, if you look at a chart of yesterday's price action and say "if you bought there (pointing at the lows) and sold there (pointing at the close), you'd have made money."  Ex-ante generally proves to be a little more difficult, as the market has a funny way of not telling you where the low of the day will be ahead of time.

Given that Macro Man is working with a fairly large data set (daily open/high/low/close data for S&P futures since 1982), his approach is somewhat necessarily blunt.  In a fairly interesting coincidence, he observed that the daily average drawdown in Spooz from the previous day's close to the lows was 0.75%, very similar to the average intraday rally from the lows to the close of 0.79%.   (Actually, it's not that interesting at all if you think about it for a second....the average daily close to close change is only a couple of basis points.)

Anyhow, Macro Man looked at two different ways of identifying a "buyable dip".   The first was to buy a dip in line with the long-term average, i.e. a 0.75% decline from the previous session's close.   If the market traded that low, a long position was established and held for the day, getting sold at the close.  If the market never traded that low, there was no position for the day.

The slightly more nuanced approach was to use a vol-based entry point.   Macro Man calculated entry points using a one standard deviation trigger (using a 30 day rolling window)  from the previous day's close.   The more volatile the environment, the bigger a dip there must be to entice the model to buy.  Makes sense, right?  Other than that, the methodology is identical to that described above: once taken, a position is held til the close, then sold.   If there isn't a one SD drawdown on the day, there's no position.

Macro Man ran the model using daily data since 1982, and the results.....weren't good.  The summary stats are set out below.






Here are the equity curves....



...and the annual returns


Where to start?   Clearly 1987 is the elephant in the room thanks to Black Monday- that's the price you pay for not having a risk management filter in your model.  While that early setback clearly impacted the summary statistics, it's not as if the other years represent a strategy that you'd want to put your money behind, either.  FWIW, Macro Man did adjust the parameters in both directions, with little meaningful impact upon the model's risk-adjusted return.

Unsurprisingly, the model does seem to be a bit directional, with notably poor performance during equity bear markets.   However, returns are less uniformly positive during bull markets.   Lest we forget, meanwhile,   Macro Man hasn't included any transactions costs in this analysis; given the frequency of trading, the real returns would be considerably worse than those posted above.

Leaving that issue aside, what would returns look like if we introduced a basic risk management filter to mitigate against the Black Mondays of the world?  Macro Man devised a model with the same entry triggers described above, but with stops at double the magnitude, i.e. a 1.5% and 2 SD drawdown, respectively.  If a stop is triggered, the day's trading is done.   Otherwise, any position is again sold at the close.

The good news is that Black Monday and 1987 are eliminated as outliers.   The bad news is that overall performance, while better, still stinks:


The SD model actually did pretty well during the fantastic bull market of the 1990's.   Since then....not so much.


The annual returns still aren't very good....

So there you have it.    To be sure, some algos no doubt have plenty of mean reversion built into their signals, but that entails selling rallies as much as buying dips, and is likely driven by the sort of order-spamming activity that is anathema to any proper macro punter.  Moreover, seasoned discretionary analysis can almost certainly identify solid entry and exit points for the occasional dip-buying flutter.  But based on a few different approaches, mechanistically buying dips doesn't appear to work now or over longer periods of time.   The best that Macro Man can say for it is that if you're prepared not to use stops, you're probably up a bit this year (per the 4th chart above.)  Then again, the only equity trade that Macro Man can recall referencing this year, buying GDX, is up some 35% since the initial entry point.

In sum, JBTFD JDFW.
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AL
admin
February 26, 2016 at 7:15 AM ×

You made my day MM, brilliant! :-)

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jbtfd
admin
February 26, 2016 at 7:38 AM ×

"Macro Man looked at two different ways of identifying a "buyable dip"..."

The devil is in the detail here. Choosing criteria that result in a long-term negative gain doesn't prove anything useful, except to support your own belief system.

