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Reading Into The Euro-Risk Decoupling
Since the start of December, the tight correlation between EURUSD and risk assets has deteriorated. Most notably from the middle of December, as LTRO pronouncements began, the positive correlation has flipped to negative and EURUSD became considerably less relevant while AUD (and other carry currencies) dominated as correlated drivers. Citi's Steven Englander notes this divergence and sees two reasons for it: the LTRO has contributed by theoretically underpinning eurozone (EZ) bank funding, reducing one source of EZ risk, but leaving in place broader concerns on sovereign debt (risk transfer from private to public balance sheets once again); and the growing confidence in the US that growth will be mediocre but not disastrous. However, even though growth expectations have bounced back to some degree, taking the S&P with it, expectations of future Fed policy have not adjusted upwards at all. Our fear, in agreement with Englander, is that asset markets may be much more sensitive to economic outcomes than is commonly expected and with growth expectations having angled up, the risk rally may be very sensitive to disappointment. The deterioration of European sovereign and corporate credit along with the EUR, combined with US credits underperforming equities in the last few days suggests cracks in the risk divergence are quickly starting to appear.
Chart: Bloomberg
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Good. It needs to decouple all the way. Risk assets should be invested in when the risks are high... like now, not the contrary.
US T-bills should be dumped, along with German T-bills... because when it comes right down to it, both are bankrupt.
Sure, and ALL that PRIVATE debt that was dumped on those governments should be pushed right the fuck back onto those PRIVATE entities that were bailed out. Wake the fuck up dude. I see you still favor the socialization of losses. Fuck you.
USD acting as safe haven
Flight to Safety
PORTUGAL
SPAIN
ITALY
GREEECE
and BELGIUM
are going to suffer big during 2-4 years. MINIMUM
I seem to recall that kind of prediction from 2010. And 2009. And 2011.
I am ready, but I don't believe they will go down without a protracted fight.
They want a fight? Just stand back and buy physical PM's and let them stick their heads up their asses and watch them fight for air.
There is no decoupling. There is only the temporary respite, for the purpose of algo driven long conversions at favorable prices. Good luck with that continuing.
Good Morning Cdad!
I LOVE it when you talk like that. :>)
Good morning brother CD. Long time, no chat.
What...you like it when I talk dirty to bankers? Me too.
On actual cognitive dissonance, seems to me there is a deep disturbance in the force of tool-like bankers. Volume today smells like vapor lock...and of course, we are about to get my favorite update from Tyler....FUND FLOWS [the hell out of here]!
Get your VIX on, baby.
Just one more "matched lot" trade on Chipotle...just one more day of meeting between Mary Schapiro to tell her to forget her regulations...just one more tiny fine to be passed on to shareholders against the back drop of a sweet bonus...just one more day of lawyers fending off the mortgage lawsuit barrage...just one more day where the non market rises for no apparent reason...just one more short squeeze...just one HTB...just one more 180 degree turn in sentiment...just one more day...just one...before the liquidation...just one more day of horse fixing and voter fraud...just one more day of Euro debt "stabiliteeeee"...just one more FED meeting...just one more day of screwing senior citizens on a sub 1% rate of return against a corporate loan of 5%...just one more...one more thin mint.
A big, fat, +1 Cdad, for the thin mint crack.
"and the growing confidence in the US that growth will be mediocre but not disastrous"
Exactly ! Financial jubilee overdue or already priced in.
But as in the early nineties, there is still too much momentum in the US economy ! Doomsday never comes unless
we fail to pick the doomster-of-the-day in a world economy.
Hope and change has been discredited to the core and duly elected upon, but if anyone, who in hell would survive our US-World ?
The "muddle-through" scenario is a banker wet-dream. Because in that scenario there's no pressure to revalue portfolios and they can keep their jobs and pay.
But reality will set in sooner rather than later: bottom line, the current global economic system is disintegrating and the orgiastic anomalies of the past 4 decades will correct. It is not possible to muddle
Yea but 'muddle thru' is also a myth as well....nature abhors stasis.
