Friday, July 31, 2009

Consider Yourselves Warned

Consider yourselves warned.

Conditions seem relatively benign, albeit noisy, and equities appear to be floating on the swells of a veritable sea of liquidity. Vols are near their post-Lehman lows, and it all seems to be pretty good.

It can't last. For Macro Man has an indicator that presages market volatility that is so successful, so powerful, that it commands respect from all who behold it.

Today, he flies to South Carolina for his summer holiday.

Relative newcomers to this space may not be familiar with the predictive power of Macro Man's warm-weather holidays, so a brief history lesson is in order.

In 2005, for example, he took a trip to the US in May and June...and while he was gone, France and the Netherlands voted down the EU Constitution and EUR/USD got taken to the woodshed.

In 2006, he went away in June, and the second leg of a global EM meltdown occurred- USD/TRY from 1.50 to 1.75, USD/MXN from 11.0 to 11.50, etc.

In 2007, he went away at the same time as this year- the first two weeks of August. Consider the following changes that happened during his absence:

* NZD/JPY was 89.78 when he left and 79.76 when he got back.

* The 3 month TED spread was 0.53% when he left and 1.75% when he got back.

And last year, with equities and EMFX grinding higher in late July and interbank spreads fairly calm, it looked like markets were finally ready to break the hoodoo, despite the ECB's recent bone-headed rate hike.

Ahh, but that was before the Russian tanks rolled over the border into Georgia, destroying not only Macro Man's tranquility but also the profits (and more!) of his long RUB basket position, kick-starting a sharp depreciation for the remainder of the year and into early '09.

And the euro, which was only a couple of percent away from its all time high when he left on holiday last year, was nearly 10 big figures lower when he returned 2 weeks later.
And even his little trips seem to work; a long weekend in Madrid for his wedding anniversary last September happened to coincide with the first announcement of the TARP plan. Fortunately, Macro Man had learned from his past experience; he was long some SPX calls that were some 40 points out of the money when he left the office on Thursday, but were somehow settled nearly 70 points in the money on option expiry the next day.

You can rest assured that Macro Man respects the power of the holiday, and has left his portfolio stuffed full of option lottery tickets.

So, too, should you: consider yourself warned.

Macro Man returns to the office on August 17, but will check in from time to time as he manages his book from the Carolina sea-side.

Thursday, July 30, 2009

The Dreaded Return of Five Minute Macro

Oh, dear. It looks like that most fearsome of beasts, "five minute macro", has made an unwelcome return. How else to explain the frenetic "risk on, risk off" swings that can most charitably be described as "erratic" and more realistically as "impossible"?

The "Great Fall of China" story was good for a few hours of juice yesterday, but even a poor five-year UST auction and tepid Beige Book couldn't propel stocks outside of their established ranges. Indeed, looking at 24-hour price action in S&P futures this week is pretty telling: there have been a few peaks and a few more valleys, but broadly speaking they're unched on the week. If only Macro Man could say the same about his P/L....
These kinds of markets are always tricky for Macro Man; short-term trading is not his forte, and he finds that cross asset correlations tend to weaken during periods of extreme noise. This, in turn, tempts him to layer additional, usually stupid, trades onto his portfolio. It's just as well that he's flying off soon and will disengage from micro-term price action.

Still, there are a couple of interesting developments that are worth keeping an eye on. The euro has traded very poorly indeed over the last 48 hours and seems to have broken its uptrend line against the dollar. Heck, even GS has stopped out of their research long. What's peculiar about this move is the degree to which central banks have been sellers of euros.
It became clear a few weeks ago that they had ended a dollar selling program, and have since been content to play the range....in many cases trying to extract a pitifully small return from their punting. But all the while, money flows into these markets, with the CBs mopping up the flow (and accruing dollars.) If past behaviour is any guide, at some point the switch will flip for these bozos and they'll start buying EUR/USD more aggressively, and we'll get a pop higher, as was the case in May and June. In the meantime, FX will probably move in the direction that costs the most people the most amount of money.

Somewhat more interesting has been the development in fixed income markets. This week's two- and five-year auctions in the US have gone very poorly indeed; if today's seven-year auction makes it a hat trick, then there could be a bit of carnage. The eurodollar carry trade, having had a shocking setback after the payroll data in June, has subsequently recouped all those losses (and, in some cases, more.)

Yet it's all starting to roll over again.....much as it did, frankly, in the two weeks before the June downdraft. The chart of EDU0, pictured below, is pretty emblematic of the meaty part of the strip, and it looks pretty bearish from Macro Man's perch.
What odds that another seasonal adjustment-driven "improvement" in claims and a bad auction hat-trick generate a CTA puke-a-thon? Enquiring minds want to know.

Regardless, Macro Man cannot shake the feeling that markets are increasingly resembling a coiled spring. Tomorrow's US GDP print and, crucially, next week's payroll data could provide enough of a "signal" to push markets quite a long way in one direction or another.

Frankly, Macro Man's at the point where he doesn't care which way it all pans out, as long as it spells the end of five-minute macro.

Wednesday, July 29, 2009

The Beginning of the End....Or the End of the Beginning?

Man, oh man. Macro Man isn't sure if it's the cold, rainy "barbecue summer" or the unpleasantness of being crammed into a sardine-can train carriage chock full of sweating, flatulent commuters. Or maybe it's the jackhammer-level noise in financial markets. Either way, he's looking forward to his summer holiday, which thankfully begins on Friday. While he'll not be able to fully escape from the tentacular grip of financial markets, at least he can be assured of warm weather and a lack of train journeys.

In any event, the noise level was cranked up as Macro Man made his way from the station to the office this morning, as Chinese equities finally- finally! - cracked lower on stories of a reining in of rampant bank lending in H2. While the Shangai Comp fell as much as 7% over the course of the day, it rallied slightly to close down "just" 5%.
The reaction of other asset markets was all too predictable. FX carry, particularly EM, was hit hard, as were EUR/USD and yen crosses. Western equities also dipped sharply, and fixed income caught a tasty bid.

The panic lasted, oh, a good twenty minutes before markets were distracted by a shiny object lying on the ground nearby and moved on to a new "theme." Indeed, Eurostoxx are up nearly a percent on the day and nearly two from the post-Shanghai lows. Macro Man would be curious to hear if any readers are finding much success trading these "five minute macro" markets of the past few days, because he sure as hell isn't.

He feels like he's in the famous "Far Side" lemming cartoon....and he's not sure, despite his best efforts, that he's the one with the inner tube.
In any event, how significant is this downdraft in Shanghai? It is sorely tempting to point a figure, laugh the Nelson Muntz laugh, and expect a huge puke from here.

