Wednesday, April 01, 2009
Well, at long last, March is over. As frustrating as it was, and as difficult as trading was, it was actually Macro Man's best March in at least five years. Talk about damning with faint praise...
In any event, after yesterday's polemical fireworks and, potentially, today's literal ones, it's now time to look forward to April and jump-starting Q2. What are the things that Macro Man is looking at? Some of the things on his radar include the following:
* Equity noise. This year, Macro Man's forecasting success in equities has been best described as "Antarctic", he's been so cold. He's not expecting April to get much easier. At this point, the two event risks that he's keying on are bank earnings in the middle of the month and the US stress test results in late April. For choice, he expects banks to try and massage good figures for Q1 in line with their recent boasts. Implicit in that, perhaps, is a delay in further writedowns in the hopes that the value of their turd-holdings increases in Q2. He is therefore leery of a further squeeze higher in stocks over the next couple of weeks. However, last weekend's Geithner comments are perhaps a foreshadowing that some institution will fail the stress tests, either as a sacrificial lamb or otherwise. It's hard to see that not rebounding negatively on stocks.
Moreover, it's not as if the fundamentals are improving at a dramatic rate either. Macro Man's return forecasting model took another leg lower last month, and is now essentially forecasting zero returns for US equities over the next year. It's a scant comepensation for 40% plus volatility! So while Macro Man reckons there may be some good tactical trading opportunities in stocks, he has difficulty buying into "hold-able" view
* QE: Put up or shut up? OK, that's a bit extreme. But certainly the follow-through from March's policy initiatives still looks "shock and awful". Particularly galling is the SNB; who knew that Rip Van Winkle was on the bank's board? For after the three hour flurry last month, the bank has been notably absent, and EUR/CHF has now retraced 50% of the move since the SNB stepped in. CHF 814k per year for 3 hours' work? Perhaps today's protesters will spare a bit of vitriol for Roth, Jordan, and co.
* Whither the ECB? A rate cut tomorrow is the worst-kept secret in finance. The real issue for markets is if (or is it when?) the ECB introduces a more complete suite of nontraditional policy measures. While the euro has retraced much of its post-QE strength against the dollar and sterling, it's still well off its lows of the year. A more aggressive response from Trichet and co. could send the single currency careening back down.
Meanwhile, the front end of Europe has rallied strongly in recent days, helped by large flows from a well-known (and well-connected) London hedge fund. June and Sep euribor are now implying cash yields only slightly lower than German 2 year govvy yields. For choice, Macro Man sees more upside value in Schatz than euribor, therefore.
* Will they or won't they? Macro Man has pushed the theme of Asia's exposure to global trade for some time, as well as the requirement for global monetary easing. Those two views have coalesced around a position in Singapore, the only economy that Macro Man can think of not to ease monetary policy during the crisis.
Well, the MAS makes one of its biannual policy announcements this month, so to some degree it's now or never for the view. The past behaviour of Singapore's policy mix suggests that the authorities use fiscal policy to address growth shocks and monetary policy to counter price shocks. Well, the run-rate of Singaporean CPI (measured by annualized quarterly change) is now at its most deflationary in more than 20 years.
So if the MAS doesn't adjust policy now, there's really not much point in having the regime, is there? Regardless, there is almost certainly an exciting (and possibly sleepless) night in store for Macro Man in a few weeks.
Finally, and most personally, Macro Man is looking forward to getting his knee properly sorted out some time this month. He can't say he's looking forward to the surgery or the early-stage rehab, but he's certainly looking forward to getting a fully-functioning knee again, whenever that may be.