Monday, October 12, 2009

20 Questions

It's a bank holiday in Japan, the US, and Canada today, so markets are feeling a bit listless- though not quite as much as your author. Given that we're well into Q4 now and Macro Man sees plenty of head-scratchers, what better time to play another game of 20 questions?

1) How real is the risk of a year-end melt-up in equities as pension and stock fund managers just throw money at the market out of a desire to show that they are overweight at year end?

2) How concerned should fundamental bulls be at the underperformance of Asian, supposed growth engine of the world, over the last month? (That's equities, not currencies or growth data.)

3) Will banks throw a bone to public opinion and magically conjure some turd-related losses by year end, or will they just brazenly print big profits, stick their fingers in their ears, and chat "nicky-nicky-nah-nah" at taxpayers?

4) A Tory majority or a hung parliament?

5) Actually, does David Cameron even qualify as a Tory (other than privileged upbringing, etc.)?

6) If Gordon Brown is going to sell the family jewels (again!) to ease the budget deficit, shouldn't sterling go up (given that h usually sells to foreigners)?

7) Is recent Fed rhetoric trying to prepare markets for a policy tightening of some description, or does it merely represent a return to the "anyone can say what they want" policy of the early Bernanke Fed?

8) The RBA was first. The Norgesbank will almost certainly be second. Of G10 central banks, who will be third?

9) Will the BOE augment its QE program by cutting the interest on bank reserves next month?

10) What's happened to the Steelers' defense? They can't stop anybody in the 4th quarter this year.

11) Which trades first on front-contract oil: $60 or $85?

12) Which trades first on gold bullion: $900 or $1200?

13) Is the deterioration in recent G2 bond auction results (last week's long bond auction in the US, today's failed German bill auction) telling us something?

14) Can you believe that GM is running an ad campaign based on build quality? No wonder they've gone bust.

15) Angels, Dodgers, Phillies, or Yankees?

16) When will USD/RMB go below 6.80?

17) The current fixed-income sell-off: pause that refreshes or prelude to carry-trade carnage?

18) Has anyone else observed a deterioration in the performance of cross-asset RV trades?

19) When will Mrs. Watanabe give up punting online FX? Her performance has been awwwfulllll!

20) Didja put a cheeky fiver on Obama winning the "Nobel Prize" for economics?


Dimitry said...

13) I think you're misinterpreting the Bubill auction result. BuBa normally retains part of the issue and this time they didn't retain more than normal. It wasn't a great success, by any stretch of the imagination, but it wasn't a failure. That's an achievement, if you ask me, given the state of the EUR front end these days.

Nemo Incognito said...

1) This is my base case. You have no idea how many guys are on the sidelines and about to lose their nerve.

2) Well being up 100% you've seriously got to take a breather some time. The fact that earnings come out semiannually in HK means that people tend to wait for confirmation longer.

3) Goldman will give the two finger salute for sure, BofA and Citi might just mark their CMBS books properly.

4) Tory majority.

5) Well given that conservatism everywhere is trying to crawl out of the Bush era he'll have to do.

6) Its not that much cash when compared to the deficit and it won't get sold next week. Yawn.

7) NFI, but a tightening of rates with more mortgage purchases until the RMBS market gets its feet would help risk assets normalize without wrecking the recovery.

8) ECB.

9) NFI.

10) NFI.

11) 85

12) 1200

13) Yes - people are starting to realize that you can find yield elsewhere and that rates could rise.

14) True

15) Angels, Dodgers, Phillies, or Yankees?

16) After a Copenhagen dust up.

17) Carnage

18) Yes.

19) When will Mrs. Watanabe give up punting online FX? Her performance has been awwwfulllll!

20) Didja put a cheeky fiver on Obama winning the "Nobel Prize" for economics?

spagetti said...

1) very possible, but isnt this what the rally is about ? front running them ?

2) more than they actually are but 1) dominates

3) its the finger

7) testing the waters..

8) rate hikes still far away.

11) 60

12) 900

13) yes. this is the black swan
17) see 13)

Anonymous said...

In addition to fund managers quaking in their boots on the run up, you've got foreign investors looking at the S+P as cheap cheap cheap following the dollar's continued decline.

If I were one of them, I'd be thinking that this might be a good time to buy, especially considering any real correction that occurred would probably bring with it a dollar correction as well, thereby limiting my losses.

We all know Banana Ben isn't going to step in to protect the dollar.

Nic said...

