Wednesday, November 04, 2009

It's been a shambolic start to what should ultimately prove to be a pretty important day. Macro Man normally catches a 6.33 am train from his local station into London Bridge; imagine his horror, therefore, when he opened his eyes this morning to discover the numbers "6:27" on his clock face.

After muttering the obligatory four-letter epithets under his breath, he sprang out of bed and raced through the shower at breakneck speed. If he hurried, he reckoned, he could just about make the 6.46 train which, while slower and considerably more crowded, nevertheless manages him to deposit him at London Bridge 20 minutes later than his normal service.

As he raced to get dressed, however, he heard an ominous rumbling from outside his window. This in turn prompted Mrs. Macro to spring out of bed, offering her own invective; the bins hadn't been put out and the dustmen were already outside. We dressed and jointly raced downstairs, with Macro Man not bothering to tie his shoes before springing out the door....only to find the garbage truck blocking his driveway.

"Which bins?" (recycling or rubbish?) shrieked Mrs Macro.

"Guys can you move I'm late to catch a train and I need to get out of here now!" bellowed Macro Man, in his best stream-of-consciousness technique.

Oh-so-slowly, the rubbish collectors backed the truck up, and Macro Man hopped into his trusty Golf and sped off towards the station, rolling down the window to offer a barely-awake wave to a disheveled Mrs. Macro, who'd managed to get the bins out in time. (Unbeknownst to Macro Man, Macro Boy the younger was, at roughly this time, slamming the door behind his mother, thereby locking her out for ten minutes.)

The station's only a couple of miles away, so after parking up and sprinting (with untied shoes!) to the platform, Macro Man improbably managed to get there at 6.39...enough time to queue for a coffee! In the annals of close morning shaves (in the figurative rather literal sense, naturally), this was close to a record turnaround from the bed to the station.

The rest of the journey, meanwhile, offered its own challenges; the later train is smaller and calls at more stations, so perhaps inevitably, Macro Man got stuck sitting next to some large-boned chap who felt it necessary to hold two large briefcases on his lap rather than stowing them in the luggage racks. His arrival at London Bridge reminded him of why he gets the early train; every ten minutes after 7 am appears to double the volume of passengers milling about the station.

By the time he fought his way to the platform of his connecting train, he was confronted by a mass of humanity commonly found only at major sporting events, the Muslim hajj, or Chinese job fairs. Imagine his shock and bemusement, meanwhile, when the first train to arrive on the platform was.....his usual 6.33 service!!! He isn't sure what happened to it (it wasn't on the board at his station at 6.40, so presumably arrrived and left at the normal time), but it looks like he was gonna be behind the 8-ball no matter what happened this morning. Sort of like the last couple weeks of trading, actually....

In any event, that rather verbose and tortured introduction was merely a way to inject the notion of "quick turnarounds" into today's post. For if Macro Man executed one this morning in gettting out of the house, so too, has gold in recent days, defying gravity (and the general strength of the dollar) to post fresh all time highs. It's up more than $60 in the last six trading sessions, spurred partially by yesterday's news of India taking down a 200-ton print from the IMF, but more clearly by real buying flow.

As is always the case with the yellow metal, there are a dozen stories and theories offered for its performance, and per the usual it is difficult to distinguish fact from fantasy. However, an Occam's Razor analysis might well suggest that someone is taking an (informed?) punt on either financial stability, the maintenance of globally easy liquidity conditions, or both. If the latter, in particular, one would have to posit that the dollar would come under renewed pressure after the Fed (unless punters wish to wait for payrolls).

