Given that Macro Man is in absentia as a moderator for most of the time, he has decided to make a small change to maintain order and ensure the integrity of the comments section. Henceforth a registered name will be required to comment. Hopefully this will not impact the regulars, most of whom post under a consistent alias anyways. Anyone interested in posting about rearview price action and/or someone else's P/L should use the alias Harry Hindsight so that they can be safely ignored.
Thank you.
Thank you.
78 comments
Click here for commentsMy sister has been making $12,000 per day trading spooz using this one weird trick !
Replyoh sheeit.... I signed in !
Sorry Harry. Assholes calling people tired of their twattery 'snowflakes'is one of the more regrettable developments of the current climate and I am not having it here.
ReplyHarry, here's a pro tip: If you have attack a person, rather than discuss an idea, it's probably better to STFU around here and piss off to Breitbart.
ReplyI am 100% supportive of this change.
Reply
Reply"We're gonna come out of this war rich!"
"You're gonna come out rich. We're gonna come out dead."
Back to discussion (Nico and others) yesterday. In truth, equities haven't been that painful for those who saw the post US election rally as an opportunity to start building short positions. To quote a former colleague "I'm having my head held down here, but the flush hasn't been pulled even once yet". The balance of risks still looks skewed in favour of downside trades to me. I prefer UKX which advanced a long way on weak vol pre Xmas. We'll see.
Reply"I foresaw this change."
ReplyHarry Hindsight
"I foresaw this change."
ReplyHarry Hindsight
Agree celeriac. hardest thing in trading is knowing when to pull the plug on losers.
ReplyI know everyone is fascinated by US new highs but there is plenty else going on in the world. Turkey is still a source of fascination for me.
But as for my short dax ( FTSE short is doing ok thanks to GBP strength) I am starting to run on hope rather than confidence, but if you want to use the model for my positions you can find it here.
http://www.toymania.com/columns/spotlight/ssmpblackknight.shtml
@Polemic
ReplySomeone already bought that toy and put it in the WH! ;)
Jeremy Grantham is back:
Replyhttps://www.gmo.com/docs/default-source/research-and-commentary/strategies/gmo-quarterly-letters/is-trump-a-get-out-of-hell-free-card-and-the-road-to-trumpsville-the-long-long-mistreatment-of-the-american-working-class.pdf
Harry Hindsight
Replydo you usually show up uninvited at people's house and shit on their carpet, why can't you show respect?
i suggest you start your own blog, put all effort into it, and hope that members show up and comment without getting on your nerves or laughing when you take the other side of their trade
IPA
spot on on US housing mate
what is your feeling about banks?
Replymicro story
Recently got a call from both a UK bank and a French bank both looking to close my account since they don't make much money from an old monkey who knows their tricks. Reading into their new schedule i couldn't help the impression that they are desperate to squeeze an extra buck. Last November i tried to withdraw quite a substantial sum in London but that venerable UK bank wanted to charge 2%. Two effin percent. While they just sit on their ass. I went monkey shit at them and simply transferred the sum to another, reasonable competitor. i guess it was a low on our 20 year love story.
macro story
rates are rising again, which is the acknowledged engine behind the banking recovery rally since last summer. OK. It has made DImon and Cohn even richer but beyond that orchestrated blatant wealth transfer from low to higher class i do not see any prescience in this. The (first and) only thing am truly expecting from the silicon valley marxist bunch is a way to definetely fuck those old banks over. The airbnb/uber revolution in banking is on its way which is why i sincerely do not understand why people pay up bank shares. Their business model is dead
Trump's coming deregulation of the banking sector, you will say. But we all know how this ends up every time they let those big kids alone to play. I am asking the board who in their right mind is buying bank shares today?
BTP's starting to feel the pressure and lot's of supply coming next week. Also happy to see EURUSD breaking 1.07 with conviction , it had been struggling to break key levels on the downside for a few a weeks. Retail is still hanging on but I'm looking for it to fill the November 43.2-42.6 gap.
Reply@Nico
ReplyI don't see any sort of narrative change in the european banking situation. Their news just don't have as great a "pop" as all-time highs in the US and rallies in many different indices. Still, nothing changed. di Paschi still begging and in most banks in Portugal you now have some "capital controls" for example - you cant do a SEPA without incurring some charges anymore in most banks, while some imposed a limit (<500€ to do it free and... if greater, you have to report it!). Btw, BCP just got another capital infusion. But either way, all portuguese banks badly need one. And in Germany I get more and more calls and letters with new amazing funds and etfs that are poised to make a profit, if only I invested in these safe havens.
