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JS Global Macro Notes
Howdy folks,
Old schoolie here... haven't posted on ET in many years. Shout out to all the peeps who remember (I see some of you are still here)...
Anyhow, the desire to conduct a little experiment has brought me back.
I'm going to try posting my regular market notes in this thread -- with an emphasis on global macro -- for the sake of comment and discussion. I also do a weekly roundup of macro-related news links that some may find helpful.
JS
p.s. To avoid confusion, "darkhorse" and "Jack Sparrow" are the same guy (me).
Weekend Comment / Links Roundup: Let Them Eat iPads
As legend goes, when Marie-Antoinette was told that the poor were starving for lack of bread, her acid response was: “Then let them eat cake!”
History denies Marie-Antoinette ever said it. Nonetheless, “Let them eat cake” — translated from the French expression ‘Qu’ils mangent de la brioche’ — is widely known as shorthand for “screw ‘em… who cares what happens to the poor.”
One could argue the modern day version of this phrase is “Let them eat iPads,” in honor of the serious and frightening divide being thrown up between the economic haves and have nots.
This is more than just a social lament. It’s the foreboding prelude to an ominous macro conclusion. In the short run, Wall Street is actually celebrating economic weakness because the same factors that contribute to a sluggish economy also serve to stay the hand of the Fed.
Think of it as a kind of “Goldilocks malaise:” As long as economic conditions are bad enough to keep ZIRP intact and inflation pressures absent, yet not so bad as to get in the way of short-term corporate earnings gambits and leveraged layup stimulus exploits, it’s all good in the neighborhood… which is a big reason why markets have seemingly flipped (as of this writing) to a “late Summer rally” posture.
This “great divide” is THE story of this bizarro artificial recovery — along with the great inflation vs deflation / austerity vs stimulus debate — in which the U.S. economy is like a delirious wounded animal that is attempting to nourish itself by eating itself.
Click here for the links roundup
JS
Today's Market Action
When pictures speak louder than words...
Quote from darkhorse:
Jack Sparrow
Slak. . .head rolls... Low probability event with an ultra high impact... deadly.__________________
Da GHangstaHbang
Cheers mate. We're devils and black sheep, really bad eggs...
Corporate Cash: "The Big Lie?"
A look at the facts shows that companies only have “record amounts of cash” in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don’t look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?
— Brett Arends, The Biggest Lie About U.S. Companies
One of the powerful memes floating around this confused market environment has been cash-rich companies versus cash-poor consumers.
The notion of companies sitting on huge piles of corporate cash has also been a bullish staple. For example, from the July 19th WSJ:
In what may signal an important shift, some chief executives say they are ready to start spending the mountains of cash they have stockpiled over the past year, despite lingering worries about the global economy.
Many companies, stung by the financial crisis, have hoarded cash as a cushion against continued economic turmoil. But their curbs on spending and investing have been damping economic growth.
At the end of March, nonfinancial companies in the U.S. were sitting on $1.84 trillion in cash and other liquid assets, up 26% from a year earlier…
- WSJ, CEOs Get Ready to Spend Again
Global Macro Notes: Watching the World Burn
It's all... part of the plan...
- The Dark Knight
There is a scene in The Dark Knight where the Joker commits the ultimate act of nihilism. After amassing a huge pyramid of cash, he simply sets it on fire, making a clear statement as to his take on material wealth.
I am reminded of that scene by current market gyrations and the likely end game for the epic inflation / deflation battle.
In the short run, deflationary forces continue to build as Fortune 500 corporations and money center banks hoard the gusher of liquidity directed at them by the Federal Reserve.
In the long run, however, the liquidity trap realities of "pushing on a string" will eventually force the Fed and their European counterparts to go nuclear in their emergency deflation-fighting measures -- at which point the intrinsic value of those pharaonic cash pyramids will go up in smoke and ash, just like the cash in the Joker's warehouse.
Goldilocks Malaise
The here and now of the situation is a sort of "Goldilocks Malaise,"¯ which has in turn morphed into a late Summer rally. We are coming off a sweet spot in the equity cycle where corporations are able to continue ringing profits out of brutal cost cuts, while at the same time investors are snapping up corporate bonds like crazy and otherwise acting in "risk on" fashion to avoid the pain of near-zero returns on cash and cash equivalents.
This rally has also been enabled by the results of the European "stress tests,"¯ which, it seems, were more an exercise in smoke and mirrors than anything serious. Nonetheless, the stress tests did their job in giving those with a deep desire to be bullish the perfect excuse to justify that desire.
Though possessed of a very strong sense this is all going to end in tears, we are positioned on the long side of this market (as will be noted shortly).
In recent updates (and prior to the current breakout), we noted the following:
Weekend Comment / Links Roundup: Drinking With Vizzini
So what’s it gonna be, inflation or deflation? ZIRP fueled optimism or double dip air raid sirens? Bottom up sunshine or top down terror?
Sussing out this market is a bit like drinking with Vizzini — the Sicilian nutball from The Princess Bride.
Vizzini: But it’s so simple. All I have to do is divine [inflation or deflation] from what I know of you: are you the sort of man who would put the poison into his own cup or his enemy’s. Now, a clever man would put the poison into his own goblet because he would know that only a great fool would reach for what he is given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known that I am not a great fool, so I can clearly not choose the wine in front of me.
Wesley: You’ve made your decision then?
Vizzini: Not remotely!
Macro Comment: Strip Mining the U.S. Economy
Strip mining is a nasty, dirty business.
Basically you rip up the land, haul away tons of rock, and then use noxious chemicals to separate out a small quantity of targeted material. What's left behind resembles a vast denuded moonscape, or perhaps a giant open wound.
Most rich-world inhabitants don't give a second thought to this process, for a very simple reason - we don't have to see it. There is no reason for the man in the street to feel concern, except when resource prices rise or environmental tragedy unfolds.
The focus of this missive is not environmental, though, but economic. Because now it is the U.S. economy that is being "strip mined."
In the same way that mining companies will descend on a region with heavy equipment and chemicals, brutalizing the land until nothing is left, corporations large and small are doing the same thing - with the goal of extracting profits rather than minerals, to the long term cost of the U.S. economy itself.
Read the rest of the comment here
!! Welcome back, your discourse was always an interesting read. I seldom visit ET these days as it has significantly morphed over time. Looking forward to some interesting discussion. Don't forget to wash your feet every time you leave the new ET. 
Thanks! 
Banjo... that rings a bell... you were big on NLP back in the day right?
I'm a fan of what one might call "radical cognitive therapy" myself...
No , never into NLP. Behavioral sciences in general but not NLP. I'm also a macro analyst. It's the exchange of info/ ideas that has value. No matter how broad ones experience, knowledge, or awareness there's always another view.
Whats your call for todays FOMC and your economic outlook for the next 2 years
Thanks
Quote from Banjo:
No matter how broad ones experience, knowledge, or awareness there's always another view.
Quote from Daal:
Whats your call for todays FOMC and your economic outlook for the next 2 years
Thanks
p.s. Then again, the market seems to be taking this kinda hard -- minis down 1% an hour before the bell:
HONG KONG (Dow Jones)--Chinese shares suffered their worst fall in more than a month Tuesday, dragging markets across Asia, after weaker-than-expected import data in July, while concerns ahead of U.S. Federal Reserve's policy meeting weighed sentiment.
"What we are seeing is some knee-jerk reaction to this import data... It's being interpreted as disappointing and being a precursor to poor consumption on the mainland," said Ben Collett, head of equities at Louis Capital Markets.
The Shanghai Composite dropped 2.9%, its worst percentage fall since June 29, while the Shenzhen Composite index tumbled 3.3%. Hong Kong shares also responded in kind, with the Hang Seng Index finishing 1.5% lower for its second loss in 16 trading days.
This am Chinese bank regulators told banks they have to hold more % for protection of off balance sheet trusts ( non performing real estate loans that have been swept under the rug) , up to 150%. That helped dump Chinese mkts.and is an idicator of weakness in their banks. NFIB index provided bad news for US index futs. A move to safety in dollars , +.621 now, and treasuries. EUR/USD down as a result of that flight to safety. The FED can only remain with rhetoric controlling the day. QE2 through the back door of mortgage relief in one fashion or another is on the burner.
Quote from darkhorse:
SWAG (sophisticated wild-ass guess) for today's FOMC: A lack of major waves, actions telegraphed pretty much as expected, general bullish bid persisting on the back of continued bottom up optimism and super accommodative monetary policy.
Outlier possibility: The Fed is less eager to please than expected in the tone and tenor of their comments, resulting in a Wall Street temper tantrum that blows over.
Overall, it appears "all quiet on the Western front" for now in terms of destabilizing macro impacts.
As for the next two years (!), RHCP sums it up nicely
Quote from Daal:
Come on man, you got to be more specific than that
Quote from Banjo:
This am Chinese bank regulators told banks they have to hold more % for protection of off balance sheet trusts ( non performing real estate loans that have been swept under the rug) , up to 150%. That helped dump Chinese mkts.and is an idicator of weakness in their banks. NFIB index provided bad news for US index futs. A move to safety in dollars , +.621 now, and treasuries. EUR/USD down as a result of that flight to safety. The FED can only remain with rhetoric controlling the day. QE2 through the back door of mortgage relief in one fashion or another is on the burner.
Quote from ASusilovic:
"Flight to safety" ?
I thought CHF is the "safety" currency.
Global Macro Notes: Fear and Loathing Return
We were somewhere around Barstow, on the edge of the desert, when the drugs began to take hold...
- Fear and Loathing in Las Vegas
The focus coming into the week was on the Federal Reserve, and how FOMC day would play out. All told, the Fed's actions could roughly be cast as in line with expectations -- not too hot, not too cold, and well telegraphed beforehand.
We knew going in that the Fed would downgrade its outlook for the economy. We also knew there was trial balloon talk of monetizing US treasurys. And as expected, the Fed 'opened the door' for more QE (quantitative easing) without flinging it wide just yet -- again, more or less the telegraphed middle path.
So far, so good. But then Mr. Market took a frying pan to the face -- consecutive frying pans actually -- via ugly numbers and policy directives from China, followed up by bad news from Japan and the UK and Ireland, all topped off with a grim U.S. trade deficit.
Read the full comment here
Quote from darkhorse:
Today's Market Action
When pictures speak louder than words...
How about some discussion of valuations and expected long-run returns, rather than just short-term macro themes. With high quality, low-debt, blue chip multinational franchise stocks selling at 8-10% earnings yields, compared to 2.8% on US Treasuries, one has to ask how important some temporary macro headwinds are going to be.
Quote from Ghost of Cutten:
How about some discussion of valuations and expected long-run returns, rather than just short-term macro themes. With high quality, low-debt, blue chip multinational franchise stocks selling at 8-10% earnings yields, compared to 2.8% on US Treasuries, one has to ask how important some temporary macro headwinds are going to be.
Darkhorse, on a more pedestrian note, how does your macro analysis affect your actual trading? Would it override setups on your chart or whatever cues you may take from price action, be it for entry or exit?
Quote from Gabfly1:
Darkhorse, on a more pedestrian note, how does your macro analysis affect your actual trading? Would it override setups on your chart or whatever cues you may take from price action, be it for entry or exit?
Summary of this Week's Market Action
When pictures speak louder than words...
Weekend comment / links roundup: Charlie Brown market
This market reminds me of the classic Peanuts routine with Charlie Brown and the football.
Every time Charlie Brown would run to kick the football, Lucy would pull it away. Charlie Brown would then go flying, typically landing on his head.
That seems to sum up the dynamic between the bulls and the bears for 2010. The bulls have gotten repeated running starts... but every time, the football gets pulled away by the bears.
(The consequence of front-loading all that stimulus joy into 2009, perhaps, leaving only dregs to follow?)
And now, with the Fed looking impotent, the $USD surging, China feeling seasick, austerity measures kicking in for Europe, and the Q4 'crash season' looming, we are headed into distinctly ursine territory. Stay nimble out there...
Go here for the 8-15 links roundup
Hi Darkhorse.
I was wondering why I had missed your work. Of course, you stopped posting a few months before I started.
Thanks to gabfly for the dropping your name. Great analysis and website. I don't trade fundamentals but enjoy reading anything related to market movement and history. Thanks for posting.
Best of luck and good wishes.
Quote from darkhorse:
...(The consequence of front-loading all that stimulus joy into 2009, perhaps, leaving only dregs to follow?)...
In my perhaps parochial view, what is coming home to roost is the upshot of previous tax cuts that didn't, and couldn't, pay for themselves, virtually no financial regulation to speak of, fostering an "anything goes" environment, and a Fed that "eased" at the slightest dips over the years rather than allowing small and periodic corrections along the way to play themselves out. The Fed's actions over the past several years have been about as far-minded as putting out every single forest fire until there is so much accumulated deadwood that the inevitable blaze that will follow may be next to unstoppable. Meanwhile, the Fed is low on water.
Quote from darkhorse:
... there is a major unwind and recalibration underway the likes of which few have ever seen.
__________________
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
Quote from darkhorse:
When the whole world shits the bed, USTs are the place to be... and those are denominated in dollars... plus a lot of foreign-deployed U.S. based capital returns home in the event of a "risk off" event -- thus exiting global markets and repatriating back into $USD.
Darkhorse, I think your last post should be set to music.
And as a reminder, please don't forget about the descriptive process metaphor you were going to provide in response to my earlier question.
Quote from piezoe:
Isn't that "the common wisdom"?
________
"The Common Wisdom is almost always wrong."
-- Gore Vidal
Thank you. I think, for answering my question.
Vidal did, after all, hedge by saying "almost always".
Quote from piezoe:
Thank you. I think, for answering my question.
Vidal did, after all, hedge by saying "almost always".
Quote from Gabfly1:
...and a Fed that "eased" at the slightest dips over the years rather than allowing small and periodic corrections along the way to play themselves out.
Quote from Gabfly1:
And as a reminder, please don't forget about the descriptive process metaphor you were going to provide in response to my earlier question.
Quote from darkhorse:
Ask and you shall receive: Integrated Macro Analysis, Part I
p.s. the metaphor (and price action details) will be in part II
Quote from Gabfly1:
As you can see, I’m not a very sophisticated trader. Presently, I trade only price. I suppose we all move along, and hopefully forward, at our own pace. Regardless, I look forward to your Part II.
Quote from Gabfly1:
Here is my point. When Livermore was trading only price action to the exclusion of all else he always made money on balance with no meaningful upset. The same applied after he transitioned to a real brokerage firm following a painful learning experience with delayed data.
Quote from darkhorse:
Here is a question for you in return -- how does one go about trading only price?
I ask the question because I have a hard time conceiving how fundamental bias is successfully left out.
Here's what I mean. Let's say I go through my screens and see attractive breakout patterns in twenty different stocks spread out across five different industries. Using price alone, how would I choose among all these? Or would I be obligated to trade them all?
One semi-solution would be to restrict the universe of acceptable vehicles in advance. This is what many CTA trend following funds do -- they apply price paramaters to a limited number of futures contracts...
Quote from darkhorse:
Also, re, Livermore...
The Livermore saga of wipeouts and comebacks seemed to be an expression of Ed Seykota's comment, "Everybody gets what they want out of the market."
For some reason Livermore seemed to desire, on some deep psychological level, the roller coaster ride of going bust and coming back again. Vic Niederhoffer seemed to exhibit a similar trait; on my first reading of Niederhoffer's Education of a Speculator, my immediate thought was "Here is a man who wants to go broke." And so he did. Repeatedly.
I would dispute that Livermore ever really traded price action exclusively except for his time in the bucket shops, and even then the stocks he chose to follow still had to have something of a haphazard fundamental selection criteria to them...
...Re, Livermore going bust from Percy whispering in his ear etc., that failing was simple. He didn't manage the risk, and he ignored his own sound principles. As Livermore directly notes, "staying wrong is what does damage to the pocketbook and the soul." Price action is of course critical as a timing filter, an entry and exit guide, and a risk management tool.
Quote from darkhorse:
...I would further argue that, to the extent that price alone can be traded in bucket shop style or floor trader style, such a strategy is vulnerable to being conquered by a supercomputer. (Hence the slow extinction of floor traders.) One of the reasons I much prefer swing and position trading is because I know the bots and liquid-cooled supercomputers deployed by Goldman Sachs have no chance of drinking my milkshake...
Quote from Gabfly1:
On the face of it, I imagine one need not necessarily focus on the fundamentals to arrive at such selections. Must the fundamentals necessarily be studied with care beyond their impact on price and its character?
Quote from Gabfly1:
I note that you are rather critical of Keynesian economics. I think this branch of economics has been given a bad rap. I am not much of an economic thinker, but I believe that the other half of the equation gets overlooked, by both its critics and it supposed practitioners.
Quote from Gabfly1:
And while on the topic, what are your general views on the Obama Administration thus far? Just curious.
Quote from Gabfly1:
I think it's interesting that you should refer to Seykota, who didn't seem to have much time for fundamentals from what I gathered in Market Wizards
Quote from Gabfly1:
However, I am not prepared to discount the possibility that the kinds of swings he took which made him spectacular profits were also the kinds of swings he took that caused him to go bust or near bust on a number of occasions.
Quote from Gabfly1:
Please don't misunderstand me. I don't wish to criticize Livermore. Rather, these are my observations in an attempt to better understand the man and his trading.
Quote from Gabfly1:
I don't know that floor traders are necessarily becoming extinct specifically because of supercomputer trading algorithms. I would have thought it was more a matter of exchanges going electronic, and thankfully so. The fewer hands between me and the guy ultimately on the other side of my trade, the better for both of us.
Quote from Gabfly1:
You have chosen to play from more of a distance by staying outside of their reach for the most part, so to speak. But in so doing you are increasing the ticks or points at risk on any given trade. It is a reasonable tradeoff. But in the face of increased risk, I prefer to minimize my financial risk per trade and draw comfort from being able to make more of them. That is the tradeoff I have chosen.
Quote from darkhorse:
I would argue yes, if only because this method -- combining fundamentals and price action in trading vehicle selection -- has been exceptionally successful as implemented by a wide array of practitioners: Druckenmiller, Sperandeo, Cohen, PTJ, Bacon, Marcus, Kovner, Livermore himself, and others. Those who have crushed the market for staggering absolute dollar sums have done so with the use of both fundamental and technical inputs, melded together in a full blend...
Quote from darkhorse:
...Well, that's the rub. The Keynesian approach may be perfectly good in theory, but it falls on its face in the real world...
Quote from darkhorse:
Yep, true.
As a general rule, it's good to remember too that the crowd is not always wrong... the crowd is only wrong at major turning points, which by definition are less than frequent. Being contrarian at the wrong time is akin to arguing with a herd of cattle.
Trading (in my humble opinion) thus becomes a curious mix of going with the flow, but also knowing when to selectively fade the flow.
Quote from darkhorse:
As the exchanges go electronic, the trading that floor traders used to do is replaced by computers.
Now this is an interesting comment, because I would argue that extremely short duration traders actually take on MORE risk than swing traders like me, not less, as a function of the extreme leverage that is employed.
The theory is that shorter time in the market equates to less risk taken overall. But this theory is challenged by the risk of getting nailed in a repeat "flash crash" event with extremely concentrated exposure going in.
There is also the matter of volatility expansion. Consider the debate of tight stops versus wide stops.
On one level it could be argued that "the wider the stop, the bigger the risk." But this is not necessarily true, because risk is a function of total market exposure, not the stop itself.
To see what I mean, consider that Trader A could have twice as wide a stop on the exact same trade as Trader B, and yet both traders could be sizing their trades so as to represent 50 basis points of planned risk.
Also, the tighter the stop, the greater the chance of surprise volatility expansion resulting in a bigger loss than intended. Again a hypothetical example: Trader A buys a volatile stock (say BIDU) with a $4 stop for a swing trade. Trader B takes the same position on an intraday basis, but sizes his trade off a very tight (for BIDU) 50 cent stop. That same afternoon, while both traders are still in, the Chinese government comes out with a content crackdown announcement that is very bad news for BIDU. Which trader is more likely to see his planned risk assumptions blown out of the water?
Then, too, there are the offsetting characteristics of a balanced long / short book, the ability to adjust the portfolio on a holistic basis to account for different market scenarios and profiles, the ability to dial leverage up or down in terms of initial position sizing across the board, the ability to vary position size dramatically based on situational equity curve and conviction factors, and so on.
Point being, it's not necessarily the case that swing and position trading is more risky. It certainly can be, but nothing is set in stone...
Quote from Gabfly1:
Yes, that is unfortunate. However, the mechanism is there for those who can and wish to operate it properly. On the other hand, laissez-faire doesn't even work in theory
Quote from LEAPup:
This is a tremendous thread!
And you swingtrade like me!
VERY glad you're back!
Quote from darkhorse:
...Now this is an interesting comment, because I would argue that extremely short duration traders actually take on MORE risk than swing traders like me, not less, as a function of the extreme leverage that is employed...
Quote from darkhorse:
...nothing is set in stone...
Quote from darkhorse:
p.s. I didn't know you could post youtube clips in here, how did you do that?
Quote from Gabfly1:
The other thing is that I am an atheist. As such, I'm not that big on leaps of faith. I consider fairly wide protective stops to be an article of faith, irrespective of the testing or reasoning that may or may not have gone into such stop placement. Therefore, I prefer small steps rather than leaps. However much we may wish to believe that it's a matter of probability, the fact is there is no probability distribution for future price action. There is only uncertainty and, at best, a balance of probability, which is a far less elegant measure of confidence. And so, I prefer an approach characterized by incrementalism.
What is the % probability that you put on a double dip recession?
Quote from Daal:
What is the % probability that you put on a double dip recession?
Global Macro Notes: High Voltage
And you ask me why I like to play
I got to get my kicks some way…
- AC/DC
Ladies and gentlemen, it’s time to prepare for some high voltage rock n’ roll.
The theme, as articulated a ways back, continues to be “Sunny With a Chance of Earthquakes.” Bullish bottom up forecasts are being rudely and repeatedly disrupted by violent top down tremors.
In January of this year, fears of China slowdown gripped the markets, sending equities into a tailspin. Then, a few months later, the Greek meltdown, the euro zone debt crisis and the May 6th “flash crash” hit.
The bulls overpowered these setbacks on the strength of resilient earnings beats. But earnings season is over now — after a somewhat middle of the road final tally — and the top down hits just keep on coming. As nicely summed up by FT Alphaville, the latest round of data points was brutal...
Read full comment here
Great article and thank you for sharing what I consider is well thought out 3- tier analysis.
Do you have a target on Pot or running a trailing stop?
Quote from darkhorse:
Feel free to get the ball rolling, as you clearly have an opinion here...
The first devil's advocate question I would ask is, which blue chip franchises do you see at an 8-10% yield, and if the case for value there is as compelling as you suggest, why are investors falling all over themselves to lend to IBM at 1% and McDonald's at 3.5%.
Also, how about Hussman's take on misvaluation via questionable forward operating earnings estimates, coupled with his assertion that, by more reliable historical measures, stocks are ~ 40% overvalued.
Re, expected long run returns, I would have to ask, expected returns for whom and regarding what strategy? The viewpoint of a swing trader, for example, will be very different than that of a long-term investor... as will the viewpoint of someone with a "fully invested" mandate versus another who is comfortable using rapidly-deployed leverage and switching in and out of cash...
Also, whether the macro headwinds are "temporary" or severe and lasting seems a major debate of the day, and not something trivial in the least... if China turns out to be a potemkin village, for example -- or at least a grossly overhyped / overinflated one -- then it could be a very rough couple years ahead for the global economy.
Quote from Optionpro007:
Great article and thank you for sharing what I consider is well thought out 3- tier analysis.
Do you have a target on Pot or running a trailing stop?
Quote from Ghost of Cutten:
Besides, if that is your scenario (and I think it's a decent odds play), a portfolio short China and EU-dependent stocks, and long attractively valued high quality US franchise stocks, should perform far better relative to risk than a pure short in the stock market. I just don't see the kind of skewed index short risk/reward that was there in 2007 or early 2008, where prices were considerably higher than they are now.
Weekend Comment / Links Roundup: Requiem for an American Dream
China officially leapfrogged Japan in the week that was, but the story was in some ways old hat -- an inevitable result made official by an accounting blip, more indicative of Japan’s woes than China’s strengths.
Instead, the meme with the most psychological resonance these days seems to be the death of a dream... the American dream, that is.
As the unemployment graphic from Spiegel notes, America is reaching new and frightening levels of joblessness. Bootstrap efforts are failing. A creeping sense of resignation has all but suffocated the V-tinged optimism that temporarily prevailed.
Some Americans are responding with purchases of metal detectors and lottery tickets. Others are abandoning equities and hoovering up long bonds. Many are simply hunkering down, unsure of what to do next.
Hope for the future looks hard to come by. As a McKinsey chart illustrates, the hot job sectors of tomorrow — Biotech, Semiconductors, Clean Technologies — collectively represent a tiny 1.1% of the U.S. jobs pie.
Meanwhile, the job sectors under bloody siege — construction, financial activities, and retail — count as more than 22% of the total...
Go here for the 08-22 links roundup
~
Quote from darkhorse:
...First and foremost, it is my goal to preserve a stance of extreme flexibility at all times. What this means is that ANY forecast -- no matter how strong -- is merely one possible scenario among a wide range of scenarios.
In practice this means that, if someone asks "What do you think is going to happen," my response will be along the lines of gaming the highest probability scenario. There is no scenario that is "my" scenario, strictly speaking, because the market script can change quickly and dramatically, and I am happy to change along with it. Even an 80% likelihood misses the mark one time out of five.
Then too, there is the striking importance of fat tail risk (and fat tail reward). Fortunes are often won -- and lost -- on the occurrence of the broadly unexpected...
Quote from Gabfly1:
Hmm. Seems to me an argument can be made that you could survive, and possibly thrive, on a diet of price alone. I'm reminded of the story about the guy who explained to his friend the division of labor between him and his wife regarding household responsibilities: he worried about the economy and politics, while she cooked, cleaned, washed, ironed and managed the bils.
Quote from darkhorse:
The highest echelons of discretionary trading are all about selective aggression, which is a function of relative conviction level and opportunity awareness, which in turn are functions of something more than price.
You can't position size off of price, and you can't use price alone to identify, isolate and target tremendous opportunities in which the reward to risk profile far surpasses that of the standard trade. It is not just knowing when to bet, it is knowing when to bet big, and price in and of itself does not speak to this.
Though yes, an argument can certainly be made
Quote from Gabfly1:
The question arises, at the end of the day, who is pulling whom by the nose? Especially against the backdrop observed by Keynes that "Markets can remain irrational longer than you can remain solvent."
(Hey, it's Sunday and I'm bored. I'm just making conversation.)
My Favorite Wired Article of All Time
For your reading pleasure -- note the deep similarities between parimutuel betting systems and global financial markets:
http://www.wired.com/wired/archive/...betting_pr.html
Quote from darkhorse:
My Favorite Wired Article of All Time
For your reading pleasure -- note the deep similarities between parimutuel betting systems and global financial markets:
http://www.wired.com/wired/archive/...betting_pr.html
__________________
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
Macro Comment: Is Protectionism China's Achilles' Heel?
In The Hobbit by J.R.R. Tolkien, there is a mighty dragon named Smaug -- one of the last dragons of Middle Earth.
Smaug, hundreds of years old, sits on a vast pile of golden treasure in the bowels of the Lonely Mountain. For all intents and purposes he is invincible -- except for one flaw.
A single weak spot on the dragon's underbelly leaves him vulnerable, and Bilbo Baggins reports on it. The next time Smaug ventures out, he is killed by an archer's arrow aimed at this one improbable place.
If you'll forgive the analogy, China, too, is a great old dragon sitting atop a vast hoard of wealth. And, like the mythical Smaug, the real dragon (China) has one potentially fatal weak spot -- the protectionist threat.
full comment available here
Global Macro Notes: Long Gold Stocks, Short Retail
In April of this year, I penned a think-piece titled "Keynesian Psychology With Austrian Tails," detailing the latest upgrade in my philosophical growth path as a trader.
The gist of the piece was that, while the Austrian school offers the more true and correct view of economic reality in the longer term, Keynesian psychology -- "the triumph of hope over experience" -- can and does dominate the short term.
The net result, in terms of market action and consistently repetitive cycles, is drawn out Keynesian ramp-ups followed by infrequent yet inescapable "Austrian tails," in which the hope-jaggers face a violent comeuppance.
The bulls are thus in danger of being "rocked like a hurricane" -- because the scorpion sting in the "Austrian tail" is upon us.
View Full Global Macro Notes Here
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Weekend Comment / Links Roundup: Forget Bernanke, Think Nikkei
The big news for the week that was? Ben Bernanke's Jackson Hole Speech.
It's all a bit silly, really. The Fed Chairman waffled and hedged and said pretty much what was expected of him: "We'll support the recovery, yadda yadda, unconventional measures, blah blah blah."
To the extent Wall Street reacted, it was a light day in an exceptionally light month in a market feeling short-term oversold. It's looking more and more like the Fed is running out of ammo and "QE" is a bust... investors are just dragging their feet in slowly coming round to that realization.
My two cents? Forget Ben Bernanke -- who is growing more irrelevant by the day -- and start paying more attention to narratives like this:
In the United States, there has been considerable debate about whether the U.S. economy faces a similar deflationary risk [to Japan] and whether the Federal Reserve should be doing more to guard against falling into the same trap.
Some of those fears may well be overblown, but a widely read paper by James Bullard, the Fed’s regional bank president from St. Louis, has warned that the U.S. economy faces a risk of becoming "enmeshed in a Japanese-style deflationary outcome in the next several years."
- NYT, Pressed to Act, Bank of Japan Sees Few Ways to Lift Demand
Quote from darkhorse:
Weekend Comment / Links Roundup: Forget Bernanke, Think Nikkei
The big news for the week that was? Ben Bernanke's Jackson Hole Speech.
It's all a bit silly, really. The Fed Chairman waffled and hedged and said pretty much what was expected of him: "We'll support the recovery, yadda yadda, unconventional measures, blah blah blah."
To the extent Wall Street reacted, it was a light day in an exceptionally light month in a market feeling short-term oversold. It's looking more and more like the Fed is running out of ammo and "QE" is a bust... investors are just dragging their feet in slowly coming round to that realization.
My two cents? Forget Ben Bernanke -- who is growing more irrelevant by the day -- and start paying more attention to narratives like this:
[/i]
No matter what happens, the action in the Nikkei may well prove instructive for the next few years.
A long-term Nikkei chart (click to enlarge) is posted this week to make a point: During extended periods of credit writedowns and private sector deleveraging, markets can experience EXTREME swings… in both directions.
As the Nikkei went about shedding more than 75% of its value (!!) in two decades time, it did not do so straightaway. Instead there were numerous fantastic multi-month rallies of 60% to 100% or more, followed by grueling, gut-wrenching declines.
Just try to imagine the hope, greed, fear, and general stomach lining erosion of Japanese investors in those years. Just try to imagine how many "false dawns" and "all clears" were proclaimed after months and months of upside -- just before the roller coaster took another sickening lurch downward once again.
We could be facing the same -- which, on the bright side, could be great news from a trading perspective. (Paul Tudor Jones on his five year outlook, as noted in 2008: "The macro space will be great. I think we’re going into one of those slow or zero-growth periods in the U.S., which will give us a lot of volatility.")
Go here for 08-29 Links Roundup
Quote from ASusilovic:
You forget about the fact that we have four major central banks around the world fighting deflation. USA, ECB, BOE, BOJ.
Fighting alone on the deflation front is not as "funny" as with some partners on board.
At some point China needs to decide what it wants - further playing the "fool" card or finally lettin the yuan appreciate in a truly "free" manner.
Macro Comment: Double Dip Talk Misses Forest for Trees
My ad hoc comment from a double dip conversation thread on Barry Ritholtz' Big Picture blog:
To some extent the ā€double dipā€¯ talk misses the forest for the trees.
In this case the ā€forestā€¯ is the fact that we are at the tail end of a leverage and debt supercycle, having just endured the bursting of a massively destructive financially engineered asset bubble, even as the long-run impacts of accelerated competition via globalization and scarce natural resource allocation start to hit at the same time.
Look at a long-term trend for the average consumer savings rate (cents saved per dollar earned). I think the St. Louis Fed has good stats on this. The consumer savings rate was above 10% way back when, a long time ago in a galaxy far away, and then just kept going down, down, down until it finally went below zero in 2005. This ā€eating our seed cornā€¯ trend was exacerbated by the fantastically destructive rationalization that ā€I donā€™t need to save for retirement because the perpetually rising value of my home will take care of that.ā€¯
And oh yeah, speaking of retirement, I believe (per Rosenberg) the median age of the baby boomer generation is now about 55. That means you have an army of folks, tens of millions strong, heading into their golden years with bupkis in the bank. Most boomers are woefully underfunded relative to retirement needs. An insanely high percentage have next to nothing socked away. In the next few years we are gonna hear a lot more about boomers throwing nickels around like manhole covers.
