Behind the 8 ball

Wednesday, September 30, 2009

So here we are, at the end of another quarter already. This month in particular has flown by; Macro Man has
scuffled to find his feet from the word go.

He's feeling increasingly like the fat guy from Ohio at a poker table otherwise populated by Gucci-suited
Vegas regulars; whether it's the curious price action in equities or the BOE's apparently hawkish
comments yesterday in a private gathering, Macro Man gets the feeling sometimes that he's'stuck
behind a decidedly non-magic 8 ball.

Not being one of the illuninati, he"s'forced to live off his wits. (Readers can judge for themselves
ther this allows him to park in handicapped spaces.) Observing the market from afar, it doesn't
seem any easier than it does up close.

Perhaps next month will provide richer pickings; at this point, Macro Man is happy to bid adieu to September and welcome in Q4.

Posted by Macro Man at 11:41 AM  


Stick with it, MM--at least you should know you've got lots of company in your perch behind the black and white ball.

Anonymous said...
12:12 PM  

MM -- wake up, wake up, its the first of the month... get up get up

courtesy of bone thugs

Anonymous said...
12:26 PM  

here here - been a tough ol' quarter (compounded by the fact my non market punting mates have made a killing!).

Hoping Q4 is easier to read...

Anonymous said...
12:28 PM  

as long as we all keep learning...

Anonymous said...
1:02 PM  

Expensive lessons, Anon 12:28...

Steve said...
1:11 PM  

@ Steve: Still made money - but not as much as I'd have liked...

Just been a bit, "bleurrgh" :)

Anonymous said...
1:28 PM  

Well at least the T10yr yield is back where it began the month - 3.3% - having topped out mid-month around 3.50%, and the downward track seems intact.

Totally contradicts what is happening in equities but then so much contradicts what equities are doing.

Donlast said...
1:31 PM  

When you have governments intervening in the markets, it all becomes a crap shoot.

Mike said...
1:56 PM  

Hi MM,

Hearing a lot of angst from other macro oriented market participants... Have you considered that perhaps the key to the current environment is not the real economy but the monetary stimulus? While the rally in rates, equities, gold, and crap stocks (i.e. the carnage in equity market neutral space where models have a bias toward quality) all point to the notion that reflationary policy is getting traction? While I would agree that this is not sustainable and likely to end in tears, it is hard to climb against the wall of money when Ben and co. have a brick making machine w/ infinite capacity and the pedal to the metal?

Anonymous said...
2:07 PM  

On money and credit, it is important to remember that while Uncle Ben has pumped a lot of money into the banking system but it is not making its way into the real economy as broad money and private sector credit is contracting. In the near term, it may be finding its way into asset prices, but while private credit demand is contracting the conditions for a recovery in final demand are not present.

So many analysts (and some central bankers) still think that the increase in narrow money and central bank balance sheets will lead to inflation, but that will only happen if credit is extended to the real economy.

In my view this is the key reason why the economy will probably dip again when the inventory cycle correction in production is over and policy stimulus fades.

This is probably why US 30 year yields are attractive at 4% and stocks are a sell (when momentum turns).

The consensus is bearish on US Treasuries because of the expansion in fiscal spending and the Fed's balance sheet, but if private sector credit is contracting conditions are probably deflationary, not inflationary.

Skippy said...
2:28 PM  

Anon 2:07
If you are right about monetary stimulus and not the real economy then ... the US equities might react to good news by selling off for fear the stimulus is reduced sooner??
Instead of climbing a wall of worry we will slide down the mountain of good numbers.
Fun times (not)

Nic said...
2:33 PM  


well said

im getting chopped alive playing it. but, its right in fron of us


Anonymous said...
2:54 PM  

Bank loans are contracting at an unbelievable rate, and the acceleration has increased despite the green shoots. The contraction is worse than any recession going back to 1960--and I suspect beyond that.

I've seen that movie too, it's a Japanese movie, and it goes on and on and on. 30-50% rallies induced by government largess, followed by 30-50% bear markets.

