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« Weighing the Week Ahead: A Deluge of Data | Main | Weighing the Week Ahead: Central Bankers take the Spotlight »

December 06, 2011


Angel Martin

Mike, thanks for the link

On sentiment, in addition to the "Time magazine cover" type indicators, i will be listening to the christmas party conversation: at christmas 1999 i remember a lot were talking about JDS, Nortel etc

If people who are not investors are talking about the euro: watch out for the bear market rally.

Mike C

Angel, FWIW on consensus:

"Sentiment is widely bearish on the euro with many FX analysts calling 2012 “the year of king dollar”, moreover EUR/USD is flirting with the huge psychological round number at 1.30 and 52-week lows at 1.2870 just below. I learned long ago that sentiment can remain a one way street when markets are in powerful long term trends, however, when Sean Hannity is stating that the “euro is done” and analyst/investor sentiment is so decidedly one sided the contrarian streak within me begins to tingle a bit."

I'm sitting on a profitable short futures position (micro EUR/USD /M6E) but thinking it might be time to cover.

Just my opinion, but having watched tech/Internet in 99-00, housing in 04-06, oil in 07-08 I think excessive sentiment can often mark an intermediate-top or bottom but not necessarily the end of the overall trend. The crowd is only wrong at the very end.

Still, it wouldn't surprise me to see a bounce here.

Angel Martin

Mike, thanks for the ilnks and the pointer to the Steinhardt variant perception concept.

Here's the issue i'm having positioning myself on the euro trade.

For the past year I have believed that the piigs (plus france and belgium) were insolvent and that either: they would all default and exit the euro; or the ecb would monetize their debt.

In either case i expect the euro to go down (a lot).

The problem: a year ago people thought I was a crank, and now everyone agrees with me !

It's the agreement that worries me - big moves don't happen when everyone agrees it is coming. In terms of Steinhardt, there is no "variant perception", i am part of the consensus.

I have an option strategy that depends on a big move to work.

The way i'm thinking about it now is, i have a small put position on FXE and i won't make it larger unless i see the eurozone take action that most market participants believe has "solved" the crisis.

Mike C

Angel, here is one more I think you'll find worth the read:

"There is only one way out of this trap –The ECB buys nearly all of the sovereign debt in a last minute attempt to prevent one of the PIIGS from leaving the euro."

To me this is so utterly fascinating...all the behind the scenes machinations and trying to use game theory to figure out who can force whose hand.

Of course today's announcement from Draghi runs counter to the above, but is the ECB just the biggest BSer out there?

Angel Martin

thanks Mike, i will have a look at both


Mike C


You might find this of interest:

Are you familiar with Michael Steinhardt's variant perception concept. I think it is easy to be knee-jerk contrarian for its own sake. The harder part is having very good reasons why your variant perception is wrong.

Additionally, it seems to me that a "solution" to the Eurozone is a different question then where the euro currency ends up trading. As we've discussed previously, some of the "solutions" likely involve substantial euro depreciation.


Jeff, I think you are spot on seeing a high level of negativity. The few broad-based surveys I have heard indicate most participants believe the Euro will eventually break up. But judging by how slowly stuff has been done in Europe in the past, I see mostly upside, but over a period of years. However, I'm not sure my nerves will survive that long :)

Angel Martin

Jeff, good summary as always.

Per previous discussions, we see the end game for europe very differently. At the same time i really respect the point you have made about a negative outcome of the the EU/euro being a consensus view, and the short euro trade a crowded trade etc.

This may be a good topic for a future posting but my question is, when looking at contrary strategies, how do you evaluate them? Do you look for some underlying fundamental that the consensus has missed? If you thought the fundamentals were all bad but the consensus was negative would you still be contrary?


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