Monday, February 08, 2010


Yesterday proved to be a bit of a milestone for your author. For the first time since his knee injury a year ago, Macro Man held a golf club in his hand, as he made it down to the driving range to hit a hundred balls. The good news: there was no noticeable change in his swing due to the layoff. The bad news: there was no noticeable change in his swing due to the layoff, as he sprayed an astonishing assortment of slices, scuffs, and duck hooks over the range at a series of increasingly improbable angles.

Still, it was good to get back out there, and Macro Man looks forward to returning to the course (after all, someone has gotta keep greenskeepers in a job.) Friday, meanwhile, may have seen another return after a lengthy absence. After taking a few quarters off during the furious stock rally from last March, Team 1250 (now rechristened Team 1050?) appears to have emerged from hibernation.

It didn't take much- a selloff of less than 10%- to (evidently) hit the panic button in Washington; why else would the SEC announce that they are mulling new restrictions on short-selling? After an initial flurry, the market seemed happy to shrug off the news, taking the SPX down to fresh lows for the year....only for futures to ramp hard in the last hour of trade. Whether it's Team 1250, the PPT, or simply an assortment of tin-foil hats, Friday's newsflow and price action probably represented the (unwelcome) return of conspiracy theorists to the investment equation.

'Twas interesting to note, meanwhile, that the late-session US rally (whatever its cause) proved insufficient to offer much comfort to Asian equities: y'know, the ones most sensitive to growth and liquidity. The Hang Seng failed to put any dent whatsoever in Friday's gap, and indeed closed near the lows of the last six months. There's a raft of Chinese data this week, followed by Lunar New Year next week, so the next few sessions could prove to be critical for Asian stocks.
Wednesday, meanwhile, sees the return of a certain B. Bernanke, esq. to Capitol Hill to perform the latter-day Humphrey-Hawkins testimony. The subject has been prespecified as a discussion of the Fed's exit strategies, so it could prove critical for markets of every stripe. BB's predecessor, of course, would have tried very hard indeed to say absolutely nothing of substance; Macro Man would be very surprised indeed if BB didn't at least try to do the same thing-or at least keep all of his options open. Pre-committing to a given policy or timetable could potentially throw a serious wobble into markets; as we saw on Friday, that's apparently been deemed unacceptable in certain quarters.

Finally, today has seen an unwelcome return of another sort: it is once again snowing here in SE England. It's just flurries for now, though heavier stuff is expected later in the week; Macro Man (and indeed everyone outside of England's schoolchildren) can only hope that we avoid Snowmageddon:


Anonymous said...

If unconventional voices are written off as conspiracy theorist, what happens when an actual conspiracy comes along?

Anonymous said...

is the Bearded Wonder really going to congress this week? can't see it anywhere...

Rossco said...

not the short sellers !!

wouldn't they do better to ban long sellers ? seems much more destructive to equity prices in my view

Ivanovich71 said...

Total PPT management on Friday. Couldn't have a "Dow drops below 10000 (again)" headline for the weekend sheeple.

Bob_in_MA said...

Couldn't Friday's jump up be accounted for by people taking advantage of the recent phenomenon you pointed to last week of jumps up each Monday?

I participated in this by covering some puts when the S&P was way down and buying some safe income shares.

Vox has a paper up, "Short-selling bans in the crisis: A misguided policy," that includes this:

"This column presents new evidence from 30 countries arguing that the effect on stock prices was at best neutral, the impact on market liquidity was clearly detrimental – especially for small-cap and high-risk stocks, and that the ban slowed down price discovery."

Anonymous said...

uhh please corect me cause im usually wrong but--orange county default--greece default--not much differnt ini terms of size and scope--orange cnt didn't hurt the buck or US borrowing costs-whats all the fuss about

leftback said...

Not much happening in New York today, MM, they are probably all out buying shovels. Really not quite sure why snow makes people lose their minds, but it's the usual thing at the grocery and hardware stores out in the burbs. Get long shovels and salt.

Restrictions on short sellers is just political nonsense, removes a natural pool of buyers, and will therefore exacerbate the selling on down days - until the PPT arrives. The announcement of smaller Treasury auctions is probably the day's most interesting news.

Bob said...

Considering the source (Geithner) we should probably take the "lower borrowing needs" comment and throw it in the trash. (actually the market seems to be doing exactly that)

Unless Obama formally admits what everyone knows -- that his health care stupidity is dead -- then I don't see any material decrease in government spending, and thus no decrease in borrowing needs.

Now that he lost Kennedy's seat, Obama has suddenly decided to "invite his republican colleagues" to the White House for lunch. A publicity ploy that so stinks of next November that the idea was being ridiculed before the White House finished its statement.

Debt funding needs are unchanged -- Geithner is lying again

Leftback said...

The 30y yield is unchanged, Bob, so the market that matters most doesn't seem to have an opinion yet.

If only your analysis was as deep as your political bias...

Bob said...

if there is no material drop in spending, then there is no material drop in debt needs

doesn't get any simpler (or less partisan) than that

leftback said...

Actually don't disagree with your underlying thesis. As soon as the election is past, they will do a QE2 and bond yields will blow higher again. Temporarily.

The economy is like a little black hole now, it has a gravitational pull and it keeps sucking in liquidity that cannot escape. Think of the 10y yield at 4% as the event horizon.

Anonymous said...

When they start blaming the short sellers, you know it's time to go short.

Anonymous said...

Anybody who says Greece doesn't matter, because its economy is so small, is forgetting that it's not about Greece, it's about all those countries that are trying to prop up their GDP through unsustainable government deficit spending. How will it be resolved? If governments cut their spending, their economies will presumably tank. If they spend until they default, well that's not good. If they somehow arrange to print money to cover their spending, we get stagflation or hyperinflation.

Only the last would be good for risk assets.

Bob said...

Anon 10:17

Of your three scenarios:
1) cut spending
2) spend (until govt collapse)
3) Hyper-inflation

#3 has been the choice of banana republics everywhere, although its really a slow motion variation on #2

#1 is what most voters are doing in their private lives already. It involves short term pain, for probable (but not certain) long term gain.

It also tends to mean those in power cease to be in power -- history shows power of the purse is the only one that matters. You can't field an army or a police force without it.

Hence, #1 is the best choice for the people, but the worst choice for the political elite.

#2 works only in the short term -- the Chinese are already showing signs of remorse at US debt, while Greece and California show a lot more spending is needed to try to prop up the status quo.

Hence #3 is the only option that allows the political establishment to remain in power.

The banana republic dictators aren't as dumb as many people think

Anonymous said...

"please corect me cause im usually wrong"

You are definitely wrong.

"orange county default--greece default--not much differnt ini terms of size and scope--orange cnt didn't hurt the buck or US borrowing costs"

Did Orange county have 320 billion USD worth of bonds outstanding (mostly held by undercapitalized European banks)?

The amount of debt a county in the U.S. carries is (usually) quite small relative to national (or even state) borrowing.