Monday, March 10, 2008
Bloomberg's back, baby! Macro Man 's interim subscription kicked in over the weekend, giving him an opportunity to catch up on markets and update the P/L at long last. While it's only been a week since BBG pulled the plug on his old login, in reality he's spent but a few days out of the last three weeks watching markets closely. As readers are no doubt very much aware, it's been as stormy as today's UK weather, which threatens to prevent Macro Boy the Elder from riding his new birthday bike when he gets home from school. Fortunately, today's football birthday party is being held in an indoor venue...
In any event, when catching up on what he's missed, Macro Man finds it useful to simply peruse the charts of key financial market prices and variables. He doesn't need a chart to tell him that Friday's payroll figure was bloody awful (though as always, the lower unemplopyment rate suggests that something in that data is awry!), but seeing the chart of the SPX, EUR, et al does offer a sense of persepctive. And so, without further ado...
1) SPX. Man oh man. This chart was was hit with an ugly stick, fell out of the ugly tree, hitting all the branches on the way down, and then was run over by the ugly truck whilst lying in the middle of the road. It's setting up for a fairly textbook five wave downmove- all that's needed is a break of the "Kerviel low"at 1270. Assuming that that is accomplished, a wave equality target of 1220 or so would appear likely. Thereafter, one can probably play for a tradeable bounce, but it's important to remember; a break of the Kerviel low would suggest that the underlying trend is down. (At this juncture it would take a break back above 1400 to negate the threat of a five-wave downmove.)
2) Commodites (as proxied by the CRB.) Bid no lid, as the saying goes. They want 'em but they ain't got 'em. How much of this is real demand, how much is a reflection of the parcels of dollars that Ben Bernanke is dropping from his Federal Reserve-issue Sikorsky, and how much is pure speculative excess is up for debate. But with oil zooming through $100/bbl and gold threatening a grand an ounce, the Seventies parallel is becoming more apt by the day.
3) Breakevens. Unsurprising, therefore, to see breakevens reach a new relative high. Recent comments suggest that the Fed is at least aware of the criticism that they don't care a hoot about the dollar and inflation....but at this juncture at least, the comments suggest that they just don't care. Yes, it would appear that the dual mandate does spell doom for the dollar!
4) June Euribor. Contrast the "cut at all costs" mentality of the Fed with the relatively Calvinist approach taken by the ECB. Charged with maintaining price stability as its sole primary policy mandate, Trichet and co. have taken a "no soup for you!" attitude towards policy relief. Macro Man's earlier expectation of a potential easing in May now looks very far-fetched indeed, as the ECB appears to be channeling the Bundesbank. Needless to say, Macro Man's option spread has worked a treat.
5) The euro. Or should that be the dollar? It's hard to know where euro strength ends and dollar weakness begins. Suffice to say that if one central bank doesn't give a crap about the purchasing power of its currency (or, to put iot another way, actively wants to reduce the purchasing power of its currency for a range of dodgy financial and residential assets) and another one does, then you're likely to get a big currency move. Kinda like the one below, actually.
Somewhat amazingly, despite all the turbulence of the first week of the month, Macro Man's portfolio is basically flat. He's completely missed the boat on the dollar move- if not intellectually, then in terms of market positionjing, which is the only creiterion that counts in this game- but his equity hedges and particularly his fixed income bets have worked well. At this juncture relatively small delta risk appears appropriate...Macro Man is hearing rumblings that prime brokers' collateral demands are being raised left, right and center. In this environment, you wouldn't be surprised if Peloton were the only Goliath to be slain by a margin call from David.