Running Diary

Thursday, July 16, 2009

"When a man is tired of trading, he is tired of life." If Samuel Johnson were alive today and running a hedge fund portfolio, he might well have uttered those words. Being tired from trading, on the other hand, is an occasional fact of a PM's life. And at the moment, Macro Man is pretty fatigued.

When one has a big bet in place that starts to go wrong, he has two options: stick with it and wear the drawdown, or trade 'em up. There isn't necessarily a single correct answer, as the appropriate response is shaped by level of conviction, market positioning, and one's own return and risk profile.

In any event, regular readers will know that your author has been running a short equity position, which was working swimmingly until about 10 am London time on Monday. Since then, obviously, global equities have stormed higher, leaving Macro Man facing the choice mentioned above. And he's decided to trade 'em up.

So yesterday he traded Eurostoxx futures, S&P options, AUD/NZD spot, USD/BRL options, silver futures, oil futures, Bund futures, and Bund options. The fruits of his labour were largely successful, but it's left him too tired to come up with a coherent piece this morning (or, as a reader pointed out, anything like the requisite level of proof-reading of yesterday's post.)

Given that there is some interesting data, earnings releases, and other issues today, it seems like a perfect opportunity to revive the "running diary" format. So away we go....

8.57 a.m.: So CIT halts trading last night and a story circulates that they're on the verge of a bailout. Then, after the close, the story leaks that they'll be left to their own devices. WTF? Did the Treasury do a quick survey to see wwho held their $70 bio or so worth of debt, discovered that it was no one important, and decide to leave CIT to the wolves? Enquiring minds want to know....

9.14 am: Some mumbles about a Chinese RRR hike, and equities are at their lows of the day. Helicpoter Wen getting nervous?

9.28 am: First day trade of the day goes sour; selling the break of the lows in Eurostoxx wasn't a great idea. Back to the drawing board...

9.59 am: Gym before Nokia earnings (@ 11 am London) or after JPM (@ 11.30?) Macro man's humming and hawing...

10.21 am: After JPM it is, as Macro Man's spent the past 20 minutes discussing the literary merits of Gabriel Garcia Marquez and Arturo Perez-Reverte with a couple of colleagues.

11.01 am: Nokia looks a tad light on both EPS and revenue basis...VG1 falls 7 points. Yawn.

11.16 am: NZD: never has a turd smelled so bad yet stayed so high for so long.....

11.30 am: JPM beats handily, coming in at 28c vs expected 5c. To quote Gomer Pyle, "surprise, surprise, surprise." Amusingly, the consensus was at 28c just a few days ago. Anyhow, who cares about CIT? New highs everywhere! And with that, Macro Man has a quick meeting with Hans and Franz to attend....

1.01 pm: Back after a hard session. Macro Man has found to his chagrin that at the age of 38, six weeks of complete physical inactivity produces a near-catastrophic loss of strength and muscle tone. Alas, recovery is much slower than loss! Macro Man has somehow shed more than 4 kilos over the last month, so at least the old power/weight ratios are improving...

1.31 pm: Shocking(ly low) claims data, especially the conttinuing claims. looks like some hefty seasonal adjustment issues and distortions with the auto shutdowns. That sort of begs the question of why auto industry shutdowns are now wiped from the data. Is Stalin running the Laabor Department now?

2.01 pm: Shock horror! For the first time in recent memory, the TIC data shows a trend (in this case, sales of $ assets) that match what the FX market did that month (the dollar went down.) Still, this data remains comfortably esconced in the "who gives a crap?" drawer.

2.25 pm: Five minutes before the open, and equity futures are very slightly limp while bonds have caught their first bid of the week (other than a half-hour squeeze at one point on Tuesday). Anything to draw from that? Who knows....let's see what happens after the initial retail flurry and Philly fed at 3 pm.

3.02 pm: Philly Fed declines for the first time since February. Stocks get a bit of a challenge, and bonds catch a bit more of a bid. Would put the chat amongst the oiseaux to see "risk-off" take hold here, wouldn't it?

