The Haircut

Friday, December 04, 2009

Macro Man had a haircut yesterday.

Now normally, that's the sort of trivial everyday event that wouldn't come close to an airing in a financial blog, even one as ropy as this space. But this one is different. You see, Macro Man is a big believer in managing his psychology, putting in place a number of little buttresses to help him maintain an optimum mindset to to his job and live his life.

Part of that includes a fairly heavy emphasis on physical fitness: you know, healthy body generates a healthy mind, that sort of stuff. So it was quite jarring when your author injured his knee in February. Not only did it rob him of the ability to maintain his exercise regimen, but it also provided an unwelcome reminder of his own mortality and fallibility. Perhaps coincidentally, portfolio performance trajectory tailed off soon thereafter.

In any event, Macro Man decided to give himself a little psychological crutch to help him through the rehabilitation process after his ACL was reconstructed in April. The day that the surgeon gave him the thumbs up for the surgery and booked an appointment for five days later, he got a "#3 all over" haircut. He then vowed not to get another, not even a trim, until he was cleared by the surgeon to ski again.

Well, it's been seven and a half months of hard graft in the gym, during which time his barnet went from this to this. Well, he saw the surgeon yesterday, and the good doctor was very pleased indeed with his knee, and gave him clearance to hit both the slopes and the golf course come February. And that is the reason for the haircut, and why it was rather significant for your author.

Unfortunately, as noted above, there was a bizarre sort of Ricardian Equivalence at work. While noggin avoided a haircut for seven and a half months, his confidence and his investment performance did not avoid the barber's scissors. Macro Man noted his poor hit ratio this year in yesterday's post. During his time between haircuts, he managed to put together a Sharpe ratio just above 1...but in the context of struggling to generate any portfolio volatility, this generated a fairly negligible investment return. Meanwhile, the SPX rallied 30.3%. Ugh.
Now perhaps it is a coincidence that the SPX sold off a percent soon after Macro Man emerged, newly-shorn, from the barber's. Then again, perhaps not. Time will tell....

Today sees the release of payrolls in the US. While it's tempting to say "ooh, this is an important number", on the form of the last few weeks it will be a non-event. Macro Man has been wrong on a number of things recently, but perhaps chief among them has been his long-vol view for Q4. Simply put, it's been very wrong (Dubai notwithstanding) and very painful. Payrolls perhaps offer a last shot at redemption for the view....maybe it'll put "the haircut indicator" to the test?

Or perhaps Macro Man has already sounded the death knell. To offset some of his long-vol decay bill, your author recently increased in risk in what had previously been a pretty profitable space for him: namely, curve trades at the short end.

Now, yesterday's ECB announcement was perhaps slightly hawkish, insofar as the last LTRO will be indexed rather than fixed-rate. But Trichet went out of his way to emphasize that there was no signal intended and that the move has no implications for EONIA. That hasn't stopped the market from trying to pick the time that rates will normalize; thus far, Q3 on next year looks to be the "winner."

The chart below shows the changes in the contracts on the Euribor strip since Wednesday's close. While the absolute value of the changes in any individual contract are not particularly large, the change in the shape of the strip has been more substantial and, to Macro Man's eye, somewhat odd.
It's just one more item for the bulging drawer marked "Things I Don'T Understand." Anyhow, Macro Man can only hope that he is the "anti-Samson", and that his haircut provides him with increased strength of perception. In any event, Mrs. Macro was well chuffed with the new 'do, saying it makes Macro Man look ten years younger. It's just as well, actually....because managing his book since his previous haircut has made him feel ten years older.

Posted by Macro Man at 10:18 AM  


When I was about your age I had the same view ,lean and mean in body and sharp between the ears. When I got a lot older than you I noted that though the body matured ,but I excercised the mind a great deal more and that it managed to do very well thank you even without the so called healthy body short it's an old wives tale ,but if it helps your mind set to think it works keep it up ...Mike Tyson was a pretty healthy looking guy ,but as I remember it stopped working when it got to about his neck ;)

Regarding a 1% sell off being meaningful ,if i can ever pick one of those I'll know I have transcended and moved beyind needing a body at all.

Anonymous said...
11:13 AM

Any comments on this titbit.

