Thursday, March 10, 2011
Have you ever wondered why it's always more satisfying to shout "YOURS" than "MINE" aggressively at your counterpart or broker? Well, TMM reckon it's to do with enforcing your will over others and perceived worth. If you shout "MINE" it implies the other person has something that you want and hence he is, at that moment, in a more powerful position than a subservient you. However, shouting "YOURS" implies that you are imposing your will and inflicting a pile of unwanted detritus upon them leaving them wandering the world for ever more looking like a badly dressed compost heap. Hence, any quoted story of testosterone-fuelled Alpha Male Silverback Dealer-ness, will always include a liberal spattering of "YOURS" but never any "MINE"s.
As for today... Yours what? Well, just about everything that is measured against The Dollar.
The Chinese trade data overnight, while arguably due to New Year distortions got TMM thinking about whether markets are about to embark upon a growth scare. As readers will remember from yesterday, TMM have been dumping their metals holdings and are particularly interested in the performance of Dr Copper, the world's most consistent economic forecaster, as this morning we see it has completed the well-flagged Head & Shoulders pattern and its up trend form last June and is sitting on the 100day moving average. Indeed, TMM found this particularly interesting because their very basic model of ISM based upon Copper has been exhibiting a striking divergence over the past few months as ISM has surged to multi-year highs, while Copper has tried to rebound but in recent weeks failed somewhat, and is consistent with ISM falling to around 52 (the large spike and divergence in 2006 was the result of Bernanke's first Humphrey Hawkins testimony giving the impression he was soft on inflation, and sparked a global rally in metals which ultimately ended with a severe risk aversion event in EM). Now, TMM have been generally very constructive on the global - and US in particular - growth rebound after last year's mid-cycle slowdown, but this divergence is the latest in a number of warning lights that have begun flashing on their dashboard.
TMM had been intending to buy the dip in USTs in the aftermath of the current round of economic data, in a similar way to February, as punters having finally embraced the idea that the US recovery is self-sustaining had taken the mind set of setting shorts ahead of the data dump. Now, so far, that hasn't really happened, perhaps due to positioning, but also, with US Economic Surprises close to the highest level they have been for years, TMM reckon there is plenty of room for disappointment in the coming weeks...
Another warning light that has been flashing amber, has been the 5y5y forward US Real Rate (see chart below - white line), which tends to lead changes in Economist consensus expectations by a couple of weeks (orange line). It looks to TMM as though economists have gotten ahead of themselves given the peak in this metric... TMM also note that this measure peaked in early-April 2010 before plunging lower as the Eurozone crisis escalated and US economic data disappointed. TMM suspect that economists will start to lower their 2011 GDP forecasts in the coming weeks.
And with speculative positioning in Eurodollars now at its lowest since early 2007, TMM reckon that the front-end has plenty of room to rally should, as they expect, a growth scare begin to materialise. As a result, whilst TMM will continue to shout "YOURS" in Spooz and add to their shorts should they manage to close below the QE2 uptrend, they have managed to find small nuggets of "MINE" and begun to build a position in the Greens, and bought some USDs.
And if you still need further persuasion, what better than hearing that PIMCO, the world's largest bond fund, holdings of US treasuries are ... and the answer is... Zero. Ohhhh yessss...