Friday, April 17, 2009

Harry and Tom

It is heartwarming, as a citizen of the world and a taxpayer of the United States, to see that another of our beleaguered financial institutions has apparently righted the ship after the recent travails of the industry. Having received access to government guaranteed funding, central bank asset purchases, and a capital top-up from the public purse, JP Morgan, like Goldman before them, beat consensus earnings expectations and declared its participation in the TARP to be a "scarlet letter" which it would be happy to be shot of.

We'll leave aside the issue that Q1's robust performance, if repeated for the next three quarters, would have JPM earning $1.60 this year- and thus trading on a P/E of more than 20, which hardly seems to be compelling value. No, the real question is how much would the Goldmans and the JPMs and the Wells Fargos be earning if they had to raise the money themselves, didn't have the Federales trying to polish their turds, etc. One can only hope that if the TARP funds are paid back, all of the special benefits these guys have enjoyed are also summarily withdrawn; access to the Fed programs, the FDIC guarantees, etc. Hey, there's nothing wrong with these guys wanting to stand on their own; but if they do, then they shouldn't expect to see dime one of help from John Q. Taxpayer.

One institution that seems, ahem, less likely to pay back the TARP funds is Citigroup, which reports earnings today. Unlike many others, the once-mighty C is not expected to announce a profit, though in fairness consensus looks for the smallest quarterly loss since Chuck Prince was ejected from the dance floor.

While Macro Man is trying very hard to check his biases at the door, markets do seem to be reaching a potential turning point. A lot of recent trends look to be reaching potential exhaustion points. Consider "Harry", below, which had a nice rally in mid-March, but has subsequently put in a sequence of lower highs and lower lows. It recently broke a little support line and is threatening the 55-day mocing average, a break of which would get the momentum crowd piling in to sell.

Harry is EUR/USD (times Macro Man's age.)

Or consider Tom. He's had an excellent 35% rally over the past six or seven weeks, breaking through a number of moving averages. Yet he's had quite a sharp pullback today and is now sitting bang on his uptrendline. Given the severity of that slope, should it break, there could be quite a bit of juice on the downside. Of course, he could be worth a cheeky purchase with a stop just below the trendline. But given that he's at the top of his Bollinger bands and his RSIs are rolling over, Macro Man is not tempted.

Tom is the Taiwan Stock Exchange Index (divided by e.)

His bearish worldview notwithstanding, Macro Man has actually made small money in equities over the last few weeks- his pain has come in other markets.

There does appear to be a slightly louder drumbeat of negativity from a number of sources- certainly the results from the recent sentiment poll were pretty skewed to the ursine. Now, that could man that the bearish money is now ready to return to the market....or it could mean that the shorts are already engaged and the pain trade remains to the upside.

So if readers will indulge him, Macro Man would like to follow up the sentiment poll with one on positioning. Those who responded to the prior poll (all 653 of you) are particularly requested to participate, to generate some kind of like-for-like comparison. Results are here.


tv said...

besides your highly anectdotal pole, I suggest

Lots of bullishness now on much broader indicators; Options, ISEE, AAII, Big ramp in Inv Intel, VIX complacency, the Macroman indicator...


Donlast said...

Charts apart, one would have thought that for a sustainable equity rally to get under way we should all be singing from the same hymn book. Clearly, we are not. Stiglitz gives a stinging criticism of the Obama bank- rescue efforts. They will probably fail, he says, because the programs have been designed to help Wall Street rather than create a viable financial system:
the people who designed the plans are “either in the pocket of the banks or they’re incompetent.” Buiter and so many others in the blogosphere echo this. With such a pervasive lack of credibility out there how can equities gain traction?

Anonymous said...

What to make of USGG1M back at zero?

John said...

Since you tend to have a bearish view don't you think that will attract readers of the same mindset, thereby causing your polls to have a predetermined bias?

Macro Man said...

T bill yields at nowt suggest that somebody is scared.

John, I'd like to think that the readership of this space is intelligent enough to think for themselves. I know a number of them personally, and many of those disagree with me in terms of trading views.

I hope that the reason people visit here is for honest analysis that willadmit when it is wrong (or at least faring poorly), which is a surprisingly rare commodity. Well, that and the jokes.

In any event, they more or less nailed the banking dead pool last summer.

CDN Trader said...

So if we (the readers) are so intelligent, are you using us as a contrary indicator or an indication of what the 'smart money' is doing?

Macro Man said...

I bought some put spreads earlier today (albeit in small size) for the time being I'm calling you smart!

Anonymous said...

***besides your highly anectdotal pole, I suggest

the big question becomes is everyone who read this ahead of the crowd or the crowd.....obviously I dunno the answer.

