Tuesday, May 29, 2007

Five random cultural allusions

Another bank holiday, another hatful of rain. It's quite a tradition here in the UK. As he travelled to, from, and around the Isle of Wight, Macro Man was left to rue the persistently strong correlation between days off from work and precipitation. Still, all was not lost. Putting the Ipod on 'shuffle all songs' took Macro Man (and, to their evident chagrin, Mrs. Macro and the Macro kids) on a musical journey to his past.

As he listened to songs last heard when Margaret Thatcher was the prime minister resigning from office, his mind started wandering. Lyrics he heard reminded him of situations he was observing in the market. (Macro Man is clearly not alone in this propensity.) This morning, he even saw a market story that reminded him of a line from one of his favourite films. So without further ado, here are five random cultural allusions that have grabbed his attention over the last few days:

* Why can't I free your doubtful mind and free your cold, cold heart
- Hank Williams

Probably because your beloved is living in the UK, Hank. Yesterday's bank holiday saw some parts of the UK colder than Alaska and Siberia. If the shops in Ventnor were anything to judge by, May should see a stonking retail sales result in the UK. Macro Man is relieved to be out of the short sterling long.

* Here's where the story ends. It's that little souvenir of a terrible year...
- The Sundays

OK, this one's cheating a bit. Macro Man isn't clever enough to know where the bubble in Chinese shares will end, but he has a pretty good idea of how it will end. Eventually, the authorities will feel compelled to tighten policy more aggressively (that is to say, they'll feel compelled to actually tighten policy.) This may well not occur until after the Olympics ; when it does, however, the future will probably look an awful lot like the past (note the chart below, depicting Shanghai B shares, is in log scale.)


* And I'm free.....free fallin'

- Tom Petty

This one's also a bit of an exaggeration. But the Taiwan dollar is perhaps another reason to be worried about risky assets. A whipping boy and favoured funding currency all year, the TWD is now flexing its muscles courtesy of CBC intervention and stop lossing. USD/TWD has corrected quite sharply over the last few sessions; further weakness could suggest that perhaps USD/JPY might shake out a few late longs, a development that could grab the attention of the broader market.

* Gale: Where'd all the tellers go?
Evelle: They're on the floor as you commanded, Gale
Gale: Didn't I tell you not to use my name?
Evelle: Not even your code name, Gale?
Gale: Yeah, that's right. Y'all hear that? We using code names!

- Raising Arizona

Unlike, for example, the ECB, which has finally decided to end the ridiculous farce of signalling future rate hikes using code words. This may well increase the volatility around ECB meetings and speeches, given that the market will not have received a memo about the timing of rate hikes two months in advance. Could this mean that the ECB tightening cycle is coming to an end? Potentially, though Weber tried to dismiss the notion in the linked article. Still, you'd have to think that the change in communication strategy was prompted by a change in circumstance, e.g. diminshing visibility of the future rate trajectory.

* Crazy...I'm crazy for feelin' so lonely
-Patsy Cline

Hugo Chavez may not be crazy, and he may not be lonely, but he is certainly increasing the volatility of the Latam region. His weekend decision to close the opposition TV network prompted large and violent demonstrations in Caracas. His ongoing flirtation with exiting the IMF and World Bank would also appear to suggest a less than firm commitment to service Venezuela's external debt. While he retains extraordinary popularity amongst the country's economically disadvantaged, Chavez is succeeding in driving out the nation's intellectuals and middle class. While a Venny default would not be the biggest shock in the world (CDS spreads are considerably wider than for similar regional credits) , it is a popular destination for coupon clippers and sellers of risk premium. While a Venny default would not necessarily carry the impact of, say, a Russia 1998 situation, it would be considerably more important than a similar action from Ecuador. As such, the situation bears watching.

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7 comments:

"Cassandra" said...

"Cold, Cold Heart" is one of HW's best along with "You Win Again".

I am marginally sympathetic to Chavez if only because he is articulating a rather deep-seated and widespread sentiment across LAm seeking redress of historically lame policies highly skewed to benefitting the few at the expense of the many - a legacy courtesy of Spain, the Church, and perpetuated by US. Had it been allowed to run its course historically, instead of being snuffed at each juncture by the US, it would long-ago have swung back toward more centrist regimes. So while Chavez may indeed be a nuisance to capital, markets and the current US admin, he will be seen historically as but a nuisance.

On the other hand, scenes over the weekend of nationalistic orchestrated thuggery in Putin's Russia were chilling indeed. It is not a good a place today to be in opposition, a queer, or for that matter, a foreign owner claiming full or even partial title over an asset that Friends of Vlad covet. Imagine watching the CNN coverage of "Krystallnacht" in more or less realtime...

Macro Man said...

I'd concur that Chavy is a nuisance, albeit an extraordinarily well-funded one. Of course, in a markt largely priced to perfection, even a nuisance can be costly on occasion.

I didn't see any weekend news from Russia, but it seems quite clear that Vlad is running a bit of a kleptocracy. However, as is the case in Venny, if the average punter on the street feels better off, the dictator is loved. Needless to say, however, the occasional descent into poisoning political opponents in foreign countries (Yuschenko, Litvinenko) is extremely unsavoury and like something out of a real-life James Bond flick.

Charles Butler said...

A few weeks ago, Chavez announced the nationalization of the country's banks - one of which is BBVA Banco Provincial, belonging to you guessed it. The mother ship didn't flinch because Venezuela's not paying proletarian sums for these assets - more like private equity without the disadvantage of competing bids. Morales is another story, though, as Repsol can verify.

Russia, yes, is a big problem that everyone somehow sees fit to not mention, preferring to deal with less pressing tasks. I preferred Nikita (and his shoe).

Patsy Kline, BTW, hated that song and did everything she could to have it relegated to the b-side.

Macro Man said...

Hmmm....$/JPY and EUR/JPY make new highs, and then equities start rolling over. Doesn't take much to tip the scales back towards fear.

I'm not sure what it says when two forty-plus year old country songs are among the five things that come to mind when I look at the world today...

Ape Man said...

Sir,

I appreciate your insights. But why does Chavez rate a mention and Iran does not?

To be sure, Chavez is doing horrible things. But I think that it is a ways from the blow up point yet. Not so sure about Iran….

I quote from the Guardian….

Iran’s financial system suffered a fresh jolt yesterday with panic selling on the stock market after the president, Mahmoud Ahmadinejad, abruptly ordered banks to cut interest rates sharply, despite surging inflation.

The order, which Mr Ahmadinejad issued by telephone during a visit to Belarus and which flew in the face of expert advice - has triggered warnings of a financial crisis and spiralling corruption amid fears of a capital flight from the country’s lending institutions.


Desperate nations do desperate things. And there are carrier battle groups just waiting for Iran to do something that will cause the American people to get excited enough to support military action.

To top it all off, a large portion of world's oil supply sails past Iran every day….

Factor all these things and I think I would be more worried about what goes on in Iran then Chavez's latest high jinks.

Macro Man said...

Ape Man, you're right, Iran is clearly more important from a geopolitical perspective. But by the same token, Iran is a known risk that will only indirectly impact financial markets, via its impact on things like oil and sentiment.

Venezuela, on the other hand, is a surprisingly popular market for direct trading and investment. If there is any correlation between the number of CDS price runs I receive per day and the size of positioning, then the Venny trade is rather crowded indeed.

Banker said...

Both of these countries will rise in importance due to the price of oil (funding them) and the demand for oil. Unless we (the rest of the world) find an alternative source of fuel, we will always have them (and other's like them)to worry about.