Friday, September 24, 2010

Scratching a clearer head

Our company "TMM snake-oil products" has a new product for sale. It's called "Homeopathic Hangover-No-More" and is absolutely great stuff. It may appear to just be water but, when combined with 10 hours of good sleep, it's awesome. Only $9.99. Of course we will also be selling a version in a plain white box with "Made in California" on it together with an emblem of a fruit for $499.99. Having just overtaken Blockbuster yesterday, we're now looking to be bigger than Petrochina. But we digress, so on to other matters...

If you have a beard and Central banking is your business, you need to know when to take the punchbowl away from the party. To extend the same analogy, if you are in the speculating business it is very important to know when the block party is about to be shut down by the cops or your local knife-wielding teenage thugs. TMM is of the view that, with respect to some very heavily owned trades that have been winners this year, that time is now. The trades in question range from the fairly obscure, Philippine equities below:

To Chinese companies that are utterly dependent upon being able to export to the US for their income (Li and Fung):

And the eerie silence from a number of Southeast Asian and Latin American countries that are sick of taking the FX strain of China’s recalcitrance on FX is not hard to see – Brazil, Thailand and Indo all appear to be drawing a line in the sand.

Add to that China’s move to take India’s water, re-trade an oil and gas agreement with Japan, and its stated intention to continue f*cking around in FX markets and it all looks like a setup for risk to come back.

The cracks in the walls are not hard to see at this point, Euro periphery spreads are making new highs (see below for 10y Ireland-Germany yield spread) and are not under control at all (paging Mssrs Trichet, Weber, et al). Yet an only OK’ish IFO has triggered a Eurofest that would normally imply that they have struck iron ore, gold and uranium in the PIISers . We find it hard to get excited about good German news being good European news. The greater the divergence of economic performance between core Europe and the Periphery, the worse the internal stresses become. So either everyone has decided that the current Euro = the NeuMark and has no PIIS component, which we think is a mad view, or else it's another sign of the “follow your leader, don’t miss the train" theme. Either way, European equities certainly don't seem to be taking the same view as the currency and our mibometer has been diverging for some time.

The VIX has been ticking up lately, as has the CVIX, so all signs point to a number of very big-picture powder kegs with fuses ready to be lit. With all that in mind TMM is of the view that we now have the setup for a finale to the year that is more Tarantino than anything else:


Leftback said...

Emerging market bonds are yet another example of a massive ramp job, as liquidity continues finds a home and the great game of global chicken continues....

abee crombie said...

Agree with the em bonds. They even got a shout out in last quarters bis market review

Too much momo in these markets and everyone is jumping aboard the few markets that still have it, whether in Indonesia em bonds netflix or gold.

Oh and the double dip is over bc the stock market rallied and durable goods retraced last months decline

Just set your google finance screen to find momentum and go with it no matter how much sense it doesn't make. It always ends up well

Nemo Incognito said...

abee crombie..... I sold my NFLX on Friday. That really has gone from being a borderline religious short to a fanatical long over 1 year. Quite wacky to see how the analyst price targets have whipped around on that.

And yes, it does have the momentum blow off top feel. Always good to move to the more liquid stuff (ie, not Philippines).

ismr said...

On the Secret Committee to Save the Euro, a Dangerous Divide

FX said...

Gday PoLIMEC,yeah interesting finale instore, no doubt, this is developing into a good form race(rally), don't suppose maybe the powers that be are now in capitulation mode in regard that we've witness only a "Survivorship cycle" and now fingers crossed the "Reflation cycle" is next inline.

If QE 2 pulls it off then the powers that be are worthy contenders for an award, that would be a twisted ending.