Friday, July 30, 2010


Annoyed at having to pay a $200k spread to get into your forward-starting var-swap? Frustrated that you have a team of quants working 15 hour days to value your rates book?

We at FX Punters Inc. have a solution. Margin-free trading with incredibly tight spreads able to capture any market dynamic!

Think European peripherals are smoked?

Think stock markets are oversold?

Think the Fed is on hold forever?

Call 1-800-PUNTERS today.

Thursday, July 29, 2010

Merv has let the genie out of the bottle

If there's on thing punters can rely on these days, it's for Mervyn King to sound as dovish as an albino pigeon trying to get into a "doves only" night at the disco. And yesterday was no different, with the Swerve downplaying the recent strong GDP print and bleating on about how spare capacity is likely to pull down inflation to target. Well, it's hasn't yet has it? Team Macro Man is sure it is not alone in questioning the Bank of England's credibility here in the context of consistent upside surprises both to its own and market-based inflation forecasts (see below chart of the UK inflation surprise index). The Bank repeatedly argues that the (supposedly) large output gap is likely to bring down inflation and that it should look through the "one-off" shocks of VAT and the currency depreciation of the past few years. The trouble with this line of argument is that it is utter bollocks - the effects of currency depreciation and VAT have been in their (and the economic consensus') models throughout all of these upside inflation surprises, yet we have *still* had them and there is no sign of disinflationary pressures (excepting those emanating from the US and Europe). Something else has to be afoot.

So first of all, the currency. The standard literature suggests that over the past decade or so, the pass-through of import inflation to domestic prices, more broadly, has fallen. But the evidence of the past few years seems to suggest the opposite - the below chart of the Broad Nominal GBP TWI YoY vs. lagged core-CPI YoY adjusted for VAT cuts/hike (more on VAT below) clearly shows CPI as being quite a bit higher than would have been expected purely as a result of the FX move. It seems to TMM that there has clearly been some pass-through into domestic prices, perhaps related to the gradual loss of credibility by the BoE...

...which brings us on to our next subject: inflation expectations. In contrast to just about everywhere else in the world, UK inflation expectations - both market-based and survey-based - have moved quite a bit higher in response to the consistent upside surprises in inflation. TMM does not view this as a coincidence given that since Mervyn King became Governor, he has had to write no fewer than 14 letters to the Chancellor explaining why inflation was above 3%, and precisely zero explaining why it has been below 1%. That's some skew. The BoE's own inflation expectations survey:

The market-based measure (see below chart of 5y5y breakevens) is similarly higher than the pre-Oil bubble average, though it has come down over the past month in line with the deflationary fears in the US and elsewhere, but there is not any room for comfort here:

So back to the BoE's other excuse, VAT. TMM has constructed a Taylor Rule (see first chart below) for the UK based upon core-CPI and the unemployment gap, and also one that attempts to account for the VAT cuts and hikes of the past couple of years by removing indirect taxes (of which VAT makes up the majority). First of all, purely based up core-CPI (brown line), the rule suggests that rates should be close to 3%, and core-CPI ex-VAT (purple) suggests they should be about 1%. The lines for 2010-2012 are based upon the median economist expectations, their high and low range and also taking the median expectations and adjusting them for the VAT changes introduced in the recent UK budget. From the median expectations, it's a little easier to see why Merv & the gang are so dovish, but TMM must refer the reader to the earlier chart for inflation surprises and the second chart for UK growth surprises. The consensus, and the BoE itself, have been much too pessimistic on growth and also much to optimistic with respect to inflation. TMM is of the opinion that given the above chart of FX pass-through and the rise in inflation expectations, the bet still has to be on inflation stubbornly refusing to come down, and the optimal policy setting being closer to the "high" end of the below forecasts, rather than the "low" end.

Now Team Macro Man may not have its facts straight (and is happy to be proved wrong), but they seem to remember that the Governor is sitting on a juicy £5m index-linked pension. Can anyone else see a problem with that...?! One bright punter pointed out to TMM yesterday that Merv has to top up his pension somehow now that the re-indexation from RPI to CPI has cost him dear. Perhaps TMM is being a bit unfair, but it seems to us that Merv is consistently behind the curve in terms of policy response, missing his lender of last resort responsibilities in August 2007 (and being jointly responsible for the run on Northern Rock), being hawkish in August 2008, then panicking in November, and now seemingly advocating an increase in QE. But we digress...

Given that the consensus forecasts above already include the expected drag from fiscal consolidation, it seems to TMM that the risk is for (dare we say) stronger-than-expected growth and worse than expected inflation surprises. The UK has an inflation problem and the Bank of England are asleep at the wheel...

Wednesday, July 28, 2010

Shotguns and Baked Beans May Depreciate in Value Too

Every now and then TMM has the satisfaction of making money, and making money for the reasons they expect. In macro, that can often be more rare than one may think. To wit, we have only this to say to the gold bugs and other trolls that have occasionally frequented this blog.

Gold has been looking pretty weak for a few weeks now to TMM and not because of politics, religious affiliation or the recently cancelled Indian wedding we heard about from a friend of a friend. Quite simply, the flows into ETFs (much of it composed of retail) seems to have gone a bit flaccid as of late. Orange is spot gold, white is total ounces in all the major ETFs - principally GLD US and GBS LN.

That may look like a small blip on a long ride up to many of you but if you look at 2008 during a short and sharp period of liquidation of positions, gold got brutally beaten down to the tune of 25% - and fast. Similarly, a relatively naive regression of gold against total ounces in ETFs the day before yields a very respectable R-square.
Note that the errors are a bit heteroskedastic and the residuals do seem to bunch - there's more going on here but TMM isn't too keen to reveal all their tricks at once. The main point is clear though - when trading a investment that has no objective measurement of value and where demand depends entirely upon how much people want it for the sake of owning it then the usual analytic toolkit of commodities analysts is pretty pointless.
To that end, trading gold in USD is pure speculation but trading it against other things might be less so. Above is the chart of gold/WTI oil. It would seem to TMM that if we are in a recovery and if the new energy bill is going to require that oil companies ensure that all sea otters in the vicinity have hazmat suits when they drill then maybe, just maybe gold is not the best inflation/debasement trade out there. Sure gold is "under-owned as a financial asset" but so are TMM autographs - maybe inflationistas should focus on things that are in short supply and that people actually need rather than living out mediaeval fantasies.

Tuesday, July 27, 2010

EUR - a turd no more?