And then, of course, the bad assets problem with the banks was never really fixed ā€” just papered over. And attempts to fix the structural unemployment problem via more ā€stimulusā€¯ will fall flat for many reasons, not least among them a training mismatch. The skill-based jobs showing increasing demand today, such as opportunities in high-end manufacturing, are simply not matched up with the untrained American worker. A multi-year boom in the real estate and construction trades temporarily covered over the growing skills mismatch between employer requirements and employee skillsets in the U.S.A. Now that tide is receding.
So basically, the ā€old normalā€¯ is toast. Itā€™s gone, dead, kaput. This should not be such a big surprise. What was always unrealistic was the notion that a window of time in economic history, running 20-30 years or so, could perpetuate indefinitely. Thatā€™s no[t] how the world works. It never has been.
And so, to a certain degree, many of the hand-wringers and ā€double dipā€¯ ponderers are operating from a completely broken framework. They keep wondering how we get back to the good old days. The answer is, we donā€™t. The future for America may be bright again, at some point down the road, but right now weā€™ve got a dark patch to work through and a tough row to hoe that will last for quite some time. This is just pragmatic observation of reality and applied common sense imho.
Quote from Gabfly1:
I agree that your point is sound in theory. And it is hard to argue with the success of those who employ such an approach. However, the point is that if your thesis is supported by price, then you will move forward with your thesis. And if your thesis is not supported by price, then you will seek an alternate thesis supported by price. The question arises, at the end of the day, who is pulling whom by the nose? Especially against the backdrop observed by Keynes that "Markets can remain irrational longer than you can remain solvent."
(Hey, it's Sunday and I'm bored. I'm just making conversation.)
Darkhorse - what are your views on how much % of equity to risk on trades? Both from entry, and for running open positions once they are in profit.
Also, I have a thread discussing ideas on how to "sit" on a position (http://www.elitetrader.com/vb/showt...threadid=205566 ), this seems something that would apply to your style of trading - it would be interesting to hear your comments either here on on that thread.
Quote from Ghost of Cutten:
Darkhorse - what are your views on how much % of equity to risk on trades? Both from entry, and for running open positions once they are in profit.
Also, I have a thread discussing ideas on how to "sit" on a position (http://www.elitetrader.com/vb/showt...threadid=205566 ), this seems something that would apply to your style of trading - it would be interesting to hear your comments either here on on that thread.
Global Macro Notes: Knockaround Market
500 fights, that's the number I figured when I was a kid. 500 street fights and you could consider yourself a legitimate tough guy. You need 'em for experience. To develop leather skin. So I got started. Of course, along the way you stop thinking about being tough and all that. It stops being the point. You get past the silliness of it all. But then, after, you realize that’s what you are.
- Knockaround Guys
True confession time: I kind of like it when markets get rough.
This isn't because I'm a sadist or a masochist. (At least I don't think I am.) It's because rough markets highlight comparative advantage.
When you hear stories of how the big name players are struggling... how stuff seems to be slamming around without rhyme or reason... how all is confusion and nobody knows what's really going on... you know that's when the weak get separated from the strong.
Read full notes here
Weekend Links Roundup: Leaving Las Vegas
With the exception of Elisabeth Shue, who was smokin' hot, Leaving Las Vegas is unquestionably one of the most bleak and depressing movies I have ever seen. (If you haven't seen it, you might want to take a pass, unless you're feeling a strong urge to get in touch with your inner nihilist.)
As with so many things, however, truth turns out to be stranger than fiction, with developments in the real Vegas even darker than the Mike Figgis film. The fallout from an epic housing bubble bust is still destroying lives, and in some cases ending them.
And what about the picture for the broader U.S. economy, and the world? There are glimmers of hope after an incredibly dark August, but Carmen Reinhart -- the female half of the Rogoff-Reinhart duo who conducted an 800-year study on the economic impact of debt crisis -- warns that "the future is likely to bring only hard choices."
At least the theme music this week is a little more upbeat...
Go here for 09-04 links roundup
~
Jeez, darkhorse, you don't exactly hold back on the linkage, do ya?
__________________
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
Quote from Martinghoul:
Jeez, darkhorse, you don't exactly hold back on the linkage, do ya?
Wall Street Executive Air
Macro Comment: Bullish Dollar, Bearish Euro as "Risk Off" Looms Large
We have maintained a bullish stance on the $USD for weeks, as first highlighted in the August 12th global macro notes. We have also maintained a corresponding bearish stance on the euro.
We established our $USD base position at attractive enough levels to profitably withstand the recent shakeout move lower, and there are numerous reasons why the $USD is highly attractive as an aggressive long play here if upside momentum is re-established.
Read full comment here
Quote from darkhorse:
Well, we aren't in disagreement as to the critical importance of price.
My stance is that price confirmation is a necessary, but not sufficient, condition for action. It is less about one factor "leading" and more about a confluence of factors coming together -- like the components of an engine.
Quote from Ghost of Cutten:
One way to consider it - is a move with price + other factors in favour a better odds play than one with price alone; or price with the other factors against it.
True confession time: I kind of like it when markets get rough.
This isn’t because I’m a sadist or a masochist. (At least I don’t think I am.) It’s because rough markets highlight comparative advantage.
When you hear stories of how the big name players are struggling, how stuff seems to be slamming around without rhyme or reason, how all is confusion and nobody knows what’s really going on - you know that’s when the weak get separated from the strong.
Another way to look at it is the sailing metaphor — “a smooth sea never made a skilled mariner.” When the waters are calm, comparative advantage is muted. Foolishness can even constitute an edge when conditions are supportive.
Quote from automateddaytra:
True confession time...
Global Macro Notes: Forget Copper, What About Oil?
Copper, aka Dr. Copper, has long been known as the "metal with a PhD in economics."
But what about oil? Isn't oil, in some ways, a much more powerful barometer for both the state of the global economy and the general economic mood?
Copper is revered as an economic bellwether because it is used in so many things. From washing machines to vehicle wiring to housing construction, the red metal shows up most everywhere.
But copper is also subject to manipulation more so than oil, in part because of storage factors (copper is easier to warehouse) and in part because the copper market is so small, relatively speaking...
Read full notes here
Weekend Links Roundup: Sentiment Silliness
The AAII (American Association of Individual Investors) measures small investor sentiment like an oscillator.
A reading of 45% or higher indicates extreme bullish sentiment. At 25% or below you have the opposite, a bearish extreme. The long-run average is 39%.
As TPC reports, small investor sentiment recently went from extreme bear (21%) to near extreme bull (43.9%) in just two weeks. This suggests a few possiblities:
* Small investors = headless chickens.
* Mr. Market throws a wicked curveball.
* Sentiment numbers are terminally squirrelly.
* All of the above.
As TPC points out, when small investor sentiment topped out at 48.5% earlier this year, it came just days before a big market peak.
So what do you do with this recent surge? Do you fade it? Do you take it as a sign that markets could go higher? Do you wait out the spike to see if we plummet back to bearish before the month is out?
Or, my preferred option, maybe you recognize that the majority of sentiment poll data is just noise in the first place, and stick to your logic- and conviction-based trading plan.
Go here for 09-12 links roundup
Macro Comment: Record Long-Term Unemployment Means No Consumer Recovery
When personal consumption drives 70% of U.S. GDP, you don't need the consumer to "die" to create a problem. You just need a sustained trend of hunkering down and cutting back.
Think occupancy rates in Las Vegas hotels. The typical Vegas hotel has a minimum occupancy threshold just to break even. For serious pain to occur, occupancy rates don’t have to hit zero. They just have to fall below a relatively high "covering costs" point -- like, say, from 70% to 65%. The embedded leverage in a high turnover business model quickly goes toxic when black ink turns to red.
This non-linear dynamic also applies to overinflated expectations (and accompanying valuations). When a number comes in below trend, it doesn’t have to be a goose egg to court disaster. Similarly, a reworking of the U.S. GDP mix to reflect permanently reduced consumption levels -- Americans spending less money on "stuff" -- could constitute a major paradigm shift.
Read full comment here
Gold and Gold Stocks: Jail Break!
GLD and GDX blasting through the ceiling today...
Global Macro Notes: Lemmings in Search of a Cliff
The psychology of hope is toxic at this point because 1) "hope" is not a strategy, and 2) realism and caution are more important than ever in an extremely dangerous macroeconomic environment.
Trends do not unfold in perfectly linear fashion. Mother Nature doesn't work that way. If one scatter-plots the progression of data points that tell an economic story -- thus fueling a long-term secular trend -- one will see regular blips and changes that appear to deviate from the norm, putting the major plot line in temporary doubt. This is perfectly normal.
Except, when investors are prone to unrealistic expectations, those blips become an excuse to go on extended hope jags. In secular bear markets, fighting general conditions is an expensive habit. Wall Street is addicted to this habit by design.
Read full notes here
Weekend Links Roundup: Ready to Crush It
...Of course, the market could grind yet higher from here. And if it does, that's perfectly ok.
We can play the grind-it-out game as well as anyone... and there are multiple areas of this market that can accommodate modest long-side conviction, overlaid with constructive price action and supportive long-term fundamentals.
But the real juice, the real moxie at this juncture, is in the downside play... catching out the punters and the V-ers leaning the wrong way with the second nuts, squinting 'til their eyeballs hurt trying to see evidence of a recovery that's really just a mirage.
Go here for 09-19 links roundup
Global Macro Notes: Technicals and Market Tone, Yes -- Fundamentals, Not So Much
Monday was a blowout bonanza for the bulls. Stuff was surging left and right. The S&P blasted through range-bound resistance levels. The Russell 2K went nuts. The Q's, which are 20% weighted towards the mighty Apple (AAPL), look like a moonshot.
For the moment, the schizophrenic investor shift to multi-year highs in AAII bullish sentiment seems fortuitously timed.
And the big ol' breakout came on news that the recession is "officially" over, confirming that the market tone is strong (via vigorous bullish response to positive news).
So, yay.
Except for a couple problems:
* This action has more than a whiff of 'manic euphoria' to it.
* The speculative market leaders are at nosebleed heights.
* Top down risks are elevated and growing.
* For the most part, the fundamental drivers are just not there.
Full notes available here
Quote from darkhorse:
[b]
* For the most part, the fundamental drivers are just not there.
[
Quote from Optionpro007:
I think fundamentals work in true free markets, where the balance of supply and demand is natural. Markets that are contaminated by policy or unnatural human intervention can render fundamentals a liability.
Weekend Links Roundup: The Tepper Surge
On Friday, hedge fund legend David Tepper did an incredibly rare interview on CNBC.
The thrust of the interview was a "heads you win, tails you don't lose" argument for why equities are a buy:
* If the economy gets better, that's bullish and equities win.
* If the economy doesn't get better, the Fed does more Quantitative Easing -- and equities still win.
* The "Bernanke Put" has now officially replaced the Greenspan Put.
* Many of the things that could have been bad -- eurozone risks, China risks, Japan risks -- turned out not to be so bad.
* The U.S. is not like Japan because the Federal Reserve can still buy mortgages, thus pushing mortgage rates down and creating new breathing space for homeowners to spend.
Wall Street really dug the perspective, as evidenced by Friday’s surge... which, no doubt, was the driver for doing the interview in the first place.
So now we are back to the "sunny with a chance of earthquakes" stance -- with the Fed providing the sunshine -- and (supposedly) no earthquakes in sight for the foreseeable future.
Go here for 09-26 links roundup
Global Macro Notes: Is "QE2" Priced In?
Steve Jobs and Ben Bernanke have something notable in common these days.
Apart from being graybeards, both have the weight of heavy expectations on their shoulders -- and the fate of this severely extended market rally in their hands.
Apple (AAPL), a consumer tech company that makes expensive entertainment devices, is (hypothetically) on its way to being the number one market cap company in the world.
AAPL seems to hold court at the top of every "conviction buy" list in the land -- a "no brainer" go-to name for fund managers to park incremental capital flows.
In result, AAPL has swelled to roughly 20% of the Nasdaq 100 (QQQQ) weighting. As far as speculative appetite is concerned, "as goes Apple, so goes the market."
And as for Fed Chairman Bernanke? He is now seen as master of the tide that lifts all boats, i.e. the wielder of "QE2" (quantitative easing, the sequel)...
View full notes here
Weekend Links Roundup: "Simplify, Simplify"
There is lots of juicy stuff in the links roundup as usual.
But for this weekender we are going to heed classic advice from that famously cool cat, Henry David Thoreau, and try to "simplify, simplify" the bull and bear cases...
Go here for 10-03 links roundup
Learning how to read fundamentals correctly is something that takes considerable skill imo. I see you do a very fine job at it. Congratulations on your skill.
Quote from Optionpro007:
Learning how to read fundamentals correctly is something that takes considerable skill imo. I see you do a very fine job at it. Congratulations on your skill.
The Force is strong with you, young Skywalker, but you're not a Jedi yet.
I just felt like saying that .
__________________
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
Quote from Martinghoul:
The Force is strong with you, young Skywalker, but you're not a Jedi yet.
I just felt like saying that
A quote for a quote, then (not greatly relevant, but I am a fan)...
There is timing in the whole life of the warrior, in his thriving and declining, in his harmony and discord. Similarly, there is timing in the Way of the merchant, in the rise and fall of capital. All things entail rising and falling timing. You must be able to discern this. In strategy there are various timing considerations. From the outset you must know the applicable timing and the inapplicable timing, and from among the large and small things and the fast and slow timings find the relevant timing, first seeing the distance timing and the background timing. This is the main thing in strategy. It is especially important to know the background timing, otherwise your strategy will become uncertain.
- Miyamoto Musashi
__________________
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
Quote from Martinghoul:
There is timing in the whole life of the warrior...
- Miyamoto Musashi
Global Macro Notes: Japan Fires the First Shot
Japan has arguably fired the first shot in what many fear to be a new "currency war," and a Federal Reserve official has made clear the U.S. has the biggest bazooka.
Meanwhile, the unfolding foreclosure debacle and robo-signer scandal have increased the odds of follow-on housing market collapse, even as consumers show signs of serious retrenchment.
All this has dramatically enhanced the case for precious metals and related equities, by way of underscoring the likelihood of extreme QE2 measures.
Current events (and the Fed's anticipated reaction to them) also potentially overwhelm the 'austerity effect' of a Republican resurgence and fiscal gridlock in Washington.
In response, we have increased our already substantial gold stock positions and hedged our opportunistic short retail plays with long side buys of high quality blue chip names. The ultimate outcome of "QE2" efforts is still likely to be tragic for the U.S. economy.
View full 10-06 notes here
Weekender: The Federal Reserve is Destroying the Market Mechanism
The markets are seriously out of whack. You can see this via simple illustration in the performance comparison chart above.
Over the past 90 days, equities, bonds, and gold have all gone up substantially. This is weird. To wit, the normal relationship between these assets has been grossly distorted by expectations of "QE2," i.e. the Fed printing money and using it to buy bonds in an effort to keep interest rates low.
As old R.L. sang, "It's bad you know." But why is it bad? Because markets have two primary functions -- capital allocation and price discovery -- and the second function enables the first.
The whole point of having a market is so that investors can allocate capital to enterprises that will use it most efficiently. (Or, in the case of the commodities markets, so that commercial producers and end users can transfer risk.)
But, in order for such actions to benefit the economy, the price discovery function of markets must remain intact. We have to be reasonably sure that the price signals (i.e. valuations) Mr. Market presents to us are actually grounded in reality.
This is where the actions of the Fed (and other central banks) throw everything out of whack. When asset prices are driven by expectations that the Federal Reserve will print money, rather than any true sense of intrinsic value, the signaling mechanism breaks down.
And as a result of this breakdown, investors and companies alike start making non-productive decisions based on distorted information, which in turn hurts the economy and destroys value...
Go here for full 10-10 links roundup
Global Macro Notes: The Fed is Simply Adding More Bricks to the Wall
A wave of QE2 euphoria has washed over markets like a syringe full of heroin hitting a grateful junkie's bloodstream.
Some assert that the wave could well continue, as we enter the seasonally strong Nov - Dec period for markets and marginalized bond investors look on the equity bonanza with longing.
A further rush of upside would do us just fine, as we ride the wave with precious metals names and an assortment of other carefully selected longs.
At the same time, though, we inch ever closer to the door by systematically building out short positions, particularly in names that have been 'acting right'...
Though there is good money to be made on the long side, one cannot know how long that will remain the case. (Weeks? Months? Days? Already over by the time you read this?)
One CAN see with a fair degree of clarity, however, that the Federal Reserve is merely driving markets toward a brick wall... with the inevitable collision set to be a horrendous one.
The numerous "bricks" in this looming wall include:
* failure to stimulate the real U.S. economy
* the death of credibility for the Federal Reserve
* rising anger (bordering on rage) at pro-inflationary policies
* foreclosure-enhanced odds of a housing double dip
* a breathtakingly oversold $USD threatening to surge
* looming "currency war" (full-on trade war?) with China
* austerity-induced self-asphyxiation in Europe
The motto of the bulls thus well might be: "Eat, drink and be merry, for tomorrow we die (or at least face reality)"...
Go here for full Global Macro Notes
Weekender / Links Roundup: Stick and Move
For traders, rarely has there been a better time to be flexible and agnostic. Right now the whole market complex is keying off the breathless anticipation of what one guy might do.
And we really can't be sure what he will do. To give but one example, the "spread" of QE2 expectations when the Fed acts in November ranges from $100 billion to $1.5 trillion. At one end of the scale, crushing disappointment; at the other, party-hearty blowout.
On top of that, the market is besieged by a host of unknowns.
The foreclosure fiasco might derail everything -- then again it might not.
Solid earnings plus QE2 tailwinds might propel the market higher for the rest of the year -- then again they might not.
The "currency wars" might lead to international crisis -- then again they might not.
You can't count on anything here, not even volatility -- after all, a "bulls win" scenario is one in which vol evaporates as the markets grind higher.
The trading solution? Be prepared for the full range of outcomes. Develop a roster of attractive longs and attractive shorts on an absolute basis, keep the risk on a tight leash, and let come what may.
In boxing parlance, the operating term here is "stick and move." When conditions are highly uncertain, you avoid throwing haymakers. A heavy punch carries too much danger of exposure if your swing misses the mark. So you dodge and weave, jab and step back, staying light on your feet until greater clarity arises...
Go here for full links roundup
Global Macro Notes: Cashing in on ForeclosureGate
As of last week's notes, our largest concentration was in gold and silver stocks (via GDX plus a select assortment of names).
Those positions were stopped out for sizable profits on Tuesday, when China threw an elbow (in the form of a surprise rate hike) and the $USD surged.
Meanwhile, as the foreclosure drama unfolds, Bank of America's pain has been transformed into gain for rental income and mortgage-guaranty related names.
Our largest concentration of thematic exposure, as of this writing, is thus in foreclosure related positions -- including AGO long and a timely BAC short -- plus a sizable short in crude oil.
Though the rally was briefly thrown in doubt by China's rate hike cool-down effort, the bulls quickly reconsidered and elected to "party on." The bullet-proof reputation of the QE2 rally was arguably enhanced by the passing of this little test.
We say "let the good times roll," happily accruing gains on blue chips and long-side foreclosure related names, while quietly preparing to turn on a dime.
Mr. Market has paid little heed to the message embedded in China's rate hike and the dollar's stirring, but at some point (perhaps before too long) that message could be made violently clear...
Go here for full notes
Weekender / links roundup: Potemkin Village
If you look up "Potemkin Village" on Google, here are some definitions that come up:
* something that seems impressive but in fact lacks substance
* Potemkin villages were purportedly fake settlements erected at the direction of Russian minister Grigory Potyomkin to fool Empress Catherine II during her visit to Crimea in 1787.
* Any false construct devised to disguise a shortcoming or improve appearances
* An impressive facade or display that hides an undesirable fact or state; a false front.
I couldn't help but think of that definition on reading "Chinese City Has Many Buildings, But Few People:"
Broad boulevards are unimpeded by traffic in the new district, called Kangbashi New Are. Office buildings stand vacant. Pedestrians are in short supply. And weeds are beginning to sprout up in luxury villa developments that are devoid of residents.
"It's pretty lonely here," says a woman named Li Li, the marketing manager of an elegant restaurant in Kangbashi's mostly vacant Lido Hotel. "Most of the people who come to our restaurant are government officials and their guests. There aren't any common residents around here."
City leaders, cheered on by aggressive developers, had hoped to turn Ordos into a Chinese version of Dubai -- transforming vast plots of the arid, Mongolian steppe into a thriving metropolis. They even invested over $1 billion in their visionary project.
But four years after the city government was transplanted to Kangbashi, and with tens of thousands of houses and dozens of office buildings now completed, the 12-square-mile area has been derided in the state-run newspaper China Daily as a "ghost town" monument to excess and misplaced optimism.
Global Macro Notes: Time to Short the British Pound?
Eighteen years ago, George Soros famously gained his reputation as "the man who broke the Bank of England."
In a bearish British pound trade conceived by the great Stan Druckenmiller, Soros' Quantum Fund made more than a billion dollars in one day in 1992.
As expertly recounted by Sebastian Mallaby in "More Money Than God," John Major and the hapless British government fought tooth and nail at the time to keep the pound from being devalued.
It was a fight they ultimately lost to Soros and the "speculators" -- and Britain was the better for it, given the strain exerted on the U.K. economy by an irrational commitment to the ERM (European Exchange Rate Mechanism).
Today, the British pound may be setting up for another excellent shorting opportunity -- with an important twist. The government and the BOE (Bank of England) are not as likely to fight a sharp devaluation this time... and may in fact encourage it.
Go here for full Global Macro Notes
Weekender / Links Roundup: Trick or Trade
Trick or treat, smell my feet, give me something good to eat...
Trick or trade, long or fade, bulls or bears will soon get played...
Were I a fresh-faced trick-or-treater roaming the swanky neighborhoods of Greenwich, Connecticut -- i.e. the hedgie capital of the world -- I would do so in a Ben Bernanke devil mask.
Then, whenever a leveraged long fund manager opened the door, I would shout in my best Seinfeld-Soup-Nazi voice: "No QE for you!!!"
In all seriousness, betting on a "QE2 comes through" rally continuation here feels like backing the heavy favorite at the Kentucky Derby. Sure your horse has the chops to win -- but the reward to risk is lousy, expectations are nosebleed high, and the dark horse bet offers a much better payout. (Remember Big Brown?)
With investor sentiment at its most bullish in two years, the crowd seems convinced Bernanke will come through for the bulls. Having already anticipated all kinds of good juju and inflationary effects of the not-yet-arrived QE2, Mr. Market is effectively taking the "over" on Wednesday's big announcement. But if we get the "under," what then?
Go here for full links roundup
Integrated Macro Analysis Series
For those with interest, the Integrated Macro Analysis series is now complete:
* IMA Part I: 3-D Structures and General Conditions
* IMA Part II: The Market Tower
* IMA Part III: Horizontal & Vertical Exposure
Global Macro Notes: Winners and Losers in the Fed's Inflation Game
It is now "the day after," and commodities have gone insane.
As of this writing, mid-morning on November 4th, crude oil is up 2%. Gold and copper are both up more than 3%.
The Federal Reserve has expressed a desire to create positive inflation. What they are creating, instead, is a sort of non-optional material inputs tax -- a hard asset rocket ride -- that divides the playing field into smiling winners and snarling losers.
Among the winners:
* Commodity producers
* Precious metals dealers
* Hard asset related businesses
* Companies with 'pricing power'
And the losers:
* End-users of commodities
* U.S. savers and consumers
* Companies with no 'pricing power'
* Anyone who eats food, heats their home, or drives a car
The risk at this juncture is immense, not just to the U.S. economy but to the Federal Reserve itself.
For most of its roughly 100-year existence, the Federal Reserve has seen its activity wreathed in shadows. Now, by enacting this "bold experimental plan" that the whole world can see will not work -- in terms of the desired impact on unemployment -- the Bernanke Fed is exposing itself to harsh public review.
And it is doing so by saying to the American public: "Here is the smiling bearded man who thinks he is helping you by causing your gas and grocery bills to double."
Given Mr. Market's reaction, the post-QE game plan is fairly simple:
* "Ride the wave" with PM miners, commodity producers, and other advantaged names.
* Maintain a short bias towards the "losers" in the Fed's doomed equation.
* Apply the caution and dexterity requisite to mania conditions.
View full Global Macro Notes here
Weekender / Links Roundup: Swan Spotting
My favorite piece of research this week: A power-point presentation called "China -- The Mother of All Grey Swans" by Vitaliy Katsenelson.
Over the course of 50+ well-researched slides, Katsenelson makes a powerful argument as to why China (and secondarily Japan) is an artificially supported, government orchestrated, large-scale disaster just waiting to happen.
Does this mean it's time to run out and short China in size? By no means. Patience is a virtue, especially when the bulls are getting high on their own supply.
With Citigroup talking about a "Super-Goldilocks" E.M. environment, and "death of the dollar" prognosticators straining to pat themselves on the back, there is no clear impetus, at least for now, to stop riding the prevailing bullish trends (let alone step in front of them).
But "right now" is still a very good time, with much of Wall Street celebrating, to be on the lookout for "gray swans" (to use the U.S. spelling) that could powerfully reverse today's course...
View full links roundup here
thanks Darkhorse
I agree with your and the other fellas China analysis. But Dr Goebbels of China (asiaprop) won't like this one bit.
This is an excellent example realtime example of where fundamental information will probably turn out right but at present it's no time to short.
So it's important to blend the fundamentals with the technicals and right now the technicals say stay long, and/or take profits or go flat - don't go short.
If the fundamentals do eventually turn out to be correct then let the technicals guide us, and you can bet there will be plenty of good short signals coming............
Quote from AK100:
This is an excellent example realtime example of where fundamental information will probably turn out right but at present it's no time to short.
Macro Comment: Yes Virginia, There is Food Inflation
In case you were skeptical (and apparently some still are) -- a quick roundup on the food inflation front.
Read full comment here
Global Macro Notes: What Next For Long Bonds?
If only from a chart perspective, long-dated treasuries are at an interesting juncture here.
As you can see from the weekly chart, TLT has retraced approximately 50% of its upward thrust for 2010, finding support at the 50 week EMA (exponential moving average).
In further note, TLT saw a big reversal on Wednesday, closing higher on strong volume after fighting off a sharp decline. This reversal, and the price / volume action in the days preceding, offers possible hint of exhaustion selling.
Long bonds had sold off heavily in multiple sessions over the past week, no doubt in response to "QE2" and the prospect of inflation's return. But is the return of inflation (and higher interest rates to go with it) really such a lock?
Maybe not...
Go here for full notes
Weekender: Shanghai Noon
The big news in the week that was? The huge whackage in commodities.
Stocks took their biggest lumps in three months, but the CRB index took its hardest punch in 18 months.
On Friday, gold, silver, oil, copper, grains, and sugar all got killed. (For a quick mental snapshot of the carnage, pull up $CRB, DBA and SGG.)
One can imagine trend following commodity CTAs and "peaceful easy feeling" bulls looking like a Jackie Chan movie poster right about now.
So was Friday's action a surprise? Yes and no...
Full weekend comment here
QE Explained
Awesome...
Global Macro Notes: The QE2 Inflation Trade is Collapsing Like a House of Cards
On Monday, an old friend of mine -- a mechanical systems trader in Europe -- emailed to request my thoughts on gold (and the general state of markets).
It should be noted we still have long gold and silver positions on -- with partial profits taken and stops above breakeven -- as a modest hedge against our growing short book.
That said, this was my out-of-consensus reply:
In the past few weeks a number of commodities (silver, sugar, cotton, possibly gold) have demonstrated anecdotal evidence of parabolic peaks. At the same time, the $USD has shown signs of bottoming.
This is partly a function of the blowoff "QE2" euphoria that has been building. The huge day for commodities was actually the day after the Quantitative Easing 2 announcement, when Bernanke published an op-ed in the Washington Post basically admitting the Fed had aims to manipulate the stock market.
The mass consensus had become heavily tilted towards bullish stocks, bullish commodities, and bearish $USD as a result of QE2. On top of this we saw the highest bullish sentiment readings since Jan 07 and Citi analysts talking of a "super-Goldilocks" environment for emerging market equities...
Go here for full Global Macro Notes
Quote from darkhorse:
Global Macro Notes: The QE2 Inflation Trade is Collapsing Like a House of Cards
Quote from m22au:
Do you think that the size of QE2 will be increased, and/or the asset purchased changed to include other asset classes such as munis or corporate bonds?
For what it's worth, as I've posted in my journal, I am long gold, but short S&P 500 as a "risk-off" hedge.
Weekend comment: Mind the Gaps
Charts neither lie nor tell the truth. They simply reflect the collective judgments of the marketplace.
As Bruce Kovner has said,
Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.
Global Macro Notes: A Massive Topping Process At Work
"You look at every bear market and they’ve always basically occurred because of an up-tick in inflation and an up-tick in interest rates."
~ Paul Tudor Jones
We continue to operate on the thesis that, apart from one or two notable exceptions, there is a massive topping process unfolding.
This thesis is being steadily confirmed on three fonts -- news flow, price action, and portfolio P&L.
The up-tick in interest rates PTJ spoke of is present (as we will further note shortly). And of course, "non-core" inflation concerns are here too... as are the gray swans of China, Europe, and U.S. financial fraud...
And what of QE2? According to the bond market -- prices falling, rates rising -- QE2 is a dud. The 'vigilantes' are calling the Fed's bluff.
Meanwhile, rates are headed into a "raise, raise, raise" pattern for China -- and the Fed is not exactly heaping glory on itself with ever more desperate emerging market finger-pointing.
A year from now, QE2 may be viewed on the charts as a headfake non-event... an excuse for one last sprint up the hill, rather than the start of a new bull marathon.
After all, most of the love was priced in before the actual event -- pure psychology at work -- and the post-QE2 gap, quickly closed, wound up littering the landscape with broken trends galore...
Read full notes here
Uh-Oh!
Calling Team America...
Weekend Comment: For Commodity Bulls, "Don't Fight the Fed" Becomes "Don't Fight Beijing"
The big story in the week that was (besides the customary Black Friday trample-fests)?
"Greece Part II: Eurozone sovereign debt crisis revisited."
As such, the Captain Obvious award goes to the NYT for pointing out that a bailout of Spain -- were such even feasible -- would test Europe's finances.
(Nah, ya think?)
Funny, though, how the big driver often winds up being the thing less talked about. And right now, there is very little focus on what's happening in China.
The old Federal Reserve rule is "three steps and a stumble," meaning, when the Fed hikes rates three times, look out below. (Basic rationale: As interest rates go up, margin and loan service costs go up. Rate-of-return hurdles go up. Yields on safe haven debt instruments become more competitive. All this happens with risk appetite in a 'peaking' stage, and the bloom comes off the speculative rose.)
So if "Don't Fight the Fed" counts as time-tested wisdom, how about "Don't Fight Beijing?"
Read full comment here
Darkhorse,
Thanks again for your comments.
I note that you mentioned a short position in oil established earlier in November (not sure if you are still short oil).
Do you have any views on:
(1) the possibility of peak oil:
http://www.zerohedge.com/article/gu...nomy-set-starve
http://www.elitetrader.com/vb/showt...&postid=3018794
(2) possibly something more relevant to trading / investing in 2010, the strong correlation between the S&P 500 and crude oil:
http://www.elitetrader.com/vb/showt...926#post3021926
Disclaimer:
Even though oil has done very well in recent days, I think that any further "risk-off" behaviour will see it fall together with a decline in equities.
Quote from darkhorse:
Weekend Comment: For Commodity Bulls, "Don't Fight the Fed" Becomes "Don't Fight Beijing"
http://mercenarytrader.com/2010/11/...-fight-beijing/
Quote from m22au:
I note that you mentioned a short position in oil established earlier in November (not sure if you are still short oil).
Do you have any views on:
(1) the possibility of peak oil...
(2) possibly something more relevant to trading / investing in 2010, the strong correlation between the S&P 500 and crude oil:
Global Macro Notes: The Worldwide Fiat Debasement Plan
"We're talking about huge sums of money going to bail out large foreign banks... Has the Federal Reserve of the United States become the central bank of the world?"
~ Senator Bernie Sanders, (I) Vermont
This is an Ali-versus-Foreman type market environment. The operative mode is "float like a butterfly, sting like a bee." Quick steps are necessary to avoid getting hit.
