Sometimes, markets just scream out "you suck!" Unfortunately, this is one of those times for your humble(d) scribe.
Yesterday, he pointed out that Korean equities had started trading very poorly, no doubt as a reaction to/anticipation of a tightening of monetary conditions and the concomitant impact on the export sector in particular.
Macro Man has kept a special eye on the Kospi in recent weeks, as he has actually had a (long) position in that market, courtesy of a little Asian liquidity model that he's been running. Throughout most of last month it provided a handy offset to his indifferent bearish bets on more developed markets...bets which proved to be rather costly yesterday.
Still, he went to bed last night in a decent mood, confident that the Asian session would rally his long Kospi and offer a tasty bit of payback. Imagine his horror (well, OK, maybe not "horror", but certainly "intense irritation") when he woke up this morning and saw the screen below.
"You suck", indeed.
The resilience of risk assets (other than, y'know, the thing that Macro Man was long) to the first "major" economy tightening, from the RBA last night, has been reasonably impressive. We do seem to be witnessing a little bit of a disconnect, however; the AUD's gone bid on the tightening-no shocker there- but interestingly enough, the back end of the bill strip actually rallied.
Then there's been a faintly ludicrous story from the Independent today, suggesting that oil producers want to move to pricing oil in a currency basket, rather than dollar. After George Washington received a few swift kicks to the groin, the story was roundly denied by the Saudis. Russkies, and UAE. Fun for the whole family!
Still, the buck is looking offered-only and the tide of liquidity seems to be lifting (nearly) all risky boats. Funny, Macro Man could have sworn there was a really crappy US employment figure out on Friday. Hmmph. Must have been a dream.
Markets might be screaming "you suck!" to Macro Man, but trust him: the feeling is mutual.
Yesterday, he pointed out that Korean equities had started trading very poorly, no doubt as a reaction to/anticipation of a tightening of monetary conditions and the concomitant impact on the export sector in particular.
Macro Man has kept a special eye on the Kospi in recent weeks, as he has actually had a (long) position in that market, courtesy of a little Asian liquidity model that he's been running. Throughout most of last month it provided a handy offset to his indifferent bearish bets on more developed markets...bets which proved to be rather costly yesterday.
Still, he went to bed last night in a decent mood, confident that the Asian session would rally his long Kospi and offer a tasty bit of payback. Imagine his horror (well, OK, maybe not "horror", but certainly "intense irritation") when he woke up this morning and saw the screen below.
"You suck", indeed.The resilience of risk assets (other than, y'know, the thing that Macro Man was long) to the first "major" economy tightening, from the RBA last night, has been reasonably impressive. We do seem to be witnessing a little bit of a disconnect, however; the AUD's gone bid on the tightening-no shocker there- but interestingly enough, the back end of the bill strip actually rallied.
Then there's been a faintly ludicrous story from the Independent today, suggesting that oil producers want to move to pricing oil in a currency basket, rather than dollar. After George Washington received a few swift kicks to the groin, the story was roundly denied by the Saudis. Russkies, and UAE. Fun for the whole family!Still, the buck is looking offered-only and the tide of liquidity seems to be lifting (nearly) all risky boats. Funny, Macro Man could have sworn there was a really crappy US employment figure out on Friday. Hmmph. Must have been a dream.
Markets might be screaming "you suck!" to Macro Man, but trust him: the feeling is mutual.
64 comments
Click here for commentsDecoupling. Anything that is subject to the largesse of Chinese credit has a free put on it - Brazil, Indo, Australia, resources, yada yada. The only certainty in this world is that if China is at all affected by the crappiness elsewhere its going to print some money, build the fixed asset turds / statues of Ozymandias and let the good times roll. Anthing US consumer exposed (Samsung LCD anyone?) gets hit.
ReplyUnless we have a trade dustup, but that can wait until December.....
Hmmm.....where does that leave this?
ReplyOut in the snow and outta luck.
ReplyThis Chinese put thing makes sense to me. But who's putting a put under the S&P future, and why?
ReplySometimes when nothing that should be working is working, I do the stupidest thing I can think of, the trade for which I can find no justification--(that would be buying the pound here, BTW).
ReplyIt usually works out.
But - Voldy. Of course. Any1 seen the HKs effect on PoS @ night?
