Friday, October 27, 2006
* Apparently, Boeing does not count. Headline durable goods orders were lofty yesterday, but the market chose to focus on the core shipments data, which were legitimately poor. However, the more forward-looking components of the data (unfilled orders, for example) suggest that production should accelerate in Q4. More strategically, it seems that Boeing is wiping the floor with EADS now that the latter’s sub-parity EUR/USD hedges have rolled off. Sure, some of this has to do with the mismanagement of the A380, but a goodly portion of it surely has to do with Airbus being relatively uncompetitive with the euro at overvalued levels. Macro Man will watch the relative value of Boeing and EADS with interest, and will look to buy Boeing at 3x the price of EADS if the EUR/USD rate is north of 1.20.
* Is Macro Man’s currency luck about to change? The stop in NZD narrowly avoided being done after better than expected trade and spot has come back lower in London. It is interesting to note that in the last couple of days that NZD/USD has sold off during post-Asian hours, whereas the previous couple of weeks it was bid only. Perhaps the times they are a-changin’
* The bond market, meanwhile, is growing as erratic as the currency market. Macro Man assumes that the outsized rally in bonds was a response to the lower prices received on new home sales. However, surely it is a rational response that homebuilders respond to weaker demand by adjusting the price (Note that inventories were the lowest since May.) Moreover, one has to wonder at what point the housing market becomes fully discounted. Macro Man couldn’t help but notice that while the bond market couldn’t get enough Treasuries on the back of the data, the stock prices of Lennar (+$0.80), Beazer ($0.92), and Toll Brothers (+$0.06) all went up yesterday. All the more reason to add to the bond short on any further rally on the back of GDP today.
* It is interesting to note that despite bang-up earnings from Mister Softee last night, SPZ6 is down a couple of points in early morning trade. Although November and December are seasonally very good months for equities, seasonality hasn’t exactly been working terribly well recently (one rarely hears of record low vols in September and October, for example.) Moreover, the forthcoming US elections may provide a few jitters, so perhaps it is time to think of bearish strategies for stocks. As an initial step, Macro Man will offer $2.5 million of his long OIH at 140. If SPZ6, it might be time to take advantage of extremely low vols and spend some money on puts.