Macro Man isn't so sure, however. He vividly recalls a "turning point" 8% sell-off on 27 February 2007 that sent markets into a tizzy (and your author, who was awaiting just such an event, into full-blown "risk-off" mode.) The index proceeded to rip off another 30% rally in the ensuing seven weeks or so.

What's interesting is that someone has already started betting on a China downdraft. The FXP ETF, the double-short China one, has seen an explosion in volume over the last month. Coincientally (or not,as the case may be, given the current state of crony capitalism), FXP had its highest volume ever yesterday.
So is this the beginning of the end for the Great Bubble of China? Or is it merely, to quote Churchill, the end of the beginning? Macro Man has long thought that the authorities would try and keep all of the balls in the air until the 60th anniversary celebration of the PRC on October 1. As of yet, he doesn't see cause to change that view.

One thing's for certain, though: things have just become a bit more interesting.

Tuesday, July 28, 2009

Tell Me Lies, Tell Me Sweet Little Lies

The summer rumbles on with the risk-on orgy intact. After a brief wobble earlier in the day, the SPX closed on its highs of the years, and a welter of bullish strategists send missives with 4-digit price targets and dreams of a sustained V-shaped recovery.

Now, Macro Man is surfing the risk-on wave, especially after jettisoning the non-performing player yesterday who had harshed his smooth since late last week. In the short run, a steady flow of funds into equities and other risky assets will drive prices higher, assuming such flow materializes.

The problem that some so-called perma-bears have is is recognizing the temporary importance of such asset flow, and how far it can push asset prices. By the same token, the problem that some of the flow-of-funds, risk-on crowd have is is failing to recognize that buying something just because other people do is nothing more than an exercise in greater fool theory. And while the market may well be a voting machine in the short run, as Benjamin Graham observed it is a weighing machine in the long run.

Macro Man was debating the long-run outlook for stocks with an FX-only punter yesterday who asked him what he thought "fair value" was. This raises on of the critical issues that a macro punter like your author has with equity markets. It's gotten to the point that the stock market is so rife with misrepresentation and lies that it's very, very dificult to get a firm idea of what's priced in.

Now, the high-lighting the fact that the stock market is full of misrepresentation is hardly breaking new ground, even for this space. But Macro Man does wonder....when Barrry and Gordon take a break from fingering your wallet to try and build a better (financial) mousetrap, why they don't do anything to address the web of lies, sweet little lies, that surface every reporting season.

Misrepresentation in corporate earnings statements is rife; according to S&P, of the 197 SPX companies to report this quarter, only a quarter have actually earned the number reported in the headlines. Fully 63.5% stuffed "one-off" or "extraordinary" items in their income statements, while only 24 of the 197 had reported earnings that were higher than headline operating earnings. Interestingly, some of the latter were quite sizeable, courtesy of some of the worst performers of the whole crisis: Z-list financials, Ford, etc. The dispersion graph is shown below.


So in valuing equities moving forward, what concept of earnings should we use? Pick a number, any number. Looking at 2010 earnings estimates yield an incredibly broad range of forecasts. If you believe the crack-smoking bottom-up guys who strip out everything that could be construed as a "loss", you get a resounding $74 pr share. Not bad!

Taking the same approach (stripping out the quarterly "one offs"), but from a top-down framework, yields a substantially less rosy result: earnings of just $46 per share. And actually counting all the turds for what they are on a top-down basis yields 2010 EPS of just $37 per share.
Source: S&P

Remarkable! On this basis, equities are either pretty darned cheap or bum-clenchingly expensive based on 2010 earnings. Gee, thanks. Now obviously, trusting analysts' forecasts is a treacherous endeavour at the best of times, but it's small wonder that you have some people screaming "buy buy buy buy buy!!!!" whole others mutter "you guys are frickin' morons" under their breath (or not, as the case may be.)

The chart below shows the appropriate valuation for the SPX based on a) the 3 sets of earnings estimates listed above and b) a range of multiples, none of which is completely unbelievable.
This little exercise yields a range of values for the SPX from 300 to 1480. So regardless of where you fit on the bull/bear continuum, there's probably a forecast here that fits your view. (Macro Man cannot help but observe, however, that all of the top-down valuations are well below current levels.) It's also a pretty good indication that if someone tells you that they "know" what fair value is for the SPX or equities generally, they're almost certainly lying.

Monday, July 27, 2009

Trading and Sports

As Macro Man sits here on a rainy Monday morning, watching his portfolio meander, he is struck by the similarities between trading and sports. To be sure, he's hardly the first to draw that analogy. Finance is littered with ex-jocks and, probably much more so, ex-geeks who live out glories on the electronic playing field that they never experienced on the grass ones of their youth.

And of course, there are the literal crossover types, your John Henrys, your Mark Cubans, your Joe Lewises, who parlayed a successful career in finance into sports ownership. Oh, and then there's Lenny Dykstra.

While most of us at the coal-face of risk taking tend to think of ourselves in terms of athletes (after all, "stars" and "superstars" get paid the kind of money that would even make A-Rod or Cristiano Ronaldo jealous), in reality we're more like managers. You craft a team or a portfolio by filling it with the best trades or ideas that you can, and set it against both the market and other managers.

The best know how to grab a "young" trade just as it is bursting into effectiveness, and how to cash out of a mature one before it falls off a cliff. A well-crafted portfolio, like a good team, will feature a number of different players, each of whom is designed to play a specific role in maximizing the effectiveness of the team.

Of course, not every acquisition is successful, and it's entirely possible to add a "player" who on the face of it should complement the existing "team", but who for some reason doesn't work out. Call it the "Randy Moss to the Raiders" or the "Shevchenko to Chelsea" phenomenon.

As a manger, it is frustrating to acquire a pplayer to perform a specific role and have him not execute or wander out of position. Similarly, it's incredibly irritating as a PM to put on a trade to cover you in the event of a specific outcome, watch that outcome arise, and see the trade not perform.

Sometimes, with a trade as with a player, you welcome "him" into the side and realize almost immediately that he doesn't feel right. What do you do then? Wait and hope he assimiliates, to the possbile detriment of the team? Or do you cut bait immediately, incur whatever transactions cost that entails, and try and acquire someone else to do the same job?

These are the issues that Macro Man is wrestling with at the moment. He introduced a new player into the team in the middle of last week who was intended to be a complementary player to the general thrust of his portfolio. And while this trade started well, performance has tailed off drastically. Suffice to say it's not doing what it said on the tin, and it feels wrong.

So he's in the process of extricating himself as quickly and painlessly as possible. After, when it comes to trading, winning is the only thing (as Vince Lombardi might say) that matters.

Friday, July 24, 2009

There You Go

Well, there you go. The best way to spice things up a bit is to write a piece moaning about how uninteresting things have become.