ReplyThe ASX-200 keeps freaking me out with its intraday counter-trends. Check out this chart, zoom out a bit and note especially 6 Oct and 25 Sept, not to mention the shotgun blast gaps all over the place.
Reply1031,90?
ReplyCould it be that markets will never listen to fundamentals until US rates are hiked? (Dollar carry trade)
ReplyAnon 01:45, have you been changed into a monstrous gold bug yet?
ReplyI know it didn't work last night MM but I like having some things of each camp (risk on, risk off). Then you can load and unload as the pendulum swings.
ReplySeems to me we are only relatively calm in most markets because the hyperinflation and deflation camps are equally balanced. But those are massive tails and they both can't be right.
Seems to me we will chop back and forth between the two and resolve in one direction or the other. Last night was reflation's turn, tonight who knows
Greg; I just might; here we go again - 1035& rising... is that macro enough?
Replyyada yada - EM inflation requires ag prices to go up, check out wheat and corn. Gold is not that interesting.
ReplyMadness. LB is shorting silver once more. The newest members of the PM club will find they paid a steep initiation fee... about time for BB to state once more with feeling that QE is ending and no second stimulus is expected. OK, it's NOT TRUE, but.....
ReplyYEs LB scary trade but I can't disagree with it. What if the Aussies went prematurely? Their CPI is on a one-way trajectory dow, they've just taken real rates up to 1.75%. Yeah Voldy and all but...
ReplyAll risk assets are not created equal. HY and IG not on the same page as US equities, still broken down. The smart money is not quite so enthusiastic, apparently.
ReplyThat's because the debt is denominated in USD, the excess asset value over the debt is not.
ReplyAgriculture ponzidelica. Wow, I'm like a pig in shit.
Replyis another reference to 'how i stop worrying and love the bomb' in order here?
ReplyHey, I tried to love the bomb. It blew up in my face!
ReplyLB might see a »you suck« sign pop up - once more. A BIG one this time. There might be a MAMA $ PAPA TOO longest short squeeze dead ahead.
ReplyDNGZ. Dollar not going to zero. Really.
ReplyDays like today must mark the end of DGDF.
Reply"If it's in the press, it's in the price"
with all the action centered on gold, why is 10 treasury barely moved? please help.
ReplyLB; Not talking about DGDF. Really.
Replyhttp://www.youtube.com/watch?v=8rcmaGbOQSI
DNGZY, dollar not going to zero yet.
ReplyIf and when the market decides to price the risk into equity prices again, the dollar will come back, just like last fall.
The real kill the dollar party happen until the negative correlation between (US) equities and the dollar breaks down, and asset prices and the dollar fall together. But we aren't there yet.
So the markets say there is no inflation, its not possible with high unemployment, etc -- consumers say prices are going up anyways.
ReplyThe markets say there are green shoots and the recession is over -- US retail sales say otherwise. And the retail sales report doesn't tell you what a quick trip to a shopping center will: consumers are buying almost all necessities (no frills).
Short term, the "voters" at Goldman Sachs can use taxpayer money to manipulate markets -- I mean bet on the economy. But long term, the markets are still going to be a measuring scale.
Long term, main street thinks Wall street is on dope
The mortgage asset bubble went on for a long time after it ceased to make any sense -- then "suddenly" the markets realized overpriced houses backing 105% LTV loans weren't actually good money. Surprise!!!
I am trying to figure out what the catalyst will be for the market's awakening this time... We can all argue about the when, but not the if
Awright I give up, what is DGDF?
ReplyHow many times can Alcoa lose money yet still "beat expectations" and trigger more irrational exuberance?
Reply$50 EPS x 15 P/E = SPX 750. $50 might well be an overestimate, depends on how much legerdemain the banking overlords are allowed to use this time around. Of course the market can trade at a premium for some considerable time before a reversion to the mean.
CAN$ AND USD$ ,the most linked comm currencies are still on their way to the values they hed re the USD$ BEFORE the market crash AND the CAN$ ,the most linked to Gold just broke out sub 1.06 heading towards parity and until it get's there I wouldn't try to short PM.
