20 Questions

Wednesday, July 25, 2007

1) Why was it such a surprise that Countrywide earnings were disappointing: given the underlying state of its market, surely the confidence interval around the consensus forecast must have been pretty wide?

2) Aussie hedge fund Basis Capital has hired Blackstone to dispose of its subprime turds: could it be that they want to flog their ropy assets to Voldemort?

3) Who will with the battle for ABN Amro: the RBS consortium, or Barclays, backed by financing from Voldemort and Temasek? And if the latter, does this mean that Voldemort will eventually morph into Vinny the loan shark, the place to go for financial institutions who need cash, and quickly?

4) How soon can one refer to the plotline of the final Harry Potter book without being called out as a spoiler? (Hint: not yet, as Macro Man will be reading the book on his August holiday.)

5) What is the best way to play the ongoing secular boom in food prices?

6) How much of the current bout of yen strength is down to uncertainties surrounding the LDP’s forthcoming trouncing in Sunday’s Upper House elections?

7) Why has the service on Japanese railways remained superb after privatization while the UK railway network is in a diabolical state after the breakup of British Rail?

8) How much do equities need to sell off before the DOTW (non-housewife branch) scurries for cover?

9) Where is risk positioning the biggest, relative to one’s ability to exit at a non-knee trembling rate?

10) Did you realize that the BRICs are all in the list of the world’s top 10 largest economies if one counts the Eurozone as a single economy?

11) How does one measure the strength or weakness of a currency? Macro Man could not help but observe that a new Porsche 911 turbo advertised on Yahoo (for $107,800) appears very substantially cheaper than the same car in Germany (€137k), UK (£97.8k), Japan (Y18.79 mio), or even China (R1.95 mio). (Disclaimer: Macro Man drives a late 90’s VW, but Macro Boy’s consuming interest in all things automotive forces him to know things like the cost of a 911 turbo.)

12) Why is the coffee machine in Macro Man’s office always broken?

13) What level of GDP growth will encourage the ECB to stop tightening rates?

14) Is there anything more annoying for a commuter than the moment you realize that you’ve left your iPod at home?

15) Kuwait’s currency revalued again (by 1.7% this time) while the Argentine peso is getting shellacked: is the emerging market wheat finally getting separated from the chaff?

16) Did you know that Wednesdays are the best day of the week for US stocks: over the last two years, the cumulative price return for the S&P 500 on Wednesdays has been an impressive 23.1%? (Monday is the next best day, at 7.7%, although Monday returns are actually negative since 1950!)

17) How can last year’s hot, dry summer in the UK and this year’s cool, wet summer in the UK both be down to “climate change”?

18) As an adjunct, why is carbon the only emission that people try to offset when it is only a small part of the greenhouse gas issue (and why does no one offset particulate emissions, i.e. pollution)?

19) Was last month’s impulsive move above the long term trend line at 5% the mother of all false breaks in the US bond market?

20) Why is it that counties with high private sector savings rates are scrambling to set up sovereign wealth funds, while in counrties like the US with low private sector savings, the concept of a nationalized equity investment scheme can get no traction (despite the long term funding gap of the social security program)?

and a bonus question .....

21) WHY OH WHY DIDN’T MACRO MAN SLAP ON THAT EQUITY OPTION HEDGE YESTERDAY?


Posted by Macro Man at 9:25 AM  

23 comments:

5) I can come up with one currently much-touted edible oil product that is currently trading at 30-month lows. Of course, our in-house analyst has spun that as 'support' and we have acted accordingly.

19) Boredom begets epiphanies. Remember that guy with his isolation tank self-experiments in the late sixties?

19 (alternate version) See question 10.

CB

10:53 AM  

Yes, rumour has it that smart money out of Jaen has built a substantial long position in olive oil....

Out of curiosity, how big is the olive oil market Charles?

