Wednesday, May 27, 2009

Five-Minute Macro

Is it just Macro Man, or are we living in a world of five-minute macro?

It seems as if tradeable macro themes get as much traction these days as someone wearing ballet shoes on an ice rink. If you don't like the theme of the minute, hey! Just wait. Another one will be along shortly.

Such was the case yesterday, where the bother about Kim Jong-Il (was yesterday's Team America reference too subtle?) vanished as soon as you could say "higher consumer confidence." Yesterday's 54.9 reading on the Conference Board measure was clearly a positive surprise, so it's understandable that equities and risky stuff might rally. Yet the vast bulk of the improvement was down to the expectations component, which itself was probably driven by the recent run-up in equities. So we're buying equities on the basis of a number that was driven higher by the fact that we've bought equities over the past month. Uh, OK.Another "five minute macro" theme was the death of the dollar and the Chinese withdrawl from funding the deficit. Yesterday's two-year auction had indirect bidders (read: foreign central banks) take down more than half the print, the highest proportion in five years.

Before we consign the funding fear theme to the dustbin of history, however, let's see how the rest of the week's auctions go, and whether Uncle Sam and label the market with (yet more) duration.

Indeed, there is a rising drumbeat of what you might call the "Goldfinger" theme (loving gold and expecting Mr. Bond to die.) Price action in bunds, which have rolled over and broken their 200 day MA, has been mirrored in numerous other markets.

Of course, as linked above, Macro Man wrote a similar post about bonds little more than a year ago. A cursory glance at the charts therein will reveal that prices were a hell of a lot lower then, and that "key breaks" were not sustained.

So the world of five-minute macro is a hardly new, and simply represents a relatively noisy period of back-and-fill price action. Macro Man can only hope that the trend of five-minute macro steers well clear of economic datapoints like these.


Anonymous said...

Interesting that Stocks and EM de-correlating, suggests to me that the stocks is still 'technical' ie Funds have too much cash. EM being a little more realistic....TRY broken and Eur/Pln about to go more ballistic than Team America saving Paris ;-)

Anonymous said...

Macro Man Says: "So we're buying equities on the basis of a number that was driven higher by the fact that we've bought equities over the past month."

Why all the poo poo'ing macro man?

If I ever heard of a bullish sentiment indicator, your sentence sure describes it. Isn't it the exact definition of the kind of positive feedback loop of which beautiful short to mid term trade-able trends are made? Paving the way for a possible "melt up" in the equity market when the slower money on the side lines gets sucked in also?

Macro Man said...

The Japanese are still waiting for the slow money to get back into equities, twenty years after it fled.

Now that the US consumer has taken a few steps on the road to rebuilding savings, it would be short-sighted and, frankly, dangerous to get all giddy because the stock market's gone up for a couple of months. Market considerations aside, this process of rebuilding savings desperately needs to occur.

And in terms of markets, it's remarkable how swiftly such a "positive feedback loop" can morph into a "bubble".

Anonymous said...

I think you are overinterpreting CB's demand for the 2yr, CBs are buying the short end and there is a dearth of demand in the longer end

Anonymous said...

"Asteroid Hits Earth, S&P up 25"

Anonymous said...

Plunge Protection team aka PPT doing dirty little job --> every time you have some nasty late SPoos program buying , cheaper for the Treasury/Fed to entertain the Green shoots theme via stocks rather than buying their bonds. It is all about showing up the face, but the "inflationnist aka bubble maker " farce will not prevent a reality check at some point . The second derivative theme is dead , welcome to the next moment of distribution one ( kurtosis , the belly may implode ) J-M B

Greg said...

I have been saying now for over a year that this deflation nonsense was the product of the people who told us dot-coms were viable businesses and mortgages / home prices can only go up.

Before buying into the latest sales pitch, investors should have asked themselves where are all the customer's yachts?

No one argued that 15% yoy home prices was inflationary- Bernanke even argued the opposite. So how come these same people now think falling home prices is deflationary?

Answer: spendthrifts just want lower interest rates, and like all addicts they don't care what twisted logic they use to justify getting their next fix

Bonds are selling off because the out of control spending has gone off the charts. There isn't even a mention of balancing spending in the near future, much less a discussion of repayment.

At the same time, the US and UK governments (especially US) are working REALLY hard to tax successful companies and prop up zombie companies. Whatever short term political effect this his -- medium and long term it decimates the tax base (aka the source of payments for the bonds they are selling).

