Thursday, September 03, 2009

Grrrr. Macro Man hates days like these. Y'know, the days of reversal (however temporary), where the pimps, gimps, and chimps who have been on radio silence for the last 24% or so in the Shanghai Comp are suddenly all over the one day squeeze.

For squeeze it surely did, as it ramped up a rather tasty 4.8% on steady gains throughout the day. The catalyst appeared to be comments from one of the regulators on wanting a "stable and healthy" market. Alas, Macro Man can remember the days when a "healthy" market was one that didn't rely on administrative diktat for direction...
Anyhow, the tinfoil hat brigade was out in full force yesterday after a brutal spike higher in gold. Tempting as it is to derive some fundamental pearl of wisdom from the move, which was seen by all and explained by none, it may well be the case that the rip higher was merely caused buying some.
In any event, silly season is upon us; it's day 3 of the month, and we're already averaging one BS story per day. Such is the path of more volatile trading coniditons...while it's tempting to grind one's teeth in frustration, at this juncture (with today's ECM tender announcement and tomorrow's payroll figs on the horizon), it's surely far better to grin and bear it.

Posted by Macro Man at 8:27 AM  


Ah, yes, the gold bugs have been pestering me all day. We have one guy in the office who is positively giddy about permanent backwardation. I tried to explain that the carrying cost of gold has always reflected interest rates and inflation expectations. He countered with some Elliot wave nonesense and I exited stage left.

Anonymous said...
9:06 AM  

As I said before, China liquidity has nothing to do with everything else. Quite likely it goes higher from here while the world goes to crap - perhaps especially so since China does not want any silliness or upsets before October 1.

Nemo Incognito said...
9:29 AM  

Re Gold, there is research which shows that the gold price has risen 16 out of the 20 Septembers since 89. May be that explains the shift in speculative interest to gold.

Anish said...
9:39 AM  

Gold higher = buy euro

Yet it could reflect safe haven flows = sell euro

I love silly season.

Anonymous said...
9:49 AM  

I thought China was "the" gold market. I can see the C wave but EW always looks better in hindsight to me.

NFP, US holiday weekend (and a full moon tomorrow) could mean a few more days of "Grrrr" or worse I think.

Nic said...
9:56 AM  

There seems to be a lot of hand-wringing going on. I'd rather return to the "facts" as they lie. EURJPY looking bad for equities and the carry unwinds a bit. Treasury yields in decline. Stimulus running out of bullets. In the longer run; US consumers are unlikely to come back from the dead any time soon. Still net long, but well-positioned to go full throttle in either direction.

Anonymous said...
10:39 AM  

Gold is in a bull market, rather than going on about the whys and the why nots, observe the facts that:

gold miners have done nothing for several months and several had large volume breakouts of tight ranges...5-15% up yesterday.

it makes perfect fundamental sense for these stocks to perform well, given the fall in energy costs and the rise spot gold. recall at the end of last year they were doing large rights issues that were hardly discounted. i struggle to recall any other sectors doing the same.

gold is at a pretty big resistance level; a move through may heighten the desire to buy even further.

gold is rallying in all currencies last few days. it is not just an "anti dollar" play. this makes sense as well given the stimulus in the shape of increased fiscal spending, QE, insurance etc etc that the governments have showered on the world in many currencies.

true, there are a lot of gold bugs, and these people are such irritating conspiracy theorist twats it does my head in. however technically and fundamentally it looks a far better long position than the broad market...

it also has no credit risk, depending on the type of position taken. not many instruments out there are the same as that. makes sense in a credit contraction that it outperforms.

Anonymous said...
11:23 AM  

Against gold companies particularly in Australia:

1) They are never, ever cheap. 20x is not a normal PE for a wasting asset business. Come on.
2) Most of these mofos are having a tough time developing new reserves (Avoca, Lihir - list goes on.)
3) Some of them can't even make money (St Barbara, nee Sons of Gwalia).
4) The areas they mine in are pretty mined out and extensively explored - hard to add to reserves.
5) The trade with ridiculous correlation to gold.

I work under a mandate that prohibits me from trading commodities except as a hedge and I ask of you all: why the hell would you buy a gold company unless you are inside trading when you can just buy gold futures? Stock does the same with a bit of beta, you pay more commission, have less liquidity, and the deposits should you be inclined to read the geology reports in detail are an utter crapshoot at best. I bought this book:

and didn't feel like I was any smarter than I was prior to reading it. Gold companies are for macro punters that want to pretend they are doing something cleverer than buying futures.

