There You Go

Friday, July 24, 2009

Well, there you go. The best way to spice things up a bit is to write a piece moaning about how uninteresting things have become.

It all started somewhat suspiciously, as US equities went bid a couple of minutes before yesterday's housing figures. The headline duly surprised to the upside (though in aggregate, the figures were largely as expected), and equities proceeded to go psycho-bid for the rest of the session.

FX duly followed along, the the dollar selling off in line with improved risk appetite. And then, at roughly 5 pm London time, the dollar mysteriously went bid. US government comments telling China "don't expect us to buy as much of your crap moving forwards" may have explained some of the move, but to a market used to an equity-dollar correlation of close to one, it was truly a bewildering development. EUR/USD ended up tracing out the dreaded "witch's hat" formation, then tumbled further after a raft of poor earnigns reports after the close.
Although the euro has recovered some of yesterday's lost ground thanks to a solid ifo report, it's nowhere near yesterday's highs. It's all somewhat surprising, given recent inflows into EM and the announcement of another zillion dollars of US Treasury issuance next week. Where's Voldemort when you need him?
Much as it may be tempting to throw his lot in with the "risk-on" crowd full bore, Macro Man keeps telling himself "it's a trading market, not a thematic one." Action in short sterling provides a ready example. While markets tradeed in considerable sympathy with the view sketched out in this space yesterday, it's all change today after an execrable -0.8% Q2 GDP print, much worse than the -0.3% consensus.

That's taken the y/y figure down to -5.6%, the worst since Bloomberg data begins more than fifty years ago.
Just imagine how bad it would've been if Gordo hadn't ended the boom/bust cycle, though....

Posted by Macro Man at 9:52 AM  


Seen the GS piece by Oppenheimer?

Anonymous said...
10:25 AM  

No. Had a physio appointment first thing this morning and have been trying to catch up all day. What's it say?

Macro Man said...
10:28 AM  

USDJPY. Long or short?

Anonymous said...
10:45 AM  

GS note - pretty bullish.. I'll mail it to you.. sorry for delay been distracted.

Anonymous said...
11:12 AM  

Much of that particular GS note rests up on EM being willing to import a lot of stuff from Europe: to be honest if this trade thing blows up OR China just continues to support capital goods producing SOEs (hello Dongfeng) then that demand may not materialize. Latam could have some hope though.

Nemo Incognito said...
11:37 AM  

trading market indeed - but there's a big theme that's gone quiet post US bank earnings frenzy: European banks are still more highly leveraged than their US brethren and still have large Eastern Europe loan portfolios that surely must be impaired. US deficit is shrinking that doesn't bode well for exports

Anonymous said...
12:47 PM  

Deutsche Bank is still highly leveraged to Las Vegas and to a very large unconventional retail portfolio in the USA. While it is unlikely that any bank will ever fail again anywhere, their valuation seems disproportionate to their earning ability.


Anonymous said...
1:02 PM  

Who is voldemort, the Chinese

Anonymous said...
1:38 PM  

Hello Macroman

Naive question about something that has come up a lot recently in your posts. How can you tell when it's more of a "trading" market than a "thematic" on and would you tend to make contrarian bets in the trading regime?


Anonymous said...
1:51 PM  

Voldemort is indeed the Chinese, yes.

As for trading versus thematic markets, it has a lot to do with price action and how serially correlated it is on a longer than micro-term time frame. It also involves interpreting the reaction of prices to incoming data-points. By and large, the more that price action is determined by existing positions, rather than datapoints, the more of a "trader's" market it is. The more serially -correlated the price action, and the more consistent the reaction to datapoints, the more thematic it is.

Macro Man said...
2:08 PM  

I got other names for him MM. And they are less creative and nice then Voldemort.


Anonymous said...
2:21 PM  

How about this for a theme. Short ZAR against other commodity currencies. I heard you can protect against HIV by showering.

Anonymous said...
4:45 PM  

the only there here is be long equities! woo hoo!

Anonymous said...
5:31 PM  

sorry can't spell - I meant the only THEME here is be long equities! woo hoo!

Anonymous said...
5:32 PM  

I ran into Voldemort last night and punched him in the face. But the Sterling short was a particularly evil Prof. Moriarty-ish development that was not fun at all.

The Rothchilde en Tubo stays in the box this morning and I would like a mulligan on Sterling please.

