What Payroll Number?

Wednesday, August 12, 2009

Now, Macro Man has been getting a lot of sun....certainly more than he does in England. And yes, he's been drinking a lot more margaritas than usual. So maybe he's just a bit fuzzy. But he could have sworn that there was a pretty strong payroll figure released a few days ago. He even has some sort of recall of fixed income getting whacked.

And yet, when he looks at the reds today (exemplified by September 2010 Eurodollars, below), he sees a contract trading well above its pre-payroll levels.

Perhaps he should have a few more margaritas to set his mind straight....

Posted by Macro Man at 9:15 PM  


What an ugly day.
"The Dollar Sentiment Index for the Dollar Index reports just 3% bulls among traders, an extreme level only five times in the past 20 years, usually near an important low," Prechter wrote on Aug. 5. "The last time we saw readings like this was March-July 2008, just before the dollar soared." In other words, the "short the dollar" trade is overly crowded."
Come back soon MM

Nic said...
10:00 PM  

I can't help but feel that this risk rally party is a bit like a big frat party where there's a lot of underage drinking and the smart guys have heard the sirens in the distance and are leaving early. Pimco allegedly cutting risk and there seem to be real sellers in a lot of Asian equity names. That being said, going short over the last few weeks hasn't been much fun, especially with this absurdly wide range certain asian indices have been tracing out. Another bad sign is that credit is better offered across the board, those in less liquid asset classes tend to leave first having learned their lessons the hard way.

So, whats the trigger we are looking for? Parabolics? Breaking the Donchian channel? I'm all ears at this point.

Nemo Incognito said...
6:20 AM  

Who says we are looking for a trigger to go short? Some of us might be long and happy!

Anonymous said...
7:20 AM  

I think it would be fair to say that much of this board is more of the "double dip" or "more bad news to come" school of thought. Its hard to see all these macro imbalances being unwound as being positive for risk.

Nemo Incognito said...
9:44 AM  

Fair enough - then I am on the wrong board. But, if the market is going up then the market is going up. Rationalizing why it shouldn't go up is fine as long as your intellectual bias does not detract from making the right trade and listening to what the market is telling you, imho.

Anonymous said...
10:17 AM  

True viz developed markets but HK has been marking time for 2 weeks and Shanghai got smacked. Seems like the EM trade is on hold, if not over versus spx and stoxx. Given my specialties and proclivities I'm cutting my risk some more.

Nemo Incognito said...
11:54 AM  

I'm in agreement with Anon. Who cares why we're seeing an upmove. Play the flow and get the free money while the stupidity is in season. I think we can all agree (except maybe CNBC) that this ridiculous up move in equities is just that - a pipe dream based on nothing at all. But at the end of the day, being short loses money and being long makes money. For now. Keep stops tight (stand near the exits) and make sure you can dip into the punch bowl every so often.

Anonymous said...
12:55 PM  

I would hate for this place to get characterized as a 'bearish board' or a 'bullish board.'

Ultimately, what I am interested in is profitable trading; while I or others may have a set of assumptions as to which set of outcomes will will prevail, it is very rare to get those big-picture views right (in terms of direction and timing) all of the time.

So while I share Nemo's bearish worldview, I also share Anon's pragmatism. I think one of the tricks is to find a way to play the "risk on" environment in something that you can live with intellectually and hold beyond the first hint of a correction.

Macro Man said...
1:03 PM  

I think the market has gotten overoptimistic but it's always futile to fight a megatrend like this. My guess is tons of retail money flowing in as well as many hedge fund guys capitulating. I don't see a significant downturn until at least Q3 earnings numbers start coming out.

BTW, I recently started a blog and would respectfully request you to check it out. I am a professional global macro trader in NYC and started doing this mainly to organize some random pop-ups of thoughts and ideas. Would be nice to have a nice discussion going with some intelligent investors.

Macro Man, this is the best global macro blog going. Nemo, I really like your inputs although I would love to see your blog updated more often. Thanks all-

1:59 PM  

"And yet, when he looks at the reds today (exemplified by September 2010 Eurodollars, below), he sees a contract trading well above its pre-payroll levels."

Easy to explain that. There ways a FRB meeting (and announcement) Wednesday to remind traders with twenty-four hour memories (and I don't mean to imply that you belong in that group) that they will keep interest rates "exceptionally low" for an "extended period."

Seems like the markets don't want to believe them (I can include the RBNZ in that statement, with the market pricing in over 100 bps of hikes by June, while Bollard threatens to cut the Cash Rate further to pull the rug out from under your favorite currency).

Anonymous said...
3:31 PM  

Trade the Kool-aid, just don't drink it.
Bet MM makes a mean margharita.

Nic said...
3:42 PM  

Well in all fairness I'm not mega short - just not mega long anymore either. One major long I would like to do a quick poll on is sugar - have had this for a while now but this is getting bubbly and feels like major gap risk territory. 2 questions for the esteemed readers of MM:

1) I know fundamentals are good, but how crowded does this feel to everyone else?
2) Government import tariff change risk seems big at this juncture, does anyone know any of these beet lobbyists or democrats who are happy to discuss just how much these mofos pay the bills?

