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Citi: "Forget Decoupling" - Here Is How To Trade During The Sovereign Trauma
We have been strong proponents of various relative-value (RV) trades as this highly volatile and increasingly binary world infers more Knightian uncertainty than any normal strategist, talking-head, fringe blog can cope with. What is frustrating nevertheless is the degree of confidence that many economists and strategists forecast directional bets only to fail miserably (and rapidly). Refreshingly, Citi's European credit research team take a similar perspective to ours on the current policy uncertainty and expect nothing less than spreads to keep oscillating wildly (between depression and muddle-through). Their crucial insight is to tie the evolving crisis to the Kubler-Ross stages-of-grief and recognize that expecting a decoupling (or lower correlations between and within asset classes) is only for those in denial - trade the phases instead in 2012 - following the path of this year.
As we re-enter the 'Bargaining' phase (or perhaps prolong the 'Anger' phase), correlations will remain high (as will stress). The argument that corporate balance sheets are strong remains moot all the time the sovereign remains in peril and so focusing on the asymmetries and dislocations is key.
There are simply too many linkages between sovereign stress and corporate balance sheets to rely on analysis that extends any trends - for example, economic growth, availability of credit, capital flight, transfer risk, devaluation, and most clearly government interference.
Remaining neutral cash, using index overlays to position for short-term views and recognizing that macro matters most (so beta and domicile trumps sector allocations (ex fins)) leaves them focused on the relative-value trades or dislocations as they prefer, like us, to exploit the asymmetries - such as between equity and credit that we have been so positive and vehement on.
Other examples of dislocations include: non-financials and equity volatility, credit curves, investment grade relative to high yield spreads, and financials vs sovereigns.
The previous top-down presentation that this group gave on the decades of deleveraging set the stage for the chronic problems ahead. Only when there is a credible lender-of-last-resort with public funds
enough for Italy and Spain will it be safe to get long and earn carry
once again...
In the meantime, Despite Strong Corporate Balance Sheets...
Don't Expect Decoupling...Trade The Phases of The Crisis Again In 2012!
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Same with Politians.
Too bad for Citi their Prop Desk can't hold up their Mergers, Aquisitions, and Loans.
C prop desk im sure lifted 6 handles of ES offeres.. good for a 2 percent move in C stock on the open
http://hedge.ly/9zNOIj
Citi to clients: throw the old playbook away.
Ya, we knew that. We're in a world where central bank intervention isn't everything, it's the only thing
Yes, this article tried to make a clever analogy between the phases of depression and trading, but really only stated the obvious. The market is manipulated and they are trying to keep it in a range. So I guess the best summary would be:
Trade mean revision and trade with the Fed
The real trend is toward abrupt dislocation of financial assets from confidence.
"Strong corporate fortifications... ...are built on shaky sovereign foundations" ?!?
That's just plain ignorant.
as the business cycle gives way to the crisis cycle
there's money to be made!
just b/c nothing makes a bit of sense is no reason to slow down on these money-making trades!
i guess we wouldn't be fringe-blogging away, here, if we hadn't gone down the rabbit hole, already, eh?
"If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn't. And contrary wise, what is, it wouldn't be. And what it wouldn't be, it would. You see?"
-Mad Hatter on markets
Oh just fuck it,
Buy as much gold as you can,
That's about all I have to say here.
Good luck folks, you'll need it.
-JG
The other choice is to raise Hell and bang your shoe on the table. Seriously, there will be issues in 2012 that didn't get into full swing in 2011. I don't think the world is ready for the currency collapses of the coming year. It might be better to put away at least a year's supply of food and water, just in case.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Well at least we won't have to listen to the holier than thou crowd about the differing food groups, any food will do in the new normal.
The Euro, as it stands, forestalls any'credible' Lender of last Resort - it's too big / too high a propensity to be rapidly further indebted.
For all the Eurozone problems though,it's the destruction of the Swiss Banking system that will ultimately topple the Euro-area into second-world status, my two cents
thank you again ZH .... we/you do not have to agree with this, either in part or in full, but it is an interesting take & thought ...... how it pans out as a strategy will be interesting.
These sure are different times than the last 40-50, maybe longer, years .....
Wait what is that flying over those cycles and phases? ... Why, it's a flock of black swans ...
The Fatal Conceit:
Long Crack Rocks, Smack and Banks.
By Kristian Siedenburg
Nov. 29 (Bloomberg) -- Following is a summary of the November
retail PMI report by Markit:
*T
===============================================================================
Nov. Oct. Sept. Aug. July June May April March
2011 2011 2011 2011 2011 2011 2011 2011 2011
===============================================================================
Sales vs. month ago 40.6 50.2 49.6 48.0 48.2 48.8 48.8 52.2 53.5
3-month average 46.8 49.3 48.6 48.3 48.6 49.9 51.5 51.9 53.1
Germany 54.3 52.0 51.4 53.9 50.7 53.4 51.1 54.6 53.0
France 44.9 54.2 51.3 46.0 49.7 49.2 51.7 56.3 59.6
Italy 36.0 42.0 44.9 42.4 42.5 42.0 41.7 43.1 45.8
===============================================================================
This graphic reminds me of a sell-side "research" report put out during the internet bubble that attempted to shoehorn in such incoherent non-concepts as "eyeballs" and "clicks" into the Black-Scholes model to derive a valuation. Even compared to this Citi's Elizabeth Kubler-Ross stages-of-grief sovereign debt mashup is breathtakingly cringemaking. As for trading it, good luck. You'll need it.
Yup. There is a pattern to the manipulation and this attempts to make sense of it, but you can't use it.
or may be we can just look at the dollar chart
Or maybe just short C since they will find ways to lose hundreds of billions by selling derivatives on Euro assets.
I quit trading because the information is massaged so badly it is worthless. Tried being contrarian, but even in those instances you have to fight that "gut" feeling. Fuck it, riding this out until some sanity is restored, I don't have the stomach for this bullshit.
IN a world of race-to-the-bottom currency destruction and devaluation, GOT GOLD?