1) I know some very big money that recently did just that ... very likely.
2) They should be ...
3) "nicky-nicky-nah-nah" big profits obviously, c'mon they want the bonuses.
4) Tory.
5) David who?, I don't think they care as long as the current lot go.
6) More QE next month and sterling below 1.50 I say.
7) The Fed rhetoric is just that so they can pretend they did not kill the dollar.
8) Canada next to raise rates ... thats what the market thinks. Singapore too maybe.
9) Yes the BoE will augment its QE program by cutting the interest on bank reserves next month.
10) At least the offence upped their game! Good one yesterday.
11) $85 in front month crude
12) $1200 on gold bullion
13)Fed talk of exit strategy prompted profit taking...?
14) haha
15) Phillies
16) USD/RMB below 6.80 before Friday
17) The current fixed-income sell-off - carry-trade carnage.
18) Pass, too complicated
19) Mrs Watanabe is not a quitter!
20) The Nobel Peace Prize is now as respected as the Eurovision Song Contest.

Macro Man said...

Anon @11.22: True, 20 questions is a playground-style game. However, among the very few things that will get your comment summarily deleted is an unprovoked, jejeune playground-style "yo mama" joke about Mother Macro, who, incidentally, lurks occasionally, reading the comments.


Anonymous said...


"16) USD/RMB below 6.80 before Friday"


how much you want to bet this doesnt happen before Friday?

Nic said...

"16) USD/RMB below 6.80 before Friday"
Hahaha, I know. I would rather stick red hot pokers in my eyes than trade it.

Gregor Samsa said...

1) There is a real risk, but I just decided to ignore it.

3) You've got to be dreaming

5) Does D. P. Gumby qualify as a Tory?

6) Family Jewels, what could that be? The London Underground? I'd settle for the Crown Jewels, if the price is right.

7) Yes, they are scared.

8) Canada or ECB

11) $85

12) $1200

13) Scary. (see 7)

16) Never, unless something gives.

17) prelude

Nemo Incognito said...

Is it just me or are we seeing a consensus emerge in a few key pockets here - namely, long equities, long gold and crude, get the f__k out if anything happens to fed funds?

girl said...

Really interesting post.. as always, thanks for your great blog.

9/ yes definitely, even more convinced having heard Mr Brown talking at bbg offices this mng

leftback said...

17) The weak auctions just set up more favorable prices for those who would like to buy into the long end this week when the great dollar carry trade unwind begins and ugliness descends on the equity and precious metal markets. Whatever happens there will be carnage somewhere in Q4 but LB is betting that this will be felt at the lower and more speculative levels of the capital structure.

Anonymous said...

Oh no. What happened to the first poster? He/she went to a lot of effort just to throw in some unpleasantries.

Macro Nan must be very proud!

Steve said...

So many questions! Just a few:

1) I had understood that most managers were about 4% above the S&P so far which suggests they may be overweight already. But who knows, it's certainly a real risk that in aggregate they need to buy.

2) "Fundamental" bulls should be concerned, but your ragtag run of the mill momentum bull--maybe not.

11) If S&P benchers go overweight for year-end, $85, if not, $60.

12) See #11, sub out lower and higher prices.

13) Seems like a meaningful correction that has further to run. Bonds have been going up in price with equities so this looks like a reasonable realignment.

18) Yes and I wonder if that signals a return to valuations / fundamentals rather than the perfect overlay of the S&P with name-your-favorite-risk-on-asset or non-dollar currency.

And my question, MM< is what is equity market sentiment at the moment anyway? I just can't figure it out. My best guess is cautiously constructive => grind higher.

Gary said...

We are on holiday / freezing our gonads off here in the colonies today, but no one mentioned the Citi "sale" of Phibro? ("sale" defined as the Feds put a gun to Citi's head and "suggest" selling)

Whatever the politics are of a trader being paid an admittedly obscene amount of money -- you can't get around the fact that the sale was not in the best interest of shareholders (given the price).

All these government owned bank stocks (if they are really stocks?) have gone up with the promise the banks will one day be solvent again... but the controlling interest (Geithner et al) clearly have objectives that differ from shareholders

It is the ultimate agency problem, and yet day traders want to bid banks up anyway

And MM... if banks (Citi, BofA, RBS, etc) can claim they are solvent, I see no reason why GM can't say they build quality. The two statements are equally true

Crisis Management said...

12) Neither, US goes back on the gold standard with 1oz = $1000.

Cornelius said...