In keeping with the impressive volte-face on Wednesday, in which risk assets surged, our thesis has evolved as follows:
While "Quantitative Easing 2" was a slow failure, with the gray swans of China tightening and European sovereign debt crisis weighing heavily on markets, risk appetite has surged back on a lusty re-embrace of the "Worldwide Fiat Debasement Plan."
In other words, we now have thematic reconfirmation -- via revealed word and deed -- of the conviction that ALL major fiat currencies subject to a printing press will be metaphorically 'lit with kerosene,' in a mutual support exercise of drunk governments propping each other up (with the Chairman of the Fed as bartender in chief).
Read full notes here
Thanks again for your notes darkhorse.
Good call on KR, I see it is down a bit this morning.
Also any thoughts on NYSE: DF ?
Quote from darkhorse:
Global Macro Notes: The Worldwide Fiat Debasement Plan
In keeping with the impressive volte-face on Wednesday, in which risk assets surged, our thesis has evolved as follows:
While "Quantitative Easing 2" was a slow failure, with the gray swans of China tightening and European sovereign debt crisis weighing heavily on markets, risk appetite has surged back on a lusty re-embrace of the "Worldwide Fiat Debasement Plan."
In other words, we now have thematic reconfirmation -- via revealed word and deed -- of the conviction that ALL major fiat currencies subject to a printing press will be metaphorically 'lit with kerosene,' in a mutual support exercise of drunk governments propping each other up (with the Chairman of the Fed as bartender in chief).
Read full notes here
Quote from m22au:
Also any thoughts on NYSE: DF ?
Weekend comment: Gold is a Credit Default Swap
Gold is the ultimate Credit Default Swap. It's meltdown insurance taken out against Federal Reserve Inc. and the global financial system at large. And the best part is, with this CDS you never have to worry about your counterparty.
That simple observation is a worthy retort to all those who yammer on about how "gold has no intrinsic value"... how gold is worthless because "it offers no yield, no return on investment" and so on.
When was the last time you heard someone complaining about the fire insurance policy on their house -- the fact that it "offered no yield" etcetera?
When it comes to insurance, yield isn't the point...
Read full comment here
Global Macro Notes: Beware the Rip Currents
On U.S. beaches, rip currents (also known as rip tides) are responsible for 80% of lifeguard rescues. They are hard to spot (especially if you aren't looking) and potentially fatal.
In an ocean or large lake, a rip current is "a strong channel of water flowing seaward from near the shore."
In markets, a rip current could be classified as a submerged theme or trend the market is ignoring, that yet could suddenly and violently return to the fore.
Just as ocean rip currents can drown careless or inexperienced swimmers, so too can market rip currents drown careless or inexperienced investors.
At moment the "rip current" potential for this market is very, very high, due to all the developing themes the market has chosen to (temporarily) dismiss out of hand:
* China inflation pressures out of control
* The potential for a global E.M. hiking cycle
* The blowback potential of rising energy costs
* The blowback potential of rising U.S. interest rates
* A brewing state budget crisis
* Europe's steady slide into monetization oblivion
We maintain that 2010 markets have been excellent for traders, but hazardous to those without fluid timing and a strong handle on risk control.
As Jon Kabat-Zinn observes, "You can't stop the waves, but you can learn how to surf"...
Read full notes here
Weekend Comment: The Von Mises Prophecy Explained
Despite very long interims, reality (and gravity) tends to eventually reassert itself. This is why the Austrian school will always have relevance.
In that respect, there is something I think of as "the Von Mises prophecy," which is a sort of one paragraph summation of Austrian thought -- anchored to a prediction -- as put forth by Ludwig Von Mises himself:
"There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
The Von Mises prophecy can further be understood in the context of "exploding debt dynamics" (a highly useful term coined by an IMF staffer).
To wit, your debt dynamics become explosive when debt service costs overtake your ability to arrange new financing. "A rolling loan gathers no loss," as the Wall Street wags say, but once that loan stops rolling? Game over man...
Read full comment here
Global Macro Notes: China's Biggest Export -- Deflation
Quick, off the top of your head: What is China's biggest export?
Gym socks? iPods? Wal-Mart knick-knacks? Neo-colonial African infrastructure (e.g. bridges and ports in Congo)?
We'll hypothesize here that China's biggest export is deflation.
Consider -- during the boom-boom Bretton Woods II years, everyone talked about "the China price." As in, "if you can't beat the China price" for some manufactured good, you didn't really have a chance of competing.
China's low-wage army and all-encompassing state-run utilization of resources exported the "China price" all over the world, lowering not just the cost of finished goods but the wages of Western world workers to boot...
Read full notes here
Weekend Comment: The Trouble With Modern Monetary Theory (MMT)
It's time to put the smackdown on Modern Monetary Theory (or MMT for short).
To be blunt, MMT is fatally flawed, and someone needs to address those flaws head on. (That is the conclusion of yours truly after investigating in recent months.)
If you aren't familiar with Modern Monetary Theory, the quotes in the blue sidebar may disturb you a bit. They highlight some rather bizarre assertions made by MMT proponents.
In some ways the MMTers are neo-channelers of Dick "deficits don't matter" Cheney. (Full quote: "Reagan taught us that deficits don’t matter.")
In reality, what Reagan taught us is that deficits don't have to matter for extended periods of time. But then, all of sudden, they can start mattering a great deal.
But we'll get to that... point being, MMTers think deficit concerns are bunk. In fact, they don't see much reason to worry at all! Dead wrong, as we shall see...
Read full comment here
Weekend Comment: Stores of Value, Feedback Loops, and Gresham's Law
In between family, presents, and the eating of Christmas cookies, the holidays gave time to revisit a book or two.
One such book was Paper Money by Adam Smith (aka George Goodman). Paper Money is a timely chronicle of 1970s economic conditions -- housing bubble, energy crisis, runaway inflation and so on -- published in 1981.
In thinking about the conditions that exist today (or could soon exist in future), this passage from Paper Money stood out:
The binge of the Second Oil Crisis, you will now see, is very relevant to this discussion of paper money. Remember Sir Thomas Gresham, whose law said bad money drives out good, meaning bad money drives good money out of circulation and into savings. The bad money is spent. In the Second Oil Crisis what was saved was oil, and what was spent was money. The store of value had become oil. The yen, the marks, the dollars, the francs, were spent; the oil was saved...
Read full comment here
Global Macro Notes: Twelve Major Risks for 2011
In the December issue of the Absolute Return Letter, Niels Jensen reveals his "dirty dozen" -- twelve major risks for the year 2011. Many of these overlap with themes we have already highlighted or discussed.
With more explanation to follow, here are Jensen's 12 risks in brief:
1. High yields priced for perfection?
2. The risk of double dipping
3. The sinking ship of Japan
4. Beggar thy neighbor mentality
5. Capital flows too hot to handle
6. Chinese inflation out of control?
7. Food inflation induces civil unrest
8. India an accident waiting to happen?
9. European contagion and solvency risk
10. Massive refinancing program
11. Premature withdrawal of monetary suppport
12. Israel launching a pre-emptive strike on Iran
Against a backdrop of extreme bullish complacency, with many professional prognosticators seeing little to no risk at all through their rose-colored glasses, a discussion of "gray swans" -- not so hidden risks of low probability but potential high impact -- feels appropriate here...
Read full notes here
You always make good Blog posts DH.
Keep up the good work and best of trading for 2011
Thanks! You too
Happy New Year ET...
2011 is gonna be bigger and better than ever. 
Weekend Comment: On the Importance of Themes (and Getting Around)
...the market is not just bulls versus bears, or investors versus traders. These are artificial distinctions, sometimes useful and sometimes not.
On a deeper level, the market regularly expresses itself in themes -- collective opinions as to what the future will hold, often keying off some scenario or basic logic chain, expressible in a standard format.
"Because of X, such and such industry group will do Y... in light of A, stocks will do B," and so on.
We prefer to think thematically -- to think in themes -- because these ideas and belief sets are like powerful ocean waves, pushing sectors, industry groups, or even whole asset classes up and down.
Sometimes these themes are logical and sensible. At other times they are downright loony. (Remember how 'eyeballs' were the measure du jour of dot com stocks?)
And there can be dozens of themes running through markets at the same time -- some loud and dominant, others barely a whisper.
Some themes directly conflict with one another. Others dovetail and mutually reinforce each other. And of course, the market can (and often does) drop one theme in favor of another with surprising speed.
Sound messy? Welcome to markets. It's the swirling, bounded chaos of tens of thousands of market professionals (and countless non-professionals) all trying to make sense of things in real time...
Read full comment here
Hey, DH great to have you back. I always considered you one of the all time great posters here on ET. And I'm not the only one. Your name always comes up when great posters are mentioned. We missed you. I'm just starting to post again myself. You know how that is. Somehow I missed this thread and just discovered it by clicking on your name in my buddy list. I was expecting to see you hadn't posted in years. What a pleasant surprise. Was just starting to check out your website too. Looks good. Got to run, but I'm looking forward to following this thread and reading it all as I have time and looking into your website more too.
Oh, wait! I think I have you confused with someone else!............................................................. kidding. Welcome back!
__________________
We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time
- T.S. Eliot -
Thanks BCE, you're too kind...
Global Macro Notes: Whither Commodities?
The market giveth, and the market taketh away.
In the final weeks of trading for 2010, gold and silver registered powerful "risk on" breakouts. Gold moved definitively to the upside from a short-term triangle pattern, and silver pushed above $30 per ounce.
Soon after, however, both of those moves were swiftly negated. Rather than displaying follow through, the yellow metal dropped sharply, leaving gold bugs to again ponder the possibility of a triple top. Silver, meanwhile, collected two black marks against it -- a break of a long-term trendline and a failure to hold the psychological benchmark of $30 per ounce.
The Mercenary portfolios are now clear of precious metals related positions. Like the old E.F. Hutton commercials: When the market speaks, we listen...
Read full notes here
Jack wishing great success in 2011.
If you can, could you share with us your trading results for 2010? Do you run one fund or two? What is the minimum investment?
Thanks.
Quote from Optionpro007:
If you can, could you share with us your trading results for 2010? Do you run one fund or two? What is the minimum investment?
Weekend comment: Did China just ring a bell?
As the old saying goes, they donā€™t ring a bell when a market tops.
But sometimes it sure feels like it.
Two quick examples: The first from my days as a wet-behind-the-ears commodity broker in 1998.
I had come into the biz near the tail end of one of the most vicious commodity bear markets of all time. The president of the firm, a diehard grain bull, was convinced everything was about to turn around. Many of our big clients were farmers and he couldn't bring himself to go bearish, repeating the mantra to "never short anything below the cost of production."
A big crop report was coming out, and the whole office was bullish on soybeans. "Beans in the teens!" was the rallying cry, though soybeans were only pushing $6.00 per bushel at the time...
Read full comment here
fyr..
http://www.esquire.com/features/chi...cal-future-0111
Quote from Optionpro007:
fyr..
http://www.esquire.com/features/chi...cal-future-0111
Global Macro Notes: Reversal of Fortune
The Japanese have a proverb: "the reverse side also has a reverse side." That saying comes to mind reviewing recent action in the $USD.
As we noted last week, the dollar had registered an upside breakout from a multi-month channel, threatening to set the tone for the year with an early climb.
But then the breakout quickly reversed itself, as the situation in Europe -- for the umpteenth time -- morphed in investor's minds from "code red" to "crisis averted, everything's super"...
Read full notes here
Weekend Comment: The Age of Cyberwar is Here
"There's a war out there, old friend. A world war. And it's not about whose got the most bullets. It's about who controls the information. What we see and hear, how we work, what we think... it's all about the information!"
~ Sneakers
One of the most fascinating (and perhaps most overlooked) stories of 2010 was that of Stuxnet, the mysterious computer virus that jammed up Iran's nuclear enrichment program.
This was no ordinary virus, as The Economist describes:
According to Symantec, a computer-security company, the worm performs an inventory of the systems it is running on, looking specifically for "frequency converter drives" made by two firms, one Iranian and the other Finnish, running at speeds between 807 Hz and 1210 Hz. (These high frequencies correspond to the rotation speeds of centrifuges; America tightly controls the export of frequency converter drives able to operate at frequencies above 600 Hz.)
If it finds the right configuration, Stuxnet sabotages it by making subtle changes to the speeds of the centrifuges over several weeks, while displaying normal readings to cover its tracks.
That is not all. Ralph Langner, a German researcher, says Stuxnet has a "second warhead". It targets a different industrial-control system that just happens to be used at Bushehr, Iran's much-delayed nuclear-power station, replaying previously recorded normal readings as it causes havoc. Mr Langner likens its complexity to "the arrival of an F-35 fighter jet on a World War I battlefield."
Billy Walters: The greatest sports gambler ever
Global Macro Notes: Pondering the High Cost of Food
Next to guaranteed reelection, what is a politicians' fondest wish? Perhaps benign economic conditions -- the ability to enjoy upturned economic indicators, positive sentiment, and increased feelings of voter satisfaction all at the same time. "A chicken in every pot."
When fortunes are tied to the ballot box, this is what Washington wants. And it is what the Federal Reserve (with the help of China) appears to have delivered, for the investing classes at any rate: Unrelenting paper prosperity, in which an overall "crisis contained" attitude seeds complacency along with profits.
In this world of levitating asset prices -- never mind the possible correction brewing this week -- what could derail the Fed's "higher market mandate?" Is there any factor that could rudely intrude and kill the dream of perpetual paper gains?
Well, there's the rising cost of food, for one thing...
Read full notes here
Quote from darkhorse:
Global Macro Notes: Pondering the High Cost of Food
Is there any factor that could rudely intrude and kill the dream of perpetual paper gains?
Well, there's the rising cost of food, for one thing...
Read full notes here
Quote from m22au:
If peak oil is real, and manifests itself more noticeably in the coming years, it's entirely possible that all US airlines except LUV, DAL and UAL go bankrupt before the decade is over.
I assume that you prefer shorting restaurants instead of airlines. Is there / are there particular reasons for this?
Quote from darkhorse:
Hi m22au,
Our lack of focus on airlines is not a rejection of the idea. Under the right circumstances they could certainly be good shorts, and it may be worthwhile for us to conduct further investigations in that area.
The oil question is slightly problematic, between airlines' ability to hedge and the threat of medium-term commodity contraction (as deflationary forces are still in play). But again, it's something that could be worth further investigation. I don't have a firm opinion because I'm not up to speed on airlines at moment. We'll take a closer look.
cheers!
Warren Buffett famously asked:
Quote from m22au:
However I prefer to short airlines.
__________________
We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time
- T.S. Eliot -
Quote from BCE:
Warren Buffett famously asked:
"How do you make a small fortune in airlines?....................... Start with a large fortune."
Weekend Comment: "Diary of a Professional Commodity Trader" Review
Full disclosure: This is not an unbiased perspective, as the reviewer has developed a warm friendship with the author (Peter Brandt).
With that said, hopefully you can overlook the bias for two reasons:
* Having read literally hundreds of trading books over the years -- most of them mediocre, a small handful worth revisiting -- your reviewer knows excellence when he sees it. By any standard, this book stands out.
* The author, Peter Brandt, has the ultimate in trader bona fides: An audited track record, spanning 30 years, of better than 41% compound returns! (No, that is not a typo.)
So with that out of the way, let's begin...
There is an old saying among professional racetrack handicappers: The losing player is the one who tells you he breaks even; the breakeven player is the one who tells you he is a consistent winner; and the winning player is the one who tells you it's a tough, tough game, with great dedication required for success.
Peter Brandt, a lifetime winner in the great game of trading, falls in the third category. While clearly someone who loves the game, he does not shy away from the hard realities of trading.
In describing his method of trading, Brandt comes across as refreshingly humble, underscoring that his approach is far from the only approach, cheerfully adding that other methodologies may be superior. (Though of course the vast majority of money managers would give a kidney, or maybe even a lung, for compound returns like his.)
Read full review here
Global Macro Notes: The Deflationists Are Still In It To Win It
Let's begin with an interesting observation. From the time QE2 was initiated, the $USD is actually higher, not lower.
This is especially curious given that the euro -- the major forex counterweight in the $USD index -- has not collapsed.
Dial back the clock to November, when many were predicting QE2 as a watershed event. China's ministry of commerce spoke of "continued and drastic US dollar depreciation." The imminent death of the dollar was (and still is) a widespread refrain.
Yet the buck is higher now. What gives?
Read full notes here
Weekend comment: Earthquakes, Power Laws, and Market Behavior
Note -- this was originally written May 2009.
I review this book with a specific message (and specific audience) in mind: The driving insight behind "Ubiquity" is of potential great worth to active traders and investors.
The book is excellently written -- an easy and engaging read. I first read it many years ago, found it effortless to pick up and read again with fresh eyes a year or two on, and am only now returning to review it (in May 2009) having stumbled across an interesting market-related connection.
(The book touches on out-of-the blue market crashes, but I suppose it took the awe-inspiring volatility of Q408 and Q109 to really open my eyes to the point in question.)
To briefly summarize the key idea, no one knows how big an earthquake will be before it starts. This is so because the earthquake itself does not know how big it will be until events actually play out...
Read full comment here
Global Macro Notes: Deeper Implications of Middle East Turmoil
Thanks to the many narratives and themes competing for dominance, Mr. Market often behaves like a child with ADD (Attention Deficit Disorder).
Some breaking piece of news or shiny data point will grab his attention for the pulse of a few trading sessions -- then the focus switches elsewhere.
So it seems, as of this writing, with the unfolding situation in the Middle East.
As soon as investors realized the Suez Canal is not going to be shut down -- the Egyptian government has no interest in losing billions of dollars in revenue -- it became "game on" for broader risk assets, the market focus shifting back to positive U.S. economic data.
But it would be foolish to view Egypt's uprising through a short-term lens only. There are deeper implications here, some of them quite serious...
Read full notes here
Weekend Comment: "The King of Oil" Review
Is there any prospect as frightening as a political show trial in the court of public opinion?
Reading about the 17-year government witch hunt for Marc Rich -- the global commodities trader credited with inventing the spot oil market -- I was reminded of an old quote attributed to Cicero:
A bureaucrat is the most despicable of men, though he is needed as vultures are needed, but one hardly admires vultures whom bureaucrats so strangely resemble. I have yet to meet a bureaucrat who was not petty, dull, almost witless, crafty or stupid, an oppressor or a thief, a holder of little authority in which he delights, as a boy delights in possessing a vicious dog. Who can trust such creatures?
In the early 1980s Rich became a prototype for the celebrity show trial, having been accused of 1) the largest tax fraud in history and 2) "trading with the enemy" through the duration of the Iran hostage crisis...
Read full comment here
Utilizing the RENO Process, Part I: Range, Equity, Narrative, Odds
Want to be a better trader? Learn how to play poker.
And I don't mean internet poker. I mean real, honest to goodness, brick and mortar poker, where reading emotion -- and controlling emotion -- are key aspects of the challenge. (If there are no public poker rooms in your neck of the woods, a well-run home game will do.)
The parallels between trading and poker are uncanny... For yours truly, a love of poker sprang forth from a deeper passion for trading. One literally led to the other.
Seven years ago or so, I had a big client who took me out to lunch once or twice a week. This guy, a sharp entrepreneur and still a good friend, had become obsessed with poker as a hobby. At many of our lunches it was all he could talk about.
After listening for a while, and interjecting / asking questions here and there, I began to think:
"Hmm. Patience... emotional management... a blend of psychology and mathematics... calculated aggression and risk control... this sounds a lot like trading."
Read full comment here
Global Macro Notes: The Great Compression
Where is all the spending coming from?
We know where the liquidity and the "animal spirits" are coming from. Those are courtesy of Ben S. Bernanke, the golden god of stocks.
But from whence the spending -- specifically, the consumer spending (circa 70% of the U.S. economy) that powers earnings and recovery stats and makes this market relentless?
Look at the above chart of XRT, the SPDR S&P Retail Index. XRT has been a juggernaut -- a tank. This reflects the strength of retail names, and of U.S. consumer spending in general (at least on the high end).
The refusal of the consumer to roll over has driven bears up a wall (pun intended). You've heard the arguments. You've heard them pounded into the table, hard enough to make it break.
And then there's the data: The persistent unemployment; the still-deflating housing bubble; the clear evidences of wage reduction and stagnation; the lessons of financial history; the need of a serious and prolonged deleveraging that keeps getting put off.
Thus far, none of it has mattered. The consumer has powered through, with the ample help of the most reckless Keynesian monetary experiment the world has ever known. And thus, animal spirits have prevailed. But how?
Read full notes here
Global Macro Notes: A Hard Look at Risk
Mechanical systems trader Larry Hite has a great quote in Market Wizards: "Risk is a no-fooling around game; it does not allow for mistakes. If you do not manage the risk, eventually they will carry you out."
In one of the greatest rock and roll songs of all time, Led Zeppelin puts it another way: "When the levee breaks, momma you got to move."
Why bring this up? Because, as you may have noticed, risk is back on the table in a very big way this week...
In a recent Barrons interview, the new "King of Bonds" Jeff Gundlach predicted the S&P is going to 500. Quite a contrast with Laszlo Birinyi's call for S&P 2,800 by 2013.
Which one is right? If you're a trader, it really shouldn't matter. Seriously.
As the old saying goes, bad traders don't actually make profits. They just take out short-term loans from the market. If you let your capital ride on a big gaudy market call without managing the risk, then it doesn’t matter your orientation -- bull or bear -- because sooner or later the market will clean you out. (Or bleed you out, one of the two.)
A fluid and flexible trader, meanwhile, can adjust their main hypothesis -- or even temporarily discard it if need be -- in order to flow with prevailing trends. There is no excuse for a bearish trader to lose huge chunks of capital in a bull market, or vice versa for a bullish trader in a bear market. As a worst case scenario, your risk management protocols should keep your drawdowns under control and the vast majority of your capital intact -- even when your deepest convictions are wrong!
Read full notes here
Machiavelli for the 21st Century: "The Next Decade" Review
George Friedman's "The Next Decade" could alternately be described as Machiavelli 101 or a crash course in realpolitik.
Friedman's central thrust is this: America is an accidental empire -- like it or hate it, the world must deal with it -- and it is thus in the United States' best interest to maintain the "balance of power" at all costs.
The balance of power is predicated on status quo. When you are at the top of the heap (as America is in Friedman's view), any major shifts threaten to destabilize the top dog's position. As the British and Roman empires did before it, the American empire must anticipate and prevent such shifts, blocking up-and-comers from excessive power accumulation...
Read full review here
"Spreading infection" -- quick thoughts, re, euro and $USD
Excellent embedded graphic from the Economist (below) in a daily chart piece titled "Spreading Infection"-- the infection, in this case, being the euro (or rather euro-related troubles).
The inner contrarian in yours truly can't help but look at ongoing euro strength -- and corresponding $USD weakness -- and salivate. The prevailing logic driving euro strength seems utterly backwards, or at the very least subject to rapid time decay...
Trichet and the ECB are willing to raise rates almost irrationally, regardless of periphery weakness and the deflationary overhang of untenable sovereign debt; the Bernank and the Fed, meanwhile, are willing to keep monetary policy loose regardless of an improving U.S. economy and budding "non-core" inflation threats. Therefore, buy euros and sell dollars, yes?
And yet...
read full comment here
Global Macro Notes: Did PIMCO Mark a Bottom in Treasuries?
In a very news-heavy week, a notable item was PIMCO's decision to purge U.S. government debt from its flagship fund.
As Bloomberg reports,
Bill Gross. who runs the world's biggest bond fund at Pacific Investment Management Co,, eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.
Pimco's $237 billion Total Return Fund last held zero government-related debt in January 2009...
Gross, the original "bond king," has taken up the cause of the vigilantes in his monthly investment outlooks. He has warned repeatedly that debt levels are too high, and has openly wondered who will keep buying USTs when the Fed finally stops. Now PIMCO has put its money where its mouth is...
But is this "alarming sign" (as many have deemed it) really a harbinger of looming armageddon for Treasuries? Or is it the mark of a medium-term bottom? Quite possibly it is neither, of course, but the "bottom" case is intriguing...
read full notes here
Milking the Consumer Cash Cow -- How Much Longer?
There was an eyebrow-raising piece in the WSJ on Friday, "Families Slice Debt to Lowest in Six Years."
The opening sentence contains a rather laughable leap:
U.S. families -- by defaulting on their loans and scrimping on expenses -- shouldered a smaller debt burden in 2010 than at any point in the previous six years, putting them in position to start spending more.
Global Macro Notes: Sizing Up The Bull
The old trading wisdom says that "the less observed, the better the trade." As Bruce Kovner pointed out in Market Wizards, market moves born of speculator activity have lower odds of being the real deal.
This makes for an exceedingly strange environment, as the psychological power of QE2 and the "Bernanke Put" (successor to the Greenspan Put) have made for one of the most gamed markets ever.
One can see the degree of gaming via the [above] eye-opening CRB correlation chart, which has made the rounds from Bloomberg to Minyanville to The Big Picture...
Read full commentary here
Instant classic:
Global Macro Notes: "Not Today" (Or, Dancing With the Year 2000)
How to describe this market?
Vin Diesel in the new "Fast Five" trailer has as good a line as any:
"Chances are, sooner or later, we're going to wind up behind bars or buried in a ditch somewhere. But not today..."
On Wednesday the bottom dropped out of the dollar. The VIX (as tracked by VXX) tumbled to brand new lows. "Risk on" surged with a euphoric vengeance, gold cracked $1500, and the spot price of Brent surged (recently above $124 a barrel).
As others have variously noted, crude oil has become "financialized."
But what happens to real world end users of crude (like China) if or when Brent hits $150 per barrel... $175... $200?
Read full notes here
Global Macro Notes: Pension Funds and the Zero Bubble
In a zero interest rate environment, we can think about market participants in two groups:
* Those who are taking risk because they can.
* Those who are taking risk because they have to.
These are not the traditional buckets. Normally the dividing lines run retail versus institutional... investor versus trader... value versus growth or what have you.
Market participants can also be sorted by investment mandate.
Traditional money managers have "career risk" -- they live and die on beating their benchmarks, or at least not lagging them too much.
Hedge fund managers, meanwhile, have their performance objectives and high water marks. They want to do well so they can get paid.
But neither of those groups have do-or-die performance requirements, in the sense of "make X percent or you are dead."
It doesn't look so good lagging the S&P, of course. But if the S&P is dead flat and these guys finish up a little better or on par with flat, they will probably be okay.
Not so with pension funds. Pension funds have a target they MUST hit...
Read full notes here
Global Macro Notes: Commodity Carnage and Speculative Froth
It had recently been argued there is a $20 per barrel "speculative premium" built into the price of oil. (Via Niels Jensen, citing Frank Veneroso of Veneroso Associates.)
If so, nearly half that premium was evaporated in a single trading session, via Thursday's commodity complex carnage. (Will cinco de mayo be remembered as a day of massacre for real asset bulls?)
Just about everything commodity related got smoked, with oil -- arguably the most important commodity in the world -- leading the record rout with a 1,000 basis point drop.
And as Bespoke has noted, silver's 4-day decline of 25%+ (still ongoing?) counts as the third worst sell-off of all time for the poor man's gold.
As my colleague Mike McD instant messaged near Thursday's close: "So what was that between 2:30 and 3:30 -- mass margin related liquidation? It looks an awful lot like someone getting blown out."
It is likely an elephant was brought to its knees by this move -- and quite possibly a whole herd of them.
Read full notes here
Global Macro Notes: S&P 400? The Deflation Shock Scenario
Stock market bulls were rocked by global slowdown fears this week.
But for a true bearish wake-up call, consider this -- stock market historian Russell Napier thinks the "real bear market in the S&P is yet to come," and that the ultimate target could be S&P 400. As in, roughly 70% off current levels...
So what is the encapsulated case for a scenario in which the stock market winds up much, much lower -- as much as 70% lower?
Perhaps something like this:
Read full notes here
Global Macro Notes: The Bond King Gets Desperate
Bill Gross (aka the bond king) is starting to get a little desperate.
Three months ago we asked, Did PIMCO call a bottom in Treasuries?
Since then USTs have gone up -- and yields have fallen substantially.
This made the bond king look bad - especially when it came out that PIMCO had a net short position (later clarified to be via swaps).
Either way, though, Gross has been pounding the table for how lousy Treasuries are.
As USTs went up, seemingly mocking the king, he pounded the table even harder. This week, he really started stretching it...
Read full notes here
Global Macro Notes: Long Bonds Cheering the Tea Party -- and Deflation
One would imagine that, with America skidding into a high impact debt-ceiling / default wall like an 18 wheeler semi with burned up brakes, treasury bonds would fall in value (and yields rise) as horrified holders ran for the hills. The fact that Uncle Sam could lose his vaunted 'AAA' status even if a deal gets done should further underscore the "dump bonds" notion.
Nope. Bonds have rocketed higher instead -- registering a big, bold, high volume breakout on the charts. Yields at the long end of the curve, which move inversely to bond prices, have fittingly dropped to nine-month lows.
A few more rounds of this, and yields will be at pre-QE2 levels. In the face of a default threat -- and a big hike in the debt ceiling on any type of deal -- bonds are being bought. Why?
Because of austerity...
Read full notes here
Took a break from posting these for a while... starting up again:
Global Macro Notes: PMs Jump Up to Get Beat Down
In 1992, the rap group Brand Nubian released the single "Punks Jump Up to Get Beat Down."
One could imagine Ben Bernanke humming this chorus after today's whackage. The Beard spoke to congress, and commodities and precious metals took a hit.
Silver in particular, which appeared ready to run, was "beat down" hard. As of this writing (with markets still open), SLV has registered a very nasty outside reversal bar.
Gold stocks are being tested too:
Read full commentary here
Quick addendum: Apparently someone sold a shitload of bonds today...
~~~
A cascade of large trades rolled through the Treasury futures market Wednesday morning, sparking debate among traders as to whether the selling was an error or an investor selling out of a big position.
About 80,000 June-dated futures on the 10-year Treasury note were sold over a two-minute period beginning at 10:05 New York time, alongside about 47,000 "classic" bond futures and 52,000 contracts on the five-year note, according to traders.
Heavy selling separately hit silver and gold futures and the effect quickly spilled into currency markets, in what some traders speculated was trading triggered by algorithms monitoring fixed-income markets.
The trades came just as Federal Reserve Chairman Ben Bernanke began to speak in Washington, with the central banker's initial remarks seen as upbeat on the U.S. economic recovery before he outlined significant challenges that remain.
"It's very possible it was a fat finger, but it seems more like a very big asset allocation," said one interest-rate futures trader in Chicago.
http://online.wsj.com/article/SB100..._LEFTTopStories
~~~
Internal commentary on today's precious metal carnage:
~~
Precious metals were hit hard today (Wed 2/29) on news that the Federal Reserve did not have immediate plans for more economic stimulus. Gold and silver are getting crushed, gold miners (GDX / GDXJ) are down heavy in sympathy, and there is no letup into the closing bell.
What is happening?
One possibility: This could be a very nasty "wash and rinse" as weak hands are shaken out of their positions. If that is the case, then key chart support points for precious metals stocks (and the metals themselves) should hold. Our risk points are behind those barriers. So if this decline turns out to be a test of resolve, we'll still be in.
Another possibility: The narrative is changing to reflect a slow growth "tired Goldilocks" type environment, in which sluggish recovery continues but inflationary winds are little but weak breezes. In this type of environment investors are better off holding consumer staples type stocks with dividend yields than precious metals.
Yet another possible factor: The Federal Reserve has sounded a hawkish tone even as Europe goes full "dove" with its extreme lending program [LTRO]. Europe has injected roughly a trillion dollars worth of liquidity into their financial system in the space of two months (via Reuters). The ECB is
opening up the taps" even as the Fed is closing them. This thematic shift could lead to a role-reversal between the $USD and the euro, where the dollar gets strong and the euro gets weak.
What happens next? Time will tell... but another possibility here is that the $US dollar could be ready for a comeback rally... in which case a short of the Australian dollar -- the premier "commodity currency" -- could be a worthwhile hedge against our long-exposure commodity positions.
Global Macro Notes: China, Brazil and Spain Flip the Script
What a difference a few data points can make.
A few trading sessions ago, the market was following a "global goldilocks" narrative:
* The European sovereign debt crisis appeared contained.
* Europe had unleashed its own version of "QE3" (aka "LTRO").
* The U.S. economy saw falling jobless rates and respectable growth.
* Corporate profit margins appeared robust, making stocks look "cheap."
* The big emerging market players - China mainly - were chugging along.
Then, in the space of a week, a series of jarring "wake-up calls" came along, leading to the market's worst dive in months (and bloodiest day of the year thus far)...