3.12 pm: So will Mr. Miyagi pay a visit to the market today. Having implored Daniel-san to go "risk on" Monday morning, is he now returning to check on his protege's progress and advise him to go "risk off?" Let's see.

3.53 pm: Sigh. After great succcess yesterday, Macro Man has fallen to earth with his day trading today and delivered the red card after getting stopped out at local extremes twice in a give minute span after Philly Fed. Let's mark the sheets and go home.

4.43 pm: Another busy day in the books, so Macro Man's going to get the early train home. Let's see if the SPX drags him to the home office this evening....

7.45 pm: It just keeps on going, doesn't it? If only Macro Man hadn't pitched most of his remaining equity deltas today. It certainly has the feel of a melt-up, and it's tempting to get stuck in. But it felt equally dreadful last week, and, well....look how this week turned out. And as a couple of commenters have observed, earnings usually start out strong (relative to expectations) and then fizzle. Still, with GOOG, BAC, and the once-mighty C out before tomorrow's open, the squeeze can continue for at least a while longer.

9.01 pm: And now, Google reports. "Ex-items" beats consensus by a healthy margin; "ex-ex-items" has a shortfall by an even larger margin. What "items" cost GOOG 70c a share? That's a lot of beanbags for the playroom....

Posted by Macro Man at 8:43 AM  

32 comments:

Heh heh- BofA operating under a MOU as well.

The quote du jour: "Orwellian accounting cannot damp economic cycles"

Professional Gringo said...
9:19 AM  

Reserve Bank Governor Alan Bollard this week said the New Zealand dollar, which has surged 17 percent the past six months, needed to be weaker to bolster exports.

Anonymous said...
9:24 AM  

Maybe this is the right (in more ways than one) shoulder of the SPX being created...

Anonymous said...
9:40 AM  

well, FWIW(which is about as much as a fart in the wind), mm, I think your initial instincts on this market are correct, but it doesnt mean you cant CYAssssssss.

Keith said...
9:41 AM  

Dude, comments been pretty heavy of late so some banter..

How come you're so tired when your day starts just before 9am!!?

Anonymous said...
9:47 AM  

I wish man....the alarm goes off at 5.55 every morning. This week it's been all markets, all the time from 6 am to 9 pm, then 2 episodes of "QI" on Dave, then bed....lather, rinse, repeat...

Macro Man said...
9:49 AM  

Ditch the lather, rinse thing...those extra 15mins will be worth over an hour by the end of the week.

Cash equities - 4:35..

Anonymous said...
9:53 AM  

Fifteen minutes to wash your hair every day? Who are you, Rapunzel?

Macro Man said...
9:58 AM  

For what its worth I'm hoping JPM take the market lower. Whatever they make on trading they're going to lose on credit cards and corporate loans. Hopefully that will perk people up to the ugly deflationary world the West is in for now (as opposed to the entaka inflationary spiral that China is pushing itself into).

Nemo Incognito said...
10:19 AM  

Interesting to note the weakness of the energy coomplex...it trades really heavily despite all the froth in equities and the dollar

dgz said...
10:33 AM  

I've recently discovered "Dave" - best TV channel out there.
Chris

Anonymous said...
10:36 AM  

In all seriousness, if I could buy a reduced-price TV package featuring Dave, BBC 1 & 2, Sky Sports, and ESPN America, I'd do it in a heartbeat, because those are the only channels that I ever watch (not that I watch much TV.)

Macro Man said...
10:44 AM  

I'm very confused and hoping someone can provide some clarity for me - why is this imminent CIT bankruptcy not much bigger news? I would have thought this would be a major kick to investor sentiment that a TARP-bailed out bank is going bankrupt - so much for the financial area recovering. Never mind the knock on effects and implications. Is it because the market thinks they will be bailed out last moment? or genuinely does no-one care any more and we are in bull-heaven? this would be the 4th biggest bankruptcy in history.