The last 13 hours or so have also seen a fairly sharp turnaround in risk sentiment. Spoos are up a percent and half or so from the levels prevailing when Macro Man left the office yesterday. Earlier this week Macro Man observed that VIX around 30 was likely to be a critical juncture; for the time being, at least, it has helped staunch the equity market's losses. Similarly, Macro Man's proprietary risk index has recently gone back below zero after six months of risk-seeking readings. The next few trading sessions will likely determine whether this index bounces into year end or sustains a "proper" bout of sustaind risk aversion.
On Friday, September 11, the SPX closed at 1042.73. The following Monday, Macro Man created a reader poll on where the SPX would close at year end. The response was overwhelmingly bearish.

He'd like to repeat the exercise today. This space sometimes gets labeled as a "bearish blog", an appellation which Macro Man dislikes. His paramount interest is in getting things right (the signal, that is, rather than the noise), even if he doesn't always do so. In any event, he has detected a distinctly pro-risk attitude towards some of the punters with whom he speaks on occasion. So he'd like to take the market's temperature on a slightly more statisitically significant scale.

It's 10 am London time, and Macro Man's still feeling a touch groggy from his quick turnaround this morning. He can only hope, by the time he goes to bed, that his trading fortunes manage to execute a similarly impressive 180.

Posted by Macro Man at 8:34 AM  


think there is a typo on your poll

Amedin said...
10:16 AM  

I concurr with Amedin, unless this is an intentional method of getting a more bullish aura around the blog.

Cortex said...
10:20 AM  

Well done this morning MM ... :)

On the SP500, I am of course no market punter at all, but I think that we will just about see "ranging" until year end after which those exit strategies will be enacted (or not) ... so

Between 1000 and 1075 for me


CV said...
10:33 AM  

Ditto, boredom into year end. I am doing not much of a chunky directional nature in equities in the US.

Nemo Incognito said...
10:43 AM  

Irritiatingly, changing ">925" to "<925" has eliminated the option altogether. So if you think we close below 925, just vote for between 925 and 1000....

Macro Man said...
10:51 AM  

Oh, and as per my sugar question a few months ago, who is in gold and is this ridiculously crowded yet?

Nemo Incognito said...
11:01 AM  

MM a couple of suggestions:

--I would just serve up the poll without commentary and then make comments the next day, otherwise you could skew results;

--I would also make it symmetrical so that the options above and below the current price are identical.

I'm in the bear camp, talk about flogging a dead horse...

Steve said...
11:34 AM  

RE: Nemo, go to scribd.com and read the Tudor Q3 letter.

So in the last 12-18 months, you have seen Paulson, Greenlight, Hayman and now Tudor building positions in gold.

Crowded, hard to say. I definitely think the breakout at 960 was not greeted with the usual wave of 100% bullishness from the advisory letters etc. In broad Elliott terms, is this wave 5 or wave 3?

It does worry me (not that I am short gold) that it is rallying in all currencies; sov defaults/restructuring drumbeat getting louder??? certainly the several CEER countries and Kazakhstan are on shaky ground. And now the bigger punt is Japan!

In that environment some entities may choose to reduce credit risk past sovereign level. Physical gold gives that outcome. However, it is such a small market....it just can;t take it.

Also, are people becoming more aware of currencies being trashed?

Anonymous said...
11:38 AM  

I should add the the COT shows excessive speculative long positions; but perhaps the market is just growing - a natural concomitant of it could be more spec longs...not sure how much weight can be placed on that statistic

Anonymous said...
11:42 AM  

Hi all, Macroman, may I suggest adding an "and-are-you-positioned-for-it" element to your polls? Over the last couple weeks, asking credit trader friends of mine whom I know are bearish medium-term which way they thought the market was going, I got the usual answer: down. Not much information content there, in fact too many pessimistic answers is usually an encouragement to position bullishly...but when asking whether they were positioned for it or not however, the answer was an almost uniform 'no, I'm hoping for a rally to sell again.' Which is a bearish signal -- finally.

MC said...
12:06 PM  


Perhaps the big bite India took out of the gold auction explains matters. Crowded ~shrug~ depends on what other signs that the mob, sorry, crowds in the other bets are heading for the exits. Will other countries resort to gold to bolster lending hmm...Well, depends on how long that "threat" of another stimulus package is going to keep the wolves at bay.

