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With Traders "Completely Lost", Here Are The Consensus And Contrarian Trades
Overnight, Credit Suisse released an aptly titled report which author Andrew Garthwaite called "Client perspectives: lost and bearish" in which he writes that "two words summarise client marketing in the past month: 'lost' and 'bearish'. This is the first time that we have come across so many people who say they are completely 'lost' in the current environment."
Garthwaite notes that "the wall of bearishness was extreme in the US – roughly 80% of meetings – but much more balanced outside the US (maybe because markets started to rally in the meantime). Often in the US, the question was 'why isn't this a bear market?'. In Asia, on the other hand, most investors were less concerned about China (though, we have always found the closer you get to China geographically, the less concerned investors are about China)."
CS then breaks down the global wall of worry into the following 12 constituent brics (sic):
1. Global growth decelerating
"Most of the clients we met were pessimistic on global growth. In fact, in our investor survey, which was conducted during the same time, respondents were almost the most negative on the growth outlook than they have been at any other time since we started the survey. China and emerging markets were identified as the main source of growth weakness, however, there were increasing concerns about an inventory-led soft-patch in the developed world, in particular the US."
2. China facing the risk of a hard landing
"Unsurprisingly, this was the number one topic of discussion in every meeting. China accounts for 15% of global GDP, a third of GDP growth and 30% of global capex (which it exports as it slows) and thus it has never been so important for the global macro outlook." The focus was essentially in the following areas: 1) Weakness in the real estate sector; 2) The degree of 'zombie capital'; 3) Chinese policymakers losing their credibility; 4) Growth weakness extending beyond investment/manufacturing related variables; 5) Chinese wage growth not as sustainable as clients believe; 6) The Renminbi (Most clients believe that the currency will eventually fall significantly); 7) The lack of unwinding of foreign debt.
3. Credit blowing out
The worries here are that 1) The notion that US households are still overleveraged; 2) GEM private debt being high; 3) High yield credit spreads widening;
4. The risk of the Fed hiking too early
"Around two thirds of the clients we met believe, like ourselves, that a rise in Fed Funds rate in the current environment would be a policy mistake. A third believe it would remove the uncertainty, give a vote of confidence in the economy and ultimately it would be a 'dovish tightening', giving the Fed some capacity to ease policy into the next recession. However, most clients acknowledged that the Fed communication has been confusing recently and thus the chance of the market misunderstanding Fed policy was higher than usual."
5. Policymakers running out of weapons – QE being proven ineffective
"Many clients argued that QE does not work. Interestingly, in the past such concerns have preceded a market rebound."
6. Global FX reserves falling
"Global FX reserves have fallen by c$0.5trn since their peak (although after valuationadjustments they have fallen by only c$100bn, according to our FX strategists). Many clients claim that this is a bear signal and is, in effect, monetary tightening. We worry that this is an asymmetric argument, as it was never used as a bull signal when global FX reserves were rising." ZH: Actually considering stock markets hit all time highs when FX reserves were rising, it most certainly was a bullish signal, it was just that nobody put two and two together.
7. Equities valuations being expensive
"We had a few clients asking questions about appropriate measures of valuations for equities, with earnings-based measures perceived by a few as a distorted metric. Equities are not cheap in absolute terms – on our four main valuation measures they are about 20% expensive... We do acknowledge, that when sentiment is poor, investors feel more comfortable with something that is cheap in absolute terms."
8. Earnings revisions have fallen sharply
"Many clients were concerned about earnings revisions, which have, on a 4-week moving average basis, fallen close to a 4-year low. Nevertheless, we would highlight that 12-month forward EPS excluding resources have actually held up. Historically a decline of 5% or more in earnings is required for a bear market. We do not see this happening unless US GDP is sub-1.2%, wage growth rises above 3%, corporates overinvest or the interest charge rises by 100bps or more." US GDP will be sub 1% in Q3.
9. The political landscape becoming less corporate-friendly
"There were concerns among clients that we are moving into a less capitalist-friendly environment. Corporate tax used to be a third of total tax in 1960, now it is only a fifth, so there could be more pressure on governments to increase corporate contribution. The living wage in the UK is also an example of governments trying to shift the burden of social responsibility onto the private sector."