Anonymous said...
11:47 AM  

i thought macro was going to segue into this when i started reading about the haircut... this will inevitably have serious effect on repo with yanks. tett is wrong though about it being introduced by surprise, this has been doing the rounds for quite a few weeks

Anonymous said...
12:01 PM  

Ahh. Happy those who still have the options of all over haircuts.

Fate has left me with plenty of hair on the side and the back of me noggin'. thus rendering haircut styles, reasonably obsolete.
It also stitched me up big time GBP/PLN since July.

Fate can indeed be a cruel mistress.

On the other hand very pleased about your knee, I had a partial detachment which took ages to fix, because I went down the non-surgical route. Still feels "wrong", in comparison to the right knee, if you know what I mean. Best of luck MM and thanks for a good daily read.

Anonymous said...
12:38 PM  

@Anon #1 : Obviously exercise isn't going to turn a moron into Einstein, though funny enough Tyson does have one intelectual interest, i.e. boxing history. But being fit a) incerases energy levels, b) helps me sleeep, c) generates a general level oh physical confidence that spill ovr into emotional/mental confidence, and d) by tracking one's activities on a daily basis and switching routines frequently, one can consisitently observe sequential improvement, which again is a boost to confidence.

Anon @ 12.38, the knee still doesn't feel like the good one- now that it's gotten cold, it's definitely stiffer...funny enough, the only time the two knees feel the same is after I've streched and am exercising...

Macro Man said...
1:22 PM  

Where are the gold bugs now? Because this breakdown is fugly.... USD/JPY turnaround is quite pleasant though.

Nemo Incognito said...
1:45 PM  

Where did the U6 number come in at?

Anonymous said...
1:57 PM  

‘Good’ payrolls number and a large downward revision. Does this mean Economy is getting better --> liquidity spigot will have to be tightened --> stocks struggle/sell-off?

bonds sell off and equities rally. Are things starting to behave more normal? That would probably be bad for equities.

U6 came down to 17.2 from 17.5

der Tillman said...
2:01 PM  

Shouldn't spikes like this help long-vol a little?
Maybe the economy is not as bad as I thought? Am I turning from a monstrous gold-bug into a counter indicator? Just kidding.

Gregor Samsa said...
2:28 PM  

well i have put on the long eur/usd (and eurjpy for that matter) short spx trade on --hard to see if rates are really backing up how that doesn't take gas out of stocks or if stocks stay bid how usd don't get hurt but its a weird weird world--i work out but as i get older and greyer things hurt a lot more and don't heal well--but it does help me slepp at night and keeps me away from the booze which has got to be good for my head

Anonymous said...
2:39 PM  

Haircut for gold bugs today, too!

Conspiracy theorists may question the timing of all the revisions today the day after Bernanke was grilled on the hill... it is an excellent day to be short silver.

All eyes on the bond markets here, I suppose... no way it blows out b/c that derails the entire "housing recovery" that is being so closely guarded.

leftback said...
2:48 PM  

I wish you better luck with that trade than I have had. It's been an absolute widowmaker for me.

Macro Man said...
2:49 PM  

True, squire, I have been in and out of it like a Mini into a parking space in Mayfair. But who knows - we may be seeing the death of DGDF as we know it today.

leftback said...
2:54 PM  

Anon 2:39 I like it, I guess it's a day trade?

Steve said...
2:55 PM  

You guys make me laugh. Gold has one bad day after rallying 40% this year and you all crow about gold bugs! You guys are supposed to be long term portfolio managers and asset allocators not day traders! Give me a break...

As the S&P again hits new highs and the treasuries crap out. The best trade for next year could well be the bursting of the treasury bubble...

thetrader said...
2:56 PM  

The interesting question to me is, can spus survive the rise in the dollar, and the fall in bonds and gold. Very interesting to see how this plays out, gold seems to be having a hard time absorbing the 20bp increase in the red yields.

Steve said...
2:57 PM  

Short silver? Not a good idea, but what would you expect from me. Right now, long EUR/USD and the like are delivered on a silver platter (pun intended).

Gregor Samsa said...
3:00 PM  

I had entered some short positions on EUR/USD yesterday but did not expect such a big surprise. I figure that payroll number is more likely to give us a positive shock and then concerns might be that Fed has no excuse to keep talking down the rate hiking. Now I am not sure if I should scale down a little bit.