It all started somewhat suspiciously, as US equities went bid a couple of minutes before yesterday's housing figures. The headline duly surprised to the upside (though in aggregate, the figures were largely as expected), and equities proceeded to go psycho-bid for the rest of the session.

FX duly followed along, the the dollar selling off in line with improved risk appetite. And then, at roughly 5 pm London time, the dollar mysteriously went bid. US government comments telling China "don't expect us to buy as much of your crap moving forwards" may have explained some of the move, but to a market used to an equity-dollar correlation of close to one, it was truly a bewildering development. EUR/USD ended up tracing out the dreaded "witch's hat" formation, then tumbled further after a raft of poor earnigns reports after the close.
Although the euro has recovered some of yesterday's lost ground thanks to a solid ifo report, it's nowhere near yesterday's highs. It's all somewhat surprising, given recent inflows into EM and the announcement of another zillion dollars of US Treasury issuance next week. Where's Voldemort when you need him?
Much as it may be tempting to throw his lot in with the "risk-on" crowd full bore, Macro Man keeps telling himself "it's a trading market, not a thematic one." Action in short sterling provides a ready example. While markets tradeed in considerable sympathy with the view sketched out in this space yesterday, it's all change today after an execrable -0.8% Q2 GDP print, much worse than the -0.3% consensus.

That's taken the y/y figure down to -5.6%, the worst since Bloomberg data begins more than fifty years ago.
Just imagine how bad it would've been if Gordo hadn't ended the boom/bust cycle, though....

Thursday, July 23, 2009

Fairly Uninteresting

Despite the on-the-surface tensions causedby earnings season and the Bernanke testimony, it's frankly been a fairly uninteresting few days. This is naturally the product of asset-price lethargy; if things were really wanging around, no doubt Macro Man would be decaliming on what interesting times these are.

To underscore the lack of interest at the moment, consider that the 10-day realized vol (close/close basis) in the EURUSD exchange rate is now less than 8%, the lowest since the heady days when one could buy and sell Lehman Brothers stock.
Uninspired price action is hardly the exclusive province of currency markets, however. While the 10 day vol of MSCI World is not at its lows of the year, it ain't for off. That in and of itself is pretty remarkable, actually, when you think about it, given that the observation window caputd the last gasp of the head-and-shoulders break and the subsequent uber-squeeze.

Not that everything, is uninteresting, however. There is a rather curious situation brewing in the UK, where Macro Man has frankly been surprised by the strength of the rebound in the economic data- and he's hardly alone. Today's retail sales figures, flawed as they may be, comfortably exceeded economists' expectations and validated the recent rise in the CBI distributive trades survey.
Moreover, the cumulative inflation surprised (measured by the m/m out-turn versus the consensus forecast) has been a whopping 1.5%. Hmm....stronger-than-expected activity data, surprisingly sticky inflation, a looming VAT hike....and a CB currently forecasting CPI to remain below target for the entirety of the next two years.

C'mon, kids, let's play "which of these things is not like the others?"

With an updated quarterly inflation report due for release next month, there's a decent chance that things could get a bit spicy in UK fixed income markets. Although some tightening is priced into the curve next year, something tells Macro Man that the market isn't yet ready for the BOE to begin laying the groundwork for a foreseeable withdrawal of some of the extraordinary monetary stimulus.

Should that prove to be the case, Macro Man suspects that things just might get a little more interesting.

Wednesday, July 22, 2009

Under The Weather

When the early hope of a long, hot summer in the UK gives way to the annual monsoon of April-temperature rains, it's not uncommon to pick up a bug. So it's proven for Macro Man, who's completely wiped out at the moment.

It looks like he's got company; the fabled sky dog failed to turn the dragon into a cyclops today, or in any other fashion impede the progress of the Shanghai Comp, which roared to new highs for the year.
Sigh. Perhaps we'll have to rely on the more prosaic "monetary tightening and explosion of NPLs" rationale for an end to the China bubble, mk. II, after all.

While Macro Man's under the weather, he looks forward to reading a recent report from Nomura on real asset-market returns. Among the conclusions is that all global equity returns in excess of cash over the past forty years can be explained by a very small window in the middle (1985-1987.)


Provocative stuff, and hardly supportive of the "of course equities are cheap on a long-term basis" view that seems to be common amongst long-only equity investors. One wonders what sort of bug lies in store for them....

Tuesday, July 21, 2009

The Exits

The earnings love-in rolls on, with another sea of green "beats" on the old Bloomberg earnings report monitor. More than 76% of companies reporting thus far have met or exceeded EPS estimates, a higher than usual ratio. This, in turn, has led to a flurry of upgrades and a "race to the top" which has even sucked in some of the top-down strategists.

A slight cause for pause is the fact the top-line revenues have been less impressive. Indeed, less than half of companies reporting this far have met or exceeded revenue forecasts. Now, perhaps this is indicative of a healthy degree of operating leverage in corporate America, or that ruthless cost-cutting is payind dividends. Then again, it could just mean that they are lying moe than usual to massage headline EPS figures through consensus. The reality probably involves a bit of both.

Regardless, attention switches back to the macro today, with Bernanke's testimony in front of Congress. He set out his stall in today's WSJ, sketching out how the Fed's exit strategy will work while stressing that it is far from imminent. No doubt more will emerge from the prepared remarks and especially the Q&A, but BB has probably defused a worst-case outcome by getting his thoughts out in the paper.

Perhaps more interesting than anything that the Fed can say or do have been the first rumblings of an exit strategy from the Chinese. The head of the China Banking Regulatory Commission noted that strong risk mangement will be required from China's banks in the wake of the orgy of fresh lending in H1.

While trailing NPL data looks healthy for China's banks, as does provisioning, it is probably safe to assume that it's too early for some of the recent loans to go bad. But have a read of Michael Pettis's latest post; it doesn't bode particularly well for the returns on huge swathes of real estate investment.

At the same time, it's worth commenting again on just how substantial China's money creation has been; by Macro Man's calculations, over the past year, Chinese M2 growth (in dollar terms) has exceeded that of the US, Eurozone, Japan, and UK....combined.
Now that the recovery is in place and the stock market's recovered, perhaps the authorities will turn an eye to mitigating the inflation and NPL threats that loom on the horizon. If they do, it could provide a nasty hiccup to Chinese equities.

Of more immediate concern to local punters is the looming in full solar eclipse in China tomorrow. Known locally as (Macro Man's not making this up) "sky dog eat the dragon's eye", it is traditonally associated with bad news....riots, famines, political upheaval, etc. Evidently, one onshore house is forecasting that the ol' sky dog will bring with it a secular bear market to the Shanghai Comp.