As regular readers will know, Team Macro Man fully subscribes to the view that the obvious trade is more often, than not, the right trade. And for TMM, at least, it is seeming increasingly likely that the mighty (or not so mighty) EURUSD grinds higher over the course of the summer. If the EU Stress Tests were not a real stress test of the EU banking system, the past seven months have certainly been a stress test for the Euro itself, becoming the instrument du jour for expressing bearish views about Europe, after the headless chickens in Brussels powers that be decided to ban shorting of just about everything else. We have had the whole framework of the Eurozone called into question, and while policymakers were late to the party (though perhaps not as late as Hank & Ben in 2008), somehow, against all the odds they seem to have pulled it off... at least in the near term. And while TMM's concerns over the medium term remain, they are struggling to think of reasons why the short-squeeze in Eurozone assets cannot continue over the coming months.

Taking stock, the Eurozone now has a Sovereign safety net - in the form of the EFSF, it has managed to negotiate the July debt issuance "hump" without any problems (hell, even Greece managed to sell some T-Bills to foreigners...), it seems to have either fooled or calmed market concerns about bank solvency - at least, judging by the reaction in EU bank CDS and Equity prices (see chart below; white - EuroStoxx Bank Index, orange - EU Senior Financial CDS Index), and the implementation of fiscal austerity programmes across Europe have helped to calm market concerns about sovereign solvency - Greece's progress both in halving its budget deficit and moving into current account surplus is a notable example of these measures beginning to show signs of success.

As the analyst community pointed out yesterday, with the Stress Tests out of the way, and transparency in terms of exposures (if not realism about actual capital requirements) now available, markets will move to focus on the macroeconomic conditions going forward as these will drive loan losses and thus contingent capital calls upon the Sovereigns. TMM is very sympathetic to the argument that should the Eurozone economy begin to show serious signs of slowing down that a feedback mechanism between Sovereigns and banks will be ignited, and in such a scenario it is likely that the Euro gets trashed (along with a few other things, not to mention Sarko's re-election prospects). But for the time being, at least, as we pointed out yesterday, the European growth picture is looking reasonably good, as Germany & France have picked up the growth baton. Now TMM expect the data in Europe to eventually roll-over (as a lagged response to the US slowdown and fiscal tightening), but this is not likely to occur for at least a couple of month, and in the meantime the divergence of EU and US data surprises (see chart below; orange - US economic data surprise index, white line - EU economic surprise) is merely a tailwind for the Euro.

Team Macro Man have a long-held theory that the best trades arise when three conditions are met: (i) changing fundamental newsflow, (ii) valuations are attractive, and (iii) momentum/technicals are aligned. And here it definitely looks as though the newsflow has changed for the better and, although on long-term metrics such as REER (see chart below), EURUSD is pretty much fairly valued...

... on a shorter-term financial asset-based model (see chart below) based upon 2yr Interest Rate Swap spreads and the EMU Eonia-UST OIS Asset Swap Spread (which provides a Sovereign-credit input), the Euro looks as though it has a lot of room to it does based upon the ratio of European Bank to US Bank equity prices (hat tip to TMM's mate RightField):Finally, in terms of momentum/technicals, EURUSD seems to have comfortably broken its 100day moving average and punters, in general, still seem to be pretty sceptical of its 9% rally from the June lows.

Now TMM thinks this turd is just as smelly as it was back then, but surely the obvious trade is for it to grind higher over the dull summer months...

Monday, July 26, 2010

Seven crap banks failed a crap test

"Seven crap banks failed a crap test" was our favourite summary of Friday, but TMM, ever positive, have put on their rose-tinted spectacles to bring you today's piece.

Figure 1. - TMM at work

Firstly, the release comes on the back of a run of positive European data - PMIs, IFO, and even UK GDP have been well-ahead of consensus (the things a weak currency can do for you...). This, along with a run of weaker US numbers has led European indices to outperform, the Euro has recovered 8% off its June lows, and risk has been put to work more generally. Even the Shanghai Composite has stopped falling.

In the main event, quite a bit of ink/pixels have been spilled across The Street discussing the assumptions, rigour and implications of the Stress Test. It seems that the general consensus is that, in spite of the Sturm und Drang, it's more or less a non-event (aka "damp squib"). 7 out of 91 banks failing with EUR3.5bn of new capital needed was the headline that led to a number of unimpressed punters, but underneath the surface the tests were actually more positive in the amount of data opened up to the public. Indeed, this data has allowed a number of analysts to run their own tests, and show that if the bar had been set 1% higher, 24 banks would have failed, with about 27bn Euros of new capital needed; mere chump change as far as the market is concerned, and on the margins, probably a small positive for Europe.

So where do we go from here, now that the excitement is more or less over? TMM thinks that we all, including Mr Market, go back to sleep for the rest of the Summer. Goodnight and good luck! See you after Labor Day.

Friday, July 23, 2010

If you can't inside trade, make sure you know who does

Well it looks like news is gradually leaking out of further stimulus measures in China. This is not any particular news to Team Macro Man because we have been watching this announcement getting front-run silly in the high yield and *GASP* equities market for a few days now. Just look at the price action in Chinese steel names like Maanshan:

This is nothing compared to the rubbish that has been going on in the high yield space where China property bonds have been trading up about four points in a day. In all fairness, it started about a week and a half ago with steel traders: prices ticked up slightly and it seemed that all the liquidations of minor metals like Nickel and Zinc started to reverse onshore with speculative builds in warehouses.

While it would be fair to say that places like Hong Kong are finally taking some measures to prosecute insider trading, those who get in trouble are very much more the exception than the rule. So, if you aren't a tycoon who is immune from prosecution or a prince-ling then how do you trade these markets? It's one thing to swim with the sharks, it's another thing entirely to do so without the relatively reliable fuse wire steel cage that is the SEC.

The answer? Be a spiv. We TMM started out trading high yield and other very lightly-regulated markets, we quickly learned that some clients seemed to be just "too good" and would have to be priced accordingly. Now, without the informational advantage afforded to others we have learned to watch the tape for the kind of moves that are a trademark of someone buying the bejeezus out of the market, knowing something you don't. For Kovner it was the Russians, for TMM it's anyone with a red phone. So when things break out on NO news and policy is uncertain - just chase it.

There really is no point in the kind of deep dive financial analysis that has made the likes of of Jim Chanos a fortune if the rules of play aren't the same.
In cases, like this recent one in Indonesia - whether it was a screw up by the auditors, as claimed, or just behind the scenes shenanigans, one thing is for sure: if the auditors don't get fired and the worst thing you can get is a $55,000 fine for managing to "misplace" a few hundred million dollars, then companies really don't have any incentives to behave in ways that are expected elsewhere in the world.

