RBC: "We Are Seeing A Complete Breakdown In The Model"

Tyler Durden's picture

On Jan 11th, RBC's head of cross asset strategy Charlie McElligott wrote of "THE SINGLE-LARGEST MACRO INPUT RISK TO THE BUYSIDE," where he stated that the USD was the most important asset to the direct of the reflation trade and general macro positioning.

As he details today, long story short - the current (ongoing) breakdown in the USD is representative / driving some short-term and nascent deleveraging of legacy ‘reflation’ trades, with DXY through the psychological 100 level and the Bloomberg Dollar Index gapping to new YTD lows, through the 61.8% Fibo retracement level of the post-election rally:

DE-RISKING OF ‘REFLATION LONGS’ EVIDENT:

 

THE CASE / DRIVERS BEHIND THIS DEVELOPING ‘USD SHORT’ TRADE:

The ‘USD short’ case is now tactically ‘en vogue’ as per the sudden-death of the central bank “policy divergence” story last week--which had been the primary Dollar bull-case driver over the past year. With central banks synchronizing their tightening messages (recall Fed hike, PBoC increasing 7-, 14- and 28- day rev repo rates and ECB hawkish commentary all in the same 24 hr period last week) the Dollar’s unilateral ascent has at the very least been paused, if not reset.  There are a multitude of inputs here with the Dollar, seven of which I’ll highlight below:

--Overnight we saw a EU fixed-income selloff gaining-steam ‘real-time’ with Gilts to BOBL’s weaker across boards following 1) a stellar UK inflation print, in turn crushing the crowded Pound ‘short’ (SONIA curve pricing in 22bps of hikes by May ’18, up from 17bps prior to data—h/t RBC David Brickell).

 

--2) Now too that the Brexit “official announcement date” has been set, we also saw Pound shorts being covered driving further Dollar weakness.
 
--At the same time specifically with EU, 3) a strong showing by Macron in the French Presidential debate too helped drive OATs weaker and squeeze Euro notably-higher against the USD as well, with sentiment again higher as Le Pen political risk continues to be priced lower.
 
--4) Sprinkle-in the “smoke / fire” trial-balloon from ECB’s Nowotny last week on ‘hiking before tapering’ into a market overvalued on QE and ‘geopol uncertainty’ and things get combustible.
 
--As such, 5) US / EU rates differentials are reversing course and compressing from record wides made in late Dec ’16, with +++ EU data trajectory being the largest factor behind the move-- in turn is leaning heavily on USD:

 

US / EU RATES DIFFERENTIAL COMPRESSION DRIVING US DOLLAR WEAKNESS:

 

 

--We are also seeing a 6) breakout in the ‘long EM’ trade as the USD bull-case catalysts disappear, with now EM being an exceedingly popular ‘long’ in short-order (now with long-term valuation vs DM, carry and momentum all behind this EM +++ shift).  Look at the moves seen over the past five-sessions alone against the Dollar:

 

 

--Finally, 7) a temporary stabilization in the crude selloff (off the back of the CFTC data showing us that short positions DOUBLED WoW, with OPEC jawboning on production-cut extensions yday to set-off a squeeze) is also supporting higher global developed market bond yields.

So what is the punchline here?  Mark Orsley and I spent a lot of time on Friday looking at this ‘USD short’ near-to-medium-term contrarian trade, and as he showed in his “Macro Scan” piece yesterday, it’s an exceedingly interesting trade in light of the above “policy convergence” trend (mitigating rates differentials as prior USD ‘bull-driver’) and the consensual-positioning dynamic with Dollar as a ‘kicker’ (the newest BAML FMS out today shows that ‘long USD’ remains the ‘most crowded trade’ at 39% of respondents).  This USD-downside trade should too look VERY interesting for the crowded “short rates” universe as a hedge that could actually contribute some near-term alpha if you get a week full of hawkish Fed speak (as noted last week we anticipate to keep ‘3 hikes’ on the table in 2017) or a larger decoupling btwn US rates and USD as the ECB may be forced to take-action ‘ahead of schedule’ (longer term).