Despite Draghi's smug 'no country will have a debt crisis' type comments (I cant remember the exact words) the rise in yields is still high on my list of effective catalysts for woe. But as you say Nico, the narrative is woops and hollers on the US markets. But the first rule of narrative is when youa re wrong, change the story. Si IF and I only say if not to through raw meat to the pack of SGUFs, US eqs begin to slide then EU s there and waiting in the wings to come on as the next act. However, economic data is good, so perhaps I shoud just STFU myself and run a load of trailing stop entries against this market rather than trying to pick tops as my current positions are going blue in the lips due to their freediving attempts. Have you seen the collapse in Dax March puts? I have, I own them! I know .. I ll buy more. .If in doubt double up. isn't that the saying? If it works for JBTFDers then it should work for my puts ..
ReplyHello all,
ReplyEURCHF down to unofficial floor today on ATLN VX news. Bearish narrative, which seems to have swayed market today, is the deal requires SNB to increase intervention by 50%. Bullish narrative is the deal is in USD and most of the ATLN VX shareholder list is international and unlikely to convert merger proceeds to CHF, so you now have an asymmetric bet from here as SNB unlikely to change floor on this. Of course, if they do, and CHF gaps, the bet may not be so asymmetric after all.
The medium-term backdrop for those not following is, on the one hand, the SNB is having to intervene heavily and likely unsustainably given the massive current account surplus, so they probably lower the floor in time. On the other hand, there's the argument that improving economy in Eurozone (or perhaps higher rates in US) will eventually draw money out of Switzerland.
+USDRUB is working today, which is nice. Was a pretty asymmetric bet yesterday, though I sympathize with EM fund manager's argument yesterday that 50m/d rate of intervention isn't very big (versus estimated turnover in RUB of $4.5/d).
Nico G,
ReplyDoes it even need to be Silicon Valley? I woke up this morning with a desire to start-up a new bank. At 2x tangible book and 2017 ROEs currently below 10%, market is pricing in a lot of upside to ROE (tax, leverage, rates). My old school rule of thumb suggests sustainable 15% ROE is needed to support 2x book. Seems like a great time to start vehicle to take advantage of the arb. Even if you miss window to cash out at 2x, you get 15% return along the way. Easy to short banks along the way too.
Do you want to know wire money?
"Rates are going up", "foreigners are selling USTs". Consensus, apparently.
ReplyExcept today when the auction of 7y showed one of the largest indirect (foreign) bids ever, and rates have since fallen across the curve. Mr Bond, it appears, has decided to Die Another Day.
Re. Banks.
ReplyTake a look at the Canadian Banks. We are in the midst of the bubble of all housing bubbles here in Canada, and somehow the market thinks that it can go on endlessly. Growth in Canadian banking sector is 95% a function of increased lending volumes due to the bubble, of which the primary driving factor is low rates. Analyst forecasts for continued growth are based on increased rate spreads on lending, while assuming that lending volumes will continue to grow. It can't possibly happen that way, because Canadian borrowers are absolutely stretched to the max. Any increase in rates is going to lower lending volumes, due to declines in aggregate lending and lower housing prices.
Furthermore, Canadian banks' shares have seen a "yuuge" spike since the US election. Can someone explain to me how having DJT in the US, even if his political changes are successful, is going to change the regulatory environment for Canadian banks? Aside from the fact that they are regulated by a completely different, sovereign country, that has very different views on the role of commerce in society, Canadian banks were never big trading houses in the first place, so even if they could, their limited market risk appetite constrains the growth of proprietary trading models.
If you are looking for a short...
formerfinancial
Replysimplicity is audacity
not sure about leverage though i share the view that fractional banking should go back to single digits
Canadian banker
Reply"Furthermore, Canadian banks' shares have seen a "yuuge" spike since the US election"
it has to be wealthy Hollywood liberals moving to Canada like they promised, opening fat bank accounts, outbidding Chinese on West Van mansions by the millions
Nico G
ReplyOn your query re banks, I can offer some view on UK retail
Firstly, the big high street banks are in a holding pattern, not really doing much. Most of their lending is to existing customers and they fight each other for current accounts. They are closing branches to reduce costs as customers go online. The challenger banks are very niche right now, not making an impact (yet). Appreciate that could change and Monzo is an example of a potential game changer.
Lloyds is a classic, should be making huge profits. With the MBNA purchase they have a massive database of UK customers to cross sell products to. But no. I guess crap legacy IT and 30,000 compliance staff crush innovation.
People will buy for the dividend yield. Not much short opp here. I would buy Lloyds if it tested any lows as it's hard to see how they could blow up from here.
