Good Riddance

Friday, August 28, 2009

TGIF, eh? The week's almost over, and all Macro Man can say is "good riddance." He's actually scratched out a bit of P/L this week, but overall the last five trading days have been deeply unsatisfying. Hey, at least the SPX managed to break away from the 1025 tractor beam yesterday...closing higher after trading weak for most of the session. Deeply unsatisfying indeed.

But even that was a visit to Xanadu compared to what can only be described as a classic FX screw job last night. Just before 3 pm New York, when most spot jockeys are more interested in the latest Mets injury or the Yankees' Dr. Evil-esque payroll, some bright spark decided to jam a $3 billion order in USD/CHF through the market. Supposedly this was to fund a purchase for the UBS share tender, but Macro Man has his doubts, given the timing and manner of execution.
(By way of discalimer, he had no position in FX, so was unaffected by last night's carnage. Price action like last night's isn't exactly tempting him to rush back, however.)

Bloodshed of a more predictable type came in the Aussie fixed income market overnight, following on the heels of an article from well-known RBA watcher Alan Mitchell suggesting that the bank could begin hiking rates as early as Q4. The entire strip beyond front-Sep was mullahed by at least 20 bps. Ouch!
This, of course, raises the question of how much growth and green shoots the Fed and ECB would need to see before contemplating a tightening. US Q3 GDP is now tracking at something like 4-4.5%, and if the inventory surge continues a similar result in Q4 is certainly not impossible.

Jeff Lacker was on the tapes yesterday expressing a desire to avoid the mistakes of Easy Al during the last cycle, when rates were left too low for too long. If and as CBs like the RBA start putting up rates (rightly or wrongly), surely some sort of risk premium will be introduced into G4 fixed income markets if growth numbers keep up?

After a 60-70 bp rally in the reds and an en fuego bond market, Macro Man can't see much of a risk premium there. So perhaps that's where he should be directing his energies for the time being. Ironically enough, of course, the very introduction of a risk premium in rate markets could well be a key catalyst for a lurch back into the second half of a W-shaped growth profile early next year.

Macro Man suspects that it will be some time before he can say "good riddance" to the hit-and-run trading methodology that's carried him through the last couple of months....

Posted by Macro Man at 9:39 AM  


I would have to agree viz hit and run. Deeply unsatisfying, devoid of any intellectual content and it all requires a lot of energy and active trading.

To be honest the more remarkable thing is that as China tries to cool off a bit the AUD and SPI will have absolutely none of it. China SOE complex taking it where it hurts though so I can't complain about that.

Nemo Incognito said...
10:33 AM  

wtf is viz... im hip and have no effin clue

eff viz...

go long uyg straddles and bank, like a pimp

suck it

Anonymous said...
10:52 AM  

nemo: u talk a "large" game but what's youre pnl this yr?

keep it respectable and in % terms...

my old boss always said... to have the idea is one thing, but to make pnl is another. are u good are do u just bark.

Anonymous said...
10:58 AM  

Very difficult trying to play the risk on / risk off game in FX. Better opportunities trading crosses. While an RBA rate hike is almost priced in for October, surely AUD/NZD has upside with the RBNZ still on easing bias and voicing concerns about kiwi strength. Also like AUD versus CAD.

Anonymous said...
11:07 AM  

Anon @ 10.58am. Everyone talks a large game on here but noone mentions P&L. Why don't you tell us yours as well then? Of course there's no way of telling if it is true or not, whatever anyone says.

Anonymous said...
11:20 AM  

Lads, lads...let's leave the slanging for the yahoo message boards please...

Macro Man said...
11:26 AM  

I was but-fkd by Al and the RBA talk yesterday. I guess I should have seen it coming (to some extent). The surprise is that it is coming at a time when China appears to be tightening loan growth and commodity intensive investment. Chinese equities are selling off on that basis (but perhaps that isn't a great signal after all). The irony is that the RBA probably believe that "slowing" excessive money growth now will sustain China's economic momentum in the long run. Most historical experience suggests that credit bubbles are difficult to deflate gently. Or did I miss something in 2008? Perhaps a short AUD trade will have to wait until risk appetite turns?

Skippy said...
11:36 AM  

are you good are do you just bark

interesting grammar.

Nemo Incognito said...
11:38 AM  

Skippy and I are going to the same tailor to get the seat of our pants patched as well. I had not fully appreciated the Alan Mitchell effect until now. In the meantime, looks like we're going to make new highs in AUD for the month so not exactly easy to short here either.