The West's current financial reforms are doing nothing to flatten the global regulatory gradient as G20 purport to want. If anything, it is steepening, leaving financial markets with a choice of where to base themselves:

The West:Or the Thunderdomes:

Thursday, July 22, 2010

Mr Whippy

A tad volatile after Ben yesterday so we are a little busy today in our real jobs, but feel free to help yourself to an ice cream...

Wednesday, July 21, 2010

Elvis is Alive!

One of Team Macro Man's favourite pastimes is chuckling at the tin foil hat brigade and their most vocal leaders, the "bullets n Gold" brigade, but when reading this article this morning they couldn't help but wonder if Bloomberg had hired the authors of this site to the editorial staff:

"Deutsche Bank is marketing a tail-risk hedging index that gains in value when investor expectation of stock-market volatility increases, according to material the bank sent to clients. The so-called Equity Long Volatility Investment Strategy, or ELVIS, uses derivatives called variance swaps linked to the S&P500 that bet on the index’s volatility."

But (very poor) jokes aside, TMM is struck by the number of products that have recently appeared allowing suckers investors to "hedge" against tail risks. The news that the CBOE is developing such a product is perhaps the ultimate contrarian signal that the cult of the Black Swan... sorry, err... "propriety portfolio convexity hedge overlay to our alpha strategies" has reached its zenith. Indeed, the usual Wall Street product cycle starts with bank structuring desks creating some utterly useless exotic option structure designed to perform in the conditions of the last crisis period which is far too complex for the purchaser to value, resulting in said bank ripping the poor (or naive?) punter's eyes out. And market veterans will attest, the next crisis is usually caused by an "unknown, unknown", usually resulting in said derivative structure not performing in the way it was expected. In fact one of our maxims is "Correlations work really well.. until you put the trade on". Add to that the fact that the guys that sold it to you are the only ones that will buy it back - and TMM are exceptionally sceptical of any trade ideas with the words "structured" or "exotic" in. But we digress, the Exchanges, in their attempts to keep market share, often try to launch an exchange-traded version of these products, right as focus on them peaks (anyone remember SONIA futures, house price futures & Credit Default Swap Index futures?). You know when the Vampire Squid creates John Paulson an exotic way of getting short China that the credit bubble is about to burst... TMM suspect ELVIS is about to leave the building (sorry, we could not resist that one...)

Speaking of John Paulson, Apple's blow-out earnings are something of a gift to the reflationistas (Paulson, Einhorn et al) as it bails them out, somewhat, against their Gold & BAC holdings, as does the fact that, despite what appeared to be pretty poor earnings numbers, equities staged a remarkable rebound after holding the technically important 1050 level. Perhaps it was just a short squeeze, perhaps it has been misconceptions? TMM was surprised to read that so far, earnings beats are ahead of historical norms, and revenue beats are their highest since 2004. TMM expects punters to begin talking about the potential inverse Head & Shoulders pattern that would target the 1075-ish area.

The other big worry on punters' minds is the European train crash which, since Timmy G advised them to follow the "shut the f*** up" strategy, has surprised on the upside, with the data decelerating a lot more slowly than many expected, the Greek budget & current account data showing reduced insolvency and illiquidity risk (and aiding rebalancing), while EMU bonds appear only to have repriced to a new equilibrium around EONIA+110bps rather than continuing to collapse. The heavily stage-managed leaks of the stress test scenarios and pass/fails almost seems choreographed out of 1500 Pennsylvania Avenue.

But back to China. TMM has been struck, in recent days, by a creeping re-enthusiasm for a reacceleration of Chinese growth (just as the last of the economists had downgraded their forecasts...). Copper and the Aussie Dollar, refused to plumb new lows in the recent equity sell-off, and TMM received reports of sector rotation out of the Financials into Commodity names. Scattered mutterings are also trickling through that steel mills in China have begun raise their ex-factory prices. The chart below shows scrap Iron & Steel prices at Turkish ports, and appears to have bounced since late-June.

The Shanghai Composite (first chart below) also has been showing signs of perkiness as talk (whether real or not) of further stimulus, along with buying from domestic insurers has dragged the index 10% off its lows. But it is not just the locals that have been buying - in the rush to push money East, foreigners have been piling into any exposure they can get, such that some ETFs are trading at large premiums to NAV! (see second chart below):

While none of the above is enough to persuade TMM to abandon their view on "short-term high volatility within summer ranges", a break above 1100 in SPX would be pretty bullish when put in the context of the above. However, if we were to consider the recent moves as just big positions squeezes, then a move higher in risk would fit with a squeeze of the general beliefs we saw in our poll two days ago.

Tuesday, July 20, 2010

Roll Over Beethoven

Team Macro Man can't help but notice that the common theme of the summer thus far - gappy, trendless markets with no clear theme aside from slower (but not that much) growth may be coming to an end. Squeezes are happening across the board, indicating either some serious conviction on the part of some parties, or that positioning has got a touch too one-sided, with the winners doubling down and those bruised by the last few months' price action limping off into cash. Price action in commodities remains an amplified version of life outside of it, with one house allegedly deciding to corner the market for Freddo Frogs and Body Shop products. The wife and kids will NOT be pleased. Similarly crowded action in Yen crosses has led to more volatility as more observers expect Japan to go thoroughly Network on us.

Throw in a few more improbable events:

  • Greek Current Account moved into surplus for the first time since 2005 - something the optimists will point to as evidence that things are improving, and something the bears will point to as increasing the probability of a restructuring & devaluation, given the lack of need for external funding. This could be the first candidate for TMM's new Flying Donkey Award.

  • Some heavy volume early in Eurostoxx, which is either someone trying to freak everyone out or someone who is actually freaked out (and has a spare EUR 1.6bn). Who knows?
  • Has anyone seen a Eurocrat recently? Or have they all escaped down a secret tunnel to join their Euros in Switzerland before Friday's well-timed 6pm (European Time) bank joke test announcement. That maximises the head start they get on the markets before they open on Monday morning and find them missing.
  • The early whisper for The Vampire Squid's earnings is $2.04 vs expectations of $2. Now, in TMM's book, that's a $1.00 miss against the usual "Consensus plus a Buck".
Yesterday's poll was interesting too, thank you. So much for fat tails. Either this blog's readership is not representative of the market (to be fair, which passive equity manager would be reading this), or we are well out of court. Nice distributions around current levels with a bias to the "stress" side of things again (EUR/USD to dip, SPX to fall), but we were most taken by the disappearance of the Gold bugs, with only 15% thinking we will be above 1250 at the end of August, the same number as think we will be below 1050. Y'all out buying bullets...?

And all Team Macro Man can say is that it may be a Summer of going nowhere, but it's going to be a hairy journey getting there. The end of the week probably isn't going to be the snoozer that the Summer has been so far.

