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Euro-Risky Asset Decoupling Redux
Last night's decoupling (albeit subsequent recoupling) between the Euro and risky assets (in our case the ES) was the second time in as many weeks that the European currency has openly decoupled from the rest of the risky market. Granted, last night the decoupling lasted for just 12 hours, and the resultant spread collapse generated some 70 bps in P&L. We were not the only ones who noticed the original schism: here is Bank of America's Hans Mikkelsen discussing this increasingly more frequent decoupling event. To date, the decouplings have been temporary. Which is the case until it isn't: any time a trade looks too good to be true, it isn't. Unless one is trading against a retarded army of Dark Avenger-infected 80286s.
Risk Assets Decoupling from the Euro
Today’s move where U.S stocks rose and decoupled from the Euro early in the morning, partly due to the stronger housing data, mirrors the decoupling we saw last week on May 26th where stocks remained strong for some time despite a rapidly weakening Euro. Despite moving in tandem during the intermediate days, the net result is that stocks are up about 2% since their May 25th close whereas the Euro has declined 1%. Over the same period corporate credit spreads have tightened 9 bps to 117.5 bps in high grade (CDX.IG) and 2 pts p 94.75 pts in high yield (CDX.HY), tracking the 18 bps improvement in funding spreads (3x6 FRA-OIS) from sovereign crisis wide levels of 68.75 bps. Thus clearly risk assets are benefiting from easing funding pressures despite the fact that the Euro remains under pressure. While we continue to view funding pressures as contained due to the ECB/Fed currency swap lines, the main risk to our tactical long credit positions remains any disorderly declines in the Euro as that would undermine the credibility of the ECB to contain the sovereign crisis.
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Well, they are tracking now
not exactly as I see it, Euro/USD needs to jump up just over 1.24, no?
Look, I don't want to open this whole can or worms again but I'm posting this link anyway.
http://www.debka.com/article/8829/
Now, I know some of us here question the accuracy of Debka's "sources". That's fine. And I do not wish to turn this thread into another Bash/Defend Israel argument. What I'd like some feedback on is the potential ramifications should any of the events postulated in the article take place.
We should know by Friday if, indeed, Turkish naval forces are escorting ships to Gaza. If so, does Israel back down?
does it sounds like they are going to back down? don't think thats their style, no way.
North Korea, Syria, Lebanon, Iran, Pakistan, etc are all spring/summer time propaganda fests.
The sheeple who haven't followed this academic tenure are new to TV fearland. This event will die and another fear event will replace.
Boo
There are going to bring some pain, per there gov..Its very concerning..Im not going to get into who's right or wrong, but damn it could get big..
No, They will send the Heyl HaAvir.
The most combat tested Air Force in the world....
Interesting story, and interesting site. Thanks for sharing.
Given that a large number of flotilla participants were Turkish, I better understand Erdogan's harsh words. He may honestly feel that way, or he may be playing to the sentiments of his electorate. I wonder if Erdogan was under political pressure/weakness before this episode? If he was weak, or fearing loss of power, he may be willing to play this to far, or let popular opinion drive a dangerous move. I don't have any feel for the situation in Turkey, just wondering.
Israel has always been a convenient bugaboo for ME governments when things get rough/dicey at home. Questionable US support for Israel further emboldens it's enemies, and the veil of invicibility was pierced when their incursion into Lebanon against Hamas essentially failed. I think Dubai is not a fluke in the Middle East (although perhaps one of the bigger flukes), and that there are a number of states who will be or are in distress due to corruption and significant "entitlement" programs. Distractions for unhappy citizens may be welcome. Tensions can help boost petroleum profit margins.
I don't think any of them want to tangle directly with Israel - any real victory would likely be pyrrhic and poisonous in a potentially radioactive way, but the strategy of "death by a thousand paper cuts" (particularly when cuts/strikes can be cloaked under humanitarian guises) has been working so far while minimizing reciprocal damage.
From my vantage point, Turkey will likely not send a naval escort, ostensibly in order to keep the focus on the "humanitarian" aspect of the flotilla. I could also be flat out wrong. If they send a ship, I'll hope that the resulting theatre was orchestrated in advance. If not, I'll be buying and filling gas cans.
I think the Israelis will be more restrained in international waters but once the floatilla gets into Israeli waters, Israeli will carry on with their searches.
If the Turkish military tries to prevent the Israelis from boarding and searching the ship, Turkey will have two vessels sunk.
There's absolutely no way Israel backs down on this issue although they will surely be more careful and better prepared.
Turkey's military is strongly secular and there is no love between the military and Turkey's Islamist civilian government. This episode is an adventure of the Islamist elements of the civilian government via there proxies like IHH.
There would be a coup in Turkey before there would be a shooting war between Israel and Turkey.
Israel has bitten off more than they can chew by pissing off Turkey. They should be desperately trying to make friends right now. They have angered every country around them.
http://www.google.com/imgres?imgurl=http://i.infoplease.com/images/mapmi...
