TMM can’t help but notice that with FX moves like this all reasonable expectations or predictions of price levels makes discussing commodity target prices or inflation pretty surreal. It’s a mathematical fact that if the dollar goes to zero then silver in dollars goes to infinity and for the meantime the dollar debasement theme song appears to be Primal Scream's "Don't Fight It, Feel It".
As one astute market observer pointed out in a recent Bloomberg chat “it's like teenagers with a bottle of vodka in the park”. Quite. Despite all the fun of playing this game, certain members of TMM are having a recurring dream where they are on the train on the way to school and fall asleep. When they wake up they are at the last stop and the train is full of Terminators and you are John Connor.
Having played some of the spivvier metals some of TMM are taking their cash off the table since these charts look awfully CTA heavy. Similarly the price action in some previously dormant gold names gives us pause: sure it was a value proposition a month ago, but 40% in a month? Come on.
So if dollar debasement/long gold and precious metals feel a bit crowded where do you go? The problem is that the “lean against Asian Central Banks” trade has run really hard and the legislative action has already ratcheted up. Thailand has imposed taxes on local FX government bonds’ income payments, and look at the chart below: its as if everyone woke up post the euro crisis and decided to load the boat on Asian carry. Indonesian 20 year, Thai 20 year and the Asia Dividend yield index from ze Germans have all done exactly the same thing. Returns that haven’t been realized in FX have been made on yield compression, big time.
While equities still look good to ok they might not all do so if the CBs throw in the towel and these currencies are up 10-15%. There are signs of this happening with Russia moving bands yesterday and MAS allowing SGD to strengthen today.
We are also not blind to other catalysts out there to turn some of these acutely overextended trades around. QE we have discussed extensively but no one seems to think it will do much good for anything except asset prices which might give pause to the Beard, especially given what the theme song of the US house is likely to be post midterm elections. We even now have Bill Gross and Medley (allegedly) weighing in on the issue, But much more importantly Mr T has laid down a marker in Gold, with a landmark interview on Bloomberg.
All we need now is a call on EURUSD from Gisele for a full house.
With Ron Paul and his tea bag/party/Dachau re-enactment society/whatever cousins calling for action on China and less of the monetary easing Ben Bernanke is calling for it may not be the most politically prudent move for the Beard to print here if he wants to keep his job. Even some of those Southern Democrats and Freshwater Economists including Hoenig and Fisher on the FOMC are calling “no more”.
Watch this space. TMM are moving to more liquid positions and keeping an eye on well informed Asian CBs – something is up. If the walls start bleeding and we wake up at that last train stop in a carriage full of killer robots we are going to assume that our good macro trip of the last few months is definitively over courtesy of the Beard and/or some deal, however shoddy, on global imbalances.
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