But damn I should get some equity long and UNG long yesterday...

Anonymous said...
3:00 PM  

I was referring to long euro/short SPX...that trade killed me last month.

Macro Man said...
3:01 PM  

"The best trade for next year could well be the bursting of the treasury bubble..."

Hello? The housing market? Banks? REITs? Rollover of existing debt? Anyone home? Ever read, do we?

Lots of bubbles they will be keen to pop before the Treasury market. Commodities, for example.

leftback said...
3:10 PM  

yea it has been a killer--i am glad I waited till now to try it (and goodness never leave a stop in fx these days else you get stopped with all the inter day vol but no macro vol--thank you dubia world) actually just bought some usd cad to go with it --and yes day trade to 36 hours but not super long term--obvuiosly if-when it becomes clear that us rates are backing up you can hit the bid in the yellow metal and spx with both hands (and feet and have your voice broker turn both lights on for those of you old enough to rememvber those days) but till then its a day trade and at the moment one strong (REALLY strong) NFP does not mean ben takes his foot off the gas--everyone studdies history and they look at japan as a test case for rasing rates too quick (if that is the right story to look at is another matter) but ben ain't going to make that mistake (not with 2010 elections to think about)

Anonymous said...
3:14 PM  

LB is right. Apart from the fact that other assets have had more extreme moves than Treasuries, the Obama administration looks like it's eager to reduce the deficit a bit. Demanding TARP money back from fragile banks is one sign.

Also, the reflation idea was way overdone, as people confused a Fed leveraging with Fed money printing (not happening). Leveraging up raises asset prices transiently, only while the buying is happening, money printing raises nominal prices permanently. So look for a give-back to the reflation trade as Fed MBS purchases wind down.

Once commodities, real estate, stocks, and the banks decline, Treasuries will look a lot more attractive.

PJ said...
3:21 PM  

US consumer credit - down. US savings - up. US job creation - zero. It's hard to get inflation out of that matrix, short of Zimbabwean levels of money creation.

When we look back at this in a few years we will all wonder why we didn't just park our money in high quality corporate bonds and Treasuries and spend the day chatting up cocktail waitresses instead...

leftback said...
3:33 PM  


Maybe because the cocktail waitresses are busy buying equity these days.

Anonymous said...
3:43 PM  

...or chatting to Tiger.

Macro Man said...
3:44 PM  

gold ... no bubble there right

Anonymous said...
3:44 PM  

PJ: the Obama administration looks like it's eager to reduce the deficit a bit. Demanding TARP money back from fragile banks is one sign.

The audacity of hope has been triumphing over the pain of reality now ever since election day 2008.

Here's your reality check: the deficit is still going to be well over $1 trillion dollars, even using optimistic Obama administration numbers.

Here's your other reality check: deficits don't matter according to Dick Cheney and his evil twin Paul Krugman...

Spending money you don't have is a one way ticket to the poor house-- and this time will not be different

Anonymous said...
3:45 PM  

thetrader I just bought some treasuries, you can borrow them if you like.

Anonymous said...
4:01 PM  

Get ready for flamingo season.

Shhhhhh! Be vewy vewy quiet, we'we hunting fwamingos...

Steve said...
4:02 PM  

I guess we'll have to wait and see how it pans out.

One thing cocktail waitresses are not doing is buying equity. US retail equity fund inflows have been pants this year. Funny thing though is that the money has mostly gone into bond funds. Retail investor as a contrarian indicator anyone?

thetrader said...
4:03 PM  

Maybe thetrader is John Paulson. He was vewy vewy long gold and miners lately.

Be interesting to see whether this monster carry trade really starts to unwind over the next week or so.

The miners seem like a good flamingo. The yield on Ts may be low, but the yield on gold is looking even lower than usual today.

leftback said...
4:06 PM  

Anon @ 3:45: I wasn't clear on my phrasing. When I said "deficit reduction", I meant reducing it from the $2 trillion it would otherwise be to $1.5 trillion. Just to be clear, on my view the economy is still in decline and tax revenues are going to be way below Obama admin projections, while spending will be politically impossible to cut until there is a risk of default.

