Tuesday, September 23, 2008
Back from Madrid (which was not so much of a romantic getaway as an exercise in Blackberry watching), Macro Man has arrived back at his desk to find financial markets as one big pain cave.
Anecdotal stories of September's carnage are already beginning to filter through...and that's from before the roller-coaster ride of the last few days.
In any event, stress remains highly visible in short-term funding markets, which suggests that the Paulson Plan, even if approved, is far from a panacea. Other highly visible signs of stress include the following:
1) SPX. Here's a remarkable statistic for you: the SPX fell 3.82% yesterday.....and had its smallest daily range since September 12. Ouch!
2) Oil. Rarely will you see a purer short squeeze than what was observed in October crude oil futures yesterday. Monday was the last day that these futures were not assignable; i.e., from today onwards, longs can demand delivery of 1000 bbl per future at the depot in Cushing, Oklahoma. It seems quite clear that some short out there badly underestimated the market's willingness to let them roll their exposure to November; nothing like a 25% intraday rally in something that you're short. Ouch!
3) The dollar. Macro Man observed yesterday that he thought that the dollar might come in for a spot of bother; little did he know that EUR/USD would put in its strongest daily rally since the inception of the single currency! Based on the experience of last month, it was natural to expect the euro's rally to continue this morning; however, thanks to a new cyclical low in various European PMI surveys, EUR/USD is down more than a percent from last night's high. Ouch!
Within his own book, Macro Man has seen some of his erstwhile star performers turn sour this week; while he managed to dodge the bullet of last week's uber-squeeze, he feels like he's running as fast as he can just to stay still.
Not that still is an altogether bad result, particularly if it keeps you out fo the pain cave.