A Manute Bol Week

Monday, November 02, 2009

It's a big, big, big week. Starting off with today's ISM (well, technically, starting off with yesterday's China PMI), we've got the Fed on Wednesday (the end of the extended period?), the BOE (more QE?) and ECB on Thursday, and of course payrolls on Friday. Throw in the odd corporate bankruptcy, an old-skool bank writedown, and the odd kleptocraric land-grab, and the only thing bigger than this week is 80's NBA player Manute Bol (pictured, left, with teammate Tyrone "Muggsy" Bogues.)

Manute, the "Dunkin' Dinka" from Sudan was, as you may well discern from his physique, something of a novelty player. His offensive skills were, well, offensive and he was a poor rebounder due to his lack of mass. He did excel in one area, however: blocking opponents' shots with his impossibly long arms. He even led the the league twice in that category.

Actually, the end of last week was a bit reminiscent of Manute as well. After the key breakdown in major indices on Wednesday, stocks appeared to execute a Manute-style rejection of the downmove on Thursday....followed by a severe rejection of the rejection on Friday. Got it? Good.

In addition to the veritable Everest of event risk this week, we are also at a fairly critical technical juncture as well. The break of the relevant trendlines and moving averages has been well-flagged, both here and elsewhere. But the recent uptick in the VIX has also taken it to interesting levels. Way back in the day, when Lehman Brothers still roamed the earth, the 30 level on the VIX usually signalled the wash-out point for bear moves in the stock market. As you can see, both before and after Lehman, equities generally turned when the VIX got to 30+, thus sending the VIX itself back down.
So in a sense, this week will provide an interesitng laboratory for us to determine if the market truly is more "normal", or whether the darkest fears of the most ursine bears will be realized. If Macro Man were a sell-side analyst this morning, he'd probably write something like "risky assets are either a great buy or a great sale at these levels...by Friday we'll know which one." In practice, it is unsurprising that implied vol across assets is getting pumped up.

Indeed, the week has already witnessed its first "volatility event." Unluggy Mrs. Watanabe, perennially poor punter of foreign exchange, experienced a Manute-sized drawdown in her account today. ZAR/JPY, a cross that offers granite-like liquidity at the best of times, was evidently the subject of a horrendously-executed margin call stop-loss run, which sent the cross down 10% from Friday's highs.
Naturally, it has since recouped virtually all the losses, giving a Manute-sized headache to Mrs. Watanabe and anyone else unfortunate enough to leave a round-the-clock stop loss order in the ZAR.

Anyhow, it's game on, and this week will set the stage for the end of the year. Macro Man is preparing to take his shots; he can only hope that he doesn't encounter Manute barring his way to the basket.

Posted by Macro Man at 7:54 AM  

25 comments:

MM: What is the most dramatic (and possible) outcome of hte FED statement? Let's say we see an end to the extended period, will anyone confess to being surprised?

Cortex said...
9:04 AM  

Surprised, perhaps not. Positioned for it, also probably not. Then again, given the pullback in the $, the market probably isn't fully positioned for leaving it in, either....

Macro Man said...
9:12 AM  

here's hoping we all end up feeling a little more like MJ at the end of this week, and a little less like Craig Ehlo circa 1989...

E

Anonymous said...
9:24 AM  

Not to crow about the 93 ceiling on the Aussie but it looks like a good time to massively short - must say I'm surprised to see Manute get a shoutout on this blog.

Last I heard, he was doing celebrity boxing to raise money for his native Sudan.

Cornelius said...
9:44 AM  

I no longer short the Aussie. That dog has a way of averting gravity for as long as necessary to frustrate even the most bearish investor.

-Ivan

Anonymous said...
12:25 PM  

To clarify, I'd hold off till the end of the week... RBA announcement will create some jetwash, I'm sure.

Cornelius said...
12:51 PM  

LB assumes that the Fed already know the Friday jobs numbers are going to suck, and so the statement is unlikely to change for now. They will be content to sit on the sidelines and jawbone if the dollar threatens to break to a level lower than the most recent bottom.

So in anticipation of a dovish Fed, risk is probably ON this week, at least into Wednesday, so LB is going with long energy and short the long end for a day or two. Technicals seem to indicate a short-term oversold as well, so perhaps we can make a "manute" amount here.

leftback said...
2:06 PM  

Nice work, MM--I'm looking forward to your upcoming piece on Muggsy Bogues, which presumably be out in short order.

But What do I Know? said...
2:30 PM  

BWDIK? : Maybe I'll do one, but I suspect that it'll be a lot shorter.

(Thank you, I'll be here 'til Friday. Try the meatloaf.)

Macro Man said...
2:46 PM  

Interesting, PSUs rocket from 1034 to 1040 in seconds at about T minus 7 ISM minutes.

Steve said...
3:03 PM  

Market action over the past days, best described by the age-old economist cartoon

http://www.flickr.com/photos/60433209@N00/2867609321/

Tamas said...
3:13 PM  

That ISM number had to be leaked ...