There you go, ladies and gentlemen, there's the lynchpin of your global economic and market recovery. Out-of-control bank lending and real estate speculation cannot put a dent in Chinese equities, but a "sky dog" can generate a secular reversal in trend. Good luck with that....

Monday, July 20, 2009

Moon Shot

There is perhaps an element of poetic justice that on the 40th anniversary of the Apollo moon landing, risk assets of virtually every description are attempting a moon shot of their own.

News that CIT has avoided bankruptcy appears to be the catalyst, though as Macro Man observed last week, that presents a bit of a logical inconsistency, given that CIT's woes didn't put the slightest dent in equity prices to begin with.

Anyhow, it's always dangerous to stand in front of a market hitching a ride on a rocket, and the Spoos are now quite close to delivering a new closing high.
Of course, there's the small matter of the rest of earnings season to navigate, as well as Bernanke's Congressional testimony tomorrow. Might talk of an "exit strategy", and a concomitant further sell-off in fixed income, apply a bit of pressure to risk assets? Perhaps, though 4% ten year yields are a more obvious inflection point than, say, 3.70%.

In the meanwhile, Macro Man has de-risked a lot of his portfolio after last week's trading frenzy. For choice, he's more inclined to play FX carry than equities here; USD/TRY has broken some interesting chart levels and has attracted quite a bit of interest this morning.

Now that schools in Europe are (finally) out for summer, Turkey should see the usual seasonal inflow from the tourist industry, which could provide a further fillip to the already-buoyant lira.
Whether it shoots the moon is anybody's guess; from Macro Man's perspective, he's happy to stay lightly-risked and nimble. From his perch, this remains much more of a trader's market than a macro thematic one; in that vein, a space shuttle is probably a more useful vehicle than an Apollo rocket.

Friday, July 17, 2009

A Conundrum

If equities blithely ignored the CIT bankruptcy earlier in the week and refused to go down......why are futures now rallying on a rumour of a potential bailout?

(Or is it just a story spread by a guy long 940's who's hoping for a lottery-ticket win on the settlement price?)

Falsies

You can tell it's summer, can't you?

The market rallies yesterday after headlines blare that Papa Bear Nouriel Roubini now sees an end to the US recession at the end of the year. After the close, futures evidently fell off after Roubini issued a clarification that essentially said "at the end of '07 I forecast a recession lasting two years. You do the math." Oh dear. You really couldn't make this crap up.

Anyhow, it seems as if many bears are picking up the pieces of shattered P/Ls are thye head and shoulders break proved to be false. With option expiry upon us today, Macro Man is losing all of his equity positions, and given the frenetic nature of this market, he's not necessarily in any rush to replace them just yet.

Meanwhile, his inbox is rapidly filling with mails trumpteting other key technical breaks. Chief among them is from the DGDF crowd, crowing about the triangle break in the DXY, which portends a sharp downtrend from here. Y'know, kinda like a head and shoulders usually does.

Naturally, the dollar has rallied today, with good old Voldemort (who yet again failed to complete a bill auction) fingered as the major seller.

Meanwhile, fixed income markets have quit falling after the oh-so-obvious break of trendline support, seen most clearly in Bunds, below. Indeed, bunds motored yesterday afternoon even as the equity rally was picking up steam. Hmmmmmm.
A similar chart is that of silver, which had a clear break of the downtrend line but has yet to really accelerate higher and extend the break. Not exactly the sort of impulsive price action you expect at reversal points, is it?
Maybe all these clear breaks will hold, unlike the equity head and shoulders pattern. But maybe, summer being summer and with bears everywhere having run for the hills, these breaks will also prove to be false.

After all, we're being treated to a litany of earnings reports that are, quite frankly, conjured out of thin air. As noted in yesterday's diary, Google somehow managed to conjure 70c/share of "extraordinary" items, taking their EPS from a below-consensus $4.66 to an above-consensus $5.36. Quelle surprise. Perhaps an equity specialist could enlighten Macro Man and his readers exactly what extraordinary items cost Google 70c/share? Writing down the value of stale beers in the company fridge? Enquiring minds want to know....

In any event, given the now-common perception that the authorities are trying to manipulate both perception and markets from behind the scenes, Macro Man's left questioning the identity of the person in charge. Pam Anderson? Jordan?

Thursday, July 16, 2009

Running Diary

"When a man is tired of trading, he is tired of life." If Samuel Johnson were alive today and running a hedge fund portfolio, he might well have uttered those words. Being tired from trading, on the other hand, is an occasional fact of a PM's life. And at the moment, Macro Man is pretty fatigued.

When one has a big bet in place that starts to go wrong, he has two options: stick with it and wear the drawdown, or trade 'em up. There isn't necessarily a single correct answer, as the appropriate response is shaped by level of conviction, market positioning, and one's own return and risk profile.

In any event, regular readers will know that your author has been running a short equity position, which was working swimmingly until about 10 am London time on Monday. Since then, obviously, global equities have stormed higher, leaving Macro Man facing the choice mentioned above. And he's decided to trade 'em up.

So yesterday he traded Eurostoxx futures, S&P options, AUD/NZD spot, USD/BRL options, silver futures, oil futures, Bund futures, and Bund options. The fruits of his labour were largely successful, but it's left him too tired to come up with a coherent piece this morning (or, as a reader pointed out, anything like the requisite level of proof-reading of yesterday's post.)

Given that there is some interesting data, earnings releases, and other issues today, it seems like a perfect opportunity to revive the "running diary" format. So away we go....

8.57 a.m.: So CIT halts trading last night and a story circulates that they're on the verge of a bailout. Then, after the close, the story leaks that they'll be left to their own devices. WTF? Did the Treasury do a quick survey to see wwho held their $70 bio or so worth of debt, discovered that it was no one important, and decide to leave CIT to the wolves? Enquiring minds want to know....

9.14 am: Some mumbles about a Chinese RRR hike, and equities are at their lows of the day. Helicpoter Wen getting nervous?

9.28 am: First day trade of the day goes sour; selling the break of the lows in Eurostoxx wasn't a great idea. Back to the drawing board...

9.59 am: Gym before Nokia earnings (@ 11 am London) or after JPM (@ 11.30?) Macro man's humming and hawing...

10.21 am: After JPM it is, as Macro Man's spent the past 20 minutes discussing the literary merits of Gabriel Garcia Marquez and Arturo Perez-Reverte with a couple of colleagues.

11.01 am: Nokia looks a tad light on both EPS and revenue basis...VG1 falls 7 points. Yawn.

11.16 am: NZD: never has a turd smelled so bad yet stayed so high for so long.....

