Tuesday, May 29, 2007
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.)
- 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
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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