Punch Line: No. We do not have structural confirmation.
Is a bear market coming? Yes it is and it may have started as of December 29th, however, as we have all learned, the central bankers are resolved to fight deflation at all costs so maybe they can push out the day of reckoning further. However, what is different this year is that the Fed ended QE in October and passed the baton to the ECB and BOJ. Last year according to JPM about $1 trillion in sovereign debt was monetized between the Fed and BOJ. This year JPM estimates about $1.3 trillion of sovereign debt will be monetized between the ECB and BOJ. Two problems with this:
1) The ECB has not officially announced QE yet. In addition both Germany and Greece are throwing their own wrenches into the works. It is a long time between now and January 22 when the ECB will let us know their decision. So we have a POMO air pocket that continues to age.
2) Is QE from a non reserve currency powerful enough to levitate the US and Global stock markets? I say no way as the rising $Dollar and crashing oil price are proof positive that QE or the threat of QE from the ECB and BOJ are not enough to re-inflate the asset markets.
Bottom Line: I Expect QE 4 from the Fed to be announced at some point in the next 6 months. How low does the market have to go? Down -10%, -20%, -25%? I expect us to take out the December lows in the near term. After that lets reassess. Nothing the central banks do from here on out should surprise us.
The only sure thing is that volatility is to be expected and embraced. Stock pickers beware! It is macro time again and lots of cash is advised unless you can trade well.
Side note: When I was at my old shop that managed trillions of dollars in 2008 and 2009 the constant chatter about fundamentals was a complete waste of time. In my morning call I listened to the Repo desk (read on liquidity) and the High Yield guys (credit market read). As things started to tighten I went to the bunkers and when they gave the all clear I bought hand over fist. We may be entering this type of period.
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I forgot to mention. Someone big is still holding the oil derivative old maid. When that institution is revealed we will have an important low.
ha ha, fundamentals, what a quaint idea.
do you expect a worse that 2008 crash prior to QE 4?
Do you think the ppt will react much quicker this time?
any idea what you’ll buy after the old maid is revealed?
thanks for the insights.
Citi may be holding the old maid .They
took a lot of unwanted heat for that
derivatives thing in the budget. They must really need the safety net.
I’m hoping they do not have another
QE unless the market drops 50%.But
since there are so few ways to make
easy money they may move sooner.
you managed trillions?
a little knowledge.
I don’t think they let it get that out of hand like 2008. However, if they announce QE4 and we roll then God help us all.
PPT is the realm of the Fly. i do not wish to speak for the fly. I love the PPT.
No idea what to buy yet.
gorby,
you may be right.
matt_bear
no i was at a firm that managed trillions. I managed 14 billion.
I meant the actual plunge protection team, not the Fly’s PPT.
You answered my question already.
“I don’t think they let it get that out for hand like 2008”
So when you say someone is holding the old main in the crude market, does that mean you think a single fund owns a massive futures position that would be able to floor the market?
Blue,
I doubt we roll. back before they got QE2 rolling a lot of managers were whispering that the mkt would roll because it would be defeat. Look were that and the progressive loose policies got us.
They will keep stretching this rubber band until it breaks. There isn’t any chance to grow out of this mess there’s no catalyst.
A reset will come its just a matter of when and how it will look. IMF and governments are telegraphing it and getting prepared with the bail ins etc.
Forgetalpha,
The old maid is a large hedge fund or as I believe most likely a large wall street bank that has written billions of oil derivatives contracts to producers and sovereigns over the years and finds themselves with a huge basis risk. Meaning they hedged it but the hedge was imperfect and they are losing a ton of dough.
JPM has to be in the middle of it .. their connections to oil go waaaaay back ….. either that, or they’re too well connected to the dark powers to get embroiled in derivatives….. NOT! 😛
jimmy_two_times,
I disagree that we don’t roll. Market has been built on levered carry, credit spreads are going the wrong way. and QE is over. look out below.
Blue,
Any thoughts on the Canadian banks? Technically they are all breaking down.. Maybe they’re holding part of the bag ..
JB,
I am sure the canadian banks are exposed to energy fall out. I like Citibank as a short. I am hearing things. Not short yet.
Your comments are well reasoned and your exchange with posters civil.
Where do you see CLG5 settling? Speaking with Calgary friends in the oil patch the consensus is that it’s 12-18 months before a meaningful recovery.
What do you think?
I’ve been short crude futures since Dec 9th. it’s working and very nicely. My gut says “take it down” But my head says “Why?”
Rick Rule’s thoughts on oil:
http://www.sprottglobal.com/media/66788/rick_on_oil___gas_-_december_29_2014.mp3
IW40,
Oil ultimately heads into the 30’s. The question is do we have a collapse from here or a counter trend rally then a failure and a lower low into the 30’s. I agree on what your friends from Calgary are saying. Production will not decrease immediately. This will take time. I talked to a former energy expert from my old firm today. He says that companies are paralyzed from the collapse and until the price stabilizes no one can plan for next year. That has all the makings of a shit show given that uncertainty. However, I would only focus on the structure of the current market. We need a short term buy signal which would be a daily swing low followed then by a weekly swing low to confirm a tradable bottom is in. Absent that I would hold your short.
a little knowledge,
Thanks.
@ little knowledge. That’s for the post.
Prior to your putting it up, i had an order to cover 36% at 46.88. It’s still open. The thought was we’d rally and I could put it on again.
Correction: “That’s for post…” s/read “THANKS”
BlueStar,
Thank you for your thoughts, it’s appreciated.
I agree that we are going lower. Whether we trade into the 30s remains to be seen.
Rick Rule is a veteran who’s been thru a few cycles. If I have the story right, he’s had lots of hits and a few grand slams.
In the last cycle he owned a stock at ? I don’t recall the exact price, it dropped dramatically; fundamentals – unchanged. I believe it went to $0.01. He had conviction and cash & bought. Later it went to $10.
That’ll put you on the map.
To answer your question pal: no
Blue, one last push before we crap out? m&a,ipo’s havent gotten frothy yet but seems to be picking up? Maybe we see another 1500 points on the upside on the dow? Also since the Fed is more politically influenced an all that gotta wait for elections ?
DK,
Looks like the Fed won’t let the market crap out. lets see what this rally brings.