RISK-ASSET BACKDROP = TOO CALM FOR COMFORT INTO ANY ‘VOL RIPPLES’:

The risk-asset backdrop is optically so bullish going into today’s session:

  • The Nasdaq is back nearing all-time highs (high-quality / secular-growth ‘FANG’ now +16% YTD)
  • EEM is back at two year highs
  • FTSE All World Cyclicals Index is at 2 year highs
  • Shanghai Property Index is making YTD highs
  • Eurostoxx Banks Index at one year highs
  • Bloomberg US Financial Conditions at two year highs
  • Bloomberg US Economic Surprise Index at six year highs
  • 5Y TIPS yields (as a proxy for ‘real rates’) have again turned negative rather abruptly--i.e. “looser” / “easier” financial conditions--following last week’s ‘dovish hike.’  This  has reduced concerns of a scenario where a Fed that is “behind the curve” induces a policy-error with their hiking-trajectory.

Amazingly, all of this with no signs of a pulse from US fiscal policy progress.

This background has contributed to an annualized SPX Sharpe Ratio (admittedly early in year) over 5 (!), with vols beaten into submission as traditional ‘buyers’ step-aside (the refrain: “Why hedge if it only eats my alpha?”).  Conversely, outright ‘short vol’ continues to drive huge alpha--as a very simple proxy, ‘short VIX’ ETF SVXY is +197.5% over the past year.

This is the largest contributor to ongoing concerns around the ‘short convexity’ in the system, as the ‘momentum’ generated in both ‘winning’ and ‘losing’ vol strategies above forces more $ and / or leverage (risk-parity, target vol strats) into the trade…and asymmetry grows, with ever-narrower historic / realized vols driving even-greater sizing:

SPX 60 DAY REALIZED VOL AT 10 YEAR LOW: Which of course is inversely correlated to ‘size’ of the leverage deployed on the ‘SPX long.’  It is important to note that 3m model could be considered ‘benchmark’ within the short-term vol target community.

It’s still ‘debatable to doubtful’ whether today’s nascent risk sell-off will see a sustained spike in volatility without further VaR-induced derisking…because per the above worldview, ‘vol spikes’ have repeatedly been used as opportunities to lay out more vol shorts (“do it until it stops working,” similar to “buy the dip”).   For example, it might require some of the very popular ‘rate short’ to see a further destabilizing move into 2.30s as the ‘squeeze’ would drive cross-asset PNL distress (spilling-over into further stock drawdown or popular ‘long Dollar’ expressions like ‘short euro / pound / yen’).

Remember though, it was just last week where based-upon the complete breakdown in the Quant Insight macro factor PCA model that I was noting the recent ‘volatility signal’ (as per the R^2 breakdown through 65% ‘predictability’ level within the SPX macro regime, which basically told us that the inputs of the past year could no longer rationalize the price action in the stock index).

What does that mean in English?  The macro factor models are losing their ability to ‘explain’ the index moves.  Currently both models’ R^2’s are now at 43% and 57%, respectively, from highs near 90%.  Although the historical data set is not deep, you can see in the charts above (specifically featuring the long-term model) that the prior two instances where the R^2 dropped through the 65% “trigger” in the long-term 250d rolling model, we have seen a concurrent DOUBLING + in VIX through the trough and return through 65% “confidence” period, as the macro regime evolves and ultimately “firms.”

McElligott concludes by noting that "I am going to use the rest of the day to take client feedback as to whether clients are actually grossing-down, or if this is nothing more than another chance to short vol at mediocre prices, and will incorporate in future messages" - we look forward to seeing the results.

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lasvegaspersona's picture

This article needs more jargon....

Winston Churchill's picture

Indeed, never was so much written to say we don't know WTF is going on.

