Thursday, October 07, 2010
Well, if TMM thought that the move in real rates, gold et al was overdone yesterday, this morning they find themselves even more surprised. 10yr Real rates took a 20bps dive yesterday, while breakevens widened and nominal yields fell 10bps. Some combination. We even read many reports of TIPS dealers receiving requests from accounts that have never traded TIPS before which we read as a classic mania-like/capitulatory signal. TMM remembers all those equity accounts selling EURUSD at the height of the Europanic, buying Libor-OIS spread wideners, as well as buying BP CDS at 1000bps. Receiving a message from an FX shag talking about real rates and TIPS yesterday afternoon comfortably fits with this hypothesis (unless of course this was an example of a macro-blog positive feedback loop).
But TMM can't help but wonder how much of the current market excitement is also due to "Bigfiguritis". A disease which is seeing outbreaks of almost pandemic proportions. Cases have been reported in Eur/usd with 1.4000, dow 11000, NDX 2000, USDKRW 1100, AAPL 300 and even Palladium at 600. The Goldbugs have just got over a case at 1300 and are in remission until 1500. Oh and whilst on Gold, we can't help notice that the move in gold has not been driven by ETF flows but more by miners removing their remaining hedges. All we can say is that there is less protection for the producers in the market than a Bay Area sex party in 1978. Let the band play on...
Bigfiguritis is highly infectious and historically was transmitted via whispering. However, modern means of communication have seen a surge in cases transmitted by the media via electronic methods. Bloomberg is a prime culprit.
Signs and symptoms - presents as irrational binary behavioural responses to normal curve distributed probabilities, accompanied by hysteria, fevers and agues. Extreme cases may elicit a rash of highly infectious parity party invitations. Symptoms can also present similarly to "St Vitus' Dance".
Treatment - Bigfiguritis in FX patients normally responds well to a simple dose of "WELL, TRY INVERTING THE PRICE AND TELL ME HOW YOU FEEL NOW". Recent studies in EUR/USD at 1.4000 have seen very good responses with follow ups of "SEE? IT'S JUST 0.714285714 - NOT SO CLEVER NOW HUH??" However, if there is no response it may be a case of the often fatal Parityitis, which does not respond to price inversion and is currently endemic in Australia. The only known treatment for Parityitis is removing the patient from the source of infection and palliative care. Bigfiguritis in other asset classes is harder to manage as reciprocals of stock indices and commodity prices are often rejected by the patient.
Complications - recovery from Bigfiguritis and Parityitis can be a long process with patients often suffering from a feeling of deep loss. A person may report feeling "sad" or "empty", may cry frequently and exhibit irritability. This should be managed with either "Don’t worry there will be another one along soon, I'm sure" or with "Well, we all thought it would get there, never mind". However, Bigfiguritis in the media or broker market presents no such ongoing complications with the patient swiftly forgetting and even denying they had ever suffered from it.
The Great Bigfiguritis of 1300:
So for today we will sit quietly - gowned, masked and gloved - trying our damnedest not to become infected as we hand out treatments.