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LuckyOne

The Catalyst For The Next Leg Down ?

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It feels like we might be entering into another period of significant danger in financial markets.

There are two things going on at the moment which are warning signals.

- Irish debt is trading very poorly and the main clearing house is on the verge of imposing the same margin requirements on Irish bonds as it imposed on Greek bonds when they went into meltdown.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=agK8fkxODmsY&pos=2

- Australia and India are raising rates to counter the inflation that the Fed are trying to induce. Their currencies are rising putting their economies at risk and raising the sceptre of open warfare between central banks.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=agK8fkxODmsY&pos=2

http://www.housepricecrash.co.uk/forum/index.php?showtopic=153921

Markets can often deal with one problem without reacting too badly. They often seem to struggle when there is more than one problem out there.

An Irish sovereign debt crisis along with a disagreement amongst central banks might be too much for the market to deal with at the same time. The 1987 crash was triggered by monetary policy disputes and made worse by automated trading. Conditions in 2010 are probably worse than they were in 1987.

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It feels like we might be entering into another period of significant danger in financial markets.

There are two things going on at the moment which are warning signals.

- Irish debt is trading very poorly and the main clearing house is on the verge of imposing the same margin requirements on Irish bonds as it imposed on Greek bonds when they went into meltdown.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=agK8fkxODmsY&pos=2

- Australia and India are raising rates to counter the inflation that the Fed are trying to induce. Their currencies are rising putting their economies at risk and raising the sceptre of open warfare between central banks.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=agK8fkxODmsY&pos=2

http://www.housepricecrash.co.uk/forum/index.php?showtopic=153921

Markets can often deal with one problem without reacting too badly. They often seem to struggle when there is more than one problem out there.

An Irish sovereign debt crisis along with a disagreement amongst central banks might be too much for the market to deal with at the same time. The 1987 crash was triggered by monetary policy disputes and made worse by automated trading. Conditions in 2010 are probably worse than they were in 1987.

Agreed, think we are entering into a very interesting period. As Bob Janjuah said in a recent interview "Global Asset Bubble Is Building, Fed Is Fattening Market Tail Risk, In One Year Bonds Will Be At Either 1% Or 8%"

http://www.zerohedge.com/article/bob-janjuah-global-asset-bubble-building-fed-fattening-market-tail-risk

We are at the crunch point, in the next 6 moths, deflation or inflation will be the dominant force, no more Goldilocks....

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Sooner or later an American state will be unable to roll over it's debt and effectively default, forcing a haircut or repayment holiday on the bondholders.

If I had to pick one catalyst for the next crisis then that'd be it. But hey...we're spoiled for choice!

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Agreed, think we are entering into a very interesting period. As Bob Janjuah said in a recent interview "Global Asset Bubble Is Building, Fed Is Fattening Market Tail Risk, In One Year Bonds Will Be At Either 1% Or 8%"

http://www.zerohedge.com/article/bob-janjuah-global-asset-bubble-building-fed-fattening-market-tail-risk

We are at the crunch point, in the next 6 moths, deflation or inflation will be the dominant force, no more Goldilocks....

BOE which way though ? i just don't know. under labour i would call QE at even the slightest hint of depressed growth but under coalition not sure.

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BOE which way though ? i just don't know. under labour i would call QE at even the slightest hint of depressed growth but under coalition not sure.

They have to try for managed deflation, either side of that and it really will get tricky.

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Sooner or later an American state will be unable to roll over it's debt and effectively default, forcing a haircut or repayment holiday on the bondholders.

If I had to pick one catalyst for the next crisis then that'd be it. But hey...we're spoiled for choice!

You are right.

The unanticipated consequence might be a further rally in US Treasuries as they represent a miguided safe harbour in the "flight to quality".

If a US state defaults before we have a European sovereign debt crisis and a simultaneous war of words between central banks, we might get one more march higher in equity markets in reaction to low US government yields which might be the last chance to sell equities at very high prices.

My spidey senses are tingling but they tend to tingle at least twice as often as major changes in market sentiment occur. I wish that I was as accurate as Spiderman.

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They have to try for managed deflation, either side of that and it really will get tricky.

2% real target though or will justify qe if gdp/any othersignal goes -ive at some point?

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- Irish debt is trading very poorly and the main clearing house is on the verge of imposing the same margin requirements on Irish bonds as it imposed on Greek bonds when they went into meltdown.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=agK8fkxODmsY&pos=2

That link probably should be http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aUfdcoBAmjR8 ?

The 1987 crash was ... made worse by automated trading.

I dispute that, what was worse the level of liquidity available to take a short-equities view - if a given market wants to go net short, there better be an opportunity of some description to write (and sell) hedges.

Automated basis trading didn't really exist in '87.

It does, now (modulo bizarre attempts to essentially squeeze toothpaste back into tubes).

nb: as a sidebar, none of this is theoretical, we can see it already in the price movements of highly anti-correlated instruments (you now need to be really, really fast to pinch those pennies)

Edited by ParticleMan

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That link probably should be http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aUfdcoBAmjR8 ?

I dispute that, what was worse the level of liquidity available to take a short-equities view - if a given market wants to go net short, there better be an opportunity of some description to write (and sell) hedges.

