Monday, February 23, 2009
"The bad news," said the surgeon on Friday, "is that you have indeed torn your anterior cruciate ligament." OK. This was no more or no less than macro Man had expected. "The good news, however, is that it is a very clean tear with no damage to other parts of the knee. All things considered, the joint is pretty stable." An arthroscopic procedure to clean the knee out was recommended, followed by a course of intense rehab. All being well (a big if, mind you), a stronger leg and a brace will hopefully take the place of a full reconstruction.
Evereywhere he looks, Macro man sees good news and bad news. Staying on the "leg" theme, there was good news yesterday as Macro Man managed to hobble about on a 20 minute walk wearing a brace but no crutches. The bad news was that it was startlingly tiring, and the muscles on his leg have withered to shocking degree. (He was told to expect a rapid atrophying of his quads, but man...how could it all vanish so fast?)
Moving to his professional life, the good news for Macro Man is that his portfolio has rallied handsomely in the couple of hours that he's been logged in. The bad news is that he is still well underwater on the day, having been frankly blindsided by the driveby in the dollar that started about 4.40 last Friday afternoon London time.
Macro Man has a funny feeling about this one. While his Bloomberg chats were full of head scratching and "we're not seeing its" and "oh, it's stops" and even a "someone's sold a billion dollar-Swiss", the rally (which carried over into Asian trading" has a bit of a sinister feel to it. It reminds him quite a bit of the dollar's tumble in December, which started out of nothing but was only ex-post attributed to a massive flow from the nice folks at Voldemort, Inc.
Regardless.....after Macro Man was salivating over a potential key technical break higher in the dollar (against the Sing-a-ling), it's not hard to see why a chartist might think the buck is about to break down. Ugh.
Still, once cannot ignore the news in Europe, either. The good news is that Macro Man's chum Jean-Claude Trichet has managed to pull his gaze away from the mirror long enough to see that credit flows are falling as a result of deleveraging, thereby threatening both the Eurozone economy and the financial system. The bad news is that a ten year-old with a Magic 8-ball and a Tony the Tiger Decoder Ring from a box of Frosties could have figured that out two or three quarters ago.
In the US, meanwhile, the good news seems to be that the Federales are going to take a stake as high as 40% in Citigroup copmmon stock. The bad news, of course, is that there remains a further 60% (as well as BofA!) to be wiped out.
Regardless, the market seems to be in the mood to mambo today, with Spoos up nearly 2% in early trade. (Mind you, it's only 15 points, which doesn't actually seem like that much- and indeed, it wasn'y much longer than a year ago that that would have been less that a percent.) In any event, one dollar cross that has remained relatively resilient despite the (ahem) sound and the fury of recent dollar action is USD/JPY, which this morning has traded back up towards its highs of the year.
If the euro continues to trade well, this could mean a breakout from high-octane crosses like AUD/JPY, which have gone nowhere over the past few months (kinda like the S&P).
All of this probably presupposes a sea change in the trend of equities and the DXY; while Macro Man can certainly see the chance of a further correction, he remains relatively confident in the view that both equities and the euro go lower. The bad news is that it might get a bit tricky for a few weeks.