People,
You need to understand how the western governments,
starting with the US (Bush administration & Neocons) fully
supported Erdogan while he was a hard core Islamist running the
country's biggest municipality (Istanbul).
There is one more important figure that no one hear in this debacle:
Fethullah Gulen, seemingly peaceful, moderate religious head. In reality,
he and his followers run a major religious cult (they call it Gulen Movement
to make it sound more civilian movement) started in Turkeyi, then all over the
world. Reality: Gulen is a major CIA operative, who got awarded Green Card
,despite opposition by FBI&Homeland Security Dept., by major help of important
figures from CIA, such as George Fidas, and Morton Abromovitz.
(Google Sibel Edmond's deposition to see more of his group's activities.)
My point is: The US, the EU have been supporting Erdogan (once a hard core islamist
now seeminlgy moderate only to appease western sheeple, imo) and his Islamist party,
AKP, all along. They want to create a quasi Ottomanish Turkey that will take up the cause
for Islamic world but in reality in bed with the western governments.
So, incidents like this only strengthens Erdogan's (and thus Turkey's) profile
in the eyes of Muslim world, where one can see Turkish flags and Erdogan posters
in the streets of Lebanon, Palestine, etc.
Hence, I wouldn't bet on any Turkey-Israel war unless some crazy actions on either
side. As far as staunchly Turkish military, Erdogan has been sending retired military
army generals, former ministers, journalists, et el. under forged documents, faux coup
allegations. So, Turkish Military is weakened considerably, yet I would never
discount them. But they need strong western back up to topple Islamists (Erdogan,
AKP).
Hope above analysis helps..
IMO - no, they will not.
OK, so how do you invest against it, going into the weekend, if it looks like a showdown?
Would the $ rally? Stocks? Gold?
If you are that concerned, I think you have to go cash and wait for something more definitive. If an actual war breaks out, you will still have plenty of time to get long crude and gold, etc and short the indices.
Well yeah, I think he's asking which kind of cash.
Hey Turd,
(which, by the way, is a wicked fun way to address someone)
My issue with articles like this, and trying to figure out how to invest, is the same problem that I think plagues people who turn bearish. While grim scenarios are indeed plausible, possible, even likely, they haven't happened yet. Yet is of course the operative word here. I've been reading books on speculative bubbles (yes, books, sheets of paper bound together), and everyone on this site always talks about the currency bubbles being created (I concur) and the need to go long gold (which may be in the early/mid stages of its own bubble).
As to investing a scenario like this, it's probably "buy on the rumor, sell on the news."
Sorry for such random, unorganized thoughts... still bringing my coffee intake up to the right level. Just some thoughts I've been mulling over. Thanks for the article/website though. Plus, I've appreciated your comments in the past.
Peace
uh oh. Thank goodness Ben is there with his SWAP lines.
Imagine if markets were not constantly manipulated, how wonderful would that be - as a early-20's aged person, I have never seen such days, did they ever exist?
Markets have always been manipulated the diffrence this time is that goverments around the world are manipulating them with our money..
They did mate, they did....1971/1974.
Viet nam war on TV every day till Saigon's fall, double digit interest rates and a crappy stock market....bonds with unreal coupons and many countries flirting with defaults on debt. Nothing really new....
your point is even stronger if you extend 1974 to 1982.
Wow, nice reference to Dark Avenger! I hadn't thought about that virus in literally over 20 years. You have dated yourself TD. Although 80286s are a bit old by that point, most likely people had 80386s.
yeah props to team TRS-80
i had an 8068 when i was a kid . . .
Tyler you reminded me old days with the intel 80286 processors.
There was no windows at that time..
Euro is supported by the FED , ECB , SNB almost everyday. Guess HFT processors are not directly controlled by the CB's.
Yes there was.
Windows 1.0 runtime, supplied on (IIRC) 2 floppies inside the Aldus Pagemaker box. Ran fine on 80286.
"Unless one is trading against a retarded army of Dark Avenger-infected 80286s."
This is why I love you guys.
"Abort, retry, fail? WTF stupid machine, just place the order!"
hahaha...seems like some HFT guys having problems with their gear...my guess is that IT guy found out how lousy he is paid for making all those algos run smoothly...so he is now either deliberately making system not reliable or stealing these guys with help of another algo :-)
With the LTCM crash, it was when they started trading on correlations that were less and less reliable that their black/scholes black box strategy began to fail, and the massive leverage took them down. I bet that's how it'll go with the HFT programs: after every reliable correlation is harvested, they'll have to reach further and further out for trades.
I think the better proxy is not the euro but UDN and UUP (dollar index and dollar bear). this more accurately reflects the carry trade. (I'd like to get it without the euro added). this is where I think you saw the deleveraging as those that borrowed in dollrs were going to have to pay back in a currency that now become massively weaker.
it is time for a new basket of securities based on other stuff.
the overweight euro make it appear this way. I'd like to see australia added to the mix. and maybe brazil the fact that there are no commodity currencies is a fault.