However ... gold has gone parabolic in part because people believe any economic weakness will be met with more stimulus, bigger deficits, more inflation. Ain't necessarily so. The Obama admin may recognize that it can't afford to increase the deficit further, no matter how weak the economy gets. When traders recognize that, part of the reflation story is weakened.

PJ said...
4:10 PM  

"Maybe thetrader is John Paulson. He was vewy vewy long gold and miners lately."

Yeah, I'd hate to be him - a stunningly successsful hedge fund manager.

Doesn't the fact that successful managers like him are involved in Gold make you think that there might be something you are missing?

thetrader said...
4:11 PM  

Congrats on the 1 Sharpe which crushes mine (~0.3) over those 7.5 mos. I had plenty of daily variance, though heavily frontloaded. Also getting crushed in absolute terms by any naive beta play, though.

Back on topic, I've left my junior gold in place, down 3% atm. Me, I hate non-industrial materials. But I'm short some equities that have been soaking up fast-money flows (parenthetically: ouch) and I need to be long some mo-mo fish against them. Junior golds with good geology, I do like okay.

+EUR/USD, -SPX has tempted me, too. I can't bring myself to bite yet.

wcw said...
4:15 PM  

Just because someone is smart and successful doesn't mean they can avoid taking the occasional haircut...

Short back and sides for you, today, or is it the Marine buzz cut?

leftback said...
4:16 PM  

Its mind boggling that everyone is so excited over **one** number, especially if you step back from the moment and remember that NFP will get revised up or down 100K (or a lot more) in a few months.

Back in the 1970s, the job market (to put it gently) was a disaster. And yet we still had rampant inflation. We had a very unpopular war in southeast asia, and a tricky president who insisted on a big troop surge to once and for all finish those NVA/Taliban bastards off. The US dollar was tanking, eventually forcing the demise of Bretton Woods. Terrorists were running all over the middle east and airplane service was miserable.

Oh, and not incidentally the end of fixed commissions meant the gravy train on Wall Street was over and many big houses collapsed.

A very popular musical at the time was called "Hair" -- although it wasn't until much later in the decade that hippies cut their hair and markets realized these risk free IOUs from uncle sam were just certificates of confiscation.

MM -- you cut your hair several years too early.

Gary said...
4:25 PM  


John Paulson already might be out of some of his long gold positions as we speak, you think not?


Anonymous said...
4:28 PM  

leftback, I get no benefit from interacting with you so will stop doing so from now on.

Kicking someone when they are having a bad trading day is also a little out of order. You need to grow up or spend some time on a trading floor so you learn some trading etiquette.

thetrader said...
4:30 PM  

I don't think Paulson is getting out - he is actually starting a gold dedicated fund launching on Jan 1 and putting 250MM USD of his own money in. If anything he is increasing his exposure.

thetrader said...
4:34 PM  

Hmmmm, market threatening to sell off on good that makes a fun change!

But what of summer's heady days of rises on bad news (more stimulus coming) and good news (them green shoots)....

Or those depression-ist days of early 2009 when it would fall on good or bad news (vs. expectations).

Our Man in NYC said...
4:38 PM  

thetrader: Awfully sorry but you did rather bring it on yourself, me old china, with your rather inflated opinion of yourself, no doubt brought on by weeks of DGDF and Gold Going Up Forever. You have probably been coining it, so good on you.

If you can't take a little humour today, then it's quite possible you've got too much Risk On and you need to go back to the Risk Management manual for a few days, and anyway if you really are having a bit of a stinker, then why even bother showing up on the blog and wallowing in angst?

LB is not having the all-time best day today, either, but chin up, eh? It's not as though we're all leveraged up on margin. Right?

leftback said...
4:39 PM  

Paulson is indeed starting a gold-dedicated fund (though I understand a lot of the exposure will be to the junior miners, rather than the metal itself). He also holds enough GLD to be a central bank (though why, at his size, you'd hold GLD and not defined specific actual gold bars is beyond me!)

Our Man in NYC said...
4:40 PM  

Bursting treasury bubble? Under the current system the Fed controls interest rates, if necessary dumping huge amounts of cash into the long end to lower rates.