JGBs got below 2% about 5 years into the mess, and have NEVER even popped above that yield.

Steve said...
2:57 PM  

well, that PMI wasnt leaked 90 seconds early

TY hovering on the verge of a big break

Anonymous said...
3:06 PM  

Skippy, that is the quandary of the markets at the moment. On one hand, you have all this liquidity floating around and the only place banks are putting it is into assets (both stocks and bonds, but read something recently about corporates being out-bid against stocks).

On the other hand, you have the realisation that the positive data that we was was primarily due to inventory restocking / one off items (such as transportation in Durable Goods). Add to that the picture for employment is pretty sour, and the fundamentas for earning into 2010 looks pretty poor.

However - equities / risk assets will continue to go bid while there is the free money to buy them. Bottom line economy can only start to recover when stimulus money comes out of risk assets and heads back into consumer credit creation, with an improvement in money velocity. Then we see a lag as the existing slack in capacity gets pulled together, and only then will the structureal factors necesary for a sustaonable recovery be in place.

Of course - as I say this equities are lurching south on the Chicago PMI data (which looks like the data was leaked?? This is happening alot, no??). However, given Q3 end, seems teh appropriate opportunity for profit taking; doesn't necessarily mean the rush for teh carry trade exit is upon us. As I mentioned earlier, SPX needs to break 1040 before the momentum guys start to think twice.

anon @ 10.27 said...
3:08 PM  

FWIW, the Chicago PMI is a subscription-based piece of data. If you are a subscriber, you get it 3 minutes earlier than the newswire embargo. It's not idea, but as a privately compiled datapoint they are within their rights to grant preferential access.

Macro Man said...
3:14 PM  

Thanks anon@10.27. Good points. I accept that I was broadly making an obvious point.

However, it still staggers me that so many people still don't get the point that narrow money expansion does not necessarily lead to consumer price inflation and therefore higher bond yields. Although it may lead to asset price inflation.

I also agree that it is hard to fight the risk-on bulls at the moment. A near term peak in PMIs might help, however.

Skippy said...
3:21 PM  

'kin 'ell MM..! As we've all noted, it looked like something was up in the run up to the (public) release.

You learn something new everyday.

Anonymous said...
3:21 PM  

AS is the university of michigan confidence can pay for early release

Anonymous said...
3:23 PM  

The common consensus on price inflation and how it is formed is puerile.

With respect to monetary expansion this year and price inflation expectations ,in the face of all contradictory data re credit availability, it's beggers belief.

Anonymous said...
3:44 PM  

That's the whole problem, arguably how the crisis started. Under AG and BB the Fed focussed on consumer prices with no regard for asset prices.

The whole thing wasn't possible under BB's economic view of the world..

Skippy said...
4:18 PM  

Whatever, been doing some down and durty work on the ground in China. I am telling you all it isn't just SOEs getting loans. This may be credit led expansion but it is far from over just yet out here. In fact, its probs not over until ags go up leading to inflation. We're way off that one as yet.

Nemo Incognito said...
4:23 PM  

>> Perhaps next month will provide richer pickings

I don't know about richer pickings, but you're welcome to join in picking at the rotting carcass of Japan Inc. 87 looks like a big level, if we can hit it there might be a lot of activity.

Fujii sort of dipped his toe in the water the other day but they probably need to make hard threats of intervention to get the market to back off.

Crisis Management said...
5:19 PM  

Don't worry, MM, tomorrow is the start of Red October. The carnival barkers will be out tomorrow in force salivating over the Q4 mutual fund inflows, but then the profit taking should begin in earnest. Hours worked might be the best part of the employment report to peruse, as usual.

leftback said...
5:33 PM  

Paying for early data release? This is an old idea that I didn't realise was getting used in the real world. In the 1980s I worked for a government statistics bureau. It was a period of deregulation where government spending was supposed to be cut, and one of the suggestions made by Treasury was releasing government data early to paid subscribers. The public service wasn't quite ready for it though.

Anonymous said...
11:47 PM  

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