10. Limited signs of underinvestment
"A popular concern amongst clients is under-investment as a a result of buybacks, with this under-investment is resulting in lower productivity growth."
11. Risk of lower oil prices
"We received surprisingly few questions on oil. One interesting question we got was whether Saudi Arabia may push the prices even lower than the level needed to stabilise its market share, for political reasons, in order to cause distress in an emergent Iran/Iraq."
12. Recent rotations have hurt a number of our clients
"There has been a clear rotation in the past few weeks, which has been painful for many investors. This rotation is evident in the roll-over seen in momentum as an investment style, and we would note that, historically, momentum reversals tend to last longer than the current episode."
* * *
Naturally, Credit Suisse's intention is to calm investor nerves and thus disagrees with every single one of the points raised above: after all, when traders are paralyzed by fear, CS trading desks can't make any commissions and no deals are done leading to a plunge in i-banking revenues; we already saw the damage to Goldman's institutional trading bottom line in the third quarter as a result of this particular wall of worry.
On the other hand, one can far more correctly point out that all these 12 points are merely the "wall of worry" finally coming home to roost, as all of these trigger points have been all too clear for the past 7 years, and while never actually resolved, were simply swept under the rug since 2009 with bout after greater bout of trillions and trillions more in central bank liquidity. It is only now that the liquidity tide is coming out that the world will finally see who was nakedly scrambling in "fear of missing out" (virtually everyone), and who actually did their homework (virtually nobody).
* * *
So while we realize that laying out trader fears will hardly help traders overcome said fears - as they realize everyone else shares them too - here, courtesy of BofA are the two major trading camps currently in the market.
First the consensus trade:
- Consensus is currently: low growth/low EPS/low rates here to stay, but no recession; trading ranges hold (SPX 1850-2050, GT30 2.8-3.2%, DXY 93-100); sell rallies into strength; own (sensible) growth, (safe) yield, (high) quality; rent EM/resources/commodities.
- Contrarian trader: FMS/flows argue for rotation to "weak dollar" plays e.g. CRB, EM resources/FX, industrials; breach of SPX 2050 requires ECB/BoJ to boost growth expectations without FX devaluation.
Which trade should one pick? Just flip a coin: that's what the great and powerful, if totally clueless, Fed does every single day.
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the question was 'why isn't this a bear market?´
Because the market is rigged you fucking sheep!
Because our savoir is coming soon
So Obama is probing the dirty end of Ben Finkenbinder's large intestine as we speak?
It's like when you go to the casino and drink too much and laugh and roll the dice then lose everything and end up wandering around alone with an ashen expression of disbelief and self-loathing.
It could be worse. Your description brought to mind a trip to Reno forty years ago when I passed a young couple on the street. The ashen expression of disbelief was on his face and the loathing was in hers.
5. Policymakers running out of weapons – QE being proven ineffective
"Many clients argued that QE does not work. Interestingly, in the past such concerns have preceded a market rebound."
Isn't that just because a failed round of QE was followed by a new and improved round of betterer QE?
13. The whole darn thing is a Ponzi scheme on its last legs
hush yo mouth.
I'm talking about Shaft.
fed stops QE, FICC revenues drop, clients become "lost."
Seems like without the fed pressing the gas pedal, clients don't know what the fuck to do.
And these are the folks controlling trillions of $$$s in the global finanical economy...these said clients.
i saw something, then i hit refresh, and then I no longer saw something.... lol
I recall it in all caps and someone was butthurt!
+1 for your ZH handle alone, GS, best one I've seen in quite a while
Newt. My n-name's Newt. Nobody calls me Rebecca except my dork brother.
She turned me into a newt...., I got better.
https://youtu.be/xzYO0joolR0
Thelma & Louise: Ending Scene
What difference does it make...the market is the FED. If the FED rescue you...you win...if the FED F's you...you lose. Criminals all. There should be a thousand bakers in jail!