The $300bn spent this year is equivalent to 15% of the monetary base. Why would the Fed now sit there and let the value of the treasury securities on their balance sheet drop, jacking up residential mortgage rates?

The "treasury bubble" concept is promulgated in media commentary by the likes of Peter Schiff, Marc Faber and Jim Rogers, who also have a song to sell regarding the Chinese "economic miracle." Looks more like Dubai World on the Yangtze to me.

Crisis Management said...
4:41 PM  

I trader,
wouldn't pay much attention.This bunch have a tendency to get hyper every time one days action underpins their views.Then two days later it's "oh my butt is so whipped ,pull me a hot one sugar I need the caffeine"

Anonymous said...
4:43 PM  

Though, I'd also add...that whenever hedge funds start dedicated funds for sub-styles, it's a good indication of a top coming:

Launch-wise (at least from observing what came across my desk):
MN (and low-net EQLS) was all the rage in 02/03
Credit got big in late-04/mid-05
Long-lock-ups in 2006/2007
Activists in late-06/early-07

Our Man in NYC said...
4:45 PM  

Gold bugs have been mentioning lately - with their customary certitude and religious fervor - that gold was about to start to jump in great big moves of $50-100 a day !

Be careful what you wish for....!

Might I just add, as politely as one can, that TT has been needling people and acting like a cocky so-and-so for days and now he is whining because Mr Market has forced him, THE TRADER, to bend over.

LB will now return you to your regularly scheduled precious metals meltdown, and we apologize to those of our younger viewers who haven't seen this movie before and are finding it distasteful.

leftback said...
4:51 PM  

Assume everyone saw today that FedEx is joining UPS by increasing shipping rates by an average 4.9%

Just for comparison, 4.9% is way more than you would get in a "risk free" 30yr Treasury, never mind the shorter maturity notes.

Gary said...
4:54 PM  

Agreed that dedicated fund can mark the top. As I say, we will have to wait and see.

However, this is Paulson, and he started his dedicated short subprime fund in June 2006, and captured the move perfectly.

No guarantee of success this time around of course.

thetrader said...
5:09 PM  

John Paulson moved out of the United States (to New Zealand) -- similar to Jim Rogers moving out of the US to Singapore.

Both billionaires voted with their feet

Anonymous said...
5:13 PM  

Markets will be quiet for a bit now... the World Cup draw is about to start.

Got to keep a sense of perspective, right?

leftback said...
5:17 PM  

If you just look at the result, no change for the USD and the SPX for about 5-6 weeks now. You could call that quiet.
Well, gold made some progress. But you would expect me to take notice of this.

Gregor Samsa said...
5:26 PM  

Meanwhile, far away, an actual sovereign debt bubble implodes...

"DJ MARKET TALK: Venezuela CDS Continues Widening Trend. [...] The widening continues a recent trend and comes after President Hugo Chavez's decision earlier this week to nationalize two banks and liquidate two others."

One can only fantasize about certain Manhattan skyscrapers thrown on the auction block, Lehman style.

Crisis Management said...
5:30 PM  

I thought thetrader was leaving this blog.

Anonymous said...
5:33 PM  

Crisis Mmgt ... you MUST be mistaken. Sovereign debt is **risk free**

You can't ever lose!

Gary said...
5:38 PM  

Gary: Some risks are riskier than others... we can expect riskier risks to be abandoned earliest, no?

Very interested in your post on shippers. Can you discuss this a bit further? Do you think FedEx and UPS will be able to make those price increases stick? What if we see waning demand in 2010? Everywhere LB looks, corporate budgets are being slashed and small business is in the bomb shelter.

You can probably assume this is a play on an assumed recovery in retailing and e-commerce for the holidays, when UPS/FEDEX know there will be demand for shipping, but when that's in the rear-view mirror, their business may fall off a cliff.

Am I wrong as usual?

leftback said...
5:47 PM  


Anonymous said...
5:53 PM  

Gary, in the seventies you did not have the entire banking system on the precipice of insolvency. If one had to pick US, EU or Japanese bonds, US still looks the most stable long term, being the world's premiere military superpower and what not.