Automated basis trading didn't really exist in '87.

It does, now (modulo bizarre attempts to essentially squeeze toothpaste back into tubes).

You are right about the link. My ctrl-c, ctrl-v skills failed me.

I think that the program trading / portfolio insurance ideas in 1987 are mirrored in the basis trading ideas of to-day. They both assume infinite and continuous liquidity which was a fallacy in 1987 and is a fallacy to-day.

My interpretation of your comments about the ability to get short if you want to is that the current rules are sowing the seeds for a major market blow-up. Markets which can be long, short or flat are inherently more stable than markets that can only be long or flat when markets are weak. Short covering is a major stabilising influence on declining markets.

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They both assume infinite and continuous liquidity which was a fallacy in 1987 and is a fallacy to-day.

No. Today's fallacy is (the thinking) that taking liqudity is the only way to make a buck.

My interpretation of your comments about the ability to get short if you want to is that the current rules are sowing the seeds for a major market blow-up.

In order for you to get short you either need to liquidate - or - buy a hedge.

As I said, automated basis trading (on the add side) did not really exist in '87.

And it most definitely does, today.

Edited by ParticleMan

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No. Today's fallacy is (the thinking) that taking liqudity is the only way to make a buck.

In order for you to get short you either need to liquidate - or - buy a hedge.

As I said, automated basis trading (on the add side) did not really exist in '87.

And it most definitely does, today.

I am on dangerous ground disagreeing with you ....

To-day's fallacy is the thinking that providing liquidity is the only way to make a buck.

Liquidating or buying a hedge only gets you flat : it doesn't get you short.

Automated basis trading to-day relies on the same fallacy as portfolio insurance / program trading did in 1987. They both assume that the market is continuous and permanently liquid. The "flash crash" this year might be the first of a series of events that proves that the market is not continuous and permanently liquid to-day in the same way that program tradin / portfolio insurance proved that the market wass not continuous and permanently liquid in 1987.

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Liquidating or buying a hedge only gets you flat : it doesn't get you short.

Liquidation is the "last resort" short - it's a flat out view that nominal prices will fall at a rate exceeding yield on the underlying.

On the other front - I'll bet you a tenner that the next leg down won't happen tomorrow - we can settle at T+2 if you like (see how easy this is?).

Automated basis trading to-day relies on the same fallacy as portfolio insurance / program trading did in 1987. They both assume that the market is continuous and permanently liquid.

That's flat out wrong - many basis trading strategies provide (rather than require) liquidity (by selling at the ask and buying at the bid) ... and charge handsomely for it.

The "flash crash" this year might be the first of a series of events that proves that the market is not continuous and permanently liquid to-day in the same way that program tradin / portfolio insurance proved that the market wass not continuous and permanently liquid in 1987.

It might be a predictor of a unicorn in every oven by the turn of the decade too, but it most likely isn't.

Liquidity providers assume that the market is neither continuous nor permanently liquid.

Sometimes they're right, too.

Edited by ParticleMan

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Tomorrow you will know how much QE2 the US is applying. By Thurs we might know what the BOE is doing.

The US will do what it needs to do to safeguard the US - it will not worry about other countries.

It will be interesting what affect the US QE2 has on markets. I suspect the DOW will bounce for a week at least whilst the fund managers work out whether QE2 is good or bad.

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Surely too many people are talking about and expecting a bond bubble and the impending pop for it to actually happen.

Likewise, currency wars seem too widely advertised and expected to be a real catalyst. Unless of course it does get really ugly but I would be more worried about a war at that point.

If a catalyst does come along then I think it will be something unexpected.

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Liquidation is the "last resort" short - it's a flat out view that nominal prices will fall at a rate exceeding yield on the underlying.

On the other front - I'll bet you a tenner that the next leg down won't happen tomorrow - we can settle at T+2 if you like (see how easy this is?).

That's flat out wrong - many basis trading strategies provide (rather than require) liquidity (by selling at the ask and buying at the bid) ... and charge handsomely for it.

It might be a predictor of a unicorn in every oven by the turn of the decade too, but it most likely isn't.

Liquidity providers assume that the market is neither continuous nor permanently liquid.

Sometimes they're right, too.

I am quite possibly the worst day trader in the world. I don't position around short term movements.

My asset allocation is a bit different to my targets at the moment. That is about as far as I will go.

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it will be interesting to see what the bank of japan does in response to fed action. any1 back on yen watch?

I watch EUR/JPY quite closely.

108-110 is the danger zone. WE are comfortably above that at 113 or so.

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Has anyone considered a quasi co-ordinated QE2 announcement by nations that require it, to make it clear that it is not being done to competitively devalue currencies?

QE is only done for one reason...to provide cash for banks that are short of it.

otherwise, if the market was in any way normal and healthy, someone would be able to say.."hey, Market, look at this lovely asset I have, I need some cash..who will lend it to me secure in the knowledge that if I default, we can sell this asset and pay your back regardless?"

why isnt this happening...oh yeah...because we STILL have a debt mountain in the room.

There is no leg down....we havent reached the top of the hip yet...we have thigh, knees and shins to go before we reach the foot and stability is returned.

All this "stuff" going on is just a game to bankers....and its not even deadly to them.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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