GUS100CORRINA's picture

I want to suggest there are people out there who know exactly what is going on. If the FED and the banks don't know what is going on, I would suggest reading another news source like 'shadowstats'.

John Williams has known for years what is going on and NO ONE IS LISTENING.

Just look around at the 'real' economic data like that data supplied by www.shadowstats.com or other reliable sources.

I know what the CBs and politicians want, but what is the real TRUTH?

INQUIRING MINDS WANT TO KNOW!

=== Shadowstats Latest News ===

Posted March 18th, 2017 at 2:42 PM (CST)

The latest from John Williams’ www.shadowstats.com

- Industrial Production May Be Bottoming, Yet, There Are New Signals of Intensifying Economic Risk

- Production Was Flat in February, Minimally Positive Year-to-Year, with Gains in Manufacturing and Mining Offset by Weather-Distorted Utilities

- No Economic Expansion: Activity Held Below Pre-2007 Recession Peaks, with Production Down by 0.94% (-0.94%), Manufacturing Down by 4.97% (-4.97%)

- Major Downside Revisions to Production Activity of Recent Years Likely Loom with the March 31st Annual Benchmarking Going Back to 1972

- General Outlook Remains in Place for Continuing Near-Term Economic Stagnation and Renewed Downturn

“No. 874: February Industrial Production, Updated Economic Review”

Winston Churchill's picture

I've read shadowstas for years.

I think the PTB are starting to beleive their own bullshit at this stage, along with the winnable

nuclear war narrative. I would have trouble calling my stable of oligarch clients as clinically sane for that matter.

Jim Sampson's picture

Please!  My penis can only get so erect.

NotApplicable's picture

That's okay, they'll just make a "new & improved" model.

HRClinton's picture

I feel like I need a shower after all these porn charts.

I don't get 95% of what it says but this being ZH, I'll bet it's bad news. Even if the title didn't tell me this.

"Sell everything!", right?  Buy gold? What do I win? 

Madcow's picture

Anyone caught selling financial assets will be considered a terrorist and raped in prison

corporatewhore's picture

having worked in a firm owned by RBC I can attest they speak their own form of bullshit that those who don't work for them cannot understand

OCnStiggs's picture

If somebody tried to write an article that had lots of charts and lots of words but didn't actually transfer many ideas, it would look very much like this article.

NoDebt's picture

The model isn't broken.  Reality is.

 

south40_dreams's picture

Modeling the criminal mind is tricky

DaBard51's picture

Doom porn, hmmmm....

 

 

 

when nine hundred years old you become, look this good you will not.

DaBard51's picture

Sneezing fit, it caused....

 

 

 

When nine hundred years old you become, look this good you will not.

withglee's picture

ZH seems to want to continually put up these nonsensical articles. But "none" of them do anything but criticize what is going on. They "never" say "this is exactly what should be going on ... and how it can be made to go on ... and if it was, we would not ever see this ugly behavior and uncertainty and criminal activity and irresponsibility again."

For a long time I have been describing here what money is, has been, and always will be ... "an in-process promise to complete a trade over time and space". I describe it ... its proper process ... including the proof, in less than 300 words. I describe a"proper" MOE process that guarantees perpetual zero inflation everywhere ... and zero interest load on responsible traders ... and zero resistance to trade (i.e. money is in perfectly free supply and in perpetual balance with demand for it by traders).

Yet not a single person here gets it ... yet they can't disprove it and offer up only religion (i.e. it's been gold for thousands of years) to refute it.

Why is that? Do you all really not want to see this problem solved and for this racket to be put down?

bluskyes's picture

If I am not mistaken, Your MOE process mentions the need for "management"

"Management" is what got us in the current mess.

withglee's picture

If I am not mistaken, Your MOE process mentions the need for "management"

"Management" is what got us in the current mess.

You "are" mistaken. And it's not "my" process. It's an obvious process ... just like ohms law.