Macro Man said...
11:08 AM  

re: Q17) "A major new scientific study reveals the heavier rainfall in Britain is being caused by climate change as the country reels from summer downpours of unprecedented ferocity."

http://www.hindu.com/thehindu/holnus/008200707240362.htm

Anonymous said...
1:02 PM  

That might well be the case....I just find it amusing that climate change is blamed for both a hot and dry 2006 and a cool and wet 2007. I look forward to climate change being blamed for average summer weather in 2008....

Macro Man said...
1:07 PM  

what i find amusing is how the media report on the memes that fit with global warming but rarely the opposite. even in japan, where the meterological agency has said temperatures have been and will likely stay a shade cooler than usual, the reports focus on the heat.

on japan railways, i'm not sure just how deregulated it is. why is the fare between tokyo and kyoto/osaka always the same no matter whether it's an average weekday train at midday or one during golden week? then again, why are beers always the same price.

when it comes to service in japan, i just don't think it gets any better -- no matter the price you're paying.

tmcgee said...
1:27 PM  

Since you asked....

1) Why Countrywide disappointing a surprise?

Unbridled optimism typically dies a slow and painful death

2) Basis - Blackstone - Voldemort?
A global PKO-keeper in USD debt remains possible so long as the US keeps manufacturing USDs and Official buyers continue accumulating them.

3) Voldemort/Temasek as loan shark? Rumour has it Temasek won't even look at anything if the ticket-size sub-half-a-bill.

5) playing boom in food prices? food retailers are long embedded calls on food-price inflation. And they typically are cheap to begin with and own assets. Their nominal net rises proportionately to revenue .

6) is yen strength related to elections elections?
No

7) Why does British Rail suck? Because too many Brits still start their days with Baked Beans on toast - the breakfast of champions (not!). It is related to the fact that Japanese taxi drivers wear white gloves!

8) How much equities sell off before DOTW seek cover? It is not "How much?", but "For How Long" they must sell-off for. Time is what kills in a world of insta-pundits and instant gratification

9) Where positioning biggest, relative to an exit ? 1. Real Estates. 2. Expensive High Momentum Stocks with low-short-interst held by levered funds simultaneously getting margin calls on their other risk positions.

10) BRICs are in the world’s top 10 largest economies? indeed!

11) How does one measure the strength or weakness of a currency? Its all relative to one's own basket. UK indep school, luxury euro
vacations, and an SW3 pied-a-terre are painfully dear to a nominal dollar earner with multiple offspring whose name is not Buffett, Simons, Cohen, Gates or Bacon.


12) Why is the coffee machine in Macro Man’s office always broken?
Because you're in the UK, silly!. I bet the kettle is never broken...

13) What level of GDP growth will encourage the ECB to stop tightening rates?
"the people" in the EU regions are complaining about inflation, not about interest rates. They can neither afford to buy, adn rents are vaulting higher. And people - on average are net savers rather than net debtors, so higher rates are good. Specs and corporates alike can borrow in CHFs SGD s or JPY, so unemployment really must do an about face for "The people" to complain about rates...(UK excepted of course)

14) Is there anything more annoying for a commuter than the moment you realize that you’ve left your iPod at home? going home to get it and returning to the station to see one's train pulling away....

15) Is EM wheat being separated from the chaff?
no

16) Buy Tues aft - Sell Thurs morn? Does that hold true for years when the AFC wins the superbowl?

17) How can last year’s hot, dry summer in the UK and this year’s cool, wet summer in the UK both be down to “climate change”? Just wait until the full effects of diminished north-atlantic salinity shuts-down the gulf-stream. Yup. UK, Scandinavia, and much of northern europe will be more or less unihabitable as the glaciers return. (So says Woods Hole's Chief Climatologist)

18) why is carbon the only issue (and why does no one offset particulate emissions, i.e. pollution)? didn't you ever hear of "com-trails" and "global dimming"?? Without particulates, the world would have been fried to crisp long ago. China's particulate polluting may be keeping the earth cool enough to find a solution to this fine enviro mess.

19) Was move above 5% the mother of all false breaks in the US bond market? it was if you got sucked-in short or stopped out at the lows....

