Anecdotal evidence

Punters who have been around the block more than once or twice know that relying on anecdotal evidence can be fraught with peril. Taking an incomplete dataset and attempting to extrapolate a larger picture is a difficult skill; such forecasts can go badly awry, as the (now discredited) 19th century dinosaur sculptures in London's Crystal Palace attest. The figures to the left were paleontologists' best guess at what an iguanodon looked like in 1850, based on an incomplete fossil record. They look nothing like the modern conception of the beast.

Still, anecdotal evidence is not totally without utility. While the UK press is busy trumpeting that the economy is indeed well and truly buggered, Macro Man could have arrived at the same conclusion on the basis of some of his anecdotal observations. He went out to dinner on Saturday evening at his local French restaurant, which is a nice enough place and, depending on the quality and quantity of the wine consumed, can run anywhere from £40 to £120 per head.

While it's normally not terribly difficult to get a reservation with a few days' notice, the place is usually packed. Saturday night, however, the place was half empty....and most of those diners who were there appeared to be past retirement age. Moreover, the place cleared out unusually early; by 11 pm Macro Man's foursome were the only people left. Now, perhaps the mass exodus is reflective of the noise coming from Macro Man's table; then again, maybe it also reflects a perception that it's cheaper (and therefore better) to enjoy a whiskey at home rather than lingering over one final digestif.

More telling (and more irritating) is the proliferation of caffeine addicts who've taken to paying for their morning cup of Joe at Starbucks with a credit card. In the UK, Starbucks is set up as a primarily cash and carry business. At Macro Man's local 'bucks, it takes literally five minutes for the staff to process a credit card transaction; at they same time, they show a singular inability to process other customers' orders while waiting for the card transaction to go through. It's gotten to the point where Macro Man does an about face out of the store whenever he sees anyone in the queue with a credit card in their hand. Over the past few months, this has become an increasingly frequent occurrence. What does it say about the state of the UK consumer if they don't have the cash for a cup of bleeding coffee (no matter how overpriced)?

While the official retail sales data has been fairly erratic, the survey data (itself anecdotal!) has been unequivocally negative. The CBI Distributive Trade Survey has collapsed over the past few months to levels normally consistent with flat/negative real sales growth. This backs up Macro Man's anecdotal impressions and suggests that the domestically generated inflation pressures in the UK are dwindling fast, with the obvious exception of the supply-side "Rip Off Britain" energy sector. Sterling has been notably weak over the past few days; ultimately, however, it might take a capitulation from Swervin' Mervyn for the move to extend.

UPDATE: Ten minutes after publication, the August CBI survey was released, with a reading of -46: the worst since the survey began in 1983.

Elsewhere, there's an interesting article in today's Nikkei newspaper suggesting that the G7 had a plan in place to intervene on the dollar's behalf in the wake of the Bear Stearns collapse in March. Of course, the dollar stabilized on its own accord and has recently recouped all of its Q1 losses, at least as measured by the DXY.
Ultimately, however, it must be at least a tiny positive for the dollar that we have reached the point where policymakers are no longer willing to see it get clubbed willy-nilly. It's obviously no reason to buy dollars here and now, but does strengthen Macro Man's conviction that for this cycle at least, the bottom is in for the buck.
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gsm_73
admin
August 28, 2008 at 11:42 AM ×

Hi, you are based out of London?

gsmani@gmail.com

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Anonymous
admin
August 28, 2008 at 12:21 PM ×

Regarding the starbucks observation:
At least they still go to starbucks, be on the lookout for empty starbucks in the coming months. Or perhaps there is simply no alternative, a london resident describing starbucks brown stuff as "coffee" is anecdotal evidence that the coffee on offer in the UK capital is the worst in Europe.

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Macro Man
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August 28, 2008 at 1:00 PM ×

GSM, I work in London but live about 20 miles outside.

Anon, Caffe Nero is my preferred purveyor of the devil's brew, but sadly there isn't one along my direct route into work in the morning. In any event, even Starbucks is tasty compared the the sludge that I buy every day at 6.30 am at my local train station.

