The Doubt Point

Friday, February 11, 2011

You have to wonder if Obama's career has kept him too far away from rearing his kids, because the first thing you learn as a parent is that the worst way to get a kid to do what you want them to is by telling them to do it and, worse still, by doing it publicly. Of course they are going to dig in their heels. We do wonder if things might have been different if yesterdays newswires weren't full of lines such as "CIA says Mubarak will step down". In a way we quite admire him, but the unfortunate result is that it's another Friday TV viewing day as the markets trade oil, equities, fx and bonds directly proportionally to the number of stones in the air over Tahrir Square. It looks as though Mubarak's truculence will be greeted by a firm smack from the back of his populace's hand.

But maybe he is being guided by a greater force? Read this.

The Euro Bunny has stuck its furry nose out of its burrow again too, with a surprise re-appearance from Portuguese yields. The ECB were swift to act, chasing off the predators and covering up the evidence, but the damage has been done and Mr Market is sniffing around the burrows again. So together with the other ingredients in the titration burette we have precipitated a fairly dense cloud of worry. We haven't reached the full tipping point, but we think all it will take today is one well-aimed flaming rag-topped bottle of octane in a Cairo square.

So what for now? Well, we have completely toned back our EUR/USD view... That last retrace to 1.3750 was enough and returned us to agnostic, which is the way we will remain until we get some resolution from this turn we are so expecting across risk in general. The same applies to rates. The gloves are off and we are grasping a Sebatier carving knife of USTs. As mentioned yesterday, the IBEX/DAX cross is off the table waiting for better re-entry levels and the EM/DM trade sees reducing of the shorts on the EM side as it's getting so much cheaper. As for DM Equities, we are just soooooo wanting them to fall over, having been on the bull bandwagon for so long, it's time to switch alegiance and play for a move down... How far? Not sure yet and we'll play that by ear, but new highs will have us out.

What else? AUD/NZD? The Bird has been crucified recently on weak data and recessionary comments to the point where AUD/NZD has actually gone UP even as stresses in the rest of the world have increased. The overnight rate moves after Stevens's comments make us think that it has gone a little too far. On top of that, the Copper/Milk ratio looks to be a Kiwi in a Coal Mine (sorry...). Add to that our usual theory that when things get stressy folks get out of their hobby trades (AUD/NZD being one of them, and it's always on the long side); and a very low VIX primed for a spike... So while we are busy shouting "YOOURS" in general on risk we'll shout "YOOOURS" in that too...

Posted by Polemic at 10:36 AM  


Curious, TMM keeping an eye on obscure crosses (NZD pop. 4.3M) but not a word concerning the smoke which is billowing from multiple corners of the silver market.

LBMA forwards have been in backwardation for weeks, now COMEX is in backwardation clear across the curve, and lease rates have spiked in a major way.

As they say, where there's smoke there's fire...

Anonymous said...
11:37 AM  

"one well aimed flaming rag topped bottle of octane in a Cairo Square2.
In that case how much is it going to cost me to get it ;)

Anonymous said...
12:26 PM  

I enjoy your posts ,but please forgive me for pointing out that your changes of mood ,were I to be acting upon them, would leave me with account containing more whiplashes than Baldricks after a decade of BlackAdders tongue ! ;)

The idea of "macro" is surely to find a way to standing outside this noise.

Anonymous said...
12:30 PM  

the idea of macro is surely to make money...

Anonymous said...
1:00 PM  

The idea of macro is to know who will be in place to move the world (oil, rate, war...) then you can make the money.

Anonymous said...
1:57 PM  

Macro is the sum of the micro and, to paraphrase a quote about toes and arses, don't forget "the micro you tread on today is connected to the macro you have to kiss tomorrow".

Polemic said...
2:53 PM  

Tough to maintain original macroman standards. This is now more reflection of tail-riding and spot trading rather than macro. But then you gotta do your own homework.

Anonymous said...
3:31 PM  

Trading is episodic.

There are quiet periods for reflection and those epic macro treatises on whether we are in deflation or stagflation, whether Voldemort is taking the piss, whether Bennie is just pissing into a bucket with a hole in it and whether the Greeks and other hedonists are just passing the hat around North Europe to have Teutonic handouts bestowed on them.

Then there are those other times where choppy market conditions and correlation breakdowns lead to those tasty little 2-3 day trading windows that if selected properly can make one a lot of wonga...

From my perch that's sort of where we are.

Leftback said...
4:15 PM  

More to come folks on various bits of EM.... suffice to say they were about 20% rich and some of them have taken ~15% beat downs. While I'm always inclined to bet on the overshoot the seemingly bulletproof trading in local FX debt tells me that in the parallel universe of QE we now live in that overshoots to the downside on risk assets are short lived if they happen at all. Hence we may seem like we are whipping it around because frankly that has been the pattern of things over the last year - failing another Euro sized crisis its hard to see the catalyst to keep things all that down for all that long aside from the usual periodic spring cleaning, of which we think this is one of them.

Nemo Incognito said...
6:04 PM  

looks like a good time to start receiving rates...RX/TY/US look worth a punt on the long side

Simply cannot make my mind up on currency.

For all the "PJT says top" chat, when you look at individual issues, most of them look pretty strong.

Commodities still look attractive.

Gold is a bit pointless here.

Anonymous said...
7:11 PM  

All euroland narratives remain stuck in an all-or-nothing groove, despite the toning down of the rhetoric. Really hard to argue any lasting trend in that environment.

My personal pet question concerns France. Remember how Sarkozy was hell-bent on turning himself into an international eminence? Could his disappearance from view be related to:

1). large-ish debt/gdp

2). truly immense pension shortfalls

3). deteriorating trade balance

Better just to get right off the radar screens.

Charles Butler said...
7:29 PM  

Re: Sarko, probably:

4) too busy shagging.

Is the upcoming Irish election and the ensuing consequences* for Irish bank bondholders the next obvious macro issue on our screens?

Did anyone else have a pop at EGPT and make a profit? What would we do without the Kevlar gloves? Missed some good trades lately but caught a lot of the last EEM shorting opportunity.

Looks like risk on again for a couple of days.

* Haircut, sir?

Leftback said...
8:49 PM  

Here's a question for you.You've been positive on the Eurodollar to go above 1.40. Why would you want to follow that path right now with the Irish holding an election in a couple of weeks which puts a big question mark on what happens next in Euroland?
Or is this issue a big what does it matter?

Anonymous said...
8:51 PM  

Apologies LB I missed the post you made on the same theme.

Anonymous said...
8:52 PM  

nothing on the SNB? USDCHF looks oh-so-sweetly poised

EM credit, especially Latam, seems almost interesting

Anonymous said...
9:49 PM  

Anon @ 7:11 I couldn't agree more on gold. Action will still be in platinum due to cash cost pressures and an economic recovery (or, you know, some people may actually buy cars - look at last few weeks in TM US).

I'll have something on aluminum next week which seems to be getting everyone super dooper excited - it shouldn't be.

Nemo Incognito said...
4:57 AM  

The idea of macro is to have an idea of what's going on.


concise finance said...
11:08 AM  

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