Thursday, March 13, 2008

Will the last one to leave please turn out the lights?

The word of the day is "rout." The dollar is being routed, equities are being routed, and ominously, hedge funds are being routed as well. On the latter front, news is not terribly good; in addition to the recent collapse of Peloton, Carlyle Capital has imploded after those cruel, cruel prime brokers didn't look the other way on margin calls, and Drake Capital appears to be going the same way.

At this juncture, there's really not much excuse for hedge fund managers to maintain excessive leverage, unless the securities they hold are absolutely unsaleable. And if the securities they hold are unsaleable, then gee....did they really make all that money to begin with over the last few years? Although it's obviously too late for holders of many funds, it is still worth investors considering whether the funds they own invest in liquid securities; if not, they should probably try to get out if there is still time.

Global investors in US securities appear to be folowing the same advice, and if you look closely at the fine print on the SEC website, you can just about see the disclaimer "Will the last investor to leave America please turn out the lights?" (After all, we must all be concerned with green issues these days.)

USD/JPY is now at its lowest level in more than a dozen years and has broken the psychologically vital 100 level as Macro Man types this. To call this move "irritating" is the understatement of the year; having been a yen bull for the last several months, Macro Man has seen USD/JPY collapse just a week or two before he starts his new job. Naturally, it would have been pretty satisfying to have captured this with his first trade in the new shop; now, he is going to face the difficult choice of selling dollars at levels close to his initial targetes, or (gasp) going the other way and playing for a bounce. The latter course of action is fraught with psychological peril (do you really want to lose money going against your convictions?), so it looks like Macro Man will styart off on the sidelines while "his" trade makes money for other people. Ugh.
Of course, it's not all about the yen; the EUR has one again reached new all time highs, prompting a bit more muttering from Europeans. Of course, George W. Bush has made some comments as well, noting that the dollar's collapse was not "good tidings" for the strong dollar policy. Of course, if you looked away, you almost couldn't see the smirk on his face. When the history of the early Noughties is written, the strong dollar policy will go into a bin with "I will not be divisive" and "We have won the war". Macro Man trusts readers can form their own conclusions as to what the title of the bin would be.

And so, Macro Man sits at home, literally days away from starting his new job, and sees one of his high conviction trades play out before his eyes. Grrrrrr. That's almost as irritating as being forced to take a driving test after 20 years of accident- and ticket- free driving, which is how Macro Man will spend his afternoon. Wish him luck, as he's going to need it; it's bloody difficult to shake the driving habits of more than half a lifetime and drive like a grandmother, parallel park with two hands, etc. If he fails, maybe he should move back to the States; at the rate the dollar's going, he'll be able to buy half of California with the proceeds from selling his '98 Golf.


Anonymous said...

short zim long eur?

vender said...

As much as I hate to say it, living in the UK, the next trade would be short GBP, long EUR - it went up, but I think there's still some upside.

2and20 said...

you aren't wrong about selling your golf to buy half of california...

i know nothing about land in the US, but a quick search pulled up 685 acres in florida for the same price as my central london 750 sq ft

or if that doesn't suit you, the BBC is reporting how the UK used car market is down huge (best example was a new £30k Saab that within 1-1.5 years was only worth £10k!), so maybe now is the time to ditch the golf for the m3 like i thought you were going to?

any view on HK dollar? thinking of switching some GBP into it (no way am I putting it in Euro's as I'm still convinced that monetary union will eventually fall apart...)

Peter said...

to quote from the Masters of the Universe. the forebearers of the de- later recoupling aka Goldman (their econ.weekly):

"Defining recoupling and decoupling in a precise manner can be challenging."

am i the only one who sees the irony in their statement?

the reason why im reading more blogs and less research.even if some of the blogs see global zionist conspiracies behind econ.policies. so obviously you have to know how to treat some of the info there, but still... shmecoupling

sorry for the rant

Macro Man said...

Vender....I agree, as you can see from my portfolio.

2/20: HKD is basically a low carry dollar with an embedded lottery ticket, e.g. some sort of reval. At this point, though, it's diofficult to se why HK should reval, as inflation remains much lower there than elsewhere in the region.

Peter: you might enjoy this little rant from nine months ago.

Anonymous said...

well morals man it seems lord keynes was treasurer at his college and it ended up the wealthiest of them that why "economists" cannot comprehend his theories, as he both taught AND DID, setting a benchmark its easier to just deny and ignore? otherwise i cannot see why central banks refuse the keynesian remedy in times of credit shortages....will they come around eventually....?

OldVet said...

Sorry about the Yen, but I swapped my Yen for CHF a couple weeks ago on spec that BOJ would intervene before the Swiss CB would. CHF has also done a tiny bit better than Yen as well. My best trade in a month and it was just a hunch.

Longer term investors will pour into US assets of all kinds (CA or FL, just make sure it's above water line.) For now we're in a mess, but it's a great time to have a pocketful of cash.

vlade said...

If I was a long-term investor, I would not pour into US just yet. I'd wait until the markets get resigned and give up on sucker rallies.
Also, I'd probably follow Mr. Buffet and cherry-pick small to medium companies as a complete/majority owner (if I could afford it).

OldVet said...

@vlade, if I were rich, I wouldn't be such a little investor! My guess is about 8 months from now we'll see inbound investment, with dribs and drabs before then.