My husband left me and our 6 month old daughter at the end of last month. I was and still am devesated. He said he fell out of love with me and that we were no good for each other since all we did was argue and fight. He then changed his story before he left saying he would come back for us after 2 weeks of working and saving up and move us all down to flordia to live so we could raise our daughter without my family’s meddling in our business. Well once he was down there I found this wasn’t true. He told me it was over and that he wanted to sign his rights away to our daughter and he wants to divorce. He claims he is very happy down there and I am happy for him. Turns out I found from one of his friends that he had no intention of coming back and he said that stuff so I wouldn’t over react and cause a scene. I miss him so terribly much..we’ve only been married since Septmeber 2014 and he’s about to turn 21 next month and I am 22. My family says it’s his age that caused this and that he’s scared. I’ve prayed to god every single night to be there for him and to help him grow up and understand what it is he’s doing. Meanwhile my heart..it’s not feeling broken like it first was..yes I’m sad and miss my husband terribly but it’s like my heart is full of hope..even after us bickering on the phone 2 days ago I still feel hope that things will get better and we can save our marriage and Dr.OOMIRIMIRI spell brought smile back in our marriage contact him today on his email: OOMIRIMIRI@GMAIL.COM OR CALL +2349073244122
ReplyThanks Nico G, I am only as good as my next trade.
ReplyDo we have a possible double top in transports? I am not sure the CSX-related craziness in rails is deserved. Don't think any mergers are coming soon. Yes, NSC beat, but only because they cut costs. UNP's commentary was less than bullish, so was CP's. Freight volumes are not exactly going through the roof, pricing is flat. Easy comps raised all boats. If NAFTA gets scrapped, watch out below for KSU. And CSX cratered on its tepid report only to jump next day on Hunter Harrison's departure from CP to bid for the top man position at CSX. It is very ambitious of him indeed, and the man deserves praise for turning Canadian roads around, but they were roads with not many stops. Before he establishes a coast to coast railroad empire, he is gonna have to fix CSX which is a congested road with a lot of stops and is much more complex than CP. The stock is up 33%, on what looks like just a fantasy at the moment. Must be sign of the times. Anyway, check out less-then-bullish daily candles on some transports today - rails and truckers (even dojis on some).
Copper is looking heavy here. Still think it dives. Did you see FCX and pretty much all metal stocks' behavior here at jubilation time for Dow 20K? These were the stocks traders woke up talking about on Nov 9th and gobbled up for days and weeks after to get ready for the infrastructure rebuild. They are the backbone of Trumpflation trade. They are looking a bit sick here.
Seriously Harry, if you are going to have a stab at some humour, at least put some effort into it.
ReplyYour comments are as useful as an ashtray on a motorbike
Cheers for the Csx input ipa, I missed that. Perhaps hunter just wants more money. Really nothing left for him to prove. Ksu already in the gutter on relative performance.
ReplyNico you own US banks bc your are a quant fund and that's what's working now. They don't think just do what's working according to rules. But that doesn't mean an imminent short is coming. Would probably see commodities roll over first or you need rates to go lower as a catalyst. Or a financial system problem in China perhaps. Imo...
Canadian banker. Canadian banks have a good sized U.S. presence. And they have better roes..and you can buy their shares easily. All developed market bank shares going up.
Until vol goes up a little this is killer to be short equities.
i hear you abee - to inflict max pain market would give the hint of a next wave up- shorts cover on 20000 kissback, then late longs get punished when we say buh bye to 20k
Replynevertheless i won't wait i am shorting Europe on the open today target 3156 on Estoxx index for a retest later on. It's gonna be a long quarter until Dutch elections on March 15.
http://imgur.com/a/K5D2E
Pol you have company in Europe ! i would have positioned on Dax futures and not puts if i were you to not worry about the clock.
Nico I don't see anything bearish. sorry do not share any conviction in a short today. I would rather be late. If it's fast and I miss it so be it. Would rather wait a few more weeks at least. Or get a signal from somewhere of a negative risk not factored in. So far everything is positive. I dont stand in front of la de da markets who just made new highs.
Replyi know what you mean - conventional traders will miss this correction it'll come with no signal. Am not inviting anyone! i put it out here for the record
ReplyBtw rumours that partially Russian sanctions will be lifted this weekend as part of phone call with Russian president. Maybe not the best time to hold a RUB short, can be initiated later.
Replyhttps://twitter.com/FabricePothier/status/824712841932533763
https://twitter.com/sbg1/status/824734913790349313
meanwhile shit is getting real with Mexico
ReplyFebruary is gonna be hell on markets, the Trump's squad is hitting real hard
@EM/PM
ReplyRising Europe political risk, Trump, higher oil all point to long RUB
@Nico
Question is whether Mex is some sort of test case for China; the latter being a much more complex story. I don't think Trump's team can be that reckless with actual policy implementation vs rhetoric, but who knows? I have been telling myself the tone would soften since his election but numerous exec orders (and tweets!) are proving to the contrary.