Sorry, but when a commodity trade jumps the shark and turns into a politics and lobbying trade its worth doing your work.

Nemo Incognito said...
4:20 PM  

We miss you MM--let's get off that beach and back onto the trading desk! England expects every man to do his duty!

But What do I Know? said...
4:38 PM  

Sugar is extremely crowded, reminds me of rice this time last year...which means it could get more crowded before it finally collapses.

--- L/S Equity Guy.

L/S Equity Guy said...
8:59 PM  

I am not sure I buy the story about the US being about to "run out of sugar". I think it is just a story they ramped up to get the tariffs lifted.

Nic said...
9:53 PM  

Can anyone tell me what is up with FXP - the short China/Shanghai ETF?

The Chinese stock market has dropped some 10% in a matter of weeks yet FXP has barely budged.

What gives?

Anonymous said...
6:24 AM  

FXP does not track the Shanghai exchange, it tracks HK-listed mainland companies in the FTSE-Xinhua index. And if you look at that or the HSI, its been range trading for 2 weeks. That being said, if Shanghai keeps falling its going to be hard for this thing to continue to defy gravity.

Nemo Incognito said...
6:44 AM  

Thanks for the comment Nemo,

Is there any other way for a retail investor in America to gain more direct short exposure to China via an ETF or something similar?

Anonymous said...
7:11 AM  

Hmmmm, you can short 2823:HK and there's usually a lot of borrow. Shorting A-Shares however is a pain in the ass at the best of times because you have to do it via p-notes at an Ibank. Hong Kong is very shortable but due to the fx/capital flows restrictions what affects China does not necessarily flow to HK (just look at today). When looking at HK you have to consider 1) What are high net worth Chinese retail doing and 2) What are all the usual suspects doing (macroman, myself, mutual funds, whatever). To that end the massive trends you see driven by liquidity conditions onshore in China are not necessarily borne out offshore.

Nemo Incognito said...
9:33 AM  

MacroMan - Take away manipulation of the headline numbers and the employment report was very weak. They've taken 1 mn away from the labor force in the last two months, with no corroboration from private data of any departures from the labor force; if those were still in unemployment rate would be 10%. And on payrolls, they had another record birth/death adjustment -- highest ever for July -- on top of other records in previous months; plus some unusual seasonal adjustment factors that brought headline payrolls down, probably an honest payroll drop would have been at least 300k, maybe 350k.

In reality July on the employment front was comparable to the worst month of most post-WWII recessions.


Anonymous said...
12:19 PM  

It is ON, Macro Man.

Oil crumbling, $ firming, Spoos bleeding...

leftback said...
3:59 PM  

Sugar feels crowded to me (from a distance). Similar situation occurred a few years ago when we reached about 19.75c, at that point everyone was trumpeting that the rally would go on for ever... so it collapsed. This morning I saw a hedgie commenting on BBG that it would rally to 40c. Yes the fundamentals are supportive but consumers can defer consumption and with a rally like this there is a huge incentive to plant more cane. Once the producers buy back their hedges we will know the market has hit the highs...
Ex sugar trader

Anonymous said...
4:01 PM  

Anon - The index FXP tracks is 50% Chinese banks, the rest is mobile phone and energy companies. It's only a 25 company index. So it's a bet on the big Chinese banks. Which is a bet on the Chinese real estate market. Which is a bet on the bubble.

Personally, I like FXP, but careful of tracking error -- as it runs up, take profits.

Anonymous said...
4:26 PM  

speaking from experience ... don't treat fxp like a long term investment strategy ... given the replication costs/error and path dependency of the damn thing it bleeds a huge amount of value over time ... great tool for short term (few days to weeks most) but certainly not months or years ... then again u could always just sell some aud/jpy

Anonymous said...
6:47 PM  

Anon, well said viz JPY/AUD. As a equities and credit guy I am learning that you can get the same P&L with 10x the liquidity in the FX market for the same idea.

Nemo Incognito said...
3:43 AM  

Can someone explain how selling AUD/JPY would capture the short China stock market trade?


Anonymous said...
8:15 PM  

What did I tell you all viz Shanghai being a leading indicator of HK..... wawawiwa.

Now just wait for them to release a good loan growth number and rip my gonads off.

Nemo Incognito said...
8:39 AM  

anon. 8.15pm. Australia exports coal, iron ore and other key commodities to China. A component of the ASX200 is mining equities (profits) which have provided a virtuous circle in Australia of rising national income, investment, employment and household income. This also caused relatively tighter RBA policy in Australia (interest rate "carry" relative to the US and Japan). The massive liquidity growth in China this year has made its way into Chinese infrastructure investment, local equities, property (iron ore is used for steel) and commodity speculation/buying by Chinese steel producers/SRB. In short, Australia and the A$ is directly connected to Chinese growth and indirectly connected to Chinese liquidity/loan growth/money supply.

You could reflect the position against the USD also, but the JPY may have more leverage as Japanese households have also been strong buyers of the A$ (when it goes up).

Skippy said...
9:25 AM  

Post a Comment


This commentary is written for entertainment purposes only. Nothing you read on this site is advice or an inducement to buy, sell, or hold any real or hypothetical investment, nor should you construe it as such.