Wednesday, December 02, 2009
Macro Man recently had an unfortunate experience with one of his brokers. Dialling a 24-hour line, he left an order at about 8 pm London time with the New York desk to execute a couple of trades in the Asian time zone. Waking up the next day, Macro Man searched his Bloomberg messages for the confos....but alas, none were forthcoming. When he got to the office, he rang the broker, and found to his horror that the orders (buying some Asian equities on a day when they rallied strongly) were never executed.
After a flurry of discussion, it was agreed that the broker would execute the orders at current pricing (or, in one case, when the market re-opened), calculate Macro Man's opportunity cost, and compensate him for the loss. Fortunately, the trades weren't very big at all, so the opportunity cost was not particularly large for him. However, in a "fill 'em and bill 'em" industry, that money can only be replaced by volume...something like 140,000 lots. Given that the broker was prepared to make him good on the whole amount, Macro Man decided to split the difference on the "opportunity cost"....the cost to him was neglibible, and the broker sounded very relieved indeed.
This little story illustrates an interesting principle: namely, what goes around comes around. While Macro Man likes to joke and take the piss out of his brokers with some regularity, he believes in treating his counterparts fairly. This, in his view, is generally the best way to ensure that he gets treated fairly and looked after in the long run. If, on the other hand, you beat people up every day, it has a funny way of catching up with you in the end.
In any event, this maxim- what comes around goes around- seems particularly apt in light of a couple of recent market phenomena. While Dubai has fallen away as a "prime mover" of financial markets, it is still burbling away in the background, with no resolution yet in sight.
Macro Man wonders if the Dubai sovereign (and Abu Dhabi behind them) would have been quite so prepared to cast Dubai World adrift (credit wise, that is) if one of its subsidiaries owned a crown jewel in a major Western economy. Say, like, what if Dubai Ports owned the operating rights to six major seaports in the US? We'll never know, of course, but Macro Man cannot help but wonder if DW would have been cut adrift so easily if Congress hadn't blocked the Dubai Ports deal in 2006.
Similarly, Japan's Financial Services Minister, the maverick Shizuka Kamei, has been on the tapes this morning callign for joint intervention to weaken the yen. OK fine...but from whom? The Europeans are moaning about a strong euro already, so they're hardly going to be first in line to intervene for someone else's benefit. And what about the US? Let's see: U6 at 17.5%, GM in bankruptcy, and the Democrats' approval ratings are sliding fast. Where's the attraction for helping out the Japanese?
Of course, Japan would have a much easier time persuading other G7 nations to take the other side of the trend and weaken the yen had they themselves been willing to step in over the summer of 2007 and take the other side of the yen carry trade. But they didn't, as then-MOF currency surpremo Watanabe thought it inappropriate to stand in the way of private sector capital flow. (little did we know that it was his wife pushing the buttons!)
Well, Japanese repatriation has been the primary driver of yen strength recently. And while the governments are different on both sides of the Pacific, it would be hard to justify stepping in now, at 87, when the MOF failed to "take profits" by selling USD/JPY >120 in 2007. What goes around comes around.
In any case, there is (as Macro Man has ovserved before) no divine right to a trade surplus. And despite the yen's strength over the past couple of years, Japan's trade surplus is starting to widen again...even as the American deficit also widens.
Now, Macro Man has some sympathy for the view that the yen will weaken moving forwards, and confidently expects short JPY to feature prominently in the GS Top 10 trades today. But he's not holding his breath waiting to get bailed out by the G7...he suspects that he'll have to make his money the old-fashioned way on this one.