If Trump reflation is here to stay, then rising rates and trade tensions could be a trigger for fallout in China from their banking sector.
In Europe, infl. expectations keep rising, led by Germany: 5y5y fwd infl. swap is 1.78%, close to highest in more than a year (and 1.46% before Trump). EZ headline CPI is 1.1% (due to oil price gains) and core is 0.9% and going higher.
So you have rising trade war risk, higher China risk, Russia benefiting - not least from the populist fallout in the EU - and all in a seemingly higher rates environment. It doesn't seem to add up to a happy conclusion ex-US/Russia.
Mav, do you have the name of that driving school? What was it? 1800-TRUCKMASTERS?
ReplyOh we were just kidding about putting a tax on Mexican imports. Carry on.
ReplyThe fact that MXN isnt doing much probably tells you a good deal about risk sentiment at this point. FWIW, a useful guide to a top in market sentiment has often been EuroStoxx over the past several years. I'd like to see a swing low along with commodities dipping. Copper right at the cross hairs. Though would really like to see steel/iron ore complex come off too
@abee tough to see anything big happening in steel/iron ore with china on holiday.
ReplyThis GDP report was a damper - I was beginning to think the fed may grow some balls and go 25 bps next week sans conference. Kind of played into DJT's hands with the trade deficit being the reason - not that he is focused on those subtleties.
While I applaud the step to force everyone to register (as one of the original proponents no less), I clearly did not prepare well for the eventuality - bummed that washed-up is unavailable as a domain everywhere, so it will have to be washedup74.
Rossco - Not really, do you need lessons?
ReplyIf not, is your warmth for trucking based on experience or somehow reflective of a view that globalisation is here to stay?
Back to macro. What do you, wise men, think about long NOKBRL?
ReplyInflation is really going nuts in Norway, crude oil back and consolidated above $50, stable budget balance and GDP, low unemployment. It seems all planets aligned for the CB to finally kick off a good dose of monetary tightening.
On the other side, Banco do Brasil ready to smash the button and fulminate those high interest rates in order to bring the economy back, now that Evil Rousseff is gone...
@MANU
ReplySecond that. NOK looks good.
Check out RUBTRY too!
RUBTRY is one of our favs this year, but we remain cautious. Although Erdogan is a lunatic, a retracement could be very sharp, i.e. the OPEC f**s it up, fracking production skyrockets in the US...
Reply@ abee - on border tax vs Mexico: not sure it should be completely dismissed. The suggestion of an import tax is effectively taxing the trade deficit, crudely speaking. Trump is all about hitting nations that have a trade surplus with the US. Also, border tax is not just about paying for the idiotic wall... in general, if implemented, it is really about funding aggressive corporate tax cuts.
ReplyNo surprise in USDMXN because it's broadly priced in as there was always talk from DJT about Mex paying, and how else than by some form of tax?
I think we also need to keep an eye on CNY and impact on Asian FX.
GDP was disappointing, as we predicted. Look for the CESI to turn downwards decisively over the next few weeks of US macro data. Reflationary sentiment is going to decline with the US economic outlook, and yields and the dollar are going with it. As we and others have said here, it is going to take a lot more than rhetoric and soft survey data to get the US growing at 3-4%.
ReplyBOND is above the 20 day and 50 day MA's, having bounced off support. The 20d has crossed above the 50d, which is not a bearish indicator. RSA remains above 50. The technical picture is also good for MUB and LQD, less so for IQI and TLT. Overall, we remain constructive on fixed income and await vertical take off once the weaker US growth picture becomes consolidated.
In equities, note that the usual reflationary curve-steepener vehicles, XLF and IWM, are lagging SPY today. Next week brings personal income, core inflation, ISM, ADP and non-farm payrolls, with the distinct possibility that hourly wages declined in January. The consensus for the BLS number is 156k, so a headline number <150 is by no means unlikely. Reflate that....
Our point of view is that US fixed income is going to become a beacon for foreign (and domestic) investors as market players begin to realize that: 1) US is going to have another "soft patch" at a minimum this winter; 2) Yield differentials between US and Europe/Japan remain irresistible; and 3) Equity indices are no longer able to generate price appreciation.
A convincing explanatory model for the high-yield bond spread employs measures of default risk and business activity, in addition to the VIX index. This model recently predicted a 411 bp midpoint for the high-yield spread, which eclipses its recent actual gap of 394 bp. By the way, the latter is the thinnest high-yield spread since September 2014.
ReplyWhat is now the lowest predicted midpoint since April 2015 owes much to an ultra-low VIX index. After removing the VIX index from the explanatory model, the predicted midpoint for the high-yield spread widens to 456 bp. (Figure 1.)
