Greatest Hits

Friday's late session swoon was surprising, to say the least. While Macro Man has been confident that the worst for risky assets was not over, he reckoned that the bounce had a bit further to go. Of course, the really ugly interpretation is that the entire sell-off from the highs is still part of Wave A, in which case the ultimate low is that much further away (both in terms of time and of price.) Regardless, a re-think of the original gameplan is in order.

Unfortunately, this period of market volatility has coincided with Macro Man's annual summer holiday. And while he will be managing his real-world portfolio from afar, he will not be in a position to update this space while away. Readers should feel free to use the comments section of this post to exchange views; there is a small chance that Macro Man may occasionally comment himself. For what it's worth, his view is that the hysterics and histrionics of Cramer and the hyperbole of Bear Stearns is unwarranted.

Is there some distress amongst certain mortgage borrowers? Yes.

Is there distress amongst people who thought that buying high-yielding "AAA" paper was free money, and so stuffed their portfolios with turds? Yes.

Is there distress amongst people like Cramer who evidently think that the Fed should target positive equity returns instead of inflation and employment? Yes.

Will there be more losses? Yes.

Will there be more hedge funds closing? Yes.

Will the market go down more? Almost certainly yes.

Is this the end of the world? No.

This is a painful repricing of credit risk, and a timely reminder to people that if anything seems too good to be true, then it probably is.

To give readers, particularly those who have come across this space relatively recently, something to peruse over the next couple of weeks, Macro Man hereby presents his list of 'Greatest Hits'- some of his favourite posts of the last eleven months:

* What is the bond market smoking, and where can I get some? Macro Man's very first post

* Is the yield curve forecasting a recession? On the (in)utility of the yield curve as an economic forecasting tool

* Harry Potter and the FX Reserve Managers The original of the term 'Voldemort' for China's FX reserve manager

* Beta release The study behind the equity beta-plus strategy

* Carry Me Home And the study behind the FX carry beta plus portfolio

* Nouriel Roubini is a Big Fat Idiot The post that instigated Macro Man's correspondence with Brad Setser, Macro Man debunks the myth that the yen carry trade is similar to 1998

* Eight points, Yen again, and Return of Serve Follow-ups to the above

* When the Facts Change Macro Man revises his view

* Cornflakes Without the Milk On the importance of accounting for dividends

* A remedial lesson in statistics On the nature of distributions- particularly apposite in the current fat-tailed credit environment

* FX Carry: A SAFE Haven Calculating Voldemort's investment performance

* A Ratings Agency Toolkit A recent attempt at humour

Good luck.

Macro Man will return on August 20
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9 comments

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Anonymous
admin
August 5, 2007 at 10:39 AM ×

have a good holydays, MM!

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Ape Man
admin
August 5, 2007 at 3:54 PM ×

The only thing that interests me about Cramer's video is the extent that it truly reflects sentiments on Wall Street. Are most trader's freaking out like he is?

One would hope not, but I read that there is a rumor flying around that Caxton is on the ropes. I am not saying that rumors are true (how would I know?) but they could explain some of Cramer's hysteria. If one of the top ten hedge funds goes down, people will really freak out.

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Sally
admin
August 6, 2007 at 5:28 AM ×

Well this is a new topic ...
(A)"Guest"'s sandbagging of MM on BSetsers's blog http://www.rgemonitor.com/blog/setser/207332/, and (B) guest's Conspiracy Theory that MM's wife posts complimentary comments here:
(A) Disagree.
(B) Maybe she does.
But I'd like to make it clear that "Guest" is mistaken if s/he has taken comments that I have posted here for those of a shill or of a spouse.
(C) It's sad that simple appreciation of someone puts someone's else's knickers in a twist.

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Sally
admin
August 6, 2007 at 5:30 AM ×

The link got cut off:
http://www.rgemonitor.com
/blog/setser/207332/

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Anonymous
admin
August 6, 2007 at 1:59 PM ×

Good holidays MM...

But you could leave us with a poem to ponder (or lament) during these weeks, couldn´t you?

avinash goldfish

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JJ
admin
August 8, 2007 at 2:49 PM ×

Have a wonderful holiday

You are missed

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Gus
admin
August 9, 2007 at 9:37 AM ×

Macro Man, you've picked the wrong weeks to go on holiday! It's all fun and games...

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HoosierDaddy
admin
August 10, 2007 at 8:22 PM ×

Enjoy the Holiday. I'm pretty sure a lot of folks working in the markets wish they were on holiday with you.

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Anonymous
admin
August 14, 2007 at 9:58 AM ×

Hi MM,

I have indeed come across this space rcently and am very impressed with the content and quality of ideas. It was also useful to go back to some of the previous posts that you highlighted as some of the frequently used terms (such as voldermot) weren't immediately obvious to me (as I am not a big Harry Potter fan).

The most impressive chart, I found, was the "long-term inflation pressure" based on nominal GDP minus rates - I will keep a copy in my diary.

Enjoy the sun,

FR

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