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Morgan Stanley's Jim Caron Apologizes For Wrong Call On Bonds, In 180 Degree Move Now Recommends A 10s30s Flattener
One of the biggest economic bulls, and correspondingly bond bears, of the past year, has been Morgan Stanley's Jim Caron, whose earlier estimate of a 5.5% in the 10 Year has cost many a bond investor much money. Today, Caron appeared on Bloomberg Radio with Tom Keene, apologizing for his call, and following up on his latest release in the MS Interest Rate Strategist, which started off: "We got our rates call wrong and missed a great opportunity to be long bonds this year. The market is currently rife with tactical relative value opportunities and that’s what we will focus on going forward. We’re shifting gears and will become more tactical, playing for rate moves in either direction in shorter timeframes, rather than having our ideas hinge on longer-term macro themes." Indeed, relative value, in the form of various divergence and convergence trades, is where it is at, and where Zero Hedge has been focusing over the past year.
Keene asks Caron what he got wrong. The answers:
- The amount of money staying, and accelerating, into bond funds - $190 billion and climbing according to ICI
- The expected upswing in equities on the back of a 3% growth in the economy "didn't happen"
- A shift in expectations as people just want to get their money back: "want safety and liquidity of bonds, more than take the risk of entering into riskier assets like equity"
- The economic data starting to turn
- And, of course, the Fed...
Yet Caron still is not joining the bond bulls. Instead, as we have discussed over the past week, Caron's preferred trade is to own the front end (and collect absolutely nothing), up to 5 years. Oddly enough, according to today's interview Caron also likes the 10s30s flattener all of a sudden, which as we pointed out, was Bank of America's preferred trade last week, even as MS was actively calling for more steepening (see here for Caron's view on bonds as of one short month ago). So there you have it folks: Morgan Stanley, after almost half a year of abuse from clients, has now capitulated and is firmly in the flattener camp. And now that even chartists are pointing out the double top in yields, we, being ever so gently contrarian, are now gradually positioning with a steepening bias on the curve, as being on the same side as the groupthink has never been our thing.
Incidentally, all of this is not to disparage Caron - he preached what he thought was right. It merely shows, once again, that when the Fed is the dominant market force, the market makes no sense, period, and the only logical trade continue to be frontrunning our central bank, until the moment when all the other central banks gang up on it, in the 21st century equivalent of traditional warfare, and the trade is no longer "logical." We will discuss the just released piece by Caron: "A New Leaf: Becoming More Tactical" over the weekend.
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OT: It's looking like we're headed for another Hindenberg confirmation today, no?
69 and 93 so far. On the cusp.
Don't underestimate the PPT and their willingness to hold 1070.
Mission accomplished...ended the day at 1071.68.
Tactical, bitchez!
(figured it was my turn)
oh no not you now too turd!!!
Turd,
You're better than that!
DavidC
So if you're an expert, but totally wrong, are you really an expert?
Depends on your right to wrong ratio...
What's the threshold? .268? That's what Big Papi is batting this year.
I think we need a better Delta than that...
.268?
Hey, that's 68 bps above the Mendoza Line!
Experts can be wrong, as long as it is for really complex reasons. For an expert, it is better to be wrong because of a really complex theory, rather than right for a really simple one.
At least he apologized.
Im still waiting for Jim Cramer to apologize to all those people who he told not to take their money out of Bear Sterns.
"So if you're an expert, but totally wrong, are you really an expert?"
if your area of specialty is being wrong; then yes, quite.
and these doorknobs get paid how much!?!
Ok, now I'll short some treasuries!
Long gold is the best way to short the dollar.
Any pundit that does not look at things through an Austrian prespective is wrong, even if their calls are right sometimes.
I agree. Bond yields should rise because of worsening economy (like Greece for example) and a tsunami of supply, but Bernanke's got their back and will just hoover up supply. The weak point will be the Dollar, but versus what? The money men still have a few rabbits to pull to protect the Dollar (on that note, when they start leaking the stuff they know about ltaly, you know the US is deeply screwed as this is their best stuff), and the one asset that people the world over will run to is gold.
I find it amusing that people fret so much about the price of gold. It is a bit like having home insurance and constantly checking what the market price for the insurance is. What matters is that when the hurricane comes, you are covered.
Honestly though, it's s bit disingenuous to consider the Fed as a "market force" when they are really a "fake-money force," that can destroy any market that may exist. In this light it makes perfect sense.