Anyone with any idea about iron? Seems like that the iron ore run may well start to wane? apparently by September/ October, domestic demand in China (for the year ) was near to being met (estimates , but go figure after all by August the figure was 70%)Given that stockpiles have been noted and the regulatory authorities have attributed the recent volatility to speculation (er...duuh!)how long before reality takes hold?

Judy said...
12:19 PM  


For what it is worth, I am positioned for the S&P below 925. In particular, I am short EM equities and all things 'carry'. I am also long US 30 year Treasuries. But I have been short and caught for a while.

Right now I am removing the stitches from my backside.

But it is probably more interesting to debate the big picture and market inconsistencies than our positions. Nonetheless, I your point about 'talk' versus 'action' is valid.

Nemo, completely agree on gold.... extremely crowded, in my humble view. Particularly if disinflation and private sector credit contraction continues.

Skippy said...
12:40 PM  

Steve, per my 10.51 comment, I originally did have a "beyond" 925 option...but given my bleariness this morning I gave it the wrong sign. When I changed the sign, the option disappeared!

MC, I hear ya, but until I can manage to post a poll with all the options correct and not disappearing, I've gotta keep it simple.

Macro Man said...
12:56 PM  

Judy, iron is utterly f&*ked six times til Sunday. I've been short a few of those names for a while. Overcapacity is insane and Chinese mills are exporting below cost, often a prelude to quotas or tariffs. Definitely one of my favorite shorts.

Nemo Incognito said...
1:03 PM  

Thanks for responding Skippy, and Macroman, completely understood. Find it amazing that you manage to run your portfolio AND post quality everyday, 'been a reader for years and appreciate the contribution to our thinking processes (and daily chuckle quota) very much as things stand. Happy trading all.

MC said...
1:13 PM  

MM, did you hear anything about Voldemort? What's he been up to all these days?

Gregor Samsa said...
1:32 PM  

Went for the 1075-1150 option, not because I'm not "bearish" but because the signal tells me a liquidity driven "Risk On" flamingo-passing trading environment still exists. As long as the US carry trade exists equities will run, gold will rise and the $ will continue to decline (thereby implying of course the inverse for other currencies).
Jim Jubak has a nice post on this yesterday and own two most recent posts look at the Central Bank liquidity trade. If AUS, et.al. raise rates this will add fuel to this particular trader's bonfire.
The readings on CB policy in this:
might be worth your while.

dblwyo said...
1:36 PM  


I do have sympathy for the liquidity-driven trade. If credit is plentiful and not going into the real economy it is probably going to end up in financial assets in the short term.

The carry trade is (to a large extent) built on a foundation of divergence or decoupling. Higher interest rates in the greater China and commodity-linked world while the Fed remains at zero. But what happens if there is no sustainable divergence?For example, if global growth rises to, say 4% next year, the Fed will probably have to raise rates as well.

If, as I suspect, much of the excess global liquidity has ended up in asset prices rather than real economic activity, then it is probably just a matter of time before risky assets correct.

Having said that, timing is everything and it is obviously possible for risk assets to carry on. So I wouldn't violently disagree with your view. As I hinted earlier, I have been Captain Reverse Indicator recently.

Skippy said...
2:13 PM  

Dbl, Skippy,

Agree that liquidity is the reason for my Nemoesque shorts but the devil is in the details. The yen has been the funding currency for over a decade but there have been plenty of size downmoves in the Nikkei, not to mention global markets for that matter.

The only exception is JGBs, still humming below 2% 11 years on.

Steve said...
2:28 PM  

Sounds like a terrific start today, MM. LB used to ride those rickety trains in and out of Kent. Now if you were in Geneva, on the other hand ... anyway, not to worry, nothing doing, risk is mildly on and it's Fed morning, which is about as exciting as... trading JGBs.

