Broken Correlations
With today's highly suspicious BLS job data (we are waiting to hear from TrimTabs' Charles Biderman for his take on this number) we would like to highlight some of the majorly broken correlations that are getting broken today and causing major pain for traders on the other side. And while any statistician will tell you correlation does not imply causation, in this market of low volume algo trading, correlation is likely the only thing that implies causation. The questions now: i) when does Bernanke succumb to the inflation hawks who will beat the drum on tightening even louder, and ii) will the fund flows out of bonds into futures be enough to offset the dollar surge, whose natural expression is to push stocks lower.
The chart below highlights how the dramatic move in futures is so out of sync with the core underlying move in the dollar (higher), and the corresponding move in gold (lower).
And here are some chart highlighting the recent correlations between key asset classes:
Dollar and S&P - linear:
Dollar and Oil - linear:
Dollar and Gold - parabolic - those caught on the other side of the dollar trade right now are hurting big:
As the charts indicate the excess liquidity which has pushed the dollar ever lower has been the sole reason for corresponding moves in correlation pairs. Today all these correlations are broken, which is why the closing print will be so critical: can flight from bonds take on the reverse carry trade?
(5 votes)
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on Fri, 12/04/2009 - 09:24
#152258
it's one of 2 things.
1. DOL is completely incompetent and has made huge mistakes on data reporting.
2. it's the largest lie ever committed by DOL and the Obama.
take your pick. there is no in between.
on Fri, 12/04/2009 - 09:50
#152305
Desperate times / desperate measures... TSHTF coming to a central bank near you. Maybe sooner than we think.
on Fri, 12/04/2009 - 09:50
#152308
Among the unemployed, the number of job losers and persons who completed temporary jobs fell by
463,000 in November. The number of long-term unemployed (those jobless for 27 weeks and over)
rose by 293,000 to 5.9 million. The percentage of unemployed persons jobless for 27 weeks or more
increased by 2.7 percentage points to 38.3 percent. (See tables A-8 and A-9.)
About 2.3 million persons were marginally attached to the labor force in November, an increase of
376,000 from a year earlier.
Employment in professional and business services rose by 86,000 in November. Temporary help
services accounted for the majority of the increase, adding 52,000 jobs.
Health care employment continued to rise in November (21,000), with notable gains in home health
care services (7,000) and hospitals (7,000). The health care industry has added 613,000 jobs since the
recession began in December 2007.
on Fri, 12/04/2009 - 15:14
#152871
You are being too gentlemanly deadhead even mentioning the 1st option. There is absolutely NO doubt whatsoever that it is no.2. i.e. a blatant LIE.
on Fri, 12/04/2009 - 09:28
#152260
Someone got f*cked this AM. Kids, just say no to 100:1 leverage .
on Fri, 12/04/2009 - 09:35
#152278
Yeah. I take this a bad news for dollar bears and equity/commodity bulls. Gotta think some equity/commodity longs will take this opportunity to lighten up into the weekend. Afterall, this is a major distribution effort on the party of the market generals.
on Fri, 12/04/2009 - 10:09
#152343
Uh yeah. That was me. You would think my tax $s could at least pay for the vaseline if not a reach around. Ouch.
on Fri, 12/04/2009 - 09:30
#152268
Long gold & miners + short general equities = going to get killed on the open today. Question is (as you note), how will the short dollar trade impact equities by the end of today.
Along with this gem from FINRA:
http://www.risk.net/structured-products/news/1564424/finra-hits-customers-increased-margins-leveraged-etfs
Let's encourage our TBTFs to keep on leveraging up, but God forbid individual investors are allowed to use any - they must be saved from themselves (there goes the efficient market for jumping on mispricing inefficiencies overnight)...
on Fri, 12/04/2009 - 10:04
#152329
Good point, the -2X ETF crowd could see margin calls today on panic buying.
on Fri, 12/04/2009 - 10:25
#152376
If the SEC actually lived up to its alleged mission of protecting small investors, leveraged and/or inverse ETFs would never have been allowed. Somebody the other day was talking about being long SRS, a 2X short real estate fund. It is down 92% since March even as commercial real estate values collapse.
on Fri, 12/04/2009 - 11:01
#152420
Investors can decide for themselves what to buy and not buy. You want to outlaw anything that can lose value because of decay? There go options. Probably should outlaw all equities, too, since look at what happened to many of them from May of last year to March of this year.