11.30 am: JPM beats handily, coming in at 28c vs expected 5c. To quote Gomer Pyle, "surprise, surprise, surprise." Amusingly, the consensus was at 28c just a few days ago. Anyhow, who cares about CIT? New highs everywhere! And with that, Macro Man has a quick meeting with Hans and Franz to attend....

1.01 pm: Back after a hard session. Macro Man has found to his chagrin that at the age of 38, six weeks of complete physical inactivity produces a near-catastrophic loss of strength and muscle tone. Alas, recovery is much slower than loss! Macro Man has somehow shed more than 4 kilos over the last month, so at least the old power/weight ratios are improving...

1.31 pm: Shocking(ly low) claims data, especially the conttinuing claims. looks like some hefty seasonal adjustment issues and distortions with the auto shutdowns. That sort of begs the question of why auto industry shutdowns are now wiped from the data. Is Stalin running the Laabor Department now?

2.01 pm: Shock horror! For the first time in recent memory, the TIC data shows a trend (in this case, sales of $ assets) that match what the FX market did that month (the dollar went down.) Still, this data remains comfortably esconced in the "who gives a crap?" drawer.

2.25 pm: Five minutes before the open, and equity futures are very slightly limp while bonds have caught their first bid of the week (other than a half-hour squeeze at one point on Tuesday). Anything to draw from that? Who knows....let's see what happens after the initial retail flurry and Philly fed at 3 pm.

3.02 pm: Philly Fed declines for the first time since February. Stocks get a bit of a challenge, and bonds catch a bit more of a bid. Would put the chat amongst the oiseaux to see "risk-off" take hold here, wouldn't it?

3.12 pm: So will Mr. Miyagi pay a visit to the market today. Having implored Daniel-san to go "risk on" Monday morning, is he now returning to check on his protege's progress and advise him to go "risk off?" Let's see.

3.53 pm: Sigh. After great succcess yesterday, Macro Man has fallen to earth with his day trading today and delivered the red card after getting stopped out at local extremes twice in a give minute span after Philly Fed. Let's mark the sheets and go home.

4.43 pm: Another busy day in the books, so Macro Man's going to get the early train home. Let's see if the SPX drags him to the home office this evening....

7.45 pm: It just keeps on going, doesn't it? If only Macro Man hadn't pitched most of his remaining equity deltas today. It certainly has the feel of a melt-up, and it's tempting to get stuck in. But it felt equally dreadful last week, and, well....look how this week turned out. And as a couple of commenters have observed, earnings usually start out strong (relative to expectations) and then fizzle. Still, with GOOG, BAC, and the once-mighty C out before tomorrow's open, the squeeze can continue for at least a while longer.

9.01 pm: And now, Google reports. "Ex-items" beats consensus by a healthy margin; "ex-ex-items" has a shortfall by an even larger margin. What "items" cost GOOG 70c a share? That's a lot of beanbags for the playroom....

Wednesday, July 15, 2009

Helicopter Wen?

Sigh, redux. For all the sturm und drang surrrounding the GS earnings release yesterday, the banner report was met with a collective yawn. It looks as if the whisper number of nearly a fiver per share really was in the price, courtesy of Monday's squeeze-a-thon.

No, the real surprise came via the fact that every other company reporting yesterday, including heavyweights like J&J and Intel, beat expectations. Thus far, 10 of 13 firms have exceeded estimates, a slightly higher ration than usual (albeit in a tiny sample size.) Thus far, Macro Man's expectation of a disppointing non-bank earnings season has been wrrrooonnnggggggg.

Fortunately, his portfolio management style involves buying cheap hedges in the event that his base case falls through. (Years as a professional forecaster taught him how difficult it actually is.) So while he had his largest short equity delta of the year on Friday, he now finds himself modestly long. Bizarrre.

In any event, anyone who waited to sell the head and shoulders neckline breaks in just about any market going is now offside. This, combined with the earnings beats and looming option expiry on Friday, could potentially engineer a nasty squeeze into the end of the week. If not, Macro Man will have to decide what to do about his theta bill.

In anyevent, there was an interesting nugget in yesterday's business investories that Macro Man would like to throw open to discussion. A record level of inventory unwinding has finally put a cap on inventory/sales ratios, sneding them lower across the supply chain rom their early-year peak. An H2 inventory build is close to inevitable, though Macro Man contineus to believe that that is a pretty flimsy foundation for a sustainable recovery in an economy as consumer-dependent as the US.

In any event, if we break I/S ratios down, we find that the further up you go in the supply chain, the less of a correction there has been. Retail ratios, seen in the aquamarine line below, have corrected quite a bit and are now within hailing distance of their pre-crisis lows. Wholesale inventories have also nudged lower, yet remain close to their highs. And the manufacturing inventory/sales has barely budged. Might this mean that re-stocking entails less actual production than envisaged? Enquiring minds want to know...
In any event, other than the little post-Intel pop in Spoos, the last 24 hours have felt very summery indeed (at least market-wise; it's raining like the middle of November here in London.) Market lethargy is epitomized by EUR/USD, which, depending on which source you use, has traded on a 1.39 handle on 25 of the last 26 trading days. Ugh.....just ugh.
Among the culprits for EUR/USD's inability to move is reportedly your author's old chum Voldemort, who, after ramping EUR in May and June, is now content to trade (or, depending on your perspective, define) the range.

Sadly, these turkeys have once again become a fact of life in G10 FX after FX reserve accumulation started to tick up again. Indeed, Merrill's Steven Pearson reckons that Voldy and co. sold $28 billion against stuff that moves last month. Yowsah!

As you can see, Voldemort has not quit taking the piss: far from it. In fact, China's FX reserves rose by a record $80 billion in May, though that fell to "just" $40 billion last month. To be sure, some of that rise represents valuation efffects, but those pale in comparison to the extent of the actual USD/RMB purchases required to keep the yuan woefully undervalued.
And given the famous dificulties that the MOF and PBOC have had recently in flogging paper at uneconomic levels, you can be damned sure that a fair amount of this intervention has gone unsterilized. This, combined witth the "lend or else" diktat from on high, has helped spur China's M2 growth to 28.5% y/y, the highest in nearly 20 years (which ended...poorly.)
Unfortunately, in an act reminiscent of Gordon Brown Stalin, the early 90's data has been wiped from the historical record. A cynic might suggest that this is because China's leadership doesn't want to remind people that one upon a time, money growth was this high and it didn't end well. Judge for yourselves.

In any event, it's looking increasingly like the "miraculous" recovery in Chinese growth and equities is simply the result of cranking the ol' printing presses 24/7. While this seems highly likely to end in a banking crisis, hey- at least Voldy has plenty of FX reserves with which to recapitalize the banking system.

