Thursday, May 21, 2009

Quick Hits

Macro Man's a bit tied up this morning, so it's another edition of quick hits:

* Orgy of optimism? The latest BofA/ML Global Fund Manager Survey showed the highest degree of optimism over the economy and profit growth since 2004. The survey also showed a massive re-allocation into EM equities, which has taken positioning there from underweight to euphorically overweight in a matter of three months. It seems quite clear that managers are hitching their wagon to China, and are looking for more of a "check mark" recovery than a V. From Macro Man's perch, these guys are looking at green shoots and mistaking it for a redwood forest. Regular readers will know that he harbours a suspicion that this will end badly.

* Speaking of ending badly, no sooner does Macro Man pooh-pooh the market's renascent dollar bearishness than EUR/USD breaks through its recent highs around 1.3740 and accelerates above 1.38. The move was belatedly helped, of course, by the Fed, which was sufficiently worried about the economic outlook that it contemplated bumping up the size of QE three weeks ago.

* Proof that everything has its limits: The UK is linked arm-in-arm with the US, strolling down the yellow brick road of huge deficits and central bank monetization. You can almost hear Merv, Ben, Alistair, and Timmy singing "lions and tigers and bears! Oh my!" Sadly, they forgot to look out for ratings agencies, as S&P has downgraded the UK's outlook to negative. This really shouldn't come as a total shock, but the timing (an hour before a Gilt auction, and just after sterling had broken through ressitance against both the $ and the €) was unfortunate, to say the least. Is the US next? Inquiring minds want to know....

13 comments:

Anonymous said...

"looking at green shoots and mistaking it for a redwood forest"

ha ha ha

Stefan said...

I doubt that Warren "Buy American, I am" Buffet's Moody's will cut US rating.
What was the sense for timing this decision from Moody's? Stock market rally, pound rally?
Are we going to see more elephants under our rugs in days to come?

FX said...

no "sane" discretionary macro punter is long sterling here , its all systems. I think we will see more of the same price action over the next 2 weeks......bad news will be pounced on(and sold) by practical minded, discretionary managers and then after news is digested the systematic bids will have to see if they can hold it.

if we close below 1.5510 today this round goes to the humans.. otherwise the machines are still winning

Anonymous said...

Looks to me like Funds still long cash, much as i think this is a bull trap, it's hard to fade the flow at present. My guess is month-end orgy then we will get Korean export numbers June 1st followed by China's on 11th showing nothing has changed. Then the V will become a distant memory......

Anonymous said...

The US will NOT be next. US govt will protect them from being sued for rating turds as AAA in return for them continuing to rate a turd as AAA. :)

Greg said...

Entities that the ratings agencies said were "safe":

1. Orange County, California
2. Enron Corporation
3. Vehejo, California
4. All the CDO deals you can name
5. AIG
6. Banks that were not insolvent, but needed a government bailout just the same
7. Loads of ABS deals
8. US auto makers

The Chinese government should sleep soundly at night, knowing that the ratings agencies still think the US government is AAA

tv said...

S&P controlled by Fed/Tsy

Ratings Downgrde of UK happens before 101Bln US Tsy supply next week.

Scare $$ into UST

DWL said...

MM, We already figured out that the euro/$ has risen. The question is: where do you think it goes from here?

Re Moody's: isn't the next likely downgrade in the eurozone? Debt as % of gdp, etc?

p.s. to TV: S&P didn't drop the UK rating, it was Moody's, and thanks for the juvenile conspiracy theory.

DWL said...

TV: My error, it was S&P not Moody's.

Anonymous said...

yay correlation breakdown equities vis a vis bonds/USD

Macro Man said...

What....ya mean we have to think now?

Macro Man said...

DWL, I have no strong conviction on EUR/USD. I am sitting with a miniscule, retail-sized long because I have so little faith in it right now. SO I guess for choice that mean I think it goes a bit higher as people get sucked in, but I have no belief that this is the start of the next episode of Dollar Going Down Forever.

Anonymous said...

maybe this
http://accruedint.blogspot.com/2009/05/treasuries-and-stocks-if-he-could-be.html

question is whether this is a one day event...