Wednesday, November 19, 2008

20 Questions

On a relatively slow morning, it's time to play another game of 20 Questions....

1) Who gets to fill Team 850's (the new name of Team 1250) orders?

2) Could the news from Singapore get much worse?

3) Are NFL games now being fixed?

4) WTF was Mark Cuban thinking?

5) So now that consensus estimates have Goldman (gasp!) losing money in Q4 (see below), will they now play their usual games and manufacture a better-than expected result for the zillionth quarter in a row?

6) What exactly does David Cameron stand for, other than "modalities"?

7) Who knew that "change" was spelled "P-A-R-D-O-N-M-A-R-C-R-I-C-H"?

8) Would Nancy Pelosi's head explode if China's CIC offered, say, $50 billion for the Big 3 automakers lock, stock, and barrel?

9) Is duration a risk asset or the only realistic investment option in a deflationary environment?

10) What should be done about the Somali pirates (assuming a W-style "blow the bastards out of the water" solution is no longer acceptable)?

11) What is the blow-out in Berkshire Hathaway CDS saying (other than shorting 10 year puts on the SPX is a crappy idea)?

12) How buggered must the US consumer be if a nearly halving of gasoline prices has not managed to engender a rise in consumer confidence?

13) Does anyone know how to get an Apple Airport Express to work with a BT Home Hub wireless network and Windows PCs?

14) Where will the low be in BOE and ECB policy rates?

15) How big will the apparently-inevitable Russian devaluation be? (The chart below shows the spot basket and the 3 month forward)
16) Will the SPX be higher or lower in a year's time?

17) What would the world look like if Chine grew by only 5% next year?

18) Which trades first: $35 oil or $100 oil?

19) Who will the new Treasury Secretary be?

and finally.....

20) Will West Ham ever win a game again?


Anonymous said...

Don't worry, I read somewhere that Barack Obama happens to be a Hammers fan - your problems are near to an end, but unfortunately no sooner than next January on...


Anonymous said...

Macro Man,

All good, colorful questions.

My question to you: approximately when do you expect russian roulette to blow up? and what is your crystal sphere telling you might happen in other fxs such as turkish lira, and other em currencies?

thx in advance.


Sean Maher said...

I'd bet on West Ham winning the Premiership, never mind a game, before I'd bet on China beating 5% next which case who's going to buy all those Treasuries?

CDN Trader said...

I think a more important question is: CAN china grow at 5% next year? After so many years of rapid growth, is it possible to have a mere slowdown? Based on anecdotal evidence, the level of speculation/over-investment seems to have reached a high level over the past few years. I fear that there may be one of two extremes: continued rapid growth or contraction.

Macro Man said...

AO, sometime around yea rend seems as good a time as's really hard to pinpoint an obvious catalyst, other than they can't be arsed to defend it any more. The implications for something like the TRY, where the corporate sector is reportedly short something like $75 billion USD/TRY, are pretty obvious I think.

Sean, I'd postulate that any world where China grows less than 5% (or, frankly, where West Ham wins the premiership, is a world where the US current account deficit shrinks so far, so fast that Treasury issuance can be funded via domestic savings.

PureGuesswork said...

The "Pardon Marc Rich" item was was really a stretch.

Anonymous said...

buh buh buh bonds, bad to the bone: the long bond seasonal buy 11/6 doing great as the commercials continue to build their net long US TY week by week(cot report)... credit cannot be expected to improve if they let GM do bankruptcy...russian foreign reserves off -21% or 122.7 billion usd ...from wsj:
"Analysts at Credit Suisse said two big commercial mortgages that had been packaged into securities in the past year were likely to default. The rapid deterioration of these loans fed worries that the weakening economy and higher unemployment rate would drag down the $800 billion market for commercial-mortgage-backed securities, or CMBS, which so far has withstood the credit crisis with low delinquency rates. It's pretty unheard-of for two large loans to go bad this early on," said Richard Parkus, head of CMBS research at Deutsche Bank Securities. "This has shaken up the market" for CMBS, he said. The analyst report pushed the index that tracks these securities, the Markit CMBX, to record levels compared with Treasurys."
...SPX vicious tax loss selling to end year and 2008 low retested in 2009, perhaps after '100 days of grace for new pres'

mstr.blissett said...


ok then, how about this one...

change is spelled C-H-C-H-C-H-A-Q-U-I-T-A

as in, the more things chaquita, the more they stay the same


the whole world's gone bananas!

Anonymous said...

4) Stories abound about political motivation behind the Cuban lawsuit (financing Dubya, distributing Loose Change, that dodgy email from the SEC), but still for $3/4 not a smart move.
9) PIMCO would certainly have you believe that's the case.
10) Well, something soon.
11) Bill Miller here I come?
12) Postponing purchases -> deflation?
19) John Paulson?
Uncertainty rules.