From Moody's
Im not expecting anything with China but do think ppl are positioned too bullish on anything tied to its commodity demand. how you play it is another question. On DJT and Mexico, while the wall is one of his campaign issues i dont see making it front page news being a confidence booster to business, thats all...
regarding the abysmal risk/reward (5/30?) on US equities i mentioned earlier, Carlson the surgeon (kidding) examines equity performance through presidential mandates:
Replyhttps://www.bloomberg.com/view/articles/2017-01-25/who-s-president-doesn-t-matter-that-much-to-the-stock-market
if your timeframe is intermediate to long term you can almost bet on lower equity prices down the road. Yes, even the Reagan years had two massive corrections, by constantly comparing Trump to Reagan (whereas he is more of a Rooselvelt) talking heads seem to forget that 1987 ∈ [1980,1988]
so the question is, do you agressively stay long in 2017 to capture a potential last blow off top, or do you conservatively cash in before Trump execution, seeing there is an almost consensus now on a 2019 recession (as per JPM and other awful market timers)
Nice to see some FX comments here.
ReplyEM/PM, yes, the Putin phone call and rumors of Trump administration preparing sanction repeal is spooky. I cut my RUB short and will see what comes this weekend. I do think RUB is an interesting short candidate given pervasive bullish sentiment, stretched longs in oil, the new FX policy which in theory should re-base USDRUB higher versus oil, and the rate policy implications of that FX policy (fewer cuts, of which several are priced), which could lead to some unwind of stretched longs in OZFs.
NOK. Been long against EUR for a while now. Cheap on a model, but no one's getting rich in this one. I wouldn't characterize inflation as "out of control." Inflation data has been moderating quickly, coming in below expectations. Some see that as being bullish for rates, whereas I think the NB being reluctant to ease more given what's going on in the housing market, and the improving growth data. And I see it as actually positive for NOK because .. if you want a beautiful fit, look at EURNOK regressed on REAL rates and Brent .. inflation falling makes Norwegian real rates more attractive, which should drive appreciation, not the reverse. Issue with NOK is you're long oil implicitly, so what's the hedge? Any favorites in FX? or just short Brent futures (there's contango, so not bad, but if there were a serious supply disruption, you'll probably get hurt badly).
Re MXN, abee is right to point to the price action in the face of Trump's "America first" rhetoric in the inauguration and this recent exchange of tweets with Nieto. Being short doesn't feel right to me.
Separately, to counter LB's comments on US rates, the GDP # is backward looking. The durable goods data is more forward-looking and was actually quite good.
ReplyJPM has this one chart I find interesting .. they regress performance of the 15 largest actively managed US core bond funds on various factors and graph the partial beta w/r/t the 10Y. It suggests these guys have been massively cutting their long-held duration underweights since the election and shows the partial beta getting close to zero now. I remarked about these buyers the other day, but wanted to clarify what I was talking about. I think it goes some way to answering the question: who's been buying, if the Chinese and Japanese haven't been. One could posit that they won't flip to being long duration versus benchmark, and so their buying may be close to have running its course.
Just trying to counter-argue ... I'm neither short nor long rates here and am more inclined to think LB will be right about economic data surprises turning over soon.
I would like to disagree with a notion that DJT's rhetoric/actions do not matter as much. More and more traders are putting DJT's twitter account in the corner of one of their monitor screens (those of us who still use them versus handheld devices) and are paying very close attention. Short US companies on any mentioning of import tariffs. Look at retailers today, you will agree with me.
ReplyCare to look at builders today? Beaten senseless as well, and that's with lower 10 yr yield today (most mtgs are pegged to it). Who is going to replace the Mexican workers on the roofs of new housing construction? Margins will take a hit, those folks are working for close to nothing. There are other factors at play, but this reason has to be at a forefront today.
Who could be next? I say China/Taiwan gets the headlines soon. Short semis on that. What a setup we got here. INTC chart is to be watched closely. Yes, I know, it's an old tech and NVDA, AVGO, QCOM are the future. Not so today. It's all INTC-related today and if it double tops here we have a very nice setup. That thing is one double-top wrecking machine (scroll back on charts).
And now quickly about Canadian banks discussion from yesterday. I don't care if their banks don't have as much housing-related cdo and cds stuff on their books like ours here did, when the housing turns it will put a kibosh on the households whose debt to income ratio is pushing 170%. Look at TD, BMO and RY monthly charts. Now scroll back to March/April of 2010. Looks similar? It's a carbon copy. The declines from those double tops were 19%, 22% and 25% respectively.
