Ice, Ice Baby

Tuesday, December 01, 2009

Macro Man was chagrined to find, upon emerging from his house this morning, that his windshield had iced over for the first time this autumn/winter. Fortunately, because his regular train is still AWOL, he's getting a later service, which afforded him the time to retrieve a scraper and do the business.

Little did he know, however, that the ice on his windshield had come straight from the veins of the marketplace. Dubai is yesterday's news, evidently....he's had no Nakheel price updates from FX monkeys at all this morning, and while the Dubai equity index has cratered again today, developed market stock futures are back threatening their highs of the year.

The dollar's also thoughtfully taking a beating, stirring the fire in the loins of the risk-orgy crowd. It now seems to be a popular proposition that the pain trade into year end is once again the melt-up; if positioning really is that sparse, Macro Man wonders, why did the market absolutely crap itself when the Dubai news hit the tape?

In any event, the lust for gold, both literal and metaphorical, is back in play today, and the barabarous relic has posted a fresh all time high this morning, tickling but not breaching the $1200/oz level.
Meanwhile, the FX carry crowd is once again swaggering about, perhaps at least partially because of policy divergence in the Asian time zone. The RBA hiked rates again overnight, in line with leaks yesterday but contrary to some speculation at the height of the Dubai panic. The BOJ, meanwhile, called an emergency meeting and announced a 3 month tender facility at 0.10%. Not exactly earth shattering, and hardly the thing to break the back of the deflationary spiral. But with 3 month TIBOR just under 0.30% and the yen near 14 year highs, it was enough to rally the strip and generate a small bounce in USD/JPY. How sustainable those are remain to be seen.

So here we sit, with ISM, the BOE/ECB announcements (will the last LTRO be fixed or indexed?), and payrolls yet to come this week....and Spoos are within spitting distance of their yearly highs. The last few months have seen a strong equity rally on the third or fourth trading day of the month; this time around, markts don't want to seem to wait.

Maybe they really do have ice in their veins.....or maybe they have ADD. Is a warm jumper or Ritalin the solution? We'll know more in a few days.

Posted by Macro Man at 9:33 AM  


"Macro Man wonders, why did the market absolutely crap itself when the Dubai news hit the tape?"

MM..come on now ,it's coming winter ,but you're looking like you are hibernating ,or something..the answer is obvious ..the US was a half week and the market was comparatively thin.
The news initially reacted on the headline in a general way ,but a day later most of the world was saying "ok ,but what's that got to do with us"

Anonymous said...
10:26 AM  

The point remains...if you don't have a position, you don't give a crap in the first place.

Macro Man said...
10:27 AM  

don't agree's not about having a position ,it's about who the position belongs to and are they are actually at the wheel and in my view the one's that counted were not. Moreover the market action since agrees with that view.

Anonymous said...
10:39 AM  

Friday was one of the top 10 volume days in European futures of the last 6 months. The people doing the trading may be irrelevant in your view, but they aren't in mine. Maybe a year end meltup will be driven by the gary's of the world....but somehow I think fast money is a more likely driver.

Macro Man said...
10:47 AM  

The BOJ announcement was so Japanese. Call an "emergency meeting" and do virtually nothing.

My sense was that they may have finally reached the pain threshold - perhaps not. Japan is obviously still dependent on exports and the strong yen is obviously not helpful and only reinforces the deflationary trends in the economy. It will also nullify government fiscal stimulus and is clearly unhelpful for Japanese equities.

Perhaps the right level for the yen before the pain sets in is even lower? 80?

Skippy said...
11:18 AM  

For disclosure I have a very small (20% strength) short that I just put on at 1098 so I have no dog in this "position vs no position" race, but I gotta tell ya, I am aghast, agog, stupefied, dumbfounded, utterly amazed, and mostly FASCINATED that the market is back up here.

This is a year I would rather forget but I won't forget what the market did after Dubai World.

To quote Clark Griswald on his quest for another World (Wally, as it was), the market must be "f*&%ed in the head."

Steve said...
11:55 AM  

The current market levels only make sense if you believe that hyperinflation is around the corner. I am not believing that yet.

Gregor Samsa said...
12:03 PM  

Don't understad the rational for comments today.What does the restructuring in Dubai really have to do with the price of other unrelated assets in the rest of the world? The scale involved and the potential for loss appears neither big enough or broad enough to force liquidation outside of the specific area exposed.
I think one guy commented the other day he thought it was a buying opportunity ,well the market appears to agree with him.