Da Boyz painting a reversal day?
Are they painting nipples today?
I'll re-read your charts any time.
Your charts are my most favorite, Robot!
My world is empty without you........
http://www.youtube.com/watch?v=7SuSsvJUqKI
Maybe you'll like this one too; Crazy, Gnarles Barkley
http://www.youtube.com/watch?v=aJ44psLHvIc
Want to come to my birthday party?
oops....wardrobe malfunction.
Is that a scar on her areola?
:-S
Teeth marks. Not mine. Per chance to dream.
Tom Keene is at the height of his disinformation career. Very few are better than he at the art of distraction and obfuscation. Damn pig farm is not up and running yet!
there be no shelter here
This is a hilarious headline: "Morgan Stanley's Jim Caron Apologizes For Wrong Call On Bonds." Think about this idiocy. This guy MISSES 80% of the bond move off the 113.06/10 low in DEC bonds, and just now he wakes up? Where the fuck has he been? Cuba?
What is worse, he now wants his clients to buy treasuries when the December 2008 highs are only a few (5-6) handles away. The SEC should initiate a new law, one where it is illegal to be this incredibly stupid. This guy shouldn't apologize -- he should be sweeping streets and cleaning toilets. My goodness...
More than one "guy" at Morgan Stanley has issues..... David Darst OMG!
Woah, whoa, woha woh, ah gh, ishhh
Mean, look, he changed his mind, he apologized, he's seeing it now as it appears and is big enough to admit it, and is still employed by the same firm, even they've forgiven him, for he has shown them the way to salvation, redemption and atonement, they're still in business, people still read their research, follow what they recommend, deal with them and pay commissions, so what the fuck is wrong?
I mean they should grow up, like Goldman and tell one set of clients to sell while they tell another half to buy and thus never ever have to apologize and can even say that they were right. What a bunch of light weights, having some small semblance of a conscience.
just another guy with a mouthpiece to rant his views ... it doesn't mean any of these guys good....
Who listens to any of these guys anyway? When these types come into my office I sit, I listen, I leave.
As the saying goes... opinions are like assholes...everyone has one, and most of them stink.
Bastards trying to game me!!! Does anyone have an after hours INDU chart? Look at the dump at 21:14...lmao i hung on.
Even the fucking algos are getting twitchy.
This may be an unpopular view but Caron's recommendation and logic is a tad ridiculous. Why can't the spread between the 10 year and 30 year continue to grow if Ben is only going out to buy the 10yr tsys? If we accept that all these fed actions are merely band-aids before the inevitable inflationary side effects are felt, why would the markets drive down the 30 year bonds? Who would want to be holding 30 year paper when the fed starts selling their 10 year notes? it strikes me as a sucker's bet on a convergence trade that may never materialize or that will materialize only after the spreads reach record levels . isn't Caron's theory precisely what brought down LTCM?
As a tactical call, the remarkable flattening this week in the 7s30s and 10s30s makes the timing curious. His opinion is as good as... scratch that thought.
It's still steep on a historical basis. As a thematic trade, it says you think we are going down the Japan road.
Seasoned hedge fund mamagers leaving, bond bears reversing..........hmmm.
"Incidentally, all of this is not to disparage Caron..."
Then allow me. What planet was he living on where economic growth was going to be sustainable and strong? Did he ever bother talking to a company? I doubt it.
I know a negative barometer when I see one. The monster UST rally is now officially long in the tooth.
"Dying ain't much of a living boy." And neither is predicting interest rates...
Clearly time for a tactical 10s30s steepener.. Especially now that MS like a flattener.. And with a 30yr TIPS auction on monday highly likely to bomb
It's a shame that more people aren't big enough to admit wrong calls
For that, well done Caron.
DavidC
the purpose of the "apoligia" is to point to the fact that "a market now exists" nothing more. he keeps his job because yes he is "man enough to admit he's a moron" but more importantly he understands both his value to the firm and the firm's value to him. In short "we have liquidity in the bond space." Needless to say "this is a far from insignificant space" since "blow ups in equities" occur with 19th century regularity now. Blow ups in "bond space" however is, well...more ENTERTAINING. As history's most worthless Fed President said "How is one to know whether...?" And indeed, how is? Needless to say none of us as humans can know try as we might.
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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