Personally I'm very bearish but then I think back to Spring 2003 and am ready to ride this dog all the way back up to 1200, lol.

wcw said...

Worth noting, MM is not structurally bearish. I remember being one of the crowd that lectured him, here and in Ritholtz's comments threads, about the utter bankruptcy of the homebuilders, way back when they were still worth shorting.

Like MM, I have a pretty bearish view of future equity fundamentals, but am ready to ride select equities up as far as the market will bid them. Bear-market rallies are *fabulous* things.

triozyg said...


Been enjoying your blog for a while -- so, young!

Is that a normal thing for analysts to multiply prices by some amount to make them more readable -- or is it just for fun?

Macro Man said...

wcw, I think I was bearish the homeys in good time. But you are right....I didn't accept the bearish story on the economy and the broader market until later- early last year.

triozyg, not that I know of. But the masking of the underlying by applying g some random numerical filter is in line with the proposition from the Tom, Dick, and Harry post from earlier this week.

Anonymous said...

few trades would like to get your opion on:
1) buy protection of sr. bank debt on BAC, and sell protection on WFC
2) what's up with VIX?
3) copper is on the run, close to 2.2 now, any thoughts? what's driving this besides of rumor chinese are buying?

Macro Man said...

1) No view

2) The chart, if you turn it upside down. Seriously, vol everywhere across all products is getting killed; a sign of complacency, perhaps?

3) I think China explains most of it, though I am far from an expert. But my understanding is that they've been buying like it's going out of style. Depending on your worldview, this is because a) the stimulus has ramped up activity, and thus the need for copper, b) they are stockpiling commodities rather than Treasuries as a strategic choice, or c) money has been allocated to buy copper, and it has got to be spent, whether it is needed or not.

Apparently, however, Shanghai inventories rose this week for the first time in a while, so perhaps this sucker has run its course for now.

Steve said...

From my seat I really see a smattering of bulls and bears. Some of the economists who have been beared up (D Rosenberg, A Sinai) have moderated at least a bit, and a few technicians I like have been pretty constructive. I started trading from the short side early this month, partly because it fits my book and partly because I think the consumer will keep us on our backs. But one look at a weekly S&P chart and it's clear we could rally easily 15% from here and still stay within the context of a bear market.

Anonymous said...

haha...I'd recognize that eur.usd chart anywhere, even if i were blind.

Yeah, so the dealers gamed the system with the Tarp moneys. Created excessive fear and panic last year to get what they wanted. And who was waiting for that market barreling down the cliff this March...gee... I'd bet the same guys who got the Tarp money.

the guys that run this country, and the world for that matter, run their operations from confusion, chaos and complexity.

I wish all the big dealers would go tits up, but we all know that will NEVER happen. It might happen if we could get most people to remove their accounts from them and use more local or regional banks.

Nothing would give me more satisfaction than to step on these guys like a smoldering cigarette.

LOL...nothing personal ya know.

Anonymous said...

the market must still be bullish. Not much of a selloff today at the close. Until the big money cashes out, and returns the TARP money we will continue to go up.

The copper prices are ridiculous. Buying copper at the collusion of central banks and to keep their workers busy. Just happens to be one of the "telltale" signs of our miraculous recovery. yeehaw!!! The planning is impeccable. I guess they'll be using physical labor to process that copper since oil hasn't done crap in comparison.$WTIC&p=D&yr=3&mn=0&dy=0&id=p40791257528

What a freaking joke. The markets I mean. Well, I mean to say the jokes on us.

Who cares WTF the markets going to do. Just play the tape. Why spend countless hours second guessing your master.

Anonymous said...

Bought 80 spy jun 30 puts yesterday and a nible at the 85 spy jun 30 puts today, both at 3:50pm EST. Took off about a third profit from the bull run and covered about two thirds of the portfolio on the downside. Now that JPM and GS and C reported, not so much motivation for the run. Since I believe in conspiracies, GS pushed the tape to get out of TARP?

Anonymous said...

MM - For those who responded to both polls, are you able to do a scatter plot of forecast by current position? It would be interesting to see whether the forecast reflects purely short term conviction versus intermediate term conviction. Obviously, the results would be skewed by the opinions of short term traders versus intermediate and longer term traders, and their current level of holdings. Perhaps a further poll to understand your readerships' trading style?


Anonymous said...

Is it as simple as: S+P up circa 8% in March, HF's up 2%. A rally hurts people more than a collapse ?
M&A activity resurging too. Maybe we are too aligned to financial markets to see the broader picture. Or is everyone else too complacent ? Methinks the former.