Market Dentistry

Friday, September 11, 2009

Macro Man has a dentist's appointment this morning. No, not the guy responsible for this (it still tickles Macro Man how many Brits didn't understand that the teeth were a joke.) When Macro Man first moved to Britain a dozen-plus years ago, his American dentist took him aside and told him to "find a dentist that the rich people go to" to ensure a basic standard of care. While Macro Man can't comment on his dentist's other clientele, he can at least confirm that the bills are startlingly high.

In any event, a spot of dentistry will make for a welcome break from trading these markets. We're more than a third of the way through September, and Macro Man can't seem to get any sort of trading rhythm...his P/L hasn't strayed more than a few bps from zero all month. It's been particularly frustrating, in that he's had a few pretty solid winners....but every day, the remainder of his portfolio has been dragged down by a bevy of small losses.

Intellectually, it's been pretty grating. AUD/NZD is as good a sign as any of what kind of market we're in. As noted in yesterday's post, the RBNZ had a bit of a moan about the level of the NZD, with Sleepin' Al Bollard highlighting the misalignment of AUD/NZD in particular. As you can see, since then it's been a one-way trip lower (i.e., for a stronger NZD), with a couple of particularly brutal trips down an elevator shaft along the way. You've gotta laugh....(if only so that you don't cry.) Randolph and Mortimer, where are you?!!?!?!

While Macro Man's had a small position in AUD/NZD, he's at least had the sense to leave other FX trades alone. The yen has been pretty interesting; for the past ten years or so the market has developed an almost Pavlovian response mechanism to sell yen (i.e., buy USD/JPY) when it's a "risk on", equity positive environment. As you can see, that strategy has performed execrably over the last five weeks or so, perhaps as a function of Japan's HIA and the new laissez-faire attitude of the DPJ.
And there's been other minefields as well. Macro Man bought silver a few days ago when it broke 16. Given his general scepticism of the "dollar going down forever" crowd and his uber-scepticism of precious metals cabal, this was purely a technical, "sell to some greater fool" play. Unfortunately, his metals scepticism is so great that he has tried to trade the position around, and somehow contried to not really make any money despite a current reading of 16.85 on the Dec futures contract.

Grrrrrrr. In many ways, Macro Man's looking forward to his trip to the dentist this morning. It's likely to be more intellectually satisfying and considerably less painful than his attempts to trade these markets this month, and despite the size of the bill it might well prove to be less costly to boot.

Posted by Macro Man at 8:18 AM  


Smile at them like Mike Meyers. Elizabeth Hurley did not mind.

Anonymous said...
9:02 AM  

Oh, and Dr. Evil will bring aud/nzd to 1.215 before he lets it up for air. If Uncle Buck goes sout of 90jpy, where does he land?

Anonymous said...
9:06 AM  

Perhaps the currency markets function not only to move towards some sort of equilibrium, but as well as an independent force to punish and provoke whichever currency looks most vulnerable.

However you slice it, Japan just lurched left. DPJ member SDP was known as the Socialist Party until 1996. The country is highly geared towards world trade, which is still in a dysfunctional state.

So speculators may be resolving to push the BoJ/MoF and generally turn the screws on the exporters. Where do they step in, USDJPY 90, 85...?

Crisis Management said...
9:42 AM  

Correction: SDP bit is incorrect. I was referring to the Democratic Socialist Party, which eventually dissolved into the DPJ.

Crisis Management said...
9:53 AM  

Tsk tsk. If there is anything like a grand theme right now, it is DGDF and PM, at least they were the only things that worked for me in the past weeks.

Some ill-timed hedging and short plays made me burn all my long equity gains.

Gregor Samsa said...
10:00 AM  

DGDF and PM?? What does that mean exactly?

Anonymous said...
10:06 AM  

Unless I miss my guess, "dollar going down forever" and "precious metals"

Macro Man said...
10:09 AM  

China clearly not cutting credit as far as I can see and risk still on there - also CLSA produced an epic guide to Indonesia for those interested. Saw Rosenberg on those employment numbers - horrendous hardly describes it.

Nemo Incognito said...
11:51 AM  

Bloody hell Macro Man you must be fed-up, if you are looking forward to a visit to the dentist.