It is a "process". There is no management involved at all. There are no knobs to turn. It's simple addition and subtraction score keeping. What got us into the current mess is the co-opting of a "proper" process by banks (taking tribute from all trades) and the governments they institute to collect that interest ... which are sustained on inflation.

With a proper process, interest is zero for responsible traders ... and inflation is perpetually zero everywhere the domain of the process is used.

bluskyes's picture

OK, what is the physical manifestation of this process?

How does it facilitate efficient trade between  a group of interdependent third parties who do not want to conduct direct trade? The sorts of trades that currencies facilitate today.

withglee's picture

OK, what is the physical manifestation of this process?

First, it recognizes money for what it really is, always has been, and always will be: Money is "an in-process promise to complete a trade over time and space".

The proof:

Examine trade: (1) Negotiation; (2) Promise to deliver; (3) Delivery. In simple barter exchange in the here-and-now (which is what PM exchanges are), (2) and (3) happen simultaneously on-the-spot. No money is involved. Money enables (2) and (3) to happen over time and space and is therefore obviously a representation of a promise. Note that no money exists before the promise nor after delivery so there can be no inflation of the MOE itself.

A "proper" MOE process must (1) Document party making the promise and its terms of delivery; (2) Certify it; (3) Monitor it for delivery as promised; and (4) Mitigate delivery failures ... i.e. defaults ... immediately with interest collections of like amount.

How does it facilitate efficient trade between  a group of interdependent third parties who do not want to conduct direct trade? The sorts of trades that currencies facilitate today.

First, it guarantees money to be in perpetual free supply ... thus never restrains trade.
Second it guarantees perpetual perfect balance between supply and demand for money ... it's the nature of every trade.

In most simple barter exchanges under a "proper" MOE process, trades involve (i.e. use) money already created. Since the process guarantees that the money will never lose value, it is universally accepted. That's how it effects trade over time and space.

Currencies today "are" money ... i.e. they do represent in-process trading promises. Less commonly so do coins. And far more commonly so do entries in a ledger.

All money, even in our "improper" MOE system co-opted by banks and disciplined by the governments they institute, is created by traders. You and I do such creation when we buy a house or car with time payments.

The government entities acting as traders do such creation when they float bond issues and when they promise to pay their suppliers and employees with money they extract as taxes. But "all" governments are really just counterfeiters. They perpetually default on their trading promises and those defaults are not mitigated by like interest collections. Thus, they live off of inflation they create.

The operative relation is INFLATION = DEFAULT - INTEREST.

What taxes governments are able to extract just go to the banks that institute them ... in the form of tribute demands (which they slyly refer to as interest and claim to be the time value of "their" money that they claim to "lend" to traders, the "borrower".

A "proper" MOE process is totally voluntary. Traders gravitate to it because it works.

bluskyes's picture

How does such a system handle failure to deliver / death of counter party?

withglee's picture

How does such a system handle failure to deliver / death of counter party?

Did I not describe the process clearly enough? The "process" is the counterparty. It's like a mutual casualty insurance process where CLAIMS = PREMIUMS. In a proper MOE process DEFAULTs= INTEREST collections.

pebblewriter's picture

"They "never" say "this is exactly what should be going on ... and how it can be made to go on ... and if it was, we would not ever see this ugly behavior and uncertainty and criminal activity and irresponsibility again."

Unfortunately, what "should" be going on is relevant only if a reversion to the mean is still possible.  And, that's debateable. 

As far as "how it can be made to go on" I write about this almost every day.  I addressed the "how" question in (excruciating) detail most recently in http://pebblewriter.com/why-the-trump-rally-is-a-fraud/

As far as seeing the problem "solved", I'm afraid that the establishment is too well entrenched for the manipulation to end until there's another uncontainable crisis (if and when.)  Given the snap back rallies which followed most of the crises of the past year, it would likely have to be massive.

withglee's picture

PW: As far as "how it can be made to go on" I write about this almost every day.  I addressed the "how" question in (excruciating) detail most recently in http://pebblewriter.com/why-the-trump-rally-is-a-fraud/

WG: I expect what is excruciating is trying to read what you write. Let's see if you have a clue.