Anonymous said...
12:14 PM  

This market is a buying opportunity until it is not a buying opportunity. It is comic to watch the pundits on TV claiming that the Dubai event is well contained, and yet not a single soul saw it coming. So for now the Dubai event is well is not contained.

Also recall the pundits claiming that negative T-Bill rates just a few weeks ago were the effects of bank window dressing. Well, now we know how far off the mark they were and what those sheiks were doing...

Anonymous said...
12:29 PM  

Anon @ 12:14 - EVERY dip is a buying opportunity. Oh sure, one time it won't be. But that won't take away from the 100s of times it has been.

Ivanovich71 said...
12:32 PM  

suggest you take at US m2 ... its stopped being a buying opportunity just over a month ago. just that most folks don't know that yet as the lagged effects will be coming through in the next 3 months.

can't wait for higher than expected inflation prints and risky assets falling out of bed. whats the policy response at that junction?

Anonymous said...
12:41 PM  

Why "should" Dubai matter? A few reasons:

1) It looks to me that many risk assets are priced for a best case scenario. The news that that scenario may not play out should be interesting to anyone

2) Risk assets are priced as if the small print doesn't matter. For Dubai to enforce the ring-fencinbg of DW edbt should lead to a broader repricing of stuff that has assumed, but not defined, goivernment guarantees.

3) Risk assets are priced as if ability to pay = willingness to pay. And since everyone has the ability to py courtesy of the implied bernanke put, there's an assumption that a lot of sh1te will go out at par. The UAE as a whole certainly ahs the ability to pay; failure to do so inidcates a lack of willingness, whatever the reason. To me, that matters

4) Foreingers do have the other side of a not insignifxant amount of DW debt, and who knows how much off balance sheet mumble. Eurpoean banks are- stop me if you've heard this before- priced for a best case scenario, in my view, which DW-related losses could threaten.

5) Thailand 1998. Subrime 2007. Lehman 2008. The butterfly effect is alive and well.

6) Further to point #5, Greece is already looking uglier than Macro Man after a 24 hour drinking session.

7) Finally, risk assets look very tired technically (-ve divergences, et al.), and it usually only takes a small catalyst to tip the balance the other way. Given points 1-6, it seemed plausible to say the least that DW could be that catalyst. Now, it looks like it will be something else.

Macro Man said...
1:03 PM  

Simple solution then MM, keep riding the move up and get your self some otm puts just in case we crash.

Anonymous said...
1:20 PM  

Ivanovich71, don't be so sure.

Steve said...
1:25 PM  

Ivanovich, I disagree. When the top blows on overvalued assets, like tech in 2001, subprime and financials in 2007, and oil in 2007/8, there is a lot of money to be made (or lost, depending on how you are positioned), over a more compressed time frame. Buying on the dips might work 9 times out of 10, but it is on the 10th time that the magnitude of the price adjustment is going to wipe out gains from the prior 9 successes.

Being able to call the really big shifts in markets is what really matters in generating long term returns.

People (not aimed at you Ivanovich) fail to understand that risk is a real world concept that will, eventually materialize and result in losses. Unfortunately, government and central bank action has created false confidence that this rule of nature no longer governs.

PPM said...
1:40 PM  

Dubai is about sovereign risk. The only thread supporting the global economy is the ability to substitute sovereign for private credit risk. If the sovereigns are no longer credit worthy, where does that leave us? Furthermore, Dubai reminds us that so much of the debt assumed by sovereigns has had limited utility in generating wealth. The supposed "investment" in empty office space in the middle of the desert leads one to question whether all of the roads that go no where in China, or all of the residential mortgage bonds bought by the Fed, or all of the other sundry "investments" will ever pay a positive return.

PPM said...
1:49 PM  

what if by default we are all broke?

Anonymous said...
1:58 PM  

And is the glass half empty or half full because that's where these markets are right now and it isn't a surprise to find such diverse views on where they go from here.
I'm a half full sort of guy so I'll spit at Dubai and say that as sovereign risk goes I don't feel like taking them to be a leading indicator for all sovereign risk.
Now that's just an opinion not worth spit ,but there again I'm not reading any other opinion that's worth more.Pay your money and take your chances whatever they may be.