Out of control spending / infinite new supply of debt, plus destruction of their revenue stream -- and only a Wall Street analyst could possibly argue for stable interest rates

The ratings agencies are behind the eight ball again (still?). Enron, Orange County, CDOs/ABS, FNMA and FHLMC. Only after it becomes patently obvious the entity is bankrupt do the ratings agencies *start* to question AAA status.

It seems unlikely that the US/UK will run hyperinflation in the near term (sorry gold bugs) -- but it is basically a certainty that inflation will be substantially higher in the future

2yr notes are one thing. But buying 5y and 10y (never mind long bonds) at rates equal to long term inflation is exactly the same bit of money management that got us dot-coms.

Everyone thinks they will be the lucky ones to sell out at the exact top. 98 percent of these "investors" are going to be taken to the cleaners because they followed the advice of Wall Street "analysts" and ratings agencies.

Cortex said...

Looking at equities, it seems that we have allready priced in all the macroeconoic improvement we might hope for over the next 24 months. So why not close the markets and all go for a two-year sabbatical, cultivating creativ skills, spending time with the kids and regroup once reality is matching the multiples?

Professional Gringo said...

The latest 5 minute rage is Faber 100% certain of hyper-inflation in the US.

There's too much noise.

But I'm madly in love with you sterling bulls. At least for another day or two. Maybe a couple of months.

When do we short that pig-the Euro- MM?

fodacadillac said...

Traders in G-7 currenices this year have traded with the flavor of...."Which one should we pick on this week?"

It's traded like a market that lacks direction so I've contented myself with trading the ranges until more discernable themes become apparent.

I liked your USD/SGD theme but alas the SMA spoiled our fun.

Anonymous said...

if you want a trend look at treasuries. Other asset markets arent watching

Steve said...

Greg the sell-off in treasuries is simply a rise in real yields. Inflation, by any measure you choose, is under control. Even the breakeven inflation rate in 5 years is well below 2%. The collapse of assets is massively deflationary, and now the cost of credit is rising. This is not going to be pretty.

Steve said...

The same hyperinflation argument was made about Japan 15 years ago. Japanese yields have ranged effectively between 1.5-2% and prices haven't budged since 1990.

Greg said...

Steve: Inflation, by any measure you choose, is under control. Even the breakeven inflation rate in 5 years is well below 2%. You obviously know nothing about TIPs. TIP yields are hardly a good predictor of forward inflation, at least not in the opinion of any academic paper or the research of the Federal Reserve.

TIPs are nothing more than a CPI indexed floater. That's it. Nothing more.

The folks who told us mortgages can only go up, dot coms are viable companies, and CDOs deserve a AAA rating -- Wall Street sell side -- are now forecasting CPI to stay low for 5yrs?

Simple question: if these guys are so smart, why aren't they solvent? Why do they need to be bailed out by farmers and plumbers and such?

Only a fool would make an argument based on illiquid pricing by a group of people with a proven track record for mispricing risk.

You still haven't explained why asset prices rising is "normal", but falling prices are deflationary. If you didn't argue for 15% fed funds from 2001-2007 (no one did) -- then you are pretty stupid to argue home prices or stocks have bearing now.

By any economic right, sell side firms, and their terrible economic "insights" should be out of business.

Political cronyism, not economic understanding, is keeping you in business (for now).

Anonymous said...

Like many (most?) others, I was a bit nonplussed to see the "non-reaction" to the exploding of Kim's giant firecracker. Whatever angst existed in the Asian overnights, had faded by dawn's early light.

old trader

tman said...

Macro Man, it would be interesting to hear your view on inflation/deflation. Inflation has again become the dominating bear meme in MSM, like it was in 2007. IMHO this is just another spin of the old decoupling myth.

One thing I very rarely hear in the media is how on earth are we going to ignite another debt bubble, with this kind of debt overhang? "Experts" keep saying consumer confidence is up -> it'll lead to strong rebound in retail sales. Alright...Where is the consumer going to get the money? Max out his credit card? Tap into that housing equity? Sell his stocks? Demand higher wages from his employer? Please.

Here the inflationistas will find a stiff resistance against Bernanke's scheme to reinflate. It's hard to get a positive feedback cycle of inflation when commodities rise faster than wages. Increase in say oil prices will only lead to lower demand. IMO $100 oil is as bad now as $140 oil was a year ago. You try to negotiate wage increases with today's overcapacity and unemployment that is about to hit double digits this year...

And that $ denominated debt overhang... It's rocket fuel for $ in deflation.