Wednesday, September 10, 2008
Macro Man is going to try something new today, an occasional running diary of his thoughts, fears , joys, and frustrations on what looks set to be a momentous day. It might prove useful ex post in helping him to evaluate how he deals with noisy days. Scroll down to see updates....
8:58 am: The LHC has been turned on, and we're all still here. Lehman's trading over 10 in Germany, despite DKB apparently pulling its bid. European equities aren't nearly as weak as bears (including MM) might have hoped...this market really is quite frustrating. I'd certainly expect to have been better than flat on the day at 9 am.
9:20 am: Today is one of the few days that physics jokes are all the rage: A neutron walked into a bar and asked, "How much for a drink?" The bartender replied, "For you, no charge."
9:49 am: And the FTSE goes briefly positive on the day. The drawer labeled "Things I Understand" is rapidly emptying.
10:23 am: The EU downgrades its 2008 Eurozone growth forecast and warns of serious downside risks to its 1.5% 2009 forecast. At the same time, Trichet pops up on the wires yet again railing against higher inflation expectations. Eurostoxx futures now back at 3240, IBEX down close to 1.5% on the day. I love it when a plan comes together....
11:23 am: Back from a spot of exercise (Macro Man is a firm believer in sound body, sound mind), and the market seems to have settled into a pre-Lehman lull. LEH still up a couple of bucks in European trade, so it seems like someone is betting on good news. There could be an interesting dichotomy of outcomes here. A spin-off scenario, wherein Lehman divides itself into Goodbank and Turdbank, is pretty good for shareholders. Turdbank shares will probably go to zero, but Goodbank shares could eventually recoup all those losses and mroe through price appreciation. If bondholders are left with bonds of each company, however, they're looking at a possibly significant haircut on principal repayment.
On the other hand, if Lehman is undertaken or bailed out a la Bear and the Agencies, shareholders will be S.O.L. but bond-holders yet again made good. Macro Man votes for the bondholders to get stiffed this time....
12:23 Seven minutes to go and equity indices and USD/JPY have firmed. Team 1250 spreading the rumour of good LEH news through the Japanese walls? Hmmmmm
12:34 pm Come on, where are these results? This is worse than waiting for payrolls.
12:45 OK, I'm no equity analyst, but this looks pretty bad. $5.92 per share loss, selling off the crown jewel of the asset management business, spinning off some (but by no means all) of their bad assets. Why the heck are they still paying ANY dividend if they are bleeding money out of every orifice?
European equities are coming back off, but I have to say I am a bit disappointed with the reaction so far. Come on, get stuck in!
13:00 Patience is a virtue, apparently.....having spiked above $10/share LEH now trading at yesterday's closing price, Spoos are negative, USD/JPY below 107 the figure
13:43 The market seems to lie the conference call, and some of the marks do seem quite conservative. Still, Macro Man is left to wonder if LEH isn't going to turn into something of a zombie bank: an institution with lots of illiquid crappy assets on their balance sheet, funded via a central bank liquidity milk-teat, and an eroded client base, that jumps limps along interminably. He hopes that isn't the case, but cannot rule out the possibility.
14:00 At last, some lunch. Macro Man has a bad feeling that we're going to see a horrible squeeze higher at the US equity open. Ugh.
14:26: Viva la squeeze! Spoos and USD/JPY bid no lid, and European equities are about to turn green. It feels like there are a lot of electrons in my book right now, giving it a negative charge...
14:56: LEH has traded back to yesterday's closing price and bounced, taking broader indices with it. All in all, it's been a frustrating day so far.
15:35: Macro Man is a tad surprised at how much disintermediation there appears to be between LEH and broad indices. It's as if indices in the US and Europe are saying that the buck (or perhaps more to the point, the crisis) stops with Lehman. In reality, it would appear likely that after Lehman recedes as in issue, another bank in trouble will immediately crop up in its place, just as Lehman replaced Fannie and Freddie on Monday.
Crude inventories look pretty bullish; if WTI and Brent cannot rally on that and the OPEC cut, you'd have to think that it will go quite a bit lower. Good for the consumer, eventually; bad for energy stocks fairly immediately, one would think.
And yes, Macro Man is blatantly talking his own book there.
16:05: If you'd told Macro Man at this time yesterday that the S&P 500 would close yesterday at 1224 and that LEH would lose $5.92 a share, he'd have told you that a) European equities would easily be more than a percent down from yesterday's closes, and that b) he'd be doing a damn sight better than flat on the day.
Exhibit 57 on why this is such a difficult market.
16:24: And as the SPX goes through the low of the day, USD/JPY goes through the high of the day. A frustrating end to what's frankly been an irritating day.
16:35: Grrr. Lehman now bouncing. Macro Man's book feels like he's experiencing all of the upside of equities (bearing in mind that he's short) and none of the downside. Time to go home and manage the rest of the day from the study.
18:07 Home, to find LEH small down on the day but Spoos up half a percent. Despite a reasonable amount of market volatility today and a nonzero (but in fairness, not massive) amount of risk on, Macro Man's daily p/l doesn't seem to have strayed too far from flat on the day. Hmmm, where was this lack of P/L volatility a couple of weeks ago when he could have used it?
19:22: So Spoos are now back to Friday's level, and Eurostoxx futures are up on the day. What an unpleasant market. At least tonight there's something else to look forward to: RBNZ announces rates at 10 pm London time. A 25bp cut will be a snooze, but a 50 could be an open invitation to start taking potshots again at the flightless bird.
20:34: So Macro Man ended up doing 4 trades today, all from the train on the way to work, and each pair locked in a small loss. That's why this blog is called "Macro" Man and not "Day-Trade" Man. Watching the US close will probably only wind Macro Man up; time to go downstairs and see if he can beat the Mrs. at chess.
21:45 The chess mirrored the market; Macro Man was had a big advantage and was sure he'd won, but allowed Mrs. Macro to escape through his fingers and snatch a draw. Not so poor Lehman; they need to sell valuable assets to raise capital, but if they do they'll face a ratings downgrade that will cripple their ability to conduct client business. Perhaps they should hire Mrs. Macro as a troubleshooter, given her ability to scape from checkmate. Oh well, roll on RBNZ.
22:05 Perfect end to a perfect day. RBNZ cuts 50, only Bloomberg reports it as 25, so as Macro Man sits there thinking "I could have sworn rates were at 8.25%, not 8%", NZD gets clumped. Just great. He needs to go to bed.