Nemo Incognito said...
11:40 AM  

Anon @ 10.58am

"what's youre pnl"

Nemo this is far worse.

Mitesh said...
11:50 AM  

Hey MM, glad I'm observing these markets from a sandy rosé tinted distance. Agree with the sentiment that Sep-Dec will be interesting, if stressful for all involved. Good commentary earlier in the week, nice to see such diversion of views highlighting the uncertainty ahead.
Funny how this board occassionally becomes a pissing contest, rather than exchange of views, you can take the trader off the floor but...
Overheard on Virgin trains the other day: Conductor;'he's lovely, whats your sons name'. Dad;'Stanna', 'Stanley?', 'no, Stanna', 'why?', dad; 'cos he was concieved on a Stanna Stairlift!'. Seriously, you can take the pickey out of the caravan...
Time for lunch and the first glass of rosé of the day, apparently the tranny of wines, doesn't stop me tho

Anonymous said...
11:53 AM  

frustrating that aussie fixed income mkt shrugs off the srong capex number. only to sell off 25pts on a jorno's opinion piece. all we need is a terry mcrann article 2nite and it will be off to the races.

Anonymous said...
11:56 AM  

The most amusing thing about this P&L slanging match is that I actually posted on the blog along with a self-criticism of things done well and poorly this year. As they say at slashdot, RTFM.

Nemo Incognito said...
12:06 PM  

My PnL was +1100% in 2007, +570% in 2008, and -13% so far in 2009. So, this year has been rather irritating. C'est la vie.

Anonymous said...
12:18 PM  

MM can you filter this chat for constructive comments about the mkts.

Anonymous said...
12:25 PM sound like a complete tool

Anonymous said...
12:25 PM  

P&L rubbish aside, it will be interesting to see the stock and bond market reactions to this GDP number. I think it could creep over 4%. SPX range trading all week, good for a break to 1050/60.

Amusing amount of rubbish now rallying hard...check out Citi, AIG, L'Oreal.

Gold, tightest range for almost 2 years on the weeklies. Obviously at quite an important technical juncture; could see a $40-50 day soon. What direction, I have no idea.

Anonymous said...
12:32 PM  

Also, I should say that 1065 on SPX was the post crash rebound high last year.

Pretty important pivot.

Anonymous said...
12:35 PM  

I went to the same tailor as Skippy and also popped in to the launderette to have my shirt starched

Anonymous said...
12:36 PM  

Please, lads....take it for granted that every comment is prefaced by "mine is bigger than yours, so nicky nicky nah nah"....that way we won't need to read it here.

I and I suspect the vast majority of readers are more interested in an intelligent discussion of what's gonna happen than a "big willy" contest.

Macro Man said...
1:11 PM  

Trying to change the subject...

Mr. Macro do you know anywhere to park a couple hundred metric tons of natural gas for a year? :)

The forward curve in NG futures seems ridiculous. Last year it was renting full supertankers, whats going on this year?

erik said...
1:53 PM  

this weeks investors intelligence advisors survey bearish respondents printed south of 20% for the first time since oct 2007 fyi..

art vandelay said...
2:00 PM  

On the markets, I'm still licking my wounds after the long bond worked me after what I thought was a good setup into positive economic data and supply. Doesn't the bond market sell off on (relatively) strong numbers any more?

As for 'viz' google 'videlicet' and thank your high-school Latin teacher. Me, I used to think +6% YoY with low variance was perfectly respectable. But now I'm all jealous.

wcw said...
3:55 PM  

Thanks for the commentary MM (& Nemo), I didn't know what the tidal wave was yesterday.
If its a big willy contest, then post pictures and I will judge as I don't have a willy
Nic (ola)

Nic said...
4:42 PM  

Ahhhh. You usually comment quite early in the day, and I wondered where you were. Now I know....

Macro Man said...
4:53 PM  

I read it earlier, just could not think of anything witty to add :)
I read you for months before I was brave enough to say anything haha

Anonymous said...
4:55 PM  

I hear there is a very large DNT in EURUSD - 1.3950/1.4450
And lobster prices on the East Coast are at a 20 year low ... Lucky us

Nic said...
4:57 PM  

What do you guys think of playing VIX long for the remainder of the year? It seems winter will be especially volatile as many imbalances and issues need to be worked out. VIX has been parabolically decreasing during the summer months, may be a good opportunity.

