Friday, November 13, 2009
Sometimes, you just need to step off the desk and get away for a bit to clear your head. For Macro Man, this is one of those times. He runs a book that can, at times, be quite sensitive to changes in the correlation and/or volatility structure across different assets. When it works (which, knock on wood, is more often than not), it's a beautiful thing. When it doesn't, it's hair-pullingly frustrating.
Take yesterday. Sometime just before 3pm London time, a Reuters headline flashed that "German government fund may be forced to inject more capital into WestLB." Given that the banking system is the sort of seedy cousin of the Eurozone that no one likes to talk about much, it wasn't much of a surprise to see the euro (which your author is long on expected CB reserve flows) take a hit and never recover.
A-ha! Good thing your scribe is clever, and has embedded some Eurpopean banking index puts in his portfolio to guard against just such an event! Except that the European banking index fell a little, then recovered to make new highs on the day, and only afterwords drifted off to close "only" a bit up on the day (at roughly the same time as the euro was making its then-lows of the week.)
Adding to the "fun" was the fact that this very story had apparently been the lead article on the front page of the Handelsblatt, which is available for purchase well before 3 pm London time!
So much for efficient market theory, and so much for efficient portfolio construction. At this point it literally feels like Macro Man has a little trading vampire on his shoulder, picking off his trades one-by-one and sucking the life out of them.
So in an effort to clear his head and get a fresh perspective, Macro Man's taking care of some other business today of a more mundane nature. The market is stelling him to step off.....and he's obliging.