Swimming with the Sharks

Tuesday, December 07, 2010

Bounce-time Baby. We are happy with yesterday's thoughts as today the scramble to de-leverage the stress trades grabbed hold with the world looking just like an old fashioned "risk on"/"bash the Dollar"-fest. Usually at this time of year, TMM are cursing Voldemort and his Death Eater chums for coming in with a massive Euro "buy" programme. The past few weeks they have been somewhat absent from the market, but TMM knows that Voldemort loves to screw speculators, so to come in right now when the market is trying to be bearish Euros would be "very FX".

Commodities are all screaming higher too and though oil took a bashing in the back end yesterday and the soothsayer signals suggest a sell, there appears to be a rampant background chat of $100 around the corner which no doubt will suck in another round of spivs short term traders. So rather than "Red Adair" it we' d rather let it burn itself out.

But there really hasn’t been much Macro change - it feels more like the positional Micro (though we are sure that the world will be allocating retrospective Macro news headlines to explain it all). Now with everything going just so swimmingly with our bounce view and us being the stupid bored adrenaline junkies that we are, we thought it fun to do the equivalent of going for a swim at Sharm el Sheik and raise the matter of our nemesis. Duck! Incoming Spam Tins!

So TMM have dusted off their trusty Gold-Real Rate charts and found to their surprise that since the QE2 set sail sank, Gold has diverged significantly from real rates. Indeed, while during the May Eurozone turbulence, both Gold and Real Rates moved in unison, excepting a brief QE2-fade trade, Gold has pushed to new highs, while real rates have crept back up to where they sat in late-September. To date, TMM's view has been that Gold is only a bubble if US Treasuries are, because the moves in Gold have been fully consistent with those in the Treasury market. But this is something different, with the Gold vs Real Rates relationship suggesting a 14.5% valuation gap (the largest we have noticed since 2008 - see chart below: white line - Gold, orange line - 10yr World real rates) and increased chatter about Gold being "the true" reserve currency. While we generally try to stay clear of these quasi-religious debates, it's looking increasingly like Gold is getting a bit "frothy" again. Of course, this divergence could just be year-end balance sheet-related as dealers (and leveraged money in general) have been caught long USTs at the wrong levels. TMM are just as wary of putting on large RV trades just before year-end, but it might make sense to begin scaling into long Treasuries vs short Gold betting that this relationship snaps back. The one worry we have, however, is that now that Europe has had its fiscal crisis, the next fiscal domino to fall (Uncle Sam) could play havoc with this trade. But that is probably next year's story.

The Sharm el-Shiekh toe-dipping trade is the GOLD/UST one, but the full immersion, Steve O, Jackass trade is Short XAU/EUR (see chart below). We are going for the latter. Yeee haaaaw!

Posted by cpmppi at 10:55 AM  

16 comments:

Yeee haaaa on cybrwrs/netswitch/swedishp0rn trade also...

Anonymous said...
12:17 PM  

you need a new soothsayer - new high by oil now.. can't see any reason for a soothsayer/chartist to have been worrying about it..

Anonymous said...
12:22 PM  

yes exactly, that's hat we meant about not trying to "red adair" it (forcably put out the oil blow out) rather to let it run its course and not touch it.

cpmppi said...
1:52 PM  

Am I wrong, or did the XAUEUR take a dive just after your comment hit the email? I guess MM moves markets now. A complement of sorts to be followed by punters, eh?

Glendokid said...
4:14 PM  

The new (T)MM seems to trade Gold from the short side rather better than the old MM.

Anonymous said...
5:42 PM  

The yield on the long bond is usually signifcantly higher than the yield on gold, although that fundamental observation hasn't prevented shorting precious metals from being The Widowmaker trade of 2010.... LB has lost several small toes in this area.

Leftback said...
5:52 PM  

Anon 12.22 - The Soothsayer is asking if he can have his job back please?

Glendokid - Your email notification was probably a product of the vagaries of e-land as the timing of the post itself did not match the fall, which seemed to tie in with US Stock market open. God knows why. But don't be fooled by randomness. It's an unfortunate rarity.

Anon 5.42.. Where do I start. this is probably a product, again, of timing. As anyone who knows me will attest, this member of TMM has or rather "had" been a gold bull since Gordon Brown showed the bottom in the late 1990s. The problem I now have and to be frank have had for the last 9 months, is that every reason I bought it has now played out and I am amazed that there should be a single person on the planet that doesn't know the story. So as far as I am concerned its into "pick a number" territory. One value is as good as the next. And for that reason (as they say on "Dragons Den" in the UK) I m Out. But playing the opportunistic counter mob pull backs. - still too many JBTFDipers around.

LB .. Aye aye.. Add it to the list of Widowmaker trades that normal involve the words CAD, UST, YEN or ZAR.

Polemic said...
8:50 PM  

Not the best day for Goldfinger but it's Mr Bond who is looking decidedly shaken, although it was a good day for the Compression trade (Long HYG:Short TLT).

Not a lot of fun for holders of total market ETFs like BND and AGG of late (bonds can go down...?). Our hosts and many visitors to this blog called this train wreck and nimbly avoided the carnage !

Anonymous said...
9:07 PM  

GOLD/UST

Am I the first to spot that spelling, or the last?

shtove said...
11:20 PM  

Shtove .. lol .. you are a good man- well done ! Well spotted. Thank God it wasn't wasted . With that and the famous actress spot, you frighten me.

Polemic said...
11:28 PM  

Though if we're talking fiscal trainwrecks Japan has got to go first.... though their munis aren't nearly as screwed as the US.

Just saw an Aeropuertos Argentinas bond deal come out..... its easier to sell Argy munis and infrastructure bonds than US ones now. What does that say?

Nemo Incognito said...
6:03 AM  

How have you created the world interest rate CIX? It is awesome!

Anonymous said...
8:46 AM  

Anon 9.07

Just HAD to use your Goldfinger idea as the title for the following post . Love it . Thanks.

PP

Polemic said...
9:55 PM  

Twas LB. But I think the original MM created the first post on Goldfinger and Mr Bond...

leftback said...
10:24 PM  

you sly old fox LB.

re MM .. Yes he did, But in nowhere near such a timely and pertinent manner.. !

Polemic said...
10:37 PM  

Yer welcome, mate.

LB has been in stitches this week listening to people asking: "wait, if yields are going up, why is my fund going down..?"

What a good week for "The Compressor" (HYG: short TLT). Now if only Voldemort would co-operate with "The Widowmaker" (Short Ag, Short Miners) !!

Leftback said...
10:47 PM  

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