Crisis Management said...
5:59 PM  

Lads (and lasses),

While I am quite glad that we've established a lively little community here, please try to remain gentlemen (and ladies.) We've established a discourse here on all things macro that I think is pretty good, and I want to ensure that we avoid the "yahoo message board mentality", i.e 10y ROOLZ! GLD SUX!!!

So please try and keep it civil and retain a collegial tone whether you're having your best day ever or, like me, are on a run where you could dance on the Artic ice cap in nowt but a thong and still not be as cold as I am now.

I also think it's important that different viewpoints are encouraged; I for one get more out of having my views challenged than hearing a Baptist congregation style "hallelujah! Amen!" whenever a (bearish) view is articulated in either the text or the market.

I don't want this board or this blog to be labeled as a "bearish" place....I'd much rather have it be known as a "smart" place where different viewpoints can be debated. To be sure, I've have been, this week, this quarter, and for most of this year.

One of the risks of exposing one's views in public is that one can occasionally get tarnished with the dreaded "reverse indicator" label. That's happened not infrequently in recent months, and while I don't think it's totally true (most of my trading losses have come in RV trades rather than straight directional bets) I also cannot say that I am totally surprised by it.

Ultimately, I write this blog and follow the comments because I think it helps me make money. And for that to remain the case, I need to see my views challenged and hear other perspectives. I am perhaps guilty on occasion of "investment autism", i.e. not taking enough account of what others in the market place are doing. The last thing I want to do is to repeat that error here.

So in sum, play nicely, avoid the emotional rollercoaster, and on;t get personal. To paraphrase the immortal Ice T: hate the argument, not the arguer.

Macro Man said...
6:06 PM  

Crisis Mgmt-

In the 1970s, you had the Latin American defaults which admittedly dragged on and were not "solved" until the 1980s

In the 1970s, you had the first S&L crisis ... after several failed attempts to pretend there was no problem (much like today) -- the mortgage securitization market was created in the early 1980s to let the S&Ls "grow there way out of insolvency" .... we all know how that plan worked.

The 1970s also had pretend politically set interest rates (deja vu!) which were tolerated at first but eventually became so stupid that the Eurodollar market was born as a way for corporations to sidestep government controlled interest rates.

The 1970s had LOADS of bank problems, both commercial and investment banks. Like today, the government instituted various laws and regulations to pretend like the problems weren't there and the banks were still solvent.

It didn't work back then...

Gary said...
6:17 PM  

One other 1970s deja-vu moment...

The government of England went bankrupt (that sovereign debt stuff again) and needed a bailout by the IMF

Like today, the Queen & Co tried to pretend all was well for as long as the could, but in '76 or '77 (I don't remember which) the lumps under the rug were too big to hide anymore.

Enter the IMF and Margaret Thatcher.

In the end, what truly "saved" England was the discovery of oil in the North Sea

Gary said...
6:21 PM  

For those who are interested, just googled it:

It was 1976 when Denis Healey, then the Chancellor, applied to the IMF for a loan

Gary said...
6:24 PM  

Well said MM, I agree tho I am guilty of having a transgression or two y'day.

From my perch I don't put you into the superbear category, far from it, though you have certainly been bearish at times. Some of your commenters are tho, including myself, but even then I have to say that I have been very bullish over the course of the past 20 years.

Now then: Gold and silver are out for the punch, while crude and copper are more or less unchanged. Given rates and the fact that stocks are up only 50bp, isn't that exactly backwards?

Yeah I can appreciate the froth in gold etc but my main point is, isn't it time to short the "heavies"?

Steve said...
6:26 PM  

Message received loud and clear, MM. Civility is the watchword in all future skirmishes.

England v USA ! Divided loyalties, at all?

On another note, isn't Mrs Watanabe - perennial poor punter of FX - long AUD:JPY NZD:JPY and such-like? When she wakes up and sees the golden haircut, is a little unwinding of carry on the cards?

leftback said...
6:26 PM  

Watched part of Ben's confirmation yesterday, The exchange with a senator from Ky was pretty humiliating. It was full of hateful lecturing so strangely enough, I felt pity for Ben.
So is it that precious ego booster the chairmanship?

Anonymous said...
6:36 PM  

Gary, you could include Obama's striking resemblance of Jimmy Carter for good measure.