Monday, July 19, 2010

Computer says "No"

Just when you think bureaucracy can’t get any more idiotic... it does. After a day of mind-numbing stupidity at work resulting from a “computer says no” mentality worthy of an email post on this site, one of TMM's members went home to find out their car insurance had run out that very same day. Fine, no problem, we'll just ring them up and ask them to start it off again tout d’suite. "Ah no sir, even though yesterday your renewal quote was for X amount, as the policy has now expired it will count as a new quote and the price will be... wait for a moment, please, caller... 1.5 times higher". Huh? So you're telling me that in the space of 12hrs, your perceived risk of me crashing has gone up 50%? “No sir, I m not saying that at all. The computer is”. So thats twice in a day I have been sandwiched in a logic vacuum between two thinly spaced slices of stupidity. I think I have discovered the Casimir effect of stupidity and its all to do with virtual particles of stupidity arising in logic vacuums.

Which reminds me of the McDonald’s behind Harry’s on Boat Quay in Singapore which a few years back was running a half price 50c offer on cheeseburgers. Now, TMM is not saying they were regular customers of such establishments but “needs must” and every now and again a reminder of the splendid culinary delights of the West were needed to temper the wonderful local specialities. As such, one of TMM's members asked if they could do hamburgers at the 50c price too. “No sir, only cheeseburgers”. So after a complete failure to get anywhere with a growingly heated logical debate, he walked out... And then walked back in again:

TMM: “Do you cook burgers to order?”

Attendent: “Yes Sir”,

TMM: “Good , then I’ll have two cheeseburgers please... Without the

Attendent: “Certainly sir”.

We know how in markets logic and what the computer says often seem at odds. Just take the Euro/Everything rally we have been seeing. The mind may say "Yes" to running Euro shorts but the computers of risk management and the computers of trend models have all said “No”. Well actually its been more of an “Abort Abort Abort” + red flashing lights and that klaxon noise. The CFTC figures have seen some massive turnarounds in underlying USD positions over the past week with a swing from 3.6 Bln long to 5.4 Bln short. And if you are a European who dashed out to buy Gold with your Euro savings you are now down about 12% from the highs and feeling a bit Edward the Second'ed, as it has nearly filed the gap on the Gold/Eur chart 915 area from the beginning of May. TMM knows it behaves like carry (or is supposed to), but the policy mix is now very deflationary. It's very hard with a UK budget like that and up coming Eurausterity to claim that your currency is at imminent risk of debasement. Not to mention other silliness in the precious metals - recent action in Aquarius Platinum is due to BP-like safety controls leading to possible cuts in world production of 5-6% if South African regulations are ammended. And Platinum and Palladium are... down to flat. Either we are thinking a few too many steps ahead, or some decoupling between the Platinum group and Gold is in the offing.

But it wasn’t a surprise to see the markets spin on a dime and say bonjour to Monsieur Toilette on Friday, for it was the mythical 16th of July and you can't say we haven’t had any notice that Friday was going to be the 16th of July. Now as to why the 16th of July is such an important day, TMM is sure that there are an awful lot of things that could be found to correlate to it, but we are massive believers in “Correlation does not imply Causality” so instead we will leave it to someone else to decide that hedgehog deaths in Nigeria divided by sunspots is the root of it all. In fact, TMM remembers back in the early ‘90s when work being done on the correlation of USD/DEM to Oil prices (then a popular theme) threw out the lovely result that in fact you would be better trading USD/DEM against “Icelandic Fish Catches”. Strange but true. Ironic really, as who would have thought that 15 years later we would actually be trading the modern version of USD/DEM against “Icelandic Fitch Crashes”.

But now that we have even mentioned the 16th of July it will, of course, be even more important next year as, even if you don’t believe it, next year it will remain in the back of some of our readers' minds like some survivor bias ghostly influence. Which brings me on to another bizarre quantum like function of markets. If say Mr Large Hedge fund or Voldemort type character were to buy a gazillion payout of a binary one touch option from one bank and then sell it to another bank , one would think that the market was now net flat and the relevance of the strike of the binary should be irrelevant. But it won't be because you can be pretty darn sure that the hedging processes that both banks employ will not exactly match out over the duration of the option and on run up to expiry you will at best have wobbles as the timing of gamma hedges between the banks mismatch or, at worst, a full out slugging match between the 2 banks to protect/drive the barrier. So a market that should be flat, isn’t and the passing of the trade has left ghostly entanglements.

But enough rambling and back to today's markets. It feels as though the summer holiday season has kicked in big time today and yet we are still of the opinion that the “Market does very little ‘til the end of August” view is not widely held and the fat tails are still loaded, but just to test it we would be most grateful if you could share your thoughts with us in our “Where will it be at the end of August poll”. In the meantime, TMM are going to go back to writing code that makes computers say "YES".





Friday, July 16, 2010

I'm still only in Saigon... Every time I think I'm gonna wake up back in the jungle

One of the more fun things about doing macro in emerging markets is that, historically at least, the crises and manias come hard and fast, and the monetary cycles have about as much subtlety as Wagner coming out of a helicopter - at least you know when to run.

Certain members of TMM have recently been doing trips back to Vietnam, a market with which the market quickly fell in, and out, of love with in 2006 and early-2007, only to go down hard with emerging market equity flows drying up, and currency devaluation which made it one of the worst performers in the World.

Vietnam's recent economic history is best summarized in the chart below (green - M2 growth, white - Dong/USD exchange rate, red - inflation, yellow - GDP growth, orange - current account deficit as a %age of GDP):
As can be seen, Vietnam is no stranger to Chinese levels of base money growth or old-school LATAM inflation. What happened in the mid-2000s was as much a demographic phenomenon as anything else - a very large number of people were hitting peak consumption years and imports picked up accordingly.

The only problem was that FDI was high, but barely enough to keep up and was not able to generate quite enough exports to plug the gap, though that has begun to change. By late 2006 and early-2007, Mark Mobius, Marc Faber and the gang were telling everyone to pile into Vietnamese equities on the back of the great fundamentals - growth, cheaper than China etc etc... Around that time, EM equity analysts - particularly in Vietnam - sounded like this guy:

The fun could not last, of course - a surge in inflation (fuel & food are big parts of CPI-baskets in EM) and a deterioration in the balance of payments soon took its toll on the Ho Chi Minh exchange, taking it down more than 70% from the peak by March 2009. Add in the depreciation of the Dong over that period and that's an 82% loss. By that time, the only foreign investors engaged in the market were closed-end funds who simply could not get out, and more private equity-orientated investors who didn't have margin calls to meet. Since then, foreign investor activity has been pretty limited at best.