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Anonymous
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February 26, 2016 at 7:40 AM ×

Clearly, your analysis doesn't factor in buying the dip on a good figure, bad figure, 30 mins after the open, 30 mins before the close, on Central Banker talk, on an uptick in oil, a down tick in USD etc etc.

JBTFD!Yeah baby!

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Polemic
admin
February 26, 2016 at 7:46 AM ×

Excellent stuff again MM but we might have to christen you AM soon as you role out the MM Algo trading model which as proven above will work brilliantly with the simple addition of a 'minus' sign to the equation.

Your piece is a a beautiful proof of a new fundamental particle in the lexicon of trading

JSTFD

where JSTFD = -JBTFD and you have proved it also JFW

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Anonymous
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February 26, 2016 at 7:54 AM ×

This post nicely refutes Nico's posts where he frequently claims to make good returns selling rallies and buying dips. As mm shows, Nico's approach has zero edge, in fact is negative.

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Al
admin
February 26, 2016 at 8:09 AM ×

Interesting. Although not conclusive it must be said. Regardless, I wouldn't waste your time. This is one of those where common sense should prevail. You are being diverted, your mind is being taken over fighting someone else's view. Focus on what adds value to what you do. If any particular commenters are negatively diversionary, it's in your gift to do as you will.

I thought this of interest though: "This can possibly be explained by a tendency to close near daily lows at the beginning of a downtrend and to close near highs at the beginning of an uptrend." Sort of explains one's gut feel that it makes sense to place trades in the last half hour of the day's trading for me. It opens up the possibility of a helpful accelerator/decelerator indicator to identify changes in direction. I won't ask you any more, as I've just recommended you not be way laid on the way to pure thought by hopeless commenters.

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amplitudeinthehouse
admin
February 26, 2016 at 8:27 AM ×

Hotairmail, Macro Man is fishing. He knows we know that JBTFD was created after 10 day market movement higher of less than -2%.

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Anonymous
admin
February 26, 2016 at 8:31 AM ×

The issue was never the dip buying, but rather "Grandma Yellen's special tobasco sauce (TM)". Cant argue with that one so no point. Just ignore and write as usual.

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Polemic
admin
February 26, 2016 at 8:35 AM ×

I'll tell you one thing though .. maths, stats, correlations, charts, graphs or whatever ... it hasn't half gone up.

Key level breaks yesterday. double bottoms , or W's as MM pointed out busting and we are now sorely testing the just a bear rally camp who I would imagine sold the 1930 noise area in Spoos. More of a short squeeze? It is fine saying that 10% rallies in bear markets are fine but the pain on any final transition to 'just a range' let alone 'bull market' are eye wateringly painful the they can run into 20%.

Now I know readers here are of course not mindless bears who are short at the bottom and holding, but are are actively playing the bounce for the next short opp type bears, but price is running up and we have thrown just about every conceivable grief at it over the last month.. What is next?

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Leftback
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February 26, 2016 at 8:57 AM ×

These rallies sometimes start with massive fast money short covering and vol selling (that's why you don't short these near the bottom), but then they are sustained by under-invested Real Money buying after the investment committee meets and someone says "tell me again why we are 20% equities and 80% fixed income? Get out there and buy something, cyclical, value, growth, anything at all, you f*ckwits" and then a herd of elephants very slowly saunters into the market and starts eating the trees (this is why you don't short these in the middle). Finally volume starts to dry up, vol selling continues and margin debt picks up again, as you know who starts to perk up a bit (that's why you don't short these near the top). That's usually a sign it's time to hit the Hammock again, of course....

Not looking good for fixed income here, though. Look at it this way, if the G20 in Shanghai is viewed as successful and everyone out there smells more co-ordinated monetary stimulus, then govies will be sold and it will be Risk On, Charlie. If they don't make the right noises about buying every single government issued bond in the solar system, then some of the leveraged fast money that has been front running the CBs is going to run away. Either way it doesn't look especially clever for bonds at these price levels.