ReplyShould have CAN$ and AUDS most lined to comm currencies and the USD$
ReplySteve: DGDF = dollar goes down forever
Replyleftback: While I agree with you that $50 S&P eps is if anything a little optimistic, when dishonest are controlling the accounting board and congress, eps is whatever they say it is.
So S&P "earnings" will come in above $80, no matter how many accounting rules need to be changed to make that so.
For anyone who spent anytime near poker players, the obvious tactic is NOT to let the suckers at the table know they are being played. String them along, let them win a few small hands, etc.
Goldman, Pimco and Blackrock have pretty much taken out ads in every paper saying "SUCKERS!!!" in red bold capital letters.
If Goldman was half as smart as the guys at Enron or LTCM were, they would have had the sense not to have a massive bonus pool this year. Most street hustlers have enough brains not to waive their loot in the victims' faces
This is all going to end really badly
LB, Gary: let me throw some W. B. Yeats at you:
ReplyThe bears lack all conviction, while the bulls are full of passionate idiocity.
You know things are bad when CNBC runs a segment "Dollar Under Attack" and the anchors seem to be pumping gold.
ReplyShorting silver here is taking your life into your hands. There is nothing between here and the $21 high and this gold breakout could surely go on for a while.
I would love to believe the MM "faintly ludicrous" view but at the same time, we know the Chinese and Russian governments are out there trying to undermine the US in many different realms.
Gregor-
ReplyIf I may extend the poker analogy, I think many (certainly not all) bears have picked up their chips and moved to a different table. When the dealer pulls out the deck and spends several minutes arranging the cards to make sure his friends get good hands -- and then deals, you have to wonder if just maybe the fix is on.
Gold is north of 1000 -- I am not a gold bug, and worry that FDR might seize private gold like he did last time.
Even though the global economy is in a shambles, oil is still hovering around $70 ... I have to think that is more about the dollar being worth less than oil being worth more.
And emerging market equities... the lottery might have bad odds, but they are still better than a game rigged against you.
If a proper accounting were done, I seriously doubt there are any real money buyers of US treasuries (even voldemort has other plans). Primary dealers betting with taxpayer money essentially are just buying calls-- if it blows up, the Fed/Treasury gets to nationalize the empty building.
Gold and silver are much like the Euro -- they are just anti-dollars
ReplyGary: "If Goldman was half as smart as the guys at Enron or LTCM were, they would have had the sense not to have a massive bonus pool this year. Most street hustlers have enough brains not to waive their loot in the victims' faces"
ReplyStreet hustlers don't care what the victim's think if the hustler plans to skip town.
Goldman executives may believe that they will be long gone by the time Joe Stock-market figures out he has been taken.
Some future Eliot Ness at the SEC might seize Goldman headquarters (owned by some hapless REIT). The Goldman execs will be laughing hysterically from their gated mansions
Anonymous @ 6:18, there is no honor amongst thieves. Plenty of Bolshevik officials felt themselves untouchable until one day Stalin decided to execute them. I wonder how luxurious the mansions are in Namibia.
ReplyCrisis Mgmt: The Goldman execs own Chris Dodd outright. The SEC was neutered long ago, and Eliot Spitzer's attempt to extort Wall Street blew up in his face. Barney Frank helped loot Fannie and Freddie, so he is no position to say anything. Henry Paulson is part of the original gang of thieves, plus he got to cash out his winnings tax free on becoming Trsy Secretary.
ReplyObama will do whatever Nancy Pelosi tells him to do, assuming he isn't busy pandering to Ahmadinejad.
There is no leadership in the US -- not good leadership, and not bad leadership.
The street hustlers are far more worried about other hustlers than they are about the sheriff
I feel your pain macro man.
ReplyI thought i was being prudent in not shorting the market until this week due the what i perceive to be less liquidity injection via the fed and chinese.... only to be served humbled pie again and again. will take months to work itself out, but we cannot kid ourselves: the risk is high.
same as in Namibia -- the crime bosses aren't worried about the government. They have gated mansions to protect themselves from other crime bosses
ReplyLB wishes to advise the all-knowing cognoscenti on this board that his short crude position is already green and that only an itsy-bitsy teensy-weensy absence of buyers, then a bit of selling, profit taking by traders, triggered stops and panic selling by shiny metal enthusiasts will result in significant enrichment.
ReplyAnyone else noticed that Peter Schiff is running against Chris Dodd?!