Nic said...
3:17 PM  

LB is shocked to hear allegations of high frequency robo-trading ahead of CONFIDENTIAL data....

OK, we all expected that this morning. Now what? EUR:JPY is having a big push so presumably all the usual commodity stuff will be up today, and the relevant equities will follow after some shorts have had their eyes gouged out. Fun, this, innit?

leftback said...
3:36 PM  

The leading sub index of the ISM (new orders) dropped and the gap between orders and inventory closed considerably. The roll over in orders probably suggests that production momentum has peaked. This might suggest that any 'growth' in manufacturing payrolls is fleeting.

But alas, it seems that higher ISM employment = lower payroll contraction in October = risk on...

Skippy said...
3:52 PM  

Not much give on the long end today. Surprised there hasn't been more todo regarding the $2.5bn hit to the FDIC insurance fund on Friday.

In a paradoxical way, ongoing bank failures seem to augur well for the US debt, even as a possible FDIC bailout means more supply at the margin.

Crisis Management said...
4:32 PM  

Looks to me that market is finally getting into tradeable mood. Downside sensitivity on reports is much higher than upside - risk/reward is on the short side. Quite simple... Or not? Plenty of reports this week will make a case.
Filing the gap from 3.10.-6.10.2008. was top for this rally in equities, might not even get retested. Now it is worth looking where we might sip some fuel and bounce on the way down. Consolidation seen at 1015, 960. It would be nice to see EURUSD storm with some confidence that December QE rally high.

stefan.culibrk said...
5:02 PM  

Macro Man, do you want to comment on the likely impact of a Lloyds/RBS break-up? I assume it is already being reflected in those banks' share prices today? This would be the first significant resolution of TBTF banks, although AIG is slowly being cut up into a thousand pieces already.

"From the Independent: Darling prepares to unveil bank shake-up"

As always, it's the impact on the bondholders that seems to hold the most significance for markets. Maybe that explains why traders have gone from selling strength in Tsys to buying weakness these last few days.

leftback said...
5:03 PM  

Ok, say the banks are insolvent (they are) and breaking them up yields an ibank, a busted retail lender and the commercial loan book from hell. Do the three entities remain joint and several guarantors and then gradually as debt is retired start to issue their own debt? What if the lender is insolvent but the ibank is profitable - how does a government avoid the notionally valuable bit falling on its ass?

Nemo Incognito said...
5:17 PM  

Nemo, I don't understand how they plan to resolve the existing debt across the component pieces, and how the existing bondholders will fare if they break these up. What's more to the point, I'm not sure that TPTB know how to do this either. Some kind of debt-to-equity conversion seems likely to come into play at some point. My bet is the more we hear about this, the wider spreads are going to get.

leftback said...
5:35 PM  

Haha, S&P downgrades CIT debt...

Crisis Management said...
5:55 PM  

I gotta say, this stock market trades like Spud Webb and Muggsy trying to penetrate against Manute, Yao Ming, and Shawn Bradley...

Macro Man said...
6:15 PM  

Leftback: IMHO, RBS/Lloyds breakup was baked into the cards long ago -- the bureaucrats are just starting to understand that either RBS gets broken up, or England gets broken up. You can't have a bank with assets of 3x GDP being run by, ahem, numbers challenged managers and live to tell about it.

Equity should have been wiped out long ago: equity is worth 30% of a negative number. There is nothing to fight over here.

Bonds: Some divisions are worth a positive number, and maybe they can be sold off for roughly fair value. But other divisions are clearly worth more as fireplace kindling than as going concerns -- and they dwarf the good pieces. The question is who gets a haircut

Does the government short change the taxpayer or the pension fund that owns the bonds?

Legally, it depends on what your definition of "is" is. The lawyers can argue this indefinitely, and probably will.

It comes down to politics (not economics or law): does the Darling/Brown/etc team have enough political capital left? If so, the pensions will take the blame (and the losses). If the politicians are lost, then the taxpayers will take the losses and Brown will be villified (more so than now)

Either way, the same people will take the economic losses-- through their pension or through higher taxes. The only real question is who takes the blame in the history books

Gary said...
6:43 PM  

I guess none of your other correspondents are hoopsters, MM. You've been handing out punnable allusions like John Stockton all day and the commentators are finishing like Shawn Bradley. . .

Speaking of trying to penetrate this market, this afternoon might be like going against the Man Mountain himself--Mark Eaton.

And no, I don't live in Utah :>)

But What do I Know? said...
7:09 PM  

Funny, I was going to include Eaton in the comment above- he was a legitimately great shot-blocker- but I originally wrote it so that Spud and Muggsy were on a fast break. Given that Eaton, along with Billy "Whopper" Paultz and Paul "Mokeski" Mokeski, was among the least athletic players I ever saw on an NBA court (or at least on TV), I decided to exclude him.

Macro Man said...
7:15 PM  

EURHUF.... ?

More funny buggers in FX today?

Skippy said...
8:35 AM  

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