Nemo Incognito said...
11:35 AM  

I would agree mostly with anon above. I would also like to mention that it is a seasonally strong period for Gold too. I think if we break the old high we could go significantly higher. I am no gold bug either but I am open minded enough to see what is happening and act on it. A trade is a trade - if it makes money it makes money, that's all that matters.

thetrader said...
11:36 AM  

Also gold implied vol had got back to cheap levels so people been buying short-dated options. From the sounds of it several large US based macro funds just jammed it higher trying to force the breakout of the wedge and then watched the technicians/gold bugs cream themselves.

Anonymous said...
11:37 AM  

gold companies have never been cheap. it is a case of blue sky with these stocks. at the moment there is lots of reasons to see blue sky, so odds are that upside breakouts like yesterday turn into decent multi month trends.

as Anon said, if the trade makes money, who cares. gold stocks and gold have a habit of being like marmite.

Anonymous said...
11:44 AM  

Gold stocks = marmite.
Gold futures = vegemite.

Vegemite tastes better but is looked down upon by eaters of marmite, who think they are doing something more clever.

Nemo Incognito said...
11:48 AM  

Such rancor directed at gold bugs and "tinfoil" hatters...

Investment banks leveraged anywhere from 40-90 to 1, why that's entirely sound. Advocating for constitutional money, now you're in league with the UFO people.

I get it, much harder to run a pyramid scheme if the debt must actually be redeemed someday. At present the Ponzi operators simply throw a tantrum and demand to be bailed out whenever faced with bankruptcy.

Keep shorting, I love it. As an Eastern European central banker once remarked, speculators are liable to have their fingers burned.

Anonymous said...
12:04 PM  

When talk of recovery and stabilisation starts to sound stale, and stpries like "Fed more confident downturn is ending" become a bore, then surely a new phase in the markets is imminent.

Donlast said...
12:17 PM

Anonymous said...
12:31 PM  

Anon has a good sense of humor....

Nemo Incognito said...
12:33 PM  

I think the only asset trading on fundamentals is US nat gas

2:14 PM  

Back to China, all of this volatility just proves that the market there trades at a complete disconnect with fundamentals. Michael Pettis shares the same view, and he is on the ground there. All that matters is whether the government does or does not want to market to go higher. How is that an investable market? More importantly, there is no utility in trying to use the Chinese market as a leading indicator of anything, if it is governed by the amount of government provided liquidity.

PPM said...
2:31 PM  

PPM, congrats you too have attained A share satori. All this market operates on is bank credit, rumors (often telegraphed in Caijing or similar) and flow effects from mega-ipos.

Nemo Incognito said...
2:37 PM  

Hey PPM doesn't it make you feel lucky to have capitalism?
Stock markets that are investable and trade on fundamentals, no government provided liquidity messing it up, and government information we can rely on (sigh ...)

Nic said...
3:05 PM  

Relax Macro Man, GLD didn't breach its February high and the claims numbers in the US are sticky, if not stinky, so if there is a whiff of anything in the air it is certainly not hyperinflation. Suspect somewhere there is a desk pumping gold futures so they can dump. Most of these spikes in gold reverse quite promptly, and a modest rally in the dollar would cause a rout. (Yes, we are short). Interesting to see what happens if they print a 9.7% or 9.8% U-3 number tomorrow.

leftback said...
3:08 PM  

Agreed about Natural Gas. It will break storage, we have 11 weeks of fill left. Without new UNG Shares to give gas a bid, all of the energy funds are just riding the short. Was definitely the easiest short in the book, caught a 7 bagger on puts. Whats ridiculous is the contango, 33% between october and november when fundamentals will continue to get worse and hurt november. Idea: buy UNG atm calls for Jan 2011. They are fundamentally mispriced, the DPM is obviously just pricing them with vol, instead of the fact that the strip for that far out is 2x current price. You also dont get as beat up by negative roll yield. I talked to a dealer about options on the futures and he told me just go do UNG, better deal.

Anonymous said...
3:17 PM  

Natural gas and lobsters are two asset classes that are: a) hard to store and b) not being artificially reflated by the government, so both provide a good indicator of whether we are in a deflationary environment.

The dollar finally climbed off its arse at 10am today. Soon it will be buying more lobsters than ever. China bounce has that dead cat feel...

leftback said...
3:44 PM  

whoops there goes that local max on gold. As much as I hate the tin foil crowd I am not shorting it here.

Nemo Incognito said...
5:07 PM  

ATM straddles and jobbing the gamma might be an interesting way to play out this gold scenario

Anonymous said...
5:33 PM  

Anon 317pm-

Yeah did all right on nat gas on the way down (and still holding). Wish I had a bigger position on but can't complain as long as there is no "-" in front of the PL.

What is really out of whack like you said is the steepness of the curve. I was looking into it couple weeks ago but decided just being outright short is better. Hadn't looked into the UNG angle. Let me dig further and write back here.

6:13 PM  

Guys, altough it is quite basic, did you see the sweet zone working out quite well until now in this bounce since March?

