Wednesday, January 21, 2009


The bad news: On Barack Obama's first day in office, the S&P 500 registered a decline virtually identical to the average annual return during George W. Bush's eight years in office...a tenure that included not one but two bear market declines of 44% or more.

The good news: Obama has another 1,460 days (and perhaps 2,921) to improve his average.

Whether it was more fo the same (ongoing concerns over the financial system) or the relatively uninspiring oration from the new president, yesterday's price action was far from an Obama-rama; it was much more of an Obama-nation. (thanks, Bobby D.)

Technically speaking, there is basically nothing between yesterday's closing price and last November's 741 lows. Fibonacci-ists might hang their hats on 789 retracement support, but from Macro Man's perch that looks decidedly flimsy.

This has been a pretty frustrating move for Macro Man; while he is/was extraordinarily bearish on stocks for the medium term, his tape-reading abilities have deserted him this month, and he's completely whiffed on this move. Fortunately, he's done OK elsewhere, but grates.

How bad are the financials? Reams and reams can and have been written about them, and still we are all collectively amazed by each fresh casulaty in the sector. Consider this; through Q3 of last year, one of the most popular (and populated) equity trades was the spread that Macro Man labeled "equity market crack"- long energy and short financials. This spread got absolutely mullahed in Q3, even making new lows in October at the height of the funding scare. Since that point, oil has fallen by a further 50%....and energy stocks have outperformed financials by 95%. Yowsah!
Elsewhere, there was a raft of data released in Singapore last night, including the worst quarterly GDP print (-16.9% annualized) sine the Bloomberg data series begin (1975.) CPI and industrial production data were also lower than expected, and the government slashed its forecasts for 2009, looking for weaker growth and a chance of deflation this year. Despite this, the MAS announced that they saw no reason to adjust policy between meetings and no reason for the SGD to be weak. Hmmm...perhaps they've borrowed JCT's glasses?
Other than Brazil (which will cut rates this week), Singapore is just about the last economy out there that hasn't eased monetary policy. This may be a pushback to avoid "rewarding" speculators; if so, Macro Man is perhaps doing himself a disservice by drawing attention to the issue.

Finally, it's worth observing that Mervyn King has essentially declared open season on sterling, noting in a speech that a sustainably weak £ offers a number of benefits (without citing any potential demerits.) Meanwhile, the public sector borrowing requirement for December obliterated expectations, coming in at a tidy £44.2 billion. The pound has peen pummelled (again) as a result.

A rather interesting (if possibly apocryphal) quote has been making the rounds today:

"A weak currency arises from a weak economy, which in turn is the result of a weak government"

The speaker? Why, Gordon Brown, of course, in 1992.

Hmmm. While the new president lowered expectations for immediate (or is that intermediate) relief yesterday, at this point Macro Man would lean towards the Obama-nation emerging from this crisis before Brown's Britain.


Anonymous said...


The MAS did ease policy back in October as they shifted from an appreciative bias to a neutral one. Personally i feel they have very good reason not to ease policy further since most other currencies (which the SGD is pegged to) have reduced rates which, of course, translates to a de-facto (further) policy easing.
Also, as the MAS pointed out today, the recession here is not due to lost competitiveness but due to falling external demand- it would not be helped much by a weaker SGD. What a weaker SGD would do, is to debase the local savings (which are substantial).

Anonymous said...

Brown and Obama are both making the same mistake they are trying to force an insolvent banking system to lend by throwing massive amounts of taxpayer money at at an insolvency problem when too much un-service debt is the problem. Allowing the banks to go under is political unaeccptable to these fools. Protectionism is next along with global competitive currency debasement. The debt they are adding is sucking the life out of the private sector as the debt they are issuing competes for a diminishing supply of funding.
I'm not a trader so short term isn't my thing but gold , guns and groceries have an appeal.

bsanchez said...

Obama-nation might emerge from all this before Britain, but little doubt some of the overleveraged euro nations will be even further behind Brown's Britain (which by the way is more likely to emerge from all this as somebody else's Britain).

bsanchez said...


£44.2bn is the UK public sector net cash requirement for Dec and not the official UK public sector borrowing requirement for that month, which is "just" £14.9bn.

Any particular reason why you focus on the cash requirement, as opposed to the accruals based figures which the Treasury say is better?

Macro Man said...

Anon @ 11.16, Singapoore's terms of trade have deterorated markedly. That should, all else being equal, merit a lower exchange rate/easing of policy. Moreover, the October move was not an was the withdrawal of future tightening. The central point of the NEER basket has not moved.

Bsanchez, in a world where there is a shortage of spare cash (among the private sector), it seems reasonable to focus on the cash requirement, no?

