Friday, July 17, 2009

You can tell it's summer, can't you?

The market rallies yesterday after headlines blare that Papa Bear Nouriel Roubini now sees an end to the US recession at the end of the year. After the close, futures evidently fell off after Roubini issued a clarification that essentially said "at the end of '07 I forecast a recession lasting two years. You do the math." Oh dear. You really couldn't make this crap up.

Anyhow, it seems as if many bears are picking up the pieces of shattered P/Ls are thye head and shoulders break proved to be false. With option expiry upon us today, Macro Man is losing all of his equity positions, and given the frenetic nature of this market, he's not necessarily in any rush to replace them just yet.

Meanwhile, his inbox is rapidly filling with mails trumpteting other key technical breaks. Chief among them is from the DGDF crowd, crowing about the triangle break in the DXY, which portends a sharp downtrend from here. Y'know, kinda like a head and shoulders usually does.

Naturally, the dollar has rallied today, with good old Voldemort (who yet again failed to complete a bill auction) fingered as the major seller.

Meanwhile, fixed income markets have quit falling after the oh-so-obvious break of trendline support, seen most clearly in Bunds, below. Indeed, bunds motored yesterday afternoon even as the equity rally was picking up steam. Hmmmmmm.
A similar chart is that of silver, which had a clear break of the downtrend line but has yet to really accelerate higher and extend the break. Not exactly the sort of impulsive price action you expect at reversal points, is it?
Maybe all these clear breaks will hold, unlike the equity head and shoulders pattern. But maybe, summer being summer and with bears everywhere having run for the hills, these breaks will also prove to be false.

After all, we're being treated to a litany of earnings reports that are, quite frankly, conjured out of thin air. As noted in yesterday's diary, Google somehow managed to conjure 70c/share of "extraordinary" items, taking their EPS from a below-consensus $4.66 to an above-consensus $5.36. Quelle surprise. Perhaps an equity specialist could enlighten Macro Man and his readers exactly what extraordinary items cost Google 70c/share? Writing down the value of stale beers in the company fridge? Enquiring minds want to know....

In any event, given the now-common perception that the authorities are trying to manipulate both perception and markets from behind the scenes, Macro Man's left questioning the identity of the person in charge. Pam Anderson? Jordan?

Posted by Macro Man at 9:36 AM  


Nah, it's our Tiny friend. You hurt his feelings.

Roubini called for a 1% growth in 2010. I guess that's bully. I saw the E minis jump 100 pips two nights ago, abot 1am est. I mean jump,not climb, as in instantly. Last night it was the CL Nymex contract that did that. As far as I know, I am not given to visions. There is a ghost in the machine sir.


Anonymous said...
10:13 AM  

Did anyone else notice that everything's getting more and more kafkaesque? How about this:

"One morning, as Gregor Samsa was waking up from anxious dreams, he discovered that in his bed he had been changed into a monstrous gold bug."

Gregor Samsa said...
11:03 AM  

Anon, viz overnight jumps in things it the likes of myself that trade in Asian hours.

Viz where this is all headed, I've got my puts on for BAC, C, and the retail names that are likely to be in trouble but am also getting longer my favorite EMs.

As a guy with a CB/high yield background I can only say this: watch the EBITDA hit or miss. It may lie in accounting fraud cases but by and large for industrials its the real deal and is not subject to all the one-off BS that you see elsewhere. I've seen a few misses already, waiting for a few more. Alcoa may have taken a restructuring charge but has it also written off the actual plants that will never come back online (Point Comfort alumina, anyone?). Book values are absolute rubbish right now and anyone who hears an analyst talking about PBs and how stuff is cheap in the developed world should slap him around the chops.

Nemo Incognito said...
11:51 AM  

pardon the stupid question but what does DGDF stand for please?

Anonymous said...
12:20 PM  

"dollar going down forever"

Macro Man said...
12:40 PM  

macro man - re google the extraordinary items is a known in advance so analysts strip it out for clarity, so the eps consensus ex items was $5.36 vs cons $5.06, the upside was about 2% better operating margins versus consensus(they delivered a margin of 46% vs consensus 44%). If you want to talk including items then consensus was $4.31 and they delivered $4.66. The ex items were stock compensation costs. Hope this helps.

Fredrik said...
1:20 PM  

Thanks Fredrik. What does it say about the spin machine when employee comp costs are deemed to be "extraordinary", but, say, the sale of Smith Barney is not deemd to be a one-off?

Macro Man said...
2:12 PM  

With all these companies reporting earnings before expenses and losses -- are the CEOs trying gain our confidence or lose it?

I don't see a real market bottom (as in the beginning of an authentic uptrend) until companies start reporting honest earnings

Greg said...
2:46 PM  

My advice is to focus on the bottom line after all costs for purposes of equity valuation and determining long term corporate performance. For short term trading and understanding the quick look on a quarterly statement I recommend to investigate what is being included in consensus numbers before comparing it with what has been delivered. Make sure you are comparing apples with apples. The rules for what can and cannot be treated as one off isn't clear to me and i doubt to anyone else either. I would assume people will try to use it to their advantage as with most things else - dealing with wall street is a bit like dealing with a used carsalesman. Buyers beware.

Fredrik said...
2:56 PM  

These markets aren't about fundamentals so how Google or Citi cooks the books is irrelevant. This market is about money creation and money flows. Don't waste your time trying to figure out earnings or when Roubini thinks we'll see GDP growth. It doesn't matter.

Joe said...
3:47 PM  

Agree its about macro and not micro and perhaps to some degree specifically about money creation and money flows - but those are definately fundamental factors. If governments decide to reflate then that needs to be part of the market call as a fundamental pro. Just my opinion.

Fredrik said...
4:00 PM  

I had DGDF in for "Dollar Gone, Dollar Fucked" ;-)

inegoveritas said...
4:34 PM  

I'd also like to ask a rather stupid question. I read this blog a lot, but who, exactly, is Voldemort?


Anonymous said...
5:09 PM  

China's State Administration for Foreign Exchange (SAFE.) Search for "Voldemort" in the search bar and you'll find the genesis of the term.

Macro Man said...
5:14 PM  

Joe,pardon my ignorance, but Voldemort,Bernanke, et.al notwithstanding, are you really saying that it "doesn't matter" that corporate revenues across the economy are down 57% y-o-y? or that we are facing 10% unemployment, or that we are looking at a 1.3 trillion fiscal deficit this year? Seems we are back to the old Perception vs.reality question arent we?

Keith said...
5:44 PM  

Umm why do I feel like I've played two rugby games a day since Sunday?

Having to work this hard is not good for my golf game people.

Professional Gringo said...
6:11 PM  

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