The pitfall to the rebalancing leveraged ETFs are clearly spelled out. Unless you have some evidence that the fund is stealing from assets?
on Fri, 12/04/2009 - 15:19
#152881
I wouldn't mind at all if equities were outlawed. The entire stock market is one big giant turd as far as I am concerned.
on Fri, 12/04/2009 - 12:08
#152518
But the value of REITS is at 52 week highs. Get a clue.
on Fri, 12/04/2009 - 09:33
#152274
Oh yes, and here comes the rest of the short TLT / long TBT momo & TA players.
on Fri, 12/04/2009 - 09:36
#152280
This is a head-fake. I'm not saying certain folks aren't getting squeezed, but today's dynamics will change very quickly. Someone's trying awfully hard to make us believe that gold suddenly became a bad trade.
on Fri, 12/04/2009 - 09:40
#152289
Pump Gold, Dump Gold, Buy Dollar
on Fri, 12/04/2009 - 13:29
#152668
...Collapse Dollar.
on Fri, 12/04/2009 - 15:20
#152888
...then kill it. Put it out of its misery.
on Fri, 12/04/2009 - 09:45
#152290
KEY: In our opinion, the dollar really needs to trade in 77 area+ to solidly reverse this carry trade on an intermediate term basis. This however, is a start. Also, we are watching the lower trendline support in the EURO at 1.4860-80 area to break, which is taken off the 09/03 and 11/03 lows in the Euro. Good luck eveyone...
on Fri, 12/04/2009 - 09:50
#152306
thank you AR. Always appreciate your insights
on Fri, 12/04/2009 - 10:47
#152401
DH / We think Tyler's comments above is on point (and noted). We now are going to look for certain "broken correlations" in several markets to begin "diverging" from the recent trends we all have seen develop over the last 3-6 months. It will be subtle at first, and will confuse the masses, who we think will still be looking for those recent trending correlations to hold and/or continue in order to trade that trade. Good luck our friend.
on Fri, 12/04/2009 - 11:03
#152421
DH / We also would like to see the Euro break below a huge band of highs & lows that have developed between the 1.4730/50 area and this 1.4850 area that date back to 09/22 showing roughly 18-20 points of reference. A Euro break under 1.4730/50 would in our opinion be the potential start of a correlated reversal between the Dollar and Euro. Good luck buddy. Hang in there. These are frustrating times. Stay positive.
on Fri, 12/04/2009 - 12:08
#152517
Thank you AR.
My broker and I (he's great, we've worked together and traded together for many yrs) just continue to chuckle at the actions in this market. obviously there is a very heavy hand and it ultimately spells disaster. he and i are both very big on understanding history and it will utimately serve all of us well.
I appreciate you sharing your insights and your nice words.
on Fri, 12/04/2009 - 11:31
#152457
We're doing a little (partial) Euro risk reduction here at 1.4880 off that lower TL (mentioned) on our euro shorts (this is very ST). Also, NatGas seems like it's trying to forge a small ST bottom here also at this 4.50 area for a possible 10-15% retracement back to those breakdown highs at 5.20 on 11/28th-30th (just remember though, supply data and fundamentals in NatGas is a headwind).
on Fri, 12/04/2009 - 09:57
#152317
The dollar is basically at the same level it was last Friday.
What rally? CNBC stupidity. Pre-market spike on low volume. Wake me if you have a plan to put a real sleeper-hold on me. See ya at 68. ish
on Fri, 12/04/2009 - 09:45
#152294
09h45 :
spx 1118, new intraday high for '09.
eurusd at 1.495.
on Fri, 12/04/2009 - 09:46
#152299
Gold "Dirtbag" Denninger posted. "Gold is also getting pounded...". Someone called him out on this, "Mr. Denninger, gold is down just a little over one percent (1%). I would think that a man with your intelligence would note that $30 at $300 and $30 at $1200 requires a look at percentages."
He will not respond to the lady, just ignores her.
Does anyone need further proof that he HATES gold and has about the same integrity as those he condemns?
on Fri, 12/04/2009 - 10:05
#152333
Except gold, he is a good guy.
on Fri, 12/04/2009 - 15:31
#152912
That ain't much good. The reason someone does not understand Gold is because he does not understand (or isn't aware of) human history, does not know basic things about how humans think and operate and does not know anything about the very fundamentals of our economic, monetary and financial system.
on Fri, 12/04/2009 - 09:49
#152304
i suppose the wonders of seasonal adjustment might be at work.. though i really have no clue.
