Friday, February 20, 2009

The Sound and the Fury

Perhaps it makes him a philistine, but Macro Man could never stand Faulkner. Over the course of his (liberal-arts) educational career, your scribe had occasion to pay the odd visit or two to Yoknapatawpha County, but he can't say that he ever enjoyed the experience too much. Still he has to give Faulkner his due; his book titles make excellent plagiaristic fodder for that 21st century literary form, the blog post.

For Macro Man finds himself confronting a veritable tempest of market news, data, storylines and price action, and it's taking all his effort to stay on top of the sound and the fury of the day. Consider:

1) The SGD breaks out. Regular readers will know that Macro Man has followed Singapore for quite some time, viewing the SGD as a good way of implementing his "collapse in global trade" theme. Although it's a bit dangerous to look at the SGD exclusively versus the dollar, Macro Man nevertheless finds it instructive that USD/SGD is breaking both last year's high and a longer term downtrend line. A weekly close above 1.5350 would look pretty darned bullish.

2) The "coffee rule" in action? Time was, if the stock price of a financial went below $10, it was a sign of imminent death- viz. the Agencies, AIG, Lehman, et al. These days, $10 is the new $100- a sign of rude financial health. Macro Man would therefore like to propose a new test of financial solvency: the coffee rule. If your share prices falls below the price of a cup of coffee, you are (pardon the pun) toast. In that vein, two (erstwhile) giants of American banking, Citi and BofA, both look doomed. And indeed, rumours are swirling that both will be nationalized over the weekend. Macro Man doesn't believe the hype...but then again, maybe that's because the "coffee rule" is a more robusta (sorry!) plan than anything coming from Washington.
3) Caveat Dip Emptor. There seems to be a broad feeling across market participants that things must eventually improve and recover, if only by default. Macro Man himself has started to build a "bottom of the drawer" long term recovery portfolio of beaten-down stuff with a limited loss profile. But insofar as we are all turning Japanese, it is perhaps worth taking a longer term look at the original; the Topix made a fresh 25 year low last night. Ouch!
4) What recovery? Earlier in the week, the German ZEW survey printer higher (on the expectations component, at least), prompting at least a few observers to cue up a little D:ream on the iPods. Sadly, this voyage down memory lane may have been a bit premature, as the composite Eurozone PMI lurched lower, with both components making fresh lows.
5) Policy paralysis. Meanwhile, the policymaking in Europe is swiftly becoming even more disappointing than the US. Yesterday's speeches from Merkel and Barosso failed to deliver a concrete lifeline to troubled European nations...indeed, a cynic might suggest that the only thing on offer was a pair of cement shoes. Little more clarity has emerged this morning, as a host of talking heads have offered a lot of bark but zero bite. One proposal doing the rounds would be a series of joint bond offerings, wherein core European countries would lend their AAA rating to their less fiscally fortunate brethren. And to top it all off, it is bond option expiry day today in Europe! Oh the joys (or otherwise) of short gamma....
6) Cuckoo clocks and Crunch bars only get you so far in life. Switzerland has come under the microscope again this week. UBS avoided being charged by the Justice Department but is being pressured to divulge thousands of names of potential fraudsters. Meanwhile, Gordon Brown is calling for world action on tax havens, which are depriving politicos like Gordo of their rightful appropriations. This is the same Gordon Brown that is prime minister of a country whose affiliated territories include the Isle of Man, Jersey, Guernsey, and the BVI...noted tax havens, all of them. In any event, the renewed focus of tax avoidance has helped put a bit of pressure on the CHF over the past 24 hours. It's remarkable how despite fresh lows in stocks, neither classic safe haven currency (yen or CHF) has recently outperformed the euro, let along the dollar.And there you have it: a complete market weather system. Macro Man has his hands full today, managing his book, some options expiries, and a visit to the orthopaedic surgeon to get the official diagnosis. Oh well, things could be worse.

At least he won't have any time to read Faulkner.

9 comments:

FX said...

I am pretty sure, that according to the federal laws in Switzerland, providing client information from the banks is illegal(unless its felony related).

In order to change this law, a majority of the Swiss population would have to vote to approve this change. This would never get enough votes as the Swiss know without their precious banks they are screwed on the tax revenue and job front.

That said, of course, the damage has already been done in the courts of financial opinions. The CHF could obviously suffer dramatically, but the secondary consequences of this could be more mass liquidations of portfolios and structures in Zurich and Geneva in preparation of finding a new safe haven homes.

Macro Man said...

But that's the point..apparently, the Swiss have realized that some of the accounts at Swiss banks have been used to perpetrate (gasp!) fraud...and thus, UBS may be forced to divulge names where there is probably cause, or whatever the Swiss legal equivalent is.

MW said...

Wasn't that (awful) D:Ream song the New Labour theme tune back in '97?

Anonymous said...

Switzerland is Iceland with Chocolate and Clocks...

UBS alone has assets totaling over 3.5x Swiss GDP and is levered 49x to its tangible equity. CS is only marginally better.

They are too big for the SNB to save, so now's the time to butter up Uncle Sam.

Funny how the rest of the world condemns the US for the state of its financial system but at the first sign of trouble they flock to the Fed to get free USD loans to the tune of half a trillion dollars (reciprocal swap arrangements) to stop their own systems crashing...

dblwyo said...

You know really sorry you got hurt but your series of posts on return as a powerful set indeed. Thanks and congrats - whatever the correlation the suggestion is that contemplation time is the key, not injury !

One caveat - we're in a regime where geo-politics is as important as economics and the plans being put forward must balance and integrate political, economic and financial concerns. On that grading curve the legs of Barry's stool are much better crafted than you seem to be crediting.

Consider this recent Jubak column:
http://articles.moneycentral.msn.com/Investing/JubaksJournal/treasury-may-save-the-day-after-all.aspx
or this dissection of the recovery package and the associated sausage making:
http://llinlithgow.com/PtW/2009/02/miracles_on_pennsylvannia_ave.html

I'm just sayin - if I'm at all in the ballpark you'll want to factor these in as much as anything ! :)

Damcanu said...

MW, you are correct. I don't know what I hate most, that D:Ream song or New Labour.

How about 'Turning Japanese' by the Vapors ?

http://www.youtube.com/watch?v=qHMV8ZQbpww&feature=related

Yohay said...

The only haven is gold. All the other havens are experiencing high waves...
Good luck with that orthopedic surgeon!

Blanche said...

Ha ha...blood does run thick at times. Little sis posting here (with alias of course) after checking in on your blog to see how you are doing, etc.

This very evening we were out with friends and ended up talking about high school reading. I mentioned that I could read about everything (and frankly loved the much maligned The Scarlet Letter) but that I could mot abide Faulkner and have never been able to read more than five pages of him- and threw an English Class Lit Anthology book across the room in disgust after reading two paragraphs of WF.

I will now leave you all back to your econ remarks while I take notes....

jam said...

Macro Man himself has started to build a "bottom of the drawer" long term recovery portfolio...

Hey Macro Man, would you be kind enough to let us know what sectors and or postions you are looking at?
I figured it would be a good time to ask,you might be a quite honest being at home with the pain meds and all. Just kidding. Thanks for all the good posts here.