Friday, October 12, 2007
Yesterday was just one of those days, one of those glorious days that comes around only once or twice a year, when everything comes together. Just about every single position that Macro Man has in his real-job portfolio was making money yesterday, and he had the rare and pleasant sensation of being positively surprised whenever he looked at his P/L. It's once of those days that you wish you could bottle because you feel invincible.
Of course, you're not invincible, and it's important to remember that fact. When Macro Man mentioned to a colleague that he was having "one of those days", the colleague asked him how long he reckoned it could last. "Until I walk out the door," Macro Man replied, "then I'll start losing money."
Little did he know how right he was. For once Macro Man left the office, yesterday's "one of those days" turned into another type of "one of those days", a type that, alas, occurs with much greater frequency than the first kind. The sharp intraday reversal in US equities put a dent in the risk asset lovefest (Macro Man's risk appetite indicator took a tasty plunge away from euphoria levels), but that's not what turned today into "one of those days." Sharp intraday turns are to be expected in high volatility environments, and regular readers will recall that one of Macro Man's core views is that secular volatility is on the rise.
No, what makes today another "one of those days" is the rumour and innuendo surrrounding yesterday's share price swoon and the hysterical overraction across asset markets to tick-by-tick moves in equities.
So far, Macro Man has heard the following explanations, presented in all seriousness, for yesterday's reversal:
1) JP Morgan downgrades Baidu.com, the overvalued Chinese inernet company that has partied like it's 1999
2) JP Morgan itself has a Merrill- or UBS-like turd about to be unveiled
3) Turkey recalls its ambassador to the US as Congress contemplates legislation to call a 90-year-old campaign against Armenians as genocide.
4) Hank Paulson reiterated that America likes a strong dollar. (He also asked Santa for a PlayStation 3 for Christmas.)
5) Belated realization that oil is trading at $80, not $20
Macro Man is almost surprised that there wasn't some mention of the Plunge Protection Team taking profits on the stocks they bought at SPX 1375...
In any case, Macro Man was inundated with tick-by-tick reports on Shanghai shares this morning. Amusingly, they closed more or less unchanged, and on a six-month chart the day's action is pretty indistinguishable:
Despite today's PPI and retail sales data in the US, therefore, Macro Man is fearful that today will be one of those horrible "infinite noise-to-signal" days. Perhaps he'd be better off by closing his Bloomberg terminal and doing research...
Elsewhere, yesterday saw the release of US trade data, as well as Macro Man's new favourite datapoint, import/export prices. Trade was better than expected, and will likely force the Street to mark up its Q3 growth forecasts. Folks, the Fed spends several paragraphs in the minutes talking about foreign growth for a reason: they are expecting the rest of the world to help support the US economy. So far, this is one thing they have got right.
But US import prices from China rose yet again, the eighth straight month that such prices have been flat or higher on the month. Year-on-year import price growth from China is now 1.6%, while the annualized quarterly rise is in excess of 4%! Those claiming that food prices don't matter (a posse that includes the Fed, it must be said) are missing the boat, in Macro Man's view.
One central bank not missing the boat is that of South Africa, which hiked rates another 0.50% yesterday to 10.5%. While the rand is at levels that has previously made the SARB uncomfortable, they hiked rates yestrday and observed that a strong ZAR mitigates the impact of higher food and energy prices.
Contrast that behaviour with the Central Bank of Russia, which this week has stated that a) they don't plan to allow any more rouble appreciation, and b) that they are giving up hope of meeting their inflation target. Uhhh....fellas......do you think those two facts might be connected? In what is surely an unrelated development, some Russian banks are reportedly running into a spot of bother.
So, too, are banks in erstwhile petro-darling Kazakhstan, where the central bank has spent a quarter of its FX reserves on supporting the tenge and purchased all sorts of turd-like assets. Now the government appears to be set to embark on a prgram that is tantamount to re-nationalizing some Kazakh companies.
Could we finally be on the cusp of sub-optimal policy choices coming home to roost? If so, the world could be set to get a bit more interesting...