Monday, October 18, 2010
We might have just set a new record for the amount of time the market has been able to focus on just one subject, but at last the Attention Deficit and Hyperactivity Disorder kids are restless. It's looking unlikely that they will be able to maintain such QE focus for the 2 weeks running up to the FOMC, and they are looking for new toys.
So what's in the ADHD market kids' toybox?
The new mortgage scandals - A new version of an old toy - like computer controlled Lego. This is interesting but not good enough on its own to shock the market. In fact it may well suit policy. You take the banks (who after their disgraceful display of two fingers to the world with their 2009 profits need a public slap) and stitch them up with a "Kerviel"-type financial penalty hanging over their heads. You then either arrange to loosen the noose around their necks in exchange for more responsible behaviour OR you insist that they do indeed empty their coffers to feed the starving populace and then use any further QE as a life-support system for them as they cope with that together with Basel III. This effectively means that any new QE goes to Joe Public end-user instead of getting locked up in corporate balance sheets. Neat, however it is once again the over-profligate borrower who gets bailed out at the expense of the cautious saver.
Plaza 2 - 1980s classic Cabbage patch kids. While the market is rife with chat that November's G20 meeting will yield a Seoul Accord, TMM just cannot see it given that the man who woke up the World's media to the idea of a currency war, Senhor Mantega, is apparently not going to be attending. Now, whether or not this is a US/China/Europe issue, whereby the rest of Asia will just follow China's lead, is irrelevant. The G7 ceded the lead in Global Policymaking to the G20 and, what with the BRIC craze, it seems very unlikely that such a monumentally important policy move would happen without the Brazilian contingent. Of course when the trade wars do boot off, we are waiting to buy every "next door" country possible, as the likes of Mexico fit the last screw in otherwise Chinese goods, label them "Made in Mexico" and ship North. There is no better business than acting as a middle man between rich folks who hate each other.
Europe - last toy to be played with, never properly put away, with pieces now hidden under the sofas and rugs. A pet frustration here is that the eurocrap has successfully been swept under the US QE carpet, but now is a perfect time for someone to ask "what's that smell"? Can the market really ignore 1.2 million people on the streets of France, fuel supplies depleting and Charles De Gaulle airport under threat? Well yes, they obviously can, as the market felt it was Trichet's comments effectively isolating Weber that were more influential. But as we have mentioned before the French students always get an "A" in rioting and are normally forgiven these days with patriotic sighs of "Ahhh, fond memories of 1968, let them have the fun we did." Germany must be wetting themselves in mirth as they see the own goals around them while they go on to print ever more encouraging data.
Gold - The Meccano at the bottom of the box, been there forever, you get excited about building it into something, only to find half of the necessary bits are missing and it collapses. God forbid we say anything on gold. We know what happens. We trust that the FT journos who have been pumping out "gold bubble" stories since Friday have had their names changed and moved to safe houses to avoid the hail of AK47 bullets, tins of spam, beans and bottled water that will be flying their way.
China - Scrabble. Picking real words from random letters. Comfortingly familiar and always good for a rainy day. We sometimes think that Chinese officials just use a "word bag" to come up with their statements. We just tried it and got " Policy Wen yes US higher no FX Chinese interests steady correct". See? Almost a Reuters headline!
But perhaps this market is even more ADHD than even we expected and, after looking in the toybox, gets instantly distracted again and rediscovers the QE game on the floor. Price action so far today seems to suggest this may be the case.