Anonymous said...

sorry, bad spelling:

mstr.blissett said...

20) when iceland thaws? or when the detroit lions win a game?

strange correlation no?

walter said...

#9 -- wasn't the blog's consensus a short time ago that govt bonds (especially US Tsy) were the new bubble market?

Is duration in corporate bonds a better play? assuming one can survive mark to market, or perhaps isn't required to mark to market (eg accounts designated hold to maturity)

I know the bubble can continue longer than we (I) can stay solvent, but I also know the exit door is much too small for all us us to get out at once...

Anonymous said...

I do not see China falls below 5% in 2009. Government spending can support growth for about 2 years before it is too heavily debted. Inflation is a big concern next year, especially for food.

Anonymous said...

1. Plunge Protection Team anyone?

Camabron said...

re # 11) "What is the blow-out in Berkshire Hathaway CDS saying (other than shorting 10 year puts on the SPX is a crappy idea)?"

Berkshire wrote the puts, therefore they are long the puts, not short. Correct?

Scarecrow said...

Anon 1:34

"credit cannot improve if they let GM do bankruptcty"

"They" are going to "let" GM do bankruptcy?

How exactly do you have a "they" character in a free market system? And how does this "they" issue permission to do bankruptcy in a free market?

"They"'s ineptitude dropped interest rates too low. "They"'s ineptitude failed to enforce existing banking laws. "They" failed to enforce existing securities laws. "They" created a false religion of credit ratings by requiring regulatory capital based on said bogus ratings. "They" insisted the GSEs promote home ownership to people who could not afford homes.

In the summer of 2007, "they" assured us the subprime mess was well contained. "They" have been telling us since that we are definitely not in a recession.

In the last few months, the all knowing and all powerful "they" have assured us that banks are solvent and safe -- but then randomly picked which banks were "allowed" to fail by their own sword, and which were "saved" (for now) by robbing taxpayers.

"They" told us that AIG would be fine if taxpayers lent it $85 billion. Whoops, "they" meant $120 billion and counting.

"They" were told by many that buying non-performing illiquid assets was a bad idea, but "they" passed TARP anyways. "They" said there was no way that govt money was going to be used to buy preferred shares in banks. After running in circles for over a month, "they" conceded that buying assets wasn't going to happen, and "they" were going to buy preferred shares in banks.

Now "they" are arguing that the auto companies, which have been circling the drain for 30 some odd years, are suffering from the temporary credit freeze brought about by "they"'s centrally planned free markets.

Its time to concede that "they" have no idea what they are doing.

"they" are not going to "let" (or prevent) anything.

The Great Wizard Maestro is just some fat old guy behind the curtain employing cheap special effects

Macro Man said...

Incorrect. Writing an option is selling an option, just like writing insurance is selling insurance.

Anonymous said...

um incorrect I think.

If you are writing a put you are long the underlying security, but short the put itself. If the put goes up in value and is exercised, you are on the hook for the difference between the strike price and the price of the security.

I forget what the exact strike price was on Buffett's puts, but I'm pretty sure they are deeply underwater at this point. Luckily he wrote euro style puts so they can only be exercised at expiration

Anonymous said...

What about the recent action in Citigroup's shares? They haven't switched the LHC back on, have they?

Anonymous said...

Get a Mac and run parallels!

spagetti said...

5) no. not this time

6) modality is now your favourite word, huh ? :)

9) this the main question for 2009 that im trying to answer for myself too.. i think duration = toxic, but need to be nimble with this one and see how things unfold in the next 2-3 months

10) saying around here is: "what doesnt go with force, will go with more force"

16) higher

18) 100

Anonymous said...

Speaking of Goldman, I would really like to hear what you think of their latest(sept) quarter. Specifically, their commodities profits. How is it that they publicly forecast higher oil and repeatedly reiterate their bullishness throughout a quarter in which oil was down some 30% and yet they still report huge profits for the comms division (higher than the 2007 quarter). I know it's not all trading, but a lot of it is (and it wasn't long, they can't be _that_ good). Does that not essentially prove fraud? How do they get away with it?

Anonymous said...

"If you are writing a put you are long the underlying security, but short the put itself."

1. Short puts leaves you a long delta, but presumably Berkshire is NOT delta hedging these.
2. The options they sold were ATM (I dk whether on spot or forward basis) when written.

Anonymous said...

#13 - Not specifically, install the windows drivers you got with the router. Then set up the router and the network, there's manual configuration and a wizard as well. What's the problem?