And while the opposition is singularly unimpressive in Britain, Brown's track record is appalling. Sixteen years of consecutive growth in Britain.....and the budget was in deficit for all but a brief halycon period of that, leaving no buffer or the proverbial rainy day. And this from a chancellor who promised to maintain fiscal resonsibility 'over a full market cycle'. 75% of the job growth under Labour has been public sector. Colour me distinctly unimpressed...

Anonymous said...

"Britain.....and the budget was in deficit for all but a brief halycon period of that, leaving no buffer or the proverbial rainy day."

Funny how the Keynesians forgot that part of his thesis.

vlade said...

@bsanchez: while the opposition is far far from perfect, they at least seem to realise that if UK is to emerge in a better state it has to emerge with a different economy (i.e. not so much financial services centric, but a bit more balanced).

Mr. Brown seems to believe that it's possible to go back to the golden olden times. In fact, he has to believe it, because anything else would be an implicit admissions that those times were in fact usustainable, wrong, and filled with a lot of luck, as opposed to a brilliant ideas executed by the best chancellor UK had ever the luck to have, and the world saviour at the same time.

It is a choice of two evils, where people usually prefer the known devil. I say it can't get worse, and prefer the unknown.

The only thing Mr. Brown will have from this, is that he will get his wish to get into history books. Unfortunately for him, he will be on the same page as Mr. Bush, as "incompetent world leaders of late 20th and early 21st century".

Anonymous said...

Britain's Treasury Committee on Wednesday urged the financial regulator to leave the door open to re-introducing a ban on short selling after banking shares tumbled following the government's second rescue package.

What desperate steps governments won't take to prop up insolvent banks because it is just to politicaly unacceptable to let them die in peace.

Anonymous said...

MM or others, any comments on FI options $ vs € curves (I think my post last night was too late), esp OTC?

andriy said...

Macro Man, why all the GB bashing? You know, the stage was set under Blair and like Obama, Brown is going to be harrassed for mistakes of his predecessors.

You have to admire Blair, he exited at the peak. It seemed like he stepped down without any reason. Have to admit, I smelled a rat.

Macro said... day I get accused of being anti-European, the next of being anti-Britian. I must be doing something right. Brown is nothing like chancellor, he was directly responsible for setting fiscal policy, both in general and in creating the actual budget. He is more culpable than anyone for the UK economic 'miracle' that has brought us to this sad state of affairs.

No view from me on FI's not my bag, baby.

andriy said...

GB bashing = Gordon Brown, not Great Britain

just to clarify.

hey, I don't like him either, but the true guys who set up this mess are not in the public office.

Macro Man said...

Gordo was the most culpable of all of the UK elected officials...and certainly didn't object to the knighting of people like Fred the Shred who were.

I don't like Brown because he's bad at his job, just as I tend to dislike all public figures who are bad at theirs. Hidden taxes, an explosion of the public sector (and that's before the bank nationalizations), and a Big Brother way of life (not his fault, perhaps, but perpetrated by his crew)....all are awful.

And any government that employs Peter Mandelson (truly, a creature of the underworld, one of the undead) is by definition undesirable.

Damcanu said...

Andriy, yes I agree the true guys who set up this mess are not in the public office, but where was the British government when UK banks and building societies were freely giving out no deposit, 125% mortgages and/or mortgages based on 5 times (or more) salary ?

In his 1997 budget, Mr Brown put housing stamp duty up and reduced MIRAS (mortgage tax relief) and said:-

"I will not allow house prices to get out of control and put at risk the sustainability of the future." He said he was determined that the UK should not return to the "instability, speculation and negative equity" of the 1980s and 1990s.

Oh yeah that's worked out well Gordon ......... not !

What about Mr Brown telling us on numerous occasions, that there would be "no more Tory boom and busts"

Today's (not surprising) jobs news:-

UK unemployment rose by 131,000 to 1.92 million between September and November, the highest total since September 1997.

No more boom and bust - eh, Mr ex-Chancellor ????

Yohay said...

Well, at least today's American stock market corrected themselves.
Although the pound and the British economy are doing bad, they'll probably be one of the first big nations to recover from the crisis.
And while Brown and Darling aren't doing their best, leadership is found in Mervyn the King.

Anonymous said...

Now that we have concluded that banks are bankrupt (at least by the Roubini numbers), should we also expect that the Swiss will go the way of Iceland? There is either a backdoor deal or this will end badly - as you know, the ratio of bank liabilities/GDP is too high. If either UBS or CS drop another 50%, I expect to see a run on the bank. Perhaps it's almost time for a cheap ski vacation....

Anonymous said...

shouldnt a decline in the terms of trade suggest an appreciation of the currency? A depreciation would push the tot lower...

Anonymous said...

chief Macroman, fellow macrowatchers: have no doubt this year and follow the sage advice of the mastery academy and you will prosper.

shtove said...

£ at $1.65 by year end?

I don't fink so. Commiserations to Mrs Macro.