ReplyAnonymous @ 6:42, Google "Kobi Alexander" if you're not familiar with that case already.
ReplyLB, you really think traders by and large saw this PM rally and now have profits to take? My guess is that silver up 90 cents in a day tells the story of shorts panicking after an completely unexpected news event.
The massive surplus of crude in storage by everyone including Voldemort is eventually going to have to be reflected in the price, and that is likely to have ramifications for other dollar-denominated assets. Seasonal and technical factors are not bullish for oil, and there is a big overhang with respect to the products which have already declined from the peak.
ReplyCrisis -- Kobi Alexander's mistake was not spreading the loot around.
ReplyIf he had followed Marc Rich's strategy, he would have enjoyed a swiss villa for a few years and then received a presidential pardon
Anyways, the Feds won't go after Goldman because many of the Feds are Goldman. Can't arrest Blankfein without also arresting Barney Frank and Henry Paulson.
Peter Schiff isn't the only guy running against Chris Dodd. There are literally a dozen people (both parties) that have formally declared candidacy and/or have formed exploratory commitees
ReplyUsually, a sitting member of Congress is untouchable. The advantages of an incumbent (especially a long serving member like Dodd) are insurmountable.
That so many people (not just Schiff) think he is vulnerable speaks volumes about Dodd. I don't think it was an accident that Dodd "chose" to stay out of ObamaCare after Kennedy's death -- Dodd was already vulnerable enough
leftback -- oil storage levels have been well above "normal" now for more than a year. If that was a real catalyst for a price drop, the price would have fallen already.
ReplyThere are lots of good reasons to keep extra oil inventory on hand, and few reasons not to.
Oil traders know this-- bond traders don't. Then again, bond traders thought subprime mortgages could deserve to be AAA rated
The bond vigilantes of yester-year were smart. The new crowd is insolvent for a reason
On wide spread day like this I'd say this is the AUD$ rate decision blowing the shorts out of their position and the widespread is their covering.
ReplyI guess all the bears out there (including me) have got burnt more than once in the past six months, and learned to be very careful.
ReplyIt may take some time for the bears to build some real conviction that now is the time to short the market, once this is done Gary 4:50's catalyst will not be needed. Then Anon 4:48's USD/SPX negative correlation break-down party will get started for real. Until then, I think it is a good idea to hedge short USD exposure by shorting the SPX, when the time comes round, both the trade and the hedge will turn out nicely. Finally!
"Then again, bond traders thought subprime mortgages could deserve to be AAA rated"
ReplyAbsurd statement that deserves to be roasted over an open fire. In fact that was largely the dumb-ass long-only institutional and MuFu guys, not the traders. Know what you own...
Oil storage saturation and continued restrained demand remains a viable catalyst for reversal, all you have to do is remove the artificial support provided by the DGDF crowd and the front months will decline rapidly.
Nothing lasts forever, Gary. Even if it has lasted a week, or a month, or six. We could have a whole new flation in a month or so.
leftback:
ReplyThe long only institutional guys and the MuFu crowd are still very much alive. Other than AIG (which was a trading house in insurance clothing) -- the buy side is doing OK.
The banks/traders are hopelessly insolvent, propped up by corrupt politicians that used to work at those banks. Despite changing accounting methods and lending taxpayer money for free for over a year, the sell side remains non-viable without unending taxpayer life support.
"Nothing lasts forever" is a comment best directed at the idiots who think Lehman was a 150 year old firm or that its demise was unprecedented. Lehman was spun off from American Express only a decade and a half ago. Firms like Continental Illinois, Drexel, Kidder, etc only escaped the short attention spans of the sell side.
The US dollar has oscillated a lot over the years, but if you look at it since the formal collapse of Bretton Woods -- the long term trend is obvious to everyone.
Running trillion plus deficits for the next 10 years is not going to change the long term trend -- even assuming we get a dead cat bounce in the near term
High oil storage levels is a free option for oil wholesalers. It doesn't say anything about the future direction of oil prices- up or down. Oil companies and wholesalers have a very different investment horizon than Wall Street.
Sell side bond traders didn't understand the risks their own desks were taking -- so its not a surprise they don't understand oil market fundamentals either
Carry on Up the Baltics, Macro Man.