Anonymous said...
2:03 PM  

MM -- thanks for throwing me under the bus; but I don't plan on triggering a year end melt up/down ... I am positioned very cautiously, as I don't believe the markets are functioning properly. I have no way to quantify this; it just "feels" like it did November 2008

As for your later comment about ability to pay = willingness to pay... I think you hit the nail on the head, although you aren't carrying the idea through to logical conclusion.

The taxpayer (UAE, US, UK, etc) might have the ability to pay for Dubai World, Goldman Sachs, RBS stupidity -- but "we the people" are not willing. Further, we are getting really sick of some corrupt treasury secretary (or equivalent) using our credit for their own personal greed.

This is why we are all reading stories of US homeowners walking away from their mortgage debt. If Goldman can screw everyone over, and get paid for it to boot, why shouldn't everyone else?

And where do traders get off figuring that taxpayers should make good on all this stupidity in the first place?

FNM and FRE (in the US) both stated in black and white that they were **NOT** backed by the government. Only GNMA/FHA had taxpayer backing. But traders all over Wall Street (not Main Street) just assumed the taxpayer would pick up the tab, regardless of how careless (or corrupt in FNM case) the GSEs acted.

AIG wasn't Fed regulated, it wasn't even a bank. Other than Friends of Hank's exposure, why the hell were taxpayers stuck with that bill?

Same deal in Dubai. An "implied" government backing (implied by traders, not taxpayers) was translated to mean an explicit backing?

The list goes on and on and on. But your question of whether people are willing to fork over unlimited amounts to bail out traders who supposedly know better just isn't there. The unwashed masses are not willing to pay for the mistakes of MBAs who claimed to know better

ZIRP benefits Wall Street only, nothing in it for the people who will actually get the bill.

In the UK, I know hundreds of former RBS employees that were sacked as Brits like to say. Here's 2 months severance, have a nice life.... Meanwhile Fred Goodwin walks away with a full pension?

You think anyone is going to be "willing" to go along with that?

Joe Average is getting pissed, especially here in the US. Lloyd Blankfeld was (justly) ridiculed for being completely tone deaf and not recognizing the obvious.

Dubai should be notice to the rest of the finance world: Main street isn't going to assume our mistakes going forward

Ignore the message at your portfolio's (and your career's) peril

Gary said...
2:18 PM  

Gary, I was actually trying to do you a credit: i.e., that you and guys like you have more sense than to chase the stock market higher after a 66% rally in thin holiday conditions. Te pople most likely to do that are the fast money....who are also the mostly likely to get shaken out by stufff like Dubai, at least initially....

Macro Man said...
2:21 PM  

Help Thierry
I think PPM hits the crux, sovs assumed all the bank shite & more but does that mean they can or are willing to pay out everything at par?
HAMP is mixed, almost all mtg issuance is state backed, household balance sheets still being repaired despite market rally... etc
Risk feels somewhat heavy up here, we could go further on squeezes but I think its tiring (me & mkt).
Ta, JL

Anonymous said...
2:24 PM  

And "we the people"'s unwillgness to paay...while that may well be the case, unfortunately the IRS, Inland Revenue et al don't have the same view, and in the near term will enforce this theft at the point of a gun (or at least a lawsuit.)

Macro Man said...
2:24 PM  

Gary, although we are often at odds in terms of our macro view, LB would like to commend your every word this morning. That was a splendid summary of where we are at the moment.

MM, you forgot:

8) Any unforeseen event or butterfly that causes traders to seek the dollar or yen as a safe haven has the potential to initiate a significant carry trade unwind. Once it starts unwinding, the trigger becomes irrelevant (subprime, Dubai or whatever..) and the results look fairly similar.

leftback said...
2:35 PM  

Second that LB. Very well put Gary.


Skippy said...
2:41 PM  

Yes Gary very well put. It means that we will see defaults from people who would not have defaulted under the same circumstances a decade ago.

And Blankfein is doing god's work? I think he has "north" confused with "south."

Anonymous said...
2:50 PM  

At this juncture I wonder if Dubai isn't a sufficient catalyst to close the gapping divide between inflated asset classes and the bleak fundamentals of underlying real economies what will be?

From where will the antithesis of the citigroup memo emerge?

still waiting for Godot.

Anonymous said...
2:51 PM  

BTW: Blankfeld = Blankfein

Some of us are big James Bond fans, and the chief villain in many of the earlier (Ian Fleming) stories was Ernst Stravo **Blofeld**

A literary allusion that was probably lost on many...