10,000 BANKSTERS....SHOT....FIXED IT FOR YA
Bakers we can keep..like Canolis
What people do when they're lost and bearish? They'll generally either freeze (not buy) or flee (sell). Anyone who thinks that is bullish over the intermediate term has been watching a painted stock tape way too long. While it means more cash on sidelines, for that cash to enter the market, something has to transform the fear and uncertainty into greed. Absent some kind of real turn in a positive economic direction, fear and uncertainty are more likely to turn into panic than to a smiley face. People who get lured into the market by nothing but the mere fact that stocks are up on the day will eventually get over that...trust me.
Damn, it Tyler. I wanted to respond to that asshole before you booted him.
Got the ax in record time. I enjoyed the passion though.
LOL - someone else saw it also...
that dude needed the de-caf.....truly
Dr. E. You can still reply to that asshole right here. Right now.
I don't feel like retyping my response. By the time I got it done he was gone. Tyler kicked him to the curb like a two dollar whore.
Tyler really needs to bring back our obsession with obese chicks. Been awhile since we had a good smashing, wonder if he has a regular on the side now fulfilling his appetite.
Gold Bitchez.....I pick up pennies
Hey you rigged the markets...and no one wants to play...SO DIE! I believed in the "markets"...but I no longer do.
Thank God it's not just me...
Today's use of the word 'fucking' coming up....Fucking Fed.
DavidC
"This is the first time that we have come across so many people who say they are completely 'lost' in the current environment."
ONE day a FED mouth piece comes out and says they should raise rates and the NEXT day, another FED mouth piece comes out and says they shouldn't.
Of coarse people are completely lost, the FED contradicts itself on nearly a daily basis.
The FED is doing this on purpose.
Since there are only machines left trading, how do you convince a machine to trade... and not just spoof?
Gartman on queue for his latest weatherman forecast
This market is a bear in bull's clothing, rounding up the pigs for slaughter
2016 is the yeear of the Hildabeast, no way they can let the markets go down!
Fed PPT wants to confuse bears to break the will of the bears. Just as they did in late 2012. They are trying hard to make this look like the market just had a minor pullback and this is only a bull flag. I think they will keep trying to do this until the down cycle has past. They are trying to smooth out the ups and downs, we are in a down obviously which is why everyone is so confused the market is going the opposite direction with relentless buying. hmmmmm suspicious indeed. The problem with their fuzzy logic is that there won't be a substantial fundamental up until they let it go down. Mouse meet trap. Note to fed: Markets don't like to be controlled because you can't break nature.
Right on...if the markets remain flatlined, money will leave at an increasingly rapid rate. Markets are risky and people do not like to take big risks for zero returns.
My view is that the street/central banks operate like the money pools of the early stock market days, e.g., the 1920's. They "make a market", generate a rally, and distribute securities to the public on the way up. Unfortunately, the bloom is off the rose and the public is tapped out. So, they have two choices: Buy to hold up the market or liquidate into the decline. Neither are attractive choices, but so far they seem to be favoring the first. Time will tell whether they will pull the plug or press reset and devalue the dollar.
Refer back to the Quants of Wall Street documentary, released 3 days before the flash crash..a lot of wisdom here..virtual versus real world..
http://ducknetweb.blogspot.hk/2012/09/quants-alchemists-of-wall-street-video.html
FUCK YOU, CREDIT SUISSE!!!!! BASTARDS!!!!!!!!!!!!!!!!!!!!!!!
With more and more centralization of currency in fewer hands it becomes easier to affect the market - mom and pop investors do not have a chance anymore.
The game now is M&A, stock buy-backs, over capitalization with low interest money, most corp revenues now come from off-shore, ........
More Stock Market manipulation by Central Banks.
yeah im confused as i fuck...............i thought the eur.usd would sell off more today but I got fucking in the ass with all of 10 pips in my change cup......................
Ironic that CS would be saying this. It's not like they haven't been losing money lately on trades.
ZH - you are getting closer to the the high-hanging fruit on the tree. There is a GROWING risk of a major party in the derivatives markets going bankrupt, and defaulting on uncovered postions. When this happens, the derivatives markets will be rocked to the core. It's not like they haven't been warned ... but the old BS ("we never saw this coming") is the first line that will be trotted out to the media.
What is America coming to?
As a trader I am used to sitting on my arse profiting from the hard work of others.
I may have to get a real job, making real products or providing real services.
I never thought it could get so bad.