Tuesday, April 14, 2009

Wistful, Slightly Bitter, and More Than A Little Jealous

Sigh. If only Macro Man had been able to hire Costanza over the weekend.

For if he had, then ol' George would have told him that the clear response to a country reporting a -19.7% saar GDP figure in Q1 and adjusting its exchange rate peg lower would be to buy as much of that currency as you could get your hands on.

In all the years that Macro Man's been in the market, he can't ever remember a GDP print as low as -19.7. That's the economic equivalent of getting hit with one of those Hollywood movie asteroids, the eruption of Krakatoa, a 9 Richter-scale earthquake, and the Great Fire of London....at the same time!

And so it's happened in Singapore. As a reaction to the shock hitting the economy, the MAS re-centered the SGD band at the level prevailing last night: a modest step lower in the SGD. However, they didn't widen the band, and perhaps more importantly warned about "undue" weakness in the SGD.
Now, from Macro Man's perspective, when you're hangin' a minus twenty on GDP (-11.5% y/y), the only "undue" weakness in your currency is if it dispensed in lieu of Charmin in public lavatories. Anything short of that falls within the bounds of reason. Still, with the market rather short of SGD, we were treated to another Costnaza-like reaction of the SGD screaming higher on a shocking growth figure and a SGD band re-centering.

Meanwhile, back in the US, Goldman recorded super earnings in the first part of the current fiscal year, announcing Q1 earnings of $3.39 per share, well above the consensus expectation of $1.64. Except that they didn't. Buried in the small print, it appears that as the Easter Bunny was delivering candy and eggs to children all over the world, he also desposited a small turd in the GS income statement. In December, which magically falls outside the aegis of any reporting period (falling through the cracks, as it were, in the transition from investment bank to bank holding company) , the firm lost $2.15 per share. Add that to the Q1 earnings figure, and you get a result that is comfortably lower than consensus.

More telling was the GS announcement of their intention to sell shares to the public. While Macro Man occasionally takes Goldman to task, he will happily concede that, individually and collectively, they are some of the smartest guys on the street. And when a smart guy offers to sell you something in an industry that has more than doubled in value over the past month....well, judge for yourself what the appropriate response is.
All of this has left Macro Man wistful, slightly bitter, and more than a little jealous. His carefully-laid plan to reach a P/L summit this month has ended with his portfolio nursing a broken leg back in base camp. Adding insult to injury, he doesn't work for an institution where he has the option of valuing his book using a model derived from those titans of modern finance, Andersen, Grimm and Grimm.

Perhaps its the accumulated fatigue of the last month's trading, or perhaps its the literal tiredness from getting Costanza'ed in the wee hours of the night by the market and the MAS. But your humble scribe is suffering from a deficit of both conviction and performance, and could use a few more data points.

He's curious how a broader (but still informed) audience views the world, so has created another SPX poll. Simply click on your answer below as to where the index will be at the end of next month. In the meantime, it's back to the drawing board for Macro Man. He really needs to find a market where they've never heard of Seinfeld.

Results are here.


Anonymous said...

Did I mention to be careful with that SGD short position? ING came out and called it a crowded trade today. After the fact, of course.

Wish I could offer some wisdom moving forward, but I'm in sit on hands mode as of last night. It has all stopped making sense!

Macro Man said...

Yeah well it's always difficult to know how crowded stuff is. Two weeks ago I polled my banks on SGD positioning, and consensus was 'moderate'. And then USD/SGD dumped, after which I was told market was "limit long." I was partially hedged, (and added to hedge last night at 1.5160) so while this has not been a fun day, I've lost less on SGD today than I did the other week when it first breached 1.50.

But yeah, VAR being dialled right down. Major knee surgery never looked so compelling....

John said...

I guess there is some meaning to this but I am/was a confirmed bear. On your vote I voted for over 950. Why? I have become so convinced that the whole thing (stock markets) is rigged that there is no reason to fight it. Leave common sense and morals behind and enjoy the ride.

index fund investor said...

Ditto John,
exactly what he said

Anish said...

Short SGD is indeed a crowded trade. Have a few of my friends (retail investors) who are short the SGD vs the Aussie and the Loonie.

Living in the city state, it certainly does not feel that the economy is going down the tube as the GDP numbers suggest. Mass market (SGD 600-900 psf) property launches in the last couple of months were a roaring success and last week's upmarket property launch (single units priced at SGD 3-4 mn, 1220 psf)saw a more than healthy take up rate. March NODX numbers were down 17% y.o.y. but were up 11% m.o.m on a seasonally adjusted basis. Infact both Korean and Taiwanese export numbers for March showed the same trend. Something to ponder for the China skeptics such as you?

Rahul said...

Another Singapore resident here and i more or less completely agree with Anish. Almost everyone i know with any sort of decent cash holdings has moved into USD, AUD etc (except myself, of course.

Tim said...

If your looking for another Constanza - Thailand.

Kicking off bigtime, Governments warning foreigners to keep away. If ETFs are anything to go by stock market is likely up

ec said...

Have been reading your work for a while, and have very much enjoyed your perspective. I was in a similar funk a few weeks ago. After taking a week off, however, things started to make sense to me again. I stopped caring about the "why" as much and started focusing primarily on looking for crowded trades - then asking the fundmantal questions. Though I typically look at fundamentals then follow up with technicals , I've found that the inverse approach, in this market such an approach has saved me from many close calls.

In my opinion, this market, has much less to do with fundamentals and much more to do with positioning. However, in the rare opportunities where positioning and fundamentals converge, I am putting the trades on in size, and being swift to take profits. I'm finding this to work, despite the fact that it is at odds with my usual long-term bent. These opportunities are few and far between, with landmines nearly everywhere else.
Long USDBRL, short Ag's (particularly soybeans), short NKY, long JPY and long heating oil cracks seem to be a few places not yet bombarded by the specs - or good opportunities to fade their foolish enthusiasm.
Good luck.

MarkT said...

As an equity guy with a strong interest in macro I would suggest that you need to re-assess the common macro view that the equity market is driven by macro GDP data. Walmart told us their March same store sales on April 9th, why should they move on the aggregate data a week later? More importantly they gave guidance on earnings at the high end of the range. When equities are nervous and volumes are low, the macro consensus can become self fulfilling, but in the same way that obvious equity trades (global growth, energy, resources) can become crowded and collapse under their own weight so do obvious macro trades. Remember how the equity market doubled in 2003 against the noisy consensus of the global gurus like Stephen Roach that it was a jobless recovery? Point is that equities look at profits and how much you pay foppr them. Frustration at the fact that the equity market refuses to go down on aggregate data that it already knows about killed a lot of people back then. It went down for so long this time not because of the data but because of the structural forced selling. They aren't being irrational, you just haven't worked out what their rationality is. FX and fixed income is far more of a crowd game and thus (theoretically) easier to play.

Macro Man said...

Mark, since the rally started the European equity market has gone from pricing in 12% dividend growth from 2010 to 2014 to 1.5%. If declining dividend growth over the next five years jives with increased earnings and more reason for buying equities, then you're right: I have no idea of what "rationality" the equity market follows.