I'm now scared of the dentist, not of any pain, but how much it's going to cost, compared to years ago when it didn't cost anything with a run-of-the-mill NHS dentist.

Damcanu said...
12:20 PM  

I have seen it time and time again over my career: when short NZD seems too obvious, it doesn't work. C/A deficit, RBNZ complaining, none of these things seem to matter when the short side is crowded. It is, after all, a small market.

Besides, when is the last time a currency was really driven by its C/A position? This is far too old school. Daily capital account flows and trends dwarf daily C/A flows and trends. C/A deficits can be part of the story we sell ourselves to get conviction on a position, but not a serious driver in all but the most extreme situations.

Short AUD/NZD makes more sense to me. Not a core trade, and it has a bit of a bearish bias, but it fits well into an overall portfolio.

Macro Monkey said...
12:32 PM  

£156 for less than half an hour. I haven't been brave enough to look at the estimate for the two fillings that I apparently need.

To those resident in the UK all your lives: can someone please explain why they don't put ^&%&ing fluoride in the water, like they do in other countries not famous for lousy teeth? It can't be out of some 'Big Brother' fear...I mean, this is the country with a video camera on every street corner and speed cameras every 300 yards on some A roads.

Is it out of some silly, eco-nazi-ish qualms of the same kind that foster an irrational hatred of Gm foods?

Really, I'd like to know...because after years of having nearly perfect teeth in the US and elsewhere, I seem to be sprouting cavities like Gordon Brown spouts nonsense.

Macro Man said...
12:37 PM  

This may be out of your ken, MM, but the family will be in London next week for a walkaround--anything worth seeing in the City of London (I assume you work there) for historically minded 11-year olds and their tiresome, pedantic father that we wouldn't read about in the tour books?

But What do I Know? said...
12:40 PM  

BWDIK?...I'd recommend one of the guided walks. You can get 'em on a number of subjects, from the churches of Old London to Jack the Ripper's London. Usually pretty good value, especially if you and the sprog like history.

Macro Man said...
1:02 PM  

Macro Man:

Dollar gets beaten up each day but there is still no shortage of treasury buyers as 10-yr treasury yield continues to head down. Does it mean that greenback has now replaced the yen as the funding currency for global carry trades, so the dollar weakness is merely a reflection of risk appetite?


Anonymous said...
1:10 PM  

Would anyone care to shed a light on why Eur/Inr trades at 70.74? Realise short eur/asia-x is the macro trader's graveyard due to the glorious feedback loop initiated by asian cb intervention but still!!

Anonymous said...
1:16 PM  


"Does it mean that greenback has now replaced the yen as the funding currency for global carry trades, so the dollar weakness is merely a reflection of risk appetite?"


Arthur Dent said...
1:43 PM  

I'm totally unconvinced by this 'dollar is the new carry trade' business. When Mrs Watanabe wakes up and realises the damage that the high yen is doing to what remains of her savings, and Mr Sumitomo starts screaming at the BoJ about what the high yen is doing to his ability to export stuff, we can expect a monumental correction. With this much of a 'risk on' atmosphere there's no reason for USDJPY to be in the doldrums. I expect a snapback. On the other hand, the yen crosses could be telling us that all is not nearly as rosy as it superficially may seem...

Anonymous said...
2:19 PM  

MacroMan - Take 1 gm vitamin C, 2000 IU vitamin D3, & 100 mcg vitamin K2 per day, and eat a low carb high fat diet. You will never need another filling, and the existing decay may heal without a need for fillings.

PJ said...
2:37 PM  

MM is the rumour in the market true that you are actually a woman?

Anonymous said...
2:47 PM  

Anon @ 2.47...not last time I checked.

Macro Man said...
2:53 PM  

DGDF can continue for another 2% decline or so before we reach the level of the July 2008 lows. Have been blown out of a sequence of long dollar trades for the last two weeks, not a happy camper. Dollar carry trade still alive and well, every day all assets go up, dollar goes down. Even JPY is bullying the greenback today. This cannot last for ever. You would think.

leftback said...
2:59 PM  

Treasuries up, market up. I don't understand. 10 & 30 year treasury yields are where they were in mid-May but the market is far higher. What am I missing?