Sorry about the unnecessary roughness on Gazza, BTW, 15-yard penalty, yellow card and all that. LB will avoid two-footed tackling with studs up from now on.

leftback said...
3:07 PM  

Nice EUR call MM.

Steve said...
4:07 PM  

MM: A thousand apologies if my comparison of the Detroit Big 3 automakers and big banks caused you a sleepless night

Gary said...
4:45 PM  

No sweat, G. After all, they've both been adept at manufacturing turds over the years....

MM Blackberry

Anonymous said...
5:00 PM  

Another tedious FOMC morning here in NY. The action reminds LB somewhat of the March 2008 FOMC day. Gold made a new high pre-decision, then... carnage. A 9-10% haircut for newly initiated bugs.

leftback said...
5:08 PM  

Mrs Macro has always been good at quick turnarounds herself. You should have witnessed her nifty shopping skills today. Empty hands one minute, armfuls of clothes the next.

Love your intro. The rest didn't mean much but at least I now know gold is on the up.

Are we out of the recession yet?

Pop T'art said...
5:51 PM  

"Mrs Macro has always been good at quick turnarounds herself. You should have witnessed her nifty shopping skills today. Empty hands one minute, armfuls of clothes the next."
Mr. Macro now may feel more pressure to be on the right side of market. lol

Anonymous said...
6:07 PM  

Tick, tick, tick....

leftback said...
6:46 PM  

dblwyo: I can safely say the risk on trade is on, and energy the lagged asset is getting dragged into this move, defying all fundamental reasoning yet again.
MM, doing much in oil these days?

SFOT said...
6:58 PM  

Gez: No, y'all's best efforts today notwithstanding.

LB: Is that a clock or the time bomb in my book?

SFOT: Still have my Dec 12 deltas, small short delta in prompt against it which I unsuccessfully topped-and-tailed after the inventory data today. Didn't quite pay the top tick and sell the low tick...but wasn't far off!

Macro Man said...
7:05 PM  

More confusion courtesy of our peerless leader at the Fed. Hope LB still has that steepener on.

Crisis Management said...
7:23 PM  

Profits booked from the aforementioned steepener and LB is back to sitting in cash and bonds watching the wonderful world of risk asset gyration. Didn't quite get it all, but it was a hedge, and you can't get greedy with hedges. Interesting that the 3.57% level on the 10-yr was observed again.

Leftback said...
7:35 PM  

Leftback: curious why you had a 2-10 steepener (versus an outright 10yr short)?

Yields on 2yrs might go up if Bernanke signaled a tightening (however unlikely), but they weren't going to go down unless the sky really does fall (in which case who cares about any bonds)

Thus, it seems like the 2-10 steepener had all the bpv risk of an outright 10yr short, just involved more trades / commissions?

My only guess: to be bpv neutral, you had to buy a lot more 2yrs than you were short 10s -- rolldown helped you a bit.

But that extra carry / roll was offset by 3-4x the risk that Bernanke might actually signal the end of "extended period"

If you were only betting on a curve steepening, seems like short a smaller amount of 10s would have been a better risk/reward tradeoff?

Anonymous said...
7:52 PM  

Anon: You are completely correct. Considered the steepener ahead of next week's auctions of 10s and 30s, but in the end did a straight short of the 10y. Simpler and more profitable, as you point out.

leftback said...
8:07 PM  

Hmmm...something tells me that Spoos flirting with a red close after that statement wasn't part of the game plan...

Macro Man said...
8:56 PM  

It's getting very late for this rally and lots and lots of sectors have now rolled over.

Indian Summer and continued ZIRP notwithstanding, LB thinks it's time for another chorus of "Summer Heights" because "The Bears are Back in Town" for the winter.

The bond market bomb didn't go off. Tick, tock, tick, tock. Cheers, MM. Did you hear about the bloggers who got invited to Treasury? You'll be over at Number 11 soon for tea and scones.

leftback said...
9:34 PM  

Happy day for me, went short long Treasuries and short financials this morning, both did well.