Anonymous said...
6:56 PM  

Anecdotally, RM has some downside hedges in place, unlike last year...which implies that any downmove will a) not be as violent, and b) won't see implieds spike. While I can see a case for opportunistic buying of VIX, I am pretty sure I wouldn't want to carry it as a structural position.

Macro Man said...
7:12 PM  

echo that sentiment on VIX. Put another way, the barn door is shut after the horse bolts, so no point in paying over the odds for a liquidity crisis or a stock market crash after the event, as it has a high probability of not occurring again.

i think macro space is lacking some ideas....lets face it 2007 and 2008 were gifts....

where is the next macro news coming from? seems to be a lot of chat about option arm resets, commercial real estate etc, but goddammit, it is so well telegraphed what is the play on price? short wells fargo and deutsche bank?!!!

perhaps it is too obvious in blogosphere, but even the FED and MSM are all over CMBS is old news...

i still favour the long, drawn out deflation model. i struggle to find evidence to the contrary...US, UK or Europe. i think that there is an underlying common sense/rationale to kondatrieff waves; the evidence so far corroborates "winter".

ultimately it has been a tough year, even for the CTAs, as the price action has been dog$hit, even though in hindsight the trends were there. for discretionary macro accounts, you are either in it or not...tough, but i guess we all have to be patient.

Anonymous said...
12:06 AM  

I’ve been trying to find an explanation for those charts for 2 days and it’s not just CHF. DXY looks as bad. How can this happen?

I’m not usually one to harbor thoughts of conspiracies. Usually. But this didn’t just happen. Somebody did it. Given the hour, probably someone in NY. Importantly, somebody did it in a market that is so liquid that we’ve been told over and over that even CB’s find it difficult to intervene effectively. And you traders are talking to your tailors? What are you doing in this market? If you continue to trade this market you’ll be back to your tailor over and over.
So, what? Somebody do this to test the liquidity? To see if they could? What happens when they pull the plug?

Hi, Skippy. Amused to find you here.

MarcoPolo said...
1:36 AM  

i sincerely apologize for what i said last night. i was black out wasted and lost a bunch of money in craps and took it out on you.
im frustrated in the mkt bc i think it needs to break lower.
macroman, to you im sorry as well.
wish u guys the best... my comments came off wayyyyyy too aggressive. im really not a hateful dude... i would have wrote this earlier, but i didnt have computer access

Anonymous said...
9:42 AM  

Anon, no probs mate. Alcohol as Homer Simpson said is the cause and solution to all life's problems. Happy to hit a couple of semi-legal poker joints if you're ever in HK.

Nemo Incognito said...
11:28 AM  

MarcoPolo: The FX markets are trading in a very binary fashion the last few weeks. It is pointless to play.

Anonymous said...
2:06 PM  

Ok, here's a simple idea for the rest of the year if anyone cares -

If Gold breaks the previous high, buy it and Silver. I don't know what Gold at $1000 tells you about deflation or inflation but it seems to me predict a more inflationary period ahead. We are also entering a seasonally strong period for Gold, so that should help. But no buying before it breaks the previous high, technical analysis rules!

thetrader said...
2:59 PM  

Forgive my ignorance, but what does RM stand for?

Anonymous said...
2:50 AM  

More noise out of China today. Apparently, state owned enterprises do not have to honour commodities contracts (see Caijing again - a website well worth reading if you have China related exposure). The gap down in local equities is quite stunning. The longer-term big picture point is that without protection of private property rights, investors should demand a higher risk premium. On the AUD, the failure to punch through 85 US cents is interesting (the modest weakness today has eased some pressure on the stitches/wound from last week).

Nemo may have more to add..

Skippy said...
5:16 AM  

Skippy, indeed I do. Apparently a firm which is big in commodities, and structurally long vampire squid was doing a lot of commods hedging for Chinese SOEs this year. Whoops. Wonder how this one is going to be intermediated by management:

Coverage Relationship Bankers: "But you can't do this to us, SOE xyz is such an important relationship."
Trading/Structuring Desk: "A relationship with someone that routinely ruptures one's bowels as part of doing business is perhaps not one we should have. Let's go to arbitrate this in Singapore."
Bankers: "But its China -- China. Its going up. Its the future. Timothy Moe said so."
*cue trading desk picking up chairs and throwing down Jerry Springer style*

Nemo Incognito said...
7:10 AM  

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