Monday, July 07, 2008
Friday proved to be a bit of an exercise in heaven and hell for Macro Man.
The driving day was heaven, loads of fun, and highly recommended for anyone with a driver's license and a penchant for adrenaline. Sadly, it was swiftly followed by a descent into hell. For after spending the day depressing an accelerator to the floor and being told to wait, wait, wait before braking, what else can you call spending two hours in bumper-to-bumper Friday night rush hour traffic on the M25 ring road? All in, his journey back from the driving day took three and a half hours, making a mockery of his timetable and leaving him sufficiently exhausted to badly overbid at the evening's charity auction.
Summer markets can also be a bit of heaven and hell as well. Quiet news days and uninspired price action can be hell for those carrying long gamma positions (or pursuing range breakout strategies), whereas any impulsive moves that do occur can make or break your year- as last August demonstrated.
Looking around him, Macro Man sees plenty of scope for a hellishly quiet week. Market punters are starting to go on holiday, and price action such as that seen on Thursday normally isn't conducive to increasing risk appetite. EUR/USD, for example, having threatened the upside of its range, has come right back to the middle. What are you supposed to do here? Stay the hell away!
Trichet's "dovish" commentary on Thursday has taken a hike out of the market's peak trajectory, though still leaving the expected euribor rate over the next couple of years above the level prevailing when Trichet dropped his "bomb" in June. While this may suggest a bit more upside for euribor, Macro Man is happy to sit that market out. Low-risk butterflies remains the only way that Macro Man is willing to play short ends; so far this has been a decent strategy.
And what of equities? While Macro Man remains strategically bearish, tactically we may be about to see a battle royale between two contrary indicators. Barron's, which helped call the top of the equity squeeze in late April, has put a bear on the cover of this week's issue. At the same time, "professional" forecasters are, it seems, looking for the biggest rally since the onset of the big bull market in 1982. Perhaps this is the Wall Street sequel that Oliver Stone should make.
In any event, the market is hanging around the Maginot Line ahead of the onset of earnings season next week. While Macro Man retains his short bias, he has reduced the magnitude of his position.
He's had quite a good run since his last introspection a few weeks ago, and for now he's happy to reduce risk and gather more data before making a judgment on whether this summer will be heaven or hell.