Generally I tend to agree what has been presented here continuously many times. I think Trump policy could potentially quickly turn into very inflationary in the US, provided the scenarios about domestic manufacturing, housing construction etc. come true and cheap labor gets deported, and could quickly cause rates to rise, and since it still happens to be the reserve currency it would have dramatic effects on the rest of the world. It would also be very bad for domestic companies as costs go up. Trade tariff wars would be very bad for any multi nationals. Meanwhile tax cuts could help but at the same time increase deficits, however Trump now seems to be tackling countries with a surplus in relation to the US, so perhaps this is actually quite a genius policy to make them pay for tax cuts in America. It's not a nice world, the going will get tougher for everyone. The help coming from potential tax cuts just seem very far away and wouldn't help quickly enough in an economy which is leveraged to its eye balls in many of its largest sectors, like autos and housing. I just get the feeling these policies have potential to cause some major havoc?
ReplyI don't have a macro economic education but if I'm wrong please correct. But I happen to think this is more stagflationary than anything else and could demolish many sectors in the economy which have been bubbled up during NIRP/ZIRPAgeddon. How would rising inflation and declining growth be interpreted in terms of yields and currency? Is rising yields bullish for USD even if growth sucks? And otoh how would yields react to stagflation? I guess these are quite long term questions since implementation of any policies take very long but if anyone has a theory I'd be glad to see it. Meanwhile in the more short term, what do you think about GDX (still room to run??), if LB is right and the data turns for a while. It has worked as a hedge very well for USD denominated assets recently, as have RIO etc. other commodity stuff.
Interesting observations IPA. Thank you.
ReplyI've been wondering about Taiwan. Scaled to size of its economy, the country is SO mercantilist. Is Trump really going to be minded by the same geopolitical considerations that shielded Taiwan from previous administrations? If you were Taiwan, and you have this new US President for whom "everything is on the table," would you have your central bank continue intervening? I think not, so could actually argue for stronger TWD. Alternatively, if Trump just jumps straight to tariffs on Taiwanese companies, then you could argue for depreciation. I'm puzzling over it. LTM current account balance is a $74b and reserves increased $8b, so reserve increases not huge in proportion to CAS .. but what's the best way to think about the effect of that $8b intervention rate going to zero? (or would you argue that reserves haven't really gone up materially since April so it's reflected in the price?)
Re Canada, I'd have to think the latest steps by China to stem outflows is going to have an affect on the real estate market, a may precipitate something ugly. Crackdowns on individual and corporation rules for converting to FX to buy property making headlines. Skeptics will argue, "they'll find a way around, they always do." But the now banks are not allowed to have net FX buys. I don't know how many banks in China have licenses to buy FX. Totally pulling a # out of the air .. let's say 10,000, could be way less or way more. It's a lot easier to track and hold accountable 10,000 entities than 1.4b "entities"/people. Personally, if I were Chinese, I wouldn't be trying to get my money out of the country now .. because it's an authoritarian country where, if you're caught breaking what are now explicit regulations, they can just go ahead and shatter your testicles. I'd rather have my testicles than a condo in Vancouver. Anyway, all this to say, China finally cracking down on outflows is maybe the trigger for the bubble bursting in Canada.
Also interesting to see how much fat Trump can cut out of the public sector. Perhaps in US not as important as in most EU countries but I could still imagine growth take quite a hit in proportion to the size cut out of the government, as in the West generally it's taking quickly over relevance compared to the private sector growth contribution.
Reply@hipper
ReplyI for one , could not agree more on a stagflationary outcome in the US. I'm also quite surprised that there are a lot of people who seem unwilling or unable to distinguish between "good" ie. demand pull and "bad" ie cost push, inflation. Needless to say, the latter is categorically not a positive unless you happen to be a commodity producer.
I wasn't doing this in the 1970's, though I wonder whether because it's been so long since the word was in people's vernacular that they are loathe to use it or are simply unable to model it (as evidenced by economists constantly over shooting on nominal GDP forecasts)
In saying that, I believe any stagflationary environment will be quite fleeting and turn deflationary. The reason being that firm's are unable to compensate for margin decline and pass through cost increases into a soggy demand environment.
The 1970's episode was (I imagine) caused by commodities pushing price rises through the system which apparently held for sometime. This suggests that the demand for these inputs was relatively inelastic. Now, I am not so sure, but to take oil for example it is clear that we have seen demand destruction and or a significant supply response above $60 - $70.
So...I'm rambling but I suppose the point is that things like tariffs, minimum wages and other semi-permanent measures designed to inflate nominal prices will end up having quite a deflationary outcome and fixed income is possibly telling us this already.
Another rather obvious point in that in Feb, the base effects of a 100% rally in the oil price begin to wash out of the inflation numbers and oil has been pretty sideways for a few months now. So...stall speed imo.
Testing my login, sorry.
ReplyI might sound very imbecilic but what is the trade on stagflation other than GTFOOH..
ReplyGet the fk out of here?
@Polemic
ReplyStagflation = long GDX, GDXJ - short TLT
Which i guess are just short US stuff.?. QED?
