Is It May Yet?

Friday, April 03, 2009

Well, the latest edition of policy "shock and awe" was released yesterday, with FASB adjusting the mark to market rules and the G20 promising a Dr. Evil-esque "one triiilllliiioonnnn dollars!" for the world economy. Markets were so excited that they barely noticed the disappointment from the ECB.

Well, that's not entirely true. The euro rallied sharply against the dollar (because in a 16 vol currency pair, an extra 25 bps makes the carry sooooooo much more attractive), and the front end of Europe got butchered. While euribor fell quite a bit, the real carnage was in Schatz. Macro Man stands by the view that German two year bonds are a much more attractive proposition than short-term lending; sadly, the market doesn't agree with him. Perhaps he can employ new FASB guidelines, as his model suggests that Schatz yields should be 1% rather than 1.5%?
While Macro Man will leave a full dissection of the G20 announcement to others, he is left waiting for Messrs. Brown and Sarkozy to move swiftly on the tax haven issue that has troubled them so much. He is looking forward to seeing a clampdown on noted tax avoidance centers like the Isle of Man, Channel Islands, British Virgin Islands, and Monaco. Or will Gordo continue to turn a (literal) blind eye to his island stashes while Sarko is unable to see over Les Alpes-Maritimes, even with platform shoes? Inquiring minds want to know.

Speaking of dodgy tax havens, the SNB received the green light, from the data at least, to make another foray into fighting deflation. Swiss CPI fell 0.4% y/y in March, lower than the expected -0.1% and the most intense deflation (or is that "extreme disinflation"?) since 1959. Given the reaction to Hildebrand's comments yesterday, the SNB may decide that for the time being, words are more powerful than trading tickets. But the marginal impact of jawboning will ebb swiftly; the only words that the market will want to hear is "One fifty five bid, your amount."
And of course, today sees the release of the US non-farm payroll data. Macro Man omitted mention of it over the past couple of days because it feels as if the market just doesn't care. The market feels like it's in the modd to shrug off a horrible number; hey, it's a lagging indicator, China's recovering, Dr. Evil has saved the world, etc. etc. etc. A "mere" 500k job loss figure, on the other hand, could be met with cries that the "worst is over". Or so the theory goes.

In any event, Macro Man expects another wretched figure as his little model suggests that the unemployment rate will tick up to 8.6% - 8.7%.
At this point, Macro Man is looking forward to the weekend. He might pay away a bit of option decay, but at least he knows where that is coming from. It feels like he's been scuffling for about three weeks now; while the P/L damage has been fairly modest, the intellectual hit has been more considerable. It's all part of the business, of course, but he's looking forward to a couple of days where he's not saying "WTF?"

Posted by Macro Man at 8:42 AM  


MM you forgot to add the UK as a tax haven, which is the only "G20" country in the world with the principle of non-doms.Non-doms dont pay tax on their worldwide income,except for a new 30k charge. Gordon never seems to mention it....

Anonymous said...
9:36 AM  

I have a different perspective on that. As a non Uk citizen who has zero interest in settling here permanently, I see no reason why I should fork over a penny, let alone 30k, to HMT on income generated on overseas assets (which were paid for with income earned outside the UK to begin with.)

Macro Man said...
9:44 AM  

Maybe I'm living in a weird parallel universe - but didn't we get into this mess in the first place because banks were opaque with respect to their assets and earnings ?...and now, the FASB has basically given banks the green light to be deliberately opaque with respect to their assets and earnings ?...hmm...and the mkt now sees this as a reason to embrace risk ?...colour me sceptical, but I think at some point soon we fail spectacularly...


EJ said...
9:57 AM  

Another 1st Friday of a new month, is it just me but these NFP days do seem come round awfully quickly ?

It only feels like yesterday MM was taking about office bets on the last jobs numbers.