WG: From the link:

PW: I very seriously doubt that Trump, nor anyone for that matter, can sharply expand spending while slashing taxes without generating higher inflation and, thereby, higher interest rates.

WG: Well duh! Governments make promises creating money. They don't deliver on them and that is default. Those defaults are not met with like interest collections and that is inflation. The operative relation is INFLATION = DEFAULT - INTEREST. In a proper MOE process this is guaranteed to be zero. We don't have a proper process.

PW: Yet the “market” continues to melt up, supposedly because the new administration will be so beneficial to the economy.  What gives?

WG: Who cares. I as a trader (i.e. one who occasionally creates and destroys money and who otherwise just uses it on a regular basis), don't.

PW: Without question, trend followers have jumped on board after seeing stocks make new highs.  But, it should be obvious by now that prices are way ahead of any improvements in fundamentals – both current and promised.

WG: Who cares? Our problem does not lie in that domain. You're looking under the wrong light post.

PW: The past two days are a great example of what’s really driving stock higher the past several months: well-timed spurts in USDJPY and CL and downdrafts in VIX.

A rising USDJPY is, of course, the primary sign that the yen carry trade is at work.  And, VIX, formerly an indicator of risk, is now regularly used to goose algorithms which spur stock buying every time VIX ticks lower and/or breaks below support.  CL is a general, all-purpose price booster with a very outsized impact.

WG: A changing exchange rate between MOE processes is just obvious evidence that one or both process are improper. If both were proper there would never be exchange rate changes between them.

PW: THE PAST SEVERAL MONTHS

Since the election, SPX has traced out a rising channel, shown below in purple.  In late January, it took on a steeper trajectory, shown as the red channel below.  This red channel sliced through a Fib level that might ordinarily serve as overhead resistance — the white 1.618 at 2335.34 — without so much as a backtest.

WG: And this has absolutely nothing to do with a proper MOE process.

PW: So, it made sense that, after a reasonable amount of time and a couple percent, SPX would return to backtest it.  Beginning on Feb 21, SPX started to trace out a falling channel, also shown in red.  It was well-formed, meaning it offered several lows and a couple of highs that lay along parallel lines.  And, it aimed for the 1.618 around March 6.

WG: Do you also really think kids riding cars at the carnival and spinning their steering wheels are causing those cars to go in the circle? You're trying to describe noise and predict it.

PW: THE PAST TWO DAYS

There’s nothing very unusual about the past two days.  We’ve seen the very same factors play out that drive prices higher on a day-to-day, even moment-to-moment, basis.  It’s instructive, though, to see what’s working lately.

[clip clip clip] Has nothing to do with the real issue.

PW: In the end, it didn’t matter.  Aside from not further alienating half the country, Trump’s speech was long on rhetoric and short on details.  It didn’t accomplish much.

WG: With a "proper" MOE process, rhetoric can "never accomplish anything". That's in the design. It is "immune" to "all" rhetoric.

PW: USDJPY, on the other hand, was very busy.  It extended its rally — now up 2.1% since yesterday morning.  CL did the same — gaining 2.4% until this morning’s EIA inventory report reminded everyone that oil prices should be much lower.

[clip clip clip] Again, has nothing to do with the real issue just describes a process that has infinitely too many degrees of freedom ... and is thus useless and unpredictable.

PW: Having said that, here’s where things shake out.

WG: So far, as I predicted, what you write is just "excruciatingly irrelevant".

PW: Oil prices are problematic.  We’ve touched on this many times, noting that CPI broke out of a long-term trend with its Jan print — which should be even higher in Feb (due out Mar 15, the morning of the FOMC’s next rate decision and Yellen press conference.)

[clip clip clip] Has nothing to do with money. Is strictly in the domain of gambling, speculation, and to a small extent, supply and demand for the underlying commodity. "Excruciatingly irrelevant".

