Back in November, for the convenience of those “who can’t wait to take the other side of Goldman’s clients, and thus the same side of Goldman’s prop desk” we previewed Goldman’s “Top 6 Trades for 2016.”
Naturally, we explicitly stated that the “the best trades for 2016 will be to… do the opposite of the Top 6 trade recos” for obvious reasons.
It’s time for an update, because just 40 full days into 2016, not only has Goldman been closed out on its Top Trade for 2016, namely being long the USD vs both the Yen and the Euro, but virtually all of its other trades: according to a just released update, Goldman has just been stopped out – with a loss - on 5 of its 6 top trades for 2016.
Close long USD against an equally weighted basket of EUR and JPY on 9 February 2016, opened on 19 November 2015 at 100, with a potential loss of around 5%.
Close long 10-year US break-even inflation (USGGBE10 Index) on January 18, opened on 10 November 2015 at 1.60%, with a target 2.0% and a stop on a close below 1.40%, with a potential loss of 21bp.
Close long an equally-weighted basket of MXN and RUB versus short an equally-weighted basket of ZAR and CLP on 21 January 2016, opened on 19 November 2015 an entry level of 100, with a potential loss of 6.6% including carry.
Close long 5-year 5-year forward Italian sovereign yields vs short 5-year 5-year forward German yields on 9 February 2016, opened on 19 November 2015 with an entry level of 160bp and a stop loss of 190bp. The spread is currently at 219bp. The potential loss is 49bp.
Close long large cap US banks through the BKX Index relative to the S&P500 on 11 January 2016, opened on 19 November 2015 at 100, with a potential loss of 5.4%.
Stay long a basket of 48 non-commodity exporters (GSEMEXTD Index) and short a basket of 50 EM banks stocks (GSEMBNKS Index), opened on 19 November 2015 at 1.12. We will monitor this trade as the ratio between the two indices, with a target of 1.30 and a stop-loss of 1.04, currently at 1.17.
The relatively few leaders (aka, “generals”) that had been propping up the indexes are being systematically taken out.
“The way we see it is that the 6-year bull market is running out of steam, the steam being the number of stocks contributing to its advance. This occurs at the end of cyclical bull markets, ala 1999 and 2007. Once the relatively few stocks that are still propping up the market roll over, there is no foundation of support left to prevent a significant decline. This isn’t doom and gloom propaganda. It’s just part of the market cycle and should be something to monitor closely as we enter 2016.” - Conclusion from our final 2015 post (and perhaps a dozen other posts).
The point of our statement above – and all of the warnings we issued regarding the deterioration of the market’s internals over the past year – was that eventually the few stocks that were propping up the major indexes were going to collapse under the weight of that burden. And at that point, there will be no foundation left across the broad market to continue to buoy the averages. Well, since the start of the year, and in particular over the past week, that inevitable reckoning has been unfolding. Those few leaders left standing at the end of 2016, aka the “generals”, have finally succumbed to the selling pressure that preceded them in the rest of the market.
This includes one of the last men standing: the internet sector. The unraveling of the internet stocks is a relatively recent development – and a swift one at that. This is what happens when there are very few areas attracting almost all of the money flow. Once that avenue too is shut off, the reversal can be powerful as all of the inflows attempt to exit at once. Such has been the case with the internet sector. Just 4 days ago, we posted an chart intraday of the Dow Jones U.S. Internet Index, noting the fact that the index was hitting an all-time high. Well, the index gave up its gains of early that day and has been plunging ever since as the selling has finally reached this sector as well.
As we reported yesterday, in one of the most surprising developments involving the Syrian proxy war, Saudi Arabia and U.S. presence on the ground, the latest twist is that both Turkey and Saudi Arabia are now mulling a full-scale invasion while Russia and the Syrian government continue their progress in wiping out the US and Saudi-funded rebellion. To be sure, there was confusion when CNN Arabia reported first that the Saudis may send as much as 150,000 troops into Saudi Arabia, by way of Turkey, something which Anadolu news promptly denied.
However, the denial itself was softly denied by the Saudi Press Agency, which further stirred the water earlier today when it reported that not only is Saudi Arabia ready to send a special force to fight in Syria, but that this deployment was proposed by the US, which would oversee the Saudi troops as part of the US-led coalition in Syria. To wit:
AL JUBEIR SAYS U.S. PROPOSED GROUND FORCE DEPLOYMENT: SPA
SAUDI FORCE WOULD FIGHT AS PART OF U.S.-LED COALITION: SPA
SAUDI MINISTER SAYS SENDING GROUND FORCE UNDER DISCUSSION: SPA
SAUDI ARABIA READY TO SEND SPECIAL FORCE TO FIGHT IS IN SYRIA
And so, what was until recently purely an air campaign involving all the major global powers (except China, for for the time being), is about to become a full-blown land war, involving not only Suunis and Shi’ites (especially once Iran joins the fray), but also Russian troops on one side and US and Saudis on the other.