Damcanu said...
11:49 AM  

So what you're really saying is that the linkages between data and realities that have been consistent patterns to bet on aren't holding up OR re-rationalizing ?

dblwyo said...
12:00 PM  

About that 30k - sure MM im sure you dont want to pay it but the point is the hypocrisy of GB in attacking tax havens when he is running one in the UK for Non doms - surely he should impose worldwide taxation on ALL residents of the UK? Of course if that was done finance and business would flee. This is point the Swiss make but no so well. Enjoy your posts rgds.

Anonymous said...
12:53 PM  

SIA says February chip sales declined year on year, month on month

Worldwide sales of semiconductors were $14.2 bln in February, a decline of 30.4% compared to February 2008 sales of $20.3 bln, the Semiconductor Industry Association (SIA) reported. Sales declined by 7.6% from January when sales were $15.3 bln. "The global semiconductor industry is going through one of the steepest corrections in its history," said SIA President George Scalise. "While it would be premature to conclude that the sales decline has hit bottom, there are some indications that the rate of decline has moderated from the final quarter of 2008. The industry responded quickly to the changing market environment by curtailing production and reducing inventory as demand slowed in late 2008. The world's two largest foundry manufacturers have recently reported slight improvements in factory utilization rates, albeit at levels well below those of a year ago," Scalise continued. "Demand for semiconductors is likely to continue well below 2008 levels for the next few quarters, with a gradual recovery to follow as the global economy recovers," Scalise concluded.


Anonymous said...
2:09 PM  

Just a hypothetical for MM - If cleaning up tax havens was to get serious and Brown really had a go at the non-dom rules (both of which I doubt) - where would you be headed?

Clive Corcoran said...
3:12 PM  

Hard to say...I could always return to the US (though blanch at the thought of joining the HF ghetto in Connecticut)...though perhaps Australasia would be an interesting palce to live; Singapore's good for the kids, Oz would be a nice quality of life as well. But it's all hypotehtical at this juncture...imagine I'll be stuck in Blighty for some time yet.

Macro Man said...
3:21 PM  

I seem to recall that in the distant reaches of prehistory (1980's) the big number everyone waited for each month was the US trade balance. And then at some point the markets decided that was a fairly boring number and not important and we moved on to NFP. Perhaps we are in the first stages of moving on to some new fashion in crucial monthly datapoints. Even now we are beginning to hear over and over the (very true) observation that this is such a lagging indicator it really gives us little idea of where the economy is heading.

PureGuesswork said...
3:45 PM  

goldman,morgan,jpm, and citi are saying: we'll lose billions as the bond holders of general motors in bankruptcy, what are you up to?

many of us left of the pond wish we were trading from australia, as many of the moves happen when america is asleep, yesterday was another one, stock indexes took off about when singapore opened

p.s. M-M top drawer, and Clive's as well as seen from his daily blurb over here for years:

Anonymous said...
3:50 PM  

MM: I'm a novice at the FX. Would you elucidate: " a 16 vol currency pair"?

Really appreciate the blog. Read it every morning.


Anonymous said...
6:10 PM  


'16 vol currency pair' alludes to the 16% implied volatility of the EURUSD options... MM was saying that the volatility of EURUSD is so high compared to carry differentials that any arguments using interest rate differentials to explain EUR strength are pretty silly. Am I correct MM?

SD said...
9:59 PM  

"SIA says February chip sales declined year on year, month on month"

aHA!!! I'm shorting salsa, in that case...

Anonymous said...
10:55 PM  

loved the irony in the second paragraph. great writing, tho perhaps only accessible to those in working in the fin. sector.


Anonymous said...
1:46 AM  

Australia, New Zealand will tax your worldwide income.

Anonymous said...
4:23 AM  

SD, you are correct with respect to the 16 vol comment.

Brad, cheers!

Anon @ 4.23, for me, it's really a nonissue. Uncle Sam has his hand in my pocket wherever I go.

Macro Man said...
10:07 AM  

"Perhaps he can employ new FASB guidelines, as his model suggests that Schatz yields should be 1% rather than 1.5%?"

haha.. thats a classic !

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7:33 AM  

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AMIT said...
10:19 AM  

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