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Anonymous
admin
August 28, 2008 at 2:29 PM ×

MM- Entertaining and useful post, as always. Similar anecdotal evidence abounds here, on the other side of the pond, outside of NYC. Belt tightening is the order of the day. For those in the financial sector, belt tightening is a welcome alternative to job loss. I even have heard tell of ex BS folks who snagged jobs at 'Bucks so that they can get health care coverage.The exception to this "less is more" reality seems to be those with Euros to spend who still behave as if their currency is burning a hole in their pockets when they are within range of anything priced in USD. Best-- Anon

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Anonymous
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August 28, 2008 at 3:32 PM ×

Your posts are always ahead of the curve. I was reminded this today when I read an article about US infrastructure sales (Midway airport in Chicago and Alligator Alley -- a highway in Florida.) The aritcle also confirmed what I had heard that ex DOT folks were being recruited by IBs to advise on these transactions. Infrastructure sales are off and running, just like in the Great Depression in the US when entire towns were sold. MM saw it coming.

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Anonymous
admin
August 28, 2008 at 5:29 PM ×

I live in the US but have already read the UK press daily, once it became available online. The ink given to UK ec woes is substantial , maybe even more than in the US press. Re the USD, what is your interpretation of its U turn? Is there a change in fundamentals? Certainly, within the US, things look rather grim, even to an optimist. On the political front, I'm not sure that help is on the way. Fanfare aside, in terms of economic repair work this election has been described as the evil of two lessers.

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Macro Man
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August 28, 2008 at 7:43 PM ×

Anon @ 2.29, it's a bit scary when market guys are forced to work at a coffee shop for the health cover.

Anon @ 3.32, living in England, where the airports are run by the Spanish, the power is supplied by the Germans and French, the football team is managed by an Italian, and the government dominated by Scotsmen, it wasn't hard to see the direction the US would take. (I have fond memories of Alligator Alley...the cops there used to turn a pretty blind eye to notions like "speed limits".)

Anon @ 5.29, see the post from August 20 entitled Buck Up, which elucidates my thoughts on the $.

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Mickslam
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August 28, 2008 at 8:18 PM ×

Until they actually raise rates the buck is going sideways, but may make very small new lows.

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Anonymous
admin
August 28, 2008 at 8:22 PM ×

So keep the steepener on and ride out the negative carry?? Pray they don't look to Trichet for guidance...? Where does EURGBP go if they ease?

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Anonymous
admin
August 28, 2008 at 9:49 PM ×

My dear MM,
Before you cry in your calvados about the fate of your local frenchie haunt, remember that it is the last week of August. For you to get a true anecdotal picture (is there such a thing anyway?) of local economic standing, one must wait until Monday ... or maybe Tuesday if you're in the States.
This week between the U.K. bank holiday last Monday and this week's upcoming Labor Day Holiday is truly a lost week. Perspective ... I hope your cold is on the mend.

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Anonymous
admin
August 28, 2008 at 10:02 PM ×

Agree with the comments about the world being on vacation. Things seem so quiet that it is a bit eerie. I feel sorry for the folks at Lehman who are probably some of the few working quite hard this week, as they prepare their mid Sept release. That can't be a fun undertaking (pardon the pun.)

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calvino
admin
August 29, 2008 at 7:20 AM ×

I am not ordering any more iguana taquitos when I visit Tehautitlacan again. Unless I can get some Starbucks to wash it down. The worst roasters in the world. Let's assume it was your firm that drove out the other diners, however you want to be sure. Leave the Millwall jerseys at home next time, and leave the firm there as well, however keep the same noise level. That will be the control group.

I am noticing much volatility 'noise' on the hourly graphs of the big ones - eur/jpy, eur/usd, usd/chf. I am amazed by the power of Uncle Buck, and see this as a Novemeber 4 trade. Election of 06 also saw a dollar dump in the price of gasoline, and right back by Spring.

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Anonymous
admin
August 29, 2008 at 9:02 AM ×

"What does it say about the state of the UK consumer if they don't have the cash for a cup of bleeding coffee"

It says they are the same shape as their American counterparts are doing but don't let that get in the way of a good story.

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Macro Man
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August 29, 2008 at 10:34 AM ×

Point taken on the quiet period, though the train has been unusually un-empty in the mornings, FWIW, and on the way to the restaurant we drove past a couple of other friends who were out for the evening as well...

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Anonymous
admin
August 29, 2008 at 11:15 AM ×

Good to know that your disposable GBP are still flowing! Had a similar anecdotal experience last night in Birmingham (UK). Keep up the invaluable commentary MM. Cheers, JL

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normal being
admin
August 29, 2008 at 11:18 PM ×

My personal take:
Yes, the dollar bottom seems to be in place, but I'm waiting for a bull shakeout right now.
The overall position has switched to long dollar, but there is no conviction, none at all.

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