ReplyActually with a stagflationary spike in global nominal rates - most OECD countries will go broke but Japan gets hit worst. Might this be the time JGB + JPY finally gives way?
ReplyBTW stagflation is not my base case. I think demographics will keep growth and inflation week. Labor's bargaining power still very weak MAGA notwithstanding.
I genuinely don't know whether it's my base case either , though given the falls in soft commodities and some of the base metals, copper mostly, relatively speaking I can see those things outperforming. Obviously that should work even better in a weak dollar environment.
ReplyTheres a hundred and one ways to lose money with that view, though to keep it currency and asset class neutral, commodity equity sub indeces vs the broader indeces look ok for some medium term out performance imo
Johno lets see if the China outflow crackdown translates into lower prices in bubble cities like Vancouver etc. if so its game changer. But I've seen articles like this before and then a few months later see prices sky rocket in Australia and Canada so who knows. I gave up a while ago trying to forecast a bursting of those housing markets.
Replyhttp://www.straitstimes.com/business/property/chinas-crackdown-on-capital-outflows-sending-shudders-through-global-property
abee - the FX crackdown in China is no joke - my relatives running businesses in China said that most prior "back channels" that they used to get money out no longer work (they are arresting anyone remotely connected with providing/enabling these services). Bank managers now interrogate you on the slightest suspicion that you are engaged in such activity (they are afraid of being "enablers" and get tossed in jail) whereas before they wont even bother asking any questions.
Replyso yes this is a real change and not a "wink/nod" business as usual change.
the dilemma around how to position in CNH/TWD/KRW as we head into a new world order defined by Trump is fairly interesting...
Replyit is tempting to believe that these currencies should go the way of MXN...
but I would say it is not illogical to argue that the cleanest solution to the US - China diplomatic detente is a lower USDCNY rate - so long as the Donald is not overtly brash about it, China being all about face... I would think that risk is reasonably low - while Trump has tended to say/tweet almost anything his actual actions have been far more 'rational' - all said, he did not name China a currency manipulator on day one as he had promised...
and if USDCNY heads lower, USDTWD and USDKRW will follow suit...
the common refrain seems to be that trading in 2017 is going to be all about getting the geopolitical situation right... and lower USDAsia (especially North Asia) has the potential to be a big geopolitical win-win... 'yuuuuge'
Thanks Lao for the comments. If any ones else with Chinese connections cares to chime in please do.
ReplyRossco, on stagflation I wasn't around in the 1970s but read a bit about it in Alan meltzers great books on the history of the fed. Bargaining power of wages was much higher back then, and lots of contracts tied to Cpi which fueled a self reinforcing cycle. The world will likely fall into a depression if you had interest rates spike above say 5%. But agreed longer term cost push will probably over take demand pull as the effects of demographics and decline in global trade/cheap labour start to assert.
Lots of "new" posters here despite (or maybe because of) the new policy.
ReplySad to see the ability to comment anonymously go, but MM's patience in the matter lasted far longer than mine would have, and I expect to see a much higher S/N ratio going forward.
Among the things that I follow that could get interesting in the Trump era, I present (keeping in mind the recent chartology post) three charts. I am not sure the price history tells very much about the short term prospects of these, but I will solicit thoughts from the technical gurus here, before following up with my own thoughts a bit later.
Yeah, thank you laobaixing. Great color. Much appreciated.
Replykoolbong, yes, lower USD-Asia is a really interesting scenario. Everyone would be caught off-side. Hard to think of a bank that isn't recommending +USDKRW.
Thanks for the explanation Rossco. I also think whatever price and yield spikes those policies potentially might cause will probably end up being very short lived, due to demographics, lack of investable things which increase productivity and manufacturing automation. In some sectors of course like construction you might see some noticeable changes in employment and ultimately higher wages equal higher construction costs. But higher construction costs aren't necessary good for housing either as it leaves much less room for profits for specs who are driving it and already the cost of money going up, for the time being. Trump also increased the FHA mortgage fee effectively raising borrowing costs.
ReplyThis would then all be cost driven inflation and a couple of additional workers who get hired and higher salaries won't compensate the general public masses who get hit by higher prices in everything so demand destruction occurs. Good point also about the ~100% yoy on oil fading out soon from inflation numbers. I've read/heard many comments that this year could be different and Fed could actually go ahead with many of the promised hikes despite this (e.g. listen the newest Macro voice), another secondary reason of course is political as there's no more need to make democrats look good. If this is the way it plays out and hawk talk continues, short rates will go up, USD up due to rate differentials, though I'm not sure about long rates because the assumed temporary nature of inflation in stagflation produced during such demographic and lack of productivity growth headwind environment. So yield curve more or less flattens. Also much volatility in equities but relatively flat year, no recession this year yet but the necessary blocks are being placed on the ground. And there's no denying this business cycle is by nature long to the tooth (cycles still do exist, right?). Still it doesn't exclude one last melt up as Fed makes everyone believe we are finally running on full capacity and everything is booming, excluding the fact that most new jobs are part time and the out-of-labor force population constantly expanding with a higher slope than before. It's just hard to see the long term bond bull market over with these headwinds, it could suffer a temporary bump this and next year though or trade sideways.
