Communication Breakdown

Monday, September 28, 2009

Macro Man is suffering a communication breakdown-literally.

He's'spending a few days in the wildnerness of the Cornish countryside, the result of an rather generous bid at a long-ago charity auction.
The Internet connection is patchy at best, so his missives will have a rather haphazard quality.

Suffice to say that G20 seemed a bit of a snoozer and that the DPJ has discovered the story of Pandora's'Box. More later, including the results of Friday's'quiz.

Posted by Macro Man at 9:05 AM  


"the DPJ has discovered the story of Pandora's'Box."

What do you mean ? Is that a reference to the prime minister's comments about manipulating the yen ?

Sexy Geithner said...
2:36 PM  

anyone else think equities look a bit high relative to other risk asset classes given px action of the last week?

Anonymous said...
2:51 PM  

Yup. Copper broken down, AUD can't seem to get it up..... list goes on. Energy looks cheap though as risks assets go.

Nemo Incognito said...
2:58 PM  

Back in the game getting my feet wet. First thoughts..agreed that energy looks cheap now compared to other risks assets. GBP however.. disastrous.

SFOT said...
3:09 PM  

Copper + crude hitting strong supports though. I would not bet my $$ that these commods are gonna tank much further. CL at 60 = cheap!

Anonymous said...
3:22 PM  

What about Correlation Breakdown, MM?

EUR:JPY off 0.7% and EUR:USD down, yet European markets go parabolic and NY soars into resistance at spx 1060. Holy dislocations.

Was long energy this morning, worked out well. Don't forget to sample a Cornish pasty or three.

leftback said...
3:23 PM  

or, risk assets look expensive relative to energy?

everyone is bullish on energy...knowing how markets operate, we hit $30 on WTI before peak oil realities hit.

that wouldn't surprise me. but it is purely anecdotal analysis.

been a bit unimpressed with "the dollah". it thought it may have more juice...perhaps that explains why equities are still relatively strong.

if you are looking at pure price action, copper looks a great short now. that consolidation looks like a potential major multi month top.

interesting flattening going on in the US...US,TY look really bullish now.

as for sterling, well, good profit centre the last few weeks. cable looks awful as does GBPJPY....even though I am located in UK, I struggle to reconcile any reason to be long the currency.

Anonymous said...
3:26 PM  

also, a triple divergence on 14 day RSI vs price on the IBEX. Relatively rare to observe. Given how extended the uptrend is, and the manic 300 point rally in the last few hours, it all smells like a top.

Anonymous said...
3:29 PM  

So much for feeling good about shorts...

Steve said...
3:33 PM  

US1 is definitely breaking out.

Anonymous said...
3:48 PM  

Don't lose heart yet bears, the best is yet to come imho!

As usual, equities don't have a clue and the bond market is calling it right. Interesting how fixed income markets are so much smarter than equities markets, in general.

Sell this spx rally, in my opinion. The risk off trade still lives strong.

Anonymous said...
3:57 PM  

ISM new orders to peak in September, "risk off" to start later this week, the peak in global IP momentum is nearby. Perhaps? No viagra in the bedside draw for the AUD to get it up...I am starting to dabble on the short side of risk...

Skippy said...
4:14 PM  

Sort of feels like September 2007, rather than September 2009. Stocks up on merger Monday, but with the incoming macro data disappointing expectations. Valuations near peak levels in many emerging markets, sentiment back in the euphoria zone and short dollar a very, very crowded trade. But perhaps its just me?

Skippy said...
4:39 PM  

"sentiment back in the euphoria zone and short dollar a very, very crowded trade. But perhaps its just me?"

Nope. LB is especially encouraged by the fact that people think the market "can't crash again". The bond market seems to have other ideas.

leftback said...
4:50 PM  

Skippy: I think you are right. SPX 4th dip, and they keep getting more frantic on the retrace up.

As leftback noted, the correlations are breaking down.


This is a notable difference from the previous SPX dips since June.

Anonymous said...
4:56 PM  

adding put deltas. SPX will need to breach 1040 before a concerted correction can begin.

Anonymous said...
5:04 PM  

Got some small shorts on. There's room for another push. If we assume that hedge funds and IBs trade using leveraged carry, then you have to wonder who is pushing this thing up now against the grain? If it's who I think it is, then the rally is in trouble now.

leftback said...
6:10 PM  

I have no idea where this equity market strength is coming from, and all I can say is, glad I wasn't shorter!

Last quarter end we rallied into the last day of the month, and "on the day of" sold off 10 handles. So far the charts look pretty much the same.

Steve said...
6:33 PM  

This equity market strength is a shorting opportunity imho. Shorts opened MOC Friday were squeezed once we opened on a gap up.

Anonymous said...
8:02 PM  

@ Steve 6:33pm: too much money floating about that needs to get invested as the money markets are returning f'all at the moment... apparently!