Read full commentary here
Quote from darkhorse:
Global Macro Notes: China, Brazil and Spain Flip the Script
What a difference a few data points can make.
A few trading sessions ago, the market was following a "global goldilocks" narrative:
* The European sovereign debt crisis appeared contained.
* Europe had unleashed its own version of "QE3" (aka "LTRO").
* The U.S. economy saw falling jobless rates and respectable growth.
* Corporate profit margins appeared robust, making stocks look "cheap."
* The big emerging market players - China mainly - were chugging along.
Then, in the space of a week, a series of jarring "wake-up calls" came along, leading to the market's worst dive in months (and bloodiest day of the year thus far)...
Read full commentary here
Quote from Ghost of Cutten:
Only problem I have with your view here is this: a trend not being sustainable is no reason not to play the trend. For example, corporate profit margins may well revert to their historical mean. But, isn't the play to wait *until* there is some evidence they are reverting? Trying to anticipate something that hasn't even started yet, is like trying to call the top in the nasdaq in 1995, or housing in 2002.
darkhorse, when you say 'we' are you running some kind of investment firm?
Thanks
Quote from darkhorse:
...In 2011, we got meaningfully involved with NFLX twice from the short side: First in March, when what looked like a key reversal appeared on the weekly charts (first arrow). But that turned out not to be the end, so we covered and wound up roughly breaking even on that campaign.
The second time a window appeared -- after the closing of a July gap and the break of the long term trendline -- it was the real deal, allowing us to catch most of the precipitous drop...
Quote from Brass:
Retrospectively, I would say you chose your trend lines quite well, and I am not suggesting you constructed them after the fact (break). However, I find it curious that you would use such a wobbly tool when there are arguably sturdier ones.
Quote from Daal:
darkhorse, when you say 'we' are you running some kind of investment firm?
Thanks
Quote from darkhorse:
Something like that...
Quote from Optionpro007:
That is sooooo vague. Can you be much more specific? Inquirying minds need to know.....
Global Macro Notes: Winds Blow Cold for Bonds and Gold
On February 14th -- one month ago -- we pondered "Long Bonds and Yen: Big Shorts for 2012?"
Japan's currency (which we shorted circa Feb 14) has been in freefall the past four weeks, from 77 to 83 yen to the dollar. (As the yen declines in value, USDJPY rises.)
And now, this week, we may be seeing the long bond breakdown:
Treasury bonds, as you know, have long been the "safe haven" of last resort for frightened capital in a low inflation, low opportunity environment.
While the finances of the U.S. government are terrible, treasurys have been a "least bad" option in a world of high unemployment, stagnating economies, and elevated risk.
What's more, those who remain bullish on bonds (like Gary Shilling) foresee "more of the same" in terms of economic malaise, high unemployment, and general doldrums -- not to mention slow motion crisis in Europe.
But 30-year yields around 3% have always been a temporary proposition. With any sign of genuine economic recovery, the risk to bondholders is a flight-to-safety reversal -- a return to risk that sees investor capital pouring out of treasuries and back into stocks.
Read full notes here
Quote from darkhorse:
There are many tools in the toolbox -- just used this one for a quick and dirty example. Also note that weekly patterns are significantly more meaningful than daily ones, though actual entry / exit signals are more likely to come off a daily chart.
Quote from Brass:
One more question if I may, strictly out of curiosity. Do you use predefined profit exits for your trades, i.e., "measured moves" or some such?
I ask because when we last discussed Mr. Brandt's then new book, I noted that he used meaured moves, and the trades in his journal showed that the price action was no less likely to fall short or overshoot, thereby resulting either in losses or opportunity cost. Such things are always easier to point out in retrospect, of course. Even so, I think that having specific profit targets, rather than assessing the price action during the course of the trade and responding accordingly, is akin to full out predicting. And I don't put a lot of stock in prediction.
Quote from hansolon:
no
Gold looks absolutely terrible
There are three mentalities for those with an interest in gold:
* the trading view
* the long-term investment view
* the religious view
Traders see gold (and all precious metals) as vehicles to go long or short depending on the opportunity set, nothing more.
Long term investors are a bit more emotionally committed -- they have a thesis involving runaway inflation, government corruption and Central Bank themed moral decay (though admittedly some of the value-minded just like the intrinsic value of gold stocks).
Those in the third category -- what we're tongue in cheek calling the religious category -- see gold as not just a trading vehicle, or even a long-term investment, but a form of capitalist religion.
For true believers, gold ownership is a sort of transcendental societal salve: A form of redemption and shelter and cure for all our accumulated ills. For these folks, gold is something to hoard and never let go - or at least, not until the armageddon smoke has cleared and an ounce of gold is worth more than the Dow (perhaps crossing around 7,000 or so)...
Read full notes here
Gold Looks Terrible Part II: Clarifying Thoughts
Saying yesterday that gold looks terrible led to some thoughtful comments and emails (which are always appreciated).
Given that, it makes sense to provide some clarification:
* This was more of a trading view than an investment view.
* From an investment perspective, gold may still be ā€okā€¯ -- but the rationale looks shaky.
* Bullish arguments based on past conditions are suspect -- because conditions are changing (with the charts reflecting that change).
* Gold may have witnessed a blow-off acceleration in second half 2011 (see chart below).
So ok - let's roll up our sleeves on this again...
Read full notes here
Market Levitation, China Rollover and Staple Strength
At 12.6% to-date, Q1 2012 is merely the 9th best Q1 in S&P 500 history. Best? 1987, which was 24% ytd.
- Paul Kedrosky, 03-27-12
As the stock market corrects into quarter's end, bulls are starting to get nervous. Is the levitating act of equities in doubt?
Here's a quick point of perspective:
The QQQ, powered as it is by Apple, has only touched its 20 day exponential moving average ONCE in 2012 -- and that for but a single day.
Maybe the techs should be discounted, though, because of the Apple phenomenon. After all, AAPL has become its own asset class, with a bigger cash hoard than the GDP of small countries and the most successful product line in the history of mankind.
But what about the S&P? Thatā€™s been levitating too...
Read full commentary here
The Return of Ugly Goldilocks
So in the past few weeks, we've been beating the drum as to why gold is in the danger zone.
In today's carnage we added to our precious metals-related shorts -- FCX, silver, and a few other selected plays -- as the bearish metals thesis plays out.
While we are not long-term bearish gold (in the long term we are neutral for now), the near term price action has been fairly compelling.
Regarding our "Gold looks terrible: clarifying thoughts" piece, Mercenary community member Luke writes in:
I am an "open minded" gold investor, so I loved the article; however, my concern is that the US Government cannot AFFORD to let interest rates rise at all or the government debt servicing will eat up all of their revenue. I agree with most of your points, and it would make sense that interest rates SHOULD rise shortly -- but if that means unsustainable debt servicing, then don't you think the Fed will do everything to fight an interest rate rise?
First off, good on you for being open-minded Luke. As we like to say, "Love your family -- not your positions. Be loyal to your friends -- not your trades."
Your concerns about debt service issues are valid. The problem has to do with timeframes!
Read full commentary here
Wild West JOBS Act and Musical Chairs
First, a quick comment on the JOBS act. Here's an excerpt of President Obama's signing ceremony remarks:
"Here's what's going to happen because of this bill. For business owners who want to take their companies to the next level, this bill will make it easier for you to go public. And that's a big deal because going public is a major step towards expanding and hiring more workers. It's a big deal for investors as well, because public companies operate with greater oversight and greater transparency.
"And for start-ups and small businesses, this bill is a potential game changer. Right now, you can only turn to a limited group of investors -- including banks and wealthy individuals -- to get funding. Laws that are nearly eight decades old make it impossible for others to invest. But a lot has changed in 80 years, and it's time our laws did as well. Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors -- namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in..."
There are some pretty big Wall Street changes coming as a result of this -- and some folks are having a hissy fit,as the following article sampling shows:
Read full commentary here
Concerning Gray Swans: Europe, China, Profit Margins & The Fed
What are the roots that clutch, what branches grow
Out of this stony rubbish? Son of man,
You cannot say, or guess, for you know only
A heap of broken images where the sun beats,
And the dead tree gives no shelter, the cricket no relief
And the dry stone no sound of water...
- T.S. Eliot, The Waste Land
Tuesday (April 10th) was a remarkably red day. Bullish uptrends snapping like dry twigs underfoot. Downside range expansions everywhere you look, on heavy volume with closes at the lows.
So many sectors got crushed, it's hard to distinguish between those showing internal weakness and those simply decimated by the broader market action.
Homebuilders are an easy example. Take a look at XHB, LEN, TOL, PHM. Nothing special there -- just a microcosm of what's happening all over the place. A good old fashioned "risk off" bloodbath, with the tiny but notable exception of gold.
The major indices were crushed too. Small caps were already weak, and the Nasdaq is hopped up on Apple juice. But as for yon Dow and S&P? Uptrends no more...
Read full commentary here
Euro Zone Crisis: Back on the Front Burner
Welcome back,
Your dreams were your ticket out
Welcome back,
To that same old place you laughed about...
- "Welcome Back Kotter"
This week kicked off with more political crisis in Europe.
I know, we've heard all we can stand on Europe... but now things are getting serious again (hence the market's non-trivial reaction on Monday). It's a good time to revisit the basics of the situation.
In France, Nicolas Sarkozy lost the first election round to a socialist, even as the far-right party saw a historic showing; in the Netherlands, a budget crisis led to resignation. Both these items are directly related to the eurozone crisis, and a growing disgust on the part of the populace in respect to current policies.
Some quick recaps:
Read full commentary here
A Dangerous Market Full of Crosscurrents
Danger Will Robinson!
1:41 am - May 4, 2012
This is a dangerous market with lots of crosscurrents. The major indices (Dow, S&P, Trannies etc) are right in their most precarious spot -- threatening a breakout to new highs, but also threatening to break down and fall back into the wide-swinging range that's been in place since mid-March.
Bulls look at the charts and see healthy "backing and filling" action. Problem is, the fundamental backdrop to this market is scary too. Lots of potential hand grenades out there -- like European elections this weekend, for example, or various econ data points with the ability to spook markets one way or the other...
Read full commentary here
Attention Frustrated Chartists: It ain't HFT - it's the Macro!
Roughly speaking, traders come in two classes: Those who use charts and those who don't.
Within the charting community -- especially among the practitioners of "pure" technical analysis, i.e. no fundamentals allowed -- there is a new meme going around.
That meme is as follows: High Frequency Trading (HFT) has ruined the markets.
Thanks to those damn robots and their wicked brutalization of support and resistance levels, this meme says, it's just hard for a chart trader to make a buck anymore.
It's a frustrated rallying cry -- and an effort to place blame. You can almost picture the laid off mill worker slumped heavily at the bar, muttering into his beer... the machines -- damn those machines...
Read full commentary here
Where the Wild Profits Are
I have been an Economist reader since 1996. One of the best things about The Economist is the covers -- every once in a while they come out with an instant classic.
Perhaps the greatest Economist cover of all time -- in terms of mega-contrarian indicator -- was their "Drowning in Oil" issue in 1999.
It showed two filthy oil workers, covered in crude, trying to handle a gushing well head. That cover (and its prediction of $5 per barrel oil, when crude was just above $10) marked the all-time forever low for oil, within months (if not weeks) of the bottom tick.
The "Drowning in Oil" cover is suitable for framing and hanging on a trader's wall, given its place in market history.
"Acropolis Now," featured above, is another one worthy of such honor... and as I write these words, we are experiencing Acropolis Now Redux...
Read full commentary here
Martin Wolf: If Greece goes, the integrity of the eurozone is shattered forever.
http://www.ft.com/intl/cms/s/0/614d...l#axzz1vECQfBlJ
The danger of contagion is obvious. The long-run danger is more subtle. But the eurozone either is an irrevocable currency union or it is not. If countries in difficulty leave, it is not. It is then an exceptionally rigid fixed-currency system. That would have two dire results: people would not trust in its survival and the economic benefits of the single currency would largely disappear.
p.s. my global macro tweet stream
$2 billion... $2 billion ladies and gentlemen, can we go higher... do I hear $3 billion, YES, expanded 50 percent to $3 billion... do I hear 4 billion, YES, 4 billion... 5, 6, 7... I now hear SEVEN billion, can I get EIGHT... NINE...
http://money.cnn.com/2012/05/18/markets/jpmorgan-loss/
Holy Pessimism Batman:
Try to get your mind around these figures. The US GDP, the largest in the world, is about 15 trillion. What Haldane is telling us is that the financial crisis will end up costing the world lost real income between 4 and 13 times the size of the current Gross Domestic Product of the United States. This could turn out to be an optimistic forecast.
In the end, the financial crisis could destroy Western civilization.
http://www.paulcraigroberts.org/201...et-on-collapse/
"It's all... part of the plan..."
Shit gets real very fast if Greece leaves the euro
http://www.reuters.com/article/2012...E84J03Q20120520
BORDER CLOSURES, TROOPS ON STREETS?
It would most likely be necessary to close borders to stop Greeks smuggling out euros to stash in banks elsewhere. But with hundreds of miles to cover, much of it in inaccessible mountain, wood and scrubland, security forces would be stretched thin.
Simultaneously, police would likely have to manage a dramatic spike in unrest and perhaps more political and criminal violence. Already, there have been isolated examples of Germans -- or those suspected of being German -- being assaulted in apparent anger over EU-enforced austerity.
Greece's leaders could decide to deploy the army onto the streets in an attempt to reassure the population and bring calm. But that could prove deeply divisive.
"If this happens, there are definitely going to be security incidents in the streets of Athens," says David Lea, Western Europe analyst at Control Risks. "But the Greek military is not designed to deal with this. It's designed to deter Turkey. And you have to remember, this is a country with a recent history of military dictatorship and using it could go down very badly."
Gold vs Bonds: At What Point Should Gold Believers Lose Faith?
When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form... technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action.
- Paul Tudor Jones
There are powerful arguments for why gold should continue to go up. There are also powerful arguments for why bonds (specifically U.S. treasuries) should go down.
These arguments, in fact, are two sides of the same fundamental coin: An expectation of inflationary outbreak via mass money printing and central bank loss of control.
Consider, for example, the various scenarios in which U.S. treasuries could crash (causing interest rates to skyrocket) and gold could go vertical:
Read full commentary here
Friday's Jobs Report: An Inflection Point Game Changer for Gold
For the past few months, we have been bearish on gold...
But as that old devil Keynes once said: "When the facts change, I change my mind. What do you do, sir?"
In gold's case, the "facts" that constitute a game-changer are two:
* The surprisingly horrible U.S. jobs number on Friday.
* Gold's reaction to it (the message of price).
First up, price action. This chart speaks with no stutter:
Read full commentary here
Thanks for the excellent thread and even better website!
Enough fan boy gushing..
Cheers again
Karl
Quote from russiancircles:
Thanks for the excellent thread and even better website!
Quote from darkhorse:
Most welcome! We're having a hell of a lot of fun...
p.s. theme for today's market
Message to trapped longs:
With Uncertainty Rampant and Politics Dominant, Charts Matter More Than Ever
In times like these it is very important to understand the message of price, and the value of charts as an extremely efficient short-hand means for communicating broad-based fundamental assessments.
But first a quick (or maybe not so quick) aside: There is a false dichotomy between 'fundamental' trading on one side and 'technical' trading on the other.
The competing perspectives at the poles are so extreme, "fundamentals vs technicals" is practically a theological debate.
We reject this artificial separation of fundamentals and technicals...
Read full commentary here
In Defense of US Treasuries (or, Debunking an Ideological Rant)
As a general rule, it is wise to avoid debates on emotionally charged topics.
This extends to certain areas of trading and investing, where schools of thought take their differences as seriously as competing religions.
It also extends to certain macro topics -- relating to "moral" matters such as debt, the corruption of the current monetary system, and so on -- where conviction morphs into ideological zeal run wild.
We are just simple caveman traders here (with the occasional flight of theoretical fancy, like this discussion of Modern Monetary Theory).
And we aren't all that enamored of picking fights.
But with that said: Every once in a while you come across something that is just so... so... wrong... you feel compelled to respond to it...
Read full commentary here
Gold Looks Terrible Part III: The Mass Capitulation Thesis
While gold and gold stocks were looking attractive circa early June -- after the June jobs report surge -- we never found a workable entry point to establish long positions. The metal was simply not "acting right." So we stayed on the sidelines.
And now, with another jobs report on the books, gold looks terrible again... the "inflection point" was totally blown. The performance of gold, silver, and precious metals stocks has been awful relative to the macro backdrop...
Read full commentary here
I'm going to experiment with the format of the posts on this thread -- with more shorter observations -- to see if it better facilitates discussion.
Good special section in this week's Economist on natural gas.
An explanation of the fracking process:
http://www.economist.com/node/21558462?frsc=dg%7Ca
A Mix of Hope and Fear as Mongolia Grows Rich:
http://www.nytimes.com/2012/07/16/w...world&seid=auto
Mongolia = frontier market du jour. Potential to grow their economy at 50% a year as China transitions base metal demand from Australia (thousands of miles by freighter) to Mongolia (back doorstep).
The smart players in Mongolio right now are utilizing a "picks and shovels" strategy, staying away from the booming mining sector, and instead focusing on consumer trends and downtown real estate, which is still grossly undervalued due to a lack of financing liquidity and real estate knowledge. (Eventually hundreds of thousands of Mongolian miners will have money to spend, then, if Ulan Bator progresses along the same model lines as, say, Almaty in Kazakhstan, eventually you get the Gucci and Prada shops etc.)
Goldman Sachs and the $580M Black Hole:
http://www.nytimes.com/2012/07/15/b...&pagewanted=all
Barclays, JPM, now Goldie again... could the optics on i-banks possibly be any worse right now? The perception is these fuckers would steal the pennies off a dead man's eyes.
Did last week's Barron's cover mark a top in bonds?
And this week's, on the euro - interesting juxtaposition w/ following
http://www.bloomberg.com/news/2012-...trategists.html
R.I.P. Barton Biggs - "Hedgehogging" was one of my favorite reads of the past decade.
My favorite Hedgehogging excerpt
He even wrote a novel: A Hedgefund Tale, he took creative writing in college.
He was often in the news back during the internet stock boom days.
This is the only thread on ET that mentions his passing so far.
ETA: Just ordered the novel on Amazon.
Quote from hughb:
He even wrote a novel: A Hedgefund Tale, he took creative writing in college.
He was often in the news back during the internet stock boom days.
This is the only thread on ET that mentions his passing so far.
ETA: Just ordered the novel on Amazon.
Can you say 'squeeze?' Last month short sales on NYSE topped 2011 peak
http://www.bloomberg.com/news/2012-...lost-21-1-.html
Quote from darkhorse:
Yep - it was a decent read (Hedge Fund Tale).
I reviewed it here
Bad news for KOL bottom pickers: Wilbur Ross sees "years of headwinds" for coal.
Coal is a secular decline story, not a cyclical rebound... the economics of shale gas have radically changed things.
http://www.bloomberg.com/news/2012-...-headwinds.html
So is Dan Loeb happy now that YHOO has the hottest CEO on the planet? Presumably she has better references than the last guy.
An interesting special situation idea, but from a trading perspective YHOO is just too much of a hairball stock.
Anyone have back of the envelope metrics on what Third Point thinks a better run YHOO could be worth?
...and she's pregnant too? Mom's gonna be busy
http://bits.blogs.nytimes.com/2012/...smid=tw-nytimes
LIBOR scandal directly implicates BOE (Bank of England).
Diamond's COO: "It did not seem an inappropriate action given it was coming from the Bank of England... The government were calling the shots."
http://www.bloomberg.com/news/2012-...ibor-rates.html
Quote from hughb:
Biggs was such a common name back during the boom of the 90's, and even beyond that he was still influential. I'm surprised you are the only one mentioning his passing on ET.
Pissed off cabbies shut down central London
http://www.telegraph.co.uk/sport/ol...ne-protest.html
Now Belgium sells debt at negative yields:
http://www.marketwatch.com/story/ne...tion-2012-07-17
Fuckin' Belgium?!?
Europe is so hosed...
Potential "lost generation" of home buyers as 20-somethings shun real estate -- either burned by the housing crisis or no jobs / money / credit. Shiller thinks it's possible suburban home values won't recover in a lifetime.
Seems crazy for most 20-somethings to be home buyers anyway -- too mobility restrictive.
This whole housing recovery feels iffy to me, too driven by hedgies and PE guys with dollar signs in their eyes snapping up single family homes by the neighborhood-load as a rental income play. But what happens when interest rates rise? Top tier doing fine but everybody else sinking into the muck...
http://www.businessweek.com/article...just-be-on-hold
Average Canadian now richer than Average American
http://newsfeed.time.com/2012/07/17...erage-american/
Hugh Hendry: "Bad things are going to happen and I still think the closest analogy is the 1930s."
http://www.ft.com/intl/cms/s/0/06da...l#axzz20jydn3xW
Embezzling Peregrine founder: "Yeah, your money's gone. I stone cold spent that shit."
http://online.wsj.com/article/SB100..._LEFTTopStories
Quote from darkhorse:
Potential "lost generation" of home buyers as 20-somethings shun real estate -- either burned by the housing crisis or no jobs / money / credit. Shiller thinks it's possible suburban home values won't recover in a lifetime.
Seems crazy for most 20-somethings to be home buyers anyway -- too mobility restrictive.
This whole housing recovery feels iffy to me, too driven by hedgies and PE guys with dollar signs in their eyes snapping up single family homes by the neighborhood-load as a rental income play. But what happens when interest rates rise? Top tier doing fine but everybody else sinking into the muck...
http://www.businessweek.com/article...just-be-on-hold
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yout ube.com/ moder ate futures
HSBC OMGWTFBBQ
http://www.ibtimes.co.uk/articles/3...-laundering.htm
more than $30bn in suspect transactions linked to drugs, terrorism and business for sanctioned companies in Iran, North Korea and Burma...
as much as 70 percent of "laundered proceeds" in Mexico...
Quote from darkhorse:
Embezzling Peregrine founder: "Yeah, your money's gone. I stone cold spent that shit."
http://online.wsj.com/article/SB100..._LEFTTopStories
How long is near-profitless AMZN going to float along on the Bezos premium?
I know the guy's a genius, but at 178x earnings AMZN could be cut in half and still be a nosebleed growth stock.
AMZN is going to take over retail and eat the lunch of all big boxes, yes, the story is saturated... next they are going to get into home delivery and start building warehouses inside city limits so the stuff you order can show up at your door in an hour... fine... but what about the fact that
1) brick and mortar retailers are going to fight like hell if they see mortality staring them in the face, and
2) building logistical centers INSIDE city limits is going to be hella expensive and could possibly be a debacle
3) Put Bezos on a Fortune cover and he is Reed Hastings on a larger scale pre-NFLX implosion circa mid-2011
4) At some point AMZN has to be valued on cash flow / profit potential and not eternal blue sky of all the lunches they are going to eat
5) 178x earnings for a company with a $97B market cap!
Valuations don't matter as long as blue sky true believers are driving the bus, AMZN could go to 350x earnings and they would come up with some shit about the opportunities to sell books on the moon, but nonetheless when this thing breaks technically it could be a hell of a short opp. Maybe soon. Looking for spots where price action confirms.
Oil-Tanker Charters 17-Month Low as China Demand Slides
http://www.bloomberg.com/news/2012-...x-on-china.html
German bunds still seeing monster inflows - five-year yields record low, two-year yields negative for first time.
The slow-motion freakout continues...
http://www.bloomberg.com/news/2012-...re-auction.html
Housing starts highest since April 2010, pre-market futures DECLINE on the news.
Not good. More and more this smells like a hopium rally.
We are long some ferts (AGU, CF) and enjoying the drought pop, but increasingly skeptical this is anything more than a greater fool stimulus play / temporary pessimism clear.
Zero Hedge: I SPIT ON YOUR HOUSING BOTTOM
http://www.zerohedge.com/news/so-mu...es-upward-climb
IMF warns of "sizable deflation risk" in Europe, urges ECB To buy "huge amounts" of govmt bonds
http://www.nytimes.com/2012/07/19/b...ner=rss&emc=rss
YUM sees an uncharacteristic profit miss on poor China results, partially offset by fat Americans, er, Taco Bell dorito shells:
http://hosted.ap.org/dynamic/storie...-07-18-17-18-12
YUM aside, what does this say about China? Can anyone really doubt the hard landing thesis?
Further argument that the mandarins in Beijing can right China's hard landing trajectory via more stimulus is, at this point, probably just hope jag masturbation.
China apologists, including the biggest China groupie of them all, Jim Rogers, have been AMAZINGLY hypocritical in their professed love of free market principles, as contrasted against their cheerleading of a command-and-control economy plagued by gross over-investment excesses.
The USSR couldn't get it right, so why should Beijing? China's command-and-control version of capitalism may be closer to Japan Inc than the old Soviet Union, where state-directed resource allocation worked for a time, but the most redeeming aspect of a dynamic free market economy is its ability to flex and evolve as necessary, which simply doesn't happen under tight political reins.
Nor does economic history support the idea of an economy growing at +10% for decades on end, yet avoiding all instances of hard landing "turbulence" along the way... if anything, economic history supports the reality of a seriously bumpy ride for any and all long-term growth trajectories. Just look what America went through in the first half of the 20th century.
We may see some more dead cat bounce and delayed acceptance of reality, via beaten down emerging market indices, depressed commodity prices getting a bounce etc... but YUM's results reinforce the increasingly hard-to-refute truth that China's hard landing is real... and it's a matter of when, not if, forced acceptance of that reality is brought to bear (no pun intended) on markets...
Shiteload o' silver - 1,203 bars, equal to 48 tons or 1.4 million ounces - pulled up from three miles below the surface of the North Atlantic in possibly the deepest, largest precious metal recovery in history...
http://news.discovery.com/history/b...l#mkcpgn=fbdsc8
Quote from darkhorse:
Attention Frustrated Chartists: It ain't HFT - it's the Macro!
Roughly speaking, traders come in two classes: Those who use charts and those who don't.
Within the charting community -- especially among the practitioners of "pure" technical analysis, i.e. no fundamentals allowed -- there is a new meme going around.
That meme is as follows: High Frequency Trading (HFT) has ruined the markets.
Thanks to those damn robots and their wicked brutalization of support and resistance levels, this meme says, it's just hard for a chart trader to make a buck anymore.
It's a frustrated rallying cry -- and an effort to place blame. You can almost picture the laid off mill worker slumped heavily at the bar, muttering into his beer... the machines -- damn those machines...
Read full commentary here
Michelle Jenneke's pre-race routine is better than morning coffee...
US Ag Secretary prays for rain:
http://www.reuters.com/article/2012...E86F1D420120719
Shale oil bonanza to cost refiners billions
http://www.reuters.com/article/2012...E86I0J220120719
Steve Ballmer is a teflon idiot. He has been destroying value at MSFT for years.
Where MSFT should have been a cash cow value stock with a comfortable sunset horizon of decades, Ballmer shoveled untold billions into a furnace - and is still shoveling, having recently declared "all out war" on AAPL - in a futile and stupid effort to be competitive in areas where MSFT has no edge, out of sheer pig-headed vanity.
I've never traded or invested in MSFT, but long marveled at what an awful, ham-fisted goon Ballmer is. I first pegged him as a remarkable value destroyer in 2005.
Believers in MSFT have pointed to the power of the franchise, arguing the company is such a cash juggernaut not even Ballmer can dent it.
Maybe... or maybe not. The below from Vitaliy Katsenelsen sounds like Windows 8 is a total clusterfuck... which, in turn, would be a disaster for MSFT if true and potential lights out for Ballmer.
http://www.institutionalinvestor.co...-Sell-MSFT.html
p.s. John Dvorak on Windows 8: "Unmitigated disaster"
http://articles.marketwatch.com/201...-desktop-screen
Nasty timing: Oil hits 7-week high on Middle East tension (even as economic data comes in fugly today).
http://www.reuters.com/article/2012...E83H17O20120719
You want a spike through the heart of the bulls? Let shit w/ Iran and Israel get real...
Spain's 5 and 10 year spreads to Germany hit record wides. No bueno
http://soberlook.com/2012/07/spanis...hit-record.html
Israeli Prime Minister Benjamin Netanyahu promised retaliation.
"This is an Iranian terror attack that is spreading throughout the entire world," he said. "Israel will respond with force."
http://online.wsj.com/article/SB100...most_viewed_day
Theme song for today's tape...
THE BURRITO HAS LANDED
CMG falls 11% after hours - another bullet-proof concept story bites the dust.
Friday looking more and more like a good day to blitzkrieg weakened longs.
http://www.bloomberg.com/news/2012-...-estimates.html
The little growth engine that could is deflating, as the bullish hot air hisses out of this tape...
S&P down ~9 handles in early trade, gold, silver, oil all extremely weak.
Let the bear raid begin!
Can there be any doubt now that synchronized global slowdown fears -- and the specter of deflation -- are dominating this tape?
Bridgewater Q212 commentary excerpt sums up well:
Given the lack of private sector credit creation, the world's economies remain highly reliant on government support through monetary and fiscal stimulation. Now that the most recent round of global monetary stimulation has ended, world economic growth has slowed and central bankers are in the process of stimulating again. We estimate that in the past few months, global growth has slowed from about 3.3% to 1.9% and that 80% of the world's economies have slowed, including all of the largest. The breadth of this slowdown creates a dangerous dynamic because, given the inter-connectedness of economies and capital flows, one country's decline tends to reinforce another's, making a self-reinforcing global decline more likely and a reversal more difficult to produce.
On this day in 1969, three men landed on the moon... and the bears are about to land on this market.
A few good LIBOR adjustments
via Dan Davies
Deputy Governor, we live in a world that has interest rates. And those interest rates have to be set as the average of a panel of banks...
Who's gonna do it. You? You, Deputy Governor? I have a greater responsibility than you can possibly fathom. You weep for the financial system and you curse the rates traders. You have that luxury.
You have the luxury of not knowing what I know - that distorting the LIBOR, while tragic, probably saved banks. And my existence, while grotesque and incomprehensible to you, saves banks.
You don't want the truth. Because deep down, in places you don't talk about at parties, you want me on that LIBOR panel.
We use words like "bid", "offer", "quote". We use these words as the backbone to a life spent trading something. You use them as a punchline.
I have neither the time nor the inclination to explain myself to a man who sleeps under the blanket of the short term funding I provide - then questions the manner in which I provide it! I'd rather you just said thank you and went on your way.
Otherwise, I suggest you pick up a telephone and submit a quote. Either way, I don't give a damn what you think you're entitled to!
Police firing rubber bullets in Madrid. No bueno.
http://news.yahoo.com/spain-workers...-181530139.html
Stocks slide as euro crisis deepens:
http://www.latimes.com/business/la-...it&dlvrit=52116
Meanwhile, in slowing China... Iron ore inventories hit record high, nearly 100 million metric tons:
http://usa.chinadaily.com.cn/epaper...nt_15603346.htm
Give it up, bulls. You're toast
Quote from darkhorse:
Meanwhile, in slowing China... Iron ore inventories hit record high, nearly 100 million metric tons:
__________________
*****************
love small losses
Quote from dhpar:
that equals to ~1 month worth of Chinese imports...
"Finland will not hang itself to the euro at any cost... and we are prepared for all scenarios."
http://ftalphaville.ft.com/blog/201...ro-at-any-cost/
Not just Germany giving serious pushback. How is a currency union supposed to work when you don't even have full buy-in from the fiscally responsible members?
EURUSD down big today, nearly 100 bips / well below $1.22... clean downtrend resuming... stronger USD via euro weakness exacerbates 'risk off' strains across the board.
S&P off 12 handles, new lows on the day as this gets posted... buy programs had their shot and failed... The Mighty Casey (Bernanke) struck out this time, or rather didn't even step up to the plate. Hopium rally done?
Comedy relief of the day:
Deutsche Bank downgrades CMG from buy to hold, drops price target from $460 to $375.
Coincidentally, the new target ($375) is right about what it will take for all the fucked longs to make back the money they lost, had they held through earnings on the confidence of DB's previous "buy" rating.
Way to add value guys!
Analysts: In a bull market, don't need 'em. In a bear market, they'll kill ya!
Quote from darkhorse:
Yep - it was a decent read (Hedge Fund Tale).
I reviewed it here
Quote from hughb:
Have you ever read "How I Made..." by Darvas? Why can't hedge fund managers just stick to something simple like that? Why do you guys use "quants" to look for a holy grail? How many LTCMs have to go bust before quants realize none of their strategies work forever, or even for a long time? Not trying to be a confrontational smartass here, I'm honestly curious as to why it doesn't seem that hedgehoggers can evolve as their systems start crashing and burning.