ReplyAnother shoe finally dropping in Europe's very own Inland Empire? We may soon find out that some of the European banks were up to the same naughty tricks in their own back yard as their American cousins.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6263039/Banks-brace-for-Latvias-collapse.html
leftback -- the residual and accrual tranches were all kept on the bank's books; many of the subordinate pieces as well.
ReplyInvestment bankers on the sell side were selling structures for 102 made up of collateral worth 100... the difference wasn't alchemy -- they were arb'ing flawed valuation systems on the trading desks.
The smarter CMO traders left the sell side when management (often former salesmen) wanted them to buy the residual/subordinate tranches for more than they were worth -- keeping the securitization machine alive.
The dumb traders agreed, while other garbage was buried "off balance sheet" in SIVs. The rest, as they say, is now being bought by TARP and the Fed
The buy side never bought the R or Z tranches... in most cases (insurance and mutual funds), they were prohibited from doing so. But even the hedge funds declined to buy toxic tranches
Interesting stuff, Gazza.
ReplyDollar bounced off the lows late morning, that level could form a double bottom support, provided the FX jawboning machinery reverses. We could see a very surprising rally once this incredibly crowded trade loses momentum.
Me thinx so 2.
ReplyIf you were China, and were owed mucho dollaros, would you want the dollar to be worth less? Fake the fake. Elliott Wave says dollar up.
At the bottom, whatever it is, nobody wants any. What was that other direction again?
Agreed. If you ask the PBOC what will happen if they sell the "stock" of dollars, they will tell you that the price will fall (no surprises there). As far as I can tell (others may have a different view) Voldy is only incrementally diversifying the "flow" of reserves, not changing the stock of reserves.
ReplyAs for commodities and oil, China is a net importer of many commodities, if they used these same commodities as an alternative store of wealth (and in doing do push up the price), they would hurt local consumers of raw materials.
DGDF is the most crowded trade on the planet, but I guess it will either take Fed rate hikes or a correction in risk appetite before it gains momentum.
Everybody is bearish, that is good for equites. They say is irrational. Let it be. Who cares? The bears? Ouch!
ReplyEverybody hates dollars but a lot believe in the power of nukes. Americans nukes. So buy low hoping to sell high. Isnt irrationl? Who cares? Ouch!
We know one thing. Chinese and japanese need to sustain the dollar. But who cares? Only them. Ouch!
Do you remember the bankruptcy of central bank of France? So try to remember. They were private and well runned. But they wanted to change theirs big position in british pounds to gold. They were the biggest players in pound, on that time. But they wanted to throw away the pound and move to gold. What hapenned? They broke because they were to big to sell without to be noticed. So others threw away pounds before them. So they broke.
Now try to figure the chinese view of the dollar. They realize the risks of throwing away the dollar and move to gold? As Lenine once said: the capitalists will sell us the rope to hang them. ehehehehheh
Have a great day.
(Em especial para os de fala portuguesa. Abraço.)
Muito obrigado.
ReplyThanks anon.. interesting points.
ReplyHow about the again today AUD? Parity anyone?
Dude, forget AUD parity NOK parity is coming too at this rate.
ReplyWow this is getting silly. I'm waiting for all the bears on this board to have their stops triggered before truly getting out of this inflation trade.
Gold is not much-like Euro. And it certainly is not anti-dollar. It is old.
ReplyOld enough to say: “liquidity crisis approaching” while “correlations might brake down” but “correlations might not breakdown just yet too - if “gold is much-like euro & just anti-dollar” remains the prevailing line of both - the bear&the bull - thinking. These days…
ReplySo we now have Greenspan (of Pimco) fascinated while Dudley of NY (of all places) vs. Hoening (of Oz) + Warsh that nobody listens to, basically arguing what the “prevailing line of thinking” will develop to.
Anon 4.45 – They’d both be saying the same thing.
Korea is in catch 22 of sorts with the Won. With the strengthening of the Won over the last 6 months, this steroid boost is starting to lose its potentency. The FX translation gains that naive investors have been eating up will now have the base effect mostly negated from next q. Furthermore, how much more pain can the japanese take in regards to the excruciating Yen Strength.....not much more. The stars will start to UN-Align for Korea soon as well.
Reply