Tesla Investor's General Macroeconomic / Market Discussion

[dmunjal]

I think the market is throwing a tantrum in the hope that the Fed might rethink its decision.

 

[FluxCap]

I think the market is throwing a tantrum in the hope that the Fed might rethink its decision.

You are precisely correct, I think. I cashed out my QQQ puts and bought the FANGs today once Uncle Carl Icahn showed up on CNBC talking doom. I think he literally called the intraday market bottom.

 

[dmunjal]

You are precisely correct, I think. I cashed out my QQQ puts and bought the FANGs today once Uncle Carl Icahn showed up on CNBC talking doom. I think he literally called the intraday market bottom.

Too early to call a bottom. The worst is still ahead of us during the next few days.

 

[jesselivenomore]

Market is down because high yield funds are down sharply. High yield funds are down sharply because oil is at new lows. High yield funds are affected by oil due to their exposure to energy and material bonds. The market cares because some hedge funds have exposure to high yield funds.

The big "macro" question is does a further deterioration of the situation have systemic risk? The answer to that is do banks have significant exposure to high yield like they did in 2008 with subprime? I believe the answer is no. So any resulting decline from this is a market correction as opposed to a market top.

 

[FluxCap]

Market is down because high yield funds are down sharply. High yield funds are down sharply because oil is at new lows. High yield funds are affected by oil due to their exposure to energy and material bonds. The market cares because some hedge funds have exposure to high yield funds.

The big "macro" question is does a further deterioration of the situation have systemic risk? The answer to that is do banks have significant exposure to high yield like they did in 2008 with subprime? I believe the answer is no. So any resulting decline from this is a market correction as opposed to a market top.

I agree, and Carl coming on to talk his book on the great 2015 junk bond short was LITERALLY the bottom tick of the day so far.

And as my good friend techmaven said, we have yet to see the US consumer put "savings at the gas pump" to use in force, but when they do where does it go? I think a decent chunk of it goes to AMZN and NFLX which are companies I love. Mom and Pop on main street generally don't care if some hedge funds lose $ on trying to call the bottom in oil, as well.

 

[FluxCap]

Some more meat to chew on regarding today's junk bond fit and the Third Avenue fund closure:

http://driehauscapitalmanagement.com/pdf/funds/Our-Thoughts-on-the-Third-Avenue-Focused-Credit-Fund-Closure.pdf

 

[Causalien]

Today's bigger market moves are very artificial and have been worrying me for a while. Most of the time, artificial pushes like these never go well and will reverse with a vengence, but the two entities that pushes for this are the fed with its artificial low rate and the Saudis with their artificial low oil.

Trillion dollar funds that pushes in a direction is amazing. Loke Japan's lost decade now in the process of turning into lost century.

For small Canada, we managed to put off this reversal by 7 years and the rooster is coming home this year. How long can USA last? (hopefully till dec 15) How long can Saudi Arabia last with their recent push? (Maybe 5 years)

It is not a coincidence that a rush of bad news happened now, on the weekend before fed rate hike (as has happened so many times before to convince the fed to NOT hike). My point of view is, that the sooner we can get back to non-artificially manipulated market, the sooner we can get back to a healthy market where normal prediction works.

Crazy things such as doubling of house prices in Vancouver with 5% down mortgage will disappear and huge gyrations in billion dollar companies will stop happening becauseof how easy it is to go on margin.

 

[ev-enthusiast]

Anybody careful before a potential rate hike later this week?

Update:
Just a thought on that oil battle.
Could that multi year low have been a great target price for short sellers?
Personally I am curious if we see the oil price dropping significantly below that multi year low.

 

[FluxCap]

I am, quite honestly, feeling about the market in the last few days like the hero in so many Western films before a giant gunfight -- "it's too damn quiet, that's what bothers me."

Is this price movement:

1) Valid, bullish recovery that signals a trend

2) Pumped-up higher price setup for the algos to crash us tomorrow with selling, or

3) Just another random day with no meaning?

I find myself questioning my portfolio weightings going into tomorrow, and naturally opinions are all over the map. My old boss Larry Summers didn't dismiss the possibility of a Fed-induced recession in his WaPo article today, which bothers me more than a bit. If this scenario plays out, it obviously won't happen in a day, but that's obviously the worst-case scenario for stocks:

On balance, the risks of raising rates seem a little more likely to play out and much more serious than the risks of standing still on rates. Moreover, given the inevitability of mistakes prudence dictates tilting towards making errors that are reversible. An excessive delay in raising rates can be remedied eight weeks later at the next FOMC meeting by raising them then. On the other hand, if rates are raised and it proves to be a mistake there are likely to be substantial costs as inflation expectations move down, financial turbulence ensues, and the economy possibly tips towards recession. Reversing the rate increase would be unlikely to eliminate these consequences. Moreover, reversing the direction of policy would hardly be helpful for central bank credibility as the central banks around the world who raised rates and then were forced to reverse themselves have discovered.