LB, it's what I said before -- all risk assets rose March-October, all may fall together in the coming rout. Even Treasuries may not be safe. Gold may be the only safe harbor.

PJ said...
10:46 PM  

You guys need to read Nassim Taleb's Black Swan. Just because you watch every twitch of the major indexes and currencies across the globe doesn't mean you'll be able to predict it's 10 day move. I was very bullish on that spoo survey.

3:00 AM  

Skippy, Steve, SFOT:

Spot on. I should (& ahem did in the links and other pointers there) mention that the liquidity-driven Risk On Flamingo trade is inherently, and I do mean inherently, a trading tactic.
Do you guys follow Michael Pettis' blog on China Financial Markets. Best analysis of the other side of the coin and directly relevant.
The great re-balancing where they consumer more, we consume less and fewer $ float out is coming...someday. Meanwhile we're at the zero bound and the Fed will keep rates low for a long time while some other CB's raise rates.
Think we're all on the same page here. No structural or fundamental reasons for asset prices - we're in a new mini-bubble driven by policy and policy is now a structural factor vibrating like it was a daily sentiment shift. My mental picture is atomic level molecular vibrations instead of slow evolution.
p.s. - sorry for the late reply...how you pick this up. Good points all, at least imho.

dblwyo said...
3:15 AM  

We did see some rollover in some sectors but they're getting back up - my China consumer basket (Baidu, Sohu, Want Want) got hit but is coming back now. Seems like there's still a bid out there for growth.

Oh, and a quick poll for you all: how much would you be willing to pay for Medley/Canonbury type report on China policy? Or, god forbid, some real data on loan performance in the middle kingdom? Maybe its just me but there is a market demand that is not being met here.

Nemo Incognito said...
7:57 AM  


No probs. I do try to read non sell-side research on China such as Pettis or Andy Xie for alternative views, because most of the investment bank research is as useless as tits on a bull (as we used to say back on the farm in Australia). Most of them are forced to have a positive view on China and many are used by the government for jawboning policy objectives.

I also now rely on MM, and contributors on this blog like Nemo for 'on the ground' information. I have spent some time in China myself and had meetings with some of the policymakers, but the messages are usually fairly consistent, but it is more difficult if you don't speak the local language.

Nemo, we would be willing to pay for useful research, particularly on bank lending.

Skippy said...
8:54 AM  

Hmmmmm, was thinking that one of my friends which runs a consultancy in Beijing should branch out (with some of my capital). CLSA does an okish survey but its more incremental info "are you lending more this month" rather than "what sort of loan-to-value ratios are used for your commercial real estate loans" etc. Its when the actual asset level leverage gets hairy that the system can have the beginnings of instability and that's what we're all after.

Nemo Incognito said...
9:46 AM  

Skippy, Nemo - you guys are weigh too polite. Are you sure you're really Auzzies? NB: Nemo clicked on thru to your blog and your NYC IB "memo" was hysterical. Reminds me of the boiler room guy in '98 who got my name and promised me untold riches with unknowns in the B2C space. This after I just did well on WMT after things recovered and after spending five years as lead strategist for IBM's e-business team. Sheesh.
More to the point on your local research idea - have you thought about approaching Mr. Pettis? He's a bit of a co-blogging acquaintance and I've found him reasonably approachable and highly connected, as well as sympathetic to your views on loan quality.
Finally there's two recent Charlie Rose interviews, one with Roach and the other with Lee Kuan Yew that might be valuable. The Yew interview is outstanding for a long-term overview. Rose is online now.

dblwyo said...
10:13 AM  

Amazing to hear Lee kuan yew still giving interviews at his age.

SFOT said...
12:26 PM  

interesting how the market is bearish.

I think it closes 1200.

joe said...
11:21 AM  

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