Thursday, January 25, 2007
Macro Man would like to issue a hearty congratulations to the administrators of the British rail system. Confronted with an historic blizzard, and battling snowdrifts as high as an eighth of an inch thick, the rail system managed to get Macro Man to work today with only one cancelled train. Well done. Your nation thanks you.
On a somewhat less sarcastic note, the FX carry trade is coming under more pressure overnight and this morning. Hawkish comments from, well, a known BOJ hawk prompted a further bout of yen buying overnight. The WEF at Davos has provided a soapbox for all manner of talking heads, and the wittiness of the repartee has been breathtaking:
Japanese Fin Min Omi: The yen should reflect fundamentals!
Ex Vice Fin Min Kuroda: Yen weakness from carry has gone too far! It could correct itself in -wait for it- just TWO YEARS! (Macro Man is quaking in his boots at the prospect)
Current Vice Fin Min Watanabe: Yen isn't a major issue at next month's G7!
'Unnamed G7 source': Everyone but the Japanese wants to talk about the yen, but they are going to pretend not to hear us!
And of course:
PBOC: We need to diversify!
While Macro Man has benefited by delaying implementation of the full carry portfolio, he does not expect a fill scale crisis without confirmation from other markets. Volatility in not only currencies (CVIX) but also equities (VIX) and fixed income (MOVE) is at historic lows. Vol will need to pick up if the carry trade is to collapse.
Just look at the performance of the kiwi overnight: it's gone ballistic on a hawkish statement from the RBNZ, eroding some of Macro Man's hard earned gains.
All is not lost, however, as the rest of the portfolio has fared quite well. The equity beta and alpha trades have moved the portfolio smartly into profit over the past couple of days. Further upside appears to lurk for Goldcorp: the overlay chart with gold suggests a move up to $30!