Most notably, oil has refused to budge even an inch on what is rapidly shaping up as a precursor to World War III.
Just ten days ago, in the aftermath of the BOJ’s -0.1% NIRP announcement, we reported that after more than one year after the ECB unleashed NIRP, the total number of government bonds with negative yields to a staggering $3 trillion, a number which nearly doubled overnight to $5.5 trillion.
Overnight in a historic event, the latest consequence of the BOJ losing control, the yield on Japan’s 10Y JGB dropped below zero for the first time, in the process joining Switzerland as the only other country (for now) with a NIRPing benchmark 10Y treasury.
And, as Bloomberg calculates, this means that as of this moment, $7 trillion or about 30% of all sovereign bonds, are yielding negative rates, implying “investors” have to pay governments for the privilege of holding their money. It also means that in the past 10 days a record $1.5 trillion in global treasurys have gone from having a plus to a minus sign in front of their yield.
With Deutsche Bank credit risk exploding and stock price collapsing to record lows, despite the CEO’s “rock solid” affirmations, there is only one way to know just how real a crisis this is… when government officials issue ‘denials’.
German Finance Minister Wolfgang Schaeuble says he isn’t worried about Deutsche Bank.
“No, I have no concerns about Deutsche Bank,” Schaeuble says
Schaeuble comments to Bloomberg Television after press conference in Paris.
We suspect this is Schaeuble’s “Contained” moment as markets – the ultimate arbiter of truth – tell a very different story…
Too much mal-invested, Fed-fueled, hope-driven "if we build it, they will buy it" inventory... and not enough actual demand. This has never, ever, ended well in the past - so why is this time different?
At 1.32x, the December inventories/sales ratio is drasticallyhigher than at year-end 2014 and is back at levels that have always coincided with recessions...
And just in case you needed more convincing that all is not well - the current spread between sales and inventories is now at a record absolute high...
When assets reach prior highs, its time to pay attention from a Risk On & Risk Off basis.
The chart on the left is Silver, going back to the mid 1970’s. As you can see it reached $50 in the early 1980’s and then quickly reversed, losing over 90% of its value in the next 14-years. Then it embarked on a rally, starting in the early 1990’s. This rally took Silver back to the $50 level in 2011, which ended up being a “Double Top” nearly 30-years later. After hitting the $50 level again, buyers disappeared and sellers stepped forward....
It was another bloody week in the stock market (S&P 500 index dropped -3.1%), and any half-glass full data was interpreted as half-empty. The week was epitomized by a Citigroup report entitled “World Economy Trapped in a Death Spiral.” A sluggish monthly jobs report on Friday, which registered a less than anticipated addition of 151,000 jobs, painted a we...
Greg Ip had a piece in the Wall Street Journal yesterday discussing the debt burden in the USA and how low interest rates have “moved back” the “hands on the doomsday debt clock”. The article touches on the important topic of entitlement spending and whether it’s sustainable, but does so in a manner that misleads readers about why this might be a problem.
For instance, Ip says that “higher federal borrowing puts upward pressure on interest rates”. This is classic “crowding out”,...
Tech averages had the weakest start, Powerful gap downs had set things off, but buyers were able to make a comeback into the close. However, morning gaps remain. Volume climbed to register as distribution, which for the Nasdaq was the second day of distribution in a row.
The Nasdaq 100 is on the fiftth day of selling in a row. The August swing low wasn't fully tested. Bulls will be looking for a bullish 'morning star' where today's candlestick 'hammer' is followed by an opening gap, then a rally for the rest of the day. Should this emerge, then a move to test 4,300 is next. If there is a weak open, then any chance for a bullish 'hammer' based on today's action is signifi...
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Throughout the past 30 days of wild volatility, here’s what I didn’t do.
Panic. Worry. Sell.
In fact, the best I did was add to a couple of positions yesterday. The world was already in an uncertain state for the past 3+ years. It’s just that with the market rising, we pushed the issue to the back of our mind and ignored it.
A number of systemic, structural forces are intersecting in 2016. One is the rise of non-state, non-central-bank-issued crypto-currencies.
We all know money is created and distributed by governments and central banks. The reason is simple: control the money and you control everything.
The invention of the blockchain and crypto-currencies such as Bitcoin have opened the door to non-state, non-central-bank currencies--money that is global and independent of any state or central bank, or indeed, any bank, as crypto-currencies are structurally peer-to-peer, meaning they don't require a bank to function: people can exchange crypto-currencies to pay for goods and services without a bank acting as a clearinghouse for all these transactions.
Last year, the S&P 500 large caps closed 2015 essentially flat on a total return basis, while the NASDAQ 100 showed a little better performance at +8.3% and the Russell 2000 small caps fell -5.9%. Overall, stocks disappointed even in the face of modest expectations, especially the small caps as market leadership was mostly limited to a handful of large and mega-cap darlings.
Notably, the full year chart for the S&P 500 looks very much like 2011. It got off to a good start, drifted sideways for...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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