How do you see RON and HUF? Are they going to blow up any time soon?


Yuksel said...

Macro man, change the channel in your wireless router to something other than 6. Mine is set to 11 and it works perfectly. Airport has problems with channel 6.

Also, if this recommendation works for you, would you be kind enough to answer my earlier question on risk appetite index?

Anonymous said...

Airport has no problems with channel 6, it's simply the default channel setting on most routers and as such the most crowded channel as well. There are 3 unique channels 1, 6, 11 the others overlap. You can also consider switching to 802.11n, ie. a less widespread technology as of now.
Otherwise, what's the problem MM?


Anonymous said...

I imagine slower growth in China won't really impact the rest of the world that much, except perhaps we should start talking about China exporting deflation. Falling raw material prices along with even fiercer competition between manufacturers could mean a few years of cheaper goods.

HoosierDaddy said...

10) Convoys with multinational escorts. Might be a good opportunity to work with the Russians and Chinese. Show that under the new Sheriff we can play nice with others.

Anonymous said...

Military action against the Somali pirates is fully indicated: (1) major stakes involved, (2) doesn't require invasion, (3) no civilians to get in the way.

This is, ironically, a perfect case for a military solution... and Dubya is so fogged out that he's not applying it.

--Charles of Mercury Rising

Bond newbie said...

Fun questions, all. I'll try to answer the "known unknowns" (in Rumsfeldspeak):

2. Yes, Singapore can get worse. Check out Iceland, Pakistan or Kuwait.
3. NFL games have always been fixed, not "just now."
4. Cuban should go back on to "Dancing With the Stars."
5. Yes, GS will beat way lowered expectations, but still go down on the news.
6. I'm a Yank, don't know Cameron.
7. If Dems get filibuster-proof 60 votes in Senate, Obama can nominate Bill Ayres for Homeland Security and he'll sail through. So Holder will be a breeze.
9. Note the Pimpco managers touting duration as a risk asset are the commodity and inflation-linked managers, so they are not disinterested commenters. For the 30-year Treasury zero bull case, I turn to

10. Agree with Charles of Hg Rising that military action against Somali pirates justified. Wikipedia "Barbary Pirates" for the USA's first conflict post-Revolution. It was against who? Pirates!

11. Berky CDS blowout is probably somebody unwinding a position. Who thinks Warren will ever blow through his billions?
12. US consumers need a decline in food prices, too, in order to stop whining (instead of becoming more productive -- imagine that), and they may yet get the food price decline.
13. What's an Apple? I run that great system Windows Vista.
14. BOE and ECB get to 2%.
15. Depends on oil. Since I think oil goes to $35, rouble deval will be big.
16. Higher, but less than 6% higher, and with 20% tradeable ranges (just basing this off the VIX).
17. Chinese GDP figures are already made-up, so why worry about a joke statistic?
18. $35 oil
19. Larry Summers, but should be someone who's had no part in any of the policy responses over the past 16 months and specializes in avoiding moral hazard.
20. Trading is my sport.

Anonymous said...

Somali pirates: Government has to pay oil companies interest on reserves, and lend those money to pirates. That will restore confidence in the Indian Ocean.

cfarley said...

Anon @3:27pm -- "Luckily he wrote euro style puts so they can only be exercised at expiration"

Kinda incorrect. Old Country Buffett wrote puts, which means he is taking in option premium now, and is long the underlying. American exercise style (almost) always increases the option premium, so OCB would have been *better* without European exercise. So no "luckily", methinks.

vlade said...

@bond newbie
Warren's billions would barely cover margin calls on the options, and that was before the VIX went up again.
It's all nice to say "it's just an accoungint charge" - but it isn't.
The problem is that funding of your margin call is higher than the return on it, so, if BH would have to post collateral, it would be immediately losing money (differential on whatever it's making on it right now and the interest it would be getting from the collateral - and believe me, it's a significant sum of money!).
Not to mention that the "cash" is not cash in a checking account but mostly readily liquid securities, which he would have to liquidate at once (margin call due to downgrade comes not in drips and drizzles, but as a tsunami). Which means that it's likely he would have to go out and borrow. And I think we would find that even vaunted BH would have a hard time getting large loans this days. I assume they have some precommited facilities they could draw on etc.. but all of this would be very very costly to BH.
And all it takes is a downgrade (IIRC only AA parties don't post collateral, everyone else does).

Marie said...

I think China will sustain growth above 5% but it will really need growth >8% for real advancement in their economy. 5% will still feel like a recession in China. I think spending money on rural infrastructure will be what drives their future growth. Agriculture and farming will be a big part of their GDP given the urbanisation process the country is undergoing.