Very superstitious....

Well, the big day is here. Today's Fed announcement carries more uncertainty and drama than any event since....err...the last Fed announcement. With just a few hours to go, the "trick or treat" research counter is currently at two. (Shame, shame JP Morgan and Wells Fargo!) Unless another couple of US researchers succumb to the temptation, Macro Man will have missed his guess of four.

As for the outcome of today's meeting, Macro Man has close to the same attitude as last time. He thinks the Fed should do nothing but will do 0.25%. Perhaps even more so than last month, a 50 basis point easing would be a grave, grave policy error. Yesterday's Greg Ip article probably means that 0.25% cut won't generate a massive "sell the fact" knee-jerk reaction, as yesterday's US equity dip must have a taken a few hopeful 0.50%'s out of the euqation.

The dollar, meanwhile, continues to plumb new depths, and Macro Man's early-month forecast of potential all-time lows in USD/Europe by today in with a shout of being realized. While it's easy to fixate on the dollar and the Fed, let's not forget that developments in Europe are of interest as well. The ECB meets tomorrow, and given the potential for headlines of the "dollar at all time low" ilk, might M. Trichet register a sign of distress at the ongoing strength of the uber-euro?

Perhaps, but the the chances are probably lower than they were this time last week, despite the ongoing weakness of the buck. For the flash estimate of Eurzone CPI registered a rather bone-jarring 2.6% y/y reading today, well above the expected 2.3% and a sharp rise over September's 2.1%.


While it's true that survey data released simultaneously was disappointing, unlike the Fed the ECB has the mandate to focus solely on inflation. And the largest inflation miss in more than five years will not be particularly comforting for the governing council. What's remarkable is that the high inflation readings have come in the context of muted energy price inflation, which itself is remarkable given the surge in crude prices over the last few months. Were the authorities to engineer a weaker euro, the inflationary consequences would be rather unpleasant. So while the euro is obviously overvalued and damaging the profitability of certain (ahem, Airbus, ahem) European exporters, it would appear that for the time being, the ECB's hands are tied.

Today's Times carries a rather interesting study on the foibles and superstitions of the British public. For example, in what surely must be a triumph of hope over experience, substantially more Britons believe in Heaven than Hell. More than half of Britons "touch wood"; moreover, 42% of Britons who claim that they are not superstitious still knock on wood when convention would dictate.

Now, Macro Man has gone on record as a firm believer of using the scientific method in financial market analysis and is generally rather dismissive of "cargo cult" methodologies. So at the risk of losing what few shreds of credibility he may retain amongst readers, he, too, must confess to succumbing to the occasional superstition in his trading. Nothing methodological, mind; this is more Pascal's wager-type stuff, wherein exercising his superstitions is ultimately pretty harmless.

Among the superstitions that he has succumbed to over the years include the following:

* The aforementioned knocking on wood


* He grew a beard over his August holidays and made so much money that he's kept it ever since


* When on a good P/L run he drinks the same kind of smoothie every morning for breakfast


* When on a good P/L run he drinks water out of the same kind of glass every day


* He once wore the same jacket to work every day for a month during his greatest trading period ever


* He tries to avoid owning portraits of American revolutionary leaders

Is Macro Man the only freak out there? Any readers who also indulge in superstitions, by all means share 'em in the comments section, lest Macro Man book himself into Bedlam...

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CDN Trader
admin
October 31, 2007 at 12:03 PM ×

Lower profile, but one more to add to your count: http://www.raymondjames.com/monit1.htm

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Macro Man
admin
October 31, 2007 at 1:11 PM ×

Oh dear....only one more to go then !

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spencer
admin
October 31, 2007 at 2:33 PM ×

Couldn't leave you short...
from Barcap Global Speculations
A Witches’ Brew
Global Asset Allocation Strategy

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Macro Man
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October 31, 2007 at 2:39 PM ×

I quite like Mr. Bond so I'll give him a pass. AT least it's a variation on the theme....

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Macro Man
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October 31, 2007 at 2:40 PM × This comment has been removed by the author.
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Corey
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October 31, 2007 at 3:09 PM ×

After taking some lumps the last couple of days, I'm now flat RUT (from short), Euro (from short) and Yen (from long).

Recent data has changed my risk theme a bit, and I now believe things might be better than most believe in the US and might get better the next couple of months. With that in mind, I'm taking a short T-Bond position and will be looking for rates to rise meaningfully at least through the next CPI report.

It would seem gold should take a breather at some point soon, and I would expect to go long gold after some (if any!) consolidation.

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Martin
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October 31, 2007 at 3:40 PM ×

Corey: what have made you change your mind?
I'm guessing the bears will get receive even more support by tomorrow's consumption number (that's what Q3 PCE hinted at).
Real mom PCE should land at -0.2 or so.

And what if the crack spread normalize over coming months? (Translating to gas prices well above 3, with 3.5 a distinct possibility) Btw; any thoughts on how to model the crack spread?

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Macro Man
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October 31, 2007 at 3:50 PM ×

Is it even possib le to talk about 'normal' crack spreads any more? The current low level is where the 1 year average spread was 3.5 years ago, and it's hard to thin of what 'normal' might be for anything that has a yearly range of $4 - $31.

If by modelling the crack spread you mean forecasting it...it would probably be worth looking at refining capacity utilization and/or relative invenvtory builds in crude, gas, and distillates.

If you just mean modelling it to know where it is, that's easier- if you have a Bloomberg. CRKS321C Index DES includes a handy forumula.

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Martin
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November 1, 2007 at 8:39 AM ×

Thanks MM. No Bloomberg here, stuck with Reuters Kobra/EcoWin.
I have a crack spread time series, and the current spread looks very low, close to the lowest levels in 2002. Maybe my use of the term normalize is kindof sloppy, sorry :)
Will see if I can forecast it using your suggestions, but I guess that has to wait until my vacation.
Keep up the good work!

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