There's nothing that TMM likes more than something non-consensus, so going back to Vietnam was something one of the team had to do. Dennis Hopper's Apocalypse Now character isn't running research anymore and the ratio of Wall St to Main St guys you see in your hotel is a lot more healthy than in 2006, and these kinds of announcements are positive - ultimately, TMM is not what an improving current account are made of, it's boring Korean corporates that build the factories that generate hard currency that are. and those guys just keep on coming, look at the FDI numbers:
Problems remain, however, and the government deficit continues to be monetised - i.e. money is still being printed like it's going out of style. A screenshot of onshore government debt yields makes Indonesia look pretty tame:It may sound crazy, but TMM is thinking that with notional independence of the Central bank and a nascent global recovery, it might be possible for the country to get inflation under control as the need for China-style credit stimulus abates. The Big Mac Index or any measure of PPP makes the Dong look pretty interesting.

Could it be time for Team Macro Man's favourite gag trade - Long Dong Silver?

Thursday, July 15, 2010

Isn't this starting to feel a bit like July 2009?

Team Macro Man fully expected after a 6 day, 9% rally that equities are due a correction, yet despite the best efforts of Mayfair and Greenwich, seemed supported on dips, only managing to put in a Doji despite the FOMC mentioning the dreaded "D" word. With the Aussie pushing the highs post-China reval level, TMM has been forced to admit that actually, whilst equities & bond yields made new lows (was it really just a week ago...?), neither the metals space (especially Copper) or risky FX markets did. This is despite the fact that at least 90% of TMM's emails and IBs seem to, even now, still be resolutely bearish in their commentary, or attempting to suggest that punters are being sucked into buying at the highs. Now TMM is of the opinion that much of the past week (as mentioned in yesterday's post) has simply been position-reduction (either forced, or voluntary), but can't help be reminded of the last time markets that were fretting about a double-dip and got sucked into a bear-trap which was subsequently followed by a very aggressive multi-month rally. Team Macro Man remembers it well as they were amongst those that were the wrong way around that time...

So what was the set-up in July 2009?

  • A Head and Shoulders pattern had recently completed.

  • The S&P500 had broken below its 200day moving average.

  • Double-dip fears related to the inevitable multi-year de-leveraging of household balance sheets and scepticism about the existence of a recovery and credibility of the stress tests were widespread.

  • There was a large dichotomy between traders and analysts with respect to whether earnings and guidance would be good or not.

Sound familiar? As we now know, traders were wrong and analysts were right, with a blow-out earnings season powering equities higher with little correction, forcing players to chase. Although we have only had a handful of earnings releases, there have been some from important companies (Alcoa, Intel & Novartis) that have both beaten strongly as well as raising guidance, and this has forced many to cover their shorts. As TMM's wise friend RightField commented yesterday, before players will truly embrace such an analogue, they will need to see some of the earnings of the financials given the poor conditions in the housing market and political sensitivity with respect to the FinReg Bill (no point showing great earnings if it will spark more populism in the yet-to-be-passed Bill). But if earnings and guidance continue to print well then deflation/double-dip concerns are likely to dissipate.

Of course, TMM is not suggesting that the situation is exactly the same. ISM, for example, was rising and the inventory build was just beginning to get underway - this time, it is falling and inventories have already been built. But as at least some offset to that, equities are cheaper relative to earnings expectations now (at 13.5x current year earnings) than they were in July 2009 (16x current year earnings) and a falling ISM is not the same as a double-dips (something that is rarer than a dog that speaks Norwegian). And TMM wonders if rather than weakening, Payrolls have merely been coming into line with other measures of the labour market - the chart below shows private payrolls (orange line) vs. the GDP-weighted Employment components from the ISM and non-manufacturing ISM reports (white line). Private payrolls clearly outperformed the survey measures for a while and have now come back into line with them. And even the most entrenched bears would struggle to argue that that chart does not look like a "V" - it is just that the fall was so sharp and over a larger period of time than in prior recessions, and thus so must be the recovery.

But enough cheerleading. The above analogue is dependent upon financial earnings, so today's numbers from JPM are important in that respect, if they disappoint then TMM expect a Soothsayer turn for the worse on Monday. Indeed, TMM are sympathetic to the view that should core-CPI surprise the downside tomorrow that deflationary fears will reach a new height. As mentioned yesterday, TMM has a long-held theory about market turns around the 16th/18th July, but wonders if we might have already seen it? Isn't it starting to feel a bit like July 2009...?

Wednesday, July 14, 2010

Was that a sign of life? Or just a death twitch...?

Yesterday looked as though the markets were making a break for it - the wrong way at that. But did anyone actually put ON any high conviction trades? It felt as though the preponderance of trades were exits of positions with a combination of pleasure and pain. The relief of profits taken on trades that have been underwater, or the pain of stops being driven. Thank you Intel. CHF has been a class example, with SNB LLC posting some sizable book profits overnight (well, lower losses). Is Mr. Market trying to tell us something?

But this spiky squeeze doesn't run against the rangy summer theory. In fact, at this point it can reinforce the argument. A nice top range squeeze flattening core positions further followed by a roll over would be another red hot poker to the nether regions. Looking at Mr Soothsayer's charts, they have been working remarkably well recently in the likes of FTSE and suggest a roll-over weekend is ahead. Which ties in nicely with a pet theory that the weekend of 16th-18th July-ish produces a general turn in equities. OK, it’s a bit of an old theory emanating about 12 years ago but it still lurks in the back of TMM's mind.

It also looks as though the gags are holding with Europe's STFU policy and it may be a wait until September for the Spanish 2011 budget vote time bomb to blow a hole below the waterline. And if there is a season for crises it's Sep/Oct.

But back to Intel. A long-held view of Team Macro Man is that the demand baton would have to be passed to corporates given the consumer deleveraging, the limited ability of governments to enact fiscal stimulus and a general skeptical view of the extent to which China & the rest of the BRICs can get us out of this mess. We are taught that the government's financial deficit is the flip side of the private sector and external sectors' financial surpluses. And today is no different, governments are running very large deficits, whilst China et al. are stubbornly running surpluses, as is the private sector. But the private sector contains both households and corporates. The former, we know, needs to gradually delever and rebuild its balance sheet, but the latter has pretty much been repairing them for the past decade since the DotCom bubble burst, running very large financial surpluses and, as recent press reports attest, holding the largest amount of liquid assets as a share of balance sheet since the early-1960s. The billion-dollar question is whether corporates will actually put this to use or not, and Team Macro Man will have a go at trying to determine this.