20) Why counties w/ high savings rates are setting up SWFs while those low private savings, can get no traction?
cultural feedback loops combined with cynical trussing of bankrupt policies

and a bonus question .....

21) WHY OH WHY DIDN’T MACRO MAN SLAP ON THAT EQUITY OPTION HEDGE YESTERDAY?
because the risk of shorting a pseudo-inflation hedge under the status quo regime is inordinately high and risky. Perhaps its better to do what TCI's Hohn does: Take the money one would otherwise give to charity, buy puts, and donate 50% of the proceeds to charity in the event of a win. Isn't modernity wonderful?

My question #22 is: Traditionally the US was the flight-to-quality destination? With the USD the wet turd of the FX market, what will be the destination of flight to quality when the neo-cons carpet-bomb Iranian nuke sites?

"Cassandra" said...
1:47 PM  

C- ask and ye shall receive. The DXY is currently in the midst of one of its biggest daily reversals since early January. Expect more if the DOTW stays out of the equity market post-housing figures...

Macro Man said...
2:55 PM  

Simply put, not very.

Cash at source would be 3 million tons at, for the sake of saying something, 2,500€ per. The futures continues to grow at a good clip, but remains infuriatingly puny and only really playable on the turnover to (and rebound from) the new crop year.

In my case, I do not really believe the blather about the record crop coming up in 2007-08. Something about the the interests touting it as well as the anecdotal evidence I've been able to garner... And, even if it turns out to be true, I don't mind the current two-teens as a point for boarding the bus.

E-mail me for more info, if you're interested.

2:55 PM  

MM -

US has just sent a third carrier to Persian Gulf. Rumour has it (as reported by Auntie Beeb) that both gulf allies and EU has sanctioned an Israeli take-out of Iranian enrichment sites. There remain 18mo of neo-con rule which is plenty of time to break some more plates.

Given that most shorts in the USD are private-market, and the longs public, I am amusing myself with ideas of what the present-day "flight to quality" might resemble. Indeed IF it be traditional, the mayhem upon trading positions given their current bias could be tremmndous.

"Cassandra" said...
3:40 PM  

The really amusing thing is that the shoddiest performance in curency land today is being put in by the CHF, once the ne plus ultra recipient of flight-to-quality flows.

The SNB must be gnashing their teeth at this point.

(As an aside, how do you do italics in the comment section?)

Macro Man said...
3:45 PM  

...I'd have thought you;d love the Pingu! allusion, especially because Pingu speaks Pingish.

Italics are achieved by
openangualer bracket followed by i then closed angular brack, followed by the desired text, closing with open-angular bracket forward-slash i, closed-angularbracket. where open angular = <, and
closed angular = > and
forward-slash = /

"Cassandra" said...
3:52 PM  

Cheers for that. Pingu has sort of passed me by- it wasn't on TV where/when I was a lad, and for better or for worse my kids prefer Top Gear.

Personally, I'd have used the cuckoo for the CHF, because that's what you need to be to buy it. (Alternatively, it's the cloudy land where the SNB resides.)

Macro Man said...
4:08 PM  

"15) Is EM wheat being separated from the chaff?"

Argentina does produce a lot of wheat by the way, so the metaphor amused me ...

but one thing about the ARS puzzles -- best I can tell, BCRA is still buying $ (maybe not as fast as before). July reserves are up $1b, which is solid for an Argentine sized economy ... that suggests ARS weakness is getting a bit of a push from the authorities. i would think they would stop buying $ as demand for ARS fell ...

(if all the reported rise in BCRA reserves = valuation, i apologize, i haven't done the math)

bsetser

Anonymous said...
4:51 PM  

Voldemort buying at the top

Blackstone .... Barclays .... Euro....

-----reminds me of Japan in the 80's and Saudis in the 70's

Anonymous said...
5:15 PM  

Desperation has driven Brad to humour!

The Japanese are still at it: increasing their Cross-shareholdings only AFTER the Nikkei has virtually tripled, whilst Nomura recently rang the bell with 50%++ stake in Fortress (funnily enough with the somewhat emblematic symbol of "FIG", presumably as in "FIG Leaf").