Anonymous said...
10:47 AM  

Answer: despite Lehman being less than a year ago, people never ever work out how f-ed up bank bankruptcies are until the dead are counted. Look at Spoos back then. This is going to royally screw a lot of SMEs and may lead to them not being able to fund working capital, in turn leading to bankruptcies and defaults on their term debt (likely from JPM et alia).

As per usual, people are probably scrambling to work out what their exposures are etc etc since until last night it looked like it was getting bailed out.

Nemo Incognito said...
10:50 AM  

One day Dr Bollard bemoans the strength of the Kiwi and then the next day he's telling the world that New Zealand will lead its trading parters out of the recession.

http://www.bloomberg.com/apps/news?pid=email_en&sid=atk3cEr1ed80

Doesn't he understand what type of comments move currencies and in what direction.

but...

Fitch Ratings comes to the rescue a day later

http://online.wsj.com/article/BT-CO-20090716-701397.html

Anonymous said...
11:01 AM  

"11.16 am: NZD: never has a turd smelled so bad yet stayed so high for so long....."

As a kiwi, I resent that (yeah, I am short NZD, but there are plenty of turds out there that smell worse :) ).

Anonymous said...
11:31 AM  

MacroMan, I almost tracked you, but I decided to hang on to my short equity. I am looking for another bad unemployment report in an hour and for JPM to be the best of the non-GS bank earnings. I look for another grind back down to SPX 870 over the next month, on the same bad news flow we had in June.

I think the US Treasury is putting its TARP funds in the market whenever sentiment gets bearish, trying to keep animal spirits up. But they'll have to spend that money elsewhere sooner or later, and the flow of money into stocks will reverse.

Anonymous said...
12:18 PM  

I dunno why we all surprised by the fantastic banking results given they borrowing from the tax payer at 0% and lending them back their money at 5%-10% depending on your area of domicile.

Warrick said...
1:41 PM  

Did anyone read the general comments on capital markets section of The Gartman Letter today? Was a very well phrased piece which I think is more or less the mantra any trader needs to enjoy success.

"I'm right. But I can't afford to be right for much longer"

Jim Bob

Anonymous said...
1:55 PM  

Thank god I've generally had looser stops than most - these swings in S&P make me think that the average guy is using .5% on spoos.

Nemo Incognito said...
2:13 PM  

MacroMan, unemployment number wasn't shockingly low given the SA issue. Actual (NSA) first time claims rose to 667,534, the highest level since the week of Feb 7! Continuing claims (NSA) also rose to 6,135,066, highest since the week of May 30. SA numbers were highly impacted by the assumed auto industry model-year retooling shutdown: the SA model assumes 41% higher first-time claims this week than 2 weeks ago, it was only 19% higher, thus the 20% drop in headline number.

It was a mildly positive report in that declines in the number on emergency/extended benefits, 6 to 15 months on unemployment insurance, declined, suggesting that though layoffs are still running high, it may be a bit easier to find work. But we'll have to get some more reports to be sure. Headline SA numbers for first time claims 2-3 weeks from now will be way over 600k as the SA factors unwind. Another inconclusive report.

Anonymous said...
2:56 PM  

Although a decline in extended benefits means that you could have been unemployed for so long that you dont qualify anymore? I thought these things were finite?

Anonymous said...
3:20 PM  

Well you've thoroughly jinxed your own 'eurusd trading on a 1.39 handle' stat MM

Anonymous said...
4:30 PM  

Anybody liking this effort to reverse the trend on usd/cad?

Professional Gringo said...
6:15 PM  

Struggling to comprehend the size and rapidity of this squeeze. If we break 950 do we trek to 1000? Should I just be going with the flow and not over analysing? Semi-rhetorical here, but would appreciate opinions. Cheers, JL

Anonymous said...
8:19 PM  

JL, that's exactly what I am wrestling with....there's not much above here except air for awhile. I am sitting here, watching this, pricing up options for August that I never would have considered looking at this time last week. I'm wondering if it's easier to go for something like EMFX where at least in certain cases you could argue for the fundamentals....