10) Starts and ends with the d-line... Tomlin rotates guys out less than any other coach I can anecdotally remember. Some of those guys are big loads (see one Mr. Casey Hampton) and they get worn down by the end so opposing offenses can neutralize the OLBs (tight end/RB chips, the guard pulling and sealing off the edge).

Also, that secondary is pretty overrated - get a lot of support with LeBeau's zone blitz, especially when they roll over shallow outs, but they cannot be left on an island. When the d-line tires and the Steelers end up bringing the house to get any pressure, they get exposed to huge cut and runs.

Having 8 guys on the line of scrimmage looks threatening but any modern OC can neutralize (hard counts, 3-steps, max protect packages).

Macro Man said...

Missing Polamalu doesn't help, either. But I have another theory...namely, that the new pass-happy offense doesn't use enough clock (even when they score)to properly rest the defense. I'd love to have the time and the data to do a study on this....but I think that pass-first offenses will, all else being equal, tend to reduce the effectiveness of the accompanying defense through fatigue.

It's a tough one, though, because often the causality goes the other way- crappy defenses produce deficits that force the O to become pass-happy. That's not the case for the Steelers, however, who've enjoyed double digit leads in 4 of their 5 games...but only won one by as many as 10 points.

PJ said...

When the Drudge Report has "Kiss the Dollar Goodbye" as its big banner headline, you know a trade is crowded.

That would argue for LB's view, but who besides LB has the courage to implement it? Every bear I know has capitulated, or is trading long with the intention of reversing with the trend.

I'm negative on equities but cautiously positive on gold. I think the run on the dollar will be a perpetual feature of the Obama presidency.

leftback said...

Macro Man, I always pass first these days on a speedy break away down the left touchline because I get a bit tired by the time I reach the half-way line. You know how it is.

Time magazine Death of the Dollar contrary indicator?

SteveH said...

1. Non-trivial.
2. Not very. Yet.
3. Depends on CFO capacity to do jail-time. But probably not.
4. Tory majority.
5. The only qualification that matters is a tick in the 'Not Gordon Brown' box.
6. Doubt that the flow of funds would be enough to overpower the clear evidence of desperation inherent in the move.
7. I think you colonial chaps refer to it as 'speaking out of both sides of their mouth'.
8. Ottawa (despite the high CAD and despite what their man from GS says). But not soon.
9. No. But maybe later.
10. Anything with the letters S-T-E-E-L in it and connected to the US seems to be having a tough time at the moment.
11. Probably $60 (but I've got a closely watched bet going the other way).
12. Probably $900 (but I've got etc etc).
13. The words 'debt', 'capacity', and 'enough' come to mind.
14. I have been alive (more or less) throughout the last two years. Ipso facto I believe anything is possible. Especially the risible and utterly implausible.
15. I don't follow curling.
16. Not as soon as it should.
17. Probably the former. (Did I write that in an Australian accent??)
18. Way above my pay-grade.
19. About the time when retail stops buying at the top.
20. Nah, the odds were too short.(I've got a tenner on Bin Laden for next year, though.)

Skippy said...

LB, absolutely. Note that the FT had two op-eds yesterday that were negative on the dollar and a front page article just about every day last week. Business Week (called the bottom in stocks in 1979 ("the death of stocks" -or something along those lines) and the tops in 2000 and 2007 with bullish covers. Perhaps that is a reverse indicator to watch - I haven't seen it recently.

I also find it interesting that commodity prices have been range bound since May (albeit at the top of the range) and steel prices have been trending lower recently. The (potential) roll over in ISM new orders in September also suggests that global cyclical momentum has lost some steam.

I am with you LB. But I am getting severe lacerations in the bull-fighting ring.

harvinder said...

i put a cheeky fiver on a joint greenspan, bernanke, paulson economics prize...

Anonymous said...

So according to Bloomberg, Iceland's economy shrank 8% yoy as easy credit evaporated and the currency tanked.

In spite of this, prices are up 11.7%

So much for Wall Street's theory that a severe recession will prevent inflation

Nemo Incognito said...

Anon just above, comment of the day. I'm less comfortable with my DGDF ways but if banks stop holding incrementally more excess reserves then the dollar crisis trade is definitely on and the 2 yr future is going to 80.

The Oracle said...

1) According to ICI data equity mutual funds are down to 3% cash, same as at the 2007 market peak.

My charts are pointing to Oct. 23 as this cycle high, just over 1100 on the S&P.