"Cassandra" said...
5:40 PM  

Cass : "My question #22 is: Traditionally the US was the flight-to-quality destination? With the USD the wet turd of the FX market, what will be the destination of flight to quality when the neo-cons carpet-bomb Iranian nuke sites? "

one would want to consider India

MM, you need a crash course on HTML ...you can just concentrate on the modified DietZ method all the time....

Anonymous said...
5:41 PM  

Brad, word on the strasse is that BCRA has turned seller amidst all the turmoil, though clearly not in market-shifting amounts.

You can tell that Brad inhabits a higher intellectual plane than most market participants by the nature of his humour; most market participants (including, alas, me make Argie-related puns that are rather more, ahem, gluteal in nature.

Cassandra's FIG allusion set my mind wondering what Voldemort's ticker code would/should be. Clearly markets that they enter have all the risk premia, or vig, squeezed out of them. And then it hit me: VIG (Voldemort Investment Group), which fits in very nicely indeed with the emerging loan shark analogy as well...

Macro Man said...
6:29 PM  

Nice! And in the Elmore Leonard vein of Get Shorty (quite literally applicable in terms of the US Bond Market) if Voldemort/Temasek do become the lenders of last resort, then "VIG" does indeed become their watchword. I wonder if SAFE has an equivalent of Ray (Bones) Barboni ?!?

"Cassandra" said...
6:45 PM  

The way things are now, I believe that it's Chili Palmer who works for SAFE/VIG- after all, Chili has experience in branching out and diversifying away from traditional loan sharking.

Ray Bones, the recipient of a broken nose who always seems to come off second best in his encounters with Chili, could perhaps be represented by a fund manager cum blogger who goes by the initials "MM".

Macro Man said...
6:53 PM  

MMan -- thanks for the word on the strasse ... makes sense when i think about it. BCRA buying was when the ARS was at 3.10, i.e. earlier in the month; i didn't realize until i checked it had depreciated significantly from that point in the last few days (i.e. after the most recent reserve numbers, i think)

Anonymous said...
3:22 AM  

i am a new reader / first time writer. found your blog researching the busting Libor Plusnds. i think axa and ODDA are just the beginning. rumors that funds like this have been puking super senior tranches north of 200bps. this market is broken. question - why the layers of long dated gbp/usd puts? and how did you pick the brl 2.04ish strike? how amazing is it that the kids trading this... already think that 2.00 is "so far away..." few in this mkt have traded a true crisis.

Carry Out Trade said...
8:56 PM  

Carry Out Trade, welcome aboard. The strip of very long term options are actually EUR/USD- somehow the labeling has fallen off my spreadsheet. The background and rationale for that trade is here.

The USD/BRL option was actually part of a spread trade- long Brazilian equities through the EWZ ETF, and short BRL through options. It's worked quite well so far, though obviously the option position has little economic value at the moment. The rationale for that trade is here .

I know what you mean re: the lack of a recent crisis. At the very least you need to go back 5 or 6 years, but of course the last real systemic crisis was 1998. Perhaps the dipbuyers of the world are about to go and see their first horror movie.

Macro Man said...
11:05 AM  

18) As an adjunct, why is carbon the only emission that people try to offset when it is only a small part of the greenhouse gas issue (and why does no one offset particulate emissions, i.e. pollution)?

Answer - carbon is not the only emission that people try to offset for the greenhouse effect. Methane, Hydroflourocarbons, and other gases are also offset - it's just that the amounts are measured in "equivalent tonnes of CO2," so 1 tonne of Methane is (if I remember right) equal to offsetting 8 tonnes of CO2. The result is that it sounds like carbon is the only gas to be offset, but it's not, it's just the reference gas for measuring effects.

There are also emission markets in some countries for other gases, like sulpher oxides (SOx) and nitrous oxides (NOx), but they aren't global.

Bruce said...
7:25 AM  

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