Macro Man is back.....sort of. A misadventure in setting his alarm last night left him sleeping in, working from home as a result, and...well....still a little groggy.
Suffice to say that it was one of the more uneventful summer holidays, market-wise, that he could recall. Oh, sure, there was a bit of noise either side of payrolls (and OK, he did trade a fair amount on payroll day itself), but there were no real bombs, either of the literal or market type.
Given last week's roller-coaster ride, Macro Man wonders what sort of state the psyches (and P/Ls) of market punters may be in. The comments section in this space gave him some idea...but erratic price action usually does not spell "fun and fortune" for most directional players.
Anyhow, he's back now and open for business in the commerce of new ideas....or the revival of old ones. As frequent commenter Nemo has pointed out, Shanghai's turned pig-ugly during your author's absence.
If sustained and indeed extended, that should bode relatively ill for both equities and all things EM, the latter of which has served as Macro Man's "risk-on" nexus for the past month or so.
From his perch, the rally in short ends looks pretty extended, and while there's more room for upside further out yield curves, there's still the elephant-in-the-room of pesky supply considerations.
Technically the euro looks pretty poor, which is a tad ironic given Germany and France's much-ballyhooed exodus from recession. While it's tempting to slot it, bitter experience has taught Macro Man not to get too excited about potential technical breaks in the euro, particularly when swimming in CB-infested waters.
No, from where Macro Man sits, the trade that seems most compelling is one that is painfully familiar. He had a decent run during his time off....time to spend some of that P/L on developed-market equity index puts.
Suffice to say that it was one of the more uneventful summer holidays, market-wise, that he could recall. Oh, sure, there was a bit of noise either side of payrolls (and OK, he did trade a fair amount on payroll day itself), but there were no real bombs, either of the literal or market type.
Given last week's roller-coaster ride, Macro Man wonders what sort of state the psyches (and P/Ls) of market punters may be in. The comments section in this space gave him some idea...but erratic price action usually does not spell "fun and fortune" for most directional players.
Anyhow, he's back now and open for business in the commerce of new ideas....or the revival of old ones. As frequent commenter Nemo has pointed out, Shanghai's turned pig-ugly during your author's absence.
If sustained and indeed extended, that should bode relatively ill for both equities and all things EM, the latter of which has served as Macro Man's "risk-on" nexus for the past month or so.From his perch, the rally in short ends looks pretty extended, and while there's more room for upside further out yield curves, there's still the elephant-in-the-room of pesky supply considerations.
Technically the euro looks pretty poor, which is a tad ironic given Germany and France's much-ballyhooed exodus from recession. While it's tempting to slot it, bitter experience has taught Macro Man not to get too excited about potential technical breaks in the euro, particularly when swimming in CB-infested waters.
No, from where Macro Man sits, the trade that seems most compelling is one that is painfully familiar. He had a decent run during his time off....time to spend some of that P/L on developed-market equity index puts.
16 comments
Click here for commentsAmen brother. Hope you enjoyed the break. This Swedbank thing is an utter schemozzle, the girlfriend was suggesting we take a holiday to Europe while we were both reading in a cafe and showed me how hotel rates in Eastern Europe were faring (according to Conde Nast). I don't know much but I do know that if your RevPAR is down 50% the mortgage is definitely impaired.
ReplyDeutsche Bank is looking like a good short from HK right now.
Call me cynical but the futures are shanking and they suddenly announce a TALF extension? It wasn't even due to expire til Dec.
ReplySigh ...
Nic - I'm sure the TALF extension has been in the plans a long time ... CMBS market will collapse without Fed support, and with it the banks. Having issued $13 trillion or whatever it is in bank guarantees, the Feds will do everything to put off a bank collapse.
ReplyOf course, this is just a huge transfer from taxpayers which will ultimately weaken the economy. If the economy weakens enough, the credit of the United States will be threatened. They can't afford to have all those bank guarantees called at the same time they're struggling to fund $2 trn deficits, and FDIC/FHA/Fannie/Freddie/Ginnie/FHLB need $1 trn or more in bailouts.
PJ
EUR:USD will probably find support around 1.4025-1.4033 or so, and SPX 975 should hold for now. This last swing was very profitable, and made up for some damage inflicted by prior squeezes.
ReplyLB is thinking that profit-taking at the long end makes TBT the trade du jour....
LB: agree these levels will probably hold in the short term (SPX + STOXX + JPY crosses)...
Replydo you mean TBT as in 20yr ETF or 10's by 2's RV ??
TBT the ETF. Hedging a long position in 5s and 10s.
ReplyAs a macro experts - could you explain to me one thing: Why is everyone cheering about rising GDP in 2 quarter (Germany, France, Japan) and "the end of recession" theme goes on, when in fact real GDP is growing simply because of deflation in these economies and in fact nominal GDP keeps falling ?
Replydadalsky - Good question. Also, GDP is growing only because of government spending and inventory restocking. These are temporary factors.
ReplyNever confuse positive GDP with economic growth. Right now, we have positive GDP in a declining economy - the US could post +3% in Q3 despite declining employment and retail sales and rising defaults. However, if enough people take positive GDP as proof of recovery, you can have a positive market reaction for a time.
PJ
Why are people stoked about earnings when the numbers are made by cost cuts and not rising sales?
ReplyTwo things I reckon:
1. it's all about beating expectations. Doesn't seem like anyone is fired up about Japan GDP. I guess french and germans stole the thunder.
2. a lot of people just look at headline numbers.
I wouldn't discout an element of earnings 'engineering' either; it could prove pretty difficult to entice consumers to start spending again when the world and his Dog are still falling short of estimates - almost better to peel everything bar the skeleton away and make enough positive noise while doing it in the hope that the improved sentiment hits main street while there are still costs to cut.
ReplyIt's all one trade, and the rally in USD and JPY that Macro Man was expecting has now begun in earnest.
ReplyA pull-back is likely tomorrow, with a bounce in risk assets, before the safety trade resumes.
people need to spend a bit of time on company analysis. if a company cuts costs in Q2 and then in Q4 its revenues improve year on year its earnings increase by even more. its called operational gearing. the year on year comparisons in Q4 will be like trying to high "5" a pygmy given the "cardiac arrest" in q4 of 2008. the equity market is not stupid, it just looks foward 6 months and has to re-price things. i'm not being a super bull. and yes one persons cost cuts is another persons revenues. but understand that is why a market prices in earnings based on cost cutting. if companies are lean and mean their operating margins can expand very quickly. the equity market is a discounting mechanism for future earnings. except in china where it is future government policy!!! and yes, we need to see some revenue growth. but markets trade on earnings multiples, not sales multiples.
ReplyHigh 5 the Pygmy, good one, but that y/y comparison is priced in. Market does look 6 months ahead - and is now looking at the pygmy-on-pygmy comparisons for Q1 2010.
Replyhow about short silver?
ReplyDeutsche Bank does indeed look a compelling short, especially given the stock's poor recent relative strength versus the banking sector.
Replyq1 2010 is simply high fiving the pigmy's brother. no bother. macro bears have been wrong for almost 3 months now. all they've done is force people into loading up on protection/puts. which by definition means the sell off will be more shallow than a baby pool during a heat wave.
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