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Polemic
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February 26, 2016 at 9:07 AM ×

I am in full agreement with that first para LB, and can't disagree with the second

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Anonymous
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February 26, 2016 at 9:47 AM ×

Polemic's comments make the most sense here. We can argue whether the market "should" go up after x% retracement, but the fact is we must trade what we see, not what we think. What we are seeing is that jbtfd (and Polemic) are correct. Equity indexes are surging higher amidst poor news and data. I hate to say it, but jbtfd is right.

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Polemic
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February 26, 2016 at 10:24 AM ×

And LB as at the guy in charge of a very large algo fund said to me over Christmas - "We rely on doing what the pension funds will do before they do it"

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Anonymous
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February 26, 2016 at 10:33 AM ×

Leap day Monday after G20. Watch out if it's a full moon the night before.

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Polemic
admin
February 26, 2016 at 10:37 AM ×

Full Moon! watch out for Werebears.
Werebear? There bear! (Marty Feldman - the Young Frankenstein)

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egoless
admin
February 26, 2016 at 10:50 AM ×

With so much & so many 'wrong on the internet' I'd recommend this approach:
http://www.raptitude.com/2016/02/the-art-of-letting-others-be-right/
"I am slowly grasping another overlooked freedom, which is the freedom to let people be right (or at least feel right) even though I think they’re wrong. When someone tries to tell the world that Crash is a brilliant film, or that evolution is “just a theory”, I forget that I am free to let them continue to think so."

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Nico
admin
February 26, 2016 at 11:14 AM ×

MM

We contribute to your blog success here for absolutely nothing, and some of us have a fair bit of experience. Very often what you read in the 'free' comments section inspires you to write the next post, and this is all lively and dynamic and well when we stimulate and entertain each other respectfully.

But those anon trolls suck. They suck big. You still want to make commenting easy by allowing anonymous posting. I have objected to that so many times but nothing changed. Lately i thought i was posting quality and frankly without expecting any reward but i was certainly expecting not to be questioned or insulted by half dicks.

this all buy the dip sell the rip is a tiring farce anyway, the yahoo finance bull/bear retarded fight not worthy of us and there is no easy algo you could find by backtesting 34 years of data in 24 hours, so the last post is lame in earnest.

so i say mahalo and goodbye for good. Enjoy your mentally long USDCAD @ 1.41 since you took time to post about it.

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Polemic
admin
February 26, 2016 at 11:36 AM ×

Nico .. you have been storming it recently with excellent comment so I for one would ask you not to go.
Your uber bear funny money antithesis morphed to show your true roundedness and quality during the recent noise.

I am sure we all have reasons for commenting that vary from the extremes of vanity and ego to, what I had alway hoped was what this comment board was based on - adding inputs and variables to other peoples thought process in return for lapping up theirs.

It is up to you to if you feel you're in debit on the value account but please don't let emotional fire burn down this fragile platform

Pol

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Macro Man
admin
February 26, 2016 at 11:49 AM ×

@ All While I can understand the dismay at pandering to trolls, what you have to understand is that the last couple of days' posts represent the essence of what I enjoy about financial markets and writing about them: hear a proposition and then test to see if it is verifiable and/or accurate.

In this case, it happened to be about a subject that's the equivalent of a flaming bag of poo that intruders have placed on my doorstep before ringing the bell. I find their "contributions" more irritating than anyone; after all, it's my doorway littered with an inferno of excrement.

In this particular case, I've actually learned a few interesting things about tendencies of intraday price action (a subject that I usually gloss over in my own trading because I consider it to be noise), so I consider the endeavor worthwhile, even if no one else does. FWIW, these sorts of studies are never about convincing anyone else, but rather sense checking my own beliefs.

