Still Standing

Monday, March 01, 2010

Readers will be pleased to hear that after a week of blizzard-like conditions in La Plagne (similar to those which were his undoing last year), Macro Man is still standing after his return to the slopes. To be sure, he wasn't quite as good as new: he dialled down his all-action style to concentrate on his technique, and by the end of the week his knee was sufficiently tender to curtail his time on (and off) the piste. Still, coming as it did just ten months after his ACL reconstruction, the trip could only be called a success.

As he returns to the rugged terrain of global financial markets, Macro Man cannot help but see parallels between some of the prices flickering on his screen and the skiers with whom he so recently shared the snow-drenched Alps. Consider:

* Totally in control: Voldemort continues to lead the rest of the world on a merry dance of "will they or won't they?" move the exchange rate. Like an expert skier, SAFE exerts total control over the direction of the RMB, and like that expert skier USD/RMB blazes a trail that is more or less a straight line.

The recent news that China has conducted a "stress test" of various industries to determine their response to an exchange rate appreciation if, of course, welcome; the reported wailing from low value-added manufacturers of vanishing profits in the event of a 3%-5% rise in the RMB is not. After all, there's no divine right to a trade surplus.
Macro Man stands behind his non-prediction that any FX adjustment will not occur in H1; while the market has embraced the stress test news by sending 3m NDFs "crashing" to their lowest levels since mid-2008, observe that the absolute value of the implied reval is still pretty low. SAFE remains completely in control.

* Can get up and down the mountain with the occasional (serious) wobble. The yield graph of Greek benchmark debt resembles nothing so much as the Alpine landscape that Macro Man recently departed. Making a significant bet on the outcome of the Greek crisis clearly takes a lot of intestinal fortitude, given the outrageous swings in news, sentiment, and price on a daily basis.

Indeed, the whole situation strikes Macro Man as quite similar to a skier careening down the mountain, arms windmilling furiously. Every time you think that they are going to crash spectacularly, they manage to pull out a recovery- the latest of which is the reputed plan to get state-owned institutions in Germany and France to snaffle up zillions worth of Greek debt.
Still, until the intrepid skier is safely at the bottom of the slope, sipping on a vin chaud or biere pression, you cannot fully count on their safety. So, too, it is with Greece; doubts remain about the legality of the European bailout, and even if it goes through there are no guarantees that it will permanently solve lax fiscal policies and uncompetitive trade standing.

*King of the snowplow who spends most of his time falling down. Given that a couple of readers have pointed out Britain's relative ineptitude at the Winter Olympics (despite Amy Williams winning a gold this year), and in honour of the Mr. and Mrs. Twit who a) shouldered their way between Mrs. Macro and Macro Boy the Elder in the lift queue, and b) literally pushed Macro Boy down in the "starter's gate" for the chairlift because he was waiting for his mother, Macro Man is pleased to give this award to sterling, which cannot get out of its own way recently.

Whether it's the suggestion that Merv and co. will embark on a titanic program of QE2, or the recent polls suggesting that Labour is now just 2 points behind the hapless Tories (which, according to the tortured nature of British democracy, would give Labour a 55-seat lead in Parliament), or even the news that the (British) Prudential wants to buy AIG's Asian business for a cheeky $35 billion, sterling has fallen faster than Marion Rolland:

Macro Man can only wish the same for the Twits.....

Posted by Macro Man at 8:01 AM  


Welcome back MM!

Taxpayer is bailing out the corruption, profligacy & incompetence of governments. A whole new perspective of TBTF.

I'd tastefully eject them from the Eurozone and welcome them back in a decade when their house is in order.

As for the legality of the move since when has circumventing the legislative practice in 'extraordinary/crisis driven' circumstances ever stopped any governing body...especially the technocrats of the European Commission?

Where there is a will et cetera et cetera

Market will target the next feckless relative and somehow I cannot envisage the German coalition government bailing them all out.

At this stage it's really a case of which sovereign is next to default :-)

Anonymous said...
10:48 AM  

I was completely unfamiliar with Roald Dahl until a few hours ago when I watched Fantastic Mr. Fox (which no doubt got changed a lot going from book to film). The timing of your mention is just one of those strange coincidences.

Any predictions on the RBA tomorrow?

Anonymous said...
11:04 AM

Could this be a factor in the tories' standing in the polls? It was certainly a factor in the 1992 General Election and, most recently, the Crewe and Nantwich by-election.

Incidentally, a poll published in the Independent (a so-called poll of polls, which included the YouGov poll cited in MacroMan's post, and takes an average of the most recent surveys from each of the accredited polling companies) put the Tories some 8pps ahead.

Anonymous said...
2:59 PM  

Sovereign defaults are now bullish to the market. Or didn't you get the memo?

Anonymous said...
4:07 PM  

Fed is 'scapegoat' in crisis aftermath: Lacker

These dirty central bankers will say anything...

Ouzo Man said...
4:40 PM  

Quality video. LB has had a few runs like Marion...

Welcome back to correlation breakdown and Momo Monday, presumably we will be able to make sense of this by tomorrow. Doing nothing seems appropriate at the moment.

leftback said...
4:43 PM  

Hello MM, No matter what currencies crisis and recession coming for 2010.

John Law said...
5:21 PM  

Bubblicious housing data but depressionary credit data. RBA is on a knife-edge. Expect some vol either way...

Anonymous said...
7:07 PM  

SAFE holds two trillion in US debt, and is in complete control of the RMB exchange rate

But those reserves are made up entirely of IOUs from a government that publicly states it has NO INTENTION of ever paying anything back.

Quite the contrary, the government openly plans to run trillion dollar deficits for at least a decade (after which debt service and entitlement spending all but guarantees trillion dollar deficits forever).

So SAFE basically has $2 trillion in worthless IOUs -- meaning they need to find a way to unload as much of that garbage as possible before everyone realizes the debt can only be "paid" with more debt

Doesn't sound like an economic powerhouse -- sounds more like a company with a lot of uncollectable accounts receivable

Anonymous said...
8:58 PM  

to 8:58pm - if you had to choose between having $2trn of worthless IOUs and having a much lower economic growth/development, which one would you choose?

Anonymous said...
12:31 AM  

Anon 12:31

Plenty of companies have made the same argument in support of providing vendor financing to their customers.

But ultimately, its not really a sale unless the accounts receivable gets converted to cash.

China has raised expectations, but no real growth -- unless those sales get converted to cash.

As the west learned (and China will soon) -- "growth" based on debt isn't really growth at all

The only difference with China's bogus A/R claims is that the customer has openly stated that they have no intention of paying...

Anonymous said...
1:39 AM  

Condolences on your family's encounter with the Twits. I still vividly remember an encounter with them 25 years ago at Les Arcs.

MLM said...
5:03 AM  

That's one thing they definitely do a lot better in the etiquette!

VandalsStoleMyHandle said...
8:39 AM  

Uh-oh. Looks like the WH already has Friday's numbers and is trying to put a spin on it.

Nic said...
9:53 AM  

> to 8:58pm - if you had to choose between having $2trn of worthless IOUs and having a much lower economic growth/development, which one would you choose?

Lower economic growth/development obviously. Why work when you aren't getting paid for it?

Better yet, keep the economic growth and use the products yourself.

Anonymous said...
10:53 PM  

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