Anyone know how the jobless rate is calculated? because in my small little mind the only way in which employment can go down while an additional 11k jobs are lost is if more than a few thousand employed people suddenly moved stateside..
on Fri, 12/04/2009 - 09:52
#152311
Another USD spike ... the dollar rally is getting closer.
http://www.zerohedge.com/forum/market-outlook-0
on Fri, 12/04/2009 - 09:55
#152314
What's that little blip on the 30 day gold chart? Time to back up the truck again. Thanks Ben!
on Fri, 12/04/2009 - 09:56
#152315
Welcome to Enron World. Tickets can be purchased from you local primary dealer.
on Fri, 12/04/2009 - 09:57
#152318
I'm gonna make a gold prediction here. I'm a nobody so take it with a grain of salt. A lot of goldbugs have been saying there will be a pullback in price because of the dollar carry trade unwinding. They have been waiting for the "buy" opportunity. Gold could drop some more, but it won't stay under $1200 for long. Some looking for a dip will chicken out, but I think this will get run up again with a "thank you very much" to the sellers.
on Fri, 12/04/2009 - 10:08
#152340
Usually, Friday and Monday are bad days for gold. Just long time observation, no scientific correlation.
on Fri, 12/04/2009 - 10:10
#152346
This also would shake out weak hands, very healthy correction.
on Fri, 12/04/2009 - 10:43
#152394
It's going to $600; just ask Hugh Hendry and Prechter.
on Fri, 12/04/2009 - 09:58
#152320
Excellent piece TD, thank you for sharing it.
on Fri, 12/04/2009 - 10:37
#152389
+100
on Fri, 12/04/2009 - 10:00
#152321
BAC needed a rally to sell into.
on Fri, 12/04/2009 - 10:04
#152332
LOL!
on Fri, 12/04/2009 - 12:09
#152520
Agreed!!
on Fri, 12/04/2009 - 10:06
#152336
Is the confirmation hearing still going on?what is a better present for BB than higher stocks for the doubters of his marvellous work. And not to give to the dollar fatalist,there you go,you also have a higher dollar for Mr. Ron Paul just in case he decides to say that the rise in equities is useless in relation to the dollar. And for Mr TD,and just in case he decides to present another one of his famous gold:spx ratio,no problem there since we have a lower gold. But now we are faced with higher yields with upcoming auction(which is probably why the surge in equities and drop in bonds for next week events,who wants to buy 10 years yield at 3.21?). So all is well with micromanagement of every detail,but the question remains for how long?
on Fri, 12/04/2009 - 10:09
#152341
Many objectives achieved by intended consequences of labor report: Gold slammed, equity pump, Christmas rally, year-end fund numbers, lure to the retail investor on the sidelines, etc. Incredibly effective head fake. I wish I'd thought of it. Some short-term negatives perhaps in the bond arena.
on Fri, 12/04/2009 - 10:12
#152351
My puzzle is why oil is up?
on Fri, 12/04/2009 - 10:10
#152347
Correlation ?
How to read JP Morgan books at that time see p 19 of the oocc report
http://www.occ.treas.gov/ftp/release/2009-72a.pdf
Which way as of 2 q 2009 P19
http://www.occ.treas.gov/ftp/release/2009-114a.pdf
on Fri, 12/04/2009 - 10:14
#152356
I'm one of the idiots with the 23 dollar December calls in UUP. Need the dollar to jump!! Come on boy, come on!
on Fri, 12/04/2009 - 10:31
#152382
Get rid of them while you can.
AR said
KEY: In our opinion, the dollar really needs to trade in 77 area+ before a rally takes hold.
Agreed, but we will see the dollar break to new record lows before we see it hit the 77 area.
This temp bounce is just a message to Japan with love from Ben.
on Fri, 12/04/2009 - 10:15
#152357
if the revised number is a big change, what more proof is needed?
also, with Dubai Nakeel looming, is this a punt to get markets to trade in range? only time will tell
on Fri, 12/04/2009 - 10:35
#152386
Of course Bernanke has no reason to raise rates because he is only concerned with "wage inflation." God forbid people actually make more fiat dollars. Plus his counterfeiting operation is effectively broken as banks aren't lending and consumers aren't borrowing. The only reason he would raise rates is if he thought borrowers were a better risk moving forward. AND he would kill his member banks, with the excpetion of the vampire squid, who just plays it either way based on an unlimited amount of free money and inside information.
on Fri, 12/04/2009 - 10:37
#152390
CNBC just posted a new lead article with this title...
Jobs Report: 'Numbers Are Almost Too Good to Be True'
you can't make this stuff up....
on Fri, 12/04/2009 - 10:48
#152402
Apparently, they are closer to the mark for a change.
on Fri, 12/04/2009 - 10:48
#152403
When will Bernanke let interest rates go up?
You assume Bernanke has control of this -- he makes the same assumption.