@ Nico, you have been a valuable contributor and I (and I imagine others) hope that you will reconsider your decision to leave. That being said, I wish people would sometimes recall that i do have things to do other than police a comments section; while registration may filter out a few of the trolls, it would also eliminate some valuable contributors who cannot register for work reasons. As for the jibe about USD/CAD, you amusingly seem to have taken personally a post I did where I developed another little model, which was actually a response to an online conversation that I'd had. Why you would care about what my little model said a few months ago is beyond me...

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washedup
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February 26, 2016 at 1:06 PM ×

@MM - I have backtested hundreds of strategies in my life, and I can tell you that the simple ones like BTD this or that rarely work for more than 5 seconds - there is one and only one predictor of success in trading, and that is to be big when you are right and small when you are wrong - no strategy that leaves out position size as a variable wins over long periods, because the edge merely from being right on some price statistic tends to be either false, too noisy, or providing a 51/49 edge at best.

Nico - if the good ones leave the idiots win - don't let that happen - Pol put it best when he said this ecosystem is fragile, but its up to the regular posters to make it resilient - one of the problems with contributing to something that's great collectively but seems mundane individually, is that one doesn't realize how much they would feel its absence if it wasn't around. Of course I'd survive without this site and you, Nico, would probably continue to thrive because I can tell you are a natural at trading (I don't know or care to know your PnL, this is just an instinct that comes from a long time in this business) - I for one will take the regular views of 10-15 unbiased, clearly seasoned market practitioners across different trading styles and asset classes over any street research, so it matters to me when any of them leaves. Hope you will reconsider.

And again, I don't mind the trolls - knowing what to ignore is an important skill by itself, isn't it?


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Polemic
admin
February 26, 2016 at 1:07 PM ×

There a skew of similar looking chart patterns out there, which int a surprise considering the correlation of everything .. but whereas SPZ have popped their double bottom neck line, the likes of oil and copper are still under reverse head and shoulder equivalents. Copper hasn't been mentioned for a while but there are actually some fundamental positives appearing according to a BAML report i m reading on it. But I am thinking we have a shove up through those levels with a towel chucking spike. Fundamental oil is of course oversupplied.. but when has physical supply and demand bothered 20% recent swings.

I am keenly watching to see if the commodity complex can technically do what stocks have done. Which then leads on to AUD again. It has been subject to the same 'sell on rallies' meme as everything else with housing bubble top of the fear list, but .. let watch commodities.. Iron has been mentioned here but that gone bit rusty over the last 2 days. Phhnarff.

But finally .. it's month end ..

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Anonymous
admin
February 26, 2016 at 1:26 PM ×

I'd love to see the stats on when the trolls come out. Should be a decent data set back to August.

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Polemic
admin
February 26, 2016 at 1:31 PM ×

Troll ratio correlates to volatility. Binary views are screamed - doom or recovery. In quiet markets finesse is needed and that is not something a troll possesses. Have you ever tried holding a knife and fork correctly between two boulders? Let alone a scalpel

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Bruce in Tennessee
admin
February 26, 2016 at 1:32 PM ×

http://www.marketwatch.com/story/this-is-why-you-can-expect-another-global-stock-market-meltdown-2016-02-25?dist=beforebell

...Does JBTD work? Sure, as long as it works,MM. Lefty, as usual, provides cogent insight into the professional trader's mind as to how he sets up his trades and evaluates market exhaustion and maturity. But I am convinced this idea will have a bad outcome, and still plan to follow it down, although I do not like the whiplash that you professional traders had to deal with.

In the opening few minutes of The Wolf of Wall Street, Leo has accepted a job and his boss, Matthew McConaughey takes him to lunch. In the lunch scene, the naive and relatively innocent Leo is given a real education about drugs, sex, and all the other evils (of Wall Street!) that the screenwriter literally pounds the audience with ad infinitum during the movie. But Matt explains that he is driven to do this by his job, that he's more or less been forced into it. Later Leo takes the lesson to heart.

I don't know how you boys do it. But I am convinced, and don't see black helicopters over the place nearly as much as I might, that this thing will bust. If the G-20 delivers some more drugs, then things will probably go on for awhile. But in these dependent markets the loss of liquidity (taper tantrum by any other name) should eventually come home to Momma.

