Friday, July 13, 2007

Friday the 13th

The dip-buyers of the world have certainly united, to the extent that "dips" soon look like "blips" on the chart. Once again, traders have been rewarded for closing their eyes and buying weakness, a turn of events which has left many of Macro Man's more seasoned amigos in the market scratching their chins and shaking their heads.

Macro Man himself has locked in a rather costly round-trip on the FX carry trade, as the indicator he follows unsurprisingly swept back into risk-seeking mode overnight. Three days and $700k later, he's back where he started.

Today's retail sales figures in the US will almost certainly show another tepid reading, but that probably won't come as a substantial shock to many people. Thanks to trade, inventories, and business investment, Q2 growth in the US looks set to post its highest reading for some time; Morgan Stanley, for example, is forecasting growth at a 3.9% saar clip.

While that pace is virtually certain to slow in H2, it's still not exactly suggestive of an economy on the ropes, is it? It's difficult, therefore, to construct a secular bear case for risk assets unless one believes that the entire financial system is built on a rickety foundation funded by subprime loans.

Those of us old enough to remember when the Friday the 13th movies went on cinematic release are perhaps scarred by the lurking menace of Jason, and tend to see him around every corner (or dip/blip) in markets. It calls to mind the old Stanley Druckenmiller anecdote of how he was elevated to a senior research position very early in his career because he hadn't been scarred by the 70's bear market. Perhaps Macro Man should just hire an army of 22 year old and Japanese housewives to trade the market for him, as they evidently aren't troubled by the same nightmares as him.

Macro Man will be away on business Monday; normal service should resume on Tuesday.


Anonymous said...

The evolution of credit spreads seems key to it all.

To the degree that housing has been ground zero for the emerging credit deterioration, two things are surprising:

a) How early it started – when you think about it in the context the continuing debate re the impact of mortgage credit and housing equity on the rest of the market, the issue seems to have been around for quite a while already, particularly given the persisent buoyancy of everything else

b) How slow its been – its still being debated, and an important quantum of mortgage resets remains to come

Have faith in lags?

Charles Butler said...

Not a bad plan handing it all over to a fleet of trend followers probably not all that influenced by blips on American news wires. How do you translate 'sub-prime', anyway?

The fact is that the total dominance of the United States as a source of news (if not information, per se) has yet to reflect the less-dominant-than-before position of that country as a source of investment money.

...this a mere subset of my guess that, since 9/11 - if only to pick a date, we are all seeking our epiphanies in the places where they no longer reside.


Anonymous said...

You make interesting comments about the younger set and their lack of worry. But it's more than them now--the absence of fear is pretty widespread. I know that it is late-cycle, and I should expect to get lonely here, but that doesn't make it easier. I'm nagged by the notion that maybe it really is different this time, and (insert newest hot item here) won't get in financial trouble. So I spend too many early morning hours trolling the blogoshere for kindred souls who also believe that there are in fact some monsters under the bed.

Great blog, by the way.


Anonymous said...

An army of 22 year old Japanese housewives in the office might be distracting...

James said...

There is no fear in this system because the government has made very clear that they stand ready to inflate like crazy. Thus moral hazard has increased like crazy. I think that most people are placing too much faith in the governments ability to fix things if something goes wrong, but so far they have been right.

Macro Man said...

Yeah,I originally wrote "an army of 22 year old Japanese housewives" but realized that Mrs. Macro might not be too pleased to read it...

Anonymous said...


Last you mentioned portfolio allocation management as a reason to buy EUR/USD

There seems to be no respite to $USD. Its making new lows each day.

Could you enlighten us with the reason/ppl behind these selling

Macro Man said...

As most regular readers will know, I refer to the various central banks/monetary authorities/sovereign wealth funds who accrue dollars via the sale of RMB, RUB, INR, oil, etc. and then take some of those dollars and buy euros, sterling, etc.

These cats are the biggest players in the EUR/USD cross, and when they have their buying boots on, let's just say it has a tendency to go up.