A Bit Spicier

Friday, October 09, 2009

It's a busy day today and Macro Man is pressed for time (an early morning visit to the physiotherapist put him behind schedule), so today's post will be necessarily brief. Suffice to say things have gotten a bit spicier in the last 24 hours; while it need not derail the risk asset love-in, that doesn't mean that the fenders won't get scraped along the way.


First, an apology is in order: JCT was admirably restrained when it came to the euro yesterday, passing up the chance to have a good old moan. (A less charitable commentator might suggest that he folded like a deck chair or choked like a chicken, but Macro Man thinks that would be churlish.) Of course, JCT couldn't pass up a chance to pat himself on the back for maintaining anchored price expectations, which he did with well-practiced aplomb.


Still, his lack of complaint set the stage for a nice pop in EUR/USD, which duly followed after a bit of short-term profit-taking. Still, there are some cracks emerging in the warm salt-water bath of uber-abundant liquidity that we've all enjoyed recently. EONIA rates are starting to tick up; given the large negative spread to policy rates, this has encouraged further liquidation in what has been an extremely crowded euribor carry trade.In the US, meanwhile, yesterday's long bond auction showed that dealers are finally appearing to gag a little bit on the smorgasbord of supply that's been on offer from the Treasury. The auction took on a distinctly weaker tone than recent editions; combined with a headline from Bernanke admitting that rates may have to rise at some point in the future (duh!), this has helped catalyze a reversal in US fixed income markets as well.

Said reversal has thus far been orderly, and it's also probably overdue. While the December 2010 eurodollar has made new highs in reent weeks, its momentum has not done so...a divergence that usually signals a tired trend.
So all of this has given the dollar a bit of a boost; after all, in a world of rising rates, the world's nonpareil funding currncy should catch a bit of a short-covering bid. Nevertheless, all of this looks more like position liquidation than a legitimate reversal. Another recently tough-talking CB, the BOK, left rates unchanged a delivered a pretty innocuous statement to boot.

And guess what? The Kospi, the erstwhile mangy dog on Macro Man's equity screen, had a cracking day. The canary in the coal mine has sprung back to life! So while rumblings over stuff like reverse repos from the Fed may cause further jitters, it'll take more than a ten tick sell-off in the reds to entice Macro Man back to a short-risk "investment" strategy (as opposed to a short-term trade.)

Spicy markets are good to trade; however, bitter experience has taught Macro Man that if you try and the whole hog, so to speak, all you generally get left with is a bad case of indigestion.

Posted by Macro Man at 9:48 AM  

26 comments:

http://blogs.ft.com/maverecon/2009/10/beware-asset-market-credit-booms-bubbles-busts-in-emerging-markets/#more-6321

If you have 5mins, this is a proper
read, written by Willem Buiter,
on how he sees this QE unfold and its unintended consequences.

Anonymous said...
10:40 AM  

Tks, Anon. Buiter is very good, and I agree with just about everything he writes in that piece.

Macro Man said...
10:49 AM  

A good article and highly likely outcome. It is a shame that economists like Buiter are still firmly stuck in the Keynsian mindset and come out with statements like this:

"It is not clear that the instruments the authorities have at their disposal are well-designed to achieve this sectoral shift of consumption and demand"

Hopefully the aftermath of the economic debacle we are in (and we are only in the second round) will see a shift away to this bullshit approach of technocrats and governments trying to macromanage the real economy through monetary policy, stimulus and intervention, and a refocus on sound money as the key concern of governments.

Anonymous said...
11:43 AM  

Funny, MM, for all the scrutiny M Trichet's comments were subject to, EUR is exactly where it was at the start of the conference. Looks like the market was expecting about what you were--not much.

Even the Asians, who supposedly intervened "heavily" this morning, barely budged ADXY.

The other interesting facet of the uptick in libor is the ratcheting down of 3M T-bills, new lows daily. If the US were really serious about a strong dollar a little reverse repo would go a long way.

Not holding my breath on that one.

Steve said...
11:43 AM  

Anon, 11:43
Is there any other BS mindset left intact? May be you've got one..., enlighten us, please...

Anonymous said...
11:52 AM  

The alternative mindset is to rebase currency into a basket and eliminate central banks. This will achieve:
-Reduced credit growth and correspondinly a small financial system as a % of our gdp
-A reduction in the brain drain of our best univesties as students vie for jobs in teh real economy as opposed to life as a financial intermediary or speculator
-An end to the casino economy as individuals and businesses hang on the words of technocrat central bankers in order to speculate/"invest, and a renewed focus on the real economy
-An end to macro imbalances created by deficit countries
-A system with long term stability, discipline will provide the optimum base for real wealth creation

Anonymous said...
12:26 PM  

Dear Anon 12.26

Your application for this year Peace Prize was unfortunately rejected.
Thank you for participating.


Sincerely,
The Norweigan Nobel Committee

Anonymous said...
12:33 PM  

The Swedish Nobel Committee, on the other hand, is prepared to accept it happily. In fact, we have all been nominated, as the primary qualification for winning the prize now appears to be the fact that you're not George W. Bush!