Interest rates go up when inflation happens. People with money require a higher return to compensate them for the risk.
The Fed can't remove the liquidity because the banks will go into default as a result.
on Fri, 12/04/2009 - 10:55
#152413
Bernanke can raise overnight lending rates, but he is simply following the 3 month Treasury. I don't see the overnight rate going up unless 3 month Treasury goes up. So no, he really doesn't control rates, only the degree or arbitrage that occurs within his counterfeiting operation.
on Fri, 12/04/2009 - 10:51
#152406
Airlines are the leading sector, and it's not even close, up 4.50%. What does that tell you? Yeah, this is a completely healthy and natural market.
on Fri, 12/04/2009 - 11:15
#152438
You know, the only valid, data-supported, non-technical, fully reasoned theory of market manipulation, published by Bob English of Precision Capital Management, precisioncapmgt.com, and republished with praise and aplomb by TD himself seems to have been completely forgotten here.
Today is an agency POMO day. That money can't go under a matress, it makes its way into risk assets. POMOs continue through March = Liquidity rally continues through March. Look for the stick save signature. Bob says its weakened, but its still there.
on Fri, 12/04/2009 - 11:22
#152445
Will jobs number manipulation finally backfire on them today with a dollar surge and equity sell off?
on Fri, 12/04/2009 - 11:25
#152451
American economy roused from sick bed, needs oil!
on Fri, 12/04/2009 - 11:35
#152465
Typical.. what this proves again is we should all be trading FX, Commodities, or anything except the U.S. GS fixed Casino Indexes. How many times have we seen this circus? Then everyone forgets about until the next time. How many times do we need a pole stuffed up our ars before we learn.
on Fri, 12/04/2009 - 11:39
#152470
Stories covered, not covered by the financial press
http://pajamasmedia.com/blog/three-big-stories-three-media-disappearing-acts/2/
1) the loss to taxpayers on GM bailout
2) the homeless at Thanksgiving
3) Christmas shopping numbers
on Fri, 12/04/2009 - 12:11
#152525
Not so broken after all... things are back to normal. Eurusd 1.489 and SPX at 1100.
on Fri, 12/04/2009 - 12:21
#152543
DOW / SP500 daily charts have turned bearish.
http://www.zerohedge.com/forum/market-outlook-0
on Fri, 12/04/2009 - 12:48
#152577
Don't worry, the dollar knocking team has reported for duty and normal S&P buy progs will resume shortly
on Fri, 12/04/2009 - 13:09
#152625
A few possibilities:
1) This is grandstanding for Bernanke now that his confirmation has been put on hold. The banks certainly don't want to see an end to their cheap money so they will pump the dollar until he is confirmed
2) It is what it appears to be and the QE crack has officially run its course.....for now, because we all know it is coming back once the dip occurs (regardless of form, whether MBS purchases, a new New Deal, some other govt intervention bullshit)
3) Traders jumped the gun and assumed the Fed Funds rate will actually rise earlier than expected, which is probably not the case considering Bernanke is more liberal with rates than Greenspan was, not to mention these jobs numbers could be are cooked, and so we can call today a dip to go long Au, Ag, x/JPY, etc.
My bet is number 3
on Fri, 12/04/2009 - 13:56
#152714
APMEX is doing its best to support gold:
on Fri, 12/04/2009 - 14:05
#152728
No front page comment on Gold down almost 5%? Is there a pro gold bias holding such a thing back?
on Fri, 12/04/2009 - 14:23
#152753
Looks like new programs loaded today....other than the usual dollar down markets up,
but new today ....dollar soars, computer buy progs just sit back and wait till it falls again
on Fri, 12/04/2009 - 15:39
#152944
The best proxy for the next move in Gold prices is an Australian Co -SGX. Soon to 'merge' with El Dorado,
Sino's price has made a bungee dive the day before Gold gets whacked the last 3 corrections, at least. Someone , large, is playing funny buggers and making a killing.
Lot of big guys on the register.
regards
on Fri, 12/04/2009 - 17:23
#153189
Gold on Monday, to buy, or not to buy, that is indeed the question....
on Sat, 12/05/2009 - 20:20
#154165
Sorry but if you didn't buy friday. You'll be opening to 20 dollar higher gold before you even go to sleep sunday night.
on Sat, 12/05/2009 - 09:53
#153820
I find it amazing that with no significant correction in equities, and no significant appreciation in the dollar, that everyone is assuming the correction in gold is over.
IMO given the relatively stable markets in the last 30 years using them to assess the current situation in the markets is asking to get killed.