Bankers will never be ecstatic playing the penny slots in the casino.
UniCredit will sell shares at 1.943 euros each and offer two for every one held, the Milan-based lender said in a statement today. That exceeds the 30 percent discount offered by Commerzbank AG in its 5.3 billion-euro rights offer last May and the 39 percent discount when HSBC Holdings Plc raised about $17.7 billion in March 2009.
Look for the trend to continue. That means bank shares (and other interrelated interdependent financials ) are way over-valued. That's a large part of "Risk assets" as pointed out by Tyler, BAC alone is overrepresented in the S&P valuation.
And the final huge "headwind" to risk assets: earnings yield for stocks is way way above the near-zero treasury yields and compression is over due, especially in light of growing macro risks
Mad dash to flip the script and find new correlations to keep the Ponzi alive for just 1 more day. Only a couple months ago I recall Resenberg and his stocks and Euro teeter totter fulcrum saying 'From here on out, we're all Euro/stock correlation traders.'
That lasted a few weeks.
Just....just one more day...one more algorithmic jerk off...one more appearance on the BlowHorn [CNBC] to spin one more counter intuitive piece of BS artistry...one more made up long side catalyst...one more day in hopes that funds flow IN rather than OUT...one more day in hopes that Bernanke bails us out again...one more BTFD moment to sell into...one more day's worth of fudged govt. statistics to hide the truth...one more day in hopes that Ron Paul does not make progress against the status quo....one more...just one more....just one more lie, one more SEC violation between you and me....one more naked short sale ahead of the inevitable.
Yep..."just one more" has carried the vapor market for three weeks. Thank you "priced in" and "Santa Rally" and "cash on the sidelines" and "global growth" and....
Got to keep mom and pops in their 401K and pension funds and not panicking to sell...until 'it' happens one morning and theyre left high and dry.
People will be shocked to realize THAT is 'The Big Banker Payoff'...not another round of free fake money from the Bernank.
Just one more bathrobe clad Average Joe confused and believing that burritos are the new gold....just one more "buy the top" Street upgrade....just one more promise of fund allocation out of T bills....just one more trade out of the Eccles building...just one more presunrise futures bid...just one more, Dog. Just one more! Not a lot to ask. Just one more day of zero credibility markets hanging on as the market makers rape the ill informed.
..and just one more run at SPX 2008 highs, imo anyway. Not because the fundamentals are there, but to really really fleece the retail into believing obaMao did his part in the great recovery.
Just one more year of patience, or maybe another, or a few
more. Who cares . They are doomed, we are lost. But who is in the know? Gold knows everything. But who among us will be around to tell the story ?
Good, now we can quietly move up a little everyday in the S&P, who cares what happens to the euro, let them deal with their own mess...and actually i dont even see the euro going down all that much...here comes the squeeze back up to 1.30
Okay, here is my $.02. Its time for them to take the USD down a notch. They have been taking turns devaluing EUR & USD against each other for years. As they keep the relative value of the EURUSD fairly stable, they slowly ratchet down the actual value of both currencies the whole while.
So, in order to continue this invisible (to sheeple) devaluation, its time for them to reverse the recent EURUSD slide.
That's my take on their currency manipulations. No TA involved. Just a feeling they will continue their shenanigans as long as possible.
Two currencies are inside a falling elevator. They are floating inside up and down in relation to each other. That is all this coupling and decoupling is about. Both currencies are loosing their value against real assets. In an environment like that, trying to figure out stock price based on future revenues is a guessing game. Uncertainty in intervened markets, makes all investments gambles even currencies themselves.
Tomorrow will be important for France, those yeilds were pretty wide today. Along with Italy hoovering under 7%. SPX at resistance, I think this jobs # will probably be baked in SELL the NEWS. I'm ready for some heavy volume and panic selling this market IS BORING!