Is It different this time?


Fantastic market breakdown by Mike over at SpreZZaturian. I have a feeling ForexKong would agree.

On the other hand you have Larry Williams over at TraderPlanet (h/t @swetrader) who explains to us that there might be a pattern between 1905, 1915, 1925, …, 1985, 1995 and 2005. Will 2015 be the same?

In any case, i’d like to remind you that Miss Market can remain irrational longer than you can remain solvent. Trying to call the top (or the bottom) is in my humble opinion a sure way to get hurt. I think it was in a Market Wizard interview (Bill Lipschutz ?), or maybe it was in Mike’s e-book (another great read, recommended. Check his website to get it for free) that was said “bubbles need a trigger, a catalyst to burst.” I definitely agree. It could be Ukraine, it could be Greece default, it could be another 9/11. But until that happen i’ll keep getting in and out, making small gains here and there whenever i spot discrepancies in the market, and a few stop short orders below in case the thing starts to fall.

Is It different this time?

ECB QE? Grexit? History happening. Macro thoughts.

I’m really torn here.

Scenario A:
ECB can’t do shit. Syriza wins, scares the markets. Risk off. Long Gold and JPY, short equities is the play. But what to make of AUD strength lately?

Scenario B:
On the other hand i don’t think the ECB cares one bit about the SNB. Consider this:
In this interview (english version at the end), ECB gov Benoit Coeuré states : “The goal of QE is to provide confidence in the central bank’s ability to stabilise inflation. The way in which that works is to anchor the financing rate in the largest possible number of countries at very low levels in order to guarantee funding conditions for European businesses and households at very low rates for periods much longer than at present.“.

I believe their reasoning is this: “We (the central banks) gave free money to the banks for them to lend to main street. Instead they’ve been using this money to invest in bonds and stocks (better yield). Short term bonds rates are now negative or at record lows. Political leaders don’t make the reforms (those bastards!). As per our mandates we have no other choice than to further lend money, make it expensive NOT to invest it, and hope sooner or later it will make more sense (be more profitable) to invest in main street rather than in bonds, maybe with the help of some reforms (they did make it in Greece, Spain and Portugal. They were unpopular, hence Syriza and Podemos rises), and finally growth and inflation will start going up. By reassuring banks that rates will stay low mid/long term they’re essentially telling them “Go ahead and lend them the f-cking money!””

In this scenario what would happen first would be even lower bonds rates across developped countries, and i include Australia (hence the recent strength despite the “risk off sentiment” of last week). Depending on the scale of the ECB action Greece might just benefit as well from this.

In this scenario the recent JPY strength and equities weakness would just be yet another “false break”. It wouldn’t be the first time. USD will keep on rising as it’s still the leader of the pack, thus at first delaying the rate hike before finally giving up due to the pressure on the debt and implementing QE4.

Regarding the SNB, it sold enough gold during this period (see the massive decline) and was just done with it. They’re now using they newly found buying power to rebuild stocks. In this scenario the surge in gold would therefore not be a flight to safety.

Now, regarding if this will be efficient, i don’t believe it for a second. It’s a race to the bottom (currency war), until the political leaders get their heads out of their asses. Winter IS coming, but it’s just not there yet.

If someone with a Bloomberg access could use the data to see the correlation between AUD and their bond rates and gold and EUR since the CHF peg that would be fantastic. I’d know if this thesis is just dumb incorrect or if maybe i’m on the right path.

ECB QE? Grexit? History happening. Macro thoughts.