Quote from hughb:
Mercenary trader has a page for managers to apply for capital, what do you look for in somebody before you set them up? Please don't say you look for ex-football jocks.....
Dow 20K by end of the decade?
http://www.nytimes.com/2012/07/22/y...0-dow.html?_r=1
Stuff like this makes me feel bad for investors.
Nobody has any idea what will happen by the end of 2013, let alone end-of-decade... the fate of the eurozone alone is such a massively uncertain outcome that prognostication is all but useless, apart from laying out plausible scenario alternatives and then tracking real time developments to see which one crystallizes.
So much heat and light is wasted on Wall Street because hand wringing investors, who are forced to endure the stress of long-term exposure in a market that doesn't warrant it, need some palatable view to cling to.
The best protection in an environment like this is not some SWAG forecast (sophisticated wild-ass guess), but a good defensive process and knowing how to tactically trade / invest.
Could we get to Dow 20K? In my opinion, sure. But bulls might not like it.
In addition to the positive scenario, which the NYT piece argues for, there is also the asset-reflation-gone wild scenario, in which the market actually LOSES value, in inflation-adjusted terms, even as indices skyrocket. As Faber has put it, this is where the Dow goes to 20K but gold goes to $5,000 per ounce, etcetera.
China Economic Outlook: Managing a Deceleration (SocGen via BI)
http://www.businessinsider.com/socg...omy-2012-7?op=1
via sovereignman.com
Did you see the write-up Abelson gave Biggs in his column this week? Very nice.
Quote from hughb:
Did you see the write-up Abelson gave Biggs in his column this week? Very nice.
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
EURUSD, AUDUSD, USDJPY down substantially in early morning trading -- 50 bips, 70 bips and 64 bips respectively -- big moves for forex. S&P futures down 9 handles. Strong dollar likely to weigh heavily on risk assets. Gold in a wedge that could crack.
Asia weakness and more Spain troubles, coupled w/ horrible revenue numbers and earnings reports gone bad last week, setting U.S. markets up for downside continuation after Friday's stall at the top of the channel.
We flipped from net long Mon through Thurs (mostly ferts) to 45% net short on Fri morning and will look to ride existing positions.
Notable how many high-end consumer retail plays getting taken out and shot - CMG, WFM, UFPI, ISRG recent victims.
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
U.S. poverty on track to hit highest since 1960s:
http://news.yahoo.com/us-poverty-tr...nce.html?_esi=1
Which fits w/ reports that 75% of Americans nearing retirement age have less than $30,000 in their retirement accounts:
http://www.nytimes.com/2012/07/22/o...retirement.html
This shit is alarming. Will write up more extended thoughts on it, probably for Wednesday.
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
Here we go again: Berlin, IMF Refuse Fresh Aid to Greece
http://www.spiegel.de/international...y-a-845860.html
Greece has fallen behind with its budget cuts and is asking lenders for more time to meet the conditions of the 130 billion euro aid package. But that would require fresh help of up to 50 billion euros, SPIEGEL has learned. Neither Berlin nor the IMF are prepared to make that money available.
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
Theme song for today's tape (courtesy of Europe)
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
SPAIN / ITALY BAN SHORT SELLING:
http://www.zerohedge.com/news/spain...g-short-selling
This is basically an admission it's time to panic. Since they can't short locally, investors who need to hedge will be shorting the rest of Europe instead.
And anyone who is long, and who understands the tactical implications of what a short selling ban means, will have to seriously consider getting the fuck out while they can, in the small window of liquidity provided by a brief squeeze if such occurs.
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
Lot of extra weight now on AAPL earnings Tuesday post-close.
If they crush it as usual, the bulls get a buffer.
But if they whiff... or if the comments come in light.. look out below.
Break of rising wedge on S&P weekly could mean next stop 1280 (5% drop)
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
IMF to dump Greece?
http://theautomaticearth.com/Financ...ump-greece.html
__________________
Mercenary Trader: Timely market commentary, valuable resources for current and aspiring money managers, high quality free materials on the theory and practice of trading, and more. "Be loyal to your friends, not your trades." www.mercenarytrader.com
Spain pays 2nd highest yield on short-term debt since the birth of the euro:
http://www.reuters.com/article/2012...E86N0B520120724
Greece now in "great depression:"
http://www.reuters.com/article/2012...E86L07L20120722
China PMI 5-month high, but still contracting
http://static4.businessinsider.com/...y-flash-pmi.jpg
Apple growth seen pausing as iPhone buyers await model
http://www.bloomberg.com/news/2012-...wait-model.html
Of all the above factors, I think the potential for an AAPL miss (post Tues close) poses the greatest downside risk.
Europe is slowly but steadily being more priced in as EURUSD drops. China PMI is a blip, realistically not something worthy of cheering. AAPL, on the other hand, carries meaningful expectations of another blowout earnings report. When expectations get too one-sided, the reward/risk profile becomes asymmetric (skewed toward risk, at least in the short-term). AAPL meeting expectations could conceivably result in a pop-and-fade; whereas a whiff could touch off CMG-style carnage.
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Richmond Fed no bueno... ascending channel levels breaking now, in some instruments like Trannies and Russell they are long gone.
It may be not even the mighty AAPL can save this market now.
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Why ask why - bye Baltic Dry
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Coolest computer virus ever:
http://www.rt.com/files/news/iran-c...-kremlev-rt.jpg
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So Apple has its own VIX? Makes sense I guess...
http://communities.cboe.com/t5/What...-Matt/ba-p/3257
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Radar Logic: "Housing Still a Short"
http://www.ritholtz.com/blog/2012/0...+Big+Picture%29
I'm agnostic on housing, but definitely feel skeptical as hell, re, all these Wall Street shops beating the same drum saying single family income rentals represent the greatest opportunity EVER.
The average joe can't afford a mortgage b/c his credit is shit and his job is shaky if he still has one. All these investment guys buying single family homes by the truckload (w/ the plan of renting them out and waiting for property appreciation) surely have to be lifting things a bit.
Not saying housing HASN'T bottomed, but feels too easy to say that it has for certain. Too much potential for this to be a finance-driven hope jag that ends in more tears if the U.S. falls back into recession.
p.s. Wall Street's hottest investment idea - your house:
http://finance.fortune.cnn.com/2012...t-foreclosures/
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UPS, the world's largest package delivery company, getting crushed like a fourth-class package today on profit miss, 2012 forecast decline.
Another macro bellwether bites the dust...
http://www.bloomberg.com/news/2012-...s-earnings.html
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UPS, the world's largest package delivery company, getting crushed like a fourth-class package today on profit miss, 2012 forecast decline.
Another macro bellwether bites the dust...
http://www.bloomberg.com/news/2012-...s-earnings.html
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China now exporting ghost towns to Africa:
http://www.bbc.co.uk/news/world-africa-18646243
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Whiff!
Apple reports EPS of $9.32 vs $10.36 Est; Revenues $35B vs $37.18B
Down 6% early reaction... raise a glass to the bears.
Gonna be a good day tomorrow (if you're short)
p.s. Also getting beaten like a red-headed stepchild after hours: TRIP, BWLD, NFLX
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Uncle Ben's to compete against Apple with brand new smart-phone
http://www.theonion.com/articles/un...brandnew,28892/
I give 'em same odds as MSFT and Steve "Monkeyboy" Ballmer
#lolballmer
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Apple price share drop seen as buying opportunity as iPhone 5 looms
http://www.reuters.com/article/2012...er&dlvrit=56943
The above shows the first rule of being a Wall St analyst: Never change your opinion, EVER... or rather, never change your opinion until laughably after the fact, when a frying pan has hit your clients in the face.
The stubborn refusal of investors to 1) manage risk, and 2) adjust to new information, explains why trend opportunities exist.
When information countering a popular thesis arises, the first instinct of the public (and of Wall St) is to discount it / ignore it, regardless of how risky it may be to do so. (This also works on the upside, when slow-footed managers and analysts take too long to acknowledge / embrace a positive shift in trend.)
Now it may in fact be that, in this instance, "buying the dip" in anticipation of the iPhone 5 works out. The AAPL earnings miss is just one case.
But if the dip buyers are wrong - if the 5 has some new SIRI issue, or uptake is slower than expected bc more people are satisfied with the 4s, or some such thing - then what you get is a "strike 2" where a lot of buyers long from a higher average price are forced to puke up their positions via increased risk on averaging down, even as long-term believers in the "unstoppable AAPL" meme see their faith shaken to the core.
In which case, the lack of risk management plus doubling down on adverse movement merely winds up fueling a new short to intermediate term downtrend. When the bulls are stubborn and proven wrong double, they merely become fodder for the bears (and vice versa).
There will always be opportunities in markets, both long and short, as long as 1) risk is managed poorly (or ignored), and 2) Wall St and the public are slow to adapt their preferred outlooks to relevant new information.
Which means there will always be opportunities, period, as neither of those factors are ever going to change.
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Greenlight Capital quarterly investor letter - always a good read:
http://dealbreaker.com/uploads/2012...o-Investors.pdf
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Fed moves closer to action:
http://online.wsj.com/article/SB100...3267325402.html
Apparently this is the driver for the premarket futures pop - Hilsenrath is the designated Fed mouthpiece. EURUSD also firming, up 60 bips and holding 1.21.
Weak hopes of QE3 the best the bulls can do? Laaame...
p.s. The money paragraphs:
Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.
Fed officials could take some actions in combination or one after another. Fed Chairman Ben Bernanke, in testimony to Congress last week, listed several options under consideration, including a new program of buying mortgage-backed or Treasury securities, new commitments to keep short-term interest rates near zero beyond 2014 or an effort to push already-low benchmark short-term interest rates even lower.
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Jim Rogers used to be one of my heroes. Now he's just a broken record China shill. Sad...
http://www.investmentweek.co.uk/inv...-wrong-on-china
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Back in the early/mid 90's the WSJ would do a story about Rogers, or mention him in the course of doing a story. It was usually negative slanted, and I really didn't understand why. Maybe they didn't like his folksy aphorisms? Wasn't he a gloom and doomer back then too?
Anyway, he did and interview for the book Market Wizards, and when the interviewer mentioned the OCC in a discussion about options, Rogers appeared to not know what it was, or even aware that it existed.
Here's a quote from him: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." I don't agree with that at all. There is no advantage to him by moving to Singapore. He appears to be portraying a created image of himself.
someone here on ET once posted a chart of the Shanghai stock market index and superimposed a picture of his book, "A Bull in China" on the chart on the date that it was released. The market tanked right after the book's release.
Quote from hughb:
Back in the early/mid 90's the WSJ would do a story about Rogers, or mention him in the course of doing a story. It was usually negative slanted, and I really didn't understand why. Maybe they didn't like his folksy aphorisms? Wasn't he a gloom and doomer back then too?
Anyway, he did and interview for the book Market Wizards, and when the interviewer mentioned the OCC in a discussion about options, Rogers appeared to not know what it was, or even aware that it existed.
Here's a quote from him: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." I don't agree with that at all. There is no advantage to him by moving to Singapore. He appears to be portraying a created image of himself.
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Quote from hughb:
someone here on ET once posted a chart of the Shanghai stock market index and superimposed a picture of his book, "A Bull in China" on the chart on the date that it was released. The market tanked right after the book's release.
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The Bernanke Cargo Cult: Bankrupt Policy for a Bankrupt Generation
There is a class of equities we call "cult stocks."
Roughly speaking, a cult stock is a high-growth concept stock, with an extraordinary degree of emotionally invested ownership.
The classic cult stock typically has all of the following:
* An excellent story
* Excellent earnings / growth trends
* Leadership in its market space
* Membership in a "top 50 / top 100" list
* Plenty of "blue sky" potential
When a stock has all the above, investors and money managers gain the courage to dream. With quarter after quarter of outperformance, optimism is entrenched as the feedback loop self-reinforces...
Read full commentary here
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ZNGA blows up:
www.reuters.com/article/2012/07/25/...E86O1NV20120725
Stick a fork in the social investing fad -- it's done.
ZNGA's massive earnings miss bodes ill for Facebook (FB), and justifies the extreme skepticism surrounding this whole space. TRIP was another social media darling that blew up this week. Off-the-charts cynicism may not have been cynical enough.
It's not really news that social media (from an investing perspective) is dead. But the psychological implications moving forward are intriguing.
From a bigger picture perspective, the way the social media bubble has played out is an in-your-face example of outsiders getting screwed by insiders.
FB, ZNGA, GRPN and others were huge successes for tech founders, early stage investors, and everyone else who got a chunk pre-IPO, then flipped it to the public in a greater fool transaction.
For those "investing" post-IPO -- and can you really call it investing? it was actually gambling -- the carnival barker suckerdom nature of the whole exercise has now been writ large.
I wonder what the broader implications are in terms of further souring the masses on public equity markets. The majority of baby boomers haven't saved enough to even justify equity involvement in the first place; gen X and whatever the generation after them is called (generation whine? I just made that up but it fits) have good reason to think the stock market is a criminally rigged crapshoot.
Odds are increasing that it all goes to hell, with lower and lower participation going forward... except for the wild card that is the Fed, and the possibility that the powers that be pull out all the stops -- possibly even buying equities outright -- if things get bad enough.
I don't know how things are going to play out -- our job is to game scenarios and then act on inflection points, not make hard predictions about the future -- but my spidey sense says this shit is going to get really, REALLY bad.
Paradoxically, that doesn't necessarily mean lower stock prices. All the pundits who predict a return to S&P 600 or whatever underestimate the potential reaction of the Fed if we head down that path... I could more easily see the Dow 20,000 scenario in which things have gotten so bad that the inflation-adjusted real value of public companies has actually declined, even as paper prices have skyrocketed in nominal terms.
It's a great time to be a trader, and roughly speaking one of the worst times ever to be a scared and desperate sheep.
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Gold improved its fortunes this week, but popping on hopes of Fed action - via leaked Hilsenrath piece no less - seems pretty weak beer. Too obvious, and too much risk QE3 is either reined in, held off, or lands with a thud.
We have been somewhere been neutral and bearish on PMs for months, and remain so.
Not interested in shorting, but would need significantly stronger confirmation that inflation / deflation tug of war developments are playing out in gold's favor to get bullish.
There are better trades out there right now -- lots of them -- and no reason to fear "missing the move." When gold gets its mojo back, the signs will be apparent, and there will be opportunity to hop on the train.
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Bronte Capital sells 18-month MSFT position, even flips net short. Extended rationale:
http://brontecapital.blogspot.com/2...-microsoft.html
#lolballmer
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S&P futures ripping (up 1% premarket) on the following comments from ECB's Draghi:
Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough... To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate.
No actual plan? No credible action? No Germany buy-in? Just straight up jawboning?
This is a new high in bullshit, even for this nonsense market.
Rumors and hopes and vapors of stimulus, QE3, LTRO Redux etc etc are all this market has.
They are enough to create mini-rips in the short run, but eventually this is all going to be unmitigated disaster.
When I think about how stupid and deliberately obtuse so many bulls are, I'm reminded of Lily Tomlin's old observation: "No matter how cynical you are, you just can't keep up."
It's all good though -- like playing poker with the drunken whale at the poker table. He'll hit rivers here and there, and may go on a rush, but eventually he gives you all his chips.
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Quote from darkhorse:
gen X and whatever the generation after them is called (generation whine? I just made that up but it fits) have good reason to think the stock market is a criminally rigged crapshoot.
Quote from Ghost of Cutten:
The only possible reason not to be is if reality, facts, and data are completely ignored in favour of emotional narratives plucked from thin air with no empirical support whatsoever. Or if someone is so moronic that they think going 100% long the S&P at >20 times boom-era PE is a conservative 'diversified' investment strategy.
...
If an able-bodied person with no mental illnesses can't retire comfortably after a lifetime spent in the richest country in the world, they are quite frankly an idiot and deserve everything they have coming.
Quote from Ghost of Cutten:
There is absolutely nothing that happened in the last 12 years that has not happened countless times before in the markets, none of it should have come as a surprise, as shown by the fact that sensible diversified investment portfolios handled the swings quite acceptably.
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Quote from darkhorse:
According to recent NYT piece, 75% of retiring boomers approaching retirement have less than 30K in savings. By said definition there are lots of idiots out there...
Quote from Ghost of Cutten:
Yep I agree there are lots of idiots. Will idiots take responsibility for their own idiocy? Usually they don't. They will blame someone else. But who cares? Unless a bunch of broke oldsters find a way to pillage their descendants via the political system, then they are the ones who will primarily suffer from their own poor decisions.
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Quote from darkhorse:
No actual plan? No credible action? No Germany buy-in? Just straight up jawboning?
This is a new high in bullshit, even for this nonsense market.
Quote from darkhorse:
There are macro implications when the broke idiots (and those who aren't idiots, but just didn't get any lucky breaks in life or otherwise fell on hard times) are tens of millions strong and have power at the voting booth...
AAPL to postpone iPhone 5 on undersupply of 28nm chips:
http://www.wantchinatimes.com/news-...06&MainCatID=12
If this is accurate then "buy on the dip b/c of iPhone 5" just got fragged.
Good thing the market has Draghi juice.
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Quote from Ghost of Cutten:
However, what can they do at the voting booth? Romney is their last shot, and he is anti-redistribution. Obama is not going to pick the pockets of the working young to boost a bunch of GOP geriatrics. They don't have any constituency, because their vested self interests are at odds with the greater good of society. Probably some tax increases and/or inflation are inevitable in the long run, but that can easily be achieved by reducing military spending and rolling back the Bush tax cuts, making billionaires pay the same rate as plumbers etc. IMO they are just going to have to suck it up and keep whining.
Quote from Ghost of Cutten:
If you look at Sweden from the 1970s to present day, they had an economically unsustainable approach, but it took a blow up in the early 90s (after 20 years of idiotic policy) for them to get the guts to reform and get back on track with more pro-market positions and sensible government spending, they overrode the vested interests for the greater good of society. The USA has not yet hit its puke point, because the suffering has not been great enough to force change. It is quite incredible that here in 2012, they still haven't learned the lesson (Europe too) of the 2008 crisis. But that's humans for you - most of them, at least on a group level, do not learn from the first mistake. It takes years, even a decade or two of whacking them over the head with a hammer of mistakes, before they start to realise where the pain is coming from, let alone how to deal with it. See Japan, or 1930s Western democracies. So, IMO it will take further pain before they wake up and realise hard decisions need to be taken sooner to result in a better long-run outcome. Boomer pensioner tears, just like billionaire Republican tears, are just going to have to flow, sucks to be them I guess.
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RE: The idiots nearing retirement with less than 30K savings: They probably have some type of pension and they will also be getting social security. A friend of mine retired from a defense contractor back in 1991, and recently his pension and social security were bringing in $2,800 per month, more than enough for his small apartment and expenses. He also had a huge amount of savings too, multiples more than the $30K that the grasshoppers have.
BTW, do you have any info on how much Americans ~should~ have in savings at different stages in their lives? I'm 47 and have been wondering about it.
Quote from hughb:
BTW, do you have any info on how much Americans ~should~ have in savings at different stages in their lives? I'm 47 and have been wondering about it.
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Quote from darkhorse:
CNN retirement calculator:
http://cgi.money.cnn.com/tools/reti...need_plain.html
I'm no CFP (certified financial planner), but I would say it depends on your liabilities (the people in life you are responsible for) and the style of living you have grown accustomed to.
For example, I have a cousin who lives in San Francisco. She is in her sixties, has a great place on Marina Blvd, and makes a decent living as a photography consultant. Most of her income goes towards maintaining her SF bohemian lifestyle (which is not expensive but not cheap either).
She has little savings, but few responsibilities, no immediate or extended family to support, and will likely never retire as she loves her work and would be bored without it. She also has friends and relatives who would help if disaster ever struck -- so her savings needs are small.
On the other hand, I have another friend in his early thirties who is on his way to making partner at a prominent law firm. I would guesstimate he makes 250K a year and is on track to make a lot more (at the cost of having no life).
But he is basically responsible not just for the well being of his own wife and child, but for extended family (parents, grandparents etc) on both sides, in keeping with cultural customs and his duties as the good immigrant son whose family sacrificed to get him an Ivy League education. On top of that, his beautiful wife places a very high value on 'having nice things' and the status that material possessions bring... so he'll have to save ridiculous amounts.
.............. ooops double post
Seriously Microsoft what the fuck...
This makes me want to buy long-term puts on MSFT.
(Not that we actually will... stock is too cheap... but tempted. Good grief.)
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Facebust
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I call bullshit on this rally. Expectations that Europe is finally going to "do something" = seriously weak sauce. Germany isn't bought in. Finland isn't bought in. ECB buying of Spanish and Italian bonds isn't going to change anything.
I'm not even sure the Europe-based-buyers believe anything in Europe will change. It's just silliness.
And of course the macro picture for the U.S. econ and U.S. corporate earnings hasn't changed. Top line revenue deterioration is front and center. High flyer cult stocks are being taken out and shot, ZNGA and FB the latest bodies to hit the floor.
And the technicals are bad. Small caps are weak. Trannies are weak. Tech is weak. The mighty Apple whiffed and might be forced to delay the iPhone 5. Treasury bond yields are hitting record lows.
Gonna press some shorts today if the action confirms.
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This is some crazy shit, re, historical persistence of post-panic lows in government bond yields.
Via http://www.mauldineconomics.com/out...ew-and-outlook2
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Weird. Just weird.
Today's rally puts us in 100% cash. There was no pressing at all (via no confirmation), and in fact no new positions taken and old positions lifted.
This action feels very unnatural:
* Why would markets push so hard on more b.s. from Europe, even after the U.S. earnings situation deteriorated so quickly?
* Why would so much strength materialize out of nowhere, when chart patterns were previously broadcasting clear weakness (and confused positioning)?
* Is a Europe based "all clear" really that much more of a firm possibility now?
Something smells fishy, or at the very minimum doesn't make a lot of sense.
The one scenario I gravitate toward for a close this strong, against such a decidedly weak-and-weakening backdrop, is some kind of coordinated push behind the scenes -- the kind that comes at seemingly the oddest times, because it's deliberately meant to counter rapidly building danger signs and head off an implosion.
We are happy to ride legitimate trends and just as happy to ride false trends, when we understand the drivers. But when things get weird we neither fight nor complain, but step aside.
Spidey sense says this move is still false, and that it will merely fuel opportunity for more aggressive shorts (which confirm w/ follow through) in the next few sessions. We shall see...
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Quote from darkhorse:
...Gonna press some shorts today if the action confirms.
Quote from darkhorse:
...Weird. Just weird.
Today's rally puts us in 100% cash...
...We are happy to ride legitimate trends and just as happy to ride false trends, when we understand the drivers. But when things get weird we neither fight nor complain, but step aside.
Spidey sense says this move is still false, and that it will merely fuel opportunity for more aggressive shorts (which confirm w/ follow through) in the next few sessions. We shall see...
Secular bear market cycles in perspective (via Grant Williams / Crestmont Research)
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Quote from Brass:
I was going to ask you yesterday morning if you were prepared to play the long side if the action confirmed. (Not that I would even pretend to know in advance which way it would play out.) Your subsequent post answered my question.
Quote from Brass:
And so, I have another question for you. You may or may not recall that we've had an exchange about fundamental biases as input variables in trade decisions. I recall you said that you think fundamentals together with price confirmation make for the best trade decisions. It is hard to argue with the logic of it. However, I'm curious to know if you had ever taken the time to review the markets you trade but from a purely price action standpoint, and determined what your trades might have been, based on the same technical criteria you would have used had your fundamentals fallen in line, except to the exclusion of all fundamental considerations. Stated differently, I'm wondering if you ever tried to establish something of a TA baseline from which to determine the tangible added value of your fundamental biases.
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Heading into this week we will be looking for shorts on the individual equity side.
One virtue of Friday's big ramp is the revealing nature of "the dog that didn't bark," i.e. which names did not get taken higher along with the risk-on flood.
A desire to seek out shorts is partly just good swing trading practice - after a ramp like Friday's, most of the stuff that was poised to move higher in the short term should have already done so.
If you have a long setup heading into Monday morning where the name did not already respond on Friday, then there may be something wrong with it.
Meanwhile, the converse applies to potential shorts. As the old saying goes, in a windstorm even turkeys will fly. Any turkey (bearishly poised vehicle) that did not fly on Friday is heavy indeed.
From a bigger picture perspective, we are emotionally, strategically and tactically neutral here.
This latest move looks and smells like hope jag b.s., but if it develops into some kind sustained trend rationale that's fine. We take no issue with riding a false trend as long as 1) the drivers, even if they are stupid, have at least some semblance of near term sustainability, and 2) we can find a tactically attractive spot to hop on.
In the absence of 2, no biggie. Our ability to dial up or dial down exposure quickly is such that we can go from 0% net exposure to 150% net long or short (just to pick a number) in a matter of days or even hours, given the right inflection point, which further means annual P&L is by no means constrained or threatened by a period of kicking back in cash with our feet up on the desk.
The market can and will do what it wants, and from time to time what Mr. Market wants to do is act like an ass, in part because of the perverted incentives of many large market participants (long only money managers, congenitally incapable of using risk points, who fear lagging their benchmarks more than they fear a loss of capital, thus 'beta chasing' at the wrong time and later blowing out positions to the downside when the macro gives them a frying pan to the face).
Maybe we are 'gifted' a bigger roster of shorts next week than expected. Or maybe it's chillin' like a villain with no triggers. Either way is fine, we'll see.
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John Hussman is clearly getting frustrated:
http://www.hussmanfunds.com/wmc/wmc120730.htm
The enthusiasm of investors about central-bank interventions has reached a pitch that is already well-reflected in market prices, and a level of confidence that with little doubt, investors will ultimately regret. In the face of this enthusiasm, one almost wonders why nations across the world and throughout recorded history have ever had to deal with economic recessions or fluctuations in the financial markets. The current, widely-embraced message is that there is no such thing as an economic problem, and no such thing as risk. Bernanke, Draghi and other central bankers have finally figured it out, and now, as a result, economic recessions and market downturns never have to happen again. They just won't allow it, printing more money will solve everything, and that's all that any of us need to understand. And if it doesn't solve everything, they can just keep doing more until it works, because there is no consequence to doing so, and all historical evidence to the contrary can finally, thankfully, be ignored. How could anyone ever have believed, at any point in history, that economics was any more complicated than that?
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Second-hand lambo indicator confirms Hong Kong slowing (and thus China)
http://www.bloomberg.com/news/2012-...china-lull.html
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How Microsoft lost its mojo - Vanity Fair full piece (previously firewalled):
http://www.vanityfair.com/business/...o-steve-ballmer
Is there anyone out there who actually thinks Monkeyboy Ballmer is doing a good job?
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Debating on ET
Don't bring a knife to a folding chair fight
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Quote from darkhorse:
Debating on ET
Don't bring a knife to a folding chair fight
specially one the size of a toothpick...come get sum kid!
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Freedom, I have much love for ya!!
Quote from darkhorse:
How Microsoft lost its mojo - Vanity Fair full piece (previously firewalled):
http://www.vanityfair.com/business/...o-steve-ballmer
Is there anyone out there who actually thinks Monkeyboy Ballmer is doing a good job?
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Bartley Gorman was one of the last bare-knuckle boxing champions.
If you can't take pain, real pain I mean, you can't be a fighter.
Tom Hardy labeled Gorman -- "a bare knuckle fighter, Romani Gypsy" -- as his model for Bane's accent in Dark Knight Rises (though the result sounded a lot different -- kind of an educated gentleman thug, which was cool).
This is the kind of guy who chews iron and spits out nails. It's interesting how he shuns his life of hardship, wishing wholly other for his children.
Guys like Gorman are a reminder of what real toughness, real coming up through hardship and being harder than the ground you walk on, is all about.
The mental toughness required for trading is no joke, but for the sufficiently trained it's a cakewalk in comparison. I'd like to think I can handle what this guy handled, but hope I never have to.
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The typical investor experience...
Does the public even participate anymore, except indirectly via pensions, IRAs etc?
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Fading into Fed Day:
http://www.elitetrader.com/vb/showt...707#post3585707
There is buzz going around as to the market's remarkable performance on Fed days. A huge portion of the market's gains since 2008 have come specifically on Fed days (such as Wednesday Aug 1st) rather than other days.
In our opinion, being long Wednesday in anticipation of another "Fed day effect" is a classic example of data mining and getting trapped into bad thinking by historical stats.
While true that the market has gained big on past Fed Days since 2008, these gains also largely incorporated the element of aggressive action and sentiment surprise.
But what are the odds of aggressive action this time? Fed mouthpiece Hilsenrath seems to be gearing markets up, or rather ratcheting expectations down, for a disappointment:
http://online.wsj.com/article/SB100...rkets_LeadStory
"Should a Fed action generate a rally in financial markets, history suggests it may be brief."
The other factor that has driven past Fed-day gains, sentiment surprise, is dead and buried. QE3 and new stim prospects are now arguably as anticipated (and hoped for) as the Facebook IPO.
Add on top of this bearish-flavored technicals -- this market is more likely to drop than further pop -- and, while outcomes are unknown as they always are, the positive expectation bet and Monte Carlo supported play is taking advantage of a potential rollover and/or ugly bearish surprise.
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ADP jobs beat, 163K vs 120 expected, increases odds of Friday jobs beat, which, paradoxically, is probably a negative for stocks.
An improving employment situation (or at least one that is not getting worse) gives even more weight to the "Fed stays its hand" scenario, as Bernanke and co. will want to preserve ammunition (in sentiment terms, they are unconstrained logistically but def. constrained tactically and politically) for future deteriorations / crisis developments.
One caveat being ADP can be squirrelly, not always greatest correlation to what Friday brings.
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Louis Bacon is giving back $2B to his investors: http://finance.yahoo.com/news/hedge...-152508776.html This article seems to imply that he is doing it in order to cut down the size of his funds to be competitive in this crisis-strewn marketplace. Any comments, darkhorse? And what about a hedge fund that trades strictly in US stocks? How big can a fund get in that area before it is too big to get good results?
From the article: "More so, however, is the psychic impact. For this super-competitive breed, to admit that that a market has confounded them is to concede a small measure of defeat." This market has been kicking my as for a year and a half now, and it seems to be due to gyrations from the European crisis. US stocks don't act like they did a few years ago. They are more choppy, and they move in synch, making it difficult to find ones trending against the grain, which has been my bread and butter in the past.
Another interesting point on Bacon: "In 1990, a series of winning bets he made that Saddam Hussein would invade Kuwait and would be quickly routed with no lasting market impact became the foundation of his legend -- securing a 115 percent two-year investment return and a flood of investment assets."
I was a stockbroker in 1990, (my first day of work was the day Iraq invaded, talk about bad luck!), and I made literally hundreds of calls every day to prospective investors, along with the dozen or so other brokers in the office. Every single person we talked to, and I mean there were NO exceptions, believed that the market would crash when the inevitible ground war would start between the US and Iraq. In fact, it was a joke in the office for people to say, "I ain't doing nuthin' til this Iraq thing is over," because we heard it hundreds of times every day. So to see people like Bacon, (there were others too), who correctly called the outcome of the conflict really shows their skill.
Quote from hughb:
Louis Bacon is giving back $2B to his investors: http://finance.yahoo.com/news/hedge...-152508776.html This article seems to imply that he is doing it in order to cut down the size of his funds to be competitive in this crisis-strewn marketplace. Any comments, darkhorse? And what about a hedge fund that trades strictly in US stocks? How big can a fund get in that area before it is too big to get good results?
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Quote from hughb:
From the article: "More so, however, is the psychic impact. For this super-competitive breed, to admit that that a market has confounded them is to concede a small measure of defeat." This market has been kicking my as for a year and a half now, and it seems to be due to gyrations from the European crisis. US stocks don't act like they did a few years ago. They are more choppy, and they move in synch, making it difficult to find ones trending against the grain, which has been my bread and butter in the past.
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Quote from hughb:
Another interesting point on Bacon: "In 1990, a series of winning bets he made that Saddam Hussein would invade Kuwait and would be quickly routed with no lasting market impact became the foundation of his legend -- securing a 115 percent two-year investment return and a flood of investment assets."
I was a stockbroker in 1990, (my first day of work was the day Iraq invaded, talk about bad luck!), and I made literally hundreds of calls every day to prospective investors, along with the dozen or so other brokers in the office. Every single person we talked to, and I mean there were NO exceptions, believed that the market would crash when the inevitible ground war would start between the US and Iraq. In fact, it was a joke in the office for people to say, "I ain't doing nuthin' til this Iraq thing is over," because we heard it hundreds of times every day. So to see people like Bacon, (there were others too), who correctly called the outcome of the conflict really shows their skill.
