Thursday, October 28, 2010
So the ECB's 3m LTRO ended up with a larger take up than expected, causing short-dated EONIAs to collapse (see chart below, white), and so, of course, the Schatz yield (orange) decided it was in fact not going to follow. This is a common frustration for TMM - it's difficult enough getting the Macro right let alone making any money off it. Nevertheless, TMM firmly believe that as the money markets in the Eurozone thaw, along with Club Med worries once again surfacing that the front end will gradually rally.
In other news, TMM would like to pay their respects to the passing of Argentina's Nestor Kirchner, for the reaction in Argentine assets was simply astounding, with the stock market up 10%. Now TMM don't bear any ill feeling to President Kirchner, but it just goes to show what can happen when economic policy is run essentially by printing money to fund deficit spending and ignoring inflation by claiming that it has only gone up due to "one-off" factors. Kirchner, of course, decided to alter the inflation statistics such that these large "one-offs" were stripped out, something that reminds TMM very much of that other guy that loves printing money and ignoring inflation by claiming it is due to "one-offs"... their arch-nemesis, Mervyn King. Of course, he isn't quite so explicit as to alter the actual statistics, he uses another approach: rubbish one index, and focus on "inflation ex-energy, ex-food, ex-VAT, after currency moves, ex-..etc etc". TMM's blood pressure is rising so they won't comment on Adam Posen's claims that "if the UK recovery was going to be inflationary, it would have been evident by now" aside from pointing said Posen to RPI running at 4.6% y/y.
But back to printing money. With markets in "QE-on/QE-off" mode rather than just "risk-on/risk-off" TMM thought that it was worth considering whether QE expectations were getting a bit out of hand over the past week and would like to invite readers to post their own metrics:
You know QE expectations are getting a bit out of hand when...
- Goldman calls for $2trn.
- Rumours fly around that the Fed may eventually do $4trn.
- China starts complaining that the Fed is about to purchase $1trn of USTs despite buying a similar amount themselves.
- Xerox is up 36% since Jackson Hole.
- Your Mom calls you asking what QE is.
- The BoJ buys a promissory note from TMM for $1bn whose principal is equal to their combined yearend bonuses price in Gold today.
- IBM issues a super long bond.
- Mexico issues a really super duper long bond.
- You find out that both of these organisations have a guy who had Bernanke as a thesis advisor in their Economics PhD program before joining their respective Treasury departments.
- Greek tourist-tat shops sell QE wallets three times the size of normal ones.
- The guy that trades European Telecoms on the Equity floor explains to you how QE works.
- The TDI (Taxi Driver Index) flashes Red when your taxi driver starts using QE to justify the Gold he bought in May.
- A word score of 36 in Scrabble is nicknamed "scoring a QE" in old folks homes.
- Your FX sales shag starts giving you minute by minute updates about 10s30s, but doesn't know what "10s30s" is.
- Handing out an extra 200,000 quid to all players when any one goes bankrupt is now mandatory and in the official rules of Monopoly.
- The DPI (Dinner Party Index) flashes Red when you are in Islington and the Guardianistas around the table start debating just how much more QE is needed.
- Your Mom calls you back and asks if she should put her 401k in Gold to hedge against inflation.
- Bill Gross, an otherwise nice guy, goes on a rampage, and while not naming names is clearly not happy with the FOMC right now.
- The UK decides to privatise the Royal Mint.
- Your Mom calls you again and explains to you how QE works.