Now, TMM certainly does not want to get caught in the cross-fire of the cat-fights between Neil Ferguson and Paul Krugman, but it seems to us that there is quite a big difference between Corporate America today and the Zaibatsu of 1990s Japan (who were just beginning their deleveraging). As the below chart shows, corporate investment growth in that period just went sideways, with the odd cyclical recovery snuffed out by either poor policy decisions (1997's consumption tax) or external factors (2000's DotCom burst).The below chart shows the equivalent US numbers over the past 30yrs. What is especially interesting to TMM is just how weak business investment following the DotCom burst, growing at an essentially flat rate of 0.25% YoY over the business cycle. In contrast, during the 1982-1991 cycle it averaged 3.66% YoY and during the 1991-2002 cycle averaged 5.55%.

A very wise hedge fund manager once said to TMM with respect to the punters' favourite, the Yen, that "if you want to know when it will weaken, you first have to find out why it has been strong". Wise words, indeed, and they certainly apply here - why was corporate investment so weak over the last cycle? TMM believe this is simply the side-effect of the massive over-investment of the 1990s when businesses expanded aggressively into IT-related projects, and then were forced to write these off and rebuild their balance sheets. A desire not to be caught out again by liquidity factors (exacerbated by the 2008-9 experience) has also led them to keep more cash on balance sheet. But we note that much of the infrastructure investment of the late-90s is now, largely, out of date. Which is why they were especially interested to read the following headlines:


Now, one swallow does not make a summer, but if this trend continues it would be very positive. The trouble is that the signs elsewhere are not so promising. The Philadephia Fed survey's 6m-Ahead Capital Expenditure expectations component (chart below, white line) is pointing to a double-dip in capital formation (brown line, lagged 3m). Worrying, but Team Macro Man also notes that the survey double-dipped in mid-1993, but actual investment (and the economy) continued to improve... The evidence is thus mixed and the answer unclear, and Team Macro Man would like to invite readers to present their own views on the subject.A corollary to this is that should USD & USDAsia weakening send jobs back to America, a reversing of the general "out-sourcing" of the past decade or more would give a further driving force to a recovery in corporate capex. Compare the collapse in US capex to the supercharged Fixed Asset Investment in China over the same period:

However, for now, the stalemate between bulls and bears may continue. But in reality there are no Bulls and there are no Bears: only Sheep. And 'tis better to be the Shepherd than the Sheep.

Tuesday, July 13, 2010

I can sit here as long as it takes...

Sorry, we fell unconscious for a couple of days. We caught it off the markets.

Dull this isn't it? There we were looking for the Euro negatives to come back into focus and whilst the euro has indeed stopped going up, someone instead appears to have tripped over the power lead to the markets. A bear market doesn’t end like this does it? How does a bear market end? Well, in the "long only" days there was normally no one left to find out. But that has changed with many punters eagerly enjoying down legs as much as up legs. So the asymmetry of desire and expectation has changed dramatically thanks to spread betting and futures trading opening up to the masses. TMM is reminded of reading trading books earlier in their careers that instruct traders to look at volumes to confirm prices, and often comes across comments like "there isn't any volume or breadth in this rally/sell-off", which seems to TMM a bit like an excuse not to cover if you are short or not to sell if you are long. Perhaps this is another feature of "modern" bear markets. You only have to look at CNBC who now seem to be happy to wheel out streams of bears calling doom and gloom, while 10 years ago it would have been corporate suicide to even mention an equity negative. The best they could get away with was a "well it's dipped but this is GREAT news for us permabulls as we can buy it cheaper". Hang on... Where have we heard that recently. Err, oh yes, the GGUF crowd. You might as well prepare yourself to be buried up to the chest and stoned to death as mention that Gold may go down. In fact there is a frightening correlation in the comments column between the G word and emotional if not religious content. So that’s enough about Gold (with a silent L for many).

But anyway, you can't really say that a bear market ends these days in silence. A whole market itself can end in silence like a burnt out star in the depths of space, but this market still has too many folks jumping up and down on the sidelines cheering on their favorite trades. Its just a shame that they all appear to have stopped for a relax in the sun. Even BP shares have relaxed (I wont say “popped down to the beach”) , poking up to 400p again = 35% rally blah blah. Don’t be fooled by percentages.

But the massive dichotomy in outlook remains. In equities its either massively down, or massively up with very, very few folks happy to say "You know what? Despite all the recent fun and games, we go nowhere this summer". But as the "path of pain" is the way Mr Market likes it and if sitting quietly saying nothing has the same terrifying effect as the knotted ropes and electrodes, then so be it. Remember the school-class terrors of the teacher's "I can sit here as long as it takes ….". Well, it's already starting to hurt...

In times of low vol the carry army tend to come out of the woodwork and no doubt carry creep will drift in again. The other trend is that instead of looking at the main current of global trend, with zip-all happening at this slack tide, folks start to explore the eddies around the edges for some movement. And so it may be with peripheral markets and pairs that have been swamped for the past few months by the general "risk on, risk off" correlated movement in G10. So which periphery shall we have a look at? How about our dear friends the Scandies again. Do you know the Scandies ? Lovely couple. And they've been doing rather well.

Norwegian GDP (yellow line), Swedish GDP (orange line) and Eurozone GDP (white line):

Swedish Industrial Production (white line), Norwegian (orange), German (yellow), French (green) and Italian pink):
And when we look at today's critical test of fiscal discipline they are in the "Miss Whiplash" camp, which Mr Gross prefers to call his "Axis of Good". Nice (remind us to write a post entitled “Miss Whiplash and the Axis of good” one day). Sweden, for example, is projecting a nearly balanced budget for 2010, a feat at which many other Western sovereigns can only marvel. Far, far from the Nitro-glycerine, Fire and Brimstone budgets of more southern latitudes. Mr Gross has even provided us with his "ring-piece of fire" chart, we think that's what he called it:

So if we consider the PIGS at Vindaloo strength (sorry, but we don't know what that is in Scovilles and we look to our American readers for a curry/chilli conversion matrix) then we can see that Scandinavia is but a mere Korma with extra yoghurt by comparison. What is more, both the Riksbank and the Norges Bank have recently surprised the markets with relatively dovish statements, while delivering the widely expected rate hikes. The full set menu indeed, with the bhajis and nans thrown in. The only concern is how long ago was that Norway data cooked as it may be on the turn. But we should be well out of the restaurant by the time that causes any grief.