__________________
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Post-Fed theme song
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Or maybe not. Strange day... USD moving strongly against euro, aussie, yen, not sure where this equity strength is coming from.
Some weird trading on the open too -- this may partially explain:
http://online.wsj.com/article/SB100..._LEFTTopStories
U.S. stock markets were struck Wednesday by the latest in a series of technical problems that have undermined investor confidence, as high order volume triggered unusual price swings in about 150 stocks.
Knight Capital Group Inc, one of the market's largest brokerages, said it was probing software problems and told clients to send their orders to other firms as a wave of orders shook the market and prompted exchanges to halt trading in some securities.
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The market developed a split personality post-Fed.
While Bernanke did exactly what we thought he was going to do, the schizophrenic nature of the reaction was a surprise.
Large caps (Dow and S&P) largely held fire.
Small caps and transports, on the other hand, largely got crushed. IYT looks awful, and IWM saw a brutal sell-off into the closing bell.
Adding to the confusion, Wednesday's dollar strength has now been aggressively reversed. Euro, Aussie ripping along with S&P futs this morning as ECB leaves rates unchanged.
And now, HOLY SHIT -- major flip as I write -- ES goes from up 10 handles to down 7 handles... don't know what Draghi said, but it had to be BAD...
Throw in the Knight Capital Group / algo mess, and WOW what a fucked up market.
p.s.
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Italian bond yields react (just a little bit) to Draghi
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This is why Mr. Market puked up a lung (bold emphasis mine):
http://www.reuters.com/article/2012...E8710MQ20120802
The European Central Bank will gear up to buy Italian and Spanish bonds on the open market but would only act after euro zone governments have activated bailout funds to do the same, ECB President Mario Draghi said on Thursday.
Draghi indicated that any ECB intervention would start at the earliest in September and would depend on countries in trouble on bond markets making a request and accepting strict conditions and supervision.
He also indicated that German central bank chief Jens Weidmann had expressed reservations about bond-buying and further efforts would be needed to persuade the Bundesbank before a final vote to take action.
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China slowdown forces discounting from Gome to McDonald's
http://www.bloomberg.com/news/2012-...mcdonald-s.html
And guess what, wing-and-a-prayer China bulls hoping for policy to save them: STIMULUS WON'T WORK HERE EITHER.
There is no artificial drug in existence with a diminishing return profile -- such as the one stimulus exhibits -- that can yet work in perpetuity. Use it for years on end, while prolonging and exacerbating the underlying issues you were supposed to address but never did, and what else can you possibly expect to happen?
It is in turns amazing, amusing and irritating to observe how investors, in their collective mob form, never seem to learn anything. Ever.
I mean, rationally and analytically you know that it's true... it gets sunk deep into your bones via study of market history, and up-close observations of human behavior... but still, from a gut perspective, you sometimes have to stop and ask: Can the hope-jaggers really be that dumb?
And the answer is pretty much always: Yep!
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Fed leaker Hilsenrath still peddling the Hopium:
http://online.wsj.com/article/SB100...4095581834.html
Ben Bernanke and Mario Draghi, with words but not yet actions, demonstrated this week that they are on red alert about the global economy.
Expectations are now high that Mr. Bernanke's Federal Reserve and Mr. Draghi's European Central Bank will act soon to address those worries. But both face immense tactical and political challenges and neither has a handbook to follow.
In other words: They're gonna act soon, guys! Really! Pinky swear!
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This is pretty awesome:
Asian Millionaires Firing Banks to Take Charge of Their Own Wealth
http://www.bloomberg.com/news/2012-...-of-wealth.html
Good for them. The landscape is really shifting under the big banks now. Another interesting notion:
Negative rates as a precursor to the death of banking
http://ftalphaville.ft.com/blog/201...ath-of-banking/
Losing trust, losing regulatory elbow room, losing clients, losing assets, losing the spread...
What's left for these guys? Is the financial services industry a massive long-term short?
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Today's premarket action looks exactly like it did on Thursday pre-Draghi. Was the entire past 24 hours a gigantic "just kidding" LOL clusterfuck?
Futures ripping post-jobs report, central bank support surely coming even if delayed, "crisis averted, everything's super."
The overriding message of this week seems to be that the market's belief in the Bernanke put (and the somewhat fucked-up but apparently still workable Draghi put) is even more powerful than anticipated.
No point fighting it. Got some longs on deck for the first time in a while. If there is going to be faith, then let there be faith.
From a philosophical perspective, Nietzsche is a good guiding light for traders. No such thing as "truth," only belief.
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Did you read Abelson this week? He ripped on Knight and HFT'ers in general. He called them "big-buck gamesters".
BTW, I will be waiting for your review of Hedge Fund Market Wizards by Schwager.
Quote from hughb:
BTW, I will be waiting for your review of Hedge Fund Market Wizards by Schwager.
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The following review, for Richard Bookstaber's "A Demon of Our Own Design," was written by yours truly in September 2007.
Not new stuff, to be sure.
But the recent HFT (high frequency trading) troubles of Knight Capital Group - and the spectacle of a complex "algo" running off the rails, to the tune of $440 million in losses, for 30 minutes straight with no "off switch" to be found - makes the discussion points newly relevant.
The problems experienced by Knight are something of a "gray swan:" An event that is unpredictable in timing or magnitude, but was bound to happen at some point (and thus not truly a surprise). Such is the nature of tightly coupled complexity applied at scale.
The remarkable thing was how resilient the system proved in the aftermath of the algo blow-up... but next time, will we be so lucky?
Read full review here
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In the West, being tan is a sign of upper class social status.
The natural reasoning is that most people have indoor jobs, with little leisure time - so if you are tan, you must have access to the outdoors, which implies greater wealth than average.
In China it's the reverse:
http://www.nytimes.com/2012/08/04/w...=me&ref=general
For legions of middle-class Chinese women - and for those who aspire to their ranks - solar protection is practically a fetish, complete with its own gear. This booming industry caters to a culture that prizes a pallid complexion as a traditional sign of feminine beauty unscathed by the indignities of manual labor. There is even an idiom, which women young and old know by heart: "Fair skin conceals a thousand flaws."
A fascinating example of the potentially radical differences in socio-economic cultural norms. The status aspect comes from affluent social signals, which in turn come from setting one's self apart; if you were lean and tan in, say, India for example, such would impart no status because everyone is!
As cultural signposts, these norm differences were first made present in the West via Renaissance paintings and the old masters. The reason all those women in your high school art books are plump and pale is because extra weight signified having enough food to eat, and paleness signified a life indoors (versus tilling the soil like a feudal serf).
This seems a topic far afield from trading, but I don't think it is. Understanding human psychology, biology and culture - and the unique and curious ways that all three intertwine - can lead to rare but lucrative opportunities that others fail to see, and the study and contemplation of such pays dividends over time.
That's why I agree more or less w/ Barton Biggs and Charlie Munger, re, the value of a global macro trader being a voracious reader, maintaining a passionate innate curiosity as to "why the world wags and what wags it."
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China's cash pile provides no shield
http://www.ft.com/intl/cms/s/0/de41...l#axzz22i5wK0sp
China sits on the world's largest foreign exchange reserves. Many people view Beijing's $3tn cash pile as providing economic insurance for years to come. From this perspective, the fact that China has just produced its first quarterly balance of payments deficit since 1998 looks inconsequential. After all, the $12bn deficit is a rounding error compared to the massive reserves.
In fact, China's forex reserves are vulnerable on several fronts. And if the balance of payments deteriorates rapidly, the dysfunctional Chinese banking system will come under increasing pressure...
'Macro' funds struggle as officials whipsaw markets
http://online.wsj.com/article/SB100...sNewsCollection
"Who's having a great year? A great year right now is if you're up three or four percent to date," said Vishaal Bhuyan, head of $15 million macro hedge-fund firm Nariman Point, which is flat this year.
One of the largest hedge-fund firms in the world, Bridgewater Associates LP, has posted lackluster returns this year. The Westport, Conn., firm, which manages $125 billion, deftly navigated the post-financial-crisis markets and returned 36.3% in its flagship macro fund last year. But this year the fund is up 2% through July 20, according to a person familiar with the fund.
Frustration was an undercurrent in a letter sent last week to investors by star hedge-fund manager Louis Moore Bacon...
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GMO Quarterly Letter: Welcome to Dystopia! Entering a Long-Term and Politically Dangerous Food Crisis
http://gmo.com/websitecontent/GMOQ2Letter.pdf
Grantham's advice to l-t investors: Back up the truck on ag / resource plays...
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Germany and Italy "near blows" over euro
http://www.telegraph.co.uk/finance/...-over-euro.html
http://www.spiegel.de/international...s-a-848455.html
"We must make it clear to Mr Monti that we Germans will not shut down our democracy to pay Italian debts." - Alexander Dobrindt, CDU
"The tone of the debate has turned dangerous. We must be careful that Europe does not rip itself apart." - Guido Westerwelle, German Foreign Minister
Germans are furious over the following comment from Italian PM Monti:
"If governments allow themselves to be entirely bound to the decisions of their parliament, without protecting their own freedom to act, a break up of Europe would be a more probable outcome than deeper integration."
What Monti is basically saying is that, to save the euro, democracy must be gutted. The will of the populace has to be subjugated to the will of the technocrats in Brussels, if they are going to push through the euro-saving measures that need to be pushed through.
This is the worst fear of pro-euro German pols like Merkel et al, because it plays into exactly what the German electorate fears: That a bunch of foreigners they didn't vote for are going to raid their pockets while giving the average German no say in the matter.
On a broader level, Monti's level of honesty is somewhat remarkable, and also shows why the euro as a project may be doomed: To really make it work, Brussels will have to unite against the will of the populace -- trampling sovereignty in the name of continental unity -- and this is basically a soft form of fascism.
So who is really going to go for that, at the end of the day? Which euro zone countries are going to willingly cough up their sovereignty completely? It's a bad deal for every single one of them, due to the serious unknowns.
If Spain, Italy et al give up sovereignty, they risk being crushed under the boot of relentless austerity. If Germany gives up sovereignty, it risks having its pockets picked and its currency destroyed by inflation. Not to mention the nationalist emotions undergirding the whole thing.
Europe is really not any better off than before... and when we get to the next wake-up call impasse, the continent will seize up in crisis again.
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China's answer to subprime bets: the 'Golden Elephant'
This is damn near unbelievable. China is recreating the conditions of the Western subprime crisis:
http://www.reuters.com/article/2012...E87501T20120806
Golden Elephant No. 38 is one of thousands of "wealth-management products", instruments aimed at monied investors, which have shown phenomenal growth over the last five years. Sales of them soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.90 trillion), according to a report by CN Benefit. a Chinese wealth-management consultancy.
..."Some banks have been using new (wealth-management product) proceeds to cover losses from previous products in the pool," said David Cui, a strategist at BofA Merrill Lynch. "In our view, this is not fundamentally different from a Ponzi scheme. The music may stop at a certain point if and when WMP asset size stops expanding."
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Leeson: Rogue trader culture is more rife than ever
http://www.independent.co.uk/news/b...er-8010312.html
Nick Leeson, the original rogue trader whose actions led to the collapse of the venerable Barings Bank and to a six-year prison sentence, yesterday warned that the culture of the City has spun out of control.
With banks reeling from numerous scandals and the London financial district under intense pressure to reform itself, Mr Leeson said that unless punishments are increased traders will continue to run amok...
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Investors seek out safer shores
http://www.nytimes.com/2012/08/07/b...ner=rss&emc=rss
Government bonds issued by the United States, Germany and Japan are still the primary havens for scared investors around the globe. The demand has pushed down the interest rate on the 10-year United States Treasury bond to record lows around 1.5 percent. But investors have begun to worry about holding too many Treasury bonds as other safe alternatives dwindle as a result of the economic troubles sweeping the globe. This has led many investors to places that used to be on the fringes of the investing world like Norway, Sweden, Canada and Australia.
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Recalibrating Europe
As Bespoke points out, the rally in Europe has dwarfed the one on our side of the pond.
This push has arguably been more about a recalibration of the eurozone's survival prospects. Tipping the scales toward "definitely pull through", coupled with better than expected jobs news etc stateside, has been enough to fuel a bear-squeezing risk-on rally that is now showing meaningful breakouts from various bases and ranges (emerging markets and money center banks as two valuation compressed examples).
The push thus makes sense in terms of short to intermediate term macro, vis a vis the lifting of a great psychological weight (followed by euphoria response).
But intermediate to longer term macro remains as dark as ever, re, likelihood of deteriorating corporate profit margins, China hard landing (with subprime icing), diminishing gains from cost cutting, etc.
Call it a welcomed burst of sunny weather that could run from days to weeks, maybe even a month or so, before serious stormclouds re-appear.
p.s. The above also underscores why investors are so bad at shorting, and why an investment approach to the short side is so fraught with danger. You have to be tactical and nimble when you short, only holding trends and pressing bets as profits accrue - a willingness to sit there and endure growing losses just doesn't work (unless you are running a structured negative carry position, which comes with its own issues).
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This rally is supposed to feel solid. The wide range of breakouts, including E.M. and money center banks, should be positive confirming.
The bulls should be asserting control here, via price action, and logical theories as to why pressures are bullish in the short term.
But still, it just doesn't feel quite right... on the bottom up level, finding many attractive short setups and very few longs. The kind of short setups that pay off when a very rickety upmove collapses on itself.
In addition to all the above, if the euro giveth and the euro taketh away, EURUSD is a warning light at 50 EMA resistance.
This whole thing could yet crap out. Will get meaningfully short today (with very tight risk points as usual) if it does.
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Quote from darkhorse:
Thanks for that article.
The big boys have been treading water for years, eking out t-bill like returns and living off the management fees.
The problem has just been exceptional amounts of hard-to-quantify risk. How do you handle markets that can scream higher or lower via random statements from a third-tier European politician?
At the same time, the "big questions" all seem to be in Schrodinger's cat mode. Recession or global growth? Inflation or deflation? Eurozone survival or eurozone breakup? Yes, no, nobody knows.
It's just an epically shitty time to be running huge sums in the classic macro style. What these guys are best at is finding opportunities to make large asymmetric bets WITHOUT taking on a large degree of risk.
There are gamblers that win, but you see what happens to them. Paulson is a riverboat gambler at heart, something that was made clear early on. Look how he's wound up. The genius from JAT capital, whose huge bets are killing him this year. Kyle Bass, another subprime winner, betting huge against Japan and now that too-big-bet is squashing his returns. I'm betting that Chase Coleman, the multi-billion-dollar Tiger cub who killed it in 2011 going long out the wazoo on social media stocks pre-IPO, is the next big thud.
So instead of the ballers who gamble and either win big or lose big, seasoned old pros like Jonesy, Bacon, Kovner etc (though Kovner is retired now) keep their risk small and cards close until they can find great opportunities. There just haven't been any in this central bank dominated, fucked up government intervention fest we call a market. I don't blame Bacon at all for giving capital back.
Re, a fund strictly in U.S. stocks, that depends a lot on the style. Short-term trading, value investing, special situations, merger arb, quant, HFT, a mix of various... capacity depends more on strategies than asset class. Though I would say as a general rule guys with $100 million or less can still do pretty okay.
France is screwed (by this man)...
Indigestion for 'les Riches' in a Plan for Higher Taxes
http://www.nytimes.com/2012/08/08/b...&pagewanted=all
The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.
In that regard, the tax could have enormous symbolic value as a blow for egalite, coming from a new president who has proclaimed, "I don't like the rich."
"French people have an uncomfortable relationship with money," Mr. Grandil said. "Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States."
~
So basically France's new socialist government has vowed to implement a soak the rich tax plan (75% top rate) that they KNOW is not likely to raise revenues... or to be worth the implementation cost... but they are doing it anyway, to score political points.
While the community of French millionaires likely to be affected by this tax is rather small - and even then many will pack their bags - the larger knock-on effect will be on all the international business entities, French and otherwise, who look at these moves and say "Expand in France? Set up shop in France? Hell no."
The value of job creation via entrepreneurial innovation, business expansion, market leadership? Nah. They'd rather live in the dark ages...
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Interesting from Mark Hulbert:
More bulls now than at May 1 market peak
http://www.marketwatch.com/story/wa...k=home_carousel
There is a lot of chatter about how bearishness and fear are overdone here, with some justification drawn from a read on the AAII sentiment survey. But the AAII survey has a pretty weak composition if I recall correctly, and Hulbert's observations seem to counter:
Odds of a stock market correction are now quite elevated.
That's because stock market timers are now more bullish than they were at the May 1 bull market high, even though the market averages are still slightly below those previous highs. This is not good from a contrarian point of view...
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China export growth has "collapsed" according to Bloomberg:
http://www.bloomberg.com/news/2012-...ate-for-8-.html
China is a monster implosion waiting to happen. Still convinced short AUDUSD could turn into a trade-of-the-year candidate when all of China's stupid policies (like recreating conditions for a subprime bust, noted earlier in this thread) catch up with it.
Also interesting via ZRH, trading volume last 4 days = lowest in 5 years:
http://www.zerohedge.com/news/stock...-volume-5-years
This rickety-ass rally could implode very quickly.
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Moving toward a new format to increase efficiency.
General stance is to respect the price action without deferring to it. Price action here is increasingly bullish, but it also increasingly smells like bullshit...
Read full 08-13 GMN here
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Quote from darkhorse:
France is screwed (by this man)...
Indigestion for 'les Riches' in a Plan for Higher Taxes
http://www.nytimes.com/2012/08/08/b...&pagewanted=all
The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.
In that regard, the tax could have enormous symbolic value as a blow for egalite, coming from a new president who has proclaimed, "I don't like the rich."
"French people have an uncomfortable relationship with money," Mr. Grandil said. "Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States."
~
So basically France's new socialist government has vowed to implement a soak the rich tax plan (75% top rate) that they KNOW is not likely to raise revenues... or to be worth the implementation cost... but they are doing it anyway, to score political points.
While the community of French millionaires likely to be affected by this tax is rather small - and even then many will pack their bags - the larger knock-on effect will be on all the international business entities, French and otherwise, who look at these moves and say "Expand in France? Set up shop in France? Hell no."
The value of job creation via entrepreneurial innovation, business expansion, market leadership? Nah. They'd rather live in the dark ages...
For the record, this makes more sense than some of the stimulus arguments being repeated
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Global Macro Notes: Open Ended Straight Draw
In poker terms, central bankers have given the bulls an open-ended straight draw. They have "outs" to a win at both the high and low end of the straight...
Read full notes here
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Rising Transports, Falling Bonds, Vulnerable Aussie
http://www.mercenarytrader.com/2012...nerable-aussie/
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Completing the Wedge
http://www.mercenarytrader.com/2012...ting-the-wedge/
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Bullish Developments
(forgot to post last night)
http://www.mercenarytrader.com/2012...h-developments/
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Silver, Solar, Citigroup
Aug 21st - Market action continues to be constructive. Bulls have a firm grip and are not loosening it for now.
Monday was largely quiet in respect to the major indices, but market internals are improving. AAPL surpassing the milestone of "most valuable company of all time" (in nominal terms) also surely added to positive sentiment.
We spend less time looking at things like A/D lines and, through a combination of automated and human screening processes, digest the gestalt input of hundreds of charts each day (in addition to the few dozen bellwethers we track). The overall message continues to be, "bulls gaining traction." This does not speak to what may happen in September. But it speaks loudly to right now.
Read full notes here
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Serious Divergence (Dow, S&P, EURUSD)
Aug 22 - Tuesday's trading saw a surprising divergence, as a powerful surge in the euro (EURUSD) telegraphed "risk on" and the message failed to hold.
The major U.S. indices (Dow, S&P, Nasdaq) and bellwether Apple (AAPL) at first heeded the risk on message, trading higher overnight and showing significant strength in the early part of the trading day. At the day's high point the major indices were up solidly, the Dow and S&P penetrating multi-year highs.
Then it all went south in a manner that should be considered mildly alarming to bulls...
Read full notes here
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Knee-Jerk Fed Reaction Doesn’t Add Up
The logic of expecting near-term stimulus, with U.S. econ data slowly getting better and Europe firming up, even as the market hovers near multi-year highs, with a politically sensitive election date looming, just doesn't make sense. Wednesday's response to the Fed minutes feels like an ill-thought, knee-jerk type reaction...
Read full notes here
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Aug 23, 2012
"Bullard and Evans chime in"
Peter Boockvar writes:
"After seeing the thoughts of FOMC members 3 weeks ago in the minutes released yesterday and comments from Rosengren, Fisher, Williams and Lockhart since, Evans and Bullard are now chiming in to the debate. Evans maintained his belief that more action is needed and he said specifically that “I don’t need to see any more data to know that.” Bullard is more circumspect and doesn’t think current economic and market conditions lend itself easily to full blown QE. So, if he does prefer more action, he doesn’t seem likely to support something big right now and he also said the minutes are somewhat stale considering what’s happened since.
With the S&P’s near multi yr highs, commodity prices just shy of their highest level since early April and some better than expected economic data points since the last FOMC meeting, its very possible that Bernanke will wait for the Aug payroll report before making a decision, thus making Jackson Hole a possible non event."
http://www.ritholtz.com/blog/2012/0...evans-chime-in/
Yeah... I think Thursday's trading showed the "knee-jerk" assessment was spot on...
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Quote from hughb:
BTW, I will be waiting for your review of Hedge Fund Market Wizards by Schwager.
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"Stupid Stimulus" Courts Disaster
We are 'stimulus skeptics' through and through, not for moral reasons but simple logistical ones.
Simply put, historical evidence suggests that, the majority of the time, stimulus is a form of malinvestment. (Malinvestment is an Austrian economics term, referring to capital that has been invested or allocated badly.)
Basically, when you try to juice the economy through artificial means, driven through artificial government channels, the guiding hand of the free market is negated...
Read full notes here
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Intraday ES pop on another hint of a whisper of a shadow of a smell of a fart from Bernanke's ass, via official Fed leaker Hilsenrath
http://online.wsj.com/article/SB100..._LEFTTopStories
All in the game, as Omar Little would say, but I swear this market is retarded
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Nice fadeback on a nice little nothing rally into the close... worst volume of year so far... Aussie weakness still confirming... minor boost will set up some more short opps for Mon
http://www.zerohedge.com/news/30-mi...e-hits-low-year
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Quote from darkhorse:
All in the game, as Omar Little would say, but I swear this market is retarded
What I was getting at before I spaced out was that all the positives are priced in, how many negatives are priced in right now?
Given the expectations of QE3, if Bernanke does anything short of buy mounds of mortgage bonds and more Treasuries, that will not meet expectations and dissappoint.
Anyone older and wiser chime in, I'm in my first year of trading.
what about inflation too? Oil is very high, food is high, taxes are increasing. Cost of living is rising and average income is falling, it'd be detrimental to keep inflafing the money.
Quote from kjones5159:
what about inflation too? Oil is very high, food is high, taxes are increasing. Cost of living is rising and average income is falling, it'd be detrimental to keep inflafing the money.
FUBAR.
The Natural gas boom situation I've said verbatim myself, couldn't agree more.
That would be such a gigantic industrial boom with lasting capacity, not like the Chinese cheap labor that has too much capacity now.
How I really feel, I'm not sure how old you are but I'm in the generation who will inherit that mess or whatever it amounts to.
It grinds my gears man I tell you, to have my future prospects shat on by idiots that got voted in by baby boomers, affirmative action, and illegal immigrants. The blind leading the blind.
If Romney wins this election I'm going to be one happy bastard.
I don't even like Romney particularly, just...Obama went to Harvard and is still a moron, that's bad PR.
Rant over.
Quote from deucy28:
My general sense, however, kjones, is that it does not make any difference if even a new president and administration does everything more right than an army of fairy godmothers. It is clear from the economics I have read for the last 7 years-- and especially now-- that should such a nice change in status occur, it will only slow the inevitable, continuing slide of degradation of quality of life (and security) in USA. The lucky ones will be the older of the baby boomers that may check out of planet earth before the meek behind them--the younger generations who were assigned that condition by leadership and those that voted that leadership into office--will inherit a very sad earth, that part of it called the USA. IMHO, the USA has crossed the Rubicon, never to be able to get back on the right side of the equation again. So from a relative perspective, enjoy your current condition you are complaining about kjones. Except for some relief from an energy boom (should there not be a government that squashes it), you are currently living the high life compared to what comes afterwards.
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I do appreciate the sentiment. I have a simple but effective business model but it'll take a bit to be able to execute.
There's a gas station near my house and since I go there nearly every day, I get to talking with one of the employees. It's one of those Indian family owned jobs so the guy I'm talking to is young twenties like myself, one day I asked him if he knew anywhere I might find some work, maybe if I could work at the gas station he said something along the lines of he would ask his uncle, who owns about ten of them.
Myself coming lineage of entrepreneurs and self made people, I ask how one comes to own a gas station, how exactly does it work.
I learned that without outright owning the land and building for around $1.5 million you can lease it for usually $120,000-$200,00 depending on the exact location and whatnot, usually you will net around the price of the lease in one or one and a half years, and the term structure being five years (usually), I had one of those light bulb moments.
A simple repetative lasting need at a decent low price that can grow exponentially year over year. People will buy gas during boom, bust, recession, anything short of nuclear war, and then maybe so too.
I appreciate the support, the mess of it all just gets to me sometimes.
Eloquently stated darkhorse. However, it addressed only a subset of a larger environment that kjones and I were posting about. Indeed yours addresses a different theme than the originator of this thread intended as defined on his (yours) originating post. I was visualizing a macro environment affecting, in the end, quality of life for everyone in our society as per the charter of your thread. Your statement relates to the "exceptional" and an individual or entrepreneur; bold minority mavericks among it.
(Also, a refinement on your use of the word "finality" in labeling my viewpoint. Finality works. Let me be more graphic with words like "mortality" and "fatality" within the context that we won't ever again see a quality of life from the Father Knows Best days on the other side of the river we crossed. My "crossing the Rubicon" was more than "we won't get it right again," or that we will forever be walking in place. Rather, my use of the phrase "continual decline in quality of life" gives a better vision of what being on this side of that river means for us: ever increasing our distance from the river and the shores on the other side from where we let better quality of life slip away. Hey, it is a more seasoned and more mature view than my original--three years ago--"hyper-inflation and hitting a brick wall." I think a "continual decline in quality of life" is more palatable and all encompassing of the spectrum of not-so-nice scenarios; at least the frog swimming in the continually increasing, heating pot of water will agree until it becomes too incapacitated to jump out of it. ) BTW: I acknowledge the problem with being a long term pessimist (enjoying our moments of success) is that few will socially engage him and there will be no one around in the end who remembers him, let alone provide accolades to him. That just comes with the real estate.
Back to your post:
"Carve your own path" is nice and do-able for that minority above the "90%" you refer to. It is the decline in quality of life in the society around that succeeding individual I was referring to . After my wife and I returned from a 1-month rented car travel through Spain and Portugal 3 1/2 years ago, we were charmed, and we resolved to sell our real estate and move there. But nagging me was the many educated, University graduates telling us when we had been there of 17% "official" unemployment while the U.S. was climbing toward 7%. Back at home again, I found a wonderfully gifted Spanish economist on the net whose archived and present essays of that time I read. His conclusion: "there will be no more Spain in 3 years." That was two years before the financial media started using the PIIGS acronym. So back then I asked my wife what would a truck load of our cash do for us in a black hole of a depression where there was no quality of life: nothing in the stores to buy; decaying infrastructure; nothing to pay teachers with; little first responder police or fire protection ? (Quality of Life issues) Are we currently on the edge of Great Recession that we just came out of in the U.S. ? The pundits say we are months away from slipping back into it. But maybe there will be a more confident outlook after the election. Great Depression developing after 3 or more additional per centages above from rates now on U.S. bonds that our creditors may demand ? But I will step away from that latter scenario, emphasizing I matured away from that scenario.
You are referring to this "time." I am referring to the current decline of an epoch.
"...never been a better time to ....start a business...." Maybe, but regardless how well the numerous resources exist that you describe are available for the entrepreneur, he/she must have an incentive great enough to overcome the current vision that one must leap frog over the current paralysis of business that prevents expansion while regulators will have years before they resolve a shitload of laws just crudely crafted (that they may not have read.....hehe) into regulations and restrictions on business . There is the additional burden Obama Care is about to put on it that currently equates to an unknown by business how badly it will become affected.
Your statement reflects on the comparative advantage that allowed our nation to grow. Then you address the current status of affairs that tragically and never had to be which anchors us. You are talking my book. I did not see you address the prospect of that disappearing. Now that would be a more head to head discussion with my earlier post.
I'm of thr opinion that controlled deflation would help out right now, if you can't increase income, reduce cost of goods to compensate, spur trade and thus hiring.
Quote from deucy28:
Your statement reflects on the comparative advantage that allowed our nation to grow. Then you address the current status of affairs that tragically and never had to be which anchors us. You are talking my book. I did not see you address the prospect of that disappearing. Now that would be a more head to head discussion with my earlier post.
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Quote from kjones5159:
I'm of thr opinion that controlled deflation would help out right now, if you can't increase income, reduce cost of goods to compensate, spur trade and thus hiring.
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Quote from kjones5159:
I'm of thr opinion that controlled deflation would help out right now, if you can't increase income, reduce cost of goods to compensate, spur trade and thus hiring.
Quote from deucy28:
Oh my ! I need to become one of those in the 10% of the population...mustering resources and intellect with a web site to order fairy god mothers on demand, each with their specialty. MY cost of goods in that business would go out of sight if I find one with the ability to rheostat (meter) a contolled deflation.
Quote from darkhorse:
In spread terms, the bottom is falling out of the pay scale much faster than goods and services costs are falling. So the poverty / unaffordibility spread is widening.
I've read 'How Change Happens' by Mauldin before, I didn't rememver who wrote the article though. Brilliant stuff.
Quote from darkhorse:
In a way, this is what we are getting. As corporations reduce costs via more productivity from a smaller employee base, and better use of labor-saving technology, cost of goods goes down (apart from food and energy, a different story).
The problem with a potential deflationary cure is that mid-level wrench-turning type jobs are disappearing at a rapid rate - think assembly line workers replaced by robots - and the jobs materializing to take their place are typically at the lower end of the service industry and pay maybe half as much (or less). In spread terms, the bottom is falling out of the pay scale much faster than goods and services costs are falling. So the poverty / unaffordibility spread is widening.
A staggering percentage of Americans already rely on the state in some way shape or form. That percentage is likely to increase. The divide between haves and have nots is going to grow so wide in the coming years, even more redistribution from the state will be the only possible way to rectify it. I am not commenting on whether this is good or bad, moral or immoral, desirable or undesirable, only foreseeing an inevitable response to a growing problem.
Quote from kjones5159:
Any book recommendations would be appreciated. Any subject, markets or economics or whatever, I am a sponge.
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Simple example, Ford has a 100 person factory, new technology allows them to replace 40 workers with machines and increase their profit margin 10%, as the savings aren't passed down to the consumer, they are kept as an increased margin, the raw material suppliers to Ford see this and raise their prices to Ford, who is then forced to raise consumer price to maintain the new margin. Ad infinitum.
Quote from kjones5159:
I agree here, but I meant monetary deflation, reduced money supply/ higher interest rates = stronger dollar with which consume more at cheaper prices as far as imports.
Lower consumer prices, the robotic assembly lines and things like that increase profit margins because the savings are not passed down, which would be if anything more nominally inflationary, would it not?
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Quote from kjones5159:
Simple example, Ford has a 100 person factory, new technology allows them to replace 40 workers with machines and increase their profit margin 10%, as the savings aren't passed down to the consumer, they are kept as an increased margin, the raw material suppliers to Ford see this and raise their prices to Ford, who is then forced to raise consumer price to maintain the new margin. Ad infinitum.
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Quote from kjones5159:
I've read 'How Change Happens' by Mauldin before, I didn't rememver who wrote the article though. Brilliant stuff.
Quote from deucy28:
I'm not trying to be flippant, kj. Your input is thoughtful and I think heartfelt.
Quote from darkhorse:
It is nowhere near this simple. See my prior post. Or better yet read Beinhocker, then come back.
Quote from kjones5159:
Fair enough, I thought I'd give it my uneducated go.
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I've been unintentionally taking it from a sort of outside-in (time wise) approach if this makes any sense, meaning initially I did probably what everyone does and say "How did Buffet get so rich?" (before learning that he all but inherited GEICO) so I learned about value investing. I read Buffetology, The Art of Stock Arbitrage, I then read The Intelligent Investor by Graham, I've read Ron Chernow's (not market related) biographies of John D. Rockefeller and the biography of the house of JP Morgan, I've read Jim Cramer's Real Money which seems more geared towards position and swing trading, next I guess is day trading.