Professional Gringo said...
5:45 PM  

I'm quite puzzled by 3 things:
1) Both MSFT & AMZN dropped about 10%, yet VIX continued its descend.
2) Homebuilder is shooting for sky, yet lumber futures barely moved.
3) LIBOR future: if things get better from here, the talk of raising rates will be raised again; if market reversed, TED spread widen. Do I miss something?

Any comments are welcome.

Anonymous said...
6:35 PM  

My favorite headlines of the day:

* CIT bankruptcy to follow even if exchange offer is successful, uncaring robots run futures up on news (Bloomberg)
* Earnings really starting to suck: Schlumberger profit down 57% (AP), in other news economy irrelevant to the recovery
* Slowest diamond sales since 1974, good for another 10 points on the S&P (Bloomberg)
* In the meantime JP Morgan is increasing banker base pay, while bonuses will likely remain as high as always (Bloomberg)
* Euro rises on improved confidence Europe will never export another product again, market on 10th straight up day, 355 more to go (Bloomberg)
* In the meantime the "strong" German recovery is weaker than its US counterpart, as Obama keeps handing out blue pills (FT)

Professional Gringo said...
6:40 PM  

Prof Gringo - Heh, very good.

At least in the US, the economic data is about to get notably weaker. Will be interesting to see how that is spun.

Retail investors held out for months but capitulated this week. Bad timing for them.

Anonymous said...
7:08 PM  

Anon @708pm:

what econ numbers do you have in mind? retail companies report in August. How will their numbers look?

Anonymous said...
7:12 PM  

Anon @7:12: No special insight into the future of retail numbers but they've started trending down again after a Q2 green shoots mirage. See July chain store sales from Redbook etc. David Rosenberg has a chart in his "Lunch with Dave" missive today showing the recent pattern, headlined "Consumer Has Already Double-Dipped Since March", the data in that chart is already out of date and retail sales are dipping more steeply in July.

Employment is more clear, mass layoff announcements have surged in the last week, I think preparation of earnings reports plus a very weak start to Q3 have focused management attention. Moreover some one-time factors, such as the minimum wage increase effective today, are going to push up August unemployment stats dramatically, on top of a recent surge in claims that has been concealed by wayward seasonal adjustments.

The seasonal adjustment noise could have a big impact over the next month. The BLS just uses a multiplicative factor to seasonally adjust. This means that right now, with NSA claims running 560k per month, seasonal adjustments are almost twice the size they are normally when NSA claims run 280k per month.

Thus, for instance, headline number in the week ending July 11, 2009 relative to the week ended June 27 (typical for the summer) was seasonally adjusted down 200,677, but in 2007 the comparable weeks were seasonally adjusted down 133,437. This despite the number of auto layoffs this summer being in fact less due to GM and Chrysler. So we probably had 2/3 the actual layoffs of 2008, but 1.5x the seasonal adjustment, making July numbers look much, much better than they were.

In August-September this gets reversed, the seasonal adjustment tends to raise the numbers by 20%+, and off a higher baseline this will make the numbers look even worse than they are.

Along with the minimum wage rise, various state and local tax increases, higher mass layoffs, we have the seasonal factor that in recessions businesses often start early on the Q4 seasonal layoffs. Also, processing of initial claims is weeks late in many states, 20% more than 3 weeks. So some of the July auto shutdown claims, and state and local layoffs with the new state fiscal year July 1, will show up in August. So I expect very bad employment numbers from here.

Anonymous said...
8:01 PM  

All the above is true, but oil is going to $80 in August. Plenty of time to sell off the market after that.

Anonymous said...
11:14 PM  

Spent the day driving, the commentary on the NFP seasonal adjustments by Anon at 8.01pm was quite the most interesting thing I have read today in catching up on the news. Thanks for that and Prof Gringo's headlines as well.

Bearish on US, China equities, the Euro and oil - based on common sense, economic fundamentals and technical analysis, but that didn't stop lots of us from taking a loss this week...

leftback said...
3:44 AM  

its not about being right but about making money ... preserve your capital until its time to be right ... eventually that time will come ...

its irks me that analysis and common sense really don't go very far in this trait as we are dealing with human beings that sway between fear and greed in a game called and master of puppets run by Government Sachs

Anonymous said...
3:52 PM  

Post a Comment