Nevertheless, the 2008 post-Lehman shock overshadows the 70's various problems far and away. We were hours away from having massive bank runs and widespread panic according to our own officials.

Floating the dollar against gold and temporarily floating interest rates served as a safety value to keep the system intact. Things seem much more fragile in today's state of affairs, I don't see how the later would be in any way possible.

Crisis Management said...
6:37 PM  

No divided loyaties, LB. This is I have an actual reason to root against England in the World Cup other than "spite" and "a desire to see tabloid hysteria when they get knocked out."

Macro Man said...
6:40 PM  

Crisis Mgmt--

Yeah, every generation thinks this time is unprecedented...

It isn't.

Gary said...
6:47 PM  

Ha. You could be right, this draw will bring on another massive orgy of tabloid over-confidence.

Your personal least favorite Scouser (present company excepted) Stevie G nudged Wayne Rooney and said:

"Ey, Wazza. These are shite!".

leftback said...
6:50 PM  

WWCD--what would Costanza do here?

But What do I Know? said...
7:01 PM  

Observation from Equity-centric world: What's the deal with the Nakheel bonds continuing to go down?

As for England; ugh...don't they know how I'll suffer at work, if we lose to the Yanks! Might see if i can book my summer hols starting 13th june from now...

Our Man in NYC said...
7:07 PM  

Market is delusional to think better jobs data means a rate hike next year. Listen, I'd love to see the beta trade unwind (full disclosure: net-short HF analyst) as much as any of you. I can see a scenario in which it unwinds painfully but not because rates are rising next year. In truth, the boisterous bulls should be taking the market higher now that we have stabilizing economic data and the virtual certainty of another 12-18 months of extraordinarily low rates.

L/S Equity Guy said...
7:37 PM  

The delusion is Wall Street thinking it will have zero rates / steep yield curve for 12-18 months...

Voters are going to throw down a "Share the wealth" card early next year. Bernanke's re-confirmation is pretty much a guarantee -- all the humiliation, etc is (1) for the viewing pleasure of voters back home; (2) to let Ben know (and any traders that don't have their head in the clouds) that the average person needs to get some of the benefit or else

Not to mention it was the excessively low rates that caused this disaster in the first place

Rates are going up next year, even if -- especially if -- Wall Street doesn't like it

That's why Geithner was told to lengthen the maturity of the Treasuries debt this year

Get a clue guys. Actually, I look forward to hearing everyone say how surprised they are that subprimes aren't AAA again

Bob said...
7:45 PM  

"WWCD--what would Costanza do here?"

Long miners, long AUD, ZAR and CAD? Not what LB would do, however. We'll see who is right by Monday.

leftback said...
7:47 PM  

Bob - I agree on "share the wealth" and the populist sentiment and legislative trajectory. But I don't understand why this leads to higher rates. Rather, it is because I share your political expectations that I think Bernanke will keep rates too low for too long. He'll be focused entirely on the Full Employment end of his side of his mandate.

L/S Equity Guy said...
7:48 PM  

Whether anyone wants to hear this or not -- the President and several members of his immediate staff get an advanced copy of the NFP report.

They certainly had it yesterday, when Obama was holding his job creation think-in. Probably Obama saw it late on Wednesday

For a guy who gets to see the report early (and question the BLS guys about it), Obama doesn't seem like he thinks we are out of the woods yet

Gary said...
7:49 PM  

L/S ... The average person is not getting 0% FedFunds rate or anything like it. FF are enjoyed by Fed chartered banks and a handful of "too connected to Goldman to fail" entities.

The average person already saw his/her rates increase (and that's when they could get credit at all)

Either the average person gets a piece of the pie (in which case banks lose) or the Fed is forced to raise FF (in which case banks lose)...

Obama has to make sure the benefits of this QE/ dollar devaluation are spread around to registered voters everywhere (not just bankers). His future and the Democrats in Congress depend on this happening

The banks can make it paying higher FF rates (they are just paper edifices in front of the Fed anyways). By contrast, charging risky borrowers a politically determined rate will bring down the whole banking system (like it almost did last year)

Share the wealth = higher rates for banks -- its a political necessity and economically it should have happened already

Bob said...
7:57 PM  

instead of 'bullish' vs 'bearish' can we change the classification spectrum to 'things we think we can logically explain' vs 'things we think may be emergent behavior of the complex market system'? i don't care about up or down but rather the ability to associate market prices with any consistent interpretation. much of the frustration i sense here has been about the inability to construct a consistent narrative between asset prices, economic data and historical events sharing many of the present's dynamics.