Gary said...
3:05 PM  

MM, don't forget that mid-term congressional election campaigns are coming up very soon. The people might end up with a louder voice than you think, deferring the need for a tax revolt and/or civil disobedience. I can't think of a better environment for populist rhetoric. That is going to play much better with Joe Sixpack than more nuanced arguments about financial market abstractions. There is a huge political risk overhang, in my view.

PPM said...
3:11 PM  

"...and you are?"

"Man. Macro Man."

Steve said...
3:13 PM  

Certainly the allusion was not lost on those of us at 85 Broad who are closely following all news feeds and web sites for any sign of dissent against the regime or any opposition to our hegemony, Gary.

Here at 85 Broad, we have anticipated such feelings among the masses, and we are preparing to defend our just rewards against the rest of you, until we have finished absorbing your net worth:

Goldman Bankers to Carry Small Arms

Now we must return to high frequency trading, LBOs and other activities of no use to society.

Lord Blankfiend said...
3:15 PM  

Certainly the allusion was not lost on those of us at 85 Broad who are closely following all news feeds and web sites for any sign of dissent against the regime or any opposition to our hegemony, Gary.

Here at 85 Broad, we have anticipated such feelings among the masses, and we are preparing to defend our just rewards against the rest of you, until we have finished absorbing your net worth:

Goldman Bankers to Carry Small Arms

Now we must return to high frequency trading, LBOs and other activities of no use to society.

Lord Blankfiend said...
3:15 PM  

Funnily enough, I like my risk assets both shaken and stirred. Gary, I imagine you would LOVE this old post rom 18 months ago....

Macro Man said...
3:16 PM  

"No, Mr. Market, I expect you to DIE..."

Steve said...
3:18 PM  

Steve, see above...

Macro Man said...
3:19 PM  

Whoops, shoulda clicked before I clicked...

Steve said...
3:20 PM  

Jeez guys, wake up on the wrong side of bed this morning?

Has anyone looked at the skew on S&P options going out a couple of months? Seems to me that the punters are still terrified of a repeat of fall 2008.

Ian said...
3:43 PM  

Ian: the message from Dubai is simple...

The Greenspan put (in all its many forms) is not resting. It is not stunned, and it is not pining for the fjords.

It has ceased to be. It is no more.

Gary said...
4:10 PM  

What happened to US 2year bills? Since across-curve is off now. Anyone knows? Thank you.

Anonymous said...
4:43 PM  

Gary, LOL. You are on a roll today !! Also, LB is short the 10y today. That means we agree on everything today - which is in itself rather frightening....

AUD doesn't seem to be as exuberant as expected today after that hike ... another tired trade to add to the list: RUT, XLF, AUD:USD...?

leftback said...
5:52 PM  

was nothing wrong with the AUD today ,but you see what you want to see.

Anonymous said...
7:48 PM  

What we need badly is imagination a la C. Wright Mills. So as to come up with an explanation of the markets instead of using phrases such as fast money, profit taking, positioning, carry trade etc.
Some coherency, please...

Anonymous said...
8:18 PM  

Imagination like C Wright Mills is what screwed up GM/UAW, US Steel/USW, textiles, etc...

and now these same elitists are destroying government. They got to the UK and California first, but they are slowly destroying everything

Anonymous said...
9:02 PM  

MM, no matter how bad a trading day one might have, at least it wasn't as bad a miss as this one:

What A Sitter

leftback said...
10:25 PM  

If anyone on this board reads Latvian or Russian op-ed pieces in newspapers I'd be really interested to hear what they are saying about Dubai. What would really make this butterfly effect real is if a lot of people in other heavily indebted countries started to take a "fuck it all" view of their obligations. A real trend in repudiation or strategic default would be a much bigger problem and we are not going to find that anywhere but in popular media at this relatively early stage.

Nemo Incognito said...
11:59 PM  

Nemo, I don't know if you think that Karl Denninger is "mainstream" or not, but he certainly used strong language in a recent post

Charles said...
12:40 AM  


Let's not compare Russia to Latvia.
People are trying to shrug off Dubai as non-event in Russia as the market keeps rising. Latvia on the other hand is near breaking point - especially when they try to raise taxes(transport, real estate, income - you name it) Jan 1st year. Lativan 21% unemployment and 40% youth unemployement is the stuff revolutions are made of.

Anonymous said...
8:33 AM  

C. Wright Mills

Thats some Wobbly thinking!

Anonymous said...
9:19 AM  

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