Friday, May 09, 2008
Recent market price action has started to remind Macro Man of an episode from his distant youth, nearly 30 years ago. People did strange things in the 1970's, and he remembers a "game" played by various households in his neighbourhood in what must have been 1979 or so. One family bought a pink lawn flamingo, such as that pictured to the left, and stuck in the lawn of a neighbour. There followed several months of "pass the parcel", wherein the flamingo would magically appear on the front lawn of a different house every few days or so.
And it seems to have been for macro thematic trades, where the "pink flamingo" of position unwinding has been passed from market to market. First the equity and cerdit shorts got squeezed. Then the curve steepeners got flattened, followed by a vicious squeeze in USD/JPY. The front end strips got whacked as basis blew out, taking bond markets lower generally. Recently, the sacred cow of short USD/Asia has been taken behind the woodshed for a beating.
So the question has for his market compadre readers is this: what's the next pink flamingo, if any? Where are the remaining high conviction, deeply-positioned trades that might get washed out by the hand of fate (and/or the tap on the shoulder from the market risk manager?) He's struggling to come up with many more that are out there. Indeed, some erstwhile favourites seem to be getting traction again; yield curves are steepening, and yesterday's price action in Bunds (a strong rally that appeared to shatter trendline resistance) wasn't justified by Trichet's comments.
So Macro Man wants to know: are there any more pink flamingos out there, or is time to do the Electric Slide on the macro dance floor?