Anonymous said...
8:00 PM  

L/S --

I mean Fed Feds will go up 1-2% next year. That is still VERY stimulative and still leaves rates well short of cost of living changes

It also gives the Chinese (aka the only guys with money in this story) a reason to keep feeding the beast. At zero percent, they have little reason to play. And without the average person buying lots of useless trinkets from China (aka their trade surplus) -- the Chinese have less money to invest anyways.

Bob said...
8:00 PM  

Because of that news conference hiccup yesterday suggesting that the White H. got the data early, they revealed the procedure: WH gets the NFP data on Thursdays at 5PM.

Anonymous said...
8:06 PM  

The president sees an advanced copy of the report on wednesday night. He gets the full report late morning on Thursday (and almost always his chief of staff sees it as well).

Other White house staff, including the press secretary, see the report at 5pm so they can prepare PR material for the next morning

Anonymous said...
8:10 PM  

"i don't care about up or down but rather the ability to associate market prices with any consistent interpretation"

That's what people here call 5 minute Macro.... when it doesn't really make sense b/c everything is being driven by leveraged momentum traders.

Established correlations tend to break down at trend changes and certainly the major turnarounds in FX markets are associated with increased volatility. I think you'd have to accept there is a tad more gamma in the commodities market today than yesterday...

leftback said...
8:39 PM  

Well, you were right about the haircut.

leftback said...
10:09 PM  

I think thetrader is John Paulson. Tudor Jones was probably the guy selling him his gold position at 1200-1205 for half the day yesterday in Asian time.

Viz this deficit thing, yeah the news flow does seem to indicate that Obama is going to at least try to take this seriously (congress is another matter entirely).

Nemo Incognito said...
11:55 PM  

Oh and this Venezuela thing - this is what I feared. Some of the rogue elements of the world saying "bugger it, whaddya gonna do about it Barry" and not paying. Especially those with resources or who are so screwed anyway they know they won't retap the eurobond market this side of 2020.

Nemo Incognito said...
12:03 AM  

Dear MM,
Orthos are egos only the gods might understand or traders. So as he sees his god-like work perfected and pronounces you fit; please understand that he too is a trader of sorts and it might be best to forget about skiing. But golf is fine.

dd said...
3:33 AM  

Ok, it ends here.

My only interest in putting forward my views has been to help people to try and make money. I don't care about winning the argument or being right.

Since it seems that nobody really gives a crap and would rather argue their point to the death than make money, I really am leaving this time.

Still wish you all the best of luck.

Peace OUT

thetrader said...
7:44 AM  

thetrader, don't quit just yet, i have recently arrived certainly appreciated your comments.

Macro Man: if i read correctly,you mention that being long vol was painful recently. of course i agree if you mean being long term vol, vega, then yes of course it was bad.
but being selectively long short term gamma, buying on the lows (when VIX in the low 20's), and delta hedging intraday, that worked... quite well.

Not sure if i would recommend it right now before XMas ... though it might be a cheap punt.
I would recommend though using the cheap vol to put on "macro" trades more cheaply, and safely.

haruspex said...
6:56 PM  

"Build it and they will come"

A surprise from China's Central Economic Work Conference is a possible relaxation of the "Hu Kou" system which restricts Chinese citizens from living in certain areas (i.e. rural/urban mobility) this may be viewed as a positive for Chinese developers - i.el. accelerate urbanization trends.

The suspicious amoung us, may wonder if the policy change is necessary to offset the possible overbuild of construction in the cities?

Skippy said...
8:17 AM  

»I don't care about up or down but rather the ability to associate market prices with any consistent interpretation«

… Been reading the 80+ comments above and it appears to me that no »consistent interpretation« on what/why/how happened to the »market« »prices« this last Friday …

Anonymous said...
9:15 AM  

Interesting price action in gold again today in Asia. Some (late-to-the-party) gold longs must have some brown in their tiny whities..

skippy said...
9:26 AM  

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