Reasonable people can come to different judgements on all of this. I think on balance it was a mistake to lock in a December rate increase though the argument is closer than it was in September. But that decision has been made. I hope the Fed will not now invest its credibility in signaling further increases until and unless there is much clearer evidence of accelerating inflation. I hope it will also emphasize the two sided character of the 2 percent inflation target to mitigate the risk that markets will think the U.S. has an inflation ceiling rather than target. Finally, I hope the Fed will signal its awareness of instability and risk of growing problems in emerging markets.

The Fed is in uncharted waters here, and has a hell of a tough job given that the complete dysfunction in Congress negates the possibility of much more effective fiscal stimulus. They have signaled a raise and HAVE to hike tomorrow to avoid losing all credibility, but I have no idea what effect the rest of their guidance will have on the market.

It still feels like investing in an individual stock is buying the Fed's decision more than the individual company, which is certainly frustrating for investors and rate "normalization" is a good thing in that context. But when the rest of the planet's central banks are all easing, and there is significant risk of flight to the dollar in emerging markets, is it really the time to tighten?

I've moved to an 80% cash and 20% stock balance ahead of tomorrow, and am seriously considering whether to cash out the remaining 20% and re-buy after the hike announcement dust settles.

I'm not sure there are any other people on here who manage other people's money, but if so, please feel free to chime in with your portfolio weightings going into the first rate hike in the aftermath of the Great Recession.

Edit: I have also hedged slightly using OTM QQQ puts.

Edit 2:

Interesting counterpoint on "upside risk" from another macro trader:

 

[FluxCap]

No comments on my post at all? How are you guys positioned into this event?

 

[Johan]

Overweight cash seems a prudent position.

That said my own personal investments are so undiversified and single-stock specific (I'm young still) and these are stocks where I'm staying long for years and not trying to trim or scalp shorter term movements, so for me it's just watching from the side lines.

For me personally too, seeing as the NOK/USD relationship has been extremely in my favor investment wise in the last year (at least +25% fir me on forex alone) it's hard for me to justify investing more inUSD right now (the NOK is very weak vs. all currencies at the moment, history taken in to account this will correct. But one never knows - Norway isn't as vulnerable to the end of the oil age as Saudi Arabia, but not too far from it).

 

[Jonathan Hewitt]

No comments on my post at all? How are you guys positioned into this event?

It might be super ignorant but I haven't done anything different. It seems a lot of people are sitting on cash. If people are already sitting on cash where is the selling going to come from? This is a very simplistic view but you asked for it

 

[FluxCap]

It might be super ignorant but I haven't done anything different. It seems a lot of people are sitting on cash. If people are already sitting on cash where is the selling going to come from? This is a very simplistic view but you asked for it

No that's a very valid thesis and one I have considered heavily.

 

[Gerasimental]

No comments on my post at all? How are you guys positioned into this event?

I think the market just wants clarity. A clear, unambiguous line from the Fed. Whether they finally raise rates or not I think will be less important than the forward-looking language used. Clear, optimistic language on the economy and strategy of the Fed is more important than whether or not rates are raised this meeting or the next.

Positioned no differently since long-term investor.

FWIW my unsophisticated view is that this event has a bigger possible upside than downside, as markets will react to anything non-positive with the usual 'meh, wait and see what they do next time' reaction that usually results from opaque, ambiguous language.

 

[FluxCap]

 

[austinEV]

No comments on my post at all? How are you guys positioned into this event?

Fear of missing out rules me...

 

[palmer_md]

...

funny photo. I guess cash and shorting qqq was not the best move for me either, but its all good. Certainly was an interesting day to watch.

 

[austinEV]

So what is our conclusion? The expected thing happened and the market had a small relief rally?

 

[FluxCap]

So what is our conclusion? The expected thing happened and the market had a small relief rally?

Yup. It was a "dovish raise" seems to be the consensus.

I'm pretty sure I would have been better off if the solar ITC extension wasn't announced last night which made me miss out on serious gains, but as is I'm still pleased that I de-risked for this event. Will be watching to see if the market "fades the rally" tomorrow, or if it continues.

As for the actual economy, I think we are perhaps the best of the worst, but not great. Deciding what stocks and securities make sense to own in that environment is my next (neverending) project.

 

[FluxCap]

Just to close the loop on above, after de-risking before the event, I'm now sufficiently pleased by the reaction to the Fed and economic outlook for 2016 that I'm back significantly into a select basket of US equities for at least a medium-term hold. I am heavily TSLA-weighted as there are few more high-quality growth companies in the market to own.

So if you are a Flux contrarian, that's the top, we're in a bear market, short everything.