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Eddie
admin
February 26, 2016 at 1:47 PM ×

Regarding trolls: I have seen other places being run down by them and you had to register before you could post anything. So forcing people to register doesn't help. Only ignoring helps. If they figure out they get a response (no matter whether positive or negative) they come back and want more. As others said before, volatility begets trollish behaviour but a proper flush or two should work wonders here.

@Nico: I would be more than happy to read you here. Your emotions shouldn't take control of your trading and hopefully won't take control of your posting. In the meanwhile my shorts bleed, too.

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Anonymous
admin
February 26, 2016 at 1:57 PM ×


Nico mate anyone who knows anything knows who posts good stuff and who trolls, we dont speak up though as we dont want to feed the troll.

Anyway hope you dont leave but if you do best of luck to you.

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Anonymous
admin
February 26, 2016 at 2:22 PM ×

nico- again as someone who's been around for a while I'm not sure why you let useless comments upset you. there are lots of time i disagree with what people post - market view etc but i just come here to get a "feel" for what punters are thinking while contributing myself

on markets- leave aside sentiment -pmi crap- hard data in us is Ok nothing spectacular but solid-
so with that backdrop how the fark is the market even thinking -ive us rates!i think usd is ready to get a leg up and EDs could give back some...
which might put a lid on spoos as well ...
still got this us short other stuff long and its been crap

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washedup
admin
February 26, 2016 at 3:18 PM ×

MM - good call on the healthcare component of CPI being a good leading indicator of an upward surprise in core PCE - too early to call it a trend, but I'd say a few more months of job growth at even 125-150k and we will be on our way.
I will leave it do the cognoscenti to decipher whether that would constitute a new worry with 'cornered CB's' , reflationary goldilocks, or a productivity crisis with reduced margins - I suspect each theory will get its 15 minutes of fame - but I can tell you no one expects it as a base-case, and markets have a funny way of, you know, surprising folks that way. Lest LB accuses me of having ambled over to the hawks and hikers club, I am really just glancing in that direction, man, really, just looking...

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Macro Man
admin
February 26, 2016 at 3:26 PM ×

Tks, washed. It's good to have something properly macro to talk about for a change! I think base effects are a little challenging for y/y comparison over the next couple of months, but still.....Jan '17 Fed funds still only pricing 15 bps of rate hikes this year. In light of wage and PCE numbers, that looks woefully short to me....and per Monday's post, I did sell some before the figure.

Re: your comment on backtesting, I too have done a very significant amount of work in this realm over the years. And while you are right about varying your bet size when it is to your advantage, I will say this- if something won;t work at all in a relatively simple construct, it probably won't work even when tarted up with bells and whistles. In other words, you have to isolate a profitable signal before you worry about how to extract the most value from it. As such, I have found fairly simple models like the one presented here useful in separating the wheat from the chaff.

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washedup
admin
February 26, 2016 at 3:29 PM ×

Agreed 100% MM - don't you go off sulking and cycling now - we need you guiding us through these very very interesting times!

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Polemic
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February 26, 2016 at 3:37 PM × This comment has been removed by the author.
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Polemic
admin
February 26, 2016 at 3:38 PM ×

And back to non macro, but in line with the market timing theme .. I'm intrigued to see if jbtfd's mystery buyer comes in at 4pm Ldn again. As jbtfd isn't on telling us to buy buy buy at the moment I assume the likelihood is lower.

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Anonymous
admin
February 26, 2016 at 3:39 PM ×

@Nico

as Rick Ashley sang in the 90s 'please don't go, don't go-o-o-o-o-o'

some of your posts are too educational for us NKOTB, don't let the Anons win!