PW: USDJPY is an interesting case.  It’s a currency pair, meaning the dollar will have to increase from its already overvalued levels in order to, along with a falling yen, goose the yen carry trade.

WG: From the above, it is hear that you "must" become excruciatingly relevant. You are looking at the ratio of two improper MOE processes and trying to make something out of it. The real focus should be on making them "proper" MOE processes ... then the ratio between them "never" changes.

[clip clip clip] Nope. Is totally clueless about what is or should be going on. Still has made no mention of money nor what it is or should be.

PW: And, you can bet the Fed and politicians alike are keeping a close eye on the trade deficit — which will continue to grow with the USD’s every tick higher.

WG: With a "proper" MOE process there is no Fed ... and politicians can have no impact on the process whatever. The process doesn't follow policy. It's simple addition and subtraction.

PW: VIX is the reigning champion of market manipulation.  It knows no bounds (other than zero) and has no obligations to reality — economic or otherwise. 

WG: [clip clip clip] When you have a ridiculous model like Black Scholes model, you're going to have ridiculous concepts like the VIX.

[clip clip clip] Irrelevant.

PW: And, as occurred last night, there is rarely any correlation between its close one day and open the following morning — meaning frequent head fakes and sleepless nights for those who don’t go to cash every night.

WG: With a "proper" MOE process perpetually guaranteeing free supply of money and zero inflation everywhere, cash is perfectly safe. Further, the "cost of money" myth disappears. (1+i)^n is 1.00000 for all "n" because "i" is guaranteed to be zero. Wharton quants will be distressed over this.

PW: CONCLUSIONS

Like most of our readers, I went to a great business school, studied under brilliant and highly-respected professors, read all the top books, magazines and newspapers (like the internet, but on paper.)  I worked with some of the brightest analysts for some of the top firms on Wall Street.  I have undergraduate degrees in math and economics, and still put in 60-80 hour weeks reading, studying, learning.

WG: Looks like inbreeding to me.

PW: And, I can tell you, I have never seen the “markets” as heavily manipulated as they currently are. 

WG: [clip clip clip] Irrelevant. The issue is the manipulation of money ... i.e. our "improper" MOE process.

PW: It was one thing when QE came along and there was a rising tide lifting all boats.  But, this is different.  It has become much more closely managed — to the point where hardly anything happens that isn’t either preplanned or carefully controlled.

WG: QE just starkly revealed the obvious. They are totally clueless as to what money is, always has been, and always will be ... "an in-process promise to complete a trade over time and space". The proof is trivial ... and irrefutable.

PW: I spoke to a group of financial engineering grad students from my alma mater the other day — very bright young men and women. 

WG: I am a "real" engineer .. and electrical one. You insult my profession. As to those very bright ... I'll bet not a single one of them knows what money is.

PW: One of the things they teach these days is using big data to discover and define the factors that drive the prices of investment assets — everything from financial reports to web traffic, patent filings and satellite imagery.

WG: One advantage to the analyst of chaos ... they can never be proven wrong.

PW: I even took it upon myself to learn Python so I could play around with some ideas that pop into my head from time to time. 

WG: Whoopie. Was it immediately obvious to you that Python was a failed language because use of positional wording (i.e. indentation to imply looping) is hopelessly flawed ... and unnecessary?

PW: Quantitative analysis has become increasingly prominent, as evidenced by the growing number of quantitatively-driven hedge funds in the top 10.

WG: Electrical engineers are incredibly skilled at picking signals out of noise. Social scientists are obnoxiously skilled at injecting noise into everything ... even after starting with noise.

PW: Two observations stand out.  First, most analysts, trained in random walk theory, efficient frontiers and various fundamentally-driven pricing models, remain completely unaware of the degree to which algorithms impact prices on a daily basis and, even, moment to moment.

WG: And if we had a "proper" MOE process, prices would not be impacted by the MOE process at all. Does that occur to these hand wavers?