The Bulls will get caught out soon enough but boy oh boy, these trunks are getting tighter by the day.

Anonymous said...
8:46 PM  

Staying short Friday turned out to be a bad idea. Glad I didn't do it, I must be learning at last. Positioned now on the short side ahead of tomorrow's retail and Case-Shiller numbers.

leftback said...
9:13 PM  

it is bizarre that the MMF industry even exists in the US...

option (i) commercial bank deposit with FDIC insurance on $100k

option (ii) money fund yielding even less, with no insurance

laughable industry. as we saw in Japan, ZIRP destroys the money markets. velocity is simply nada.

Anonymous said...
9:44 PM  

I think it’s too soon to be talking about the present bubble bursting. Sure, while I am long term bearish (more double dip); I don’t see the first domino falling over yet.

The only way the Fed are going to be able to reverse this Dollar carry and cause the risk on positions to unwind once and for all is by raising rates. Sure, while everyone can see that at some point the fun will have to stop, we are still a long way off a series of hikes. Until then, games of “chicken” will be plenty (and choppy) as weak hands get squeezed from their longs because they don’t want to get caught in the stampede, and anything that even looks hawkish will be met with cries of “wolf’.

Fact of the matter is that rate rises are a long way off. Employment scenario is dire and not going to get better any time soon. It will only start to pick up after the existing workforce has been squeezed for all its worth [something in the WSJ about jobs vs. unemployed at record highs – 6x ish, also RGE had a piece about revenues having to be up by something like 37% before taking on new staff; Empire supplemental shows employee benefits are really putting pressure on new jobs being created; Capacity utilization fallen off a cliff etc…]. New jobs will only start to come to fruition when the recovery in consumer discretionary spending (a la Durable Goods et al) is too much for the existing workforce, and this is unlikely during a phase of credit destruction.

Asset bubble will continue until valuations are absurd and risk unwinds begin of their own accord, and will be replaced with re-creation of consumer credit -> sales of washing machines -> jobs- i.e. the last leg up of the “W”.

Obviously not the comprehensive view but the $0.02 .

Anonymous said...
10:27 PM  

Anon. 10.27pm. I am sympathetic to your key point that it may take policy tightening to strengthen the dollar and derail the carry and risk-on trades. However Japan's experience post its credit bubble may be instructive. As Andy Xie noted in Caijing recently:

"The remedies most governments have embraced are to keep interest rates low and fiscal deficits high. These are the same policies Japan pursued after its bubble burst nearly two decades ago. How today's bubble economies are treating bankruptcies and bad debt is shockingly similar to what was seen in Japan. The United States and others have suspended mark-to-market accounting rules to let banks stay afloat despite large amounts of toxic assets. It's the same "let them earn their way back" strategy that Japan pursued. The strategy fails to work because it keeps an economy weak, limiting the earning power of financial institutions.

As the global economy is again showing signs of growth in the third quarter, most governments are celebrating the effectiveness of their policies. Yet Japan's experience forces us to pause: Its economy experienced many such growth bounces over the past two decades, but was unable to sustain any of them. The problem was Japan only used stimulus, not restructuring, to cope with the bursting of its bubble. After the demise of any big bubble, serious structural problems that hamper economic growth remain. Stimulus can only provide short-term support that makes structural reform possible. When policymakers celebrate the short-term impact of stimulus and forget structural reforms, economies slump again."

The key point is that Anglo economies may double-dip again without meaningful policy tightening.

Andy's full note is worth a read.

Skippy said...
12:35 AM  

All, viz copper shorts this does not look good:

"LIMA - Peru's national federation of mine workers said on Monday it would hold a national walkout Oct. 19-20 to demand better benefits in a country that is one of the world's top minerals exporters.

The federation said it was frustrated that President Alan Garcia rejected a law, initially passed by Congress, to lower the age for retirement.

Workers also want Congress to throw out a rule that limits the amount they can earn from profits that are distributed to them by companies.

The last time miners across the country downed tools was in mid-2008 and the strike helped push copper prices towards a record high.

Earlier on Monday, workers at Shougang Hierro Peru, Peru's only iron producer, went on strike for higher wages.

A union leader told Reuters that all 1 200 workers at the mine had joined the labor action.

Shougang Hierro Peru is a unit of the Chinese Shougang Group."

I wonder how long it is before Chinese "independent security firms" start mowing down Latinos like the Americans did in Guatemala..... and then duly get kicked out of the region.

Nemo Incognito said...
4:31 AM  

Doesn't the fact that energy is cheap relative to other risk assets mean that thhere is possibly some underlying weakness in energy

Anonymous said...
5:10 AM  

you don't need the carry currency monetary authority to tighten to crack the carry trade...look at JPY

Anonymous said...
9:33 AM  

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