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Polemic
admin
February 26, 2016 at 3:41 PM ×

Oh and I wonder how many trolls don't among to get thru to comments because they can't identify the ice-cream, grass, palm trees, pizzas or anything else this Captcha comment test puts up

Hey, I ve got an idea... they should ask ' tick all the conspiracy theories' and have a picture of different assets up there. they'd tick everything and fail.

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Anonymous
admin
February 26, 2016 at 3:53 PM ×

washedup said...
"MM - good call on the healthcare component of CPI being a good leading indicator of an upward surprise in core PCE - too early to call it a trend, but I'd say a few more months of job growth at even 125-150k and we will be on our way."

Check out CPI rent:

https://research.stlouisfed.org/fred2/graph/?g=3BxR

As soon as oil turns in a meaningful way, CPI is going to take off.

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Anonymous
admin
February 26, 2016 at 4:32 PM ×

https://twitter.com/IanShepherdson/status/703245138903044097
"If core PCE keeps rising m/m at pace of the past 3 months, y/y will hit 2.0% in Oct. Only 2 years before Fed forecasts, so no big deal."

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Anonymous
admin
February 26, 2016 at 4:33 PM ×

@Nico,

Though I do not agree with you on every post regarding market view, I do hope you reconsider the decision of leaving.

On G20, I read the news coverage on G20, it sounds to me that German would not be much a help on ECB's new stimulus and Draghi is going to under-deliver again. Also, no big package or no coordinated actions on currency. PBOC promised a stable RMB, probably means that RMB would devaluate gradually.

Without apparent catalysts, spoo seems to be able to grind higher for a while. On FX, USDJPY should be on rebound. But since I have the bias toward China's political risk, I will watch for any trouble sign in China during the incoming 'Two Sessions'.

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Troll
admin
February 26, 2016 at 4:45 PM ×

Here's a nice song for all you school-girls missing nico and jbtfd:
https://www.youtube.com/watch?v=ikJony6h_tQ

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Macro Man
admin
February 26, 2016 at 4:55 PM ×

I'll admit it, I laughed...

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washedup
admin
February 26, 2016 at 4:59 PM ×

anon 3:53 thx for that - do you really think oil needs to turn up that much for the core index? I haven't looked at the relationship in a while, but the leakage of excluded items into the baseline core was pretty minimal (I guess they are excluded for a reason). No question it matters a lot for the headline and the market based measures. That oil effect won't bottom out till Q1 or Q2 of 2017, but I agree with shepherdson (h/t anon 4:32) that core may hit ceiling 6-9 months prior.
I honestly am beginning to think given the low baseline, oil is the only thing standing in the way of a good old inflation scare in the next couple of quarters - even very smart people in this business seem to keep forgetting inflation is a change, not a level.

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Anonymous
admin
February 26, 2016 at 7:54 PM ×

What is the case for oil turning?

Is it purely a cartel play or is there some thought that the decline in activity will materialize in lower production fast enough for the refinery shut-in to not take us to tanktops?

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washedup
admin
February 26, 2016 at 8:19 PM ×

anon 7:54 first of all in the last 15 years there is one thing I have learnt about commodity 'experts' - they are all drama queens for whom the next glut or scarcity is seconds away - the system is a lot more resilient than its given credit for - if I had a dime for every time the v/f spread in natty blew out because we were gonna 'fill up' by labor day only to create a massive short squeeze 3 weeks before expiration on some slight non bearish weather. So I think getting through March/April where the system is supposedly about to collapse will in and of by itself be enough to steady the ship - in the medium term I think price will stay roughly here or maybe slightly lower, but the shape of the curve will stop reflecting this much oversupply - in the long run yes all about whether or not production declines - I don't think supply will decline but I think demand is really strong, so barring a big recession I think the glut will wear off and the world will get used to $30 oil just like it dealt fine with $100 - winners and losers but overall a positive for global consumption, clearly negative for credit and EM fx reserves and that is that.

