Wednesday, September 17, 2008

Merv ain't got no alibi
It's ugly! Hey, hey it's ugly!

If traders were prone to chanting, the above ditty is probably pretty close to what they'd be singing. Respite from the "good news" of AIG's nationalization (or whatever you want to call it) has ebbed pretty quickly as markets come to grips with crippling cash shortages in a range of currencies. December short sterling, for example, has traded down as low as 18.5 ticks from last night's close...quite a stunning reversal from recent price action.

Having wiped out a number of US firms, markets now seem to be focusing on taking down UK banks. Macro Man has replaced AIG with HBOS on his screens....sure enough, the share price is down 50% at the time of writing (and 25% since he started writing this post, when the chart below was posted.)
The rapture from last night's eurphoric US action was dispelled pretty quickly in early European trading, with something of a "witch's hat" formation at the open.
Not that action in other markets has been particularly pleasurable; price action in December eurodollars has been, and there's really no other word for it, ugly.
Macro Man is naturally busy managing his book. In normal circumstances, running a book is like playing quarterback- you take the ball and scan the field for opportunities to strike. This month, he's been playing left tackle on the offensive line: his job is to provide a pocket of protection so that his quarterback doesn't get killed.

It's not a glamorous job, but as any NFL aficionado will tell you, it's among the most important (and best-paid on the team.) It's just a coincidence that most of the guys who fill the role are u-g-l-y.

Posted by Macro Man at 8:51 AM  


The fact that Reserve Money a money market fund of size is below $1 and redemptions are in line for more than a week has to spell trouble, even if only sentimental.


Anonymous said...
9:21 AM  

Hi MM,

AIG's rescue seems to be nothing more than an order liquidation of the company and global markets' relief is therefore likely to be temporary. Risk aversion is set to increase again. Time for US 10 years yields to move down towards 3.00% or even lower?


PS - Sorry for the Hammers losing last match. I hope you give a look at Olimpique Lyionais vs Fiorentina tonight...

Anonymous said...
10:07 AM  

HBOS bailout is only temporarily postponing the inevitable final leg down in the spu .. i still think it will happen later today .. 1130-1140 is my guess where we could bottom out .. don't forget to short the long bond when that happens .. that thing won't turn around for years

fero said...
10:26 AM  

To give you an idea of how crazy this market is...I bought OTM October put spreads (exp Sep 26) on USZ8 two and a half weeks ago. Last night, with 60% of the time to expiry having passed and the long bond three points higher (with my long strike 4.5 points out of the money), I sold out and recouped half my original cost. That is just crazy.

Macro Man said...
10:36 AM  

Does the €$ fut action constitute a reverse Satan's finger? Am new at this one...
Heard that the LEH canary wharf lease is insured by... you guessed it AIG! Also PB custys are worried as they've filled up on high fixed income products from AIG. And the best one I was told is that 60% of all CDOs (I would imagine in the non ABS space obv) reference LEH somewhere - more mark downs to come? Certainly a money market fund breaking the buck cos it's got too much LEH CP is worrisome. The Pope is not out of the bear infested woods yet, to mix a few metaphors. Cheers, JL

Anonymous said...
10:46 AM  

AIG and HBOS are out of the picture .. what other shoes are still out there that prevent us from seeing where the true market bottom lies? .. WM comes to mind, but they have been trading near zero for a while now

fero said...
11:00 AM  

Funny you should put up the EDZ8 chart. I actually sold some of those both Monday and Tuesday at 97.400 (about the only thing I have done right the last couple of days). I just didn't have much faith that it could go higher. :)

If you want to enjoy some schadenfreude, take a look (on your Bloomberg) at RTSI$ Index GPC (and GIP, too). If you make enough people angry, they will eventually take their ball and go home.

Anonymous said...
11:45 AM  

AE Housman quote for you:

It is no gift I tender,
A loan is all I can;
But do not scorn the lender;
Man gets no more from man.

Oh, mortal man may borrow
What mortal man can lend;
And 'twill not end to-morrow,
Though sure enough 'twill end.

If death and time are stronger,
A love may yet be strong;
The world will last for longer,
But this will last for long.

Daniel said...
12:55 PM  

Anon @ 11.45: Oh yes, it is always on my screen, on the recently-renamed "Poetic Justice" BLP monitor.

Daniel, it is tempting to rework another Houseman poem, "To a Trader Retiring Young"

Macro Man said...
1:53 PM  

The HBOS prices were everywhere. Tried to sell some short dated HBOS bonds, the prices ranged between 60-95%. I mean range of prices, not the bid-offer. Happened during HBOS opening. Keep your cash in your pockets and lend overnight. You get decent returns.

gg said...
2:40 PM  

The best one i read today was that Man-U t shirts will soon read "US Treasury"

Anonymous said...
2:55 PM  

MS, GS is the game over?

Anonymous said...
4:33 PM  

Does the AIG liquidation constitute an overhang to the market or the the presumption of orderly sales temper the magnitude of the sales? Also wonder if the new naked short regs will cause visible impact for HFs. I have been waiting for short regs to come , but that SEC action is the only change I have observed. Congressional leaders are proposing an RTC clone fund for sub prime securities. Haven't yet heard the Team 1250 stance on this.

Anonymous said...
4:35 PM  

MS CDS now much wider than Lehman ever got. Odds of a coordinated response have to be rising...Dec LIBOR contracts in free fall....and all they come up with is extending the SLS, extending short selling regulations, and issuing bills to fund the AIG deal.

If they ain't careful, Team 1250 will turn into Team 250....

Macro Man said...
4:37 PM  

Yes Macro, redact the Houseman. I am all anticipation.

Anonymous said...
5:48 PM  

They're not careful, a 3m tbills at 0,2%, citi at 13$, finacial stocks collapsing, GE 5yr cds at 550, isn't enough to be scared?
on cash market you don't sell..stop!
about CB, they're taking a HUGE risk, have they done a worst-case scenario analysis or not??

6:03 PM  

Anonymous of 2:55 PM, and MM himself, a friend was at a conference this morning, pinged me that the moderator had noted that with AIG sponsoring Man U, and Northern Rock sponsoring Newcastle, we've got the Federal Reserve v the BOE upcoming at ssome point.


Scott Frew said...
6:19 PM  

Equity short worked quite well regardless of Aig bailout.
But vix @ 35 has always marked time for nice rebounds. Also new Sec "anti-naked selling" rules kick in monday (guess next move will be a fiscal rebate that can be used only to buy financial stocks). That said, with investment banking looking like to disappear in one week time this could prove to be the exception.

Anyone looking for a CBs capitulation? Ecb's sudden change of bias would be juicy...

sick trader

Anonymous said...
6:32 PM  

Mr. Margin calling

Anonymous said...
8:57 PM  

"Ecb's sudden change of bias would be juicy"

Only in your wildest dreams mate!

mikarsky said...
9:25 PM  
This comment has been removed by the author.
Amit said...
11:23 PM  

Correct me if I'm wrong but the short selling rules kick in tonight at 12:01am. On a T+3 basis, yes, Monday would be when all deliveries have to be made by ....

Ghost Rider said...
11:25 PM  

Guess that means there is only 3 days to topple MS and GS, unless Team 1250 can craft another half-baked plan over the weekend, in which case there is only 2 days.

MS and WB tie up -- talk about desperation. Can't help but think of WB standing for Warner Brothers

Tim said...
12:28 AM  

Scott, indeed. It took til about noon yesterday before the first photoshopped Man U photo with F E D on the front of the shirt made its way around the market.

Macro Man said...
1:25 PM  

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