Regarding EU as much as it is rotten and dysfunctional and logically speaking should collapse, I still think the people running it are so slimy that they will invent new ways to keep the zombie on life support. How long can this extend and pretend game with the banks go? The gap between core/periphery, and even core/core (GER/FRA) 10y yields is widening. This is unsustainable considering that most EU countries absolutely have not in almost 10 years invented a way to invest this debt in any productive way.
I'll probably start settling more on those ~intermediate muni bond fund yields instead of equities and if rates go up, so should USD to compensate. The imminent risk of course seems to be the squabble between Trump and again California and generally domestic pension fund problems. Equity valuations are awful in the face of potential tariffs, even moderately rising costs and following demand slow down globally, just don't see where the expected returns come from, in say the next 5 years. Of course there could still be a melt up due to a lack of bad news and rates trading sideways but that only pushes revenue/earnings vs price differential further toward the end of the cycle. Also when people say EU is "mid cycle" and US "late cycle", it could just be that the EU happens to have a much shorter and shallower cycle than the US and many people currently expecting EU booming within a couple of years (like US supposedly is today) might be sorely disappointed. Finally I refer to this:
https://danieljmitchell.wordpress.com/2017/01/28/centralization-and-the-decline-of-europe/
Not to start another heated political discussion, but only to point out my personal opinion about possible consequences of what is going on this weekend. I think that three sctors come to mind as possible losers on early Monday: airlines, hotels, tech.
ReplyAirlines... Total confusion, havoc, unrest, airport disturbance, reduced travel from/to seven countries and possibly more: crews, passengers, etc - all from the weekend events. But... Did you guys see how airlines already took a dive on Friday? It was not even related to the latest developments as that hit after the market closed. The dive started during AAL conference call. Management sounded very concerned about rising wages and also hinted at possible increase in domestic capacity, and that's after LUV said the same on their call. Spooky, traders ran to the exits immediately. Look at that daily engulfing on AAL, yikes.
To a lesser extent but... If they don't fly here they won't need a hotel either. But... Need to point out some interesting facts already in place. Hotel owners are reporting a pretty sizeable drop in US reservations from Europe after DJT's election win. Apparently he is not very popular over there. Gotta think this weekend's events would add to that quite a bit.
Lastly... Tech stocks may get the spotlight they don't need. CEOs came out publicly criticizing DJT's executive order. No surprise there. Some of them attended the meeting with him and he must be taking their names now.
Please let us know if you have any other sectors in mind. And again, politics aside, this is only to discuss the ramifications on the market.
@IPA - I hear you, and that choice of sectors makes sense, but the way this market has been acting its just as likely that equity bulls see this as a sign of DJT's unflinching resolve in fulfilling his campaign promises and therefore take the opportunity to buy spoos down a few bps! Plus with mama Yellen and her potential box of candies lined up on Wednesday hard to see a down move.
ReplyThat hotel reservations stuff is interesting - people changing travel plans to disneyland because of who occupies the white house, eh? I suppose its possible, but I wonder if its instead the sign of a broader slowdown - as I mentioned earlier CESI and global IP tends to be reliably mean reverting from these levels and every data point from China suggests they are putting in a temporary liquidity top.
DJT really f@3d himself up - he should have fired the entire Fed council day 1 and replaced them with gold standard cooks thereby dumping the market, blamed everything on the duly coined Obama bubble, and then proceeded to inherit it at cheap levels like his predecessor - instead he's doing high 5's with the 20 k'ers - not much of a trader I don't think.
I'd really like to know how the putin trump call went. Seems to have been drowned out by the immigration news.
ReplyTMM2 getting a plug here and there:
Replyhttps://realinvestmentadvice.com/markets-hit-all-time-highs-market-review-01-27-17/
Rosie also weighed in from north of the border, on bonds and other topics this weekend.
https://www.macrovoices.com/232-david-rosenberg-opportunities-and-outlook-for-2017
considering the highly retarded toxic dude who won French left primary this is now a boulevard for a le Pen victory, anti Euro, in May
Replybe careful
Nico - I think the French will persuade themselves to express their revolutionary/protest instincts via Macron. This will be a different kind of protest vote to the Trump and Brexit victories, but it will be a protest against the old establishment nonetheless.
Replytest
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