L/S Equity Guy said...
3:08 PM  

SPX = 1050, $15-20 EPS. You do the math. The guys in the bond pits obviously have.

leftback said...
3:30 PM  

treasuries are manipulated

steepness to bail out banks on the hush- thx to benny

Anonymous said...
3:38 PM  

Can anyone explain what the hell is going on with the yen crosses today?

Anonymous said...
3:44 PM  

Anon at 3:38:

EUR-JPY correlation with equities has broken. The curve steepening actually ended weeks or months ago. Recent flattening in the Treasury yield curve suggests more economic weakness ahead. We're getting closer to a breakdown.

leftback said...
3:56 PM  

Thanks, MM. I hear they let you handle an actual gold bar at the Bank of England museum--might be as close as we ever get to one (outside of the bunker, that is.) :>)

But What do I Know? said...
4:03 PM  

EUR.USD just did a 62% retrace of it's major move the last two years at 1.461. Next week will be telling if it keeps barreling through that. If not the unrelenting bid to equities may take a breather. Note the euro bottom coincided with the spx bottom in march.

kihei said...
4:05 PM  


It takes precious little (pun intended) to move gold and the like. Combine that with the fact of a high-volume break-out from an eighteen month consolidation (a pattern gold has exhibited since the bull market began), and again, its a wonder that the metal is not higher. Then, add the fact that the Fed is actively encouraging a dollar-funded carry trade, and its a get the point.

Sure lots of gold bugs are crazies. Charts, however, are not. Gold has paid the price of a serious consolidation below a $1000. Now it has (gingerly) broken out. I can't understand why this is met with cries of "bubble!", "crowded trade" and "over-extended". Understandable or not, this dismissive attitude, truly, is bullish.

David Pearson said...
4:18 PM  

When gold has momentum it really moves but (IMO) marketmakers in gold make it a tricky trade sometimes. Silver is an easier technical trade for me.

Nic said...
4:50 PM  

Macro Monkey, I think you might have a point with regard to C/A deficits but in a different way. Most countries are engaging in extraordinary spending packages of one sort or another right now, the only ones that have to maintain discipline are those with either government mandated deficit limits (Indonesia) or that have to worry about their debt being in something other than domestic currency. Peculiarly, if everyone is lacking discipline and faces political pressure to spend but the costs of a lack of discipline are higher for the Brazils and Indonesias of this world AND their debt is denominated in the currency of the country that faces the least immediate costs of expansionary policy then they might be as safe, perhaps more so for domestic currency denominated debt.

Nemo Incognito said...
5:24 PM  

Thanks for the article

Rick Arvielo said...
10:19 PM  

Tire imports locked and loaded. Get your war on.

Nemo Incognito said...
4:12 AM  

hmmm .. trade war ... dollar positive?

Anonymous said...
2:51 PM  

Silver has (in comparison to others in the precious metal lot) been surprisingly sane guess the golden lure is more potent huh? Any guesses when the wake up call is coming through on the equities?

Macro man : hazzarding a guess, brits don't put fluoride in the water possibly for 3 reasons - local water authorities have different modus operandi (the way they channel water is kinda like negotiating a maze - apparently depending on which part of london u live in, your water might come from way far away, think wales) , safety (maybe they are worried some people might imbibe too much of the substance - might explain the helpful signs telling u not to drink from the toilet taps - though who would is beyond me)and they just choose not to (just like choosing to build students' accomodation out of creaky wood instead of concrete - apparently it's safer in case of an earthquake! really? )nesides, just think dentists may have less work otherwise!

btw, after some of us gritting ourteeth so hard, the dentists are probably building their holiday homes on our bills/contribution!

Judy said...
1:38 PM  

"eculiarly, if everyone is lacking discipline and faces political pressure to spend but the costs of a lack of discipline are higher for the Brazils and Indonesias of this world AND their debt is denominated in the currency of the country that faces the least immediate costs of expansionary policy then they might be as safe, perhaps more so for domestic currency denominated debt."

Dumb it down for me a bit Nemo.. i am not accustomed to not following your blurbs/comments... but this one is has me confused..

Arun said...
10:10 AM  

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