[clip clip clip] Looking for where you say what money is and how it should work... in "excruciating detail"

Nothing found!!!! Is this the excruciating detail you referred to?

cherry picker's picture

What model?

If you believe in God's 10 commandments, it doesn't have anything in there about paying taxes to any government or that models should be followed.

In the USA it says on its coin, 'In God We Trust'

I take that to mean the 10 commandment God.

It doesn't say anything about following .gov's dictates, only God's.

I think I like God's commandments better than what national governments dream up.

 

YHWH is greater's picture

Thanks, my Father in heaven appreciates your comment.

Thou shall surely be blessed abundantly if you short SBUX.

NobodyNowhere's picture

Use the Rothschilds model instead.

It hasn't broken in generations.

 

Games Without Frontiers's picture

Synopsis:

1. Long USD is a crowded trade.

2. Case for further USD strength is disappearing.

3. Longs will unravel positioning which will make shorting USD delicious.

itstippy's picture

Computer Modeling works well when applying scientific principles.  For example, it's possible to build a very accurate wind tunnel simulator for analyzing aerodynamic designs.

Economics is not a science; it is a field of study.  Economic Computer Modeling is unreliable because, in the real world, economic inputs do not always produce the same economic results.  

The terms "economics science", "political science", "social science", etc. are all bullshit.  These are important fields of study, yes, but they are NOT science.

In 2006 the models showed that Countrywide was rich, rich, RICH with their portfolio of Mortgage Backed Securities.   The models were hopelessly off.  When everything went pear-shaped the solution was to mark assets "to model" rather than "to market", because admitting that the economic models are shit and every financial asset out there is potentially priced completely wrong is simply unacceptable.

pebblewriter's picture

Well said.  I can remember further back, in 1989, when Columbia Savings was the hot interview to score in business school.

pebblewriter's picture

"The macro factor models are losing their ability to ‘explain’ the index moves."

The macro factor models began to lose their ability to explain the index moves in 2008 when central bankers ntervened in order to prevent a more severe market crash.

They got a little better at it in 2010 when expanding QE saved SPX from a bigger drop, and even better at it in summer 2011 when the yen carry trade really took off.  That was the last chance stocks had to react "normally." 

Since then, USDJPY, VIX and WTI have taken turns propping up SPX -- with occasional help from dovish CB jawboning.

IMO, the relationship between macro factors and stock/bond/currency prices completely broke down in Dec 2013, and hasn't been "normal" since. 

And, for the record, today's massive (sarc) 1% meltdown is actually bullish.  If SPX can hold 2335, TPTB will have completed a backtest that puts any future gains on a firmer footing.  We identified it a month ago, and reiterated it in our latest post on the big picture: http://pebblewriter.com/why-the-trump-rally-is-a-fraud/ 

I'm sure Charlie McElligott is a very smart guy.  But, as long as he and others like him expect stocks to move in line with fundamentals, they'll continue to struggle to explain what's going on -- which means TPTB will have accomplished their goal of stopping traders/investors from questioning these kinds of meltups altogether.

 

artvandalai's picture

No doubt there are somemiddle of the night meetings coming up. With the CEO flying in on a helicopter.

whatisthat's picture

I would observe "model" equates to manipulated markets....

Last of the Middle Class's picture

Management, by definition is a group of people who take known economic relationships to the extreme such that the rules that govern such relationships no longer apply. Examples include TARP, TBTF, QE,. While it is possible to manage the money supply in such a way to benefit the economy 10 trillion dollars over the last 8 years is simply not "managing" it's rampant destruction of all economic laws for the benefit of a few. A prime example is Le Chatelier's principle in chemical equations and equilibrium. In our example the Fed has dumped so much of one chemical into the equation on one end that the reaction and it's products become so diluted as to be meaningless. All the while using the stock market as an indicator, and the only think the market indicates is a wealth divide that is so great that it may yet destroy our constitution and the rule of law in America.