In the meantime, Macro Man is left pondering; given the complaints from the Chinese and others about economic management in the US and elsewhere, where are the moans about the true world champion of money-printing, Helicopter Wen?

Tuesday, July 14, 2009

G And S

Sigh.

Yesterday started off so brightly. Macro Man's first trade out of the blocks was to buy some July upside in Eurostoxx as a half-hedge, half-punt. It was 2% out of the money when he bought it, and 2% in the money at the close of play yesterday. That was Good.

Unfortunately, he was greedy, and worked a limit order rather than just saying "mine." So he was only filled on half his desired amount. That kind of Sucked.

Then he did four separate equity futures day trades. Each of them was stopped out, including a cheeky purchase of Spoos at 878 that would have come in handy in the main-session squeeeezzzzzeeeee. That really Sucked.
That's Good, that Sucks. The letters "G" and "S" featured prominently in Macro Man's day yesterday, and look set to dominate today as well. The reason is hardly a secret; yesterday's weak opening was swiftly reversed by a Meredith Whitney research piece upgrading Goldman Sachs to "buy" and raising her estimate for today's earnings to an above-consensus $4.65/share.

That, combined with the NY Times story highlighting Goldman's trading successes, helped spur an equity-markt love-in that was more than a little painful. (Never mind that Whintney's medium-term outlook on the banks in general was less than rosy.)

Now, regular readers will know that Macro Man's standard earnings forecast for GS is consensus plus a buck; eviently Whitney has stolen his model! Ironically enough, on the only occasion over the last 3 years that GS failed to beat consensus, a) Macro Man was having Christmas lunch lasy year with GS and their erstwhile merchant of doom, Jan Hatzius, and b) the stock and the market rallied.

Given the ongoing squeeze, it's hard to know exactly what's in the price for today's GS earnings report at 8.30 local time. Frankly, given the magnitude of yesterday's squeeze (which has thus far carried into today), Macro Man has no idea what to expect. A few banks are now suggesting that the whisper number is as high as $5/share, and that anythign less than that will disappoint. But given the break back above the old head and shoulders neckline, Macro Man wouldn't be totally shocked to see the market rally on a $4 print. (Consensus is ostensibly $3.65)

Elsewhere, the equity recovery ahs had a few knock-on effects that are starting to become interesting. The rally in some fixed income markets is starting to look rather tired, with Bunds offering the cleanest chart. If today's ZEW delivers a strong print and equities hold up, we could be looking at quite a retracement.

Finally, it's worth pointing towards that most frustrating of creatures, occasional nemesis of macro punters everywherre, the flightless bird, the NZD. The kiwi has once again squeezed against the dollar/Aussie/euro et al. ove the last few days, despite the fact that NZDD 2.775 billion of eurokiwi bonds mature tomorrow. That there were substantial redemptions this month has been a very-flagged event; a little too well-flagged, actually, because punters loaded up on kiwi shorts early and often, thus rendering the little bugger vulnerable to a short squeeze....which duly ensued.
But now we're at the sharp end of the stick, with an imminent redemption flow in the next 24 hours, and NZD is near the top of recent ranges against a whole host of currencies, including the AUD, pictured above.

So there looks like quite a nice little opportunity to play for an overnight pop in the cross. Macro Man can only hope that it does not emulate the fortunes of his equity book yesterday and Go South.

Monday, July 13, 2009

Monday, Monday

Perhaps its the after effects of an unusually deep Sunday night sleep, or maybe it's the knowledge that it's going to be a big week (what with option expiry and everything), but Macro Man's brain still feels slightly groggy so far this morning.

In a way, he feels like Odysseus, tempted by the siren song of a weak opening in stocks. While his brain is screaming "sell! sell! sell!" like Randolph and Mortimer Duke, thus far Macro Man has lashed himself to the mast-head of responsible risk management, trading the noise until the opening price action resolves itself into signal.

To be sure, the newsflow has been broadly bearish thus far. CIT looks to be on the brink of imminent demise- well, they would be if we didn't live in a world where anyone larger than an eight-year-old's lemonade stand wasn't deemed "too big to fail."

Meanwhile, the big banks have confirmed that they won't accept Arnie bucks any more, leaving some in California scrambling. Hmmm....will Vegas do an over/under on when the Federales ride to the rescue and guarantee all of California's debts?

Anyhow, more viscerally, it looks like Lloyds will be writing down another mountain of turds this quarter. Man, that's sooooo 2008! That commerical property has led the losses is particularly telling, given that US bank earnings kick off tomorrow with the mighty GS. One of the reasons for ongoing bearishness and scepticism over US financials has been the elephant in the room that is looming commerical property losses.

Of course, that's more of an issue for later in the year and into 2010. Of more immediate concern for the "all is well" crowd may be the renewed decline in that old chestnut, the Baltic Dry Index. While Macro Man pooh-poohed the significane of the rise earlier in the year, subsequent evidence clearly confirms that it foreshadowed a rally in equities and commodities. So we should perhaps pay some attention to the fact that it's tailed off again recently, particularly in light of the "commodity stock-piling is over for now" stories coming out of Beijing.
In that vein, it's intersting to observe that some heretofore resilient EM equity markets are reaching interesting technical junctures. Ship-building titan Korea, for example, made its highs of the year last Thursday. But it fell sharply today; much lower, and the KOSPI show could face cancellation.
More broadly, Macro Man was struck by a Bloomberg story today suggesting that EM stocks are now at their most expensive levels since October 2007. EM overweights have been a popular position, both according to record-high flows and anecdotal surveys from the likes of ML and CS.

Interestingly, the MSCI emerging markets index, proxied by the EEM ETF, has traced out a virtually identical head and shoulders pattern to those seen in more developed, "un-de-coupled" markets.
The difference, of course, is that the EEM has yet to break its neckline. If it were to do so, prompting an outflow of profit-taking, Macro Man can't help but wonder if that could be the much-discussed missing catalyst to send global stocks sharply lower.

(Yes, Macro Man's talking his book here.....but if you'd been long EM stocks for 30% and then saw them start to head lower in a haurry, wouldn't you wanna ring the register?)

Friday, July 10, 2009

A Coiled Spring

On the face of it, yesterday was a pretty quiet day. The Alcoa "earnings" were largely shrugged off (no thanks to Bloomberg, which singularly failed to report operating earnings per share in any headline or story that Macro Man could find), as were the decline in jobless claims (as continuing claims rose quite sharply.) Equities farted around in a range, and ended up largely where they opened. Yawn.

Oh, sure, there was news from the Bank of England, which surprisingly failed to extend its QE program. This caused a bit of a rupture in sterling and a somewhat larger one in Gilts, though such developments may well have flown over the heads of the average equity-based punter.