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Anonymous
admin
February 26, 2016 at 8:28 PM ×

@ Nico

Seriously, you give good comments to all of us, made me think about a lot of trades (although not necessarily your views), but good fresh brutal thinking, i like it...for goodness sake mate i even have "your" damn short EURGBP on...
LondonFrog

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Anonymous
admin
February 26, 2016 at 9:05 PM ×

@Nico
There are a lot of us who will really miss your comments here. Wish you would continue to post. Anyone with experience and or half a brain can see the troll posts for what they are.

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washedup
admin
February 26, 2016 at 9:22 PM ×

There's your hero Left - enjoy:
http://www.reuters.com/article/us-doubleline-gundlach-idUSKCN0VZ2FW?feedType=RSS&feedName=PersonalFinance

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Anonymous
admin
February 27, 2016 at 4:50 PM ×

Negative US rates? LOL! Those dot plots are going higher . . .

https://research.stlouisfed.org/fred2/graph/?g=3C5m

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Whammer
admin
February 27, 2016 at 8:44 PM ×

@Nico, I want you to know that there are a lot of lurkers and semi-lurkers that appreciate your comments. Don't let the morons get you down.

Plus you have the occasoiial "BP" wife stories you share, we'd hate to miss those too.

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Leftback
admin
February 27, 2016 at 10:20 PM ×

From the Gundlach article (or is it from the Asset Allocation meetings at Hammock Capital?). Many people have speculated that LB is Gundlach but we actually have more hair and less sex toys in our office desk. [To be fair, he is also wealthier].

JG: "We were near a minimum allocation to stocks before the summer meltdown," Gundlach said. "We stayed there while the SPX dropped over 250 points. Yes, stocks are, in our view, in a bear market, but there are counter-trend moves along the way."

Gundlach said the conditions in the second week of February with "wickedly negative equity sentiment were such that risk/reward favored a potential tradable rally and also made such a low allocation less advisable."

He added: "If we were not allowed to trade for two years and had to keep a static portfolio, we would not have bought two weeks ago. But that is not our situation. As long as you are less in the market in sell-offs than you are in rallies, you will outperform. As long as you are longer than the market in rallies than you are in sell-offs, you will outperform."

He also said oil will "really easily" rally toward $40 a barrel as the price has dropped so much. U.S. crude oil settled at $32.78 on Friday.

Nice commentary, there, we also went long around Jan 19 and again Feb 15, so one could say great minds think alike. The key to 2016 so far has been simple - entering the year with a pile of cash and waiting for overbought conditions to swing to oversold before deploying capital. Obviously this is impossible for many institutional investors.

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Anonymous
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February 28, 2016 at 8:10 AM ×

Are you still sticking with lower for longer LB ?

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Anonymous
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February 29, 2016 at 1:18 AM ×

Ex-Bank of England chief Meryvn King says the euro should be broken up:
http://www.telegraph.co.uk/business/2016/02/28/lord-mervyn-king-forgive-them-their-debts-is-not-the-answer/

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Michael
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February 29, 2016 at 1:42 AM ×

The chart of the CFETS Index now looks to be decisively below 100. You wrote in early Jan that "If the 100 level goes, on the other hand...then it's a clear policy choice to devalue, and the question then becomes by how much. ".

I think your 2-3% devaluation estimate is very reasonable but wonder if this weakening and policy stance sets up another wave of Yuan devaluation panic in the near future. For example, if Draghi manages to move the Euro lower by trying to live up to the easing expectations he has set.

Bloomberg CFETS RMB Index - http://www.bloomberg.com/news/articles/2016-02-28/yuan-fixings-enigma-returns-as-pboc-reverts-to-currency-basket

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Anonymous
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February 29, 2016 at 5:12 AM ×

any views on Nat Gas? level v low, avoiding the wider commodity bounce

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Anonymous
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February 29, 2016 at 8:24 AM ×

Nico. Please dont leave. This is the internet and as such is full of idiots. You are one of the most thoughtful and interesting posters on here, and this is one of the best forums for the market and will be worse off if you withdraw.

Yours faithfully

anonymous.

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