Stefan said...
7:07 PM  

Gold is going a lot higher from here. Hong Kong has demanded physical delivery of its gold reserves from London. While the reasons for the delivery are just speculation at the moment, it is clear that the holding institutions of this gold do not have it for delivery.

Anonymous said...
10:15 PM  

In other news, Martians have also demanded delivery of all Earth's gold by tomorrow morning. All Earthling currencies will be declared null and void by lunchtime or we will suck out your eyeballs through a straw.

leftback said...
10:28 PM  

"it is clear the holding institutions do not have it have for delivery".

It is clear from what objective source? The numbers are specifically what ?

If it is substantiated fact that is one thing ,if it simply more of the mountain of rumour, opinion , or 'wishing for' that the markets provide daily then that is another matter entirely.

Anonymous said...
10:42 PM

Anonymous said...
11:39 PM  

Thanks Anon @ 11:39

LeftB and Anon @ 10:42
And do you guys actually invest or trade in financial markets? Wow...

Anonymous said...
11:47 PM  

Like to see things move to Hong Kong (and out of London), but $63 million is hardly a market moving (in theory :) ) amount of gold.

Anonymous said...
12:35 AM  

There is a lot of discussion on gold: a commodity that has effectively gone nowhere since February. Perhaps that suggests something in itself?

It probably undermines the hyperinflation/public finances are going to hell crowd. Unless the "break out" is geniune?

But I don't have a view (clue) on gold so thanks for all the input.

Nemo's comments much earlier on Australian gold companies were spot on.

Skippy said...
12:36 AM  

"Alas, Macro Man can remember the days when a "healthy" market was one that didn't rely on administrative diktat for direction..." If Macro Man can remember those days in China, he should be getting his telegram from the Queen rather shortly (and no doubt has fond memories of gin slings at the racing track where Renmin Square now sits)...

MMcC said...
2:36 AM  

MMcC - "No dogs or Chinese".

Nemo Incognito said...
2:44 AM  

Anonymous 9:06AM - I have a mystical ju-ju counter argument for your gold bugs including EW.

Price remains beneath highs in February and April and only a break through them puts the all time high 1034 (March 2008) in jeopardy. Structurally, even a new high is probably just temporary.
An unorthodox top in wave B of an expanded flat would pave the way for wave C to eventually drop below 681.
The 1999-2008 rally is equal to the 1976-1980 rally in terms of price movement. But 2008 momentum, measured by RSI, did not reach the 1980 level. This creates significant divergence that is typical of major turning points.
Even allowing for a new high, gold appears much closer to a top than a bottom.

Nic said...
3:14 AM  

Oops here are the charts.

Nic said...
3:20 AM  

Nemo: Now it's more likely to be "No shoving unless it will create more standing room in the subway car." Something about that location breeds incivility, mythic or otherwise...

MMcC said...
9:06 AM  

that's is nearer a top. that makes sense in this climate...not

Anonymous said...
9:29 AM  

Way too much bollocks, not nearly enough facts. Stay tuned tho as they trickle in + watch that steepness…

cdr said...
12:02 PM  

I got a ju-ju for you that includes years of trading experience. You or anyone else on mother earth cannot forecast price action or the day that you will die with any great accuracy. Instead, my humble life experience as a trader is to place your trades with great conviction along with protective stop losses and ignore ignominious and fruitless predictions that carry little to no value.

Anonymous said...
12:22 PM  

Thank you, I do use stops and they get hit regularly. I'm just a bit sceptical of all the "gold is going to the moooooon" chatter.

Nic said...
12:58 PM  

From the end of last year money flowed straught back into commodity sector generally.

As the year progressed this continued regardless of the fact that much of the underlying product
continued to stockpile.

Of late Oil ,Nat Gas ,and Agric's have shown anything from weakness to outright blood bath in the case of Nat gas.

I think what we have here is the moneyflow giving up at least temporarily on the broad commodity sector and concentrating on precious metals that do't have storage issues.

The underlying story remains the same though which is money sheltering from the dollar ,paper currency in general and uncertainty over what recovery prospects might be which obviously impinge on equities.

If this reasoning is at all correct then gold should go not hang about $1000 ,it should just go up because the effect of concentrating moneyflow this narrowly should overcome any so called big number resistance.

far as I am concerned it's worth the stake ans stop it out if it doesn't happen.

Anonymous said...
9:53 AM  

maybe a slightly naive question. but given the rate of decline in consumer credit is there a possibility that the next big move will be for people to increase their personal credit again? rates are low and bank willingness to lend seems to have troughed? i know its horrific, but there's been 40 financial crises in the last 40 years albeit mainly EM. (we never learn...)

Anonymous said...
10:23 PM  

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