By the way, since the Bank of Japan's QE Tsunami announcement, it seems to me that things are getting interesting again in the macro space. Is anyone looking at structuring a Japan trade around the Yen to toilet paper, consumer prices through the roof, JGB market explodes thesis? To repeat my suggestion from a few years ago - if there's any way to reasonably do it, taking out a long-term fixed-rate mortgage in Yen to purchase a rental property in Japan seems like an easy route to free money.
Per response to Daal's post, I think the risk-reward here is excellent. IMO this pullback is likely to be the last best chance to get in with a low cost basis. From here on out, anyone who wants in will have to chase the market and almost certainly miss the first, easiest doubling.
Although there's always a small chance, the ECB and EU institutional elite seemed to pretty much rule that out last year - and even if they hadn't, the odds of them letting the whole 50 year EU project blow up because of one economically small country is unlikely. It is highly unlikely that Greece unilaterally devalue without some noises and lectures not to from the Eurozone leadership first. Secondly, if the markets fear devaluation then short-term interest rates in Greece will skyrocket, as they have done before all (to my knowledge) prior devaluations in other countries. Argentina and Brazil a decade or so ago, UK in 1992, Asia in 1997, Russia 1998 and so on. Insiders almost always know, and always hedge desperately, which shows up in the rates on otherwise low-risk t-bills. Third, you can hedge this risk by purchasing Greek stock index futures on margin instead of outright cash purchase of equities. Or a more crude hedge would be to purchase export-oriented businesses. For example, index futures went to a giant premium over cash in Argentina just before their devaluation (due to the interest-rate arbitrage component of stock index futures fair value), entirely compensating for the devaluation loss. Finally, if Greece does devalue, then the bottom will be fairly near. Thus investing a half position now, and keeping half in reserve for any devaluation (or all-clear that devaluation is off the cards), means that heads you win, tails you win even more (long-term), albeit with some short-term losses. I do however agree that the risk means you can't bet the farm on this play.
I have no view on EURUSD. Also I don't set price targets, I always try to prepare for multiple possibilities, instead of expecting one given scenario. I prefer to just be long in markets that have bullish price action and news flow, and short in markets that trade bearishly - then exit and maybe reverse if price & sentiment gets to an extreme, or if the market action and news flow goes hostile to my positions.
Its funny that the main reasons why the stock market was up over the last few years are dissapearing yet stocks keep marching It used to be about earnings on the back of cost cutting (productivity growth), earnings growth is now expected to be weak (low single digits) The economy is also weaker than expected http://www.zerohedge.com/news/2013-04-09/dow-jones-new-all-time-highs-heres-why And the QE talk is about cutting back, not adding. The legs from this table are being broken but somehow the table doesn't drop. Dont think this lasts much longer. I'm really feeling like were are getting very close to a top and I'm thinking of going to a more aggressive bearish stance leaving room for a run to 1630-50 on ES before I puke as a stop Contrarian indicators are also all over the place
The Japanese are fueling the bid now. Pull up a chart of the JPY and SPX from 1995 to 1997 to see the analog. Granted, this time US treasury yields can't go much lower so the consumer debt cycle will not be as self reinforcing, but that probably does not matter much until the JPY prints 120.
I think this is just the 'story' people are using to justify buying the momentum. From a fundamental perspective Japan doing better should have very little impact on both flows to US equities or US corporate earnings
cant find a chart that far back but when japan dropped int rates to .5% or .25 or 0, the nikkie resistance was around 25000,it rallied to 36 or 38000,then dropped like a rock,not sure i can trust the memory that far back,but you get the gist
Japanese QE will have an impact on global sovereign credit flows and this in turn will have an impact on the bid for equities in a manner similar to US QE. I agree the impact on earnings is less clear given that the rate structure can't move much lower to generate the degree of excess consumer credit issuance observed in prior cycles since 1982.