Tuesday, January 20, 2009


Yesterday, Macro Man offered up a view that a bearish sterling conclusion from the banking crisis in the UK and the aoption of QE by the Bank of England was misplaced.

Yesterday, Macro Man was wrong.

Flash Gordon's peso has been the subject of a beating last endured by opponents of Mike Tyson in his prime. Cable has plumbed to its lowest levels since mid-2001 (a time in which EUR/USD was in the mid-80's) , EUR/GBP is up 5% in less than two days, and GBP/JPY has reached new all time lows. Ouch!

Cable is down a big figure even since Macro Man printed out his charts this morning.

Allow him to wipe the egg off his face....

Anyhow, the big news of the day is of course the inauguration of Barack Obama. As an indication of the anticipation, the UK media has been heavily advertising its coverage of the inauguration and speech; Macro Man can only imagine the fervour in the United States.

The world looks grim at the moment, and for good reason; the current financial crisis and the concomitant global recession is shaping up as a once in a generation, if not lifetime, event. Regardless of one's political affiliations, it is in everyone's best interests that Mr. Obama can live up to the lofty expectations for him. In the near term, it appears unlikely.

Nevertheless, from a market perspective Mr. Obama has a relatively easy comparison; the SPX declined an annualized 5.5% during GWB's eight-year term.
An Obama bounce, an Obama-rama if you will, has been conspicuous in its absence. Macro Man has been wary of such a squeeze (to his detriment, given the performance of his early year tactical buy) ever since election day. At the risk of sounding tautological, it seems likely that if an Obama-rama doesn't materialize soon, equities could be in (even more) trouble.


Adrem said...

Walter Bagehot ..Lombard street 1873: "So long as the security of the Money Market is not entirely to be relied on, the Government of a country had much better leave it to itself and keep its own money. If the banks are bad, they will certainly continue bad and will probably become worse if the Government sustains and encourages them. The cardinal maxim is, that any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank"...Plus ca change, plus c'est le meme chose.

Anonymous said...


Perhaps your next poll should be, what's the likelihood of cable going to parity?

Thanks for the posts as always


andriy said...


Macro Trading Ideas said...

According to me today Obama is worthless, banks' destiny is a little more important..
I need to admit that i've never been so worried today as never before, we're facing the worst case scenario, where seems that no bank can escape this collapse.
At this moment i see only two alternatives, a swedish style or a Japanese style.
Yesterday I read that DB is cutting 80% of prop trading.. a few time ago i thought that i'll have done prop trading as work for all rest of my life, now i'm not so convinced. What about you?

spagetti said...

re prop trading

i always thought prop trading will be the last man standing, because you dont rely on market fads..

i still dont see why you would close the prop desk, unless it was never really a prop desk but just a leveraged / long risk desk

vlade said...

in fact, prop desks at banks with commercial lending will be the first to go, because it will be perceived (rightly or wrongly) that it's too much risk for the capital that they need to support the assets on their balance sheet anyways.

Pure prop desks wont' survive at the commercial banks (not that they might not do a comeback 15 years later, but if we're talking next 5 years). It will be mixed commercial hedging/client transactions + some very small amount of prop trading.

Owe Jessen said...

The first pic (GDP/USD) shows a regular wave - I'm not that technically minded (in fact i dont trade, but work as economist) - any ideas what would cause such a regular pattern?

Macro Man said...

Re: prop trading...in the brave new world of nationalized banks (and/or a renewed emphasis on "core businesses"), it's hard to justify the risks of allocating capital (itself in extraordinarily short supply) to a bunch of punters. I can only think o one shop where it seems to be situation normal...then again, most franchise desks have generally included an element of prop...so perhaps we just move back in that direction.

Owe, there is a whole school of technical analysis based on prices moving in repeatable wave patterns, known as Elliot Wave Theory. Depending on your prespecitve, it's either a useful analytical framework or a bunch of hooey...

Anonymous said...

"it is in everyone's best interests that Mr. Obama can live up to the lofty expectations for him. In the near term, it appears unlikely."

What's he gonna do try and spend his way out of an insolvency problem?

spagetti said...


a well diversfified bunch of punters is a much better business to have - with realtively lowcosts and not necessarily as capital intensive - as having 50 sales people and a 5billion dollar credit portfolio

i think prop desks went too much in the direction of managing a risky portfolio of somehow being short vol and clipping coupons

but this is just me, the evidence is not supporting my view. i can feel it on my skin too from 'above'

Yohay said...

He mentioned the big challenges that are facing the economy in a way that may sound scary.

Brian said...

Jim Rogers Says U.K. `Finished;' Recommends Selling Pound


Gotta hand it to Jim, nothing like being blunt and to the point.

Manc Trader said...

Rogers sold his pounds long ago when it was north of 2.
He mentioned it several times on Bloomberg.
So this is not a new view of his.

Anonymous said...

FTA had a good piece on GBP, agreed that move is/should be done by now, esp vs €.
Any remarks on skew & activity in USTs vs € FI options? Quite interesting positioning as protection for poss. reinflation, at least as far as I can see in exchange traded mkt. What's it look like in the OTC world?
Ta, JL