And if Scandies are the buy in a drifting market what is a reasonable sell? Well, when the market gets frustrated with everything else and looks to load up on some short risk, the NZD is a usual boredom target. And if we look at NZD, as the world tends to through AUD/NZD (chart below, white line), we can see it tends to behave inversely to global volatility as measured through the VIX (yellow line):The market has been pretty washed out of its last lot of NZD bashing positions and so the longer we sit here the more folks may drift into that boredom driven NZD-selling trade.

So whilst Mr Market leans back in his chair, the summer evening sun streaming through the windows, our friends with proper jobs wandering off home or on holiday. We are thinking of killing some time by tucking into the NZD/NOK Lamb korma cross.

Wednesday, July 07, 2010


Back in mid-May we were concerned that the Europarity Knights were getting a little over-excited and that the pathetic little bunny of the Euro, up for the slaughter, may put up more of a fight. And indeed since then the harmless Euro Bunny has beheaded a number EUR/USD short knights and it feels as though many more have run away. Both in FX and also in periphery spreads.

What is remarkable though, is the European Policy that has resulted in such a turn around, appears to be little more than the Timmy G's inspired "Shut the Fuck Up". And believe it or not, it is actually working. What is more remarkable still is that they have been able to keep it up for so long. This Bunny is more like an ostrich. It’s as though this policy of burying your head in the sand has resulted not only with the Eurostriches ignoring where they are, but also with the market predators on their tails suddenly losing sight of them too, responding with a "Huh, where did they go? " and charging off chasing a weak US and limping China instead.

But how long can Europe hold its breath for? With a market much more balanced now in its perceptions of relative risks between US, the East and Europe, the Eurostriches may feel it safe to surface again. And if they do they may well find a confused market willing to take up the chase again having lightened their previous positions. So lets have a look and see if there is anything to tweak the nostrils of the predators...

First off, we have the bank stress tests which appear to involve seeing if they can take the stress of a feather laid gently across their backs and have as much validity in the real world as the UK educational qualifications. Or maybe they do turn out to be credible, but with far worse results than anyone was expecting. Team Macro Man cannot imagine the market taking headlines like " to take EUR30bn writedown on sovereign debt holdings, will receive capital injection from Soffin" or "S&P downgrades Deutche Bank to A-" particularly well.

Second, Thursday's ECB press conference has the potential to throw a tape bomb - Monsieur Trichet has never been particularly good at communicating. With the press having whipped itself in something of a frenzy with respect to the ECB's LTRO/MRO, term deposit auctions and sovereign purchase plan, TMM would not be suprised if there were some misunderstanding that led the market to believe that either (i) the ECB is about to sell its EGBs, (ii) that it might be about to cut rates, or (iii) that it is about to embark on QE (because, of course, they're not *really* doing it are they...).

Third, while Europe's economic data has thus far held up (in sharp contrast to that of the US), this morning's weak German factory orders perhaps provides a hint of tomorrow's Industrial Production number. Team Macro Man wonders how long it might be before they see the Bloomberg headline "German Current Account posts deficit for the first time since 2003".

And it looks like the market is about to grab Spain by the Cajas...

Monday, July 05, 2010

Can we be in charge of sports please?

In normal Macro Man tradition, we will use a public holiday to step back from markets and take a lighter-hearted look at the world. The last few weeks have seen a rash of sporting events dominate the world's interests and our own social diaries. As a meringue is just a vehicle for cream, many of these events are just a vehicle for grand socialising. Ascot apparently has horses racing, Wimbledon has some tennis matches and we gather that at Henley there is a river with boats racing on it. But these are mere sideshows compared to the real job of dressing up, eating too much and then drinking FAR too much in the sun with old friends, whilst basking in the timelessness of these bastions of tradition, forgetting the woes of the real world. Escapism indeed.

But whilst discussing the fortunes of English sport at one of the grand picnics at the Henley Royal Regatta last weekend, the conversation turned to what we should expect from our sporting heroes. Nowadays, they appear to have to fulfill many roles, no longer just having to be good at their sport. They also have to be good looking, entertaining, nice people, who reflect our own views on the world and behave in ways we respect. Unfortunately, most of the England football team fail those criteria on every count. Unless sleeping with most of your in-laws, or your team-mates' in-laws, fighting over it, being useless in your chosen sport and getting paid 120k a week for it is what you feel everyone should aspire to.

So why can't we strip out all the different functions we expect of a sportsman and not be allowed to judge them on anything apart from their ability to perform at said sport? Perhaps, if that was the case, even we may end up supporting Andy Murray? He has never been a favourite, but he lost all our respect over the debate of whether or not he would bow to the Queen, but, to be fair, once we heard that he had never suggested he wouldn't, we restored him back to the level of respect we had held him in before the incident. That of Grade "A" Tw@t.

And as for the sports themselves, there are some great events out there but most of them appear to have been neutered from their original forms by their overly-powerful governing bodies. For example, Formula 1 motor racing is now pretty tedious weekend afternoon TV. And downhill skiing is just background cowbell noise for post-hangover winter Sunday evenings. It's just not exciting to watch anymore. What happened to the verve and thrill-seeking of the pioneer days of motor sport, or the recklessness of the first English madmen who started racing down mountains on planks?

We suggest we shake things up and take them back to their roots. A clue to where we are coming from was obviously apparent in the enjoyment and excitement we all felt towards the best new sport at the winter Olympics. The Ski Cross. None of this "one at a time", timed tedious nonsense. Four or six competitors set off from the top and the first to the bottom was the winner. Just like the sort of race you'd arrange with your friends. Now, we know that the TV companies would not have as much material to fill the hours and the self-aggrandising sports officials wouldn't have as much to do to justify their existence, but we strongly feel that the men's and women's Downhill, Super G and Slalom should all run on the same basis. Each is just one race with everyone starting at the top together at the same time, and the first one down wins. The only rules being "first to the bottom wins" and "no weapons".

And the same for Formula One. Let's bring it back to its roots. You close a large stretch of motorway, say London to wherever "oop norf", line up all the cars and say "Go". You can have whatever car you fancy with the only rule being that you can only fill up at existing petrol/service stations using the regular pumps. We will let the drivers off from having to queue to pay as they may get distracted by the pig-nostril pies in the hot cabinet or stand there wondering if the extra 2 pounds for the under-body wax included in the 5* option car wash is really worth it. But you get the drift. A sort of legalised turbo-charged Gumball rally. THAT would be worth turning the TV on for.

And while we are at it, let's look at the Olympics. A good friend of ours has had a brilliant idea over how they should be reorganised. And it makes total sense. At the moment, we have an enormous bias towards countries with the largest populations as they have a greater sample size from which to pick their best performers. We also have the resulting TV coverage of a load of people doing what they chose and trained to do (Yaawn...). So instead, the selection process should change completely. From now on it will be done by BALLOT. A whole country's population is eligible aged between say, 16 and 60, and so 4 years before an Olympics, names will be drawn AT RANDOM to select who will represent their country for each discipline... Yes, think about that for a moment... You may well get a letter through your letter box saying "Dear Sir/Madam, We are pleased to inform you that you have been chosen to represent your country in the 100 metres hurdles at the 20xx Olympics".

