Friday, August 21, 2009

If You Can't Say Anything Nice...

...then you shouldn't say anything at all. At least that's the wisdom that Macro Man and Mrs. Macro try to impart upon the Macro Boys. Regular readers will observe that your author often fails to live up to his own advice....but not today.

Maybe it's the sunshine....maybe it's vital cricket match being played here in London....maybe it's today's equity option expiration....or maybe the market's just ground down by recent erratic price action. But despite today's expiry and the start of he Jackson Hole conference, today just feels like an "old skool", dreadfully slow August day. And the lingering effects of jet lag have rendered Macro Man unable to say anything useful about it. He just has nothing to say about a market that does a 10 point round trip on an old rumour of Chinese policy tightening (that, ironically enough, doesn't seem to disrupt Chinese markets in the least!)

And readers with useful insights are welcome to share....the floor is open.


Nemo Incognito said...

Viz tightening check el bloggo God forbid this country develops a real bond market, could take a lot of the long term systematic risk out of that country and lead them to do the right stimulus (fiscal). Its about the only good news I've seen there in a while but perhaps, just perhaps, the technocrats are back in charge.

Fully invested said...

I like this blogg, to set things straight.

But, we are still in a “sweet spot” for stocks: lots of liquidity,plenty of stimulus, low interest rates, a large amount
of slack and low and falling inflation. Equity investors
could not ask for a better combination

Anonymous said...

yo guys. check nphc. this sucker is a rocketship.
mm the mkt is gonna tank, just prepare w options against length.

Anonymous said...

I would add that in the US the long end of the yield curve is acting unfashionably strong in the face of a strong equity market. The action in bonds started to improve after the not much advertised weak retail sales data, weak consumer confidence and a less than stellar weekly claims data.

Crude oil is trading on the upper part of a congestion range after a failed downside break. An upside breakout will easily take crude to $85 and certainly squash the few traces of consumer hope towards a recovery. It will also pressure the White House to reconsider Ben's reappointment as opposition will paint Mr. Bernanke as the man responsible for such feat of high commodity prices.

Nonetheless, I will stick with the bond market and go out on a limb here and say that equities are rallying on borrowed time.

Macro Man said...

Fully...I understand the liquidity argument, which IMHO is the only credible argument for buying stocks here. Even there, though, I think there are some worry rumblings under the surface that suggest liquidity might not be as flush as currently seems.

To take a more bullish stance would require a belief that a set of well-established liars is now telling the truth. Colour me sceptical.

Anonymous said...

Isn't the easiest explanation the upside surprises in French, German, and EU PMIs? Also, since today is option expiration and SPY 100 options are about 15k contracts biased toward calls which should make px action a bit slippery around here.

What's more surprising to me is how flat the bond market is... Maybe its priced, but FX suggests not (did you see the BarCap piece by Steve Englander? Makes one wonder what is really priced)... Also, since today is option expiration and SPY 100 options are about 20k contracts biased toward calls, someone is short a good amt of gamma...

Going more macro, the configuration of rates less sensitive/FX more sensitive to news makes sense in a world where QE is really getting traction.

Sceptical Smith said...

I usually ignore conspirations theories, but this up´s&downs, in such a tight range, with less volume while prices are raising, makes me a believer in the government buying stocks thesis. This sounds as a stronger motivation than liquidity...

Anonymous said...

Keep it up...your blog is great!

leftback said...

Always try to ignore the action into options expiration and just watch the cricket. Yesterday was absolutely fascinating stuff at the Oval. Agree with anonymous at 12:50 re: oil ignoring fundamentals, bonds ominously strong, borrowed time. It's Groundhog Day, MM.

Richy Rich said...

We're going on a bear hunt,
We're gonna catch a big one,
What a beautiful day,
We're not scared.
Oh ,oh!

A Resistance,
A big solid resistance, we cant go round it , we cant go under it
We ve got to go through it !
Stoppy lossy, stoppy lossy.

leftback said...

Once upon a time some hunters caught a small bear and were very excited as they carried it home to their village, planning to have a bear roast that week. But within a few days the big Momma Bear returned in the middle of the night to look for her cub...

Crisis Management said...

Some traditional correlations are becoming unhinged; USDJPY pushing higher along with stocks.

It's as though the "hot money" behind the yen carry trade has returned de novo as the dollar carry trade.

Maybe the CNY is scheduled to resume appreciating soon, and someone is getting out of the line of fire?

leftback said...

Have a great day at The Oval tomorrow, Macro Man. I'm not sure this one is going to last until Sunday !

Steve said...

If you take a look at a SPU chart around expiration you can see that it typically comes at the end of a positive week, and more interestingly, tends to be followed by a violent reversal. It can occasionally be followed by a continuation, as was the case last month. I think there's a better than 50% chance we will fall hard on Monday and Tuesday. Beyond that I have no idea, I'm bearish and truly amazed that we are well above 1000 yet again.

Anonymous said...

MM- Who are the liars you mention?
Are you referring to the banks, or government officials?
@1.37- can you explain the last paragraph in more detail pls? Is it true that rates have been less sensitive to economic news, and fx more so, and if so, how and why does that equate to QE working its way through the capital markets system?
Seems like everyone's bearish...not too disimilar to those conditions which prevailed in early autumn of 2007 when equity markets made new highs on ample liqiudity, short termism and sheer abject stupidity...we are entering the stupid phase again imo.

Anonymous said...

insightful as ever

Amedin said...

It's a difficult one.

However lesson I've learned over the years is to trust my instincts. Now admittedly my instincts often have terrible timing but something that appears to be unsustainable is usually proved so.

Right now my instincts are telling me that the 'system' (for want of a better word) is still broken. Imbalances exist everywhere you look and governments were only able to enact crazy measures because a lot of people were scared back in March.

Society as we know it clearly isn't going to end anytime soon, so we've had a huge relief rally which has had implications for all asset classes.

Now, the interesting thing is that people have become increasingly bullish, especially post the July pullback. The implication is that it is back to 'business as normal' after an unpleasant couple of years.

What makes me nervous is the only solution I can see to the variety of problems is a decent rate of inflation (polite debt default).

However this appears not to be on the central bank hymn sheet. They seem to be serious about their inflation targets and are going to take deflationary measures to enforce them (even the BofE probably will post the next election).

I think we need another crisis before central banks finally take action that ignores their self-imposed inflation targets.

Anonymous said...

Amedin - The US can't afford inflation, it's reliant on foreign funding. If the Fed inflated, the dollar would crash as $3 trillion of "reserve currency" assets fled, higher rates would crush housing and CRE, and the Obama administration would be unable to fund $2 trillion deficits and would have to cut spending.

Not saying it won't happen, but not until the next Fed chairman, 2010 to 2012, when things get desperate.

I don't follow European central banks, but I would expect a competitive devaluation at some point - as protectionist impulses over-ride good judgement.

Nemo Incognito said...

Or just outright protectionism vs China instead of EUR/USD competitive devaluation.

To be honest indirect bids are less and less important for treasuries, banks are busily holding massive excess reserves so I don't see the back end moving until the crisis is over, at which point its on for young and old in the 30 year. Brad Setser covers all this pretty well.

In equities and credit land in EM we continue to tread water, the channels get tighter and everyone's waiting for a catalyst.....

I think whatever happens next will be very much Student Body Right/Left.