I've been fascinated by business since I was a (younger) kid, granddad owned an HVAC company, dad owned a carpet sales/installation company from 1982-2009, uncle owns a drafting firm, aunt owns a landscaping company.
I grew up in it, I love every second of it, and I want to learn all I can.
That's my story. I'll be getting the Origin of Wealth pretty soon, we can talk about that after I read it.
Quote from darkhorse:
Friendly advice: If you are early in your market journey, don't overfocus on the complicated nuances of macro. This is like looking for muscle definition in the gym before the basic foundation of fitness and strength is built.
Focus on the basic movements, and trading opportunities born of flexibility and awareness, rather than trying to suss out the complicated stuff. If your goal is to be a trader and make money, that is.
Elasricity like an inelastic product being food vs. An elastic product being expensive clothing ergo Fossil and Coach earnings are in the shitter?
I don't appreciate the dripping sarcasm of "if you even get past econ 101".
I'm uneducated, not yet learned. Not stupid, there's a difference.
Quote from kjones5159:
I don't appreciate the dripping sarcasm of "if you even get past econ 101".
I'm uneducated, not yet learned. Not stupid, there's a difference.
Sorry. I haven't been able to go to school for a variety of reasons, and I'm a little bitter about it. I didn't know that 101 can only be taken if that's your major.
Quote from kjones5159:
Sorry. I haven't been able to go to school for a variety of reasons, and I'm a little bitter about it. I didn't know that 101 can only be taken if that's your major.
Quote from kjones5159:
Lower consumer prices, the robotic assembly lines and things like that increase profit margins because the savings are not passed down, which would be if anything more nominally inflationary, would it not?
Quote from Specterx:
All things being equal it's a foregone conclusion that this trend is going to slow and eventually reverse: demographics mean that global labor markets will soon be visibly tightening (you can already see this in e.g. massive Chinese wage increases).
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Keeping it Light
Mon Aug 27th - Barring an unexpected macro surprise, this looks to be a light volume trading week with an extra strong portion of meaningless price action as algos push the indices around in the absence of real conviction...
Read full notes here
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Nice write-up from Mauldin / Jonathan Tepper on why Australia is in trouble
http://www.ritholtz.com/blog/2012/0..._medium=twitter
We're short AUDUSD from 1.05ish
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FT on Oz as well
http://ftalphaville.ft.com/blog/201...boat-as-europe/
As John McClane might say, "welcome to the party pal"
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Do something nice for Australia - short AUDUSD
Given the "obvious" nature of some of these monster trades, why do so few traders profit? A couple reasons: For one, a lot of traders are focused on short to intermediate term time frames - which is no bad thing at all, but it means they wind up jumping in and out for small bites rather than building a big position over time and catching a monster trend by the tail...
Read full notes here
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The Magical World of Charles Evans
Why would a Federal Reserve official assume any direct connection between buying bonds and lowering the jobless rate?
Is there any sort of logic or rationale whatsoever behind this view? Can someone, anyone, make a credible case for the chain of logic that Evans assumes - the if / then assertion that "if" the Fed buys more bonds, "then" unemployment will fall?
Read full piece here
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Quote from darkhorse:
The Magical World of Charles Evans
Why would a Federal Reserve official assume any direct connection between buying bonds and lowering the jobless rate?
Is there any sort of logic or rationale whatsoever behind this view? Can someone, anyone, make a credible case for the chain of logic that Evans assumes - the if / then assertion that "if" the Fed buys more bonds, "then" unemployment will fall?
Read full piece here
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Quote from Martinghoul:
If I may, how about a (somewhat rhetorical) question in response to your question... Is there a direct connection between the main short rate (FedFunds, in this case) and the jobless rate?
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Quote from darkhorse:
If there is, I'm not familiar...
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Quote from Martinghoul:
Ah, my friend, what sort of a macro shag are you if you don't know and luv the infamous Taylor Rule? Especially if Taylor gets picked by Romney to replace Benjy...
The Taylor Rule-like frameworks have been the basis for all the rate machinations and QE is just treated as the extension of rate policy by other means.
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Quote from darkhorse:
Ah, right. I assumed you meant an actual real-world cause and effect connection, as opposed to an overly simplified bullshit theory that nicely sums up the failings of artificially rigid neoclassical economics... if Evans' rebuttal boils down to "because this is what the textbook says to do," then he is just as big a buffoon as I thought.
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Quote from Martinghoul:
Well, to be sure, there's probably some reasonable empirical grounds to believe that the Taylor Rule is a reasonable model (with the emphasis on model). Many central banks across the world (BoE, BoC, RBNZ, etc) use these approaches. Like all models, these aren't perfect, but then what in life is?
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Quote from darkhorse:
Right, so what exactly are those empirical grounds? What is the boots on the ground explanation?
That is what I'm trying to figure out... my strong suspicion, growing close to certainty now, is that the assumptions of whatever model is being used (to justify Evans' thinking) are ham-fisted at best, wholly inappropriate at worst... an appeal to tradition and academic authority that takes the place of actual sound reasoning... we already know via very convincing argument by Ray Dalio, for example, that standard policy applied for a normal cyclical downturn is either ineffective or possibly even counterproductive in a deleveraging.
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Quote from Martinghoul:
Ah yes, you see, that's the meat of the debate... Let's say you loosely believe the Taylor Rule, as it's applied during "normal" periods. Given that it operates with nominal rates, the big question that naturally arises is what to do with it when you are at the zero bound. That is where QE and the whole "dropping money from helicopters" idea comes in. There's a belief that QE can be a way of lowering nominal rates in a roundabout way. Whether you agree with this and whether there are costs associated with stuffing the system full of bank reserves is all a matter of personal preference. Clearly, Evans is a super-dovish guy who is at the far end of the spectrum and thinks that QE is a good thing, come hell or high water. I, as well as you and many others, disagree, but that's the nature of the debate, innit?
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Quote from darkhorse:
Yes, although in this case the debate is a little different. The question is not whether the Fed can lower nominal rates, I am happy to concede they can do that. The question is how the lowering of nominal rates is supposed to have a positive impact on unemployment, when available evidence suggests it could just as easily have negative impact (by forcing seniors and savers into 'hunker down' mode, via poor savings returns and higher discretionary cost of living factors vis a vis rising food and energy / debased currency, which in turn lowers aggregate consumer spending and hurts small businesses).
If Evans thinks QE3 is a good thing "no matter what," and he does not have a credible rationale as to why, then he is no better than people who swear by homeopathy or healing crystals or other pseudoscience - worse even, because his unsupported beliefs are potentially toxic rather than neutral.
This is what boggles my mind, re, the state of the world today... I am a nothing and a nobody in the big shot scheme of things, just a simple caveman trader. I don't even have a finance degree -- studied literature and philosophy -- yet it is plain to see even for me that fuckwit thinking is rampant at the very highest levels. Blind belief in a model, without understanding the drivers and principles behind that model, e.g. the fundamental underpinnings as to why the model is credible, why the model 'works,' and why it is appropriate to apply at such and such point in time, is absolutely disgusting. I have more respect for Miss Cleo than men like Evans. As far as I'm concerned, they should be pulled from their ivory towers and given the full metal jacket treatment.
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Quote from Martinghoul:
The case they make has all sorts of credible motives.
Quote from Martinghoul:
His view has some merit, even though it's somewhat misguided, in my view. Most importantly, this stuff is complex and is never really about right and wrong.
Quote from Martinghoul:
Finally, if you wanna blame anyone for this sort of thinking, the fault, IMHO, rests squarely with Congress. By giving the Fed an inflation AND employment mandate, they virtually guarantee that there will be a whole spectrum of views, including some extreme ones. Or maybe Congress wanted this, in which case they reap what they sow.
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Quote from darkhorse:
Such as? I swear I'm not trying to be obtuse... I just want to a hear logical "if A, then B, then C" type argument, even of a very basic nature, as to how lowering nominal rates could help unemployment... where is the cost / benefit analysis? If they are magically willing away various costs/side effects then I fail to see how that does not qualify as fuckwittery...
Sure, but doesn't it have to be about right or wrong eventually - not in moral terms but pragmatic result terms - at some point in time? If a doctor wants to prescribe ongoing chemotherapy for a patient without credible cause, and ill effects are being perpetuated, and the doctor wants to keep going just because he really likes chemo and thinks it's great, then don't we have to consult the available empirical evidence and at some point say look, dammit, enough is enough?
Why isn't the Federal Reserve held to more scientific standards? These people are conducting massive experiments. Shouldn't they make at least SOME half-assed attempts at hewing to the rigors of the scientific method, in terms of assessing the results of their experiments soberly and honestly?
These people are the nation's financial doctors. In saying "this stuff is complex," can we really just wave away mounting evidence that the doctors are quacks?
Yep, on this we agree 100%. The logical thing for the Fed to do in my estimation would be to say "Look, you people are on your own. We've done what we can, and the situation no longer involves systemic risk or need for emergency liquidity. Furthermore, mounting evidence suggests we are not able to influence the employment rate through the manipulation of interest rates anyway. We're at the lower bound and stuck in a deleveraging. Get some better policies, or voters, get yourself a better congress."
But of course they can't do that, because congress likes having the Fed around as a potential scapegoat, for the same reason that investors like having financial advisors. (When things are going well, take the credit; when things are going bad, blame the advisor.)
All of this is readily apparent but none too convincing, re, the notion that these people know what they are talking about, or deserve any benefit of the doubt at all...
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Quote from Martinghoul:
Well, how about this argument that is put forth by Evans in the speech (as well as someone like Blanchflower elsewhere)? Basically, they say that the cost of high unemployment when the economy comes out of a recession is understated by the raw numbers. The reason is that many of the unemployed are young people who become entirely detached from the labor mkt. That has all sorts of extremely unpleasant implications for an economy for a whole generation. This consideration, to Evans types, is so significant that it warrants a sort of an open-ended commitment to do whatever it takes, come what may. Again, I happen to disagree, but this is an argument that has some merit, empirically and theoretically.
Quote from Martinghoul:
This ability to completely insulate yourself from reality as it unfolds here and now just cannot be healthy. However, that's precisely why you have a committee and a spectrum of views, with Evans being a rather extreme representative. Hoenig and other "freshwater" types are examples of the other extreme.
Quote from Martinghoul:
Well, I would argue that they deserve the benefit of doubt. There's at least one reason for it and its name is Volcker.
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Quote from darkhorse:
Indeed, the costs and risks of high unemployment are significant.
But how does this observation justify QE as a cure?
"Mrs. Johnson, if the gangrene spreads your leg could fall off or even worse. Therefore we recommend... more chemotherapy!"
I am picturing a version of the Seinfeld routine at the airport car rental counter. Evans' trouble is that he knows how to spot problems, but he doesn't know how to solve problems. Anybody can just spot 'em.
I am all in agreement for cultivating a diverse cross-section of intelligent, well-reasoned views. If there are good base cases for diametrically opposed courses of action, by all means, let iron sharpen iron.
But as for the stupid views? The unsupported ones based on quackery? Throw 'em right the hell out...
Indeed! "Tall Paul" was a great man who pulled off a very hard job.
I have utmost respect for Volcker, partly because the guy has no fear of saying what he thinks and speaking truth to power. My indifference toward the Obama administration turned to outright disgust when it became clear their plan was to marginalize Volcker, using him as a figurehead, while giving him no true authority or policy making sway whatsoever.
But what do you think Volcker would say to Evans? I suspect his critique would be similar to mine... maybe sans the profanity, but no less scathing... I am by no means saying here that all central bankers are dimwits, quacks and fools, only that the ones who clearly are should get the hook.
It would do a world of good, a tremendous world of good, if we had someone with a Volcker-like spine running the Fed right now. If guys like Evans were forced to credibly defend their views on logical grounds, that alone would be a huge step... it just blows me away the free pass these guys get... Tall Paul never got a free pass and wouldn't have wanted one. He took actions that made sense and logically explained why he took them.
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Quote from Martinghoul:
Well, that's the thing... These are all views and "stupid" is in the eye of the beholder. I, for one, cannot say it's a "stupid" view, even though I emphatically disagree.
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Quote from darkhorse:
These people are the nation's financial doctors. In saying "this stuff is complex," can we really just wave away mounting evidence that the doctors are quacks?
Quote from Specterx:
The problem is less that the doctors are quacks than that the whole "science" is nonsensical quackery. There is no real relationship between the Fed's operational capabilities and the objectives it's attempting to achieve. This disconnect is merely more obvious now than in the past. There never was to begin with any "science," etc.
It's as though I wanted to grow to become nine feet tall over the course of the next year and consulted some 'experts' on how best to achieve this. Charles Evans says chocolate and green tea will do the trick; Martinghoul vehemently disagrees, what I really need is tincture of crushed aphids and beetroot.
Well...
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Quote from Martinghoul:
Yeah, but that's the thing... The process of understanding the world around us often starts with stuff that appears like real quackery. My favorite example of this phenomenon is J.J. Thompson's "plum pudding model" of the atom. Sure, it's been shown to be pretty much all wrong, but one could imagine that it paved the way for things that eventually were shown to make sense.
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Quote from Martinghoul:
Yeah, but that's the thing... The process of understanding the world around us often starts with stuff that appears like real quackery. My favorite example of this phenomenon is J.J. Thompson's "plum pudding model" of the atom. Sure, it's been shown to be pretty much all wrong, but one could imagine that it paved the way for things that eventually were shown to make sense.
Quote from darkhorse:
Hmm. I question whether that's a valid comparison. New scientific theories are proven through experimentation and successful prediction over time, wherein the model says that if A, then B, or given X, the result of Y should be Z, and is proven right.
Putting forth pseudoscientific reasoning and / or spurious correlation as a justification for dubious economic policy, on the other hand, has nothing to do with the rigor of scientific theory or the means by which novel theories are stress tested.
If what you are saying is that quackery is bad here and now, but can lead to something good later, it still stands to reason that application of the scientific method is the only rational means by which this could come about.
Bad policy based on bad ideas (e.g. the discredited Phillips curve) will never lead to forward advancement if no one is calling out the quackery for what it is in the first place.
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Quote from Specterx:
As far as I can tell all significant theoretical discoveries regarding macroeconomic and monetary affairs had already been realized by about 1930. Almost everything since has consisted of pro-interventionist propaganda, or been a matter of replacing good theory with bad psuedoscience so its practitioners can make a name for themselves, secure cushy tenured university positions and NYT op-ed columns, etc.
These days the economics profession is bought and paid for by the Fed. The real goal of its output (and also that of the grand viziers at the Fed itself) is to justify the central bank's existence, and more broadly the whole psuedo-scientific edifice that's been constructed over the past fifty-sixty years. Anything else is really just incidental.
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Interesting... could QE cause deflation?
http://ftalphaville.ft.com/blog/201...what-you-think/
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Multinational Blues
Thurs Aug 30th - Yesterday's trading confirmed a new and interesting dynamic - accelerated rotation out of multinational blue chips and high quality yield plays, to the mild benefit of small caps.
Read more: http://www.mercenarytrader.com/2012...national-blues/
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Cold feet all of the sudden ahead of Bernanke tomorrow! Dow down about 100, S&P down 10 at noon.
Quote from Martinghoul:
Yeah, but that's the thing... The process of understanding the world around us often starts with stuff that appears like real quackery. My favorite example of this phenomenon is J.J. Thompson's "plum pudding model" of the atom. Sure, it's been shown to be pretty much all wrong, but one could imagine that it paved the way for things that eventually were shown to make sense.
Quote from Martinghoul:
Well, to be sure, there's probably some reasonable empirical grounds to believe that the Taylor Rule is a reasonable model (with the emphasis on model). Many central banks across the world (BoE, BoC, RBNZ, etc) use these approaches. Like all models, these aren't perfect, but then what in life is?
Quote from Ghost of Cutten:
But the discussion is not whether people come up with very bad theories before reaching better ones. The discussion is whether the government should impose totally unproven quackery on society, at considerable cost and disruption, without providing any evidence that it is true or will achieve its ends.
Quote from Ghost of Cutten:
What matters is not whether they are widely adopted or imperfect, but whether they are useful or harmful compared to the alternatives.
One cannot debate the proper role of central banks without asking what they are there for - to stop the financial system collapsing during panics; to stop inflation getting out of hand; and to reduce the extent of financial collapses by restricting credit once a boom becomes too speculative and herd-driven.
A rule which ignores 2 of those purposes and focuses solely on one of them, is always going to be a deeply flawed simplification. We have seen the disastrous results of the Taylor rule first-hand - Greenspan keeping credit loose during the biggest bubble for almost a century, the ECB keeping liquidity tight during the biggest financial panic since the Great Depression. This rule should be thrown out and replaced with something that accounts for booms and busts as well as the normal periods in between.
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Quote from Ghost of Cutten:
One cannot debate the proper role of central banks without asking what they are there for - to stop the financial system collapsing during panics; to stop inflation getting out of hand; and to reduce the extent of financial collapses by restricting credit once a boom becomes too speculative and herd-driven.
A rule which ignores 2 of those purposes and focuses solely on one of them, is always going to be a deeply flawed simplification.
Gov is biggest player in fix income securities. And fix income is the biggest game by far.. they are speculators just like us
Quote from cdcaveman:
Gov is biggest player in fix income securities. And fix income is the biggest game by far.. they are speculators just like us
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No, dude, China is not "okay"
All in all, China is most definitely not ok, and those who argue otherwise for the sake of pleasing whatever clients or masters they have in Beijing and Shanghai are simply making spectacles of themselves...
Read more: http://www.mercenarytrader.com/2012...na-is-not-okay/
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Quote from darkhorse:
Except modern day central banks can't go bankrupt and technically never have to run out of ammunition. It is only politics that restricts their room to maneuver. And thus their speculations are political - a rather different ballgame.
Quote from deucy28:
Central Banks may never run out of ammunition literally, but figuratively their ammunition is thought to eventually bounce off their targets, as oft stated by others including FED members.
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Quote from darkhorse:
Agree, which explains how we could yet see, among other possibilities, a very nasty deflationary outcome. Putting together some thoughts on this.
In my opinion, part of the reason we have a "Schrodinger's cat" outlook for inflation / deflation (not knowing which will materialize) is because no one has advance access to future policy decisions. In response to the next mini-crisis, or series of mini-crises, we do not know what the CBs and politicians will do, and different aggregate response scenarios can lead to very different outlooks. In addition to the above, we do not know how investors, businesses and savers will respond to the responses; there are too many human feedback loops to speak with any certainty about intermediate term outcomes.
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Aug 28 published:
Michael Pond , co- head of interest-rate strategy in New York at Barclays, said in a radio interview on Bloomberg Surveillance with Tom Keene and Ken Prewitt:
“The market is pricing in modest inflation five years out,” Pond said. “This tells you the Fed is going to” ease policy further “regardless of the inflation outlook or where inflation is as long as they are concerned about growth. If they are worried about growth they think inflation is heading down from their perspective.”
http://www.bloomberg.com/news/2012-...-tom-keene.html
If Pond is correct about the FED, sounds like a real Japanese-ish 20 year funk attitude. What is your take ?
Quote from deucy28:
If Pond is correct about the FED, sounds like a real Japanese-ish 20 year funk attitude. What is your take ?
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It is wholly plausible, though obviously not a certainty, that growth can return.
I think it would have to move to a flourish and evolve over time into a steady robustness. Leadership where there is supposed to be leaders and an inspired public, uniquely educated, understanding the need to put sacrifices with growth, can sustain it. Slowly rising interest rates and stronger currency can make a cameo appearance, like it, and stay a while.
It is now or never.
I am reminded of a brave man, David Walker who I understood was widely listened to and agreed with (but off the record by many leaders) about the brink America was headed to. That was over a dozen years ago. However, when leaders’ actions were motivated by something other than statesmanship and belied probably their true belief in what they had been lectured to by Walker, the man left a cushy and impressive job to educate citizens. I give him credit for educating me.
"Walker served as Comptroller General of the United States and head of the Government Accountability Office (GAO) from 1998 to 2008. Appointed by President Bill Clinton, his tenure as the federal government's chief auditor spanned both Democratic and Republican administrations. While at the GAO, Walker embarked on a Fiscal Wake-up Tour, partnering with the Brookings Institution, the Concord Coalition, and the Heritage Foundation to alert Americans to wasteful government spending. Walker left the GAO to head the Peterson Foundation on March 12, 2008.
"In 2008, Walker was personally recruited by Peter G. Peterson, co-founder of the Blackstone Group, and former Secretary of Commerce under Richard Nixon, to lead his new foundation. The Foundation distributed the documentary film, I.O.U.S.A., which follows Walker and Robert Bixby, director of the Concord Coalition, around the nation, as they engage Americans in town-hall style meetings, along with luminaries such as Warren Buffett, Alan Greenspan, Paul Volcker and Robert Rubin.
"Walker has compared the present-day United States to the Roman Empire in its decline, saying the U.S. government is on a "burning platform" of unsustainable policies and practices with fiscal deficits, expensive over-commitments to government provided health care, swelling Medicare and Social Security costs, the enormous expense of a prospective universal health care system, and overseas military commitments threatening a crisis if action is not taken soon.
"Walker has also taken the position that there will be no technological change that will mitigate health care and social security problems into 2050 despite ongoing discoveries.
In the national press, Walker has been a vocal critic of profligate spending at the federal level. In Fortune magazine, he recently warned that "from Washington, we'll need leadership rather than laggardship."; in another op-ed in the Financial Times, he argued that the credit crunch could portend a far greater fiscal crisis; and on CNN, he said that the United States is "underwater to the tune of $50 trillion" in long-term obligations.
"He favorably compares the thrift of Revolutionary-era Americans, who, if excessively in debt, would "merit time in debtors' prison", with modern times, where "we now have something closer to debtors' pardons, and that's not good."
(Excerpts from Wikipedia.org ...."David Walker")
It is now or never.
I thought I wasn't ever going to hear names "Alan Greenspan" and "Robert Rubin" described as "luminaries" again . How sorely mistaken I!
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Quote from Martinghoul:
I thought I wasn't ever going to hear names "Alan Greenspan" and "Robert Rubin" described as "luminaries" again
Quote from deucy28:
It is wholly plausible, though obviously not a certainty, that growth can return.
I think it would have to move to a flourish and evolve over time into a steady robustness. Leadership where there is supposed to be leaders and an inspired public, uniquely educated, understanding the need to put sacrifices with growth, can sustain it. Slowly rising interest rates and stronger currency can make a cameo appearance, like it, and stay a while.
It is now or never.
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No Mr. Bond, I Expect You to Die!
If this rally were strong and gaining momentum - as opposed to potentially fading - bonds would still be in a confirmed downtrend, not finding their footing and roaring back. We expect that equity bulls will be disappointed, as Goldfinger was, when Mr. Bond refused to die...
Read more:
http://www.mercenarytrader.com/2012...ect-you-to-die/
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Quote from darkhorse:
I don't think it is necessarily now or never. That is just too strong a word (never). There is simply too much complexity, too many embedded unknowns, in the big sweeping predictions. America could hypothetically stagnate for another ten years, then go on to dominate for the next 50 years (as George Friedman thinks it will).
As a general rule of thumb I think it is wise to avoid predictions when possible, and to recognize that the scope of accurate prediction making is very limited.
Et Tu, Crudus?
Given the potential for a crude stall and reversal, we are looking to some potential high beta energy names (as well as crude itself) for additional short opportunities as our bearish global slowdown thesis plays out...
Read more: http://www.mercenarytrader.com/2012/09/et-tu-crudus/
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Quote from deucy28:
That is what I mean when I have earlier described declining quality of life. Like muddling along as we are now, we acclimate to a new normal of living condition. The energy boom that is to come (depends on who is president next year as to its scale) can provide relief in the big time scale of history to come, not unlike the very long term secular bear market we are in.....There has been periods of relief....even on the bottom. That is to be expected. In the end, quality of life over decades and in absolute terms, measured decade over decade, probably will not return to cross back over the the Rubicon to a former, higher quality of life. Subjectively, year over year, Americans will adapt to the new normals as they dynamically present themselves over time.
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Quote from darkhorse:
I would not put America in the same "boat," though, because the U.S. has a couple very powerful things going for it:
Quote from deucy28:
But the list is excellent. Had I not timed out in the editing of my post, I would have ended by writing, "Going forward from here, in the best of scenarios I could possibly hope for that is realistic, the mix of Growth and Austerity Measures that are both vital will be net positive and consistently so."
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"- the strongest combination of stable democracy / rule of law institutions and internal coherence (allowing for stabilizing fiscal transfers among various regions)"
I would actually argue that the US have the highest probability of moving towards an oligarchic fascist state:
1) the legal infrastructure is already in place (Patrioct Act I and II, varius anti - internet/free speach laws, etc etc)
2) the military infrastructure is in place: at the local police levels (mini tanks,all sort of non deadly weapons etc etc) and at the armed forces level (no need for examples here)
3) the social/economic background is there: Supreme court decision about unlimited financial contribution to politicians, extreme income distribution, totally self referencial political class etc etc
4) the historical background is there: the USA is one of the very few (only?) large countries/regions that never had a dictatorship so have no "antibodies" , no older generation that remembers what that means, no teaching in schools of what that really means
5) the economic situation is there: the largest deficit/gdp ratio of any developed country, the largest total debt/gdp of any developed country (maybe except the UK) . These ratios can't be put under control using any fiscal or monetary policy whatsoever so will precipitate the situation sooner or later
and I can go on and on.
Your hope of a potential future boom in energy or technology assumes that the economic and political situation does not degenerate. I am not sure you have spent enough time thinking about this issue, which in my opinion is THE issue. Secular bear markets bring confrontation, isolation, extremism and what we have seen so far (in the USA, but also in Europe) is nothing compared to what happened historically. I am sure I don't need to talk about the events that followed the great depression or the politically motivated terrorism you had in europe in the 70's, with all the global implications (middle east policy change, vietnam failure, but also total neglect of entire cities and regions etc etc etc)
Quote from pentothal:
I would actually argue that the US have the highest probability of moving towards an oligarchic fascist state:
...
and I can go on and on.
Your hope of a potential future boom in energy or technology assumes that the economic and political situation does not degenerate. I am not sure you have spent enough time thinking about this issue, which in my opinion is THE issue. Secular bear markets bring confrontation, isolation, extremism and what we have seen so far (in the USA, but also in Europe) is nothing compared to what happened historically. I am sure I don't need to talk about the events that followed the great depression or the politically motivated terrorism you had in europe in the 70's, with all the global implications (middle east policy change, vietnam failure, but also total neglect of entire cities and regions etc etc etc)
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why the US would have the "highest probability"? because they don't realise that they have taken all the necessary steps in that direction. And you just need an "event" to precipate the situation with no return. Also I was referring to developed countries so I would leave China out of this and I don't need to be reminded of the political situation over there. (Or in Singapore, which is not a democracy).
Also, a fascist state means the merger of the public and private sector in what is called "corporativism". I am sure you see a lot of that going on. And again, the difference between Europe and USA is that it is the first time it happens in the USA and there is no (little?) understanding of how the process works and what the risks are.
You rightly point out the risk facing Spain, Italy or Greece, but you also are aware of the immediate reaction of the press and of people in general to the various statements of politicians. People participation to the democracy process in Europe is higher that in the US (that is a fact, consider % of people voting at election). Protests and demonstrations are another way to partecipate to the process, it would be superficial to dismiss that.
The only protest/reaction we see in the USA (and on this we are subject of media propaganda, so we may well miss something over here) is the Occupy Wall Street movement which is extremely limited in terms of what they are trying to achieve and also has (for what I can see/read) very little coordination, organisation etc.
I agree that an economic boom is the best way to move ahead in terms of reducing political risk but the deficit and total debt/gdp situation in the USA will prevent that. The state needs more money every day and it is not prepared to shrink, this seems obvious to me and to any observer. The republican party would just cut spending in some sectors (maybe) but would not touch the major spending source, ie the defense/security sector .
Also remember that China is the biggest foreign holder of US bonds. They didn't buy the bonds to clip the coupon, they did it for political reasons and to have another weapon to use in a possible (economical) confrontation.
Shorting Draghi (EURUSD)
We have been looking for a spot to initiate a short position on the euro, on the conviction that forward moving events will result in a stronger US dollar than many might think, and the bearish post-Draghi conference reaction has given us an entry window.
Read more: http://www.mercenarytrader.com/2012...-draghi-eurusd/
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Quote from pentothal:
why the US would have the "highest probability"? because they don't realise that they have taken all the necessary steps in that direction. And you just need an "event" to precipate the situation with no return. Also I was referring to developed countries so I would leave China out of this and I don't need to be reminded of the political situation over there. (Or in Singapore, which is not a democracy).
Quote from pentothal:
Also, a fascist state means the merger of the public and private sector in what is called "corporativism". I am sure you see a lot of that going on. And again, the difference between Europe and USA is that it is the first time it happens in the USA and there is no (little?) understanding of how the process works and what the risks are.
Quote from pentothal:
You rightly point out the risk facing Spain, Italy or Greece, but you also are aware of the immediate reaction of the press and of people in general to the various statements of politicians. People participation to the democracy process in Europe is higher that in the US (that is a fact, consider % of people voting at election). Protests and demonstrations are another way to partecipate to the process, it would be superficial to dismiss that.
The only protest/reaction we see in the USA (and on this we are subject of media propaganda, so we may well miss something over here) is the Occupy Wall Street movement which is extremely limited in terms of what they are trying to achieve and also has (for what I can see/read) very little coordination, organisation etc.
Quote from pentothal:
I agree that an economic boom is the best way to move ahead in terms of reducing political risk but the deficit and total debt/gdp situation in the USA will prevent that. The state needs more money every day and it is not prepared to shrink, this seems obvious to me and to any observer. The republican party would just cut spending in some sectors (maybe) but would not touch the major spending source, ie the defense/security sector .
Quote from pentothal:
Also remember that China is the biggest foreign holder of US bonds. They didn't buy the bonds to clip the coupon, they did it for political reasons and to have another weapon to use in a possible (economical) confrontation.
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I'm 100% with you on the article today darkhorse. I made a similar post on Monday. Draghi hit a major home run for the Euro, at least as far as bonds are concerned. I admit I didn't think the buys would be 'unlimited'.
That being what it is, Bernanke will ease off the throttle on QE3, probably implimenting a lighter than expected QE. I had a different thread where I called for the top in the S&P at 1427. So far it's encountering resistance around 1423.55, we'll see how it goes for the day. If it doesn't break 1427 today (the high for the year), it's not going to happen. Quote me on that.
http://www.elitetrader.com/vb/showt...threadid=248641
Here's my thread. Still zero replies, nobody liked my call apparently, or didn't like it....who cares.
http://www.google.com/url?sa=t&sour...CGOJry1Ud35R18Q
Probably the only good jobs report that will cause stock price decline that I'll ever see
1426...
Floating around 1427, equaling the high of the final spike before the collapse. More resistance...Fucking intense.
Stalling at the potential double top just shy of 1430...got me by three points...I'm slipping
Re, just needing an "event" what does that statement mean? We only need an event such as a meteor hitting earth for the human race to go extinct. Any hypothetical event can be theorized, the question is probabilities, odds and likelihood of various scenarios unfolding.
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First of all, sorry but I am not very good at quoting so i hope my reply is readable.
When I refer to an event, it means an excuse (think 911). I am sure I don't need to explain how the elites manipulate the crowd now or in the past . My point is that the only way for the state to survive in its current size is to move ahead towards an authoritarian entity and so it will find an excuse to do so. The people have already been completely cut out from the decision making process and have no power (just ask yourself what is the conviction rate in the US, that is the best way to understand where the power lies).
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I think you meant corporatism, and there are fair arguments that President Obama is a corporatist or at least in thrall to corporatists, but this is still a far cry from America being a fascist state. Think Mussolini, Franco, Pinochet etcetera.
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yes corporatism, apologies. Again, I am saying that the USA is *moving towards* that, not that the metamorphosis is already completed. Mussolini invented the idea, but Pinochet created a police state without corporatism. Not all dictatorship have the same economical system.
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Participation in the democratic process in a time of turmoil is part of the reason why Europe is at greater risk.
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no, i am sorry that means that the society is still healthy and reacts, which is an extremely positive sign.
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And in such conditions, angry voters become putty in the hands of demagogues, who then move forward on the strength of what is at first a sanctioned democratic process, before concentrating power illegally or extra-democratically. Chavez in Venezuela for instance.
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that is not a given. Europe lived trough the same (worst?) economical turmoil in the '70s and did not move towards an authoritarian model even if politicians tried again and again. The reason in my opinion is that the people were raised by the generation that lived trough that so it was difficult for the elites to move into that direction no matter how hard they tried.
