Tuesday, March 04, 2008
What a great time to be a macro trader. At market inflection points, abrupt changes in policy regime, and at relative price extremes, there are is often a rich vein of opportunity that is not available to the long-only or single-product specialist. (The flip side, of course, is that when there is easy money to be made from the long side of equities, no one gives a hoot about macro!)
Certainly each of the above circumstances could held as true today. Equities, or at least US equities, may (and Macro Man still hasn't made his mind up about this one) be transitioning from bull to bear. The Fed has gone from hawkish at the beginning of August to slashing rates like a bunch of machete-wielding whackos. Many commodities are at all-time nominal highs.....and the dollar seems to be very cheap or very expensive against just about every currency under the sun. What's there not to love?
As the euro has ground through 1.50, the yelping from Eurozone politicians has begun to escalate in volume. Ecofin chief Jean-Claude Juncker, the so-called "Mr. Euro" (the world's least potent superhero!) notes his "increasing concern" about the single currency.
Of course, Europe has moaned off and on for four years, since EUR/USD first reached about 1.25. To date, they have done nothing to back up those concerns, unlike 2000-01 when there was sporadic FX intervention to prop up the overly-weak euro when it traded below 0.90. (How long ago that seems!)
Meanwhile, Macro Man's view that politics would hamstring the MOF from intervening in the yen has thus far been borne out, though the real stress test will likely occur below 100. Of course, if a strong currency were really as corrosive as finance officials actually believe, then central banks in both Europe and Japan have the opportunity to trim interest rates, which would both ease monetary conditions and dull the luster of the euro and yen against the dollar.
In the Middle East, a private sector bank in Abu Dhabi noted yesterday that the country is still studying an adjustment of its currency peg. So that issue may not be dead, either.
Here we are, then, with a number of currencies clearly misaligned against the buck, and a growing concern (though not in Australia!) about where it all ends. So who will blink first? Certainly not the Yanks, who have a bubble to re-inflate and an election to conduct. Macro Man isn't sure...so he opens it up to the court of public opinion. Fill in the poll below as to which policy change is enacted first.
Note that Macro Man has lost Bloomberg access this morning, so the P/L cannot be updated.