Macro Man said...
8:43 PM  

I feel we're approaching a crisis here. Many businesses, especially small to medium businesses, are hanging on by a thread, waiting to see if a recovery happens. They can't access new credit, and don't want to put new equity in unless there's a recovery; their lenders are letting them skip payments as the lenders wait to see if a recovery happens.

The banks and the government know this, thus the big propaganda push to boost animal spirits and the belief in a recovery. The market could go higher here, but if a recovery doesn't materialize then there will be a big crash.

Meanwhile the economy continues to sink. Q2 corporate tax revenues were down 57%, a more honest number than the massaged earnings reports coming out. In July, income and sales taxes, port traffic, truck tonnage, retail sales, all declining even more rapidly than in June. NSA first-time unemployment claims highest since February. If a recovery is around the corner, it's planning to jump out and say "Boo!"

If you go long, plan to be nimble. The trend is up but who knows how long it will stay that way.

Anonymous said...
8:47 PM  

"Nimble", I think, is the name of the game. Like it or not, we've basically been range trading for 2+ months. While I had high hopes that we were on the brink of a big macro trade in equities (down), clearly that view was mistaken- for the time being at least. In actuality, it's a spiv's market, which means trading 'em up and jobbing it on a day-to-day basis.

I find it hard work (hence the fatigue!) and I'm not nearly as good at it as I am making big macro bets, but for the time being that's where the easier money is to be made...so that's where I am tryin' to make it.

Macro Man said...
8:55 PM  

I have to second anon @ 8:47. I've got a couple hundred sq. feet of warehouse space in Denver, and in the last month I've had 3 businesses just up and belly. I can tell that the well simply ran dry. And I see it everywhere else as well, business after business that I've frequented in the last 10 years are disappearing.
Everyone has cut to the bone on expenses, so it helps the bottom line some, but there is zero top line growth. All the earnings commentary I've read and listened to (that's somewhat honest) says there is no sign of a turn. Nonetheless, stocks like HOG shoot the moon after making a mess of the bed. But as you've said, MM, it doesn't matter until it does. A lot of it feels overly speculative, quite silly really. But I've been carried out before punting on that notion. I'd also second the propaganda campaign, as I've also had a large building materials company reconsider extending a lease on a building they've had ops closed down for a year b/c they're seduced by the green on the screen. They don't want to renew, they just want to hold the building to see if the tide turns.
Maybe we have to wait for Oct when it becomes obvious how ridiculous multiples are, and how flat revenue remains. I was rereading my Galbraith early this week, and the campaign by policy makers to reinvigorate animal spirits in the '30's is spot on with the campaign we've witnessed. If only our problems were morbid spirits!
RJ

Anonymous said...
9:21 PM  

MacroMan - Not to rub it in, but as I stated in your H&S post, the H&S was too obvious. We were DEFINTELY going to break the neckline, sucker in all the shorts, and they were going to whip it up hard.

MM, we are generally in agreement about the fundamental outlook on economy, but this bear market has one final leg. Probably to 1000-1100 on SPY. 1020 should be a critical level. If we break that, than 1050 than 1100. It is conceivable we go as high as 1200, because at that point, there will be no bears. All the bears would have gotten burned and it would be just ripe for a big collapse in equities. I'm talking (>50-80%) fast and violent decline type.

Darth Fluffy said...
10:26 PM  

EMFX looks good. Indonesia and Brazil particularly (bombings not withstanding - a strong government with a good reform bias was never going to make medievally minded islamists that happy). China's a landmine for all the previously discussed reasons - index trades only please, problem is HSI doesn't trade 24/7 so stops are irrelevent. Anyone with a good highly liquid proxy for China that trades 24/7 do tell.

Nemo Incognito said...
7:12 AM  

There was no mention of this from any broker (China cheerleader) yesterday, however according to Haver, nominal GDP in China slowed to 3.3% yoy in Q2 from 3.5% yoy in Q1 (profits are generated through nominal GDP growth). In the same quarter money supply growth grew by over 25% yoy. In other words, the money multiplier is slowing fast. Probably even faster than in the US. Perhaps Helicopter Wen will have to crank the printing press even harder?

Anonymous said...
9:29 AM  

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