This form of selection will get rid of the bias that high population countries have and gives a much fairer representation of a country's overall fitness and sporting ability. It would mean that each competitor would have 4 years to train in whichever field they have been randomly selected for and there would be no shirking or sick notes from your Mother. You would HAVE to attend. It would give communities such a boost and focus to suddenly realise that Mabel in the Cake Shop was going to have to do the synchronised diving, or Jim the taxi driver was going to be in the 100 metres. The TV companies wouldn't complain either. Four years of "following your local through the build up" programmes would result in top quality reality TV, NOT governed by Simon Cowell or that musical-writing man with his face on inside out. Brilliant.

And while we are at it, here's another idea associated with the Olympics, or in fact any sport, that would instantly solve the problems associated with drugs, stimulants and other such performance-enhancing practices. You don't ban them, you ALLOW THEM ALL. Yes, you can take what you like. It's your life and it really isn't up to us to tell you what you can't do to reach your dreams. And yes, we hear on reality shows all the times how much the contestants "really, really, really want it". Well there you go, your choice, and if you really, really want it enough to kill yourself then we are not stopping you. And the money coming in from pharmaceutical sponsorship could be huge... "In Lane one we have Ben Johnson sponsored by Novartis, in Lane two sponsored by Hoffman-LaRoche we have...".

This weekend saw another event kick off that could really benefit from an overhaul on the above lines. The Tour de France. It has always been plagued by drug controversy and has been broken into so many stupid sub-stages/sprints and jerseys etc. That from now on, we propose that all the cyclists start together in Paris and, simply, the first one to cycle around the country and get back to Paris is the winner. Easy...

So, can we be in charge of sports please?

Friday, July 02, 2010

Pleasure Before Work

Team Macro Man are somewhat busy today and will be enjoying the delights of summer sporting events rather than waiting for the outcome of the NF lottery. But here are some brief TMM thoughts:

TMM is not sure what the whisper number is for private payrolls, but we would guess it is closer to +80k than the Bloomberg consensus of +110k. There does seem to be a consensus that people
are not really short risky assets, and yesterday's price action suggesting another round of short-covering would support this view. As suggested by the moves in US Financials & Gold yesterday, the remaining reflationists are still hurting, so bounces will be used as an opportunity to reduce risk by those participants.

Even entrenched bulls are struggling to argue with two months of disappointing US data. That said, however, USTs have struggled to hold on to their gains the past couple of days despite equities
extending and, peak-to-trough, since China announced its new FX policy, equities have fallen nearly 11% with little bounce. US holidays can often mark general market turns, and with the 38% Fibonacci retracement from the March lows to the April highs close by together with the psychological 1000 level all piling up ahead of earnings, the risk-reward is not obvious.

The divergence with Europe, however, only appears to be getting larger with financial stress having fallen significantly following increasing clarity with respect to the stress tests and the ECB's LTRO/MRO take-up (TMM found the level of attention on such esoteric details of the money market rather amusing), still-strong demand at sovereign auctions (Spain yesterday), a large tightening in
peripheral & semi-core bond markets over the past few days (see chart below), and reasonably strong European PMIs yesterday suggest that the crisis has not yet spilled over into European growth.Together, this suggests that should the number be strong, Equities will squeeze (yesterday's hammer will be an excuse), but EUR/USD has the potential to squeeze even more. However, if the number is bad, weakness will be led by those economies leveraged to the US - EUR/CAD & EUR/MXN look prime suspects - and the remaining assets that have yet to materially price in a disinflationary theme: Gold. Yesterday provided some hints of this as even Gold joined in the Euro squeeze-fest, and we are pretty sure that was Gold/Euro-driven, as it gapped through the rising trend of the last couple of months. USTs will lag, however, with breakevens moving at the expense of real rates.

Thursday, July 01, 2010

Due to Unforeseen Circumstances

Right, folks, before we start, as an answer to the market mosquitoes constantly buzzing around with their high pitched whines of dark-battle-death-star-galacticas on the SPX charts, encouraging us to mortgage the kids to load the boat of shorts, we do recommend "Star-No-More" or " Death-Star-Off" - whose active component can be seen on this post on "The Big Picture". It would appear that the active ingredient in dark crosses is at best homeopathic.

Well, it's half time in the game of 2010 and it's probably time to sit down, suck half an orange, take a breather and a pep-talk/berating from the coach. So how are we doing against game plan? Well, so far it's the bookies who seem to be the winners, as favourites are dropping like flies this year. Yesterday Federer went out at Wimbledon to a shock defeat by little-known {inset little-known name here}. The day before Venus Williams went out to little-known {inset little-known name here}. The World Cup saw Italy and France out early to shock defeats by little-known {inset little-known names here}. The only pattern to have emerged in sportsland is that the {inset little-known name here} normally ends in "-ich" or "-ic" or is composed of a team load of "-iches". Has all that Swiss franc financing in Eastern Europe found its way into sports facilities?

In the world of finance the favourites have done just as poorly. There are few of last December's "trades du l'annee" still standing either. Back in Dec 2009 the 2010 game plans were being drawn up against a world of devaluing dollar due to its printing presses, recovering economies and the EU air fresheners were still shrouding the stink from the t&rd buckets of Europe and the double dippers were still hiding in their caves. But if you were to now score the top bank 2010 recommendations you were sent, we would have a friendly that the bookie has won again.

Remember such classics as short USD, long Chinese equities, short JGBs, short USTs, long CEE/JPY, in fact short JPY vs everything. All have been taken out by "Unforeseen Circumstances". Poor old BP have even lost 100000000000 - 0 to an "unforeseen circumstance". At this rate it seems like the Mayan predictions of 700 yrs ago are having a better run than the rest of us. And on that basis we bet it won't be long before some of those daft fund-consultants come up with "Based on relative fund performances, we suggest you invest in Mayan Investment Management who have outperformed their peers and are short everything with duration beyond 2012" !

Now you might be tempted to imagine this is just Team Macro Man trying to hide their bounce call of Monday amongst the catalogue of disastrous calls this year, along the classic market psychology lines of "My profit, our loss". It isn't. We are just a bit bored sitting here, sucking our oranges, waiting for the second half to kick off. Not sure how it will pan out but the teams returning to the pitch have definitely swapped ends.