Friday, November 05, 2010

Peripheral Vision

Why oh why did they allow red wine to go on general sale before they found an antidote.

Dr Market Q.E. E.C.B. BoJ. BoE. RBA. has sat a few tough exams this week but its not yet over. Today it's going to sit its NFPs. A breeze compared to Wednesday's ordeal and we kick off with expectations of a "better than expected" expected, expected loop. In true Gone With the Wind style, "Frankly my dear I don’t give a damn" but we are guessing that there is a fair asymmetry of risk with them much more likely to stimulate USD buying rather than selling. And that is only if one other function doesn’t beat it to it...

Because today... TARA!!! (trumpet noise, not a play on the name of the house in Gone with the Wind) someone has noticed the Euro peripherals. We have had this brewing for some time yet nearly everyone has dismissed the theme as "no-one cares anymore". Funny thing is you don’t care as long as the price hasn’t moved. But as soon as the price starts to move and you need to blame something you suddenly do care and, bosh, you all jump together. Yet the story hasn’t changed, just the price.

So back to those prices, Irish CDS new highs (ok, there is debate as to whether CDS is actually a good measure of anything "real" or not) and FRA/EONIA is "all bid, no lid". Euro FX-crosses have taken a beating (thank you, EUR/CHF, you are a welcome green number on the P/L), our old fave the MIB index is not going up and the IBEX is positively negative with its trend line truly bust. And in gossip-land we even have the old favourite rumour of "a Spanish bank with liquidity problems" being dug out of last May's dusty notes and being recycled, though we think this unlikely as the ECB appears to have taken on the mantle of "lender of last resort but don’t tell anyone we are doing it" and the latest talk is that it was confusion with a FunRun the bank was organising. As we type, the first punchy call "*UBS ADVISES INVESTORS TO BET EURO WILL WEAKEN TO 1.29 FRANCS". We note they are invoking the old Ex-US investment bank rule of "Never combine a price target and time frame in the same forecast". A classic "Get out of Jail free".

G20 looks like its going to be a bundle of laughs. With headlines such as "*SCHAEUBLE COMPARES QE2 WITH CHINESE CURRENCY POLICY" you really have to wonder if its worth revisiting our "Nineteen-Eighty-Four" theory.

We hate to say it but the USD may meander on QE fallout vs Euro-woe, however, you would have to think that both functions are god for gold... Sorry "good" for Gold... The god Gold. In fact, we were wondering yesterday what God's number plate on his little car (a Honda Pious we assume) would be. And we started looking through the reg plates available on the UK sites. Though GOD 1 was unavailable, having been bought by Gordon Brown we assume, we did find a useful set of XAU numbers available. The best being G20 XAU, which can currently be purchased here for £310. Unfortunately we haven't got time to trawl for all suitable market plates available so we invite you to use that site to come up with suggestions matching available plates and who you would give them to.

Happy NFP day...

14 comments:

Nic said...

Great call on EURCHF.
Excellent timing

Leftback said...

CB intervention this weekend, anyone? Now that Bucky has finally rallied from his death bed on the jobs report, how about the BoJ decides to sell yen and gold and buy some dollars? That would really be a pain trade for an awful lot of punters....

Leftback said...

Weird correlation breakdown today.

DXY, spooz, gold and silver all up. Something is about to change. Maybe we switch back from a dollar carry trade to the yen carry trade. After the latest installment of the Greek tragedy, of course.

Polemic said...

thanks Nic

hey LB , feels like mr and mrs Bollox-innit's son Saul has turned up doesnt it. But equities actually have every reason to take off now but retail are still clinging on with bearish determination. Its still very hard to sell your fund to retail if you publicise you are overweight equities. and much easier if you say you are underweight.

FX said...
This comment has been removed by the author.
scrilla said...

betting contrarian is dangerous and poor risk/reward. just go w the flow + massive leverage

Anonymous said...

God would ride a motorbike.

FX said...

TMM,I found this the other day:

Gold is a commodity money, it ensures a long-run tedency toward price stability.

The reason in that the purchasing power of an ounce of gold, or what it will buy in terms of all other goods and services will TEND TOWARD EQUALITY WITH ITS LONG-RUN COST OF PRODUCTION.

Allan.C.Shapiro ( 1996!)

Come on guys , its not that easy is it.

Skippy said...

Excellent posts over the past few days. Skippy has just spent a week in China, admiring all the lovely new vacant buildings in Chongqing.

However, real estate demand remains firm and it appears as though the property tightening measures are not having much impact in some cities. The bus load of Taiwanese investors at one development were also very bullish and also my taxi driver in Guangzhou who had three properties.

True, a lot of affordable housing still needs to be built, but it still feels cyclically overheated to me.

My sense is that the PBOC is more hawkish. They should be, with negative real rates they are arguably 300-400bp behind the curve.

Leftback said...

"New Zealand’s dollar dropped 1 percent to 78.77 U.S. cents after a vine infection was discovered at a kiwifruit orchard." reported Bloombollocks News.

Heh heh, nothing to do with FX specs taking profits, then. Soon they will be blaming the boll weevil for cotton prices and rust for the price of steel....

Polemic said...

LB - That kiwi fruit news - Haven't passion fruit and mango taken over as the exotic fruits of choice? apparently not - the Chinese are ramping kiwi fruit demand as they are now buying them as a diversification of their currency reserves, ahhm http://www.whatsonxiamen.com/wine_msg.php?titleid=584
but http://www.bayofplentytimes.co.nz/rural/news/bio-threat-hits-kiwifruit-industry/3929188/ has some interesting facts on just how big the business is.

Anon- Yeah fine point. Do you think he wears a helmet? Little point huh?

FX .- the problem with that argument is TIME. If everyone wants it NOW then production costs aren't that significant. But yes point taken.

Skippy, thats VERY interesting thanks and would love to hear more. It does beg the question tho , if the taxi driver has three properties doing so well, why is he still driving the cab and earning a squit fraction of their worth? A sign of just how levered they are?

Skippy said...

Hi Polemic, it is reasonably common. There is a lot of "grey" income in China. Which might explain why affordability is ok. The "official" median income in Chongqing is around $US1,500 p.a. Clearly, that would not support a mortgage on a $US140,000 apartment. I neglected to mention that the residential vacancy rate in Chongqing is approximately 30% (not official). China is clearly short of adequate "social" housing, but there are signs of speculative excess in some areas.

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