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Re, Occupy Wall Street, the laughable nature of America's protests and their utter lack of impact is further evidence of America's stability, not a tendency toward political dislocation and chaos.
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no, it is evidence of apathy and lack of participation in the democratic process. The Tea Party movement also disappeared, immediately captured by the political and economical elite. The inability of people to be heard by the elite is a sign of weakness and it will be exploited as such.
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Again this is common sense: Where are you seeing rubber bullets, tear gas, and fire bombing in the streets? Spain and Greece, perhaps soon Italy. US protests thus far are basically bored college kids.
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no, i am sorry. Taser guns, real guns, non lethal weapons of all kind, kettling etc etc have been used plenty of times in the USA. The freedom given to the police in the USA and their total lack of ability to deal with problematic situations without recurring to violence is also a clear sign that people have no power.
The inability to react is not something to be proud of and the people in charge know very well that this weakness is there and will be exploited.
When you have a group of protestors that know how to defend themselves it is more difficult to use the police to solve problems. For the simple reason that the policemen, as all human beings, are reluctant to risk their lives so will tend to avoid direct confrontation and over time will not obey orders that push them in that direction.
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Your logic does not follow at all here. If the world sees another technology oriented boom - biotech, clean energy, health care related or otherwise - then this boom will be funded by venture capital money and pension fund money.
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To have another boom you need investments. To have investments you need a reasonable faith that the government will not try to take your money away (look at Europe, as per your example). You can't have that certainty now in a country that has the level of deficit and total debt such as the USA.
The only way in my opinion you can deliver that message is by reducing the size of the state, which will not happen because it would be suicidal for any politician that would try to do so. The parasite has now become bigger than the host and the only way to get rid of it is to kill the host.
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China's UST holdings are a pretty weak "weapon," though, given that China would blow itself up in any serious attempt to use the weapon. China and the United States are so mutually interdependent in finance and trade terms, neither could truly unleash economic war on the other without doing drastic harm to itself.
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I know how the chinese accumulated their dollars but they could have well reinvested them in other assets, why UST? surely in part because is the largest and most liquid market in the world, but also to put pressure on a potential/future enemy.
Btw, I don't believe that China will be the new USA, they need to go trough some sort of test (large military confrontation and/or extreme economic crisis etc etc) and survive and this has not happen yet. With regards to the parallell between atomic weapons and UST, i was discussing the same thing today and I totally agree with you.
kjones, I think we can go up to 1460 before we roll over. I keep my longs with a tight stop.
That'd likely be into next week, I'm giving the headline euphoria until monday, IMO a good jobs report tomorrow will lower stocks as it puts QE3 a little "further out" I guess I could phrase it that way.
SPX holding around 1430.
Mr. Market's thoughts:
Yay Eurozone bonds won't run increasingly rampant, but what about everything else? Fundamentals? Oh shit, take profit.
Spain may not have to borrow at 6.5% anymore, but they're still broke. Draghi is kicking the can again.
And there's always Greece. The Greek police have gone on strike to protest the austerity that cuts heavily into their pensions, bond buying or not, that society won't hold up much longer, 24% unemployment and ever increasing pay/job/benefit slashing by the Greek govt. to meet austerity demands? Not promising.
Bonds or no bonds, shit is falling apart.
of course shit is falling apart. And i also believe there is a non zero probability that we are going to see another 50-60% drop before this secular bear market is over. But I haven't seen a bar combination that signals a top. Of course it all depends on what your time frame is, mine is medium and long term (depending on the accounts) so i am waiting for a confirmation...
Do you trade only the S&P?
Quote from pentothal:
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that is not a given. Europe lived trough the same (worst?) economical turmoil in the '70s and did not move towards an authoritarian model even if politicians tried again and again. The reason in my opinion is that the people were raised by the generation that lived trough that so it was difficult for the elites to move into that direction no matter how hard they tried.
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No, I normally never trade indexes, I'm using volatility ETFs for this one, yeah I know, but it's what is available to me right now so that's what I'm using. My target is a 5% or so correction in the S&P unless sonething drastic happens.
Quote from pentothal:
of course shit is falling apart. And i also believe there is a non zero probability that we are going to see another 50-60% drop before this secular bear market is over. But I haven't seen a bar combination that signals a top. Of course it all depends on what your time frame is, mine is medium and long term (depending on the accounts) so i am waiting for a confirmation...
Do you trade only the S&P?
I used bars as a generic term, I use candles in my charts.
volatility ETFs, you mean the VXX and similar ? or the volatility/strategies like VOLT?
Quote from darkhorse:I think we'll have to agree to disagree... I'm not saying it *can't* happen in the United States, but again, creeping corporatism within a stable societal structure and the kind of breakdown we are talking about (and witnessing in Europe) just isn't the same thing. [/B]
Quote from pentothal:
fair enough!
btw good job on your website, I really enjoyed the 2 interviews with Peter Brandt and the Lady Trader.
Quote from pentothal:
fair enough!
btw good job on your website, I really enjoyed the 2 interviews with Peter Brandt and the Lady Trader.
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Quote from kjones5159:
@pentothal: VXX, XIV (inverse) and UVXY if I'm feeling frisky. [/B]
Bullish Trifecta Boosts Money Center Banks
Given the interconnectedness of the global financial system, one major winner is the money center banks.
Decisive steps to save the eurozone mean that tail risk for European banks - the possibility of a derivatives-related blowup - has been substantially reduced.
This is very good news for US banks and brokers as well, given the connectedness of the system and their unquantifiable exposures to Europe.
Read more: http://www.mercenarytrader.com/2012...y-center-banks/
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Copper's Message
Paradoxically, though, copper's price action also indicates (to us at least) why this kind of thing cannot last. Parabolic moves are not healthy and rarely end well. They are more often an indicator of frenzy and underlying gamesmanship than constructive fundamental change.
Read more: http://www.mercenarytrader.com/2012/09/coppers-message/
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Attention Bulls: You May Be About to Get Punched in the Face
When is the last time markets had such an incredible confluence of 'buy the rumor, sell the news' event drivers all converging on the same event space - expectations of QE3, expectations of a Europe solution, expectations of a China stimulus package, and expectations of Apple's next major product event, all getting fulfilled at the same time... even as the charts look ready to tag the backboard and then drop?
Read more: http://www.mercenarytrader.com/2012...ed-in-the-face/
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Quote from darkhorse:
Attention Bulls: You May Be About to Get Punched in the Face
When is the last time markets had such an incredible confluence of 'buy the rumor, sell the news' event drivers all converging on the same event space - expectations of QE3, expectations of a Europe solution, expectations of a China stimulus package, and expectations of Apple's next major product event, all getting fulfilled at the same time... even as the charts look ready to tag the backboard and then drop?
Read more: http://www.mercenarytrader.com/2012...ed-in-the-face/
Quote from kjones5159:
+1
We were talking about this before, remember?
Politics driven rally, no more politics = no more rally.
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News is about to be in! Get on your horse!
Check the silver chart, not promising.
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VC Inspired Reflections on QE3
In recent trading of the US dollar, stimulus expectations and reigning conventional wisdom - and you know by now we don't think a whole hell of a lot of conventional wisdom! - have combined to create an exploitable environment extreme.
Read more: http://www.mercenarytrader.com/2012...ections-on-qe3/
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Now if the kid were throwing it out a moving car like yesterday....
http://www.bbc.co.uk/news/world-us-canada-19581792
......he would have many more admirers than Bernanke.
Quote from darkhorse:
VC Inspired Reflections on QE3
In recent trading of the US dollar, stimulus expectations and reigning conventional wisdom - and you know by now we don't think a whole hell of a lot of conventional wisdom! - have combined to create an exploitable environment extreme.
Read more: http://www.mercenarytrader.com/2012...ections-on-qe3/
Post-Fed Recalibration
While normal QE3 / normal policy language expectations were baked into the cake, the possibility that Bernanke would tell the hawks to go to hell and give the doves everything they could possibly have dreamed of was not baked into the cake. That is why the market roared so ferociously. Bernanke threw caution to the wind and sided lock, stock and barrel with the doves...
Read more: http://www.mercenarytrader.com/2012...-recalibration/
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Quote from deucy28:
1. You state inside of a sentence annotating your chart with a series of other phrases, “how much is a stimulus promise going to change the recession?” This is essentially a rhetorical question, right ? I just want to be sure.
Quote from deucy28:
2. “ From a high probability swing perspective we are mostly on the sidelines at moment.” Does this mean you have much of your powder dry in order to place it at your best perceived time in a manner that puts money where your sentiment is ?
Quote from deucy28:
3. How does a “recalibration to widespread global slowdown conditions” become a driver for “creating an opportunity for a powerful snapback rally in the $USD ?” I am not following the link. (I think question 5 below is the same thing ?)
Quote from deucy28:
4. The phrase that includes the word “audible” means as in, “We will also consider audible short calls on the major indices today” refers to you as being in a similar manner on the line of scrimmage and calling an ad hoc, discretionary “audible ?” I just want to be sure this is what you mean.
Quote from deucy28:
5. There are two questions/points (A) and (B) here: “You also have multiple Soros style “false trends” (in our estimation) relating to unrealistic dollar weakness expectations vis a vis the rapidly slowing rest of the world.” (A) Why would the dollar become weaker (when all other things are equal) because the world slows down ? (B) Furthermore, the world slowing down is one huge macro, but there are many other significant, moving parts that affect the dollar’s strength.
Quote from deucy28:
6. I saw two references in the essay relating to the Fed’s action on Thursday that appear to have been written by you before the report came out Thursday about the Fed’s actions. Your essay is dated the same day as the report. Was the essay disseminated prior to the report or am I misunderstanding ?
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http://stocktwits.com/MercenaryJack/message/9525883
Paul Krugman is officially Batshit Insane
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The Federal Reserve is Terrified of the Tea Party
This leaves one last possibility: The Fed has decided it wants to see President Obama re-elected... and wants to help engineer that outcome at all costs.
The Fed may have further decided that President Obama's reelection is so important, it is worth risking all manner of bad optics to make it happen (by juicing the economy prior to November as much as it possibly can).
Read more: http://www.mercenarytrader.com/2012...-the-tea-party/
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Quote from darkhorse:
Furthermore, the US economy is better off than the major economies in other parts of the world (Europe, China, various etc). As global slowdown pressures increase awareness of the reality that Europe and China are both virtually guaranteed to endure painful recession (or what in China's case might as well be a recession, e.g. growth below 8% threshold), capital again seeks out safer USTs and the relative domestic strength of the US economy.
Quote from deucy28:
(1) I am on the other side of your opinion that US economy is better than other major's (EuroZone excluded). But then we have had somewhat of that dialogue before. Repeating cycles of economies world wide raise and lower boats together. What about the over leveraged fact ? Outside of Europe and the PIIGS there, who is the next worse for being over leveraged ? Ok....maybe Japan.
Quote from deucy28:
(2) "... capital again seeks out safer USTs and the relative domestic strength of the US economy." I could be a nicely, well- asset-endowed individual (maybe I inherited it) and have had years of experiencing severe negative cash flow (bad management of my business, bad investments, etc.). (What is the sad history of lottery winners subsequent to their new found wealth ?) When Moody's just a FEW days ago threatened ANOTHER downgrade of U.S. credit quality, it doesn't engender a sense of restored faith in a government now rated with confidence by its constituents in single digits approaching ZERO ! (and THAT Harris poll was reported a year and a half ago ! .... when the U.S was $ 2 trillion dollars less poor ! ...and the forecast is for getting more poor more rapidly! )
Quote from deucy28:
Actually, "flight to safety" to the U.S. I suspect is your reference to the world's notion that it continues to go to the well asset-endowed one. No argument with that one. That perception, strangely, is still in place.
...
It will become interesting--maybe challenging-- to figure out capital flows and appropriate trading bets in the future during the transitional stage of less U.S. harbor and more somewhere else.
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Well, I had my Sunday brunch at home while reading your piece on Mercenary Trader which was a debriefing of the week's big high- note....the FED's announcement for another QE. Your survey, analysis and style of communicating is excellent. Comprehensive content and broad analysis expressed in an easy-to-read fashion is refreshing, and is rare to find elsewhere in one, succinct report. Most importantly for the tactical trader or strategic investor is intelligent, situational awareness to monetize this knowledge with meaningful extrapolations for calculating future positions. Thank you for writing in a style with this targeted audience and its purpose in mind.
It provoked a few questions I intend to pose that I think will be satisfied with short responses. I look forward to them.
Quote from deucy28:
It provoked a few questions I intend to pose that I think will be satisfied with short responses. I look forward to them.
Quote from deucy28:
Well, I had my Sunday brunch at home while reading your piece on Mercenary Trader which was a debriefing of the week's big high- note....the FED's announcement for another QE. Your survey, analysis and style of communicating is excellent. Comprehensive content and broad analysis expressed in an easy-to-read fashion is refreshing, and is rare to find elsewhere in one, succinct report. Most importantly for the tactical trader or strategic investor is intelligent, situational awareness to monetize this knowledge with meaningful extrapolations for calculating future positions. Thank you for writing in a style with this targeted audience and its purpose in mind.
It provoked a few questions I intend to pose that I think will be satisfied with short responses. I look forward to them.
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Quote from deucy28:
If I have this right, darkhorse, applying your game theory, Bernanke surprised us in the degree he did (my gawsh....first the Supreme Court decision and now the FED......can my heart take any more ?) because he played in his view the BIG QE card for self preservation interest of himself and the independence of the FED, opposite to the otherwise impressive series of smaller, rational cards pointing to the rationale that advancing the QE would have marginal effect if any other than piling on the national debt.
Quote from deucy28:
Why then, many weeks back, during his (last ?) appearance before congressmen, he so much as said it was insane for Congress to believe the FED can bring back this sick of an economy with monetary modalities while Congressmen are sitting on their hands the last three years not implementing fiscal solutions ? He so much as said the FED no longer has sufficient horsepower to stop a national fatality (my word, but his meaning). It would appear he accelerates at least his own hypocrisy and the prospect of not getting installed to the hall of fame by saying one thing and behaving dramatically the other way.
Quote from deucy28:
Many months ago, I read that Central Bankers the world over are generally more fearful of deflation with few rounds in the gun vs. inflation with an arsenal of weapons. Deflation, when the genie is out of the bottle is virtually impossible to put it back in before Depression. Bernanke played the big card Thursday that pulls the genie that much further out of the bottle.
Quote from deucy28:
The notion of him playing the Big QE Card to keep Obama and Democrats in Congress that in your mind allows him to think he and the FED are safer in keeping their independence that way at the knowing expense of furthering the demise of the future of the country and to be dealt with later is hard to swallow; he can’t help but know it accelerates the assurance of muddle along economy and possibly Armageddon-ish scenarios. Of course he must know that dangerous course doesn’t exactly look promising for him to to be able to leave a lasting, glowing legacy which I would argue is more important to him than a job he wants to keep that doesn’t allow him to be a winner when having no bullets remaining that are effective. I mean what's the point ? Exceptionally well written essay with lots of make-sense thinking, but tell me it isn't true: The Chairman just as well wishes to sell the country down the road for his own self aggrandizement as Congress already has proven and continues to prove it does.
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What happens after infinity?
All told, we actually find it a less frightening notion to see the Federal Reserve as epically corrupt versus epically stupid or epically in thrall to their own "bet the farm" Jim Jones kool-aid notions. An organization that is corrupt but intelligent can at least be counted on to consider the merits of pulling itself back from the brink. An organization run by out-to-lunch academic kool-aid drinkers is a threat to destroy both itself and the world for the sake of institutionalized idiocy. What the Federal Reserve is doing has been properly labeled the greatest mad science monetary experiment of all time, and the risks of blowing up the laboratory have just increased dramatically.
Read more: http://www.mercenarytrader.com/2012...after-infinity/
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What Happens After Infinity?
http://www.mercenarytrader.com/2012...after-infinity/
There were two references (saying the same thing actually) to inflation forcing savings:
"...forcing savers to save more..."
"...are forced to save and retrench..." and further "...consumer spending could actually DROP."
I remember stagflation of the middle through late 1970's. The popular saying at the time conveyed the message to spend NOW because items will only "cost more later." It was particularly compelling with large purchases like automobiles. Also, "get your money out of the bank...damn, high inflation will make it worth LESS each month." My excuse is "I was doing something else then" that did not have me very plugged into the economics then (except something about wage-price spiral). I just don't think I was plugged in or maybe I just don't remember all the displacements, symptoms, and classic economic elements prevalent at the time. But...
.... how does one resolve the conflict between "spend now because it will cost you more later" and "quit saving money that will be worth less" versus the above quoted excerpts from the After Infinity essay ?
(Not to confuse things, but to be fair, I do recall provocatively high rates given on CD's, and coupon rates and yields on bonds, and nice returns on Zero Coupon Bonds as somewhat of a mitigation haven against inflation. But I don't think that neutralizes my question totally: much of those were not "forced savings" but discretionary savings.)
Funny money at our 12; Funny money at our 6
http://news.yahoo.com/video/fake-bi...-193000244.html
Quote from deucy28:
.... how does one resolve the conflict between "spend now because it will cost you more later" and "quit saving money that will be worth less" versus the above quoted excerpts from the After Infinity essay ?
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Funny money from all clock your clock positions !
Funny money at your 12 (bernanke); Funny money from all other clock positions(counterfeit).
Bogey alert: Keep your head on a swivel stick. Approaching you out of the 12 o'clock, high sun (frontal attack !) or from your blind sides (little, nimble pepetrators of printing funny money and apparently very good at it, too.)
http://news.yahoo.com/video/fake-bi...-193000244.html
Call sign: "Funny money." Varying degrees of caliber. On your 12 is a declaration of war on you from the Red Barron, last week Thursday, with THE weapon, cruelest tax of all, peppering your ability to stay aloft over time with inflationary strikes like strings of machine gun bullets incessantly compromising your platform: part of your wing; part of your vertical and horizontal stabilizers; your engine, for cryin' out loud ! All other clock positions vulnerable from sneak attacks of counterfeit that impact your platform with a bigger hole at one time, at any unknown time. Hey ! ....what about sabotage with contaminated fuel ? ..... put there ostensibly by your own leader, destroying your ground support ? What the Hay ?! Not airborne and not taking off but surviving on MRE's (meals ready to eat) are your wingmen, grounded. Entire squadrons ! Countless numbers of them !
What a way to run a railroad. Or am I mixing my metaphors ?
Fantasy Island
From a chart perspective, the aftermath of the Fed's action is defined by a surprising number of island tops. Bernanke created his very own archipelago fantasy chain, causing multiple vehicles to gap higher and immediately turn tail.
Read more: http://www.mercenarytrader.com/2012/09/fantasy-island/
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Is China the Biggest Malinvestment Case of All Time?
If there is a credible counter-case as to how China will evade all the lessons of history, slip past its egregious mistakes unscathed, mimic the worst sins of the West while paying no penalties, and turn the essential tenets of free market economics upside down in doing so, we would love to hear what it is.
Read more: http://www.mercenarytrader.com/2012...se-of-all-time/
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Re: Funny money at our 12; Funny money at our 6
Quote from deucy28:
http://news.yahoo.com/video/fake-bi...-193000244.html
Quote from darkhorse:
Is China the Biggest Malinvestment Case of All Time?
If there is a credible counter-case as to how China will evade all the lessons of history, slip past its egregious mistakes unscathed, mimic the worst sins of the West while paying no penalties, and turn the essential tenets of free market economics upside down in doing so, we would love to hear what it is.
Read more: http://www.mercenarytrader.com/2012...se-of-all-time/
Re: Re: Funny money at our 12; Funny money at our 6
Quote from deucy28:
Ok, so try this link. Counterfeit money.
http://www.huffingtonpost.com/2012/..._n_1893119.html
Quote from deucy28:
Is there ?
Dunno, but it's got the money to post bail.
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Gray Swans and Fat Tails
The idea of the Gray Swan - a riff on the Black Swan - is a potential catastrophe that is not only foreseeable, but likely to occur at some point given a confluence of drivers. The challenge with a Gray Swan is that you don't know the actual timing. There is just a strong sense it could happen sooner or later. Many potential macro-level crises fit the Gray Swan profile, since it is so hard to know when a bubble is going to burst, a credit cycle is going to break down, or inflation / deflation hits a tipping point etcetera.
Read more: http://www.mercenarytrader.com/2012...-and-fat-tails/
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Quote from darkhorse:
Gray Swans and Fat Tails
The idea of the Gray Swan - a riff on the Black Swan - is a potential catastrophe that is not only foreseeable, but likely to occur at some point given a confluence of drivers. The challenge with a Gray Swan is that you don't know the actual timing. There is just a strong sense it could happen sooner or later. Many potential macro-level crises fit the Gray Swan profile, since it is so hard to know when a bubble is going to burst, a credit cycle is going to break down, or inflation / deflation hits a tipping point etcetera.
Read more: http://www.mercenarytrader.com/2012...-and-fat-tails/
Re: Re: Re: Funny money at our 12; Funny money at our 6
Quote from darkhorse:
SUBJECT 1: Why does this matter? North Korea has been pumping out supernotes for years.
SUBJECT 2: Actually they don't. The idea that a country can buy its way out of localized economic crisis via large foreign reserve holdings is a fiction. Two other cases of massive foreign reserves (in comparable % of GDP terms) were America in the 1920s and Japan in the 1980s. Neither was spared from economic collapse.
Quote from darkhorse:
Is China the Biggest Malinvestment Case of All Time?
If there is a credible counter-case as to how China will evade all the lessons of history, slip past its egregious mistakes unscathed, mimic the worst sins of the West while paying no penalties, and turn the essential tenets of free market economics upside down in doing so, we would love to hear what it is.
Read more: http://www.mercenarytrader.com/2012...se-of-all-time/
Now That's a Divergence...
The old school interpretation of Dow Theory takes divergence as a sign of invalidation. It is like the Magic 8 Ball equivalent of "Reply Hazy, Try Again Later."
There are plenty of other reasons to have concern up here too...
Read more: http://www.mercenarytrader.com/2012...s-a-divergence/
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Relief break. (No, not the wet kind.) Some fun with the somber:
Manufacturing WHAT ??!!
R e v o l u t i o n
So for all the cryers in the group fatalistic about America's leadership and future, finding pearls wherever possible is akin to feeling successful in plugging SOME leaks in the Titanic to the point that maybe we will see this ship remain afloat longer than had been expected. (There is that Titanic thing, again.) Slow progress--maybe none--but nevertheless sinking is not as imminent. Then what ? "Dunno !" comes to mind, but we can be happy where we find lifeboats.
(1) The natural gas / shale revolution we are on the verge of with its prospect of keeping one of the ship's propellers turning. (2) Some sort of revolution against the fossil fuel haters of coal and oil production, the latter of which there has been dimensional strides in technology to extract it from where it is deeper and harder to get. After all, when the ship goes vertical, with only the last half of it swinging up off the surface and into the air as the first half goes vertical and under water, maybe FFH (fossil fuel haters) can be made to understand it doesn't matter how clean you are when falling off the cliff, your body won't be productive during the fall and certainly not after the end of the fall. [Welcome to metaphor hell.] (3) Manufacturing revolution coming. (4) Then there is the upcoming revolution in ......... WHAT ? Let's go back to ( 3 ) ! ! ......
brief video: http://finance.yahoo.com/blogs/dail...-123557752.html
(if the video link ever breaks, here is essentially the same thing....)
http://www.globalpost.com/dispatch/...rcing-reshoring
Ok.......so it's just a mini revolution. But who knows. Even if it is a William Bendix tv show Life of Riley quality of life, it's living anyway.
http://en.wikipedia.org/wiki/The_Life_of_Riley ("The expression, "Living the life of Riley" suggests an ideal contented life, possibly living on someone else's money, time or work. Rather than a negative freeloading or golddigging aspect, it implies that someone is kept or advantaged.")
http://www.veoh.com/watch/v16956297...giamerchant.biz
One still wonders the rate of continued, diminishing quality of life with half the working age population paralyzed by receipt of government checks rather than being productive..... self perpetuated by the knowledge of who the candy givers are and keeping them in office. Well, maybe there will be a revolution there, too, when the candy fails to taste as good over time (or it shrinks in its ability to satisfy).
Okay Ben, Now What?
...in our view the law of diminishing returns is kicking in. We see the recent run-up as classic example of a Soros style "false trend," and in terms of longevity and sustainable driver issues that trend right about now looks like a 90-year-old man smoking two packs a day.
Read more: http://www.mercenarytrader.com/2012...y-ben-now-what/
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The Euro, William Jennings Bryan, and Newly Constructive Thoughts on Metals
One can picture a modern-day Grecian or Iberian WJB, thundering to a roaring crowd: "You shall not press down upon the brow of Southern Europe this crown of thorns. You shall not crucify mankind upon a cross of euros!"
Read more: http://www.mercenarytrader.com/2012...ghts-on-metals/
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A Conspicuous Absence of Window Dressing
Being a Friday, we will also get to see how much conviction there is, re, taking longs home into the weekend... a slide into the close would be seriously no bueno (for bulls)...
Read more: http://www.mercenarytrader.com/2012...indow-dressing/
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Came across this today from Reuters. Pretty good article that puts all the goods vs the bads of USA status quo. Almost bullet point in style, it is a quick read, current, and gets its arms around our condition and prognosis.
http://news.yahoo.com/why-us-econom...5--finance.html
China's Black Box, Plus Three Reasons Energy and Base Metals are Strong
With the global slowdown thesis growing stronger, not weaker, why are energy and base metals names showing such constructive price action? Here are three hypotheses...
Read more: http://www.mercenarytrader.com/2012...als-are-strong/
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Does you theory applicable to Rare Earth Metals? This is a very niche market and the supply/demand is not that transparent due to the Chinese supply uncertainty. I believe price is dropping and still have more room to go lower. Does RE producers like MCP are a good buy or I'm still too early?
Thanks.
Quote from Chuck E. Cheese:
Does you theory applicable to Rare Earth Metals? This is a very niche market and the supply/demand is not that transparent due to the Chinese supply uncertainty. I believe price is dropping and still have more room to go lower. Does RE producers like MCP are a good buy or I'm still too early?
Thanks.
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Live by the Bellwether, Die by the Bellwether?
Monday's action was certainly a huge disappointment for bulls. After a major run-up on surprisingly positive ISM data, the majors mostly gave it all back. Tech and small caps even managed to close red (thanks to the aforementioned AAPL)...
Read more: http://www.mercenarytrader.com/2012...the-bellwether/
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Hey Bill Gross, Why So Serious?
Rather than worry about what could happen "some day" with the U.S. -- sorta like the constant worry over what will happen "some day" with Japan -- it seems far more sensible to pay attention to here-and-now developments...
Read more: http://www.mercenarytrader.com/2012...why-so-serious/
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The Line of Scrimmage
Bulls still have the ball, by dint of rising moving averages, the major indices within sprinting distance of new highs, and constructive patterns still intact on the weekly charts.
But the quarterback got sacked on Tuesday as the crude oil strong safety rushed in for a hit...
http://www.mercenarytrader.com/2012...e-of-scrimmage/
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Killing the Wrong Pig
The pig to be focused on at this point is protectionism risk, not excessive concern over safe-haven debt-to-GDP ratios...
Read more: http://www.mercenarytrader.com/2012...-the-wrong-pig/
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http://www.imf.org/external/pubs/ft...02/pdf/text.pdf read pages 4 and 5 of the imf meeting in tokyo
Quote from ammo:
http://www.imf.org/external/pubs/ft...02/pdf/text.pdf read pages 4 and 5 of the imf meeting in tokyo
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Yet despite the significant public resources being
deployed to the periphery, private sector confidence
has remained low. Concerns over a possible euro area
breakup have led to extreme fragmentation between
funding markets in the core and the periphery (Figure
1.8). The announcement of the OMT program in
early September has helped address such concerns
and reduce sovereign spreads between the periphery
and the core. However, periphery bank and corporate
spreads have narrowed less, which may act as a brake
on recovery. Banks, insurers, and nonfinancial corporations
are trying to match assets, liabilities, and collateral
in each country of the periphery as protection
against redenomination risk. In turn, liquidity in core
economy banks is not being recycled to the periphery
but is instead being deposited at core ..this statement on page 4 suggested to me that the economy won't be stimulated anytime soon and the banks at the moment are boxed in,if they continue to tighten the amount of money going out..what happens..this grand plan , as little as i understand it, is not working and only increasing risk..does that suggest that they will wane on the buying of corporations,stocks
Quote from ammo:
this statement on page 4 suggested to me that the economy won't be stimulated anytime soon and the banks at the moment are boxed in,if they continue to tighten the amount of money going out..what happens..this grand plan , as little as i understand it, is not working and only increasing risk
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have problems reading for more than 5 minutes, that's why i'm reading your thread,someone who does read the entire scenario, thanks
Further off-the-cuff exposition on why the US fiscal situation does not spell doom just yet (final section, beyond the poker stuff):
http://www.mercenarytrader.com/2012...balance-sheets/
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"Winter is Coming"
Proverbial winter may be descending on heretefore "risk on" central-bank-driven markets. This would make sense given:
* central bank stimulus fade via law of diminishing returns
* corporate cost-cutting / fat-trimming profit boost used up
* record corporate profit margins in mean reversion jeopardy
* mounting concerns for earnings quality and top line revenue
* fresh crisis concerns emanating from Europe
* major bellwethers like AAPL showing meaningful weakness
* technical deterioration hitting the major indices
* potential bottom and resurgence in $USD
Read more: http://www.mercenarytrader.com/2012...nter-is-coming/
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So You're Telling Me There's a Chance...
"False trend or true, this move could have legs if no major macro whackage hits markets in the next few weeks. We have responded to such by aggressively increasing our long-side allocation to energy-related names..."
Read more: http://www.mercenarytrader.com/2012...heres-a-chance/
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Tech Albatross and China Ponzinomics
Earnings whiffage is starting to pile up... multiple bellwether names are coming in light or otherwise missing estimates. Microsoft (MSFT), McDonald's (MCD) and General Electric (GE) three of the latest offenders...
It's GOOGLE (GOOG), though, that could really weigh heavily on speculative spirits after Thursday's earnings release debacle and ugly slide. GOOG is considered a market champion, a tech juggernaut perhaps second only to AAPL, and this kind of follow-up to the recent run has to be disconcerting indeed...
Read more: http://www.mercenarytrader.com/2012...na-ponzinomics/
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Dude, Where's My Revenue?
Earnings season thus far is starting to feel like a bad Ashton Kutcher movie titled "Dude, Where's my Revenue?"
Even with the endless asshattery that is Europe taking a hiatus -- and for how long one wonders -- you just have a whole bunch of bad juju either sitting on the horizon or getting baked into the cake here and now...
Read more: http://www.mercenarytrader.com/2012...res-my-revenue/
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What if Recovery is Actually Bearish?
A few years back, top value investor Seth Klarman called this a "Twinkie" market -- an unnatural concoction stuffed with artificial ingredients.
The twinkie manufacturers, of course, are the world's central banks. Whenever things have looked terrible, the CBs stepped in with stimulus and jawboning. (Hence the "artificial ingredients.")...
Read more: http://www.mercenarytrader.com/2012...tually-bearish/
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Corleone Market
"Just when I thought I was out... they pull me back in!"
- Michael Corleone
Read more: http://www.mercenarytrader.com/2012/11/corleone-market/
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Obama Pocket Kings, Romney Pocket Queens?
If the bookies' electoral college math is right, here is a way to visualize from a poker perspective: Imagine Obama pushing all in with pocket kings preflop, and Romney with pocket queens. Well over 80% of the time, kings will be good. But can a third queen, a four-card flush, or a four-card straight to the queen materialize by the river? Absolutely...
Read more: http://www.mercenarytrader.com/2012...-pocket-queens/
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The Four Horsemen Ride Again
Under normal circumstances, these market bellwethers are not correlated. The "horsemen" generally do not ride in the same direction. When gold is going up, the dollar and USTs are normally going down, or vice versa and so on.
When all rise together, however, it indicates an extreme correlation of "risk off" and diminished risk appetite across the board...
Read more: http://www.mercenarytrader.com/2012...men-ride-again/
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Requiem for a Twinkie
R.I.P. Twinkie Market: March 2009 - Nov 2012???
Read more: http://www.mercenarytrader.com/2012...-for-a-twinkie/
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Gold looks great... gold stocks look terrible
Hugh Hendry, the amusing Scotsman who runs Eclectica Asset Management, hates gold stocks. He won't buy them under any circumstances. Which is interesting, considering Hendry is partial to macro doom forecasts, and has made large amounts in years past betting on gold...
Read more: http://www.mercenarytrader.com/2012...-look-terrible/
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