And yeah, whichever Chinese flunkey was left holding the bag at the G8 summit made the obligatory comment whingeing about the dollar's hegemonic reserve currency role in the global exchange rate system. Once again, Macro Man feels compelled to offer a bit of friendly advice to his friends in Beijing: if you don't want so many dollars, then quit buying them!

Anyhow, with volumes modest the underlying market flavour appears to be one of lethargy. Just look at the Bollinger band chart of the SPX below; the index is at its lower Bollinger band, which means it's a low-risk buy here for a bounce. Right? Right?
Perhaps....but then again, perhaps not. As you can see in the middle section of the chart, the Bollinger band width is unusally narrow, indicating a lack of volatility during the observation period. Maybe this means that we have returned to a low-vol, pre-Lehman, post-green shoots world. Or maybe it's indicative of complacency in the market, and that narrow bandwidth is a coiled spring, ready to explode and unleash its potential energy unto unsuspecting punters.

For some reason, Macro Man favours the latter explanation. In fact, if you look carefully, you can find instances where the spring is already beginning to uncoil. Take European equities, for example (where Macro Man's shorts are concentrated); the Eurostoxx has traded poorly for several weeks now, and as you can see the Bolly bands are beginning to widen.

EUR/USD, has also been stuck in a tearfully dire range; similar to the SPX, the Bollinger bands are at their narrowest width of the year.
So, too, were the bands in USD/JPY...at least until a few days ago when the pair magically fell off the end of a table, raising volatility and widening the bands. Not exactly an endorsement for "risk on", is it?
It sort of begs the question of how long the NZD can remain with its narrowest bands of the year. The well-flagged uridashi redemptions and Fonterra payout announcement looms large on the market radar, and perhaps everyone's already short...thus precluding a move lower.
But if we look at the chart of another illiquid, uber-speculative asset price, that of silver, we can see that when stuff finally starts to move, it can explode lower. The silver chart looks pretty dreadful, which doesn't bode particularly well for either the "risk-on" or the DGDF crowd.
Macro Man is sensitive, however, to charges of bias. He always attempts to be impartial in his analysis, because he finds that doing so yields superior investment conclusions. And so the news isn't all bad. Chinese trade data for June, leaked as Macro Man is writing this, revealed a better than expected y/y decline in imports. We have no granularity yet, so we don't know if this is "real" domestic demand or the final spurt of uneconomic commodity stockpiling.

Of course, exports were slightly worse than expected, and the overall trade surplus (y'know, the number that actually goes into the growth figures) missed by quite a large margin. But hey...we should look for good news where we can get it.

And so, to provide a balanced analysis on this fine Friday, Macro Man is happy to share with you the latest upbeat webcast from China bulls ne plus ultra, Goldman Sachs:

Thursday, July 09, 2009

An L Of A Recovery

Macro Man was pleased to receive plenty of kind feedback on yesterday's little hip-hop effort, though somewhat chagrined to see that "California Love" is apparently now considered "old school." Speaking of old school, "Going Back to Cali" was suggested as an alternative source of inspiration.....hmmmmm.....I don't think so.

Anyhow, we finally started to get some signal yesterday with the release of Alcoa's earnings after the close last night, which apparently means the return of sweetness and light. True, Alcoa's earnings losses were somewhat smaller than expected, which, for an aluminum producer like AA, might appear to have implications for the global economy.

At the risk of facing accusations of viewing the world through blood-tinted spectacles, Macro Man is sceptical. Last quarter saw an unprecedented action from the Chinese to support ally prices via unprecedented import activity. The chances of a repeat performance would appear sketchy. Moreover, even with this demand and price boost rom China (presuumably to keep Chinalco afloat), Alcoa's revenues barely budged....even though Q2 is seasonally their strongest revenue quarter. In fact, y/y revenues actually fell from 40% in Q1 to 44% in Q2.
So it would seem that the vast bulk of the surprisingly small losses was down to cost-cutting, a fact apparently confirmed in last night's statement. So you'll have to pardon Macro Man if he views Alcoa's "triumph" as a micro issue, not a macro one. From his perspective, that revenue curve looks decidedly L-shaped.

(edit: Alcoa lost $142 in shutting money-losing oprations, which has somehow been magically wiped from the headline EPS figure. If you add that back in, the actual loss per share was worse than expected. If only Macro Man could wipe the losses from closed, unprofitable trades from his headline P/L, this job would be a helluva lot easier....)

Earlier in the day yesterday, European asset markets were impacted by a "massive" rise in German industrial production (3.7% m/m), which comfortably exceeded expectations. While that certainly confirms the end of the production free-fall, it hardly suggests an imminent growth phase. Indeed, an index of the actual IP index shows a) that the May blip barely registers, and b) that up and down changes in monthly production are the norm.

.A stabilization in demand, which appears to be the new bullish theme, doesn't actually imply growth of a V or a W shape. It actually implies an L.....which is hardly good news, and far from what is priced. It's an interesting coincidence, but two banks yesterday presented Macro Man with research that Asian equities are pricing in an ISM reading of between 55 and 60. That's a hell of a lot of good news (and growth) that is already in the price.

And despite today's Aloca-inspired bounce and scepticism from many quarters, the head and shoulders patterns in a number of markets continue to work. Given the optimism embedded in prices and Macro Man's view on the likelihood of an L-shaped recovery, he looks for further downside in risk asset prices.
Finally, it's worth noting that today sees an announcement from one of the few CBs in a tighter spot than the Fed....the Bank of England. Inflation has consistently exceeded expectations, and a prior raft of better-than-expected activity data has recently receded into sharp declines. Oh, and the fiscal situation is worse than that in the US, and adminsitered by a government that's now utterly bereft of credibility.

The market seems to ecpect a £25 billion extension of QE, with a risk that the BOE requests an increase in the size. Macro Man has no real view on the outcome, but it should make for interesting viewing. At the very least, it should take the market's near-term focus away from West Coast rap....

Tuesday, July 07, 2009

California's Bust

(With apologies to Dre and Tupac)


California...knows how to party
California....don’t got no money
In the citaaaaay of LA
In the citaaaaay of good ol’ Watts
In the citaaaaay, the city of Compton
They keep defaultin’, they keep defaultin’!

Now let me welcome everybody to the wild, wild west
Our bonds are untouchable like Elliot Ness
If you ain’t been foreclosed than you had some success
Pack some books fo’ yo’ cell if you gotta confess
We in that sunshine state with a bomb-site new street
The state where you always find a new build empty
And PIMPCO on a mission for them greens
Lean mean money-makin’-machine cheatin’ fiends
I been in the game sixteen years watchin’ crises
Banks gone down just like Vanilla Ice, geez
Now it’s ’09 and my creditors watch me
My credit rating’s dead just like Liberace
It’s no good, from Diego to the Bay
Your city is the bomb if your city makin’ pay
Throw up a finger if you feel the same way
For the crooks that bankrupted
Californ-i-a

California...knows how to party
California.... don’t got no money
In the citaaaaay of LA
In the citaaaaay of good ol’ Watts
In the citaaaaay, the city of Compton
They keep defaultin’, they keep defaultin’!