Macro Man said...
1:12 PM  

http://www.fha.com/fha_loan.cfm

check out the following page on the FHA website...specifically, have a look at the picture on the right of the happy family - then read the fine print...unbelievable.

E

Anonymous said...
1:19 PM  

Well Shanghai appears to be playing catchup. Happy to have cut after Alcoa, looks like the worm may be turning here - shorting some 2 yr bonds anyone?

Nemo Incognito said...
1:34 PM  

"Tks, Anon. Buiter is very good, and I agree with just about everything he writes in that piece."

Including banning of naked CDS and naked equity options trading?!

Here is a quote from Professor Dr. Buiter: " I would extend the requirement that you must have an insurable interest in order to buy insurance to all contracts that are, from an economic perspective, equivalent to insurance contracts. This would mean no naked equity puts. To acquire a put, you would have to own (at least) the corresponding amount of equity. The easiest way to implement this is that equity puts cannot be sold on their own but only bundled with (embedded in) equity." And here is the link: http://blogs.ft.com/maverecon/2009/06/the-magical-world-of-credit-default-swaps-once-again/#more-1898

While I respect his views on monpol and fiscal policy, outside of that he is as dangerous as all the other academics who think that being smart in one specialised area makes a generalist qualified to comment on areas outside your very narrow, technical expertise.

Anonymous said...
1:52 PM  

The koreans seem to be caught between the deep blue sea and the devil - not sure if the won or the property boom worries them more . Japan only faces 1/2 the problem but with their flagging erm spirit, it's twice the headache. Don't think anyone else would follow the aussies - loose is the word for the times and that can only mean thr gates are open amd everyone is let out to play - wasn't that what the last week has been? anyone actually got that 1056 on gold? btw obama for nobel peace prize? wonder if any past winners are scsatching their heads?

Judy said...
2:06 PM  

Anon @ 13.53, observe the qualifier "in that piece." Doesn't suggest that I agree with everything the dude has ever written.

As an aside, I would be in favour of forcing CDS to go on exchange, with accompanying position limits.

Macro Man said...
2:16 PM  

Thx. I read Buiter's article. Logically it's a sound practice for China to switch its economic model, but could anyone suggest any concrete steps to accomplish this task in the medium term as Buiter specified? Every western policy maker is becoming a teacher to the poor Chinese, yet they can't fix their own problem. Personal consumption expenditures is 70% of US GDP, did anyone come up with brilliant idea to fix this problem?

Anonymous said...
2:18 PM  

MM, the Norwegian Nobel Committee for Peace consists of five members elected by the Norwegian Storting. But there is an ongoing debate on who – Norway or Sweden – has the best metal bands. It turns out that Norway smokes Swedes on Black, while in the Death Metal competition, Sweden takes the cake. So Black metal fans get to choose - while the Death metal listeners award awards (Finns then get to win the Eurovision).

Peace.

Anonymous said...
3:50 PM  

I got nasty habits...

Anonymous said...
4:01 PM  

If you swing by Beijing check out D-22 (www.d-22.cn) its where Pettis is modelling himself as the Malcolm Mclaren of Beijing punk.

Nemo Incognito said...
4:17 PM  

Ah yes, I see that I erred, it IS the Norwegians who give out this particular tin pot. My bad.


But hey, at least the Swedes can take pride in "Europe."

Macro Man said...
4:17 PM  

A veritable 'scorpion's kiss' for JCT!

SteveH said...
7:43 PM  

Not be outdone MotorTrend magazine just named Obama " car of the year."

Cheers

P said...
7:51 PM  

Marduk..., Dark Funeral....

Anonymous said...
8:35 PM  

The whole Nobel Prize concept has become a joke. What an embarrassment for all of Europe!!!

Anonymous said...
10:12 PM  

Obama's Peace Prize isn't quite as shocking as dissidents make it out to be. Contrary to the other Nobel Prixe recipients (that are laureated because of past achievements), the Peace Prize winners have often been chosen so as to increase credibility, support and focus on their present and future tasks. By choosing Obama, the committee is looking to show support for him in takss that lie ahead rather than saluting his past achievements.

Cortex said...
9:42 AM  

17) LB wishes to add that if the US fixed income market were about to be nuked then wouldn't trash be first to be flushed into cash? HY actually rallied on Friday so that tells LB that the weak auction in 30-yrs was more about pre-holiday positioning.

Remember that if the long end gets out of control, the (utterly misguided) attempt to hold the US housing market together is over and so are the banks, REITs and all that other stuff Bernanke cares about. If/when push comes to shove they will sink equities first and of course the beloved goldbugs.

leftback said...
4:44 PM  

cortex --

I intend to be nice to my neighbor starting next year

Gimmie my Nobel Peace Prize!!!!

Anonymous said...
7:05 PM  

True. The last episode was awesome.

leftback said...
10:53 PM  

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