Friday, October 08, 2010

Nobel Currency Peace Prize

As signs begin to materialise of a turn in the Dollar and Gold after Wednesday's TIPS-mania (even if it may only prove to be a temporary pause), TMM was amused to see their arch-enemy Voldemort lower the USDCNY fix by quite a chunk following their holiday. Masterful Realpolitik ahead of the G20 meetings. TMM was also amused to see Moody's floating the suggestion that they might upgrade China's sovereign rating which the FX market took as a reason for AUD and the likes to jump 25pips. Hmm... given that the evil capitalist running dog ratings agencies have usually been well-behind the curve on ratings, TMM struggle to believe that this is new news, but whatever... In terms of la guerra de la moneda, TMM are re-reading Nineteen-Eighty Four for guidance as to what happens next as they have noted eerie similarities between its perpetual protagonists of war, Eurasia, Eastasia and Oceania and current global FX policy.

As opposed to the Nobel committee which is clearly a bunch of New York Times editors moonlighting on a Swedish boondoggle. TMM applaud the awarding of the Nobel Peace prize to a Chinese dissident (certainly more deserving than the dissident in the White House). But we would like to propose that next year the Nobel Committee introduce a Nobel Currency Peace Prize. Malaysia and Australia being the obvious contenders. We would also suggest that it be retrospectively awarded to Japan for years 2008 and 2009, but then instantly rescinded after recent doping tests proved positive.

But back to the QE-hysteria... Mr Bullard put the cat amongst the pigeons by suggesting that QE is not a done deal, and that the economy hasn't slowed enough to make QE obvious. Now, while TMM expect (as does just about everyone else) that the Fed will definitely do QE2, whether there is 350 Gigabucks or 1 Terabuck priced into the market, it is clear that such a comment coming from the Fed member who was the first to argue for renewed QE a few months ago means that the Fed is unlikely to follow any shock and awe type approach. And that means that QE is overpriced, as far as TMM is concerned. Those who still own the best trades of the last month or two probably will need a stretcher to get them off the pitch at this point: Palladium and Silver are both down 4.5% or so and if April/May is anything to go by the cliff diving may have only just begun. TMM have learned the hard way that trying to hold this stuff all the way to the top and sell after the turn never works – better to take the money and run more often than not.

And finally, to today's random number generator... no, TMM is not talking about the Euromillions lottery, but the Non-Farm Payroll print. Why people continue to pay attention to such a statistically insignificant number continues to baffle TMM but, for the record, TMM's private payroll model (see chart below, model - orange line, official private payroll change -white line)is forecasting a zero private payroll gains. Against the Bloomberg consensus of +75k, that would be a disappointment (although, to caveat, TMM's model underestimated official payrolls for a good part of the last year). Good luck to us all.


karen said...

excellent post as always.. i believe the readership is dumbstruck at the moment.. i am, at least. and, watching the US indices trade in lock step %-wise has become the new normal.. what synchronicity!

Leftback said...

It's a splendid time to raise cash as we ascend the last section of the wall of worry. The likelihood that there will be a QE of lesser magnitude than at least one market participant expects is quite high, and since everyone has already bought (especially bonds and shiny things), who will there be left to buy when that disappointed participant sells?

Polemic said...

With you l.b. and thanks karen. Yes its all one story.

I have to say.. Charles.. you were right on eur/usd. I really didn't believe the US QE story could swamp the Euroblx. Good call sir.

Yours, a humbled yet still sceptical ,

ps. How strange ... the word verification for this comment is "soros"..

Charles Butler said...

Referring to me (I guess?)

That 12 cents outstrips my wildest dreams, but there is a lesson to be taken home - that the marginal returns from tsunami sightings have been reduced to zero while the desire of the media to find one remains bubbly.

Forget the euro peripherals, the country with the big pegged currency problem is the US.


FX said...

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carlalgernon said...

Just a detail...the Nobel peace prize is not awarded by any Swedish committee, that prize (and only that) is decided in Norway. This is due to the two countries at the time of Alfred Nobel's death being a union (Norway broke it in 1905) and this would stretch out an arm of unity.