Make it make a payment
Make it make a payment
Make it make it Arnie
Make it Cali
Make it make a payment
Make a make a payment
Make it make it Arnie
Make it Cali

Out on bail, fresh out of jail California dreamin’
Soon as I stepped on the scene, I’m hearin’ lenders screamin’
They want my money and alcohol
My life as a west side playa flippin’ houses don’t work at all
Only in Cali where we riot not rally to live and die
In LA we payin’ Fargo not BAC (that’s right)
Dressed in Locs and khaki suits and ride is what we do
To find a mortgage with a rate less than nine point two
Famous because we don’t pay worldwide
Let ‘em recognize from Long Beach to Norway
The statement came and we said no way, it’s west side
So you know the row won’t pay out to no man
Say what you say
Just look at this bomb site today
Let me sell you half the streets in LA
From Oakland to Sac-town
The Bay Area and back down
Cali’s where house prices got a smack-down
Now we bust!

California...knows how to party
California.... don’t got no money
In the citaaaaay of LA
In the citaaaaay of Santa Barbara
In the citaaaaay, the city of Carmel
They keep defaultin’, they keep defaultin’!

Now make a payment...

Make it make a payment
Make it make a payment
Make it make it Arnie
Make it Cali
Make it make a payment
Make a make a payment
Make it make it Arnie
Make it Cali

Uh, Long Beach out tha house, uh yeah
Oaktown, Oaktown definitely lost they house, hahaha
Frisco, Frisco
Hey, you know LA down in this
Pasadena, price gone splat
Inglewood, Inglewood always up to no good
Even Hollywood tryin’ to lose a piece baby
Sacramento, Sacramento, where you at? Yeah

Throw it up y’all, throw it up, throw it up
Let’s show these fools how we do it on that west side
Remember when it was the best side

Yeah, that’s right
West coast, west coast
Uh, California’s bust....
California’s bust.....

If only Macro Man knew how to overdub lyrics on music videos.....

Remarkable!

So after China, a country with a considerable aluminum manufacturing capacity running well below max capacity, starts a fairly-clearly-impossible-to-maintain run of aluminum imports like this:
the CEO of Aloca (which, coincidentally or not, is issuing its earnings report tomorrow), is quoted as saying that aluminum demand in China is recovering and they are clearly out of the woods.

Naturally, this remarkable coincidence is being used as a rationale for buying stocks in certain quarters.

Remarkable, indeed.

The Return of Team 1250?

Sigh. It looked like it was so on, baby, but yesterday proved to be something of an anticlimax. The opportunity hasn't been bungled quite as painfully as Mikey blew one of his; rather, we seem set to tread water until the earnings flow begins in earnest.

Still, there were a couple of notable features about yesterday's session. Stocks initially popped on the better-than-expected services ISM, but swiftly lapsed back towards the low of the day. That, at least, appears to be something of a sea change from price action of the past few months. The market sold off pretty hard to bad employment data on Thursday, and wilfully shrugged off good news yesterday.

What does that suggest about the underlying nature of the market?

Indeed, it took a late-session squeeze from Team 888 (the re-incarnated version of Team 1250, perhaps?) to engineer a positive close on the day.

Still, it looks like despite the optimism of institutional equity investors (try and get your hands on the latest piece from CS' Andrew Garthwaite), the momentum of economic surprise has waned considerably. Citigroup's US economic surprise index has finally started to lurch lower; as this series is both serially correlated and mean-reverting, it suggests that we should expect the tone of US macro data over the coming weeks to be poor.

Perhaps Team 888's mettle will receive a sterner test, and soon.

Elsewhere, today marks the end of the ECB maintenance period, so we should find out this afternoon whether they'll drain much of the recent "wheelbarrow tender." Strangely enough, much of the €442 billion uptake has found its way back on overnight deposit with ECB, presumably to await future liquidity needs.
'Twill be intresting to see what happens if the ECB drains (or doesn't drain) some of this liquidity. One could argue that the reaction of the euro and European equities (particularly banks) should be inversely proportional, though that ascribes a level of rationality to the market that Macro Man isn't inclined to extend at the moment.

In any event, perhaps it's irrelevant. Maybe we're stuck here until Team 888 gives up the ghost.

Monday, July 06, 2009

It's On, Baby...It Is So On

A belated and abbreviated post today, as Macro Man's been busy dealing with both market and non-market issues. Keeping to the former, he's feeling a bit like Double-Down Trent from Swingers today, high-fiving Sue: "it's on, baby...it is so on....."

Risk assets of every description (other than Chinese equities, natch) are dumping this morning, for reasons that aren't immediately obvious. Perhaps it's the Indian budget (who said 6% plus budget deficits were just for Anglo-Saxon economies?) or perhaps it's just technical selling.

But it looks like commodities are breaking down (Dec 2009 crude looks awful)....
.....and equities are washing with Head and Shoulders this morning.

Macro Man has expanded his balance sheet, so to speak, this morning, by layering additional "risk-off" trades while increasing the delta of one of his "risk-on" hedges.

888, give or take, looms large on the SPX, as it's both the head and shoulders neckline and the 200 day moving average. A break (and futures are currently discounting a gap open just below the level) could bring some of Macro Man's fellow bears back to the party.

If so, Macro Man might have to consider doing more than just repeating Double-Down Trent's line.....

Friday, July 03, 2009

Head and Shoulders

Has your ability to forecast the market gone dry? Feel like equities are being driven by a bunch of flakes? Are you itching to see stocks find their rightful levels?

Well, you can now say good-bye to flakes with Head and Shoulders!

"A few weeks ago I noticed that profits had been avoiding me because of dandruff in my portfolio. But recently I've started using Head and Shoulders to time my trades, and both the flakes and premature short sales have gone away!"

Yes, just apply Head and Shoulders to your market analysis every day, and you'll soon see your dry, flaky forecasting replaced by rich, glossy trades.

"I timed half my trades using Head and Shoulders, and half using ordinary methods. Head and Shoulders kept my portfolio clean, but with with my normal style, the flaky trades came back. You can bet I'll be using Head and Shoulders from now on."

Head and Shoulders is not yet available in the Chinese market.



No driving, no tennis, and no sunshine for Macro Man today, so he's been forced to keep an eye on the market during a slow day. Good thing he's washing with Head and Shoulders!